Notice2021-15338
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make Technical and Other Non-Substantive Changes Within FINRA Rules
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Published
July 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 136 (Tuesday, July 20, 2021)</title>
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[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38395-38397]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15338]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92403; File No. SR-FINRA-2021-018]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Make Technical and Other Non-Substantive
Changes Within FINRA Rules
July 14, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 6, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires a
self-regulatory organization to give the Commission written notice
of its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. FINRA
has satisfied this requirement.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to make technical and other non-substantive
changes within FINRA rules.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, at the principal office of FINRA and
at the Commission's Public Reference Room.
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
Schedule A to the By-Laws of the Corporation
* * * * *
IM-Section 4(b)(1) and (e) Exemption From Certain Registration and
Membership Application Fees for Certain NYSE and NYSE [Alternext
US]American LLC Member Organizations
NYSE and NYSE [Alternext US]American LLC member organizations that
become members of FINRA pursuant to IM-1013-1 and IM-1013-2,
respectively, shall not be assessed the fee set forth in Section
4(b)(1) to Schedule A of the FINRA By-Laws for the initial Form U4
filed by firms for the registration of any representative or principal
associated with the member organization at the time a firm submits its
application for FINRA membership. Such firms also shall not be assessed
the membership application fee set forth in Section 4(e) to Schedule A
of the FINRA By-Laws. However, those firms will otherwise remain
subject to FINRA's By-Laws and Schedules to By-Laws, including Schedule
A.
* * * * *
FINRA Rules
* * * * *
1000. Member Application and Associated Person Registration
* * * * *
IM-1011-1. Safe Harbor for Business Expansions
This interpretive material concerns the types of business
expansions that will not require a member to submit a Rule 1017
application to obtain FINRA's approval of the expansion. This safe
harbor applies to: (1) Firms that do not have a membership agreement,
and (2) firms that have a membership agreement that does not contain a
restriction on the factors listed below.
* * * * *
The safe harbor is not available to any member that has
disciplinary history. For purposes of this Interpretation,
``disciplinary history'' means a finding of a violation by the member
or a principal of the member in the past five years by the SEC, a self-
regulatory organization, or a foreign financial
[[Page 38396]]
regulatory authority of one or more of the following provisions (or a
comparable foreign provision) or rules or regulations thereunder:
Violations of the types enumerated in Section 15(b)(4)(E) and Section
15(c) of the Exchange Act; Section 17(a) of the Securities Act; SEA
Rules 10b-5 and 15g-1 through 15g-9; FINRA Rules 2010 (only if the
finding of a violation is for unauthorized trading, churning,
conversion, material misrepresentations or omissions to a customer,
frontrunning, trading ahead of research reports or excessive markups),
2020, 2111, 2121, 2150, 4330, 3110 (failure to supervise only), 5210,
and 5230; and MSRB Rules G-19, G-30, and G-37(b) and (c), and all
predecessor NASD rules to such FINRA rules.
* * * * *
1017. Application for Approval of Change in Ownership, Control, or
Business Operations
(a) through (k) No Change.
(l) Removal or Modification of Restriction on Department's Initiative
The Department shall modify or remove a restriction on its own
initiative if the Department determines such action is appropriate in
light of the considerations set forth in paragraph ([h]i)(1). The
Department shall notify the member in writing of the Department's
determination and inform the member that it may apply for further
modification or removal of a restriction by filing an application under
paragraph (a).
(m) No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On March 26, 2020, the Commission approved amendments to Rule 1017,
among other rules, as part of FINRA's efforts to help further address
the issue of customer recovery of unpaid arbitration awards.\4\ Before
the amendments to Rule 1017, paragraph (h)(1) related to FINRA's
decision on an application for continuing FINRA membership, and
specified some factors that create a presumption to deny an
application. File No. SR-FINRA-2019-030 renumbered that paragraph to
paragraph (i)(1). Currently, Rule 1017(l) cross-references to paragraph
(h)(1), which, as a result of SR-FINRA-2019-030, requires an applicant
for continuing FINRA membership to promptly provide FINRA written
notification of any arbitration claim involving the applicant or its
associated persons that is filed, awarded or becomes unpaid before a
decision constituting final action of FINRA is served on the applicant.
In File No. SR-FINRA-2019-030, FINRA did not propose a change to Rule
1017(l) to reflect the rule cross-reference change from paragraph
(h)(1) to paragraph (i)(1). With this proposed rule change, FINRA is
proposing to make this corrective non-substantive, technical change to
Rule 1017(l).\5\
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\4\ See Securities Exchange Act Release No. 88482 (March 26,
2020), 85 FR 18299 (April 1, 2020) (Order Approving File No. SR-
FINRA-2019-030, as Modified by Amendment No. 1). FINRA announced
September 14, 2020 as the effective date of the rule change in
Regulatory Notice 20-15 (May 2020).
\5\ FINRA notes that the proposed rule change would impact all
members, including members that have elected to be treated as
capital acquisition brokers (``CABs'') and are subject to CAB rules.
CAB Rule 116 (Application for Approval of Change in Ownership,
Control, or Business Operations) incorporates by reference Rule
1017.
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On April 10, 2019, the Commission announced the immediate
effectiveness of the adoption of the remaining legacy NASD rules as
FINRA rules in the consolidated FINRA rulebook and the remaining
Incorporated NYSE Rules and Incorporated NYSE Rule Interpretations in
the consolidated FINRA rulebook as a separate Temporary Dual FINRA-NYSE
Member Rules Series.\6\ Among these legacy NASD rules was then NASD
Interpretative Material (``IM'')-1011-1 (Safe Harbor for Business
Expansions). In general, this rule created a safe harbor for specified
categories of business expansions, subject to certain thresholds and
conditions, that a member may undergo without filing an application for
continuing membership with FINRA, but this safe harbor was unavailable
to a member with a defined ``disciplinary history.'' Under NASD IM-
1011-1, the term ``disciplinary history'' meant a finding of a
violation by the member or a principal of the member in the past five
years by the SEC, a self-regulatory organization, or a foreign
financial regulatory authority of one or more specified provisions that
included NASD Rule 2440 (Fair Prices and Commissions), the predecessor
rule to FINRA Rule 2121 (Fair Prices and Commissions).\7\ Through File
No. SR-FINRA-2019-009, FINRA adopted NASD IM-1011-1 as FINRA IM-1011-1
with the intention of replacing therein all references to an NASD rule
with its corresponding FINRA rule. The reference to NASD Rule 2440, or
``2440'' as written in NASD IM-1011-1, was inadvertently omitted from
the rule text presented in Exhibit 4 and Exhibit 5 to File No. SR-
FINRA-2019-009 and as a result, the list of rules for ``disciplinary
history'' as they currently appear in FINRA IM-1011-1 omits the
reference to FINRA Rule 2121. With this proposed rule change, FINRA is
proposing to correct this technical error by including a reference to
``2121'' to the sequence of FINRA rules defining ``disciplinary
history'' under FINRA IM-1011-1.
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\6\ See Securities Exchange Act Release No. 85589 (April 10,
2019), 84 FR 15646 (April 16, 2019) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2019-009).
\7\ In 2014, FINRA adopted NASD Rule 2440 and its IMs, without
material change, as FINRA Rule 2121. See Securities Exchange Act
Release No. 72208 (May 21, 2014), 79 FR 30675 (May 28, 2014) (Notice
of filing and Immediate Effectiveness of File No. SR-FINRA-2014-
023).
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Finally, the proposed rule change would change the references to
``NYSE Alternext US'' in IM-Section 4(b)(1) and (e) of Schedule A to
the FINRA By-Laws to ``NYSE American.'' \8\
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\8\ NYSE Alternext US LLC is a predecessor entity to NYSE
American LLC. See Securities Exchange Act Release No. 80283 (March
21, 2017), 82 FR 15244 (March 27, 2017) (Notice of Filing and
Immediate Effectiveness of File No. SR-NYSEMKT-2017-14).
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FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed rule change will make corrective non-
substantive, technical updates that
[[Page 38397]]
FINRA believes will provide greater clarity to FINRA rules.
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\9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change brings
clarity and consistency to FINRA rules without adding any burden on
firms.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6113140d044c020e0c0c040f1512211204024f060e17"><span class="__cf_email__" data-cfemail="f98b8c959cd49a9694949c978d8ab98a9c9ad79e968f">[email protected]</span></a>. Please include
File Number SR-FINRA-2021-018 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2021-018. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2021-018 and should be submitted
on or before August 10, 2021.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15338 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P
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