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Rulebook - Nasdaq PHLX
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General 9 Regulation
Section 1. General Standards

(a) Prohibition Against Trading Ahead of Customer Orders. Phlx members and persons associated with a member shall comply with FINRA Rule 5320 as if such Rule were part of Phlx's rules.

(1) For purposes of this Rule:

(A) References to FINRA Rules 5310, 5320 and 7440 shall be construed as references to General 9, Sections 1 and 11 and PSX 3404, respectively;

(B) The reference in FINRA Rule 5320 to an "institutional account", as defined in FINRA Rule 4512(c), shall be construed to apply to accounts of customers that do not meet the definition of "non-institutional customer", as defined in General 9, Section 10(c);

(C) FINRA Rule 5320.02(b) and the reference to FINRA Rule 6420 therein shall be disregarded;

(D) References to "FINRA" shall be construed as references to "Phlx".

(2) Phlx members and persons associated with a member relying upon the exception set forth in FINRA Rule 5320.03 shall comply with the reporting requirements stated therein. Phlx and FINRA are parties to the Regulatory Contract pursuant to which FINRA has agreed to perform certain functions on behalf of Phlx. Therefore, Phlx members are complying with this Rule by complying with FINRA Rule 5320.03 as written, including, for example, reporting requirements and notifications. In addition, functions performed by FINRA, FINRA departments, and FINRA staff under this Rule are being performed by FINRA on behalf of Phlx.

(b) Manipulative Operations. No member, member organization, partner or stockholder therein shall directly or indirectly participate in or have any interest in the profits of a manipulative operation or knowingly manage or finance a manipulative operation.

(1) For the purpose of this Rule

(A) any pool, syndicate or joint account, whether in corporate form or otherwise, organized or used intentionally for the purpose of unfairly influencing the market price of any security by means of options or otherwise and for the purpose of making a profit thereby shall be deemed to be a manipulative operation;

(B) the soliciting of subscriptions to any such pool, syndicate or joint account or the accepting of discretionary orders from any such pool, syndicate or joint account shall be deemed to be managing a manipulative operation; and

(C) the carrying on margin of either a long or a short position in securities for, or the advancing of credit through loans of money or of securities to, any such pool, syndicate or joint account shall be deemed to be financing a manipulative operation.

(2) No member or member organization shall execute or cause to be executed or participate in an account for which there are executed purchases of any listed security at successively higher prices, or sales of any such security at successively lower prices, for the purpose of creating or inducing a false, misleading or artificial appearance of activity in such security or for the purpose of unduly or improperly influencing the market price for such security or for the purpose of establishing a price which does not reflect the true state of the market in such security.

(3) No member or member organization shall, for the purpose of creating or inducing a false or misleading appearance of activity in a listed security or creating or inducing a false or misleading appearance with respect to the market in such security:

(A) execute any transaction in such security which involves no change in the beneficial ownership thereof; or

(B) enter any order or orders for the purchase of such security with the knowledge that an order or orders of substantially the same size, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties; or

(C) enter any order or orders for the sale of any such security with the knowledge that an order or orders of substantially the same size, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties.

(4) No member or member organization shall execute purchases or sales of listed securities for any account in which such member or member organization is directly or indirectly interested, which purchases or sales are excessive in view of the member's or member organization's financial resources or in view of the market for such security.

(5) No member or member organization shall participate or have any interest, directly or indirectly, in the profits of a manipulative operation or knowingly manage or finance a manipulative operation.

(A) Any pool, syndicate or joint account organized or used intentionally for the purpose of unfairly influencing the market price of a listed security shall be deemed to be a manipulative operation

(B) The solicitation of subscriptions to or the acceptance of discretionary orders from any such pool, syndicate or joint account shall be deemed to be managing a manipulative operation.

(C) The carrying on margin of a position in such securities or the advancing of credit through loans to any such pool, syndicate or joint account shall be deemed to be financing a manipulative operation.

(6) No member or member organization shall make any statement or circulate and disseminate any information concerning a listed security which such member knows or has reasonable grounds for believing is false or misleading or would improperly influence the market price of such security.

(7) No member, member organization or person associated with a member or member organization shall, directly or indirectly, hold any interest or participation in any joint account for buying or selling a listed security, unless such joint account is promptly reported to Phlx. The report should contain the following information for each account:

(A) Name of the account, with names of all participants and their respective interests in profits and losses;

(B) a statement regarding the purpose of the account;

(C) name of the member carrying and clearing the account; and

(D) a copy of any written agreement or instrument relating to the account.

(8) No member or member organization shall offer that a transaction or transactions to buy or sell a listed security will influence the closing transaction on the Consolidated Tape or The Options Price Reporting Authority ("OPRA").

(9) A member or member organization may, but is not obligated to, accept a Stop Order in a listed security.

(A) A buy Stop Order is an order to buy which becomes a Market Order when a transaction takes place at or above the stop price.

(B) A sell Stop Order is an order to sell which becomes a Market Order when a transaction takes place at or below the stop price.

A member or member organization may, but is not obligated to, accept Stop-Limit Orders in listed securities. When a transaction occurs at the stop price, the Stop-Limit Order to buy or sell becomes a Limit Order at the limit price.

(10) No member, member organization or person associated with a member or member organization shall execute or cause to be executed, directly or indirectly, on a Phlx transaction in a security subject to an initial public offering until such security has first opened for trading on the national securities exchange listing the security, as indicated by the dissemination of an opening transaction in the security by the listing exchange via the Consolidated Tape or OPRA.

Adopted Feb. 3, 2020 (20-03).

Section 2. Customers' Securities and Excessive Trading of Members

(a) No member organization shall make improper use of a customer's securities.

(b) No member, member organization, partner or stockholder therein shall (1) effect on the Exchange purchases or sales for any account in which he or it is directly or indirectly interested, which purchases or sales are excessive in view of his or its financial resources or in view of the market for such security or (2) execute or cause to be executed on the Exchange purchases or sales of any security for any account with respect to which he or it or another partner or stockholder therein is vested with any discretionary power, which purchases or sales are excessive in view of the financial resources in such account.

(i) The Exchange expects that all trading by members and member organizations will have a constructive effect on the market by adding to its orderliness and liquidity. In this regard, there are certain kinds of trading activity and trading patterns which should be avoided and which may be excessive in view of the market. Among these are: (a) purchases in substantial quantity and with respect to options on plus or zero plus ticks in order to establish or increase a position where the members or member organization trading has shown a pattern buying and selling the same listed option on the same day; (b) a succession of purchases by a member or member organization to establish or increase a position at the same or successively higher prices in the same trading session; and (c) purchases to establish or increase a position where a member or member organization has reason to believe that members' transactions may have accelerated the price movement of a product.

Adopted Feb. 3, 2020 (20-03).

Section 3. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 4. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 5. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 6. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 7. Report of Financial Arrangements

(a) Financial Arrangements—Each member, member organization general partner and voting stockholder therein shall report to the Exchange, forthwith in a form prescribed by the Exchange, any financial arrangement entered into, either directly or indirectly, with another member or member organization or general partner, voting shareholder, or any associated person thereof or a non-member. For the purposes of this Rule, a financial arrangement shall be defined as:

(1) the direct financing of a member organization's dealings upon the Exchange with the exception of clearing arrangements;

(2) any direct equity investment or profit sharing arrangement;

(3) any consideration over the amount of $5,000 that constitutes a gift, loan, salary or bonus; and

(4) the guarantee of a trading account with the exception of clearing arrangements

(b) The disclosure of such financial arrangements shall be the responsibility of all members involved. The member organization shall submit to the Exchange notification of the initiation or termination of such financial arrangements within ten (10) business days of the effective date of such arrangements. The notice of termination will constitute the end of the financial arrangement.

(c) Nothing in this rule would require the reporting of agreements for the lending and borrowing of securities, financial arrangements between members affiliated with the same member organization or transactions in publicly traded securities of a member organization.

(d) As used herein, an agreement for the lending of securities shall mean a securities contract or other agreement, including related terms, for the transfer of securities against the transfer of funds, securities or other collateral, with a simultaneous agreement by the transferee to transfer to the transferor against the transfer of funds, securities, or other collateral, upon notice, at a date certain, upon demand, the same or substituted securities.

Adopted Feb. 3, 2020 (20-03).

Section 8. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 9. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 10. Recommendations to Customers (Suitability)

(a) In recommending to a customer the purchase, sale or exchange of any security, member organizations shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

(b) Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, member organizations shall make reasonable efforts to obtain information concerning:

(1) the customer's financial status;

(2) the customer's tax status;

(3) the customer's investment objectives; and

(4) such other information used or considered to be reasonable by such member organization or its registered representative in making recommendations to the customer.

(c) For purposes of this Rule, the term "non-institutional customer" shall mean a customer that is not (1) a bank, savings and loan association, insurance company, or registered investment company; (2) an investment adviser registered either with the Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions); or (3) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.

(d) Implicit in all member organization and registered representative relationships with customers and others is the fundamental responsibility for fair dealing. Sales efforts must therefore be undertaken only on a basis that can be judged as being within the ethical standards of the Exchange's Rules, with particular emphasis on the requirement to deal fairly with the public.

(e) This does not mean that legitimate sales efforts in the securities business are to be discouraged by requirements which do not take into account the variety of circumstances which can enter into the member organization/customer relationship. It does mean, however, that sales efforts must be judged on the basis of whether they can be reasonably said to represent fair treatment for the persons to whom the sales efforts are directed, rather than on the argument that they result in profits to customers.

(f) Some practices that clearly violate a member organization's responsibility for fair dealing are set forth below, as a guide to member organizations:

(1) Recommending Speculative Low-Priced Securities. Recommending speculative low-priced securities to customers without knowledge of or attempt to obtain information concerning the customers' other securities holdings, their financial situation and other necessary data. The principle here is that this practice, by its very nature, involves a high probability that the recommendation will not be suitable for at least some of the persons solicited. This has particular application to high pressure telephone sales campaigns.

(2) Excessive Trading Activity. Excessive activity in a customer's account, often referred to as "churning" or "overtrading." There are no specific standards to measure excessiveness of activity in customer accounts because this must be related to the objectives and financial situation of the customer involved.

(3) Trading in Mutual Fund Shares. Trading in mutual fund shares, particularly on a short-term basis. It is clear that normally these securities are not proper trading vehicles and such activity on its face may raise the question of Rule violation.

(4) Fraudulent Activity

(A) Numerous instances of fraudulent conduct may result in penalties against member organizations. Among some of these activities are:

(i) Fictitious Accounts. Establishment of fictitious accounts in order to execute transactions which otherwise would be prohibited, such as the purchase of hot issues, or to disguise transactions which are against firm policy.

(ii) Discretionary Accounts. Transactions in discretionary accounts in excess of or without actual authority from customers.

(iii) Unauthorized Transactions. Causing the execution of transactions which are unauthorized by customers or the sending of confirmations in order to cause customers to accept transactions not actually agreed upon.

(iv) Misuse of Customers' Funds or Securities. Unauthorized use or borrowing of customers' funds or securities.

(B) In addition, other fraudulent activities, such as forgery, non-disclosure or misstatement of material facts, manipulations and various deceptions, may be found to be in violation of Exchange Rules. These same activities are also subject to the civil and criminal laws and sanctions of federal and state governments.

(5) Recommending Purchases Beyond Customer Capability. Recommending the purchase of securities or the continuing purchase of securities in amounts which are inconsistent with the reasonable expectation that the customer has the financial ability to meet such a commitment.

(g) While most member organizations are fully aware of the fairness required in dealing with customers, it is anticipated that the practices enumerated in paragraph (f), which are not all inclusive, will be of future assistance in the training and education of new personnel.

(h) The Commission has also recognized that brokers and dealers have an obligation of fair dealing in actions under the general anti-fraud provisions of the federal securities laws. The Commission bases this obligation on the principle that when a securities dealer opens his business he is, in effect, representing that he will deal fairly with the public. Certain of the Commission's cases on fair dealing involve practices not covered in the foregoing illustrations. Usually, any breach of the obligation of fair dealing as determined by the Commission under the anti-fraud provisions of the securities laws could be considered a violation of the Exchange's Rules.

(i) Fair Dealing with Customers with Regard to Derivative Products or New Financial Products. The Exchange emphasizes member organizations' obligations for fair dealing with customers when making recommendations or accepting orders for new financial products. As new products are introduced from time to time, it is important that member organizations make every effort to familiarize themselves with each customer's financial situation, trading experience, and ability to meet the risks involved with such products and to make every effort to make customers aware of the pertinent information regarding the products. Member organizations must follow specific guidelines, set forth below, for qualifying the accounts to trade the products and for supervising the accounts thereafter.

(j) Suitability Obligations to Institutional Customers. The Exchange's suitability rule is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct. Member organizations' responsibilities include having a reasonable basis for recommending a particular security or strategy, as well as having reasonable grounds for believing the recommendation is suitable for the customer to whom it is made. Member organizations are expected to meet the same high standards of competence, professionalism, and good faith regardless of the financial circumstances of the customer.

Paragraph (a) requires that, in recommending to a customer the purchase, sale or exchange of any security, a member organization shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs. This interpretation concerns only the manner in which a member organization determines that a recommendation is suitable for a particular institutional customer. The manner in which a member organization fulfills this suitability obligation will vary depending on the nature of the customer and the specific transaction. Accordingly, this interpretation deals only with guidance regarding how a member organization may fulfill such "customer-specific suitability obligations" under paragraph (a).

While it is difficult to define in advance the scope of a member organization's suitability obligation with respect to a specific institutional customer transaction recommended by a member organization, the Exchange has identified certain factors which may be relevant when considering compliance with paragraph (a). These factors are not intended to be requirements or the only factors to be considered but are offered merely as guidance in determining the scope of a member organization's suitability obligations.

The two most important considerations in determining the scope of a member organization's suitability obligations in making recommendations to an institutional customer are the customer's capability to evaluate investment risk independently and the extent to which the customer is exercising independent judgment in evaluating a member organization's recommendation. A member organization must determine, based on the information available to it, the customer's capability to evaluate investment risk. In some cases, the member organization may conclude that the customer is not capable of making independent investment decisions in general. In other cases, the institutional customer may have general capability, but may not be able to understand a particular type of instrument or its risk. This is more likely to arise with relatively new types of instruments, or those with significantly different risk or volatility characteristics than other investments generally made by the institution. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product, the scope of a member organization's customer-specific obligations under the suitability rule would not be diminished by the fact that the member organization was dealing with an institutional customer. On the other hand, the fact that a customer initially needed help understanding a potential investment need not necessarily imply that the customer did not ultimately develop an understanding and make an independent investment decision.

A member organization may conclude that a customer is exercising independent judgment if the customer's investment decision will be based on its own independent assessment of the opportunities and risks presented by a potential investment, market factors and other investment considerations. Where the broker-dealer has reasonable grounds for concluding that the institutional customer is making independent investment decisions and is capable of independently evaluating investment risk, then a member organization's obligation to determine that a recommendation is suitable for a particular customer is fulfilled. Where a customer has delegated decision-making authority to an agent, such as an investment advisor or a bank trust department, this interpretation shall be applied to the agent.

A determination of capability to evaluate investment risk independently will depend on an examination of the customer's capability to make its own investment decisions, including the resources available to the customer to make informed decisions. Relevant considerations could include:

• the use of one or more consultants, investment advisers or bank trust departments;

• the general level of experience of the institutional customer in financial markets and specific experience with the type of instruments under consideration;

• the customer's ability to understand the economic features of the security involved;

• the customer's ability to independently evaluate how market developments would affect the security; and

• the complexity of the security or securities involved.

A determination that a customer is making independent investment decisions will depend on the nature of the relationship that exists between the member organization and the customer. Relevant considerations could include:

• any written or oral understanding that exists between the member organization and the customer regarding the nature of the relationship between the member organization and the customer and the services to be rendered by the member organization;

• the presence or absence of a pattern of acceptance of the member organization's recommendations;

• the use by the customer of ideas, suggestions, market views and information obtained from other member organizations or market professionals, particularly those relating to the same type of securities; and

• the extent to which the member organization has received from the customer current comprehensive portfolio information in connection with discussing recommended transactions or has not been provided important information regarding its portfolio or investment objectives.

Member organizations are reminded that these factors are merely guidelines which will be utilized to determine whether a member organization has fulfilled its suitability obligations with respect to a specific institutional customer transaction and that the inclusion or absence of any of these factors is not dispositive of the determination of suitability. Such a determination can only be made on a case-by-case basis taking into consideration all the facts and circumstances of a particular member organization/customer relationship, assessed in the context of a particular transaction.

For purposes of this interpretation, an institutional customer shall be any entity other than a natural person. In determining the applicability of this interpretation to an institutional customer, the Exchange will consider the dollar value of the securities that the institutional customer has in its portfolio and/or under management. While this interpretation is potentially applicable to any institutional customer, the guidance contained herein is more appropriately applied to an institutional customer with at least $10 million invested in securities in the aggregate in its portfolio and/or under management.

Adopted Feb. 3, 2020 (20-03).

Section 11. Best Execution and Interpositioning

(a) (1) In any transaction for or with a customer or a customer of another broker-dealer, a member organization and persons associated with a member organization shall use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions. Among the factors that will be considered in determining whether a member organization has used "reasonable diligence" are:

(A) the character of the market for the security, e.g., price, volatility, relative liquidity, and pressure on available communications;

(B) the size and type of transaction;

(C) the number of markets checked;

(D) accessibility of the quotation; and

(E) the terms and conditions of the order which result in the transaction, as communicated to the member organization and persons associated with the member organization.

(2) In any transaction for or with a customer or a customer of another broker-dealer, no member organization or person associated with a member organization shall interject a third party between the member organization and the best market for the subject security in a manner inconsistent with paragraph (a)(1) of this Rule.

(b) When a member organization cannot execute directly with a market maker but must employ a broker's broker or some other means in order to insure an execution advantageous to the customer, the burden of showing the acceptable circumstances for doing so is on the retail firm. Examples of acceptable circumstances are where a customer's order is "crossed" with another retail firm which has a corresponding order on the other side, or where the identity of the retail firm, if known, would likely cause undue price movements adversely affecting the cost or proceeds to the customer.

(c) Failure to maintain or adequately staff a department assigned to execute customers' orders cannot be considered justification for executing away from the best available market; nor can channeling orders through a third party as described above as reciprocation for service or business operate to relieve a member organization of its obligations. However, the channeling of customers' orders through a broker's broker or third party pursuant to established correspondent relationships under which executions are confirmed directly to the member organization acting as agent for the customer, such as where the third party gives up the name of the retail firm, are not prohibited if the cost of such service is not borne by the customer.

(d) A member organization through whom a retail order is channeled, as described above, and who knowingly is a party to an arrangement whereby the initiating member organization has not fulfilled his obligations under this Rule, will also be deemed to have violated this Rule.

(e) The obligations described in paragraphs (a) through (d) above exist not only where the member organization acts as agent for the account of his customer but also where retail transactions are executed as principal and contemporaneously offset.

(f) Paragraph (a) requires, among other things, that a member organization or person associated with a member organization comply with paragraph (a) when customer orders are routed to it from another broker/dealer for execution. This rule text addresses certain interpretive questions concerning the applicability of the best execution rule.

For the purposes of this Rule, the term "market" or "markets" is to be construed broadly, and it encompasses a variety of different venues, including, but not limited to, market centers that are trading a particular security. This expansive interpretation is meant to both inform broker/dealers as to the breadth of the scope of venues that must be considered in the furtherance of their best execution obligations and to promote fair competition among broker/dealers, exchange markets, and markets other than exchange markets, as well as any other venue that may emerge, by not mandating that certain trading venues have less relevance than others in the course of determining a firm's best execution obligations.

A member organization's duty to provide best execution in any transaction "for or with a customer of another broker/dealer" does not apply in instances when another broker/dealer is simply executing a customer order against the member organization's quote. Stated in another manner, the duty to provide best execution to customer orders received from other broker/dealers arises only when an order is routed from the broker/dealer to the member organization for the purpose of order handling and execution. This clarification is intended to draw a distinction between those situations in which the member organization is acting solely as the buyer or seller in connection with orders presented by a broker/dealer against the member organization's quote, as opposed to those circumstances in which the member organization is accepting order flow from another broker/dealer for the purpose of facilitating the handling and execution of such orders.

Adopted Feb. 3, 2020 (20-03).

Section 12. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 13. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 14. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 15. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 16. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 17. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 18. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 19. Discretionary Power as to Customers' Accounts

Member organizations shall comply with NASD Rule 2510 as if such rule were part of the Exchange Rules.

Adopted Feb. 3, 2020 (20-03).

Section 20. Supervision

(a) General—Each office, location, department, business activity, trading system and internal surveillance system of a member or member organization (including foreign incorporated branch offices) shall be under the supervision and control of the member or member organization establishing it and of an appropriately qualified supervisor, as described in (c) below.

Each member or member organization and registered representative, employee, and associated person of a member or member organization shall be under the supervision and control of an appropriately qualified supervisor, as described in (c) below.

For the purposes of this Rule, individuals engaged in acting as back-up Lead Market Maker unit will be considered to be engaged in a business activity for the Lead Market Maker unit they are assisting pursuant to Options 2, Section 11(b)(4).

(b) Designation of Supervisor by Member Organizations—The general partners or directors of each member organization shall provide for appropriate supervisory control and shall designate a general partner or principal executive officer to assume overall authority and responsibility for internal supervision and control of the organization and compliance with securities laws and regulations, including the By-Laws and Rules of the Exchange. The designated person shall:

(1) Delegate to qualified principals or qualified employees responsibility and authority for supervision and control of each office, location, department, business activity, trading system and internal surveillance system (including foreign incorporated branch offices), and provide for appropriate written procedures of supervision and control; and

(2) Establish a separate system of follow-up and review to determine that the delegated authority and responsibility is being properly exercised.

(c) Qualification of Supervisor—Each member or member organization must make reasonable efforts to determine that each person with supervisory control, as described in paragraphs (a) and (b) above, is qualified by virtue of experience or training to carry out his or her assigned responsibilities. Each person with supervisory control, as described in paragraphs (a) and (b) above, must meet the Exchange's qualification requirements for supervisors, including successful completion of the appropriate examination.

(d) Standards for Supervision—Each person with supervisory control, as described in paragraphs (a) and (b) above, shall reasonably discharge his duties and obligations in connection with such supervision and control to prevent and detect, insofar as practicable, violations of the applicable securities laws and regulations, including the By-Laws and Rules of the Exchange.

(e) Interviews or Meetings and Reviews of Business—At least annually, each member or member organization for which the Exchange is the Designated Examining Authority ("DEA") shall:

(1) Conduct an interview or meeting with all registered representatives, employees, or associated persons, at which compliance matters relevant to the activities of the registered representatives, employees, or associated persons are discussed; and

(2) Conduct a review of the business(es) in which it engages, which shall be reasonably designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations, including the By-Laws and Rules of the Exchange.

Each member or member organization shall retain a written record of the dates upon which each interview or meeting and review of business occurred, the participants in the interview or meeting, and the results thereof.

(f) Branch Offices—Each member organization for which the Exchange is the Designated Examining Authority ("DEA") shall file with the Exchange a list identifying each of its branch offices by completing a Branch Office Disclosure Form and submitting the Form to the Exchange's Membership Department. Member organizations for which the Exchange is the DEA shall file amendments to the Branch Office Disclosure Form with the Exchange no later than thirty (30) days from the date of any change to the information in the Form. Member organizations for which the Exchange is the DEA shall provide information about its branch offices, including, but not limited to: location, designated supervisor, contact information, number of traders at the location and type of activity conducted at the branch office.

(g) Office Inspections—Each member or member organization for which the Exchange is the DEA shall inspect each office or location (including foreign incorporated branch offices) of the member or member organization according to a cycle that shall be established in its written supervisory procedures. An inspection may not be conducted by any person within that office or location who has supervisory responsibilities or by any individual who is directly or indirectly supervised by such person(s). In establishing such inspection cycle, the member or member organization shall give consideration to the nature and complexity of the securities activities for which the office or location is responsible, the volume of business done, and the number of registered representatives, employees, and associated persons at each office or location. The inspection schedule and an explanation of the factors considered in determining the frequency of the inspections in the cycle shall be set forth in the member's or member organization's written supervisory procedures. The inspection shall be reasonably designed to assist in preventing and detecting violations of, and achieving compliance with, applicable securities laws and regulations, and with applicable Exchange rules.

Each member or member organization shall retain a written record of the dates upon which each inspection is conducted, the participants in the inspection, and the results thereof.

(h) Written Supervisory Procedures—Each member or member organization shall establish, maintain, and enforce written supervisory procedures, and a system for applying such procedures, to supervise the types of business(es) in which the member or member organization engages in and to supervise the activities of all registered representatives, employees, and associated persons. The written supervisory procedures and the system for applying such procedures shall reasonably be designed to prevent and detect, insofar as practicable, violations of the applicable securities laws and regulations, including the By-Laws and Rules of the Exchange.

The written supervisory procedures shall set forth the supervisory system established by the member or member organization and shall include the name, title, registration status, and location of all supervisory personnel required by this rule, the dates for which supervisory designations were or are effective, and the responsibilities of supervisory personnel as these relate to the types of business(es) the member or member organization engages in, and securities laws and regulations, including the By-Laws and Rules of the Exchange. This record must be preserved for a period of not less than three years, the first two in an easily accessible place.

A copy of the written supervisory procedures shall be kept and maintained at each location where supervisory activities are conducted on behalf of the member or member organization. Each member or member organization shall amend its written supervisory procedures as appropriate within a reasonable time after changes occur in applicable securities laws and regulations, Exchange rules, supervisory personnel or supervisory procedures. Each member or member organization shall be responsible for communicating such changes throughout its organization within a reasonable time.

Adopted Feb. 3, 2020 (20-03).

Section 21. Supervisory Procedures Relating to ITSFEA and to Prevention of Misuse of Material Nonpublic Information

(a) Member organizations must maintain written supervisory procedures as required by the Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA). Such procedures must be reasonably designed to prevent the misuse of material, non-public information by employees.

(b) In addition to the requirements under ITSFEA, the Exchange herein institutes basic minimum standards for incorporation into ITSFEA related written supervisory procedures for all member organizations. The requirements enumerated below must be included and, together with all related additional written supervisory procedures maintained in accordance with paragraph (a) above, must receive approval by the Exchange. These requirements are not intended to supersede, or be presumed to fulfill, the requirements of ITSFEA. These requirements are instead set forth as separate requirements of the Exchange.

In the instance where a member organization is subject to written supervisory procedures relating to ITSFEA, imposed by another self regulatory organization which is its designated examining authority ("DEA") the Exchange requirements set forth in paragraph (b) of this Rule will not apply.

(1) Each new employee of the organization shall be furnished with a copy of the most current version of the Exchange's "Notice of Insider Trading" (Notice), or a document substantially similar to the Notice approved by the DEA for use in this connection. Within ten business days from the first date of employment with the unit, each new employee must sign and return the Notice to the employer. By his signature on the Notice, the employee attests to having carefully read the Notice and agrees to appropriately supply the employer firm with all trading accounts for which such person maintains a beneficial interest, including all personal and household accounts of the employee. Also, by his signature on the Notice, each new employee ensures that delivery of all related account statements will be made directly from the firm(s) maintaining the account to the employer.

(2) Each organization must complete the Exchange's "ITSFEA Accounts List", comprising all accounts submitted in connection with paragraph (1) above and all proprietary accounts of the unit. Updates to the list must be made within one month of any change and each completed version of the list must be maintained for no less than three years by the organization.

(3) Each month a supervisory person of the organization is required to make a reasonable review of all activities from the account statements of those accounts reflected on the ITSFEA Accounts List with a view toward identifying the possible misuse of material non-public information. A report must be made promptly to the Exchange's Regulatory staff in the event that any such unusual profits are so identified.

(c) For purposes of paragraph (b) of this Rule, an employee shall include every person who is compensated directly or indirectly by the member organization for the solicitation or handling of business in securities, including trading securities for the account of the member organization, whether such securities are those dealt in on the Exchange or those dealt over-the-counter.

(d) Every member or member organization shall establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of the member's business, to prevent the misuse of material nonpublic information by such member or persons associated with such member in violation of the Exchange Act and the rules thereunder and the Exchange's own Rules. For purposes of this paragraph, misuse of material nonpublic information means:

(1) trading in any securities issued by a corporation, partnership, Portfolio Depository Receipts, Index Fund Shares, trust issued receipts, currency trust shares or a trust or similar entities, or in any related securities or related options or other derivative securities, or in any related commodity, related commodity futures or options on commodity futures or any other related commodity derivatives, while in possession of material nonpublic information concerning that corporation, Portfolio Depository Receipt, Index Fund Share, trust issued receipts, currency trust shares, trust or similar entity;

(2) trading in an underlying security or related options or other derivative securities, or in any related commodity, related commodity futures or options on commodity futures or any other related commodity derivatives, while in possession of material nonpublic information concerning imminent transactions in the above; and

(3) disclosing to another person any material nonpublic information involving a corporation, partnership, Portfolio Depository Receipts, Index Fund Shares, trust issued receipts, currency trust shares or a trust or similar entities whose shares are publicly traded or an imminent transaction in an underlying security or in any related commodity, related commodity futures or options on commodity futures or any other related commodity derivatives, for the purpose of facilitating the possible misuse of such material nonpublic information.

Adopted Feb. 3, 2020 (20-03).

Section 22. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 23. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 24. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 25. Accounts of Employees of Member Organizations

No member organization shall take or carry an account or make a transaction in which an employee of any member organization is directly or indirectly interested, unless the written consent of the employer member organization has first been obtained. Where such prior consent is obtained, duplicate reports and monthly statements of all transactions shall be sent to the employer. The employee is also responsible for arranging duplicate reports and monthly statements of all transactions to be sent to the employer where a trading account is with a nonmember of the Exchange.

Adopted Feb. 3, 2020 (20-03).

Section 26. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 27. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 28. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 29. Transactions for Employees and Speculative Transactions for Employees of Certain Employers

(a) No member organization shall take or carry an account or make a transaction in which an employee of the Exchange, or of any corporation of which the Exchange owns a majority of the capital stock, or of any other member or member organization, is directly or indirectly interested, without the prior written consent of the employer.

(b) No member organization shall, without the prior written consent of the employer, take or carry a speculative account or make a speculative transaction in which an employee of a bank, trust company, insurance company, or of any corporation, association, firm or individual engaged in the business of dealing, either as broker or as principal, in stocks, bonds, or other securities in any form, bills of exchange, acceptances, or other forms of commercial paper, is directly or indirectly interested.

Adopted Feb. 3, 2020 (20-03).

Section 30. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 31. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 32. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 33. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 34. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 35. Nonregistered Foreign Finders

(a) Member organizations, and persons associated with a member organization, may pay to nonregistered foreign persons transaction-related compensation based upon the business of customers they direct to member organizations if the following conditions are met:

(1) the member organization has assured itself that the nonregistered foreign person who will receive the compensation (the "finder") is not required to register in the U.S. as a broker/dealer nor is subject to a disqualification as defined in Exchange Rules, and has further assured itself that the compensation arrangement does not violate applicable foreign law;

(2) the finders are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad;

(3) the customers are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad transacting business in either foreign or U.S. securities;

(4) customers receive a descriptive document, similar to that required by Rule 206(4)-3(b) of the Investment Advisers Act of 1940, that discloses what compensation is being paid to finders;

(5) customers provide written acknowledgment to the member organization of the existence of the compensation arrangement and that such acknowledgment is retained and made available for inspection by the Exchange;

(6) records reflecting payments to finders are maintained on the member organization's books and actual agreements between the member organization and persons compensated are available for inspection by the Exchange; and

(7) the confirmation of each transaction indicates that a referral or finders fee is being paid pursuant to an agreement.

Adopted Feb. 3, 2020 (20-03).

Section 36. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 37. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 38. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 39. Fidelity Bonds

(a) General Provision

(1) Each member and member organization required to join the Securities Investor Protection Corporation shall maintain blanket fidelity bond coverage which provides against loss and has Insuring Agreements covering at least the following:

(A) Fidelity;

(B) On Premises;

(C) In Transit;

(D) Forgery and Alteration;

(E) Securities; and

(F) Counterfeit Currency.

(2) The fidelity bond must include a cancellation rider providing that the insurance carrier will use its best efforts to promptly notify the Exchange in the event the bond is cancelled, terminated or substantially modified.

(3) A member or member organization's fidelity bond must provide for per loss coverage without an aggregate limit of liability.

(b) Minimum Required Coverage

(1) A member or member organization with a net capital requirement of less than $250,000 must maintain minimum fidelity bond coverage for all Insuring Agreements required by paragraph (a) of this Rule of the greater of (A) 120% of the member or member organization's required net capital under SEC Rule 15c3-1 or (B) $100,000. A member or member organization with a net capital requirement of $250,000 or more must maintain minimum fidelity bond coverage for all Insuring Agreements required by paragraph (a) of this Rule in accordance with the following table:


Net Capital Requirement under SEA Rule 15c3-1

Minimum Coverage


250,000 - 300,000

600,000

300,001 - 500,000

700,000

500,001 - 1,000,000

800,000

1,000,001 - 2,000,000

1,000,000

2,000,001 - 3,000,000

1,500,000

3,000,001 - 4,000,000

2,000,000

4,000,001 - 6,000,000

3,000,000

6,000,001 - 12,000,000

4,000,000

12,000,001 and above

5,000,000


(2) At a minimum, a member or member organization must maintain fidelity bond coverage for any person associated with the member or member organization, except directors or trustees who are not performing acts within the scope of the usual duties of an officer or employee.

(3) Any defense costs for covered losses must be in addition to the minimum coverage requirements as set forth in paragraph (b)(1) of this Rule.

(c) Deductible Provision

A provision may be included in a fidelity bond to provide for a deductible of up to 25% of the coverage purchased by a member or member organization. Any deductible amount elected by the member or member organization that is greater than 10% of the coverage purchased by the member or member organization must be deducted from the member or member organization's net worth in the calculation of its net capital for purposes of SEC Rule 15c3-1. If the member or member organization is a subsidiary of another Exchange member, or member organization this amount may be deducted from the parent's rather than the subsidiary's net worth, but only if the parent guarantees the subsidiary's net capital in writing.

(d) Annual Review of Coverage

(1) A member or member organization, including a member or member organization that signs a multi-year insurance policy, shall, annually as of the yearly anniversary date of the issuance of the fidelity bond, review the adequacy of its coverage and make any required adjustments, as set forth in paragraphs (d)(2) and (d)(3) of this Rule.

(2) A member or member organization's highest net capital requirement during the preceding 12-month period, based on the applicable method of computing net capital (dollar minimum, aggregate indebtedness or alternative standard), shall be used as the basis for determining the member's or member organization's required minimum fidelity bond coverage for the succeeding 12-month period. For the purpose of this paragraph, the "preceding 12-month period" shall include the 12-month period that ends 60 days before the yearly anniversary date of a member's or member organization's fidelity bond.

(3) A member or member organizations that has only been in business for one year and elected the aggregate indebtedness ratio for calculating its net capital requirement may use, solely for the purpose of determining the adequacy of its fidelity bond coverage for its second year, the 15 to 1 ratio of aggregate indebtedness to net capital in lieu of the 8 to 1 ratio (required for broker-dealers in their first year of business) to calculate its net capital requirement. Notwithstanding the above, such member or member organization shall not carry less minimum bonding coverage in its second year than it carried in its first year.

(e) Notification of Change

A member or member organization shall immediately advise the Exchange in writing if its fidelity bond is cancelled, terminated or substantially modified.

(f) Exemptions

(1) The requirements of this Rule shall not apply to:

(A) member or member organizations that maintain a fidelity bond as required by another national securities exchange or FINRA, registered with the SEC under Section 6 of the Exchange Act, provided that the member or member organization is in good standing with such national securities exchange and the fidelity bond requirements of such exchange are equal to or greater than the requirements of this Rule; and

(B) member or member organizations whose business is solely that of a Market Maker, Lead Market Maker or Floor Broker who does not conduct business with the public.

Supplementary Material to General 9, Section 39

.01 Definitions. For purposes of this Rule, the term "substantially modified" shall mean any change in the type or amount of fidelity bonding coverage, or in the exclusions to which the bond is subject, or any other change in the bond such that it no longer complies with the requirements of this Rule.

.02 Alternative Coverage. A member or member organization that does not qualify for blanket fidelity bond coverage as required by paragraph (a)(3) of this Rule shall maintain substantially similar fidelity bond coverage in compliance with all other provisions of this Rule, provided that the member or member organization maintains written correspondence from two insurance providers stating that the member or member organization does not qualify for the coverage required by paragraph (a)(3) of this Rule. The member or member organization must retain such correspondence for the period specified by SEC Rule 17a-4(b)(4).

Adopted Feb. 3, 2020 (20-03).

Section 40. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 41. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 42. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 43. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 44. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 45. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 46. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 47. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 48. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 49. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 50. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 51. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 52. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 53. Disruptive Quoting and Trading Activity Prohibited

(a) No member or member organization shall engage in or facilitate disruptive quoting and trading activity on the Exchange, as described in subsections (i) and (ii) of this Rule, including acting in concert with other persons to effect such activity.

(1) For purposes of this Rule, disruptive quoting and trading activity shall include a frequent pattern in which the following facts are present:

(A) Disruptive Quoting and Trading Activity Type 1:

(i) a party enters multiple Limit Orders on one side of the market at various price levels (the "Displayed Orders"); and

(ii) following the entry of the Displayed Orders, the level of supply and demand for the security changes; and

(iii) the party enters one or more orders on the opposite side of the market of the Displayed Orders (the "Contra-Side Orders") that are subsequently executed; and

(iv) following the execution of the Contra-Side Orders, the party cancels the Displayed Orders.

(B) Disruptive Quoting and Trading Activity Type 2:

(i) a party narrows the spread for a security by placing an order inside the NBBO; and

(ii) the party then submits an order on the opposite side of the market that executes against another market participant that joined the new inside market established by the order described in paragraph (b)(i).

(2) Applicability. For purposes of this Rule, disruptive quoting and trading activity shall include a frequent pattern in which the facts listed above are present. Unless otherwise indicated, the order of the events indicating the pattern does not modify the applicability of the Rule. Further, disruptive quoting and trading activity includes a pattern or practice in which the quoting and trading activity is conducted on the Exchange as well as a pattern or practice in which some portion of the quoting or trading activity is conducted on the Exchange and the other portions of the quoting or trading activity are conducted on one or more other exchanges.

Adopted Feb. 3, 2020 (20-03).

Section 54. Guarantees Not Permitted

(a) No branch office manager of any member organization, no employee of any member organization engaged in trading in securities for the organization, and no securities salesman of any member organization, shall guarantee the payment of the debit balance, in a customer's account, to his employer or to any other creditor carrying such account, without the prior written consent of the Chief Regulatory Officer.

(b) No branch office manager of any member organization, no employee of any member

organization engaged in trading in securities for the organization, and no securities salesman of any member organization, shall guarantee any customer against losses in his account, or in any way represent to any customer that he or his employer will guarantee the customer against such losses.

Adopted Feb. 3, 2020 (20-03).

Section 55. Office, Other Than Main Offices

No office of a member or member organization for which the Exchange is the Designated Examining Authority shall be established without the prior notification of the Membership Department of the Exchange. Each such office must be in charge of a partner, a voting stockholder or a manager and shall be subject to such Rules as the Exchange may prescribe.

Adopted Feb. 3, 2020 (20-03).

Section 56. Status Verification

Upon the request of any member or member organization, the Membership Department of the Exchange shall provide such member or member organization (as applicable) with reasonable written verification of its status as a member or member organization.

Adopted Feb. 3, 2020 (20-03).

Section 57. Control of Offices

Each office of a member or member organization shall be under the control of the member or member organization and shall not be occupied jointly with any non-member; provided, however, that upon application, the Exchange may waive this requirement if the Exchange is satisfied that under the circumstances the public is not likely to be misled. To the extent the offices of a member or member organization are used for activities other than the conduct of a securities business, customers must be informed that those other activities are not subject to regulation or oversight by the Exchange or the SEC.

Adopted Feb. 3, 2020 (20-03).

Section 58. Advertisements, Market Letters, Research Reports and Sales Literature

(a) Nasdaq PHLX members and persons associated with a member shall comply with FINRA Rule 2210 (except FINRA Rule 2210(c)) as if such Rule were part of Nasdaq PHLX's Rules. Nasdaq PHLX and FINRA are parties to the Regulatory Contract pursuant to which FINRA has agreed to perform certain functions on behalf of Nasdaq PHLX. Therefore, Nasdaq PHLX members are complying with this Rule by complying with FINRA Rule 2210 as written, including, for example, filing requirements and notifications. In addition, functions performed by FINRA, FINRA departments, and FINRA staff under this Rule are being performed by FINRA on Nasdaq's behalf.

• • • Supplementary Material: ------

The Exchange has adopted the following policy regarding advertising, market letters, research reports, telemarketing scripts and sales literature:

The requirement for three-year retention of such material applies only to members and member organizations which prepared it for distribution.

The term "advertisement" refers to any material for use in any newspaper or magazine or other public medium or by radio, telephone recording or television.

The term "market letter" refers to any publication, printed or processed, which comments on the securities market or individual securities and is prepared for general distribution to the organization's customers or to the public. It also includes material on investment subjects prepared by a member or personnel of a member organization for publication in newspapers and periodicals.

The term "research report" refers to printed or processed analysis covering individual companies or industries.

The term "sales literature" refers to printed or processed material interpreting the facilities offered by a member organization or its personnel to the public, discussing the place of investment in an individual's financial planning, or calling attention to any market letter, research report or sales literature, which is prepared for and given general distribution.

Standards for Advertising, Market Letters, Sales Literature, Research Reports, Telemarketing Scripts, Radio, Television and Writing Activities

Truthfulness and good taste are the traditional standards of the Exchange community in any form of communication with the public. Rules can never take the place of good judgment in such communications. Under some circumstances what is left out may be just as important as what is included.

Member organizations, of course, can never overlook basic characteristics of investments—that prices can go down as well as up; that dividends can be cut, omitted or increased; that there is some degree of risk in any security; that investments can not be depended upon to produce a certain return in terms of purchasing power or in dollars.

Some of the guideposts established by the Exchange for written communications with the public include:

.01 Recommendations.—A recommendation (even though not labeled as a recommendation) must have a basis which can be substantiated as reasonable.

When recommending the purchase, sale or switch of specific securities, supporting information should be provided or offered.

The market price at the time the recommendation is made must be shown.

.02 Disclosure.—When market letters, sales literature or research reports recommend the purchase or sale of a specific security, member organizations must disclose the following information, if such conditions exist:

(a) That the firm usually makes a market in the issue being recommended.

(b) That the member organization or its partners hold options in any securities of the recommended issuer.

(c) That some or all of the recommended securities are to be sold to or bought from customers on a principal basis by the member organization or its partners (unless covered by (a) above).

(d) That the member organization was manager or co-manager of the most recent public offering (within 3 years) of any securities of the recommended issuer.

It has been the experience of some firms that disclosure of directorates or other insider relationships is a good way of avoiding difficulties in this area. When such disclosure is made, however, the firm should be careful to avoid exploiting these relationships by implying that the recommendation is based directly or indirectly on privileged information.

.03 Past Recommendations.—Material promoting past records of research recommendations, in connection with purchases or sales, is acceptable if it covers all of the following:

(a) At least a 1-year period.

(b) A list of all of the issues in a specific "universe"—or clearly definable area which can be fully isolated and circumscribed—recommended during the period. The list may be given or offered.

(c) The date and price of each recommendation at the recommendation date and at the end of the period or when sale was suggested, whichever is earlier.

(d) The number of issues recommended, the number that advanced and the number that declined, in the event a list is offered but not included in the material.

It must be made clear that—

(1) There is no implication in any such published record of comparable future performance or that a customer can't lose by following the firm's recommendations.

(2) The period covered was one of a generally rising market, if such is the case.

(3) If a record is averaged, or otherwise summarized, such results would have been obtained only if each issue had been purchased when recommended and then sold at the end of the period covered or when sale was recommended. The purchase price of a given number of shares—such as a round lot—of each of the recommended securities must be shown. Commissions must be mentioned.

If such a record is started and published, and publication is subsequently discontinued for any reason, resumption will be permitted only when the intervening period is included in the published record.

A file of all the original recommendations on which the record is based must be kept by the firm and be available to the Exchange on request for three years.

A statement in a market letter, for example, that a particular security was recommended at a specific price and is now selling at a higher price is unacceptable if the intent or the effect is to show the success of a past recommendation. In such a case, all of the above qualifications would have to be met.

.04 Testimonials.—In using testimonials, the following points must be clearly stated in the body copy of the material:

(a) The testimonial may not be representative of the experience of other clients.

(b) The testimonial can not be indicative of future performance or success.

(c) If more than a nominal sum is paid, the fact that it is paid testimonial must be indicated.

(d) If the testimonial concerns a technical aspect of investing, the person making the testimonial must have adequate knowledge and experience to form valid opinion.

.05 Projections and Predictions.—Past records, charts, tables or other material can not, of course, be used to promise future profits or income from securities.

Projections and predictions should be clearly labeled as estimates. A reference to the bases of the estimates should be given or must be available on request.

.06 Periodic Investment.—In mentioning the benefit of dollar-cost-averaging, it should be made clear that periodic purchases in a fixed dollar amount must be continued through fluctuations in the market price, that such a plan does not protect against loss in a declining market, and that the price at which the shares are sold must be more than their average cost, in order to realize a profit.

If the low cost of buying securities under any periodic investment plan is emphasized, it is important to state whether there are commissions for the purchase and sale.

In showing total value of prior investments including reinvested dividends, the amount of the reinvested dividends should be stated separately. Commissions, taxes or other costs should also be mentioned.

.07 Language.—Statements which are promissory, exaggerated, flamboyant or contain unwarranted superlatives are to be avoided.

.08 Comparisons.—Any comparison of one firm's service, personnel facilities or charges with those of other firms must be factually supportable.

.09 Claims for Research.—For purposes of these standards, investment research encompasses the organized collection and analysis of information obtained in oral or written form from primary or secondary sources, which is concerned with securities, industries, the market or the economy in general and has the purpose of assisting member organizations and their customers in evaluating securities.

A member organization which advertises or promotes its research services or capabilities must have a reasonable basis for any claims it makes.

A market letter, research report or similar publication should not carry a research department by-line, or by implication give the impression of originating within a research department, unless it did originate there.

.10 Dating Reports.—All market letters, research reports and similar publications must be appropriately dated. Any significant information that is not reasonably current (usually not more than 6 months old—depending on the industry and circumstances) should be noted.

.11 Identification of Sources.—A market letter or research report not prepared under the direct supervision of the research department of the distributing firm or its correspondent member organization should show the person (by name and appropriate title) or outside organization which prepared the material.

In distributing market letters or research reports prepared under the direct supervision of the research department of a correspondent member organization, the distributing firm should mention this fact, although it may not be necessary to identify the correspondent by name.

Releases prepared and published by or for a corporate issuer or its public relations counsel and distributed by member organizations should be clearly identified as such.

.12 Portfolio Analysis.—Portfolio Analysis is defined as the appraisal of an investor's present holdings of securities, individually and collectively, for the purpose of offering investment recommendations consistent with his stated objectives and general financial status.

Persons engaged in Portfolio Analysis should be adequately supervised and they should not undertake analysis which is not commensurate with their experience and training.

------

Adopted Feb. 3, 2020 (20-03); amended April 16, 2020 (20-22).

Section 59. Notification of Changes in Business Operations

Any member or member organization for which the Exchange is the Designated Examining Authority ("DEA") shall provide prior written notification to the Exchange of any change in the business operations of such member or member organization which would cause the member or member organization to be subject to additional or modified net capital requirements, examination schedules or other registration, examination or regulatory requirements.

For the purpose of this Rule, the appropriate time frame for notification is at least 10 business days prior to the change in business operations.

Adopted Feb. 3, 2020 (20-03).

Section 60. Training

All members and persons employed by or associated with such member or a member organization shall successfully complete mandatory training, as required by the Exchange. Training topics include, but are not limited to, training related to that person's function at the Exchange, changes in existing automated systems or any new technology that is utilized by the Exchange, compliance with Exchange Rules and federal securities laws, and issues related to conduct, health and safety on the Trading Floor.

Adopted Feb. 3, 2020 (20-03).

Section 61. Assignment of Interest of Partner

No partner in a member organization that is a partnership shall assign or in any way encumber his interest in such partnership without the prior approval of the Membership Department.

Adopted Feb. 3, 2020 (20-03).

Section 62. Partial Payments

No member organization shall make an arrangement for the purchase of securities for the account of a customer, to be paid for by the customer on installments or by a series of partial payments, under which the charge for purchasing and carrying any such securities is unreasonable.

Adopted Feb. 3, 2020 (20-03).

Section 63. Diligence as to Accounts

Every member is required either personally or through a general partner or an officer who is a holder of voting stock in his organization to use due diligence to learn the essential facts relative to every customer and to every order or account accepted by his organization.

Adopted Feb. 3, 2020 (20-03).

Section 64. Approval of Accounts

No member organization shall make any brokerage transactions for the account of a customer unless, prior to the completion thereof, a general partner or an officer who is a holder of voting stock in such organization shall have specifically approved the opening of such account, provided, however, that in the case of branch offices the opening of an account for a customer may be approved by the manager of such branch office but the action of such branch office manager shall within a reasonable time be approved by a general partner or an officer who is a holder of voting stock in such organization. The member, general partner or officer approving the opening of an account shall, prior to giving his approval, be personally informed as to the essential facts relative to the customer and to the nature of the proposed account and shall indicate his approval in writing on a document which will become part of the records of his office or organization.

Adopted Feb. 3, 2020 (20-03).

Section 65. Statements to Be Sent to Customers

No member organization shall address confirmations, statements or other communications to a customer of such organization in care of any employee of such organization, or address such confirmations, statements or other communications to such a customer in his or its own care or in care of any other member or member organization, unless (1) such organization shall have been so directed in writing by such customer, and (2) duplicate copies of such confirmations, statements, and other communications are addressed to such customer (except when this requirement is waived by the Exchange) at his place of business or residence or at some other address designated in writing by such customer.

Adopted Feb. 3, 2020 (20-03).

Section 66. Notwithstanding Power of Attorney

When a non-member customer has given a power of attorney to a member or to a partner of a member or to any other person all confirmations, statements, and other communications with respect to the account of such customer shall be addressed to such customer (except when this requirement is waived by the Exchange) at his place of business or residence or some other address designated in writing by such customer, even if duplicate copies are sent to the person holding the power of attorney.

Adopted Feb. 3, 2020 (20-03).

Section 67. Participation in Joint Accounts

(a) No member, member organization, or partner or stockholder therein, shall, directly or indirectly, hold any interest or participation in any joint account for buying or selling any security on the Exchange, unless such joint account is reported to and not disapproved by the Exchange.

(b) Such report shall be filed with the Exchange by any member, member organization, or partner or stockholder therein, participating in such joint account before any transactions are effected on the Exchange for such joint account and shall include in substance the following:

(1) Names of persons participating in such account and their respective interest therein.

(2) Purpose of such account.

(3) Amount of commitments in such account.

(4) A copy of any written agreement or instrument in writing relating to such account.

(c) Every member, member organization, or partner or stockholder therein, who is directly or indirectly interested in any substantial joint account for buying or selling any specific security on the Exchange or in any joint account which actively trades in any security on the Exchange, shall file with the Exchange not later than Monday of each week with respect to every such joint account existing at the close of business on the preceding Wednesday a report containing in substance the following information, unless such information is reported to the Exchange by some other member, member organization or participant therein:

(1) Name and amount of each security purchased or sold during the week ending on such Wednesday on the Exchange.

(2) Amount of commitments in such account at the close of business on such Wednesday.

(3) Any change which renders no longer accurate any portion of the original statement filed.

(d) Every member, member organization, or partner or stockholder therein, who has knowledge of any substantial joint account for buying or selling any specific security on the Exchange or of any joint account which actively trades in any security on the Exchange by reason of transactions executed by or through such member or member organization, for such account, shall file with the Exchange not later than Monday of each week with respect to every such joint account existing at the close of business on the preceding Wednesday a report containing in substance the following information, if known, unless such information has previously been reported to the Exchange:

(1) Names of persons participating in such account and their respective interest therein.

(2) Purpose of such account.

(3) Name and amount of each security purchased or sold during the week ending on such Wednesday.

(4) Amount of commitments in such account at the close of business on such Wednesday.

(e) In the event the requirements hereof should be applicable to a security also dealt in on another national securities exchange having requirements substantially equivalent hereto and a member or member organization, or partner or shareholder therein, is a member or member organization of such other exchange and complies with such requirements of such other exchange, then such member or member organization, or partner or shareholder therein, need not comply with the reporting provisions hereof.

Adopted Feb. 3, 2020 (20-03).

Section 68. Report of Options

Each member and member organization shall report to the Exchange such information as may be required with respect to any substantial option relating to listed securities, or securities admitted to unlisted trading privileges on the Exchange, in which such member, member organization or partner or stockholder therein is directly or indirectly interested or of which such member, member organization or partner or stockholder has knowledge by reason of transactions executed by or through such member or organization; provided that this Rule shall not apply to an option which is a matter of record in a prospectus or registration statement filed with the Exchange, or with the SEC.

The Exchange may disapprove of the connection of any member, member organization or partner or stockholder therein with any such option which it shall determine to be contrary to the best interest or welfare of the Exchange, or to be likely to create prices which will not fairly reflect market values.

Adopted Feb. 3, 2020 (20-03).

Section 69. Periodic Reports

Member organizations shall submit, as required by the Exchange, periodic reports with respect to short positions in securities.

(a) Short Positions—Member organizations for which the Exchange is the designated examining authority ("DEA") are required to report short positions, including odd-lots, in each stock or warrant traded on the Exchange, and in each other stock or warrant not traded on the Exchange for which short positions are not otherwise reported to another United States securities exchange or association, using such automated format and methods as prescribed by the Exchange. Such reports must include customer and proprietary positions and must be made at such times and covering such time period as may be designated by the Exchange. Member organizations whose short positions have properly been reported to, and are carried by, a non-member clearing organization will be in compliance with this rule if adequate arrangements have been made providing for the clearing organization to properly report such positions to the Exchange or to another United States securities exchange or association.

(1) "Short" positions to be reported are those resulting from "short" sales as defined in SEC Rule 200(a) of Regulation SHO, but excluding sales that meet an exception in paragraph (b) below. Also, to be excluded are "short" positions carried for other members and member organizations reporting for themselves.

(2) Only one report should be made for each stock or warrant for which there is a short position, if more than one "account" has a short position in the same stock or warrant, the combined aggregate should be reported.

(3) Member organizations for which the Exchange is not the DEA must report short positions to its DEA if such DEA has a requirement for such reports. If the DEA does not have such a reporting requirement, then such member organization must comply with the provisions of this rule.

(b) Exceptions

(1) Any sale by any person, for an account in which he has an interest, if such person owns the security sold and intends to deliver such security as soon as is possible without undue inconvenience or expense.

(2) Any sale of a security covered by a short sale rule on a national securities exchange (except a sale to a stabilizing bid complying with Rule 104 of Regulation M) effected with the approval of such exchange which is necessary to equalize the price of such security thereon with the current price of such security on another national securities exchange which is the principal exchange market for such security.

(3) Any sale of a security for a special arbitrage account by a person who then owns another security by virtue of which he is, or presently will be, entitled to acquire an equivalent number of securities of the same class as the securities sold; provided such sale, or the purchase which such sale offsets, is effected for the bona fide purpose of profiting from a current difference between the price of security sold and the security owned and that such right of acquisition was originally attached to or represented by another security or was issued to all the holders of any such class of securities of the issuer.

(4) Any sale of a security registered on, or admitted to unlisted trading privileges on, a national securities exchange effected for a special international arbitrage account for the bona fide purpose of profiting from a current difference between the price of such security on a securities market not within or subject to the jurisdiction of the United States and on a securities market subject to the jurisdiction of the United States; provided the seller at the time of such sale knows or, by virtue of information currently received, has reasonable grounds to believe that an offer enabling him to cover such sale is then available to him such foreign securities market and intends to accept such offer immediately.

(5) Any sale by an underwriter, or any member of a syndicate or group participating in the distribution of a security, in connection with an overallotment of securities, or any lay-off sale by such a person in connection with a distribution of securities through rights or a standby underwriting commitment.

Adopted Feb. 3, 2020 (20-03).

Section 70. Underwriting of Securities by Member Organizations

Member organizations shall submit, as required by the Exchange periodic reports with respect to obligations in respect of security underwritings and net positions resulting therefrom.

Adopted Feb. 3, 2020 (20-03).

 
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