Notice2022-24007
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt Supplementary Material .19 (Residential Supervisory Location) Under FINRA Rule 3110
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 4, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 213 (Friday, November 4, 2022)</title>
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[Federal Register Volume 87, Number 213 (Friday, November 4, 2022)]
[Notices]
[Pages 66767-66769]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24007]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96191; File No. SR-FINRA-2022-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Adopt Supplementary
Material .19 (Residential Supervisory Location) Under FINRA Rule 3110
October 31, 2022.
I. Introduction
On July 15, 2022, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change SR-FINRA-2022-019 pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 \2\ thereunder to adopt new Supplementary
Material .19 (Residential Supervisory Location) under FINRA Rule 3110
(Supervision) that would treat a private residence at which an
associated person engages in specified supervisory activities as a non-
branch location, subject to safeguards and limitations.\3\ The proposed
rule change was published for public comment in the Federal Register on
August 2, 2022.\4\ On September 14, 2022, FINRA consented to an
extension of the time period in which the Commission must approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change to October 31, 2022.\5\ On October 31, 2022, FINRA
responded to the comment
[[Page 66768]]
letters received in response to the Notice.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See infra note 4.
\4\ Exchange Act Release No. 95379 (July 27, 2022), 87 FR 47248
(August 2, 2022) (File No. SR-FINRA-2022-019 (``Notice'').
\5\ See letter from Sarah Kwak, Associate General Counsel,
FINRA, to Daniel Fisher, Branch Chief, Division of Trading and
Markets, Commission, dated September 14, 2022.
\6\ See letter from Kosha Dalal, Vice President, FINRA, to
Vanessa Countryman, Secretary, Commission, dated October 31, 2022
(``FINRA Response'').
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The Commission is publishing this order pursuant to Section
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed
rule change and to institute proceedings to determine whether to
approve or disapprove the proposed rule change.
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\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
A. Background
The COVID-19 pandemic prompted FINRA to provide temporary relief to
member firms from certain regulatory requirements.\8\ For example,
FINRA temporarily suspended the requirement for member firms to submit
branch office applications on Form BR (Uniform Branch Office
Registration Form) for any newly opened temporary office locations or
space-sharing arrangements established as a result of the pandemic (the
``Form BR Temporary Suspension'').\9\
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\8\ See Notice at 47249.
\9\ See FINRA Regulatory Notice 20-08 (March 2020) (``Regulaotry
Notice 20-08''); see also Notice at note 5.
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In the Notice, FINRA stated that as jurisdictions scale back
pandemic-related restrictions, many member firms are moving towards a
``blended workforce model'' where employees work both on-site and in
alternative locations, such as a private residence.\10\ Currently, a
private residence at which certain supervisory functions occur would
need to be registered and designated as a branch office or office of
supervisory jurisdiction (``OSJ'') under Rule 3110(a)(3), and inspected
at least annually under Rule 3110(c)(1)(A). Consequently, FINRA stated
that absent futher regulatory action, once the Form BR Temporary
Suspension is lifted, FINRA rules would require member firms to
``either curtail activities at residential locations or register large
numbers of residential locations as OSJs or supervisory branch
offices.'' \11\ Under the proposed rule change, a new location
designation, Residential Supervisory Location, would be treated as a
non-branch location, subject to inspections on a regular periodic
schedule under Rule 3110(c)(1)(C), presumed to be every three
years.\12\
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\10\ See Notice at 47249.
\11\ Notice at 47256.
\12\ See FINRA Rules 3110(c)(1)(C) and 3110.13.
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B. Proposed Rule Change
FINRA is proposing to adopt new Supplementary Material .19 under
Rule 3110 to establish a Residential Supervisory Location designation
that would be treated as a non-branch location (i.e., an unregistered
office), subject to specified limitations. Specifically, under proposed
Rule 3110.19(a), a Residential Supervisory Location would be considered
a non-branch location (and thus excluded from branch office
registration), provided that: (1) only one associated person, or
multiple associated persons who reside at that location and are members
of the same immediate family, conduct business at the location; (2) the
location is not held out to the public as an office; (3) the associated
person does not meet with customers or prospective customers at the
location; (4) any sales activity that takes place at the location
complies with the conditions set forth under Rule 3110(f)(2)(A)(ii) or
(iii); (5) neither customer funds nor securities are handled at that
location; (6) the associated person is assigned to a designated branch
office, and such designated branch office is reflected on all business
cards, stationery, retail communications and other communications to
the public by such associated person; (7) the associated person's
correspondence and communications with the public are subject to the
firm's supervision in accordance with Rule 3110; (8) all electronic
communications by the associated person at that location are made
through the member's electronic system; (9) a list of the residence
locations is maintained by the member; and (10) all books or records
required to be made and preserved by the member under the federal
securities laws or FINRA rules are maintained by the member other than
at the location.
Furthermore, under proposed Rule 3110.19(b), some members would be
ineligible to designate any location as a Residential Supervisory
Location, and some locations of otherwise eligible members would be
ineligible to be designated as a Residential Supervisory Location.
Specifically, all of a member's locations would be ineligible if: (1)
the member is designated as a ``Restricted Firm'' under Rule 4111
(Restricted Firm Obligations); (2) the member is designated as a
``Taping Firm'' under Rule 3170 (Tape Recording of Registered Persons
by Certain Firms); or (3) the member is currently undergoing, or is
required to undergo, a review under Rule 1017(a)(7) as a result of one
or more associated persons at such location. A specific location of an
otherwise eligible member would be ineligible if: (1) one or more
associated persons at such location is a designated supervisor who has
less than one year of direct supervisory experience with the member;
(2) one or more associated persons at such location is functioning as a
principal for a limited period in accordance with Rule 1210.04; (3) one
or more associated persons at such location is subject to a mandatory
heightened supervisory plan under the rules of the Commission, FINRA or
state regulatory agency; (4) one or more associated persons at such
location is statutorily disqualified, unless such disqualified person
has been approved (or is otherwise permitted pursuant to FINRA rules
and the federal securities laws) to associate with a member and is not
subject to a mandatory heightened supervisory plan under paragraph
(b)(6) of this Supplementary Material or otherwise as a condition to
approval or permission for such association; (5) one or more associated
persons at such location has an event in the prior three years that
required a ``yes'' response to any item in Questions 14A(1)(a) and
2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; \13\ or (6) one
or more associated persons at a location is currently subject to, or
has been notified in writing that it will be subject to, any
investigation, proceeding, complaint or other action by the member, the
Commission, a self-regulatory organization, including FINRA, or state
securities commission (or agency or office performing like functions)
alleging they have failed to reasonably supervise another person
subject to their supervision, with a view to preventing the violation
of any provision of the Securities Act of 1933, the Exchange Act, the
Investment Advisers Act of 1940, the Investment Company Act of 1940,
the Commodity Exchange Act, or any rule or regulation under any of such
acts, or any of the rules of the Municipal Securities Rulemaking Board.
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\13\ Form U4's Questions 14A(1)(a) and 2(a), 14B(1)(a) and 2(a)
elicit reporting of criminal convictions, and Questions 14C, 14D,
and 14E pertain to regulatory action disclosures. See Notice at note
79.
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III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-FINRA-2022-019 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule
change should be approved or disapproved.\14\ Institution of
proceedings is appropriate at this time
[[Page 66769]]
in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to the proposed
rule change.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\15\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis and input concerning whether the proposed rule
change is consistent with the Exchange Act and the rules thereunder.
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\15\ Id.
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IV. Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the proposed
rule change is consistent with the Exchange Act and the rules
thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\16\
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\16\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by November 25, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 9, 2022.
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#6a181f060f47090507070f041e192a190f09440d051c"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
File No. SR-FINRA-2022-019 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 No. SR-FINRA-2022-019. 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 No. SR-FINRA-2022-019 and should be submitted on
or before November 25, 2022. If comments are received, any rebuttal
comments should be submitted on or before December 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-24007 Filed 11-3-22; 8:45 am]
BILLING CODE 8011-01-P
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