[Federal Register Volume 85, Number 11 (Thursday, January 16, 2020)]
[Notices]
[Pages 2784-2801]
[FR Doc No: 2020-00589]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87941; File No. SR-PEARL-2020-01]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend,
Reorganize and Enhance Its Membership, Registration and Qualification
Rules and Consolidate These Rules Into New Chapter XXXI Registration,
Qualification and Continuing Education

January 10, 2020.
    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 January 9, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a 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\ 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 is filing a proposal to amend, reorganize and enhance
its membership, registration and qualification rules and to make
conforming changes to certain other rules.
    The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, 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 reorganize and enhance its membership,
registration and qualification rules, make conforming changes to
certain other rules, and organize the proposed changes into a new
chapter of rules in the MIAX PEARL Rulebook. All of the proposed rules
and changes to existing Exchange rules are based on existing rules of
other options exchanges.\3\ The proposed rules are intended to amend,
reorganize and enhance the Exchange's membership, registration and
qualification requirements rules to align with recent similar changes
by the Exchange's affiliate, MIAX,\4\ as well as the Nasdaq Stock
Market and FINRA. MIAX PEARL proposes to adopt new Chapter XXXI \5\ to
the Exchange's rules.
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    \3\ See Miami International Securities Exchange, LLC (``MIAX'')
Rules, Chapter XIX, Registration, Qualification and Continuing
Education; The Nasdaq Stock Market LLC (``Nasdaq Stock Market'')
Rules, General 9, Regulation; Financial Industry Regulatory
Authority, Inc. (``FINRA'') Rules, Rule 1000, Member Application and
Associated Person Registration.
    \4\ See Securities Exchange Act Release No. 87830 (December 20,
2019), 84 FR 72025 (December 30, 2019) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend,
Reorganize and Enhance Its Membership, Registration and
Qualification Rules and Consolidate These Rules Into New Chapter XIX
Registration, Qualification and Continuing Education) (SR-MIAX-2019-
50).
    \5\ The Exchange proposes to reserve Chapters XIX through XXX
for anticipated future use.
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Overview
    The Exchange adopted registration requirements to ensure that
associated persons \6\ attain and maintain specified levels of
competence and knowledge pertinent to their function. In general, the
Exchange's current rules require that persons engaged in a Member's \7\
securities business who are to function as representatives \8\ or
principals \9\ register with the Exchange in each category of
registration appropriate to their functions by passing one or more
qualification examinations \10\ and exempt specified associated persons
from the registration requirements.\11\ They also prescribe ongoing
continuing education requirements for registered persons.\12\ The
Exchange proposes to amend, reorganize and enhance its rules regarding
registration, qualification examinations and continuing education, as
described below.
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    \6\ The term ``associated person'' or ``person associated with a
Member'' means any partner, officer, director, or branch manager of
a Member (or any person occupying a similar status or performing
similar functions), any person directly or indirectly controlling,
controlled by, or under common control with a Member, or any
employee of a Member. See Exchange Rule 100. In accordance with
other proposed changes in this filing, and as further described
below, the Exchange proposes to amend the terms ``associated
person'' or ``person associated with a Member.''
    \7\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of these
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See Exchange Rule 100.
    \8\ A ``representative'' is any person associated with a Member,
including assistant officers other than principals, who is engaged
in the Member's securities business, such as supervision,
solicitation, conduct of business in securities or the training of
persons associated with a Member for any of these functions. See
proposed Exchange Rule 3101.
    \9\ A ``principal'' is any person associated with a Member,
including, but not limited to, sole proprietor, officer, partner,
manager of office of supervisory jurisdiction, director or other
person occupying a similar status or performing similar functions,
who is actively engaged in the management of the Member's securities
business, such as supervision, solicitation, conduct of business in
securities or the training of persons associated with a Member for
any of these functions. Such persons shall include, among other
persons, a Member's chief executive officer and chief financial
officer (or equivalent officers). A ``principal'' also includes any
other person associated with a Member who is performing functions or
carrying out responsibilities that are required to be performed or
carried out by a principal under Exchange rules. See proposed
Exchange Rule 3101.
    \10\ See proposed Exchange Rule 3101, Registration Categories,
and Exchange Rule 1302, Registration of Representatives.
    \11\ See proposed Exchange Rule 3102, Associated Persons Exempt
from Registration.
    \12\ See proposed Exchange Rule 3103, Continuing Education
Requirements.
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    In 2017, the Commission approved a Financial Industry Regulatory
Authority, Inc. (``FINRA'') proposed rule change consolidating and
adopting prior National Association of Securities Dealers, Inc.
(``NASD'') rules and rules incorporated from the New York Stock
Exchange (``NYSE'') relating to qualification and registration
requirements into the Consolidated FINRA Rulebook,\13\ restructuring
the

FINRA representative-level qualification examinations, creating a
general knowledge examination and specialized knowledge examinations,
allowing permissive registration, establishing an examination waiver
process for persons working for a financial services affiliate of a
Member, and amending certain continuing education (``CE'') requirements
(collectively, the ``FINRA Rule Changes'').\14\ On December 20, 2019,
the Commission noticed a proposal by the Exchange's affiliate, MIAX, to
amend, reorganize and enhance MIAX's own membership, registration and
qualification requirements rules in response to the FINRA Rule
Changes.\15\
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    \13\ The current FINRA rulebook consists of: (1) FINRA rules;
(2) NASD rules; and (3) rules incorporated from the NYSE (the
``Incorporated NYSE rules''). While the NASD rules generally apply
to all FINRA members, the Incorporated NYSE rules apply only to
those members of FINRA that are also members of the NYSE.
    \14\ See Securities Exchange Act Release No. 81098 (July 7,
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Order
Approving Proposed Rule Change to Adopt Consolidated Registration
Rules, Restructure the Representative-Level Qualification
Examination Program, Allow Permissive Registration, Establish Exam
Waiver Process for Persons Working for Financial Services Affiliate
of Member, and Amend the Continuing Education Requirements). See
also FINRA Regulatory Notice 17-30 (SEC Approves Consolidated FINRA
Registration Rules, Restructured Representative-Level Qualification
Examinations and Changes to Continuing Education Requirements)
(October 2017). FINRA articulated its belief that the proposed rule
change would streamline, and bring consistency and uniformity to,
its registration rules, which would, in turn, assist FINRA members
and their associated persons in complying with the rules and improve
regulatory efficiency. FINRA also determined to enhance the overall
efficiency of its representative-level examinations program by
eliminating redundancy of subject matter content across
examinations, retiring several outdated representative-level
registrations, and introducing a general knowledge examination that
could be taken by all potential representative-level registrants and
the general public. FINRA amended certain aspects of its continuing
education rule, including by codifying existing guidance regarding
the effect of failing to complete the Regulatory Element on a
registered person's activities and compensation.
    \15\ See supra note 4.
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    The Exchange now proposes to amend, reorganize and enhance its own
membership, registration and qualification requirements rules in
response to the changes by the Exchange's affiliate, MIAX, as well as
the FINRA Rule Changes. In addition, the Exchange proposes to enhance
its registration rules by adding a new registration requirement
applicable to developers of algorithmic trading systems similar to a
requirement adopted by FINRA pursuant to a 2016 FINRA rule change.\16\
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    \16\ See Securities Exchange Act Release No. 77551 (April 7,
2016), 81 FR 21914 (April 13, 2016) (SR-FINRA-2016-007) (Order
Approving a Proposed Rule Change to Require Registration as
Securities Traders of Associated Persons Primarily Responsible for
the Design, Development, Significant Modification of Algorithmic
Trading Strategies or Responsible for the Day-to-Day Supervision of
Such Activities). In that rule change, FINRA addressed the
increasing significance of algorithmic trading strategies by
amending its rules to require registration, as Securities Traders,
of associated persons primarily responsible for the design,
development or significant modification of algorithmic trading
strategies, or who are responsible for the day-to-day supervision or
direction of such activities.
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    As part of the Exchange's proposed rule changes, current Exchange
Rule 203, Qualification and Registration of Members and Associated
Persons, is proposed to be deleted. This current Exchange rule
provision is relocated in amended form into the new proposed Chapter
XXXI Exchange rules.
    Additionally, the Exchange proposes to amend Exchange Rule 100,
Definitions, Exchange Rule 601, Registered Option Traders, Exchange
Rule 1000, Disciplinary Jurisdiction, and Exchange Rule 1014,
Imposition of Fines for Minor Rule Violations. These proposed changes
correspond to the similar changes made by the Exchange's affiliate,
MIAX.
    In place of the deleted rule, and parts of the amended rules, the
Exchange proposes to adopt new Chapter XXXI, Registration,
Qualification and Continuing Education, in the Exchange's Rulebook,
together with conforming changes to certain existing Exchange rules. In
the new Chapter XXXI series of rules, the Exchange would, among other
things, recognize additional associated person registration categories,
recognize a new general knowledge examination, permit the maintenance
of permissive registrations, and require Securities Trader registration
of developers of algorithmic trading strategies consistent with a
comparable, existing FINRA registration requirement.\17\
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    \17\ See id.
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    The Exchange notes that the structure of this rule filing, as well
as newly proposed Chapter XXXI series of rules, is based on a recent
rule filing by the Exchange's affiliate, MIAX, as well as the Nasdaq
Stock Market.\18\ The similar Nasdaq Stock Market filing also amended,
reorganized and enhanced membership, registration and qualification
rules for the Nasdaq Stock Market, and was based on the FINRA Rule
Changes.\19\ The proposed new Chapter XXXI series of rules is also
being proposed for adoption by MIAX PEARL's affiliate exchange, MIAX
Emerald, LLC as new MIAX Emerald Chapter XIX, in order to facilitate
compliance with membership, registration and qualification regulatory
requirements by members of two or more of the affiliated exchanges
among MIAX, MIAX PEARL and MIAX Emerald. The references throughout this
filing to Exchange Rules 301, 1301, 1302, 1306, 1307, 1309, 1310 and
1319 will be construed to refer to the corresponding MIAX Rules for
those same rule numbers.
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    \18\ See Securities Exchange Act Release No. 84386 (October 9,
2018), 83 FR 51988 (October 15, 2018) (SR-NASDAQ-2018-078) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change to
Amend, Reorganize and Enhance Its Membership, Registration and
Qualification Rules). See also supra note 4.
    \19\ See id.
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New Proposed Rules and Proposed Changes to Current Exchange Rules
A. Registration Requirements (Proposed Exchange Rule 3100)
    Exchange Rule 203(a) currently requires individuals and associated
persons engaged, or to be engaged, in the securities business of a
Member to be registered with the Exchange in the category of
registration appropriate to the function to be performed as prescribed
by the Exchange.\20\
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    \20\ In general the 3100 Series would conform the Exchange's
rules to FINRA's rules as revised in the FINRA Rule Changes, with
modifications tailored to the business of the Exchange. However, the
Exchange also proposes to adopt Exchange Rule 3900, Interpretation
and Policy .12, based upon a current Nasdaq Stock Market rule. See
Nasdaq Stock Market, General 9, Section 1, Rule 1.1210,
Supplementary Material .12; see also Securities Exchange Act Release
No. 84386 (October 9, 2018), 83 FR 51988 (October 15, 2018) (SR-
NASDAQ-2018-078). These provisions govern the process for applying
for registration and amending the registration application, as well
as for notifying the Exchange of termination of the Member's
association with a person registered with the Exchange. The Exchange
proposes to adopt Exchange Rule 3900, Interpretation and Policy .12,
in order to have uniform processes and requirements in this area
across the Exchange.
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    Proposed Exchange Rule 3100 provides that each person engaged in
the securities business of a Member must register with the Exchange as
a representative or principal in each category of registration
appropriate to his or her functions and responsibilities as specified
in proposed Exchange Rule 3101, unless exempt from registration
pursuant to proposed Exchange Rule 3102.\21\ Proposed Exchange Rule
3100 also provides that such person is not qualified to function in any
registered capacity other than that for which the

person is registered, unless otherwise stated in the rules.
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    \21\ Because the Exchange's proposed registration rules focus
solely on securities trading activity, the proposed rules differ
from the FINRA Rule Changes by omitting references to investment
banking in proposed Exchange Rules 3100, Interpretations and
Policies .03 and .10 of Exchange Rule 3100, Exchange Rules 3101 and
3103, and also by omitting as unnecessary from proposed Exchange
Rule 3101, a limitation on the qualification of a General Securities
Sales Supervisor to supervise the origination and structuring of an
underwriting.
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B. Minimum Number of Registered Principals (Proposed Exchange Rule
3100, Interpretation and Policy .01)
    Exchange Rule 203, Interpretation and Policy .07, requires Members
to register with the Exchange in a heightened capacity each individual
acting in any of the following capacities: (a) Officer; (b) partner;
(c) director; (d) supervisor of proprietary trading, market making or
brokerage activities; and/or (e) supervisor of those engaged in
proprietary trading, market-making or brokerage activities with respect
to those activities. Each Member or Member organization must register
with the Exchange at least two individuals acting in one or more of
these capacities (the ``two-principal requirement''). The Exchange may
waive this requirement if a Member demonstrates conclusively that only
one individual acting in one or more of these capacities should be
required to register. A Member or Member organization that conducts
proprietary trading only and has 25 or fewer registered persons may be
required to have one officer or partner who is registered in this
capacity.\22\
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    \22\ Currently, Exchange Rule 203, Interpretation and Policy
.08, describes when a Member is considered to be conducting only
proprietary trading of the Member. Because the Exchange now proposes
to delete Exchange Rule 203 in its entirety, Interpretation and
Policy .08 of that rule would be reworded and relocated to Exchange
Rule 100, Definitions, as a defined term.
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    The Exchange proposes to delete these requirements and in their
place adopt new Exchange Rule 3100, Interpretation and Policy .01. The
proposed rule would provide firms that limit the scope of their
business with flexibility in satisfying the two-principal requirement.
In particular, proposed Exchange Rule 3100, Interpretation and Policy
.01, would require each Member, except a Member with only one
associated person, to have at least two officers or partners who are
registered as General Securities Principals, provided that a Member
that is limited in the scope of its activities may instead have two
officers or partners who are registered in a principal category that
corresponds to the scope of the Member's activities.\23\ For instance,
if a firm's business is limited to securities trading, the firm may
have two Securities Trader Principals, instead of two General
Securities Principals. Additionally, proposed Exchange Rule 3100,
Interpretation and Policy .01, would provide that any Member with only
one associated person is excluded from the two principal requirement.
Proposed Exchange Rule 3100, Interpretation and Policy .01, would
provide that existing Members as well as new applicants may request a
waiver of the two-principal requirement, consistent with current
Exchange Rule 203, Interpretation and Policy .07. Finally, the Exchange
proposes to retain the existing provision in Exchange Rule 203
permitting a proprietary trading firm with 25 or fewer registered
representatives to have just one registered principal. The FINRA Rule
Changes do not include this provision.\24\
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    \23\ The principal registration categories are described in
greater detail below.
    \24\ The Exchange does not propose to adopt provisions
comparable to FINRA Rule 1210.01, which requires that all FINRA
members have a Principal Financial Officer and a Principal
Operations Officer, because the Exchange believes that its proposed
Exchange Rule 3101(b)(3), Financial and Operations Principal, is
sufficient. As described herein, proposed Exchange Rule 3101(b)(3),
requires Member firms operating pursuant to certain provisions of
the Commission's rules to designate at least one Financial and
Operations Principal. Further, the Exchange does not propose to
adopt FINRA Rule 1210.01, which requires that (1) a member engaged
in investment banking activities have an Investment Banking
Principal, (2) a member engaged in research activities have a
Research Principal, or (3) a member engaged in options activities
with the public have a Registered Options Principal. The Exchange
does not propose to recognize the Investment Banking Principal or
the Research Principal registration categories, and the Registered
Options Principal registration requirement is set forth in proposed
Exchange Rule 3101(b)(7), and its inclusion is therefore unnecessary
in proposed Exchange Rule 3100.
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C. Permissive Registrations (Proposed Exchange Rule 3100,
Interpretation and Policy .02)
    Current Exchange Rule 203(a) prohibits a Member from maintaining a
registration with the Exchange for any person (1) who is no longer
active in the Member's securities business, (2) who is no longer
functioning in the registered capacity, or (3) where the sole purpose
is to avoid the examination requirement. Current Exchange Rule 203(a)
further prohibits a Member from making an application for the
registration of any person where there is no intent to employ that
person in the Member's securities business. A Member may, however,
maintain or make application for the registration of an individual who
performs legal, compliance, internal audit, back-office operations, or
similar responsibilities for the Member, or a person who performs
administrative support functions for registered personnel, or a person
engaged in the securities business of a foreign securities affiliate or
subsidiary of the Member.
    The Exchange proposes to replace these provisions with proposed
Exchange Rule 3100, Interpretation and Policy .02. The Exchange also
proposes to expand the scope of permissive registrations and to clarify
a Member's obligations regarding individuals who are maintaining such
registrations.
    Specifically, proposed Exchange Rule 3100, Interpretation and
Policy .02, would allow any associated person to apply for or maintain
any registration permitted by the Member. For instance, an associated
person of a Member working solely in a clerical or ministerial
capacity, such as in an administrative capacity, would be able to
obtain and maintain a General Securities Representative registration
with the Member. As another example, an associated person of a Member
who is registered, and functioning solely as a General Securities
Representative, would be able to obtain and maintain a General
Securities Principal registration with the Member. Further, proposed
Exchange Rule 3100, Interpretation and Policy .02, would allow an
individual engaged in the securities business of a foreign securities
affiliate or subsidiary of a Member to obtain and maintain any
registration permitted by the Member.
    The Exchange proposes to permit the registration of such
individuals for several reasons. First, a Member may foresee a need to
move a former representative or principal who has not been registered
for two or more years back into a position that would require such
person to be registered. Currently, such persons are required to
requalify (or obtain a waiver of the applicable qualification
examinations) and reapply for registration. Second, the proposed rule
change would allow Members to develop a depth of associated persons
with registrations in the event of unanticipated personnel changes.
Third, allowing registration in additional categories encourages
greater regulatory understanding. Finally, the proposed rule change
would eliminate an inconsistency in the current rules, which permit
some associated persons of a Member to obtain permissive registrations,
but not others who equally are engaged in the Member's business.
    Individuals maintaining a permissive registration under the
proposed rule change would be considered registered persons and subject
to all Exchange rules, to the extent relevant to their activities. For
instance, an individual working solely in an administrative capacity
would be able to maintain a General Securities Representative
registration and would be considered a registered person for purposes
of rules relating to borrowing from or lending to customers, but the
rule would have no practical application to his or her

conduct because he or she would not have any customers.
    Consistent with the Exchange's supervision rules, Members would be
required to have adequate supervisory systems and procedures reasonably
designed to ensure that individuals with permissive registrations do
not act outside the scope of their assigned functions.\25\ With respect
to an individual who solely maintains a permissive registration, such
as an individual working exclusively in an administrative capacity, the
individual's direct supervisor is not required to be a registered
person. Members would be required to assign a registered supervisor to
this person who would be responsible for periodically contacting such
individual's direct supervisor to verify that the individual is not
acting outside the scope of his or her assigned functions. If such
individual is permissively registered as a representative, the
registered supervisor must be registered as a representative or
principal. If the individual is permissively registered as a principal,
the registered supervisor must be registered as a principal.\26\
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    \25\ FINRA Rule 1210.02 specifically cites FINRA's supervisory
system rule, FINRA Rule 3110, by number. Proposed Exchange Rule
3100, Interpretation and Policy .02, refers generally to the
Exchange's supervision rules rather than identifying them by number.
    \26\ In either case, the registered supervisor of an individual
who solely maintains a permissive registration would not be required
to be registered in the same representative or principal
registration category as the permissively-registered individual. See
proposed Exchange Rule 3100, Interpretation and Policy .02.
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D. Qualification Examinations and Waivers of Examinations (Proposed
Exchange Rule 3100, Interpretation and Policy .03)
    Current Exchange Rule 203(a) provides that before a registration
can become effective, the individual Member or individual associated
person shall submit the appropriate application for registration, pass
the Securities Industry Essentials Examination (``SIE''), pass a
qualification examination appropriate to the category of registration
as prescribed by the Exchange and submit any required registration and
examination fees. The Exchange proposes to replace this rule language
with new Exchange Rule 3100, Interpretation and Policy .03,
Qualification Examinations and Waivers of Examinations.
    As part of the FINRA Rule Changes, FINRA adopted a restructured
representative-level qualification examination program whereby
representative-level registrants would be required to take a general
knowledge examination (the SIE) and a specialized knowledge examination
appropriate to the representative's job functions at the firm with
which he or she is associating.\27\ Therefore, proposed Exchange Rule
3100, Interpretation and Policy .03, provides that before the
registration of a person as a representative can become effective under
proposed Exchange Rule 3100, such person must pass the SIE and an
appropriate representative-level qualification examination as specified
in proposed Exchange Rule 3101(c). Proposed Exchange Rule 3100,
Interpretation and Policy .03, also provides that before the
registration of a person as a principal can become effective under
proposed Exchange Rule 3100, such person must pass an appropriate
principal-level qualification examination as specified in proposed Rule
3101(b).
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    \27\ See supra note 14.
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    Further, proposed Exchange Rule 3100, Interpretation and Policy
.03, provides that if the job functions of a registered representative
change and he or she needs to become registered in another
representative-level category, he or she would not need to pass the SIE
again. Rather, the registered person would need to pass only the
appropriate representative-level qualification examination.\28\ Thus
under the proposed rule change, individuals seeking registration in two
or more representative-level categories would experience a net decrease
in the total number of exam questions they would be required to answer
because the SIE content would be tested only once.
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    \28\ FINRA stated that the SIE would assess basic product
knowledge; the structure and function of the securities industry
markets, regulatory agencies and their functions; and regulated and
prohibited practices. Proposed Exchange Rule 3100, Interpretation
and Policy .03, provides that all associated persons, such as
associated persons whose functions are solely and exclusively
clerical or ministerial, are eligible to take the SIE. Proposed Rule
3100, Interpretation and Policy .03, also provides that individuals
who are not associated persons of firms, such as members of the
general public, are eligible to take the SIE. FINRA stated its
belief that expanding the pool of individuals who are eligible to
take the SIE would enable prospective securities industry
professionals to demonstrate to prospective employers a basic level
of knowledge prior to submitting a job application. Further, this
approach would allow for more flexibility and career mobility within
the securities industry. While all associated persons of firms as
well as individuals who are not associated persons would be eligible
to take the SIE pursuant to proposed Exchange Rule 3100,
Interpretation and Policy .03, passing the SIE alone would not
qualify them for registration with the Exchange. Rather, to be
eligible for registration with the Exchange, an individual would be
required to pass an applicable representative or principal
qualification examination and complete the other requirements of the
registration process.
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    The proposed rule change solely impacts the representative-level
qualification requirements. The proposed rule change does not change
the scope of the activities permitted under the existing representative
categories. For instance, after the operative date of the proposed rule
change, a previously unregistered individual registering as a
Securities Trader for the first time would be required to pass the SIE
and an appropriate specialized knowledge examination. However, such
individual may engage only in those activities in which a current
Securities Trader may engage under current Exchange Rules.
    Individuals who are registered on the operative date of the
proposed rule change would be eligible to maintain those registrations
without being subject to any additional requirements. Individuals who
had been registered within the past two years prior to the operative
date of the proposed rule change would also be eligible to maintain
those registrations without being subject to any additional
requirements, provided that they reregister with the Exchange within
two years from the date of their last registration.
    Further, registered representatives would be considered to have
passed the SIE in the CRD system, and thus if they wish to register in
any other representative category after the operative date of the
proposed rule change, could do so by taking only the appropriate
specialized knowledge examination.\29\ However, with respect to an
individual who is not registered on the operative date of the proposed
rule change but was registered within the past two years prior to the
operative date of the proposed rule change, the individual's SIE status
in the CRD system would be administratively terminated if such
individual does not register within four years from the date of the
individual's last registration.\30\
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    \29\ Under the proposed rule change, only individuals who have
passed an appropriate representative-level examination would be
considered to have passed the SIE. Registered principals who do not
hold an appropriate representative-level registration would not be
considered to have passed the SIE. For example, an individual who is
registered solely as a Financial and Operations Principal (Series
27) today would have to take the Series 7 to become registered as a
General Securities Representative. Under the proposed rule change,
in the future, this individual would have to pass the SIE and the
specialized Series 7 examination to obtain registration as a General
Securities Representative.
    \30\ As discussed below, the Exchange proposes a four-year
expiration period for the SIE.

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    In addition, individuals who had been registered as representatives
two or more years, but less than four years, prior to the operative
date of the proposed rule change would also be considered to have
passed the SIE and designated as such in the CRD system. Moreover, if
such individuals re-register with a firm after the operative date of
the proposed rule change and within four years of having been
previously registered, they would only need to pass the specialized
knowledge examination associated with that registration position.
However, if they do not register within four years from the date of
their last registration, their SIE status in the CRD system would be
administratively terminated. Similar to the current process for
registration, firms would continue to use the CRD system to request
registrations for representatives. An individual would be able to
schedule both the SIE and specialized knowledge examinations for the
same day, provided the individual is able to reserve space at one of
FINRA's designated testing centers.
    Finally, under current Exchange Rule 203, Interpretation and Policy
.05, the Exchange may, in exceptional cases and where good cause is
shown, waive the applicable qualification examination and accept other
standards as evidence of an applicant's qualifications for
registration. The Exchange proposes to replace Exchange Rule 203,
Interpretation and Policy .05, with proposed Exchange Rule 3100,
Interpretation and Policy .03, with changes that track FINRA Rule
1210.03. The proposed rule provides that the Exchange will only
consider examination waiver requests submitted by a firm for
individuals associated with the firm who are seeking registration in a
representative-level or principal-level registration category.
Moreover, proposed Exchange Rule 3100, Interpretation and Policy .03,
states that the Exchange will consider waivers of the SIE alone or the
SIE and the representative-level and principal-level examination(s) for
such individuals.
E. Requirements for Registered Persons Functioning as Principals for a
Limited Period (Proposed Exchange Rule 3100, Interpretation and Policy
.04)
    The Exchange proposes to adopt new Exchange Rule 3100,
Interpretation and Policy .04, which provides that subject to the
requirements of proposed Exchange Rule 3101, Interpretation and Policy
.03, a Member may designate any person currently registered, or who
becomes registered, with the Member as a representative to function as
a principal for a period of 120 calendar days prior to passing an
appropriate principal qualification examination, provided that such
person has at least 18 months of experience functioning as a registered
representative within the five-year period immediately preceding the
designation and has fulfilled all prerequisite registration, fee and
examination requirements prior to designation as principal. These
requirements apply to any principal category, including those
categories that are not subject to a prerequisite representative-level
registration requirement, such as the Financial and Operations
Principal registration category.\31\ Similarly, the proposed rule would
permit a Member to designate any person currently registered, or who
becomes registered, with the Member as a principal to function in
another principal category for a period of 120 calendar days prior to
passing an appropriate qualification examination as specified under
proposed Rule 3101.\32\ This provision, which has no counterpart in the
Exchange's current rules, is intended to provide flexibility to Members
in meeting their principal requirements on a temporary basis.
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    \31\ In this regard, the Exchange notes that qualifying as a
registered representative is currently a prerequisite to qualifying
as a principal on the Exchange except with respect to the Financial
and Operations Principal.
    \32\ Proposed Exchange Rule 3100, Interpretation and Policy .04,
omits the reference in FINRA Rule 1210.04 to Foreign Associates,
which is a registration category not recognized by the Exchange, but
otherwise tracks the language of FINRA Rule 1210.04.
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F. Rules of Conduct for Taking Examinations and Confidentiality of
Examinations (Proposed Exchange Rule 3100, Interpretation and Policy
.05)
    Before taking an examination, FINRA currently requires each
candidate to agree to the SIE Rules of Conduct for taking a
qualification examination. Among other things, the examination Rules of
Conduct require each candidate to attest that he or she is in fact the
person who is taking the examination. The Rules of Conduct also require
that each candidate agree that the examination content is the
intellectual property of FINRA and that the content cannot be copied or
redistributed by any means. If FINRA discovers that a candidate has
violated the Rules of Conduct for taking a qualification examination,
the candidate may forfeit the results of the examination and may be
subject to disciplinary action by FINRA. For instance, for cheating on
a qualification examination, the FINRA Sanction Guidelines recommend
barring the individual.\33\
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    \33\ See FINRA Sanction Guidelines (March 2019), VII.
Qualification and Membership, pg. 38, at https://www.finra.org/sites/default/files/Sanctions_Guidelines.pdf.
---------------------------------------------------------------------------

    Effective October 1, 2018, FINRA codified the requirements relating
to the Rules of Conduct for examinations under FINRA Rule 1210.05.
FINRA also adopted Rules of Conduct for taking the SIE for associated
persons and non-associated persons who take the SIE.
    The Exchange proposes to adopt its own proposed Exchange Rule 3100,
Interpretation and Policy .05, which would provide that associated
persons taking the SIE are subject to the SIE Rules of Conduct, and
that associated persons taking any representative or principal
examination are subject to the Rules of Conduct for representative and
principal examinations. Under the proposed rule, a violation of the SIE
Rules of Conduct or the Rules of Conduct for representative and
principal examinations by an associated person would be deemed to be a
violation of Exchange rules requiring observance of high standards of
commercial honor or just and equitable principles of trade, such as
Exchange Rule 301.\34\ Further, if the Exchange determines that an
associated person has violated the SIE Rules of Conduct or the Rules of
Conduct for representative and principal examinations, the associated
person may forfeit the results of the examination and may be subject to
disciplinary action by the Exchange.
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    \34\ Exchange Rule 301, Just and Equitable Principles of Trade,
prohibits Members from engaging in acts or practices inconsistent
with just and equitable principles of trade. Persons associated with
Members have the same duties and obligations as Members under
Exchange Rule 301.
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    Proposed Exchange Rule 3100, Interpretation and Policy .05, also
states that the Exchange considers all of the qualification
examinations' content to be highly confidential. The removal of
examination content from an examination center, reproduction,
disclosure, receipt from or passing to any person, or use for study
purposes of any portion of such qualification examination or any other
use that would compromise the effectiveness of the examinations and the
use in any manner and at any time of the questions or answers to the
examinations shall be prohibited and shall be deemed to be a violation
of Exchange rules requiring observance of high standards of commercial
honor or just and equitable principles of trade. Finally, proposed
Exchange Rule 3100, Interpretation and Policy .05, would prohibit an
applicant from receiving assistance while taking

the examination, and require the applicant to certify that no
assistance was given to or received by him or her during the
examination.\35\
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    \35\ The Exchange does not propose to adopt portions of FINRA
Rule 1210.05, which apply to non-associated persons, over whom the
Exchange would in any event have no jurisdiction.
---------------------------------------------------------------------------

G. Waiting Periods for Retaking a Failed Examination (Proposed Exchange
Rule 3100, Interpretation and Policy .06)
    The Exchange proposes to adopt new Exchange Rule 3100,
Interpretation and Policy .06, which provides that any person who fails
to pass a qualification examination prescribed by the Exchange may
retake that examination again after a period of 30 calendar days from
the date of the person's last attempt to pass that examination.\36\
Proposed Exchange Rule 3100, Interpretation and Policy .06, further
provides that if a person fails an examination three or more times in
succession within a two-year period, the person is prohibited from
retaking that examination until 180 calendar days has elapsed from the
date of the person's last attempt to pass that examination. These
waiting periods would apply to the SIE and the representative and
principal examinations.\37\
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    \36\ Proposed Exchange Rule 3100, Interpretation and Policy .06,
has no counterpart in existing Exchange rules.
    \37\ FINRA Rule 1210.06 requires individuals taking the SIE who
are not associated persons to agree to be subject to the same
waiting periods for retaking the SIE. The Exchange does not propose
to include this language in proposed Exchange Rule 3100,
Interpretation and Policy .06, as the Exchange will not apply the
proposed 3100 Series of rules in any event to individuals who are
not associated persons of Members.
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H. Continuing Education (``CE'') Requirements (Proposed Exchange Rule
3100, Interpretation and Policy .07)
    The Exchange proposes to delete Exchange Rule 203, Interpretation
and Policy .04, which CE requirements the Exchange proposes to
reorganize, renumber and adopt as proposed Exchange Rule 3103. The
Exchange believes that all registered persons, regardless of their
activities, should be subject to the Regulatory Element of the CE
requirements so that they can keep their knowledge of the securities
industry current. Therefore, the Exchange proposes to adopt Exchange
Rule 3100, Interpretation and Policy .07, to clarify that all
registered persons, including those who solely maintain a permissive
registration, are required to satisfy the Regulatory Element, as
specified in proposed Exchange Rule 3103, as discussed below.\38\
Individuals who have passed the SIE but not a representative or
principal-level examination and do not hold a registered position would
not be subject to any CE requirements. Consistent with current
practice, proposed Exchange Rule 3100, Interpretation and Policy .07,
would also provide that if a person registered with a Member has a CE
deficiency with respect to that registration, such person shall not be
permitted to be registered in another registration category with the
Exchange under proposed Exchange Rule 3101 with that Member or to be
registered in any registration category with the Exchange under
proposed Exchange Rule 3101 with another Member, until the person has
satisfied the deficiency.
---------------------------------------------------------------------------

    \38\ The Exchange proposes to delete Exchange Rule 203,
Interpretation and Policy .04, in connection with the adoption of
proposed Exchange Rule 3100, Interpretation and Policy .07.
---------------------------------------------------------------------------

I. Lapse of Registration and Expiration of SIE (Proposed Exchange Rule
3100, Interpretation and Policy .08)
    Current Exchange Rule 203(h) states that any person whose
registration has been revoked by the Exchange as a disciplinary
sanction or whose most recent registration has been terminated for two
or more years immediately preceding the date of receipt by the Exchange
of a new application shall be required to pass a qualification
examination appropriate to the category of registration as prescribed
by the Exchange. Any person who last passed the SIE or who was last
registered as a Representative, whichever occurred last, four or more
years immediately preceding the date of receipt by the Exchange of a
new application for registration as a Representative shall be required
to pass the SIE in addition to a representative qualification
examination appropriate to his or her category of registration. The two
year period is calculated from the termination date to the date the
Exchange receives a new application for registration. The Exchange
proposes to delete Exchange Rule 203(h), and replace it with proposed
Exchange Rule 3100, Interpretation and Policy .08, Lapse of
Registration and Expiration of SIE.
    Proposed Exchange Rule 3100, Interpretation and Policy .08,
contains language comparable to that of Exchange Rule 203(h) but also
clarifies that, for purposes of the proposed rule, an application would
not be considered to have been received by the Exchange if that
application does not result in a registration. Proposed Exchange Rule
3100, Interpretation and Policy .08, also sets forth the expiration
period of the SIE. Based on the content covered on the SIE, the
Exchange proposes that a passing result on the SIE be valid for four
years. Therefore, under the proposed rule change, an individual who
passes the SIE and is an associated person of a firm at the time would
have up to four years from the date he or she passes the SIE to pass a
representative-level examination to register as a representative with
that firm, or a subsequent firm, without having to retake the SIE. In
addition, an individual who passes the SIE and is not an associated
person at the time would have up to four years from the date he or she
passes the SIE to become an associated person of a firm, pass a
representative-level examination and register as a representative
without having to retake the SIE.
    Moreover, an individual holding a representative-level registration
who leaves the industry after the operative date of the proposed rule
change would have up to four years to re-associate with a firm and
register as a representative without having to retake the SIE. However,
the four-year expiration period in the proposed rule change extends
only to the SIE, and not the representative-level and principal-level
registrations. The representative-level and principal-level
registrations would continue to be subject to a two year expiration
period as is the case today.
J. Waiver of Examinations for Individuals Working for a Financial
Services Industry Affiliate of a Member (Proposed Exchange Rule 3100,
Interpretation and Policy .09)
    The Exchange proposes to adopt Exchange Rule 3100, Interpretation
and Policy .09, to provide a process whereby individuals working for a
financial services industry affiliate of a Member \39\ would be able to
terminate their registrations with the Member and be granted a waiver
of their requalification requirements upon re-registering with a
Member, provided the firm that is requesting the waiver and the
individual satisfy the criteria for a Financial Services Affiliate
(``FSA'') waiver.\40\ The purpose of the FSA waiver is to provide a
firm greater flexibility to move personnel, including

senior and middle management, between the firm and its financial
services affiliate(s) so that they may gain organizational skills and
better knowledge of products developed by the affiliate(s) without the
individuals having to requalify by examination each time they return to
the firm.\41\
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    \39\ Proposed Exchange Rule 3100, Interpretation and Policy .09,
defines a ``financial services industry affiliate of a Member'' as a
legal entity that controls, is controlled by or is under common
control with a Member and is regulated by the Commission, Commodity
Futures Trading Commission (``CFTC''), state securities authorities,
federal or state banking authorities, state insurance authorities,
or substantially equivalent foreign regulatory authorities.
    \40\ There is no counterpart to proposed Exchange Rule 3100,
Interpretation and Policy .09, in the Exchange's existing rules.
FINRA Rule 1210.09 was adopted as a new waiver process for FINRA
registration, as part of the FINRA Rule Changes. See supra note 14.
    \41\ See supra note 14.
---------------------------------------------------------------------------

    Under the waiver process in proposed Exchange Rule 3100,
Interpretation and Policy .09, the first time a registered person is
designated as eligible for a waiver based on the FSA criteria, the
Member with which the individual is registered would notify the
Exchange of the FSA designation. The Member would concurrently file a
full Form U5 terminating the individual's registration with the firm,
which would also terminate the individual's other SRO and state
registrations.
    To be eligible for initial designation as an FSA-eligible person by
a Member, an individual must have been registered for a total of five
years within the most recent 10-year period prior to the designation,
including for the most recent year with that Member.\42\ An individual
would have to satisfy these preconditions only for purposes of his or
her initial designation as an FSA-eligible person, and not for any
subsequent FSA designation(s). Thereafter, the individual would be
eligible for a waiver for up to seven years from the date of initial
designation \43\ provided that the other conditions of the waiver, as
described below, have been satisfied. Consequently, a Member other than
the Member that initially designated an individual as an FSA-eligible
person may request a waiver for the individual and more than one Member
may request a waiver for the individual during the seven-year
period.\44\
---------------------------------------------------------------------------

    \42\ For purposes of this requirement, a five year period of
registration with the Exchange, with FINRA or with another self-
regulatory organization would be sufficient.
    \43\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period
would not be tolled or renewed.
    \44\ The following examples illustrate this point:
    Example 1. Firm A designates an individual as an FSA-eligible
person by notifying the Exchange and files a Form U5. The individual
joins Firm A's financial services affiliate. Firm A does not submit
a waiver request for the individual. After working for Firm A's
financial services affiliate for three years, the individual
directly joins Firm B's financial services affiliate for three
years. Firm B then submits a waiver request to register the
individual.
    Example 2. Same as Example 1, but the individual directly joins
Firm B after working for Firm A's financial services affiliate, and
Firm B submits a waiver request to register the individual at that
point in time.
    Example 3. Firm A designates an individual as an FSA-eligible
person by notifying the Exchange and files a Form U5. The individual
joins Firm A's financial services affiliate for three years. Firm A
then submits a waiver request to reregister the individual. After
working for Firm A in a registered capacity for six months, Firm A
re-designates the individual as an FSA-eligible person by notifying
FINRA and files a Form U5. The individual rejoins Firm A's financial
services affiliate for two years, after which the individual
directly joins Firm B's financial services affiliate for one year.
Firm B then submits a waiver request to register the individual.
    Example 4. Same as Example 3, but the individual directly joins
Firm B after the second period of working for Firm A's financial
services affiliate, and Firm B submits a waiver request to register
the individual at that point in time.
---------------------------------------------------------------------------

    An individual designated as an FSA-eligible person would be subject
to the Regulatory Element of CE while working for a financial services
industry affiliate of a Member. The individual would be subject to a
Regulatory Element program that correlates to his or her most recent
registration category, and CE would be based on the same cycle had the
individual remained registered. If the individual fails to complete the
prescribed Regulatory Element during the 120-day window for taking the
session, he or she would lose FSA eligibility (i.e., the individual
would have the standard two-year period after termination to re-
register without having to retake an examination). The Exchange also
proposes to make corresponding changes in proposed Exchange Rule 3103.
    Upon registering an FSA-eligible person, a firm would file a Form
U4 and request the appropriate registration(s) for the individual. The
firm would also submit an examination waiver request to the
Exchange,\45\ similar to the process used today for waiver requests,
and it would represent that the individual is eligible for an FSA
waiver based on the conditions set forth below. The Exchange would
review the waiver request and make a determination of whether to grant
the request within 30 calendar days of receiving the request. The
Exchange would summarily grant the request if the following conditions
are met:
---------------------------------------------------------------------------

    \45\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five
years within the most recent 10-year period, including for the most
recent year with the Member that initially designated the individual as
an FSA-eligible person;
    (2) The waiver request is made within seven years of the
individual's initial designation as an FSA-eligible person by a Member;
    (3) The initial designation and any subsequent designation(s) were
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services
affiliate(s) of a Member since the last Form U5 filing;
    (5) The individual has complied with the Regulatory Element of CE;
and
    (6) The individual does not have any pending or adverse regulatory
matters, or terminations, that are reportable on the Form U4, and has
not otherwise been subject to a statutory disqualification while the
individual was designated as an FSA-eligible person with a Member.
    Following the Form U5 filing, an individual could move between the
financial services affiliates of a Member so long as the individual is
continuously working for an affiliate. Further, a Member could submit
multiple waiver requests for the individual, provided that the waiver
requests are made during the course of the seven-year period.\46\ An
individual who has been designated as an FSA-eligible person by a
Member would not be able to take additional examinations to gain
additional registrations while working for a financial services
affiliate of a Member.
---------------------------------------------------------------------------

    \46\ For example, if a Member submits a waiver request for an
FSA-eligible person who has been working for a financial services
affiliate of the Member for three years and re-registers the
individual, the Member could subsequently file a Form U5 and re-
designate the individual as an FSA-eligible person. Moreover, if the
individual works with a financial services affiliate of the Member
for another three years, the Member could submit a second waiver
request and re-register the individual upon returning to the Member.
---------------------------------------------------------------------------

K. Status of Persons Serving in the Armed Forces of the United States
(Proposed Exchange Rule 3100, Interpretation and Policy .10)
    The Exchange proposes to adopt Exchange Rule 3100, Interpretation
and Policy .10, Status of Persons Serving in the Armed Forces of the
United States.\47\ Proposed Exchange Rule 3100, Interpretation and
Policy .10(a), would permit a registered person of a Member who
volunteers for or is called into active duty in the Armed Forces of the
United States to be placed, after proper notification to the Exchange,
on inactive status. The registered person would not need to be re-
registered by such Member upon his or her return to active employment
with the Member. The registered person would remain eligible to receive
transaction-related compensation, including continuing commissions, and
the employing

Member may allow the registered person to enter into an arrangement
with another registered person of the Member to take over and service
the person's accounts and to share transaction-related compensation
based upon the business generated by such accounts. However, because
such persons would be inactive, they could not perform any of the
functions and responsibilities performed by a registered person, nor
would they be required to complete either the continuing education
Regulatory Element or Firm Element set forth in proposed Exchange Rule
3103 during the pendency of such inactive status.\48\
---------------------------------------------------------------------------

    \47\ There is no counterpart to proposed Exchange Rule 3100,
Interpretation and Policy .10, in the Exchange's current rules.
    \48\ The relief provided in proposed Exchange Rule 3100,
Interpretation and Policy .10(a), would be available to a registered
person during the period that such person remains registered with
the Member with which he or she was registered at the beginning of
active duty in the Armed Forces of the United States, regardless of
whether the person returns to active employment with another Member
upon completion of his or her active duty. The relief would apply
only to a person registered with a Member and only while the person
remains on active military duty. Further, the Member with which such
person is registered would be required to promptly notify the
Exchange of such person's return to active employment with the
Member.
---------------------------------------------------------------------------

    Pursuant to proposed Exchange Rule 3100, Interpretation and Policy
.10(b), a Member that is a sole proprietor who temporarily closes his
or her business by reason of volunteering for or being called into
active duty in the Armed Forces of the United States, shall be placed,
after proper notification to the Exchange, on inactive status while the
Member remains on active military duty, would not be required to pay
dues or assessments during the pendency of such inactive status and
would not be required to pay an admission fee upon return to active
participation in the securities business. This relief would be
available only to a sole proprietor Member and only while the person
remains on active military duty, and the sole proprietor would be
required to promptly notify the Exchange of his or her return to active
participation in the securities business.
    Pursuant to proposed Exchange Rule 3100, Interpretation and Policy
.10(c), if a person who was formerly registered with a Member
volunteers for or is called into active duty in the Armed Forces of the
United States at any time within two years after the date the person
ceased to be registered with a Member, the Exchange shall defer the
lapse of registration requirements set forth in proposed Exchange Rule
3100, Interpretation and Policy .08 (i.e., toll the two-year expiration
period for representative and principal qualification examinations),
and the lapse of the SIE (i.e., toll the four-year expiration period
for the SIE). The Exchange would defer the lapse of registration
requirements and the SIE commencing on the date the person begins
actively serving in the Armed Forces of the United States, provided
that the Exchange is properly notified of the person's period of active
military service within 90 days following his or her completion of
active service or upon his or her re-registration with a Member,
whichever occurs first. The deferral will terminate 90 days following
the person's completion of active service in the Armed Forces of the
United States. Accordingly, if such person does not re-register with a
Member within 90 days following his or her completion of active service
in the Armed Forces of the United States, the amount of time in which
the person must become re-registered with a Member without being
subject to a representative or principal qualification examination or
the SIE shall consist of the standard two-year period for
representative and principal qualification examinations or the standard
four-year period for the SIE, whichever is applicable, as provided in
proposed Exchange Rule 3100, Interpretation and Policy .08, reduced by
the period of time between the person's termination of registration and
beginning of active service in the Armed Forces of the United States.
    Further, under proposed Exchange Rule 3100, Interpretation and
Policy .10(c), if a person placed on inactive status while serving in
the Armed Forces of the United States ceases to be registered with a
Member, the Exchange would defer the lapse of registration requirements
set forth in proposed Exchange Rule 3100, Interpretation and Policy .08
(i.e., toll the two-year expiration period for representative and
principal qualification examinations), and the lapse of the SIE (i.e.,
toll the four-year expiration period for the SIE) during the pendency
of his or her active service in the Armed Forces of the United States.
The Exchange would defer the lapse of registration requirements based
on existing information in the CRD system, provided that the Exchange
is properly notified of the person's period of active military service
within two years following his or her completion of active service or
upon his or her re-registration with a Member, whichever occurs first.
The deferral would terminate 90 days following the person's completion
of active service in the Armed Forces of the United States.
Accordingly, if such person did not re-register with a Member within 90
days following completion of active service, the amount of time in
which the person must become re-registered with a Member without being
subject to a representative or principal qualification examination or
the SIE would consist of the standard two-year period for
representative and principal qualification examinations or the standard
four-year period for the SIE, whichever is applicable, as provided in
proposed Exchange Rule 3100, Interpretation and Policy .08.\49\
---------------------------------------------------------------------------

    \49\ See Nasdaq Stock Market, General 9, Regulation, Section 1
Registration, Qualification and Continuing Education, Rule
1.1210.10(c).
---------------------------------------------------------------------------

L. Impermissible Registrations (Proposed Exchange Rule 3100,
Interpretation and Policy .11)
    Current Exchange Rule 203(a) prohibits a Member from maintaining a
registration with the Exchange for any person (1) who is no longer
active in the Member's securities business, (2) who is no longer
functioning in the registered capacity, or (3) where the sole purpose
is to avoid an examination requirement. This rule also prohibits a
Member from applying for the registration of a person as representative
or principal where the Member does not intend to employ the person in
its securities business. These prohibitions do not apply to the current
permissive registration categories identified in Exchange Rule 203(a).
    In light of proposed Exchange Rule 3100, Interpretation and Policy
.02, Permissive Registrations, discussed above, the Exchange proposes
to delete these provisions of current Exchange Rule 203(a) and instead
adopt proposed Exchange Rule 3100, Interpretation and Policy .11,
prohibiting a Member from registering or maintaining the registration
of a person unless the registration is consistent with the requirements
of proposed Exchange Rule 3100.\50\
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    \50\ As discussed above, the Exchange also proposes to adopt
Exchange Rule 3100, Interpretation and Policy .12, Application for
Registration and Jurisdiction, which is not included in FINRA Rule
1210. Proposed Exchange Rule 3100, Interpretation and Policy .12, is
based upon portions of current Exchange Rules 203 and 1301. See also
supra note 20.
---------------------------------------------------------------------------

M. Registration Categories (Proposed Exchange Rule 3101)
    The Exchange proposes to adopt new and revised registration
category rules and related definitions in proposed Exchange Rule 3101,
Registration Categories.\51\
---------------------------------------------------------------------------

    \51\ For ease of reference, the Exchange proposes to adopt as
Exchange Rule 3101, Interpretation and Policy .07, in chart form, a
Summary of Qualification Requirements for each of the Exchange's
permitted registration categories discussed below.

---------------------------------------------------------------------------

1. Definitions (Proposed Exchange Rule 3101(a)) \52\
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    \52\ The Exchange notes that proposed Exchange Rule 3101 differs
from the Nasdaq Stock Market rule filing in that the Exchange has
consolidated the definitions for various registration categories
into one section, proposed Exchange Rule 3101(a), whereas the Nasdaq
Stock Market filing includes the registration category definition in
each individual section pertaining to that specific registration
category type. See supra note 18.
---------------------------------------------------------------------------

    The Exchanges proposes to adopt Exchange Rule 3101(a) to define
certain registration categories and terms used throughout the
Exchange's new proposed 3100s Series of rules. First, the Exchange
proposes to adopt a definition for the term ``actively engaged in the
management of the Member's securities business,'' which is used to
describe the functions of a ``principal,'' as more fully discussed
below.\53\ The Exchange proposes that the term ``actively engaged in
the management of the Member's securities business'' means the
management of, and the implementation of corporate policies related to,
such business, as well as managerial decision-making authority with
respect to the Member's securities business and management-level
responsibilities for supervising any aspect of such business, such as
serving as a voting member of the Member's executive, management or
operations committees.
---------------------------------------------------------------------------

    \53\ See also supra note 9.
---------------------------------------------------------------------------

    Next, the Exchange proposes to adopt a definition for the term
``Financial and Operations Principal,'' which the Exchange proposes to
mean a person associated with a Member whose duties include (i) final
approval and responsibility for the accuracy of financial reports
submitted to any duly established securities industry regulatory body;
(ii) final preparation of such reports; (iii) supervision of
individuals who assist in the preparation of such reports; (iv)
supervision of and responsibility for individuals who are involved in
the actual maintenance of the Member's books and records from which
such reports are derived; (v) supervision and/or performance of the
Member's responsibilities under all financial responsibility rules
promulgated pursuant to the provisions of the Act; (vi) overall
supervision of and responsibility for the individuals who are involved
in the administration and maintenance of the Member's back office
operations; and (vii) any other matter involving the financial and
operational management of the Member.
    Next, the Exchange proposes to adopt a definition for the term
``principal'' and include it in newly proposed Exchange Rule 3101(a).
The Exchange proposes to adopt a definition of ``principal,'' which
would mean any person associated with a Member, including, but not
limited to, sole proprietor, officer, partner, manager of office of
supervisory jurisdiction, director or other person occupying a similar
status or performing similar functions, who is actively engaged in the
management of the Member's securities business, such as supervision,
solicitation, conduct of business in securities or the training of
persons associated with a Member for any of these functions. Such
persons shall include, among other persons, a Member's chief executive
officer and chief financial officer (or equivalent officers). The term
``principal'' also includes any other person associated with a Member
who is performing functions or carrying out responsibilities that are
required to be performed or carried out by a principal under Exchange
rules.
    Finally, the Exchange proposes to adopt a definition for the term
``representative'' in proposed Exchange Rule 3101(a). Currently, the
Exchange's rules do not define the term ``representative.'' Proposed
Exchange Rule 3101(a) would define the term ``representative'' as any
person associated with a Member, including assistant officers other
than principals, who is engaged in the Member's securities business,
such as supervision, solicitation, conduct of business in securities or
the training of persons associated with a Member for any of these
functions.
2. Principal Registration Categories (Proposed Exchange Rule 3101(b))
i. General Securities Principal (Proposed Rule 3101(b)(1))
    The Exchange currently does not impose a General Securities
Principal registration obligation. The Exchange proposes to adopt
Exchange Rule 3101(b)(1), which would establish an obligation to
register as a General Securities Principal, subject to certain
exceptions.\54\ Proposed Exchange Rule 3101(b)(1) states that each
principal is required to register with the Exchange as a General
Securities Principal, except that if a principal's activities are
limited to the functions of a Compliance Official, a Financial and
Operations Principal, a Securities Trader Principal, a Securities
Trader Compliance Officer, or a Registered Options Principal, then the
principal shall appropriately register in one or more of those
categories.\55\ Proposed Exchange Rule 3101(b)(1)(i)(C) further
provides that if a principal's activities are limited solely to the
functions of a General Securities Sales Supervisor, then the principal
may appropriately register in that category in lieu of registering as a
General Securities Principal, provided, however, that if the principal
is engaged in options sales activities, he or she would be required to
register as a General Securities Sales Supervisor or as a Registered
Options Principal.\56\
---------------------------------------------------------------------------

    \54\ There is no counterpart to proposed Exchange Rule
3101(b)(1) in the Exchange's current rules.
    \55\ The Exchange proposes to recognize the General Securities
Principal registration category for the first time in this proposed
rule change.
    \56\ See Nasdaq Stock Market, General 9, Regulation, Section 1,
Registration, Qualification and Continuing Education, Rule
1.1220(a)(2)(A)(i)-(iv). Proposed Exchange Rule 3901(b)(1) deviates
somewhat from the counterpart FINRA rule in that it does not offer
various limited registration categories provided for in FINRA Rule
1220(a)(2)(A). The Exchange therefore proposes to reserve Exchange
Rules 3901(b)(1)(i)(B) and (D).
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    Proposed Exchange Rule 3101(b)(1)(ii) requires that an individual
registering as a General Securities Principal satisfy the General
Securities Representative prerequisite registration and pass the
General Securities Principal qualification examination.
    The Exchange does not propose to adopt FINRA Rule 1220(a)(2)(B),
which permits an individual registering as a General Securities
Principal after October 1, 2018 to register as a General Securities
Sales Supervisor and to pass the General Securities Principal Sales
Supervisor Module qualification examination. The Exchange believes that
individuals registering as General Securities Principals should be
required to demonstrate their competence for that role by passing the
General Securities Principal qualification examination.\57\
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    \57\ Proposed Exchange Rule 3101(b)(1) generally tracks FINRA
Rule 1220(a)(2), except that it omits references to a number of
registration categories which FINRA recognizes but that the Exchange
does not, and it includes a reference to the Securities Trader
Compliance Officer category which the Exchange proposes to
recognize, but which FINRA does not. Additionally, proposed Rule
3101(b)(1)(i)(A) extends that provision's exception to the General
Securities Principal registration requirement to certain principals
whose activities are ``limited to'' (rather than ``include'') the
functions of a more limited principal. The Exchange believes that
activities ``limited to'' expresses the intent of that exception
more accurately than activities that ``include.''
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ii. Compliance Official (Proposed Exchange Rule 3101(b)(2))
    Currently, Exchange Rule 203(f) requires each Member and Member
organization that is a registered broker-dealer to designate a Chief
Compliance Officer on Schedule A of Form BD and requires individuals
designated as a Chief Compliance Officer to register

with the Exchange and pass the appropriate heightened qualification
examination(s) as prescribed by the Exchange.\58\
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    \58\ Exchange Rule 203(f) further provides that a person who has
been designated as a Chief Compliance Officer on Schedule A of Form
BD for at least two years immediately prior to January 1, 2002, and
who has not been subject within the last ten years to: (1) Any
statutory disqualification as defined in Section 3(a)(39) of the
Act; (2) a suspension; (3) the imposition of a fine of $5,000 or
more for a violation of any provision of any securities law or
regulation, or any agreement with, rule or standard of conduct of
any securities governmental agency, or securities self-regulatory
organization; or (4) the imposition of a fine of $5,000 or more by
any such regulatory or self-regulatory organization in connection
with a disciplinary proceeding; shall be required to register in
this heightened category of registration as prescribed by the
Exchange, but shall be exempt from the requirement to pass the
heightened qualification examination as prescribed by the Exchange.
---------------------------------------------------------------------------

    The Exchange proposes to delete Exchange Rule 203(f) and adopt
Exchange Rule 3101(b)(2) in its place. Proposed Exchange Rule
3101(b)(2) would provide that each person designated as a Chief
Compliance Officer on Schedule A of Form BD shall be required to
register with the Exchange as a General Securities Principal, provided
that such person may instead register as a Compliance Official if his
or her duties do not include supervision of trading. All individuals
registering as Compliance Official would be required, prior to or
concurrent with such registration, to pass the Compliance Official
qualification examination. However, pursuant to Exchange Rule
3101(b)(2)(iii), an individual designated as a Chief Compliance Officer
on Schedule A of Form BD of a Member that is engaged in limited
securities business may be registered in a principal category under
proposed Exchange Rule 3101(b) that corresponds to the limited scope of
the Member's business.
    Additionally, proposed Exchange Rule 3101(b)(2)(iv) would provide
that an individual designated as a Chief Compliance Officer on Schedule
A of Form BD may register and qualify as a Securities Trader Compliance
Officer if, with respect to transactions in equity, preferred or
convertible debt securities, or options such person is engaged in
proprietary trading, the execution of transactions on an agency basis,
or the direct supervision of such activities other than a person
associated with a Member whose trading activities are conducted
principally on behalf of an investment company that is registered with
the SEC pursuant to the Investment Company Act and that controls, is
controlled by, or is under common control with a Member. All
individuals registering as Securities Trader Compliance Officers would
be required to first become registered pursuant to paragraph (c)(3) as
a Securities Trader, and to pass the Compliance Official qualification
exam.\59\
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    \59\ Proposed Exchange Rule 3101(b)(2) differs from FINRA Rule
1220(a)(3), Compliance Officer, as the Exchange does not recognize
the Compliance Officer registration category. Similarly, FINRA does
not recognize the Compliance Official or the Securities Trader
Compliance Officer registration categories which the Exchange
proposes to recognize. However, FINRA Rule 1220(a)(3), like proposed
Exchange Rule 3101(b)(2), offers an exception pursuant to which a
Chief Compliance Officer designated on Schedule A of Form BD may
register in a principal category that corresponds to the limited
scope of the Member's business.
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iii. Financial and Operations Principal (Proposed Exchange Rule
3101(b)(3))
    Current Exchange Rule 203(e) provides that each Member subject to
Rule 15c3-1 of the Act must designate a Financial/Operations Principal.
It specifies that the duties of a Financial/Operations Principal shall
include taking appropriate actions to assure that the Member complies
with applicable financial and operational requirements under the Rules
and the Act, including but not limited to those requirements relating
to the submission of financial reports and the maintenance of books and
records. It requires Financial/Operations Principal to have
successfully completed the Financial and Operations Principal
Examination (Series 27 Exam). It further provides that each Financial/
Operations Principal designated by a Member shall be registered in that
capacity with the Exchange as prescribed by the Exchange, and that a
Financial/Operations Principal of a Member may be a full-time employee,
a part-time employee or independent contractor of the Member.
    The Exchange proposes to delete Exchange Rule 203(e) and adopt in
its place Exchange Rule 3101(b)(3). Under the new rule, every Member of
the Exchange that is operating pursuant to the provisions of Rules
15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8) of the Commission, shall
designate at least one Financial and Operations Principal who shall be
responsible for performing the duties described in paragraph (a) of
proposed Exchange Rule 3101. In addition, each person associated with a
Member who performs such duties shall be required to register as a
Financial and Operations Principal with the Exchange.
    Proposed Exchange Rule 3101(b)(3)(ii) would require all individuals
registering as a Financial and Operations Principal to pass the
Financial and Operations Principal qualification examination before
such registration may become effective. Finally, proposed Exchange Rule
3101(b)(3)(iii) would prohibit a person registered solely as a
Financial and Operations Principal from functioning in a principal
capacity with responsibility over any area of business activity not
described in paragraph (a) of the rule for a Financial and Operations
Principal.\60\
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    \60\ FINRA Rule 1220(a)(4) differs from proposed Exchange Rule
3101(b)(3) in that it includes an Introducing Broker-Dealer
Financial and Operations Principal registration requirement.
Additionally, proposed Exchange Rule 3101(b)(3) contains a
requirement, which the FINRA rule does not, that each person
associated with a Member who performs the duties of a Financial and
Operations Principal must register as such with the Exchange.
Further, as discussed above, the Exchange does not propose to adopt
a Principal Financial Officer or Principal Operations Officer
requirement similar to FINRA Rule 1220(a)(4)(B), as it believes the
Financial and Operations Principal requirement is sufficient.
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iv. Investment Banking Principal (Proposed Exchange Rule 3101(b)(4))
    The Exchange does not recognize the Investment Banking Principal
registration category and proposes to reserve Exchange Rule 3101(b)(4),
retaining the caption solely to facilitate comparison with FINRA's
rules.
v. Research Principal (Proposed Exchange Rule 3101(b)(5))
    The Exchange does not recognize the Research Principal registration
category and proposes to reserve Exchange Rule 3101(b)(5), retaining
the caption solely to facilitate comparison with FINRA's rules.
vi. Securities Trader Principal (Proposed Exchange Rule 3101(b)(6))
    Current Exchange Rule 203(c) provides that Members that are
individuals and associated persons of Members included within the
definition of Option Principal in Exchange Rule 100 and who will have
supervisory responsibility over the securities trading activities
described in Exchange Rule 203(d) shall become qualified and registered
as a Securities Trader Principal. To qualify for registration as a
Securities Trader Principal, such person shall become qualified and
registered as a Securities Trader under Rule 1302(e) and pass the SIE
and General Securities Principal qualification examination (Series 24).
A person who is qualified and registered as a Securities Trader
Principal under this provision may only have supervisory responsibility
over the Securities Trader activities specified in Exchange Rule
203(d), unless such person is separately qualified and

registered in another appropriate principal registration category, such
as the General Securities Principal registration category. Current
Exchange Rule 203(c)(2) provides that a person who is registered as a
General Securities Principal shall not be qualified to supervise the
trading activities described in Exchange Rule 203(d), unless such
person has also become qualified and registered as a Securities Trader
under Exchange Rule 1302(e) and become registered as a Securities
Trader Principal.
    The Exchange proposes to delete Exchange Rule 203(c) and adopt in
its place Exchange Rule 3101(b)(6), Securities Trader Principal.
Proposed Exchange Rule 3101(b)(6) would require that a principal
responsible for supervising the securities trading activities specified
in proposed Exchange Rule 3101(c)(3) \61\ register as a Securities
Trader Principal. The proposed rule requires individuals registering as
Securities Trader Principals to be registered as Securities Traders and
to pass the General Securities Principal qualification examination.
---------------------------------------------------------------------------

    \61\ Proposed Exchange Rule 3101(c)(3), discussed below,
provides for representative-level registration in the ``Securities
Trader'' category.
---------------------------------------------------------------------------

vii. Registered Options Principal (Proposed Exchange Rule 3101(b)(7))
    The Exchange proposes to adopt Exchange Rule 3101(b)(7), Registered
Options Principal, which would require that each Member that is engaged
in transactions in options with the public have at least one Registered
Options Principal.\62\ Currently, Exchange Rule 100, Definitions,
provides a definition for an ``Options Principal.'' In accordance with
the proposal to adopt Exchange Rule 3101(b)(7), Registered Options
Principal, the Exchange proposes to delete the definition for ``Options
Principal'' in Exchange Rule 100, Definitions. As discussed below, the
Exchange proposes to adopt a corresponding definition for a
``Registered Options Principal'' in Exchange Rule 100, which would
refer to proposed Exchange Rule 3101(b)(7). In addition, each principal
as defined in proposed Exchange Rule 3101(a) who is responsible for
supervising a Member's options sales practices with the public would be
required to register with the Exchange as a Registered Options
Principal, with one exception, as follows. If a principal's options
activities are limited solely to those activities that may be
supervised by a General Securities Sales Supervisor, then such person
may register as a General Securities Sales Supervisor pursuant to
paragraph (b)(9) of this Rule in lieu of registering as a Registered
Options Principal.\63\
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    \62\ Proposed Exchange Rule 3101(b)(7) differs from FINRA Rule
1220(a)(8) in that it omits certain references to other specific
FINRA rules.
    \63\ Current Exchange Rule 1301(a) provides that no Member shall
be approved to transact options business with the public until those
associated persons who are designated as Options Principals have
been approved by and registered with the Exchange. Persons engaged
in the supervision of options sales practices or a person to whom
the designated general partner or executive officer (pursuant to
Exchange Rule 1308) or another Registered Options Principal
delegates the authority to supervise options sales practices shall
be designated as Options Principals. Exchange Rule 1301(b) provides
that individuals who are delegated responsibility pursuant to
Exchange Rule 1308 for the acceptance of discretionary accounts, for
approving exceptions to a Member's criteria or standards for
uncovered options accounts, and for approval of communications,
shall be designated as Options Principals and are required to
qualify as an Options Principal by passing the SIE, the General
Securities Representative qualification examination (Series 7) and
the Registered Options Principal Qualification Examination (Series
4). The foregoing provisions of Exchange Rule 1301 are specific to
conducting an options business with the public and are not proposed
to be amended in this proposed rule change, other than conforming
all references to ``Options Principal'' with ``Registered Options
Principal,'' as more fully discussed herein. Exchange Rule 203(g),
which merely serves as a cross-reference to Exchange Rules 1301 and
1302, is unnecessary and is therefore proposed to be deleted with
the rest of Exchange Rule 203.
---------------------------------------------------------------------------

    Pursuant to proposed Exchange Rule 3101(b)(7)(ii), subject to the
lapse of registration provisions in proposed Exchange Rule 3100,
Interpretation and Policy .08, each person registered with the Exchange
as a Registered Options Principal on October 1, 2018 and each person
who was registered as a Registered Options Principal within two years
prior to October 1, 2018 would be qualified to register as a Registered
Options Principal without passing any additional qualification
examinations. All other individuals registering as Registered Options
Principals after October 1, 2018 would, prior to or concurrent with
such registration, be required to become registered pursuant to
proposed Exchange Rule 3101(c)(1) as a General Securities
Representative and pass the Registered Options Principal qualification
examination.\64\
---------------------------------------------------------------------------

    \64\ Although the Exchange does not currently list security
futures products, it also proposes to adopt Exchange Rule 3101,
Interpretation and Policy .02, which provides that each person who
is registered with the Exchange as a General Securities
Representative, Registered Options Principal, or General Securities
Sales Supervisor shall be eligible to engage in security futures
activities as a principal provided that such individual completes a
Firm Element program as set forth in proposed Exchange Rule 3103
that addresses security futures products before such person engages
in security futures activities. Unlike FINRA Rule 1220.02, proposed
Exchange Rule 3101, Interpretation and Policy .02, omits references
to United Kingdom Securities Representatives and Canada Securities
Representatives, which are registration categories the Exchange does
not recognize. In addition, the Exchange also proposes to adopt
Exchange Rule 3101, Interpretation and Policy .03, which requires
notification to the Exchange in the event a Member's sole Registered
Options Principal is terminated, resigns, becomes incapacitated or
is otherwise unable to perform the duties of a Registered Options
Principal, and imposes certain restrictions on the Member's options
business in that event.
---------------------------------------------------------------------------

viii. Government Securities Principal (Proposed Exchange Rule
3101(b)(8))
    The Exchange does not recognize the Government Securities Principal
registration category and proposes to reserve Exchange Rule 3101(b)(8),
retaining the caption solely to facilitate comparison with FINRA's
rules.
ix. General Securities Sales Supervisor (Proposed Exchange Rules
3101(b)(9) and Interpretation and Policy .04)
    The Exchange proposes to adopt Exchange Rule 3101(b)(9), General
Securities Sales Supervisor, as well as Interpretation and Policy .04
to Exchange Rule 3101, which explains the purpose of the General
Securities Sales Supervisor registration category.\65\ Proposed
Exchange Rule 3101(b)(9) provides that each principal, as defined in
proposed paragraph (a) of this Rule, may register with the Exchange as
a General Securities Sales Supervisor if his or her supervisory
responsibilities in the securities business of a Member are limited to
the securities sales activities of the Member, including the approval
of customer accounts, training of sales and sales supervisory personnel
and the maintenance of records of original entry or ledger accounts of
the Member required to be maintained in branch offices by Exchange Act
record-keeping rules. Further, a person registered solely as a General
Securities Sales Supervisor would not be qualified to perform any of
the following activities: (i) Supervision of market making commitments;
(ii) supervision of the custody of broker-dealer or customer funds or
securities for purposes of Exchange Act Rule 15c3-3; or (iii)
supervision of overall compliance with financial responsibility rules
for broker-dealers promulgated pursuant to the provisions of the
Exchange Act.\66\
---------------------------------------------------------------------------

    \65\ Proposed Exchange Rule 3101(b)(9) has no counterpart in the
Exchange's current rules.
    \66\ Proposed Exchange Rule 3101(b)(9), however, omits the FINRA
Rule 1220(a)(10) prohibition against supervision of the origination
and structuring of underwritings as unnecessary, as this kind
activity does not fall within the scope of ``securities trading''
covered by the Exchange's new 3100 Series of rules.
---------------------------------------------------------------------------

    Each person seeking to register as a General Securities Sales
Supervisor would be required, prior to or concurrent with such
registration, to

become registered pursuant to proposed Exchange Rule 3101(c)(1) of the
rule as a General Securities Representative and pass the General
Securities Sales Supervisor qualification examinations.\67\
---------------------------------------------------------------------------

    \67\ Unlike FINRA Rule 1220.04, proposed Exchange Rule 3101,
Interpretation and Policy .04, refers to ``multiple exchanges''
rather than listing the various exchanges where a sales principal
might be required to qualify in the absence of the General
Securities Sales Supervisor registration category. It also omits
FINRA internal cross-references.
---------------------------------------------------------------------------

x. Investment Company and Variable Contracts Products Principal
(Proposed Exchange Rule 3101(b)(10))
    The Exchange does not recognize the Investment Company and Variable
Contracts Products Principal category and is reserving proposed
Exchange Rule 3101(b)(10), retaining the caption solely to facilitate
comparison with FINRA's rules.
xi. Direct Participation Programs Principal (Proposed Exchange Rule
3101(b)(11))
    The Exchange does not recognize the Direct Participation Programs
Principal registration category and is reserving proposed Exchange Rule
3101(b)(11), retaining the caption solely to facilitate comparison with
FINRA's rules.
xii. Private Securities Offerings Principal (Proposed Exchange Rule
3101(b)(12))
    The Exchange does not recognize the Private Securities Offerings
Principal registration category and is reserving proposed Exchange Rule
3101(b)(12), retaining the caption solely to facilitate comparison with
FINRA's rules.
xiii. Supervisory Analyst (Proposed Exchange Rule 3101(b)(13))
    The Exchange does not recognize the Supervisory Analyst
registration category and is reserving proposed Exchange Rule
3101(b)(13), retaining the caption solely to facilitate comparison with
FINRA's rules.
3. Representative Registration Categories (Proposed Exchange Rule
3101(c))
i. General Securities Representative (Proposed Exchange Rule
3101(c)(1))
    The Exchange proposes to adopt Exchange Rule 3101(c)(1), General
Securities Representative. Proposed Exchange Rule 3101(c)(1)(i) would
state that each representative as defined in proposed Exchange Rule
3101(a) is required to register with the Exchange as a General
Securities Representative, subject to the exception that if a
representative's activities include the functions of a Securities
Trader, as specified in this Rule, then such person shall appropriately
register as a Securities Trader.
    Further, consistent with the proposed restructuring of the
representative-level examinations, proposed Exchange Rule
3101(c)(1)(ii) would require that individuals registering as General
Securities Representatives pass the SIE and the General Securities
Representative examination except that individuals registered as a
General Securities Representatives within two years prior to October 1,
2018 would be qualified to register as General Securities
Representatives without passing any additional qualification
examinations.\68\
---------------------------------------------------------------------------

    \68\ Proposed Exchange Rule 3101(c)(1)(i) differs from FINRA
Rule 1220(b)(2)(A) in that it omits references to various
registration categories which FINRA recognizes but which the
Exchange does not propose to recognize.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to adopt Exchange Rule 3101,
Interpretation and Policy .01, to provide certain individuals who are
associated persons of firms and who hold specific foreign registrations
an alternative, more flexible, process to obtain an Exchange
representative-level registration. The Exchange believes that there is
sufficient overlap between the SIE and these foreign qualification
requirements to permit them to act as exemptions to the SIE. In
particular, pursuant to proposed Exchange Rule 3101, Interpretation and
Policy .01, individuals who are in good standing as representatives
with the Financial Conduct Authority in the United Kingdom or with a
Canadian stock exchange or securities regulator would be exempt from
the requirement to pass the SIE, and thus would be required only to
pass a specialized knowledge examination to register with the Exchange
as a representative. This proposed rule would provide individuals with
a United Kingdom or Canadian qualification more flexibility to obtain
an Exchange representative-level registration.
ii. Operations Professional (Proposed Exchange Rule 3101(c)(2))
    The Exchange does not recognize the Operations Professional
registration category for its associated persons. The Exchange
therefore proposes to reserve Exchange Rule 3101(c)(2), Operations
Professional, and related Interpretation and Policy .05 to proposed
Exchange Rule 3101, Scope of Operations Professional Requirement,
retaining the caption solely to facilitate comparison with FINRA's
rules.
iii. Securities Trader (Proposed Exchange Rule 3101(c)(3))
    Pursuant to current Exchange Rule 203(d)(1) and (2), Members that
are individuals and associated persons of Members must register with
the Exchange as a Securities Trader if, with respect to transactions in
equity, preferred or convertible debt securities, or foreign currency
options on the Exchange, such person is engaged in proprietary trading,
the execution of transactions on an agency basis, or the direct
supervision of such activities, other than any person associated with a
Member whose trading activities are conducted principally on behalf of
an investment company that is registered with the Commission pursuant
to the Investment Company Act of 1940 and that controls, is controlled
by or is under common control, with the Member.
    The Exchange proposes to delete Exchange Rule 203(d), and replace
it with proposed Exchange Rule 3101(c)(3).\69\ Proposed Exchange Rule
3101(c)(3) would require each representative as defined in paragraph
(a) of this Rule to register with the Exchange as a Securities Trader
if, with respect to transactions in equity, preferred or convertible
debt securities, or options such person is engaged in proprietary
trading, the execution of transactions on an agency basis, or the
direct supervision of such activities other than a person associated
with a Member whose trading activities are conducted principally on
behalf of an investment company that is registered with the Commission
pursuant to the Investment Company Act of 1940 and that controls, is
controlled by, or is under common control with a Member.
---------------------------------------------------------------------------

    \69\ Proposed Exchange Rule 3101(c)(3)(i) differs from FINRA
Rule 1220(b)(4)(A) in that it applies to trading on the Exchange
while the FINRA rule is limited to the specified trading which is
``effected otherwise than on a securities exchange.'' Additionally,
the FINRA rule does not specifically extend to options trading.
---------------------------------------------------------------------------

    Additionally, proposed Exchange Rule 3101(c)(3)(i) would require
each person associated with a Member who is: (i) Primarily responsible
for the design, development or significant modification of an
algorithmic trading strategy relating to equity, preferred or
convertible debt securities or options; or (ii) responsible for the
day-to-day supervision or direction of such activities to register with
the Exchange as a Securities Trader.\70\
---------------------------------------------------------------------------

    \70\ As noted above, this new registration requirement was added
to the FINRA rulebook. The Exchange has determined to add a parallel
requirement to its own rules, but also to add options to the scope
of products within the proposed rule's coverage. See Securities
Exchange Act Release No. 77551 (April 7, 2016), 81 FR 21914 (April
13, 2016) (SR-FINRA-2016-007) (Order Approving a Proposed Rule
Change to Require Registration as Securities Traders of Associated
Persons Primarily Responsible for the Design, Development,
Significant Modification of Algorithmic Trading Strategies or
Responsible for the Day-to-Day Supervision of Such Activities).

---------------------------------------------------------------------------

    For purposes of this proposed new registration requirement an
``algorithmic trading strategy'' would be an automated system that
generates or routes orders (or order-related messages) but does not
include an automated system that solely routes orders received in their
entirety to a market center. The proposed registration requirement
applies to orders and order related messages whether ultimately routed
or sent to be routed to an exchange or over the counter. An order
router alone would not constitute an algorithmic trading strategy.
However, an order router that performs any additional functions would
be considered an algorithmic trading strategy. An algorithm that solely
generates trading ideas or investment allocations--including an
automated investment service that constructs portfolio
recommendations--but that is not equipped to automatically generate
orders and order-related messages to effectuate such trading ideas into
the market--whether independently or via a linked router--would not
constitute an algorithmic trading strategy.\71\ The associated persons
covered by the expanded registration requirement would be required to
pass the requisite qualification examination and be subject to the same
continuing education requirements that are applicable to individual
Securities Traders. The Exchange believes that potentially problematic
conduct stemming from algorithmic trading strategies--such as failure
to check for order accuracy, inappropriate levels of messaging traffic,
and inadequate risk management controls--could be reduced or prevented,
in part, through improved education regarding securities regulations
for the specified individuals involved in the algorithm design and
development process.
---------------------------------------------------------------------------

    \71\ See supra note 16.
---------------------------------------------------------------------------

    The proposal is intended to ensure the registration of one or more
associated persons that possesses knowledge of, and responsibility for,
both the design of the intended trading strategy and the technological
implementation of the strategy, sufficient to evaluate whether the
resulting product is designed to achieve regulatory compliance in
addition to business objectives. For example, a lead developer who
liaises with a head trader regarding the head trader's desired
algorithmic trading strategy and is primarily responsible for the
supervision of the development of the algorithm to meet such objectives
must be registered under the proposal as the associated person
primarily responsible for the development of the algorithmic trading
strategy and supervising or directing the team of developers.
Individuals under the lead developer's supervision would not be
required to register under the proposal if they are not primarily
responsible for the development of the algorithmic trading strategy or
are not responsible for the day-to-day supervision or direction of
others on the team. Under this scenario, the person on the business
side that is primarily responsible for the design of the algorithmic
trading strategy, as communicated to the lead developer, also would be
required to register. In the event of a significant modification to the
algorithm, Members, likewise, would be required to ensure that the
associated person primarily responsible for the significant
modification (or the associated person supervising or directing such
activity), is registered as a Securities Trader.
    A Member employing an algorithm is responsible for the algorithm's
activities whether the algorithm is designed or developed in house or
by a third-party. Thus, in all cases, robust supervisory procedures,
both before and after deployment of an algorithmic trading strategy,
are a key component in protecting against problematic behavior stemming
from algorithmic trading. In addition, associated persons responsible
for monitoring or reviewing the performance of an algorithmic trading
strategy must be registered, and a Member's trading activity must
always be supervised by an appropriately registered person. Therefore,
even where a firm purchases an algorithm off-the-shelf and does not
significantly modify the algorithm, the associated person responsible
for monitoring or reviewing the performance of the algorithm would be
required to be registered.
    Pursuant to proposed Exchange Rule 3101(c)(3)(ii), each person
registered as a Securities Trader on October 1, 2018 and each person
who was registered as a Securities Trader within two years prior to
October 1, 2018 would be qualified to register as a Securities Trader
without passing any additional qualification examinations. All other
individuals registering as Securities Traders after October 1, 2018
would be required, prior to or concurrent with such registration, to
pass the SIE and the Securities Trader qualification examination.
    Further, the Exchange proposes to adopt Exchange Rule 3101(c)(3),
which defines the requirements and qualifications for a Securities
Trader, as well as its proposal to amend Exchange Rule 100 to insert
definitions for ``proprietary trading'' and ``proprietary trading
firm,'' as described below.
iv. Investment Banking Representative (Proposed Exchange Rule
3101(c)(4))
    The Exchange does not recognize the Investment Banking
Representative registration category for its associated persons. The
Exchange therefore proposes to reserve Exchange Rule 3101(c)(4),
Investment Banking Representative, retaining the caption solely to
facilitate comparison with FINRA's rules.
v. Research Analyst (Proposed Exchange Rule 3101(c)(5))
    The Exchange does not recognize the Research Analyst registration
category for its associated persons. The Exchange therefore proposes to
reserve Exchange Rule 3101(c)(5), Research Analyst, retaining the
caption solely to facilitate comparison with FINRA's rules.
vi. Investment Company and Variable Products Representative (Proposed
Exchange Rule 3101(c)(6))
    The Exchange does not recognize the Investment Company and Variable
Products Representative registration category for its associated
persons. The Exchange therefore proposes to reserve Exchange Rule
3101(c)(6), Investment Company and Variable Products Representative,
retaining the caption solely to facilitate comparison with FINRA's
rules.
vii. Direct Participation Programs Representative (Proposed Exchange
Rule 3101(c)(7))
    The Exchange does not recognize the Direct Participation Programs
Representative registration category for its associated persons. The
Exchange therefore proposes to reserve Exchange Rule 3101(c)(7), Direct
Participation Programs Representative, retaining the caption solely to
facilitate comparison with FINRA's rules.
viii. Private Securities Offerings Representative (Proposed Exchange
Rule 3101(c)(8))
    The Exchange does not recognize the Private Securities Offerings
Representative registration category for its associated persons. The
Exchange therefore proposes to reserve Exchange Rule 3101(c)(8),
Private Securities

Offerings Representative, retaining the caption solely to facilitate
comparison with FINRA's rules.
4. Eliminated Registration Categories (Proposed Exchange Rule 3101,
Interpretation and Policy .06)
    Proposed Exchange Rule 3101, Interpretation and Policy .06, has no
practical relevance to the Exchange, but is included because the
Exchange proposes to adopt rules similar to FINRA's 1200 Series, on a
near uniform basis. Accordingly, proposed Exchange Rule 3101,
Interpretation and Policy .06, provides that, subject to the lapse of
registration provisions in proposed Exchange Rule 3100, Interpretation
and Policy .08, individuals who are registered with the Exchange in any
capacity recognized by the Exchange immediately prior to October 1,
2018, and each person who was registered with the Exchange in such
categories within two years prior to October 1, 2018, shall be eligible
to maintain such registrations with the Exchange. However, if
individuals registered in such categories terminate their registration
with the Exchange and the registration remains terminated for two or
more years, they would not be able to re-register in that category.
5. Grandfathering Provisions
    In addition to the grandfathering provisions in proposed Exchange
Rule 3101(b)(1)(ii) (relating to General Securities Principals) and
proposed Exchange Rule 3101, Interpretation and Policy .06 (relating to
the eliminated registration categories), the Exchange proposes to
include grandfathering provisions in proposed Exchange Rule 3101(b)(7)
(Registered Options Principal), Exchange Rule 3101(c)(1) (General
Securities Representative), and Exchange Rule 3101(c)(3) (Securities
Trader). Specifically, the proposed grandfathering provisions provide
that, subject to the lapse of registration provisions in proposed
Exchange Rule 3100, Interpretation and Policy .08, individuals who are
registered in specified registration categories on the operative date
of the proposed rule change and individuals who had been registered in
such categories within the past two years prior to the operative date
of the proposed rule change would be qualified to register in the
proposed corresponding registration categories without having to take
any additional examinations.
N. Associated Persons Exempt From Registration (Proposed Exchange Rules
3902 and Interpretation and Policy .01)
    Current Exchange Rule 203(b) currently provides that the following
individual Members and individual associated persons of Members are not
required to register:
    (1) Individual associated persons whose functions are solely and
exclusively clerical or ministerial;
    (2) individual Members and individual associated persons who are
not actively engaged in the securities business;
    (3) individual associated persons whose functions are related
solely and exclusively to the Member's need for nominal corporate
officers or for capital participation; (4) individual associated
persons whose functions are related solely and exclusively to:
    (i) Transactions in commodities;
    (ii) transactions in security futures; and/or
    (iii) effecting transactions on the floor of another securities
exchange and who are registered floor members with such exchange.
    The Exchange proposes to delete Exchange Rule 203(b) and adopt
provisions of Exchange Rule 203(b) in the newly proposed Exchange Rule
3102, subject to certain changes. Current Exchange Rule 203(b)(2)
exempts from registration those individual Members and individual
associated persons of Members who are not actively engaged in the
securities business. Exchange Rule 203(b)(3) also exempts from
registration those associated persons whose functions are related
solely and exclusively to a Member's need for nominal corporate
officers or for capital participation.\72\ The Exchange believes that
the determination of whether an associated person is required to
register must be based on an analysis of the person's activities and
functions in the context of the various registration categories. The
Exchange does not believe that categorical exemptions for individual
Members and individual associated persons who are not ``actively
engaged'' in a Member's securities business, associated persons whose
functions are related only to a Member's need for nominal corporate
officers or associated persons whose functions are related only to a
Member's need for capital participation is consistent with this
analytical framework.\73\ The Exchange therefore proposes to delete
these exemptions. Exchange Rule 203(b)(4)(iii) further exempts from
registration associated persons whose functions are related solely and
exclusively to effecting transactions on the floor of another national
securities exchange as long as they are registered as floor members
with such exchange. Because exchanges have registration categories
other than the floor member category, proposed Exchange Rule 3102
clarifies that the exemption applies to associated persons solely and
exclusively effecting transactions on the floor of another national
securities exchange, provided they are appropriately registered with
such exchange.\74\ Additionally, the Exchange proposes to adopt
paragraph (c) of proposed Exchange Rule 3102, pursuant to which persons
associated with a Member that are not citizens, nationals, or residents
of the United States or any of its territories or possessions, that
will conduct all of their securities activities in areas outside the
jurisdiction of the United States, and that will not engage in any
securities activities with or for any citizen, national or resident of
the United States need not register with the Exchange.\75\
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    \72\ These exemptions generally apply to associated persons who
are corporate officers of a Member in name only to meet specific
corporate legal obligations or who only provide capital for a
Member, but have no other role in a Member's business.
    \73\ The Exchange also proposes to delete Exchange Rule 203,
Interpretation and Policy .06, which specifies circumstances in
which the Exchange considers an individual Member or an individual
associated person to be engaged in the securities business of a
Member or Member organization. The Exchange believes these
determinations may be made on case by case basis, depending upon
facts and circumstances.
    \74\ Proposed Exchange Rule 3102 differs from FINRA Rule 1230 in
that it contains a number of additional exemptions, based upon
current Nasdaq Stock Market Rule 1.1230, which are not included in
FINRA Rule 1230. See Nasdaq Stock Market, General 9, Regulations,
Section 1, Registration, Qualification and Continuing Education,
Rule 1.1230.
    \75\ Individuals described by paragraph (c) of proposed Exchange
Rule 3102 who are associated with FINRA members may be registered
with FINRA as Foreign Associates pursuant to FINRA Rule 1220.06.
FINRA eliminated this registration category effective October 1,
2018, and the Exchange never recognized it.
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    The Exchange proposes to adopt Exchange Rule 3102, Interpretation
and Policy .01, to clarify that the function of accepting customer
orders is not considered a clerical or ministerial function and that
associated persons who accept customer orders under any circumstances
are required to be appropriately registered. However, the proposed rule
provides that an associated person is not accepting a customer order
where occasionally, when an appropriately registered person is
unavailable, the associated person transcribes the order details and
the

registered person contacts the customer to confirm the order details
before entering the order.
O. Changes to Continuing Education Requirements (Proposed Exchange Rule
3103)
    Continuing education for registered persons includes a Regulatory
Element and a Firm Element. The Regulatory Element applies to
registered persons and consists of periodic computer-based training on
regulatory, compliance, ethical, supervisory subjects and sales
practice standards. The Firm Element consists of at least annual,
member-developed and administered training programs designed to keep
covered registered persons current regarding securities products,
services and strategies offered by the Member. The Exchange proposes to
adopt Exchange Rule 3103 to better organize the continuing education
requirements.\76\
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    \76\ Proposed Exchange Rule 3103 also differs slightly from
FINRA Rule 1240 in that it omits references to certain registration
categories which the Exchange does not recognize as well as an
internal cross reference to FINRA Rule 4517.
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1. Regulatory Element
    The Exchange proposes to adopt the term ``covered person'' in
proposed Exchange Rule 3103(a). For purposes of the Regulatory Element,
the Exchange proposes to define the term ``covered person'' in proposed
Exchange Rule 3103(a)(5), as any person registered pursuant to proposed
Exchange Rule 3100, including any person who is permissively registered
pursuant to proposed Exchange Rule 3100, Interpretation and Policy .02,
and any person who is designated as eligible for an FSA waiver pursuant
to proposed Exchange Rule 3100, Interpretation and Policy .09. The
purpose of this change is to ensure that all registered persons,
including those with permissive registrations, keep their knowledge of
the securities industry current. The inclusion of persons designated as
eligible for an FSA waiver under the term ``covered persons''
corresponds to the requirements of proposed Exchange Rule 3100,
Interpretation and Policy .09. In addition, consistent with proposed
Exchange Rule 3100, Interpretation and Policy .09, proposed Exchange
Rule 3103(a)(1) provides that an FSA-eligible person would be subject
to a Regulatory Element program that correlates to his or her most
recent registration category, and CE would be based on the same cycle
had the individual remained registered. The proposed rule also provides
that if an FSA-eligible person fails to complete the Regulatory Element
during the prescribed time frames, he or she would lose FSA
eligibility.
    Further, the Exchange proposes to add a rule to address the impact
of failing to complete the Regulatory Element on a registered person's
activities and compensation. Specifically, proposed Exchange Rule
3103(a)(2) provides that any person whose registration has been deemed
inactive under the rule may not accept or solicit business or receive
any compensation for the purchase or sale of securities. However, like
the FINRA rule, the proposed rule provides that such person may receive
trail or residual commissions resulting from transactions completed
before the inactive status, unless the Member with which the person is
associated has a policy prohibiting such trail or residual commissions.
2. Firm Element
    The Exchange believes that training in ethics and professional
responsibility should apply to all covered registered persons.
Therefore, proposed Exchange Rule 3103(b)(2)(ii), which provides that
the Firm Element training programs must cover applicable regulatory
requirements, would also require that a firm's training program cover
training in ethics and professional responsibility.
P. Electronic Filing Requirements for Uniform Rules (Proposed Exchange
Rule 3104)
    Current Exchange Rule 203, Interpretations and Polices .01-.03,
state that each individual required to register shall electronically
file a Uniform Application for Securities Industry Registration (``Form
U4'') through the Central Registration Depository system (``Web CRD'')
operated by FINRA and to electronically submit to Web CRD any required
amendments to Form U4. Further, any Member or Member organization that
discharges or terminates the employment or retention of an individual
required to register must comply with certain termination filing
requirements, which include the filing of a Form U5.
    The Exchange proposes to delete current Exchange Rule 203,
Interpretations and Polices .01-.03, and to replace them with proposed
Exchange Rule 3104, Electronic Filing Requirements for Uniform Forms,
which will consolidate Form U4 and Form U5 electronic filing
requirements into a single rule. The proposed rule provides that all
forms required to be filed under the Exchange's registration rules
including the Exchange Rule 3100 Series shall be filed through an
electronic process or such other process as the Exchange may prescribe
to the Central Registration Depository. It also would impose certain
new requirements.
    Under proposed Exchange Rule 3104(b), each Member would be required
to designate registered principal(s) or corporate officer(s) who are
responsible for supervising a firm's electronic filings. The registered
principal(s) or corporate officer(s) who has or have the responsibility
to review and approve the forms filed pursuant to the rule would be
required to acknowledge, electronically, that he or she is filing this
information on behalf of the Member and the Member's associated
persons. Under proposed Exchange Rule 3104, Interpretation and Policy
.01, the registered principal(s) or corporate officer(s) could delegate
filing responsibilities to an associated person (who need not be
registered) but could not delegate any of the supervision, review, and
approval responsibilities mandated in proposed Exchange Rule 3104(b).
The registered principal(s) or corporate officer(s) would be required
to take reasonable and appropriate action to ensure that all delegated
electronic filing functions were properly executed and supervised.
    Pursuant to proposed Exchange Rule 3104(c)(1), every initial and
transfer electronic Form U4 filing and any amendments to the disclosure
information on Form U4 must be based on a manually signed Form U4
provided to the Member or applicant for membership by the person on
whose behalf the Form U4 is being filed. As part of the Member's
recordkeeping requirements, it would be required to retain the person's
manually signed Form U4 or amendments to the disclosure information on
Form U4 in accordance with Exchange Act Rule 17a-4(e)(1) under the Act
and make them available promptly upon regulatory request. An applicant
for membership must also retain every manually signed Form U4 it
receives during the application process and make them available
promptly upon regulatory request. Proposed Exchange Rule 3104(c)(2) and
Interpretations and Policies .03 and .04 to proposed Exchange Rule
3104, provide for the electronic filing of Form U4 amendments without
the individual's manual signature, subject to certain safeguards and
procedures.
    Proposed Exchange Rule 3104(d) provides that upon filing an
electronic Form U4 on behalf of a person applying for registration, a
Member must promptly submit fingerprint information for that person and
that the Exchange may make a registration effective pending receipt of
the fingerprint