Notice2024-21491
Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Supplementary Material .16 to IEX Rule 5.110 (Supervision), So That IEX Members Who Participate in the Recently Approved FINRA Pilot Program on Remote Inspections Will Also Satisfy the Internal Inspection Requirements Found in IEX's Rules
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
September 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 183 (Friday, September 20, 2024)</title>
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[Federal Register Volume 89, Number 183 (Friday, September 20, 2024)]
[Notices]
[Pages 77209-77214]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21491]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101025; File No. SR-IEX-2024-16]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Supplementary Material .16 to IEX Rule 5.110 (Supervision), So That IEX
Members Who Participate in the Recently Approved FINRA Pilot Program on
Remote Inspections Will Also Satisfy the Internal Inspection
Requirements Found in IEX's Rules
September 16, 2024.
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 September 4, 2024, the Investors Exchange LLC (``IEX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. 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.
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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,\4\
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the
Commission a proposed rule change to adopt Supplementary Material .16
to IEX Rule 5.110 (Supervision), so that IEX Members \6\ who
participate in the recently-approved FINRA pilot program on remote
inspections (the ``Remote
[[Page 77210]]
Inspections Pilot Program'') \7\ will also satisfy the internal
inspection requirements found in IEX's rules.
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ See IEX Rule 1.160(s).
\7\ See Securities Exchange Act Release No. 97398 (April 28,
2023), 88 FR 28620 (May 4, 2023) (``Remote Inspections Pilot Program
Proposal''); Securities Exchange Act Release No. 98982 (November 17,
2023), 88 FR 82464 (November 24, 2023) (``Remote Inspections Pilot
Program Approval Order'') (SR-FINRA-2023-007).
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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 statements 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
IEX proposes to adopt Supplementary Material .16 to IEX Rule 5.110,
which would provide that any IEX Member that participates in the FINRA
Remote Inspections Pilot Program,\8\ thereby satisfying the internal
inspections requirements in FINRA Rule 3110(c), would also satisfy the
equivalent internal inspections requirements in IEX Rule 5.110(c). This
proposed rule change would supplant Supplementary Material .15 to IEX
Rule 5.110, which allowed Members to fulfill any calendar year 2024
internal inspection obligations set forth in IEX Rule 5.110(c) by
conducting remote inspections of the applicable offices of supervisory
jurisdiction (``OSJs''),\9\ branch offices (both supervisory and non-
supervisory),\10\ and non-branch locations.\11\ This temporary relief,
which was analogous to relief that FINRA provided for, automatically
sunset on June 30, 2024.\12\ As described below, adding Proposed
Supplementary Material .16 to IEX Rule 5.110 would harmonize IEX's
internal inspections obligations for its Members with FINRA's
comparable obligations for its members, thereby avoiding confusion to
IEX Members with respect to the applicability of participation in the
FINRA Remote Inspections Pilot Program with respect to compliance with
IEX Rule 5.110.\13\ Additionally, because Proposed Supplementary
Material .16 to IEX Rule 5.110 incorporates by reference FINRA Rule
3110.18, this rule change enables IEX Rule 5.110 to continue to be
incorporated into the agreement between IEX and FINRA to allocate
regulatory responsibility for common rules (the ``17d-2
Agreement'').\14\
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\8\ See FINRA Rule 3110.18.
\9\ See IEX Rule 5.110(f)(1).
\10\ See IEX Rule 5.110(f)(2)(A).
\11\ See Supplementary Material .15 to IEX Rule 5.110
(``Temporary Relief to Allow Remote Inspections for Calendar Years
2021, 2022, 2023, and Through the Earlier of the Effective Date of
the Remote Inspections Pilot Program or June 30, 2024'').
\12\ See Id. The equivalent temporary relief offered by FINRA
also sunset on June 30, 2024. See FINRA Rule 3110.17
\13\ IEX notes that all IEX Members are currently FINRA members,
or in the process of becoming FINRA members.
\14\ See Securities Exchange Act Release No. 93324 (October 14,
2021), 86 FR 58110 (October 20, 2021) (File No. 4-700). The 17d-2
Agreement includes a certification by IEX that states that the
requirements contained in certain Exchange rules are identical to,
or substantially similar to, certain FINRA rules that have been
identified as comparable.
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Standards for Supervision of Remote Offices
The responsibility of firms to supervise their associated persons
is a critical component of broker-dealer regulation.\15\ Members must
supervise all of their associated persons, regardless of their
location, compensation or employment arrangement, or registration
status. IEX Rule 5.110, which is substantially identical to FINRA Rule
3110(c), requires any Member, regardless of size or type, to have a
supervisory system for the activities of its associated persons that is
reasonably designed to achieve compliance with the applicable
securities laws and regulations and IEX rules, and that sets forth the
minimum requirements for such supervisory system.\16\ The internal
inspection obligation under IEX Rule 5.110(c) and FINRA Rule 3110(c) is
one component of such system.
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\15\ See generally SEC Division of Market Regulation, Staff
Legal Bulletin No. 17: Remote Office Supervision (March 19, 2004)
(``SLB 17'') (SEC guidance on remote office supervision), <a href="https://www.sec.gov/interps/legal/mrslb17.htm">https://www.sec.gov/interps/legal/mrslb17.htm</a>; and Regulatory Notice 11-54
(November 2011) (``Notice 11-54'') (joint SEC and FINRA guidance on
effective policies and procedures for broker-dealer branch
inspections).
\16\ See IEX Rule 5.110(a)
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IEX Rule 5.110(c) sets forth three main requirements for
inspections. First, an inspection of an office or location must occur
on a designated frequency. The periodicity of the required inspection
varies depending on the classification of the location or the nature of
the activities that take place: OSJs and supervisory branch offices
must be inspected at least annually; \17\ non-supervisory branch
offices must be inspected at least every three years; \18\ and non-
branch locations must be inspected on a periodic schedule, presumed to
be at least every three years.\19\ Second, a Member must retain a
written record of the date upon which each review and inspection
occurred, reduce a location's inspection to a written report and keep
each inspection report on file either for a minimum of three years or,
if the location's inspection schedule is longer than three years, until
the next inspection report has been written.\20\ If applicable to the
location being inspected, the inspection report must include the
testing and verification of the Member's policies and procedures,
including supervisory policies and procedures, in specified areas.\21\
Third, to prevent compromising the effectiveness of inspections due to
conflicts of interest, the rule requires a Member to ensure that the
person conducting the inspection is not an associated person assigned
to the location or is not directly or indirectly supervised by, or
otherwise reporting to, an associated person assigned to that
location.\22\ All OSJs, branch offices, and
[[Page 77211]]
non-branch locations are subject to IEX Rule 5.110(c).
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\17\ See IEX Rule 5.110(c)(1)(A).
\18\ See IEX Rule 5.110(c)(1)(B).
\19\ See IEX Rule 5.110(c)(1)(C) and Supplementary Material .13
to IEX Rule 5.110 (``General Presumption of Three-Year Limit for
Periodic Inspection Schedules'').
\20\ See IEX Rule 5.110(c)(2).
\21\ See IEX Rule 5.110(c)(2)(A) (providing that the inspection
report must include, without limitation, the testing and
verification of the Member's policies and procedures, including
supervisory policies and procedures for: (1) safeguarding of
customer funds and securities; (2) maintaining books and records;
(3) supervision of supervisory personnel; (4) transmittals of funds
from customers to third party accounts, from customer accounts to
outside entities, from customer accounts to locations other than a
customer's primary residence, and between customers and registered
representatives, including the hand delivery of checks; and (5)
changes of customer account information, including address and
investment objectives changes, and validation of such changes).
\22\ IEX Rule 5.110(c)(3) provides a limited exception from this
requirement if a firm determines compliance is not possible either
because of the firm's size or its business model. Supplementary
Material .14 to IEX Rule 5.110 (Exception to Persons Prohibited from
Conducting Inspections) reflects IEX's expectation that a firm
generally will rely on the exception in instances where the firm has
only one office or has a business model where small or single-person
offices report directly to an OSJ manager who is also considered the
offices' branch office manager. However, these situations are non-
exclusive, and a firm may still rely on the exception in other
instances where it cannot comply because of its size or business
model, provided the firm complies with the documentation
requirements under the rule.
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Further, Supplementary Material .12 to IEX Rule 5.110 sets out
factors that constitute a reasonable review. This provision emphasizes
establishing reasonable supervisory procedures and conducting reviews
of locations, taking into consideration, among other things, the
Member's size, organizational structure, scope of business activities,
number and location of the Member's offices, the nature and complexity
of the products and services offered by the Member, the volume of
business done, the number of associated persons assigned to a location,
the disciplinary history of registered representatives or associated
persons, and any indicators of irregularities or misconduct (i.e.,
``red flags'').\23\ The provision further states that the procedures
established and reviews conducted must provide that the quality of
supervision at remote (i.e., geographically dispersed) locations is
sufficient to ensure compliance with applicable securities laws and
regulations and with IEX rules, and that Members must be especially
diligent with respect to a non-branch location where a registered
representative engages in securities activities. This provision
incorporates guidance FINRA has previously issued about supervising
associated persons working in geographically dispersed offices.\24\
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\23\ Such red flags may include: customer complaints; a large
number of elderly customers; a concentration in highly illiquid or
risky investments; an unexplained increase or change in the types of
investments or trading concentration that a representative is
recommending or trading; an unexpected improvement in a
representative's production, lifestyle, or wealth; questionable or
frequent transfers of cash or securities between customer or third
party accounts, or to or from the representative; a representative
that serves as a power of attorney, trustee or in a similar capacity
for a customer or has discretionary control over a customer's
account(s); a representative with disciplinary records; customer
investments in one or a few securities or class of securities that
is inconsistent with firm policies related to such investments;
churning; trading that is inconsistent with customer objectives;
numerous trade corrections, extensions, liquidations; or significant
switching activity of mutual funds or variable products held for
short time periods. See SLB 17, supra note 15.
\24\ See NASD [FINRA] Notice to Members 98-38 (May 1998) and 99-
45 (June 1999).
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Notably, all of the above requirements about supervision and
inspections of OSJs, branch offices, and non-branch locations reflected
a business environment in which Members conducted in-person inspections
of all of their offices.\25\
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\25\ See SLB 17 and Notice 11-54, supra note 15.
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FINRA's Recent Attempts To Change the In-Person Inspection Requirements
of OSJs, Branch Offices, and Non-Branch Locations
In the Remote Inspections Pilot Program Proposal, FINRA described
its efforts during the past several years to offer its members the
option of remotely conducting internal inspections of their OSJs,
branch offices, and non-branch locations.\26\ As stated therein, FINRA
believed that as more recordkeeping moved from paper to electronic
records, and as more meetings were conducted virtually using platforms
such as Zoom and WebEx, the burden on FINRA members of conducting in-
person inspections for all their remote office locations became harder
to justify.\27\
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\26\ See Remote Inspections Pilot Program Proposal, supra note
7.
\27\ See Id.
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Thus, when the COVID-19 pandemic required many securities industry
professionals to work from home, FINRA implemented several forms of
regulatory relief to its members, including introducing FINRA Rule
3110.17, which IEX also introduced as Supplementary Material .15 to IEX
Rule 5.110, to permit remote internal inspections of their OSJs, branch
offices, and non-branch locations.
The pandemic accelerated the industry's adoption of a broad remote
work environment and IEX recognizes that the pandemic has profoundly
changed attitudes on where work can occur. As a result of this change
many firms have adopted, in varying scale, hybrid work models involving
personnel who are working at least part time from alternative work
locations (e.g., private residences). As part of an effort to modernize
its rules to reflect evolving technologies and business models, in
April 2023, FINRA filed the Remote Inspections Pilot Program Proposal
with the Commission to establish a voluntary, three-year remote
inspections pilot program that would allow eligible firms to conduct
inspections of all or some offices or locations, remotely, subject to
the specified terms therein.\28\ The SEC approved the FINRA Remote
Inspection Pilot Program Proposal in November 2023,\29\ and FINRA
commenced the pilot program on July 1, 2024.\30\
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\28\ See Id.
\29\ See Remote Inspections Pilot Program Approval Order, supra
note 7.
\30\ See FINRA Regulatory Notice 24-02.
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FINRA's Remote Inspections Pilot Program
FINRA's Remote Inspection Pilot Program builds on the terms of the
temporary relief in FINRA Rule 3110.17, while requiring members to
provide even more information about their remote inspections to allow
FINRA to assess the overall impact and effectiveness of remote
inspections.\31\ The pilot program is designed to provide broader
systemized information to supplement the information obtained through
the FINRA examination process in an environment where offices and
locations were closed. The information firms would be required to
produce as a pilot program participant will help FINRA more accurately
assess the overall impact and effectiveness of remote inspections.\32\
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\31\ See Remote Inspections Pilot Program Proposal, supra note
7.
\32\ See Id.
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FINRA's Remote Inspection Pilot Program includes, among other
things, the following requirements for participating firms:
<bullet> Risk Assessment. Prior to electing a remote inspection
for an office or location, participating firms must develop a
reasonable risk-based approach to using remote inspections and
conduct and document a risk assessment for that office or
location.\33\
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\33\ See FINRA Rule 3110.18(b).
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<bullet> Written Supervisory Procedures for Remote Inspections.
Participating firms must establish, maintain, and enforce written
procedures that are reasonably designed for conducting remote
inspections and reasonably designed to achieve compliance with
applicable securities laws and regulations.\34\
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\34\ See FINRA Rule 3110.18(c).
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<bullet> Effective Supervisory System. Participating firms must
have an effective supervisory system for remote inspections that
will be held to the same standards of review (set forth under FINRA
Rule 3110.12). Where a member's remote inspection of an office or
location identifies any ``red flags,'' the member may need to impose
additional supervisory procedures for that office or location or may
need to provide for more frequent monitoring of that office or
location, including potentially a subsequent on-site visit on an
announced or unannounced basis.\35\
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\35\ See FINRA Rule 3110.18(d).
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<bullet> Documentation Requirement. Participating firms must
maintain and preserve a centralized record for each of the Pilot
Years specified in the pilot program that separately identifies: (1)
all offices or locations that were inspected remotely; and (2) any
offices or locations for which the member determined to impose
additional supervisory procedures or more frequent monitoring, as
provided in FINRA Rule 3110.18(d). A member's documentation of the
results of a remote inspection for an office or location must
identify any additional supervisory procedures or more frequent
monitoring for that office or location that were imposed as a result
of the remote inspection, including whether an on-site
[[Page 77212]]
inspection was conducted at such office or location.\36\
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\36\ See FINRA Rule 3110.18(e).
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<bullet> Firm Level Requirements. Participating firms must meet
certain firm-level eligibility requirements to participate in the
program set forth in FINRA Rule 3110.18(f)(1). For example, a firm
cannot participate if it is designated as: (i) Restricted Firm under
FINRA Rule 4111 or (ii) a Taping Firm under FINRA Rule 3170.
Additionally, firms with suspended or new (effective less than 12
months) FINRA memberships or that have been found by the SEC or
FINRA to have violated FINRA Rule 3110(c) are ineligible to
participate. Participating firms must also comply with firm-level
conditions to participate in the program. For example, a firm must
have a recordkeeping system that keeps records current and promptly
accessible, and that does not maintain physical or electronic
records at the location subject to remote inspection. Additionally,
participating firms must have firm-wide tools such as electronic
recordkeeping systems, system security tools such as secure network
connections and effective cybersecurity protocols, and tools
specifically applied to each office or location based on the
activities of associated persons, products offered, or any
restrictions on the activity of the office or location.\37\
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\37\ See FINRA Rule 3110.18(f).
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<bullet> Location Level Requirements. Participating firms must
exclude from participating in the program any locations that do not
meet the location level eligibility criteria set forth in FINRA Rule
3110.18(g)(1) (e.g., the location includes: (i) persons subject to a
disciplinary action, a statutory disqualification, or a mandated
heightened supervisory plan; (ii) persons engaged in proprietary
trading; or (iii) the handling of customer funds or securities).
Additionally, eligible locations must use the firm's electronic
communication system and may not maintain any original copies of
books or records at the location.\38\
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\38\ See FINRA Rule 3110.18(g).
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<bullet> Data and Information Collection Requirement.
Participating firms must collect and on a quarterly basis produce to
FINRA data consisting of separate counts for OSJs, supervisory
branch offices, non-supervisory branch offices, and non-branch
locations. This data must include information about the number of
remote inspections conducted and any significant findings. Firms
shall establish, maintain, and enforce written policies and
procedures that are reasonably designed to comply with the data
collection and transmission requirements.\39\
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\39\ See FINRA Rule 3110.18(h).
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<bullet> Election to Participate in Remote Inspections Pilot
Program. Participating firms must opt-in to the pilot program in a
manner specified by FINRA.\40\
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\40\ See FINRA Rule 3110.18(i).
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<bullet> Failure to Satisfy Conditions and Determination of
Ineligibility. Participating firms that fail to satisfy terms of the
Remote Inspections Pilot Program will be ineligible to participate
in the pilot program and return to conducting only on-site
inspections.\41\ FINRA may also make a determination to revoke a
member's eligibility to participate if FINRA finds it to be in the
public interest.\42\
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\41\ See FINRA Rule 3110.18(j).
\42\ See FINRA Rule 3110.18(k).
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<bullet> Definitions of Pilot Year periods. Includes
clarifications that Pilot Year 1 is the second half of 2024, and
Pilot Year 4 is the first half of 2027.\43\
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\43\ See FINRA Rule 3110.18(l).
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Proposal
IEX proposes to adopt Supplementary Material .16 to IEX Rule 5.110.
This proposed new supplementary material reads as follows:
Members that are obligated to conduct an inspection of an office
of supervisory jurisdiction, branch office or non-branch location
pursuant to, as applicable, paragraphs (c)(1)(A), (B) and (C) under
IEX Rule 5.110 may satisfy such obligation by participating in the
FINRA Remote Inspections Pilot Program, as set forth in FINRA Rule
3110.18. The FINRA Remote Inspections Pilot Program shall cover
required inspections of such offices or locations for a period of
three years starting on September 4, 2024 (``pilot period''), and
such pilot period shall expire on July 1, 2027. If the pilot period
is not extended, this Supplementary Material will automatically
sunset on July 1, 2027. Members will not be able to participate in
the FINRA Remote Inspections Pilot Program after such date.\44\
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\44\ Proposed Supplementary Material .16 to IEX Rule 5.110.
As stated in proposed new Supplementary Material .16 to IEX Rule
5.110, any IEX Member that participates in the FINRA Remote Inspections
Pilot Program, thereby satisfying the internal inspections requirements
in FINRA Rule 3110(c), will satisfy the equivalent internal inspections
requirements in IEX Rule 5.110(c).
IEX is not proposing to add the entire FINRA Remote Inspections
Pilot Program to its rules, because it would be unnecessarily
duplicative and burdensome for IEX Members to submit the data and
information required as part of the Remote Inspections Pilot Program to
both IEX and FINRA.\45\ Based upon conversations with FINRA staff, IEX
understands that adopting Proposed Supplementary Material .16 to IEX
Rule 5.110 would update IEX Rule 5.110 so that it remains substantially
similar to FINRA Rule 3110, such that they remain common rules subject
to the 17d-2 Agreement.\46\ As a result, regulatory responsibility for
IEX Rule 5.110 would continue to be allocated to FINRA.
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\45\ Pursuant to this proposed rule change, IEX Members will be
required to collect and on a quarterly basis produce to FINRA data
regarding its participation in the Remote Inspections Pilot Program.
See FINRA Rule 3110.18(h). But Members will not be required to
produce that information directly to IEX.
\46\ See supra note 14.
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As noted above, all IEX Members were temporarily eligible to
conduct remote office inspections until June 30, 2024. This proposed
rule change allows those Members who have enrolled in FINRA's Remote
Inspections Pilot Program to continue to use remote inspections as part
of an effective supervisory system.\47\ IEX believes this Remote
Inspections Pilot Program is a reasonable alternative for firms to
fulfill their IEX Rule 5.110(c) obligations while permitting FINRA to
collect data as the regulatory authority in this area under the 17d-2
Agreement to assess the efficacy and long-term viability of a permanent
remote office inspections program. IEX emphasizes that the inspection
requirement is one aspect of a firm's overall supervisory system, and
that the inspection, whether done in accordance with the FINRA Remote
Inspections Pilot Program, or on-site, would be held to the existing
standards of review under Supplementary Material .12 to IEX Rule 5.110
(Standards for Reasonable Review).\48\
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\47\ IEX notes that any inspections conducted by its Members in
the brief period between July 1, 2024 and the effective date of this
filing will not satisfy IEX Rule 5.110(c), but believes this will
not be an issue for its Members because the remote inspections
process outlined in the pilot program is an ongoing process that
cannot be completed in the few days between the start of the FINRA's
pilot program and the effectiveness of this rule filing.
\48\ Those standards provide, in part, that based on the factors
set forth under that supplementary material, Members ``may need to
provide for more frequent review of certain locations.''
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2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) \49\ of the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act \50\ 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. As discussed in the Purpose
section, because Proposed Supplementary Material .16 to IEX Rule 5.110
incorporates by reference FINRA Rule 3110.18, this rule change enables
[[Page 77213]]
IEX Rule 5.110 to continue to be incorporated into the 17d-2 Agreement,
resulting in less burdensome and more efficient regulatory compliance.
Specifically, the proposed change will conform the Exchange's rules to
changes made to corresponding FINRA rules insofar as a Member's
compliance with FINRA Rule 3110.18 shall mean the Member is also in
compliance with Supplementary Material .16 to IEX Rule 5.110, thus
promoting the application of consistent regulatory standards with
respect to rules that FINRA enforces pursuant to the 17d-2 Agreement.
As such, the proposed rule change would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities and would remove impediments to and perfect the mechanism of
a free and open market and a national market system in accordance with
Section 6(b)(5) of the Act.\51\
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\49\ 15 U.S.C. 78f.
\50\ 15 U.S.C. 78f(b)(5).
\51\ 15 U.S.C. 78f(b)(5).
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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 rather to provide greater
harmonization among IEX and FINRA rules of similar purpose, resulting
in less burdensome and more efficient regulatory compliance for common
members and facilitating FINRA's performance of its regulatory
performance on the pending 17d-2 Agreement.
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) \52\ of the Act and Rule 19b-4(f)(6) \53\
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.\54\
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\52\ 15 U.S.C. 78s(b)(3)(A).
\53\ 17 CFR 240.19b-4(f)(6).
\54\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) \55\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\56\ 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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\55\ 17 CFR 240.19b-4(f)(6).
\56\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange stated that this proposed rule change is non-
controversial because it does not present any new or novel issues. In
particular, IEX is harmonizing its supervision rules with those of
FINRA, on which they are based and which have been previously approved
by the Commission. By conforming the Exchange's rules to FINRA's, the
proposed rule change would promote the application of consistent
regulatory standards with respect to rules that FINRA enforces pursuant
to the 17d-2 Agreement. As such, the Exchange believes that the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities and would
remove impediments to and perfect the mechanism of a free and open
market and a national market system in accordance with Exchange Act
Section 6(b)(5).
In addition, the Exchange stated that since the FINRA Remote
Inspections Pilot Program commenced on July 1, 2024, waiving the 30-day
operative delay would provide assurances to IEX members who enroll in
the Remote Inspections Pilot Program that they can plan the remainder
of their 2024 inspection program under a harmonized rule set, with just
a short window of time in which the FINRA pilot program was not part of
IEX's rules,\57\ while at the same time helping ensure that IEX members
continue to perform their supervisory obligations. Further, the
Exchange stated that waiver of the operative delay should reduce any
potential confusion that may otherwise occur on the part of IEX members
as to the applicable rules governing inspections of branch offices and
other locations. 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.\58\
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\57\ See supra note 47.
\58\ 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) \59\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\59\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c8babda4ade5aba7a5a5ada6bcbb88bbadabe6afa7be"><span class="__cf_email__" data-cfemail="0173746d642c626e6c6c646f7572417264622f666e77">[email protected]</span></a>. Please include
file number SR-IEX-2024-16 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-2024-16. 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the
[[Page 77214]]
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 also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-IEX-2024-16 and should be submitted on
or before October 11, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-21491 Filed 9-19-24; 8:45 am]
BILLING CODE 8011-01-P
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