Notice2023-00424
Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .15 of IEX Rule 5.110 (Supervision)
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Published
January 12, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 8 (Thursday, January 12, 2023)</title>
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[Federal Register Volume 88, Number 8 (Thursday, January 12, 2023)]
[Notices]
[Pages 2140-2142]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00424]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96606; File No. SR-IEX-2022-14]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Supplementary Material .15 of IEX Rule 5.110 (Supervision)
January 6, 2023.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 23, 2022, the Investors Exchange LLC (``IEX''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by IEX. IEX has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under section 19(b)(3)(A) \4\ of the Act
and Rule 19b-4(f)(6) \5\ thereunder, which renders the proposed rule
change 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of section 19(b)(1) under the Act,\6\
and Rule 19b-4 thereunder,\7\ IEX is filing with the Commission a
proposed rule change to amend Supplementary Material .15 of IEX Rule
5.110 (Supervision) to extend the temporary remote inspection relief to
IEX Members through the earlier of the effective date of the FINRA
pilot program on remote inspections (the ``FINRA Pilot Program'') \8\,
if approved, or December 31, 2023. The proposed extension would
alleviate the ongoing operational challenges resulting from the COVID-
19 pandemic that many member firms may continue to face in planning for
and timely conducting required on-site inspections at locations
requiring inspection in calendar year 2023.
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\6\ 15 U.S.C. 78s(b)(1).
\7\ 17 CFR 240.19b-4.
\8\ See Securities Exchange Act Release No. 95452 (Aug. 9,
2022), 87 FR 50144 (Aug. 15, 2022) (File No. SR-FINRA-2022-21).
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The text of the proposed rule change is available at the Exchange's
website at <a href="http://www.iextrading.com">www.iextrading.com</a>, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement may be examined at
the places specified in Item IV below. The self-regulatory organization
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The COVID-19 pandemic has caused a host of operational disruptions
to the securities industry and impacted IEX Members,\9\ regulators,
investors, and other stakeholders. In response to the pandemic, IEX
adopted Supplementary Material .15 of IEX Rule 5.110 to provide Members
the temporary option of satisfying their inspection obligations for
offices of supervisory jurisdiction, branch offices, or non-branch
locations under IEX Rule 5.110 (Supervision) remotely for calendar
years 2021 and 2022, subject to specified conditions,\10\ due to the
logistical challenges of going on-site while public health and safety
concerns related to COVID-19 persisted. While there are several signs
that the pandemic has receded, much uncertainty still remains. The
emergence of new variants, dissimilar vaccination rates throughout the
U.S., and varying levels of transmissions of the virus all indicate
that COVID-19 remains an active and real public health concern. Against
this setting, IEX understands the complexity Members face in assessing
when and how to effectively and safely recall their employees back into
offices alongside fashioning permanent telework arrangements or a
hybrid workforce model in which some employees may work on-site in a
commercial office space and other employees may work off-site in an
alternative location (e.g., a personal residence).\11\ Accordingly, due
to the continued logistical challenges of going on-site to branch
offices or locations while these public health and safety concerns
related to COVID-19 persist coupled with several Members delaying their
return-to-office plans, IEX believes that extending the temporary
remote inspection relief to Members is warranted.
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\9\ See IEX Rule 1.160(s).
\10\ See Securities Exchange Act Release No. 92222 (June 22,
2021), 86 FR 34069 (June 28, 2021) (SR-IEX-2021-09) (providing
remote inspection relief to Members for calendar year 2021), and
Securities Exchange Act Release No. 96460 (December 7, 2022), 87 FR
76222 (December 13, 2022) (SR-IEX-2022-12) (providing remote
inspection relief to Members for calendar year 2022).
\11\ For example, IEX understands that both the Commission and
FINRA do not currently require employees to return to the office.
See SEC Fiscal Year 2022 Agency Financial Report, available at
<a href="https://www.sec.gov/files/sec-2022-agency-financial-report.pdf">https://www.sec.gov/files/sec-2022-agency-financial-report.pdf</a> and
<a href="https://www.finra.org/rules-guidance/key-topics/covid-19">https://www.finra.org/rules-guidance/key-topics/covid-19</a>.
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FINRA has filed with the Commission File No. SR-FINRA-2022-021, a
proposed rule change to adopt a voluntary, remote inspections pilot
program that is currently pending Commission review. The FINRA Pilot
Program would provide for a voluntary, three-year remote inspection
pilot program to allow broker-dealers to elect to fulfill their
obligation under FINRA Rule 3110(c) (Internal Inspections) by
conducting inspections of some or all branch offices and non-branch
locations remotely without an on-site visit to such office or location,
subject to specified
[[Page 2141]]
terms. FINRA has stated that the review period for its rule filing may
extend well into 2023. Given the potential length of that review
period, and the pilot program's significant planning requirements and
varying limitations applicable to specific firms and office locations,
FINRA believes that firms that intend to participate in the pilot
program, if approved, would need a significant number of months to
prepare appropriately for the pilot program. Moreover, further FINRA
guidance might be needed to guide implementation in various
circumstances.
To provide regulatory certainty while the pilot program filing is
pending, and to avoid overlapping provisions if it is approved, IEX is
proposing to amend Supplementary Material .15 of Rule 5.110 so that the
temporary relief would expire on the earlier of the effective date of
the FINRA Pilot Program or December 31, 2023. In the event the FINRA
Pilot Program is not approved by December 31, 2023, the proposed rule
change will automatically sunset on December 31, 2023. IEX will submit
a separate rule filing if it seeks to extend the duration of the
temporary proposed rule beyond December 31, 2023. In the event the
FINRA Pilot Program is approved prior to December 31, 2023, IEX will
file a conforming rule change with the Commission.
The proposed rule change will conform IEX's rules with those of
FINRA, which has extended the same temporary remote inspection relief
to all FINRA member firms.\12\ This proposed extension would provide
further clarity to Members on regulatory requirements and account for
time needed for many Members to carefully assess when and how to have
their employees safely return to their offices considering vaccination
coverage in the U.S. and transmission levels of the virus, including
any emergent variants throughout the country.
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\12\ See Securities Exchange Act Release No. 94018 (January 20,
2022), 87 FR 4072 (January 26, 2022) (SR-FINRA-2022-001) and
Securities Exchange Act Release No. 96241 (November 4, 2022) 87 FR
67969 (November 10, 2022) (SR-FINRA-2022-030).
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The proposed amendment would provide that Members have the option
to conduct remotely those inspections described in Supplementary
Material .15 to IEX Rule 5.110 through the earlier of the effective
date of the FINRA Pilot program, if approved, or December 31, 2023. IEX
is not proposing to amend the other conditions of the temporary relief
in Supplementary Material .15 of IEX Rule 5.110. The current conditions
of Supplementary Material .15 of IEX Rule 5.110 for Members that elect
to conduct remote inspections would remain unchanged: such firms must
still amend or supplement their written supervisory procedures for
remote inspections, use remote inspections as part of an effective
supervisory system, and maintain the required documentation. The
additional period of time would also allow IEX to further monitor the
effectiveness of remote inspections and their impacts--positive or
negative--on Members' overall supervisory systems in the evolving
workplace.
IEX continues to believe this temporary remote inspection option is
a reasonable alternative to provide to Members to fulfill their IEX
Rule 5.110 obligations during the ongoing pandemic, and is designed to
achieve the investor protection objectives of the inspection
requirements under these unique circumstances. Members should consider
whether, under their particular operating conditions, reliance on
remote inspections would be reasonable under the circumstances. For
example, Members with offices that are open to the public or that are
otherwise doing business as usual should consider whether some form of
in-person inspections would be feasible and appropriately contribute to
a supervisory system that is reasonably designed to achieve compliance
with applicable securities laws and regulations, and with applicable
IEX rules.
IEX 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 IEX can implement the proposed rule change immediately.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) \13\ of the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act \14\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Exchange's rule proposal is intended to harmonize
IEX's supervision rules, specifically with respect to the requirements
for inspections of Members' branch offices and other locations, with
those of FINRA, on which they are based. Consequently, the proposed
change will conform the Exchange's rules to changes made to
corresponding FINRA rules, thus promoting application of consistent
regulatory standards with respect to rules that FINRA enforces pursuant
to its regulatory services agreement with the Exchange. The proposed
rule change would also avoid a potential lapse in the temporary relief
while challenges from COVID-19 persist, provide firms regulatory
continuity in meeting their inspection obligations during the remaining
Commission review period of the Pilot Proposal, and allow firms time to
adapt to the pilot program, if approved, and prepare for conducting on-
site inspections, as applicable.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(5).
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In recognition of the impact of COVID-19 on performing on-site
inspections, the proposed rule change is intended to provide firms a
temporary regulatory option to conduct inspections of offices and
locations remotely for calendar year 2023 inspections (or until the
effective date of the FINRA pilot program). This proposed supplementary
material does not relieve firms from meeting the core regulatory
obligation to establish and maintain a system to supervise the
activities of each associated person that is reasonably designed to
achieve compliance with applicable securities laws and regulations, and
with applicable IEX rules that directly serve investor protection. In a
time when faced with unique challenges resulting from the COVID-19
pandemic, IEX believes that the proposed rule change provides sensibly
tailored relief that will afford firms the ability to observe the
recommendations of public health officials to provide for the health
and safety of their personnel, while continuing to serve and promote
the protection of investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX 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 is not
designed to address any competitive issue but to align the Exchange's
rules with those of FINRA, which will assist FINRA in its oversight
work done pursuant to a regulatory services agreement with IEX. The
proposed rule change will also provide for consistent application of
the Exchange's supervision rules with those of FINRA, on which they are
based. Consequently, the Exchange does not
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believe that the proposed change implicates competition at all.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule filing as non-controversial
under section 19(b)(3)(A) \15\ of the Act and Rule 19b-4(f)(6) \16\
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder. In addition, the Exchange provided the Commission
with 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.\17\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay to permit the
Exchange to harmonize its rules with FINRA, as described herein, upon
effectiveness of the proposed rule filing.
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
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IEX has indicated that extending the relief provided in SR-IEX-
2022-12 would provide assurances to its member firms that they can plan
their 2023 inspection program and conduct remote inspections for any
inspections to be conducted through the earlier of the effective date
of the FINRA Pilot Program, if approved, or December 31, 2023.
Importantly, extending the relief immediately upon filing and without a
30-day operative delay would allow IEX's member firms to continue
performing their supervisory obligations, while addressing the ongoing
impacts of the COVID-19 pandemic. Moreover, like SR-IEX-2022-12, the
proposed extension would provide only temporary relief during the
period in which IEX's member firms' operations remain impacted by
COVID-19. Thus, the amended rules will revert back to their original
state at the conclusion of the temporary relief period and, if
applicable, any extension thereof. For these reasons, the Commission
believes that waiver of the 30-day operative delay for this proposed
rule change is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change operative upon
filing.\20\
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\20\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 under
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 15 U.S.C. 78s(b)(2)(B).
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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#9fedeaf3fab2fcf0f2f2faf1ebecdfecfafcb1f8f0e9"><span class="__cf_email__" data-cfemail="acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da">[email protected]</span></a>. Please include
File Number SR-IEX-2022-14 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-IEX-2022-14. This file
number should be included in 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 the filing will also be available for inspection
and copying at IEX's principal office and on its internet website at
<a href="http://www.iextrading.com">www.iextrading.com</a>. 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-IEX-2022-14
and should be submitted on or before February 2, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00424 Filed 1-11-23; 8:45 am]
BILLING CODE 8011-01-P
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