[Federal Register Volume 85, Number 125 (Monday, June 29, 2020)]
[Notices]
[Pages 39016-39018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13868]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89123; File No. SR-NYSE-2020-51)
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change To Add the Consolidated Audit Trail Industry Member
Compliance Rules to the List of Minor Rule Violations
June 23, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 12, 2020, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons and
approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to add the Consolidated Audit Trail (``CAT'')
industry member compliance rules to the list of minor rule violations
in Rule 9217. The proposed rule change is available on the Exchange's
website at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add NYSE's CAT industry member compliance
rules (the ``CAT Compliance Rules'') to the list of minor rule
violations in Rule 9217. This proposal is based upon the Financial
Industry Regulatory Authority, Inc. (``FINRA'') filing to amend FINRA
Rule 9217 in order to add FINRA's corresponding CAT Compliance Rules to
FINRA's list of rules that are eligible for minor rule violation plan
treatment.\4\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 88870 (May 14,
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013).
---------------------------------------------------------------------------
Proposed Rule Change
The Exchange recently adopted the CAT Compliance Rules in the Rule
6800 Series in order to implement the National Market System Plan
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'').\5\ The CAT NMS Plan was filed by the Plan Participants to
comply with Rule 613 of Regulation NMS under the Exchange Act,\6\ and
each Plan Participant accordingly has adopted the same compliance rules
in the Exchange's Rule 6800 Series. The common compliance rules adopted
by each Plan Participant are designed to require industry members to
comply with the provisions of the CAT NMS Plan, which broadly calls for
industry members to record and report timely and accurately customer,
order, and trade information relating to activity in NMS Securities and
OTC Equity Securities.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 79907 (January 31,
2017), 82 FR 9413 (February 6, 2017) (SR-NYSE-2017-01).
\6\ 17 CFR 242.613.
---------------------------------------------------------------------------
Rule 9217 sets forth the list of rules under which a member
organization or covered person may be subject to a fine under Rule
9216(b). Rule 9217 permits the Exchange to impose a fine of up to
$5,000 on any member or covered person for a minor violation of an
eligible rule. The Exchange proposes to amend Rule 9217 to add the CAT
Compliance Rules in the Rule 6800 Series to the list of rules in Rule
9217 eligible for disposition pursuant to a minor fine under Rule
9216(b).\7\
---------------------------------------------------------------------------
\7\ FINRA's maximum fine for minor rule violations under FINRA
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum
fine amount for eligible violations of the Rule 6800 Series to
achieve consistency with FINRA and also to amend its minor rule
violation plan (``MRVP'') to include such fines. Like FINRA, the
Exchange would be able to pursue a fine greater than $2,500 for
violations of the Rule 6800 Series in a regular disciplinary
proceeding or an acceptance, waiver, and consent (``AWC'') under the
Rule 9000 Series as appropriate. Any fine imposed in excess of
$2,500 or not otherwise covered by Rule 19d-1(c)(2) of the Act would
be subject to prompt notice to the Commission pursuant to Rule 19d-1
under the Act. As noted below, in assessing the appropriateness of a
minor rule fine with respect to CAT Compliance Rules, the Exchange
will be guided by the same factors that FINRA utilizes. See text
accompanying notes 9-10, infra.
---------------------------------------------------------------------------
The Exchange is coordinating with FINRA and other Plan Participants
to promote harmonized and consistent enforcement of all the Plan
Participants' CAT Compliance Rules. The Commission recently approved a
Rule 17d-2 Plan under which the regulation of CAT Compliance Rules will
be allocated among Plan Participants to reduce regulatory duplication
for industry members that are members of more than one Participant
(``common members'').\8\ Under the Rule 17d-2 Plan, the regulation of
CAT Compliance Rules with respect to common members that are members of
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan,
responsibility for common members of multiple other Plan Participants
and not a member of FINRA will be allocated among those other Plan
Participants, including to the Exchange. For those non-common members
who are allocated to NYSE pursuant to the Rule 17d-2 Plan, the Exchange
and FINRA entered into a Regulatory
[[Page 39017]]
Services Agreement (``RSA'') pursuant to which FINRA will conduct
surveillance, investigation, examination, and enforcement activity in
connection with the CAT Compliance Rules on the Exchange's behalf (with
the exception of such matters once a complaint is filed, which in such
instance is no longer administered through the MRVP). We expect that
the other exchanges would be entering into a similar RSA.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020) (File No. 4-618).
---------------------------------------------------------------------------
In order to achieve consistency with FINRA and the other Plan
Participants, the Exchange proposes to adopt fines up to $2,500 in
connection with minor rule fines for violations of the CAT Compliance
Rules in the Rule 6800 Series under Rule 9217 and the Exchange's MRVP.
FINRA, in connection with its proposed amendment to FINRA Rule 9217
to make FINRA's CAT Compliance Rules MRVP eligible, has represented
that it will apply the minor fines for CAT Compliance Rules in the same
manner that FINRA has for its similar existing audit trail-related
rules.\9\ Accordingly, in order to promote regulatory consistency, the
Exchange plans to do the same. Specifically, application of a minor
rule fine with respect to CAT Compliance Rules will be guided by the
same factors that FINRA referenced in its filing. However, more formal
disciplinary proceedings may be warranted instead of minor rule
dispositions in certain circumstances such as where violations prevent
regulatory users of the CAT from performing their regulatory functions.
Where minor rule dispositions are appropriate, the following factors
help guide the determination of fine amounts:
---------------------------------------------------------------------------
\9\ See SR-FINRA-2020-013; see also FINRA Notice to Members 04-
19 (March 2004) (providing specific factors used to inform
dispositions for violations of OATS reporting rules).
---------------------------------------------------------------------------
Total number of reports that are not submitted or
submitted late;
The timeframe over which the violations occur;
Whether violations are batched;
Whether the violations are the result of the actions of
one individual or the result of faulty systems or procedures;
Whether the firm has taken remedial measures to correct
the violations;
Prior minor rule violations within the past 24 months;
Collateral effects that the failure has on customers; and
Collateral effects that the failure has on the Exchange's
ability to perform its regulatory function.\10\
---------------------------------------------------------------------------
\10\ See id.
---------------------------------------------------------------------------
Upon effectiveness of this rule change, the Exchange will publish a
regulatory bulletin notifying its member organizations of the rule
change and the specific factors that will be considered in connection
with assessing minor rule fines described above.
For the foregoing reasons, the Exchange believes that the proposed
rule change will result in a coordinated, harmonized approach to CAT
compliance rule enforcement across Plan Participants that will be
consistent with the approach FINRA has taken with the CAT rules.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\11\ in general, and furthers the objectives of Section
6(b)(5),\12\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Minor rule fines provide a meaningful sanction for minor or
technical violations of rules when the conduct at issue does not
warrant stronger, immediately reportable disciplinary sanctions. The
inclusion of a rule in the Exchange's MRVP does not minimize the
importance of compliance with the rule, nor does it preclude the
Exchange from choosing to pursue violations of eligible rules through
an AWC if the nature of the violations or prior disciplinary history
warrants more significant sanctions. Rather, the Exchange believes that
the proposed rule change will strengthen the Exchange's ability to
carry out its oversight and enforcement responsibilities in cases where
full disciplinary proceedings are unwarranted in view of the minor
nature of the particular violation. Rather, the option to impose a
minor rule sanction gives the Exchange additional flexibility to
administer its enforcement program in the most effective and efficient
manner while still fully meeting the Exchange's remedial objectives in
addressing violative conduct. Specifically, the proposed rule change is
designed to prevent fraudulent and manipulative acts and practices
because it will provide the Exchange the ability to issue a minor rule
fine for violations of the CAT Compliance Rules in the Rule 6800 Series
where a more formal disciplinary action may not be warranted or
appropriate consistent with the approach of other Plan Participants for
the same conduct.
In connection with the fine level specified in the proposed rule
change, adding language that minor rule fines for violations of the CAT
Compliance Rules in the Rule 6800 Series shall not exceed $2,500 would
further the goal of transparency and add clarity to the Exchange's
rules. Adopting the same cap as FINRA for minor rule fines in
connection with the CAT Compliance Rules would also promote regulatory
consistency across self-regulatory organizations.
The Exchange further believes that the proposed amendments to Rule
9217 are consistent with Section 6(b)(6) of the Act,\13\ which provides
that members and persons associated with members shall be appropriately
disciplined for violation of the provisions of the rules of the
exchange, by expulsion, suspension, limitation of activities,
functions, and operations, fine, censure, being suspended or barred
from being associated with a member, or any other fitting sanction. As
noted, the proposed rule change would provide the Exchange ability to
sanction minor or technical violations of the Rule 6800 Series pursuant
to the Exchange's rules.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------
Finally, the Exchange also believes that the proposed changes are
designed to provide a fair procedure for the disciplining of members
and persons associated with members, consistent with Sections 6(b)(7)
and 6(d) of the Act.\14\ Rule 9217 does not preclude a member
organization or covered person from contesting an alleged violation and
receiving a hearing on the matter with the same procedural rights
through a litigated disciplinary proceeding.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b)(7) and 78f(d).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather is concerned
solely with making the CAT Compliance Rules in the Rule 6800 Series
eligible for a minor rule fine disposition, thereby strengthening the
Exchange's ability to carry out its
[[Page 39018]]
oversight and enforcement functions and deter potential violative
conduct.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-51 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2020-51. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2020-51 and should be submitted on
or before July 20, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\15\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\16\ which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \17\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\18\ which
governs minor rule violation plans.
---------------------------------------------------------------------------
\15\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
\17\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\18\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------
As stated above, the Exchange proposes to add the CAT Compliance
Rules to the list of minor rule violations in Rule 9217 to be
consistent with the approach FINRA has taken for minor violations of
its corresponding CAT Compliance Rules.\19\ The Commission has already
approved FINRA's treatment of CAT Compliance Rules violations when it
approved the addition of CAT Compliance Rules to FINRA's MRVP.\20\ As
noted in that order, and similarly herein, the Commission believes that
Exchange's treatment of CAT Compliance Rules violations as part of its
MRVP provides a reasonable means of addressing violations that do not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. However,
the Commission expects that, as with FINRA, the Exchange will continue
to conduct surveillance with due diligence and make determinations
based on its findings, on a case-by-case basis, regarding whether a
sanction under the rule is appropriate, or whether a violation requires
formal disciplinary action. Accordingly, the Commission believes the
proposal raises no novel or significant issues.
---------------------------------------------------------------------------
\19\ As discussed above, the Exchange has entered into a Rule
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance
Rules. The Commission notes that, unless relieved by the Commission
of its responsibility, as may be the case under the Rule 17d-2 Plan,
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not
the self-regulatory organization retained to perform regulatory
functions on the Exchange's behalf pursuant to an RSA. See
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying
text.
\20\ See supra note 4.
---------------------------------------------------------------------------
For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\21\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal merely adds the CAT Compliance Rules to the
Exchange's MRVP and harmonizes its application with FINRA's application
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission
believes that a full notice-and-comment period is not necessary before
approving the proposal.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\22\ and Rule 19d-1(c)(2) thereunder,\23\ that the proposed rule change
(SR-NYSE-2020-51) be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(2).
\23\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13868 Filed 6-26-20; 8:45 am]
BILLING CODE 8011-01-P