Information Memos

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Number 12-10 12 Apr 2012
 
ATTENTION:    
 
TO:   ALL MEMBERS AND MEMBER ORGANIZATIONS
 
SUBJECT:   RULE 2 AND 304 AMENDMENTS: CHANGES TO DEFINITION OF APPROVED PERSONS AND APPLICATION PROCESS

Overview and Purpose

All member organizations are advised that the New York Stock Exchange, LLC ("NYSE") and NYSE Amex, LLC ("NYSE Amex") (collectively, the "Exchange") have amended NYSE and NYSE Amex Equities rules governing the definition of approved person and the application process for approved persons. In summary, the Exchange has:

Amended the definition of "approved person" to exclude foreign affiliates;

Replaced the AP-1 Form with a new consent form; and

Eliminated the AD-G 2 and AD-G 3 Forms ("AD-G Form")

This rule proposal was approved by the Securities and Exchange Commission on April 2, 2012. The effective date of this rule change is April 13, 2012. The full text of the amended rule changes is attached as Attachment A. The revised approved person consent form ("AP Form") for non-natural persons is attached as Attachment B and is also available on the Exchange's website: HYPERLINK "https://usequities.nyx.com/sites/usequities.nyx.com/files/ap_form.pdf"https://usequities.nyx.com/sites/usequities.nyx.com/files/ap_form.pdf.

As set forth in more detail below, in order to ensure that the Exchange has an accurate list of each member organization's approved persons, the Exchange is requiring all member organizations to provide the Exchange with an updated list of approved persons by July 27, 2012.

Background

The rules governing the definition of and application process for an approved person are Exchange Rules 2 and 304. Exchange Rule 2(c) previously defined the term "approved person" to include a person that is engaged in a securities or kindred business and is under common control with a member or member organization, which included foreign affiliates of the member organization that were in a securities or kindred business.

Exchange Rules 304 and 311(a) required, with limited exceptions, that persons that met the Exchange Rule 2(c) definition of an approved person apply for approval by the Exchange as an approved person. Exchange Rule 304 prescribed that process and applicants were required to submit a completed Form AP-1 (in the case of a non-natural person) or AD-G Form (in the case of a natural person) and other pertinent information regarding the applicant for approval. The AP-1 Form and the AD-G Form required applicants to provide information relating to, among other things, the financial background of the applicant. By executing the AP-1 Form or AD-G Form before a notary public, the approved person affirmatively consented to the Exchange's jurisdiction.

Amended Rule 2(c): Revised Approved Person Definition to Exclude Foreign Affiliates

The Exchange has amended Exchange Rule 2(c) to revise the definition of which persons are deemed under "common control" with a member organization. Specifically, the Exchange has amended the rule to exclude from the definition of "approved person" foreign affiliates under common control with a member organization. Amended Rule 2(c) now defines an approved person as:

a person, other than a member, principal executive or employee of a member organization, who controls a member organization, is engaged in a securities or kindred business that is controlled by a member or member organization, or is a U.S. registered broker-dealer under common control with a member organization.

As revised, the definition of approved person still includes any person that controls a member organization, which could include foreign persons, or any person that a member organization controls and that is in a securities or kindred business, which also could include a foreign person. As amended, the only entities that now fall under the common control with a member organization category of approved persons are U.S. registered broker dealers. Accordingly, persons under common control with a member organization that are in a securities or kindred business, and that are not U.S. registered broker dealers, no longer meet the definition of approved person. Thus, foreign affiliates of a member organization are now excluded from the definition of approved person.

Revised Application Process

In connection with the changes to the definition of approved person, the Exchange has also amended the rules governing the application process for approved persons. As amended, Exchange member organizations will no longer need to obtain Exchange approval for an approved person; either a person meets the definition of approved person or it does not.

Going forward, member organizations will be required to identify to the Exchange all of its approved persons, both natural and non-natural. As with the current AP-1 and AD-G Forms, such approved persons would continue to be required to consent to the Exchange's jurisdiction. However, such approved persons will no longer be required to submit financial information or obtain notarized signatures on the application form.

To reflect these changes, the Exchange is replacing the manner by which approved persons consent to Exchange jurisdiction.

Approved Persons that are non-natural persons: The Exchange has eliminated the AP-1 Form. Going forward, non-natural approved persons must complete and execute the AP Form, which requires the approved person to supply identifying information, identify its relationship to the member organization, disclose whether the approved person is subject to a statutory disqualification, and consent to jurisdiction of the Exchange. The AP Form must be executed by an officer duly authorized to sign on behalf of the approved person. The Exchange will accept electronic copies of the AP Form with a pdf of the signature page.

Approved Persons that are natural persons: The Exchange is eliminating the AD-G Form, but will continue to require registration with Web CRD as an approved person (the "AP" registration). Accordingly, all natural approved persons must file a Form U4 for the AP registration for both NYSE and NYSE Amex. By registering with the Exchange, the approved person consents to jurisdiction.

Requirement to Update List of Approved Persons

To ensure that the Exchange has an accurate list of each member organization's approved persons, the Exchange is requiring all member organizations provide the Exchange with an updated list of the names of all approved persons by July 27, 2012.

The updated list of names should include all approved persons, including those that have previously been approved by the Exchange as an approved person (either via an AP-1 Form or an AD-G Form). A member organization does not need to submit a new AP Form for approved persons that have previously been approved pursuant to either an AP-1 Form or an AD-G form.

For approved persons that are natural persons, please also include the CRD number.

The updated list of names should exclude any persons that no longer meet the definition of approved person, i.e., any persons under common control with a member organization that are in a securities or kindred business, other than a U.S. registered broker dealer.

If in its review, a member organization identifies persons that meet the definition of approved person, but for which an AP-1 Form or AD-G form has not previously been approved, the member organization must either submit an executed AP Form on behalf of any such non-natural approved person or register the natural approved persons as an AP on Web-CRD.

Member organizations should provide the updated list of approved persons to both the Exchange and FINRA at the following email addresses:

HYPERLINK "mailto:crs@nyx.com"crs@nyx.com

HYPERLINK "mailto:Q&RNY@finra.org"Q&RNY@finra.org

Going forward, if a member organization has any changes to its approved person list, it should advise the above-referenced email addresses. If the member organization has any new approved persons, the member organization must either provide an executed AP Form for a non-natural approved person or register the natural approved person with Web-CRD with a Form U4 for AP status.

Related Rule Changes

The Exchange also eliminated certain references to the term "allied member," and where appropriate, replaced that term with the term "principal executive," deleted the application process and examination requirements for allied members set forth in Exchange Rule 304 and 304A and the interpretations thereto, and conformed the member organization application requirements set forth in Exchange Rule 311 with the changes to Exchange Rule 304.

In addition, to ensure that potential conflicts of interest associated with having a foreign affiliate under common control with a member organization are addressed in rules that reference "approved persons," the Exchange has made several amendments to its rules.

First, the Exchange amended paragraphs (3) and (4) of Exchange Rule 21 to provide that a member of the Exchange's Board of Directors or an authorized committee who is associated with a member organization cannot participate in the deliberations concerning the listing of a security if the Director knows that an affiliate of the member organization directly or indirectly owns one percent or more of any class of stock of the issuer or has a contract, option, or privilege to purchase the security to be listed. Second, the Exchange amended Exchange Rule 22 to provide that a member of certain Exchange boards and committees may not participate in the consideration of any matter if there are certain types of indebtedness between the board or committee member and a member organization's affiliate or other related parties. Third, the Exchange amended NYSE Rule 98A, which provides that no issuer, or partner or subsidiary thereof, may become an approved person of a Designated Market Maker ("DMM") unit that is registered in the stock of that issuer, to provide instead that a DMM unit may not be registered in a stock of an issuer, or a partner or subsidiary thereof, if such entity is either an approved person or an affiliate of the DMM unit's member organization. Finally, the Exchange amended Supplementary Material .30(c) of Rule 402 to provide that when securities are callable in part under the Rule, a member organization may not allocate any called securities to the account of an affiliate until all customer positions have been satisfied.

Staff Contacts

Questions concerning the rule changes described in this Information Memo should be directed to:

Clare Saperstein, Vice President, NYSE Regulation, Inc., 212.656.2355

David De Gregorio, Chief Counsel, NYSE Regulation, Inc., 212.656.4166

Questions concerning the NYSE and NYSE Amex Equities membership application process should be directed to:

Client Relationship Services, 212.656.2085 or HYPERLINK "mailto:crs@nyx.com"crs@nyx.com

Joseph J. Sheirer, Director & Counsel, FINRA Membership Application Program, 212.858.5132

Maria Rabinovich, Principal Counsel, FINRA Membership Application Program, 646.315.8461

Questions concerning the submission of an updated list of approved persons should be directed to:

Edgar Russell, Manager, FINRA Registration and Disclosure, 212.858.4103

Attachments


NYSE Regulation, Inc




1. See Securities Exchange Act Release Nos. 66709 (April 2, 2012), 77 FR 20870 (April 6, 2012) (SR-NYSE-2012-06) and 66710 (April 2, 2012), 77 FR 20869 (April 6, 2012) (SR-NYSEAmex-2012-12).
2. The Exchange has not amended the definitions of “person” (Exchange Rule 2(d)), “control” (Exchange Rule 2(e)), or “engage in a securities or kindred business” (Exchange Rule 2(f)).




Attachments

AP Form.pdf


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