Notice2024-24201
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize NYSE 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
October 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 203 (Monday, October 21, 2024)</title>
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[Federal Register Volume 89, Number 203 (Monday, October 21, 2024)]
[Notices]
[Pages 84221-84229]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24201]
[[Page 84221]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101325; File No. SR-NYSE-2024-64]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Harmonize NYSE Rule 3110
October 15, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on October 3, 2024, New York Stock Exchange LLC (``NYSE'' 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
The Exchange proposes to harmonize NYSE Rule 3110 (Supervision)
with certain changes by the Financial Industry Regulatory Authority,
Inc. (``FINRA'') to FINRA Rule 3110 to permit eligible member
organizations to participate in FINRA's remote inspections program
(``FINRA Pilot Program'') and to adopt FINRA's Residential Supervisory
Location (``RSL'') classification. The proposed rule change is
available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.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
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts 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 Exchange proposes to harmonize NYSE Rule 3110 (Supervision)
with certain changes by FINRA to FINRA Rule 3110 to permit eligible
member organizations to participate in the FINRA Pilot Program and to
adopt FINRA's RSL classification. The proposed rule change would
harmonize the Exchange's office and other location inspection rules
with those of FINRA and thus promote uniform inspection standards
across the securities industry. Additionally, because proposed
Supplementary Material .18 to NYSE Rule 3110 and proposed Supplementary
Material .19 to NYSE Rule 3110 would be substantially similar to FINRA
Rule 3110.18 and FINRA Rule 3110.19, respectively, this rule change
enables NYSE Rule 3110 to continue to be incorporated into the
agreement between NYSE and FINRA to allocate regulatory responsibility
for common rules (the ``17d-2 Agreement'').\4\
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\4\ See Securities Exchange Act Release No. 60409 (July 30,
2009), 74 FR 39353, (August 6, 2009) (File No. 4-587). The 17d-2
Agreement includes a certification by NYSE 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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Background and Proposed Rule Change
NYSE Rule 3110 is based on FINRA Rule 3110 \5\ and requires member
organizations 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 Exchange rules, and sets forth the minimum requirements
for such supervisory system.\6\ Under NYSE Rule 3110, final
responsibility for proper supervision rests with the member
organization.
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\5\ See Securities Exchange Act Release No. 73554 (November 6,
2014), 79 FR 67508 (November 13, 2014) (SR-NYSE-2014-56).
\6\ See NYSE Rule 3110(a).
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As part of an overall supervisory system, member organizations must
conduct inspections of each of their offices or locations on a
designated frequency depending on the classification of the location or
the nature of the activities that take place: an office of supervisory
jurisdiction (``OSJ'') and supervisory branch offices must be inspected
at least annually; \7\ non-supervisory branch offices, at least every
three years; \8\ and non-branch locations on a periodic schedule,
presumed to be at least every three years.\9\ Moreover, member
organizations 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.\10\ If applicable to the location being inspected, the
inspection report must include the testing and verification of the
member organization's policies and procedures, including supervisory
policies and procedures, in specified areas.\11\ Finally, 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 the location.\12\ The factors governing what
constitutes a reasonable review are set out in NYSE Rule 3110.12
(Standards for Reasonable Review).
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\7\ See NYSE Rule 3110(c)(1)(A).
\8\ See NYSE Rule 3110(c)(1)(B).
\9\ See NYSE Rules 3110(c)(1)(C) and 3110.13 (General
Presumption of Three-Year Limit for Periodic Inspection Schedules).
\10\ See NYSE Rule 3110(c)(2).
\11\ See NYSE Rule 3110(c)(2)(A).
\12\ See NYSE Rule 3110(c)(3). Rule 3110(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. See Rule 3110.14 (Exception to Persons Prohibited
from Conducting Inspections).
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In 2023, recognizing how operations and business models within the
financial services industry have evolved with changes in technology
that were accelerated by the COVID-19 pandemic, including in particular
the implementation by a large number of firms of a hybrid work
environment during the public health crisis, FINRA adopted two
amendments to FINRA Rule 3110. First, FINRA established a voluntary,
three-year remote inspections pilot program to allow eligible members
to fulfill their FINRA Rule 3110(c)(1) inspection obligation of
qualified branch offices, including OSJs and non-branch locations
remotely, without an on-site visit to such offices or locations subject
to certain conditions and criteria.\13\ The FINRA Pilot Program is
[[Page 84222]]
set forth in Supplementary Material .18 of FINRA Rule 3110. Second,
FINRA adopted new Supplementary Material .19 to FINRA Rule 3110 that
treats an associated person's private residence where specified
supervisory activities are conducted, subject to certain safeguards and
limitations, as a non-branch location (i.e., unregistered office). As a
non-branch location under FINRA Rule 3110(c), the RSL would be subject
to inspections on a regular periodic schedule instead of the annual
inspection currently required for every OSJ and supervisory branch
offices.\14\
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\13\ See Securities Exchange Act Release No. 98982 (November 17,
2023), 88 FR 82464 (November 24, 2023) (File No. SR-FINRA-2023-007)
(Order Approving a Proposed Rule Change To Adopt Supplementary
Material .18 (Remote Inspections Pilot Program) Under FINRA Rule
3110 (Supervision)). Pursuant to FINRA Rule 3110.18(m), on the
sunset of Rule 3110.18, if FINRA Rule 3110.18 has not already
expired by its own terms, FINRA Rule 3110.18 will automatically
sunset on June 30, 2024.
\14\ See Securities Exchange Act Release No. 98980 (November 17,
2023), 88 FR 82447 (November 24, 2023) (File No. SR-FINRA-2023-006)
(Notice of Filing of Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1
and 2, To Adopt Supplementary Material .19 (Residential Supervisory
Location) Under FINRA Rule 3110 (Supervision)).
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The Exchange proposes to incorporate each of these amendments into
NYSE Rule 3110, as follows.
NYSE Rule 3110, Supplementary Material .18 \15\
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\15\ The Exchange would add new Supplementary Material .17
marked ``Reserved'' in order to maintain consistency with FINRA.
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The Exchange proposes, consistent with current FINRA Rule 3110,
Supplementary Material .18, to adopt new Supplementary Material .18 to
NYSE Rule 3110 in order to provide eligible member organizations that
are also FINRA members \16\ with the flexibility to opt into the FINRA
Pilot Program, consisting of a voluntary, three-year remote inspections
pilot program to fulfill their office inspection obligations under NYSE
Rule 3110(c) by conducting inspections of eligible OSJs, branch
offices, and non-branch locations remotely without an on-site visit to
such locations, subject to certain conditions and criteria. The
requirements in connection with the participation in the FINRA Pilot
Program under proposed Supplementary Material .18 would mirror in all
material respects the requirements with respect to a FINRA member's
participation under FINRA rules in the FINRA Pilot Program. Member
organizations opting into the FINRA Pilot Program would do so pursuant
to the provisions of proposed Supplementary Material .18 and through
the mechanisms and processes established by FINRA in connection with
the FINRA Pilot Program. The proposed rule change also re-orders and
streamlines some of the provisions of FINRA Rule 3110.18, as described
below.
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\16\ Currently, all NYSE member organizations with one exception
are also FINRA members.
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Proposed NYSE Rule 3110.18(a) (Scope)
Proposed Supplementary Material .18(a) of NYSE Rule 3110 would
establish the standards by which a member organization that is also a
FINRA member may participate in the FINRA Pilot Program.
Proposed subsection (a) would permit member organizations to avail
themselves of the FINRA Pilot Program for the required inspection of
OSJs, branch offices and non-branch locations pursuant to, as
applicable, paragraphs (c)(1)(A), (B) and (C) of NYSE Rule 3110, for a
period starting on the effective date of the proposed rule filing and
expiring on June 30, 2027. If FINRA extends the pilot program and the
proposed Supplementary Material .18 is not amended to allow continued
participation by member organizations in the FINRA Pilot Program,
member organizations would not be able to participate in the FINRA
Pilot Program after the prescribed provisions under the proposed
Supplementary Material sunset.
With the exception of conforming and technical changes,\17\
proposed NYSE Rule 3110.18(a) is substantially the same as FINRA Rule
3110.18(a).
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\17\ Where the Exchange states herein that only conforming and
technical changes have been made, the Exchange is referring to
instances in which it changed FINRA's ``member'' to the Exchange's
equivalent ``member organization;'' changed cross-references to
FINRA rules to cross-references to Exchange rules unless there was
no equivalent NYSE rule; and made other non-substantive technical or
grammatical changes.
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Proposed NYSE Rule 3110.18(b) (Risk Assessment)
Proposed Supplementary Material .18(b) of NYSE Rule 3110 governing
risk assessment would outline the need for member organizations to
undertake a risk assessment in order to participate in the FINRA Pilot
Program.
Proposed Supplementary Material .18(b)(1) would set forth the
applicable standard for review and would provide that a member
organization could elect to conduct the applicable inspection remotely,
without an on-site visit for an office or location, when such member
organization reasonably determines that the purposes of the
Supplementary Material can be accomplished by conducting such required
inspection remotely. The member organization would be required to
develop a reasonable risk-based approach to using remote inspections
and conduct and document a risk assessment for an office or location
prior to conducting a remote inspection. The risk assessment must
document the factors considered, including, among other things, the
factors set forth in current NYSE Rule 3110.12 such as a firm's size,
organizational structure, scope of business activities, number and
location of the firm's offices, the nature and complexity of the
products and services offered by the firm, 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''), and must take into account any higher-risk activities
that take place at, or higher-risk associated persons that are assigned
to, that office or location. Additionally, proposed Supplementary
Material .18(b)(1) would require a member organization to conduct an
on-site inspection on the required cycle for such offices or locations
that are ineligible for remote office inspections because of not having
met the firm or location level requirements under proposed
Supplementary Material .18(f) or (g), respectively. Notwithstanding
proposed Supplementary Material .18, a member organization would remain
subject to the other requirements of NYSE Rule 3110(c).
Proposed Supplementary Material .18(b)(2) would address other risk
assessment factors and would provide that when conducting the risk
assessment of each office or location in accordance with proposed
paragraph (b)(1) of the Supplementary Material, a member organization
must consider, among other things, the following factors with respect
to an office or location in making its risk assessment for remotely
inspecting an office or location:
<bullet> the volume and nature of customer complaints; \18\
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\18\ See proposed NYSE Rule 3110.18(b)(2)(A), mirroring FINRA
Rule 3110.18(b)(2)(A).
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<bullet> the volume and nature of outside business activities,
particularly investment-related; \19\
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\19\ See proposed NYSE Rule 3110.18(b)(2)(B), mirroring FINRA
Rule 3110.18(b)(2)(B).
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<bullet> the volume and complexity of products offered; \20\
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\20\ See proposed NYSE Rule 3110.18(b)(2)(C), mirroring FINRA
Rule 3110.18(b)(2)(C).
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<bullet> the nature of the customer base, including vulnerable
adult investors; \21\
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\21\ See proposed NYSE Rule 3110.18(b)(2)(D), mirroring FINRA
Rule 3110.18(b)(2)(D).
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<bullet> whether associated persons are subject to heightened
supervision; \22\
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\22\ See proposed NYSE Rule 3110.18(b)(2)(E), mirroring FINRA
Rule 3110.18(b)(2)(E).
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[[Page 84223]]
<bullet> failures by associated persons to comply with the member
organization's written supervisory procedures; \23\ and
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\23\ See proposed NYSE Rule 3110.18(b)(2)(F), mirroring FINRA
Rule 3110.18(b)(2)(F).
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<bullet> any recordkeeping violations.\24\
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\24\ See proposed NYSE Rule 3110.18(b)(2)(G), mirroring FINRA
Rule 3110.18(b)(2)(G).
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Further, proposed Supplementary Material .18(b)(2) would prescribe
that member organizations should conduct on-site inspections or make
more frequent use of unannounced, on-site inspections for high-risk
offices or locations or when there are red flags, and supervisory
systems must take into consideration any red flags when determining
whether to conduct a remote inspection of an office or location,
consistent with NYSE Rule 3110(a).
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.18(b) is substantially the same as FINRA Rule
3110.18(b).
Proposed NYSE Rule 3110.18(c) (Written Supervisory Procedures for
Remote Inspections)
Proposed Supplementary Material .18(c) would provide that,
consistent with a member organization's obligation under NYSE Rule
3110(b), a member organization that elects to participate in the FINRA
Pilot Program must establish, maintain, and enforce written supervisory
procedures regarding remote inspections that are reasonably designed to
detect and prevent violations of and achieve compliance with applicable
securities laws and regulations, and with applicable FINRA and Exchange
rules.
As proposed, reasonably designed procedures for conducting remote
inspections of offices or locations must address, among other things:
<bullet> the methodology, including technology, that may be used to
conduct remote inspections; \25\
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\25\ See proposed NYSE Rule 3110.18(c)(1), mirroring FINRA Rule
3110.18(c)(1).
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<bullet> the factors considered in the risk assessment made for
each applicable office or location pursuant to proposed Supplementary
Material .18(b); \26\
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\26\ See proposed NYSE Rule 3110.18(c)(2), mirroring FINRA Rule
3110.18(c)(2).
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<bullet> the procedures specified in paragraph (h)(1)(G) and (h)(4)
of FINRA Rule 3310.18; \27\ and
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\27\ See proposed NYSE Rule 3110.18(c)(3), mirroring FINRA Rule
3110.18(c)(3).
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<bullet> the use of other risk-based systems employed generally by
the member organization to identify and prioritize for review those
areas that pose the greatest risk of potential violations of applicable
securities laws and regulations, and of applicable FINRA and Exchange
rules.\28\
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\28\ See proposed NYSE Rule 3110.18(c)(4), mirroring FINRA Rule
3110.18(c)(4).
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With the exception of conforming and technical changes and the
addition of a reference to Exchange rules in proposed NYSE Rule
3110.18(c)(4), proposed NYSE Rule 3110.18(c) is substantially the same
as FINRA Rule 3110.18(c).
Proposed NYSE Rule 3110.18(d) (Effective Supervisory System)
Proposed NYSE Rule 3110.18(d) would provide that the requirement to
conduct inspections of offices and locations is one part of the member
organization's overall obligation to have an effective supervisory
system and therefore the member organization must maintain its ongoing
review of the activities and functions occurring at all offices and
locations, whether or not the member organization conducts inspections
remotely.
Further, a member organization's use of a remote inspection of an
office or location will be held to the same standards for review as set
forth under NYSE Rule 3110.12. Where a member organization's remote
inspection of an office or location identifies any ``red flags,'' the
member organization 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.
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.18(d) is substantially the same as FINRA Rule
3110.18(d).
Proposed NYSE Rule 3110.18(e) (Documentation Requirement)
Proposed NYSE Rule 3110.18(e) would set forth documentation
requirements for a member organization's participating in the FINRA
Pilot Program. In particular, proposed NYSE Rule 3110.18(e) would
require member organizations to maintain and preserve a centralized
record for each of the Pilot Years specified in this FINRA Pilot
Program that separately identifies all offices or locations that were
inspected remotely.\29\ In addition, proposed NYSE Rule 3110.18(e)
would require documentation of the results of a remote inspection for
any offices or locations for which the member organization determined
to impose additional supervisory procedures or more frequent
monitoring, as provided in proposed NYSE Rule 3110.18(d). Further, a
member organization'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 inspection was conducted at such office or
location.\30\
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\29\ See proposed NYSE Rule 3110.18(e)(1), mirroring FINRA Rule
3110.18(e)(1).
\30\ See proposed NYSE Rule 3110.18(e)(2), mirroring FINRA Rule
3110.18(e)(2).
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With the exception of conforming and technical changes, proposed
NYSE Rule 3110.18(e) is substantially the same as FINRA Rule
3110.18(e).
Proposed NYSE Rule 3110.18(f) (Firm Level Requirements)
Proposed NYSE Rule 3110.18(f)(1) would set forth certain firm level
ineligibility conditions for further participation in the FINRA Pilot
Program. As proposed, a member organization would be ineligible to
conduct remote inspections of any of its offices or locations under the
FINRA Pilot Program if at any time during the Pilot Period that member
organization:
<bullet> is or becomes designated as a Restricted Firm under FINRA
Rule 4111; \31\
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\31\ See proposed NYSE Rule 3110.18(f)(1)(A), mirroring FINRA
Rule 3110.18(f)(1)(A). The Exchange has not adopted FINRA Rule 4111.
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<bullet> is or become designated a taping firm under NYSE Rule
3170; \32\
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\32\ See proposed NYSE Rule 3110.18(f)(1)(B), mirroring FINRA
Rule 3110.18(f)(1)(B).
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<bullet> receives a notice pursuant to NYSE Rule 9557 regarding
capital compliance related matters under NYSE Rules 4110 (Capital
Compliance), NYSE 4120 (Regulatory Notification and Business
Curtailment) or NYSE Rule 4130 (Regulation of Activities of Section 15C
Member Organizations Experiencing Financial and/or Operational
Difficulties); \33\
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\33\ See proposed NYSE Rule 3110.18(f)(1)(C), mirroring FINRA
Rule 3110.18(f)(1)(C).
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<bullet> is or becomes suspended from Exchange or FINRA membership;
\34\
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\34\ See proposed NYSE Rule 3110.18(f)(1)(D), mirroring FINRA
Rule 3110.18(f)(1)(D).
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<bullet> based on the date in the Central Registration Depository
(CRD), had its FINRA membership become effective within the prior 12
months; \35\ or
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\35\ See proposed NYSE Rule 3110.18(f)(1)(E), mirroring FINRA
Rule 3110.18(f)(1)(E).
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<bullet> is or has been found by the Commission, FINRA or the
Exchange to be in violation of office inspection obligations under
FINRA or NYSE Rule 3110(c) within the past three years.\36\
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\36\ See proposed NYSE Rule 3110.18(f)(1)(F), mirroring FINRA
Rule 3110.18(f)(1)(F).
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[[Page 84224]]
Proposed NYSE Rule 3110.18(f)(2) would set forth the firm-level
conditions a member organization must satisfy as part of the
requirements in NYSE Rule 3110.18(b) to develop a reasonably designed
risk-based approach to using remote inspections and to conduct and
document a risk assessment for each office or location. Specifically,
member organizations must have a recordkeeping system:
<bullet> to make and keep current, and preserve records required to
be made and kept current, and preserved under applicable securities
laws and regulations, Exchange rules, and the member organization's own
written supervisory procedures under NYSE Rule 3110; \37\
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\37\ See proposed NYSE Rule 3110.18(f)(2)(A)(i), mirroring FINRA
Rule 3110.18(f)(2)(A)(i).
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<bullet> such records are not physically or electronically
maintained and preserved at the office or location subject to the
remote inspection; \38\ and
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\38\ See proposed NYSE Rule 3110.18(f)(2)(A)(ii), mirroring
FINRA Rule 3110.18(f)(2)(A)(ii).
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<bullet> the member organization has prompt access to such
records.\39\
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\39\ See proposed NYSE Rule 3110.18(f)(2)(A)(iii), mirroring
FINRA Rule 3110.18(f)(2)(A)(iii).
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In addition, member organizations must determine that the
surveillance and technology tools are appropriate to supervise the
types of risks presented by each such remotely supervised office or
location. As proposed, these tools may include but are not limited to:
<bullet> firm-wide tools such as electronic recordkeeping systems;
electronic surveillance of email and correspondence; electronic trade
blotters; regular activity-based sampling reviews; and tools for visual
inspections; \40\
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\40\ See proposed NYSE Rule 3110.18(f)(2)(B)(i), mirroring FINRA
Rule 3110.18(f)(2)(B)(i).
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<bullet> tools specifically applied to such office or location
based on the activities of associated persons, products offered,
restrictions on the activity of the office or location (including
holding out to customers and handling of customer funds or securities);
\41\ and
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\41\ See proposed NYSE Rule 3110.18(f)(2)(B)(ii), mirroring
FINRA Rule 3110.18(f)(2)(B)(ii).
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<bullet> system security tools such as secure network connections
and effective cybersecurity protocols.\42\
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\42\ See proposed NYSE Rule 3110.18(f)(2)(B)(iii), mirroring
FINRA Rule 3110.18(f)(2)(B)(iii).
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With the exception of conforming and technical changes and the
addition of a reference to Exchange rules in proposed NYSE Rule
3110.18(f)(2)(A)(i), proposed NYSE Rule 3110.18(f)(1) and (2) are
substantially the same as FINRA Rule 3110.18(f)(1) and (2).
Proposed NYSE Rule 3110.18(g) (Location Level Requirements)
Proposed NYSE Rule 3110.18(g) would set forth the criteria under
the FINRA Pilot Program that would render a particular office or
location ineligible for remote office inspection. As proposed, NYSE
Rule 3110.18(g)(1), offices or locations would be ineligible for a
remote office inspection if at any time during the FINRA Pilot Period:
<bullet> one or more associated persons at such office or location
is or becomes subject to a mandatory heightened supervisory plan under
the rules of the SEC, FINRA, the Exchange or a state regulatory agency;
\43\
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\43\ See proposed NYSE Rule 3110.18(g)(1)(A), mirroring FINRA
Rule 3110.18(g)(1)(A).
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<bullet> one or more associated persons at such office or location
is or becomes statutorily disqualified, unless such disqualified person
has been approved (or is otherwise permitted pursuant to FINRA or
Exchange rules and the federal securities laws) to associate with a
member organization and is not subject to a mandatory heightened
supervisory plan under paragraph (g)(1)(A) of this Supplementary
Material or otherwise as a condition to approval or permission for such
association; \44\
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\44\ See proposed NYSE Rule 3110.18(g)(1)(B), mirroring FINRA
Rule 3110.18(g)(1)(B).
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<bullet> the firm is or becomes subject to FINRA Rule 1017(a)(7) as
a result of one or more associated persons at such office or location;
\45\
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\45\ See proposed NYSE Rule 3110.18g)(1)(C), mirroring FINRA
Rule 3110.18(g)(1)(C).
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<bullet> one or more associated persons at such office or 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; \46\
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\46\ See proposed NYSE Rule 3110.18(g)(1)(D), mirroring FINRA
Rule 3110.18(g)(1)(D).
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<bullet> one or more associated persons at such office or location
is or becomes subject to a disciplinary action taken by the member
organization that is or was reportable under NYSE Rule 4530(a)(2); \47\
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\47\ See proposed NYSE Rule 3110.18(g)(1)(E), mirroring FINRA
Rule 3110.18(g)(1)(E).
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<bullet> one or more associated persons at such office or location
is engaged in proprietary trading, including the incidental crossing of
customer orders, or the direct supervision of such activities; \48\ or
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\48\ See proposed NYSE Rule 3110.18(g)(1)(F), mirroring FINRA
Rule 3110.18(g)(1)(F).
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<bullet> the office or location handles customer funds or
securities.\49\
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\49\ See proposed NYSE Rule 3110.18(g)(1)(G), mirroring FINRA
Rule 3110.18(g)(1)(G).
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In addition, as part of the requirement to develop a reasonably
designed risk-based approach to using remote inspections, and the
requirement to conduct and document a risk assessment, proposed NYSE
Rule 3110.18(g)(2) would require that a specific office or location
satisfy the following conditions to be eligible for remote inspections
under the Pilot Program:
<bullet> electronic communications (e.g., email) are made through
the member organization's electronic system; \50\
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\50\ See proposed NYSE Rule 3110.18(g)(2)(A), mirroring FINRA
Rule 3110.18(g)(2)(A).
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<bullet> the associated person's correspondence and communications
with the public are subject to the firm's supervision in accordance
with NYSE Rule 3110; \51\ and
---------------------------------------------------------------------------
\51\ See proposed NYSE Rule 3110.18(g)(2)(B), mirroring FINRA
Rule 3110.18(g)(2)(B).
---------------------------------------------------------------------------
<bullet> no books or records of the member organization required to
be made and kept current, and preserved under applicable securities
laws and regulations, FINRA and Exchange rules and the member
organization's own written supervisory procedures under NYSE Rule 3110
are physically or electronically maintained and preserved at such
office or location.\52\
---------------------------------------------------------------------------
\52\ See proposed NYSE Rule 3110.18(g)(2)(C), mirroring FINRA
Rule 3110.18(g)(2)(C).
---------------------------------------------------------------------------
With the exception of conforming and technical changes and the
inclusion of references to Exchange rules in proposed NYSE Rule
3110.18(g)(1)(A) and (B), proposed NYSE Rule 3110.18(g)(1) and (2) are
substantially the same as FINRA Rule 3110.18(g)(1) and (2).
Proposed NYSE Rule 3110.18(h) (Data and Information Collection
Requirement)
FINRA Rule 3110.18(h) outlines requirements for FINRA members that
elect to participate in the Pilot Program to collect specific data and
information as part of the FINRA Pilot Program. Specifically, FINRA
Rule 3110.18(h) requires firms to collect specific data points and to
provide such data and information to FINRA on a quarterly basis, in the
manner and format determined by FINRA, including:
<bullet> the number of offices and locations with an inspection
completed during each calendar quarter; \53\
---------------------------------------------------------------------------
\53\ See FINRA Rule 3110.18(h)(1)(A).
---------------------------------------------------------------------------
<bullet> the number of those offices or locations in each calendar
quarter that were inspected remotely; \54\
---------------------------------------------------------------------------
\54\ See FINRA Rule 3110.18(h)(1)(B).
---------------------------------------------------------------------------
<bullet> the number of those offices or locations in each calendar
quarter that were the subject of an on-site inspection, as well as the
number of
[[Page 84225]]
such inspections that were on-site because of a finding; \55\
---------------------------------------------------------------------------
\55\ See FINRA Rule 3110.18(h)(1)(C) and (D). Pursuant to FINRA
Rule 3110.18(h)(1), a finding means a discovery made during an
inspection that led to a remedial action or was listed on the
member's inspection report.
---------------------------------------------------------------------------
<bullet> the number of offices and locations for which a remote
office inspection was conducted in the calendar quarter that identified
a finding, the number of findings, a list of the significant findings;
\56\ and
---------------------------------------------------------------------------
\56\ See FINRA Rule 3110.18(h)(1)(E).
---------------------------------------------------------------------------
<bullet> the number of locations for which an on-site inspection
was conducted in the calendar quarter that identified a finding, the
number of findings, and a list of the significant findings.\57\
---------------------------------------------------------------------------
\57\ See FINRA Rule 3110.18(h)(1)(F).
---------------------------------------------------------------------------
Moreover, FINRA members are required to provide FINRA with their
written supervisory procedures for remote inspections that account for
escalating significant findings; new hires; supervising brokers with a
significant history of misconduct; and outside business activities and
``doing business as'' (or DBA) designations.\58\ In addition, FINRA
Rule 3110.18(h)(2) outlines requirements for FINRA member firms
electing to participate in the Pilot Program to provide certain data
and information for Pilot Year 1 if it is less than a full calendar
year and FINRA Rule 3110.18(h)(3) lists additional data and information
to be provided to FINRA for calendar year 2019 for member firms
electing to participate in the FINRA Pilot Program.
---------------------------------------------------------------------------
\58\ See FINRA Rule 3110.18(h)(1)(G).
---------------------------------------------------------------------------
Proposed NYSE Rule 3110.18(h) on data and information collection
requirement would require member organizations to comply with the FINRA
requirements with respect to the collection and submission of specified
data and information, and in the manner and format required under the
Pilot Program. In addition, proposed NYSE Rule 3110.18(h) which
substantially mirrors FINRA Rule 3110.18(h)(4) would require member
organizations that elect to participate in the Pilot Program to
establish, maintain and enforce written policies and procedures that
are reasonably designed to comply with any specified data and
information collection, and transmission requirements prescribed by
FINRA.
Proposed NYSE Rule 3110.18(i) (Election To Participate in Pilot
Program)
FINRA Rule 3110.18(i) specifies how a firm elects to participate
in, or subsequently withdraws from, the FINRA Pilot Program.
Specifically, FINRA Rule 3110.18(i) states that a firm must, at least
five calendar days before the beginning of a Pilot Year, provide FINRA
an ``opt-in notice'' in the manner and format determined by FINRA.\59\
Moreover, FINRA Rule 3110.18(i) specifies that a FINRA member that
elects to withdraw from subsequent Pilot Years (i.e., Pilot Year 2,
Pilot Year 3, and Pilot Year 4, if applicable) shall, at least five
calendar days before the end of the then current Pilot Year, provide
FINRA with an ``opt-out notice'' in the manner and format determined by
FINRA.
---------------------------------------------------------------------------
\59\ FINRA Rule 3110.18(i) contains provisions for firms wishing
to opt-in of the FINRA Pilot Program.
---------------------------------------------------------------------------
Proposed NYSE Rule 3110.18(i) would govern elections to participate
in the Pilot Program and would require member organizations electing to
participate in the Pilot Program to make their election in the manner
and format as prescribed, in accordance with FINRA Rule 3110.18(i). In
addition, the proposed rule would require member organizations that
elect to withdraw from the Pilot Program for subsequent years to
provide such notice in the manner and format as prescribed in
accordance with FINRA Rule 3110.18(i). These requirements will ensure
that member organizations can properly elect to participate in, or
subsequently withdraw from, the Pilot Program.
Proposed NYSE Rule 3110.18(j) (Failure To Satisfy Conditions)
FINRA Rule 3110.18(j) governs failure to satisfy conditions and
addresses situations in which a member fails to satisfy the
requirements for participating in the FINRA Pilot Program.
Specifically, FINRA Rule 3110.18(j) provides that FINRA members that
fail to satisfy the conditions set forth to avail themselves of the
FINRA Pilot Program, including the requirement to timely collect and
submit the data and information to FINRA as set forth under FINRA Rule
3110.18(h), shall be ineligible to participate in the FINRA Pilot
Program. Such FINRA members would be required to conduct on-site
inspections of each office and location on the required cycle in
accordance with FINRA Rule 3110(c) on internal inspections.
Consistent with FINRA Rule 3110.18(j), proposed NYSE Rule
3110.19(j) on failure to satisfy conditions would specify that any
member organization that fails to satisfy the conditions of proposed
Supplementary Material .18 and of FINRA Rule 3110.18, including the
specified requirement to timely collect and submit data, would no
longer be eligible to participate in the FINRA Pilot Program. Such
member organizations would need to conduct on-site inspections of each
office and location on the required cycle in accordance with NYSE Rule
3110(c).
Proposed NYSE Rule 3110.18(k) (Determination of Ineligibility)
FINRA Rule 3110.18(k) governs determinations of ineligibility and
provides that FINRA may make a determination in the public interest and
for the protection of investors that a FINRA member is no longer
eligible to participate in the FINRA Pilot Program if the FINRA member
fails to comply with the requirements of FINRA Rule 3110.18. In such
instances, FINRA will provide written notice to the FINRA member of
such determination and the member would no longer be eligible to
participate in the FINRA Pilot Program and must conduct on-site
inspections of required offices and locations in accordance with FINRA
Rule 3110(c).
Consistent with FINRA Rule 3110.18(k), proposed NYSE Rule
3110.18(k) would govern ineligibility determinations and provide that
FINRA or the Exchange may make a determination in the public interest
and for the protection of investors that a member organization is no
longer eligible to participate in the FINRA Pilot Program if the member
organization fails to comply with the requirements of FINRA or NYSE
Rule 3110.18. The proposed rule would further provide that, in such
instances, FINRA or the Exchange will provide written notice to the
member organization of such determination and the member organization
would no longer be eligible to participate in the FINRA Pilot Program
and must conduct on-site inspections of required offices and locations
in accordance with FINRA or NYSE Rule 3110(c). With the exception of
conforming and technical changes, proposed NYSE Rule 3110.18(k) is
substantially the same as FINRA Rule 3110.18(k).
Proposed NYSE Rule 3110.18(l) (Definitions)
The Exchange proposes to adopt FINRA Rule 3110.18(l) setting forth
definitions applicable to Supplementary Material .18 verbatim. As
proposed, NYSE Rule 3110.18(l) would provide that for purposes of the
Supplementary Material, the term ``Pilot Year'' shall mean the
following:
<bullet> Pilot Year 1 is the period beginning on July 1, 2024 and
ending on December 31 of the same year;
<bullet> Pilot Year 2 means the calendar year period following
Pilot Year 1,
[[Page 84226]]
beginning on January 1 and ending on December 31;
<bullet> Pilot Year 3 means the calendar year period following
Pilot Year 2, beginning on January 1 and ending on December 31; and
<bullet> If applicable, where Pilot Year 1 covers a period that is
less than a full calendar year, then Pilot Year 4 means the period
following Pilot Year 3, beginning on January 1 and ending on June 30,
2027.
Finally, FINRA also adopted FINRA Rule 3110.18(m) describing the
sunset of FINRA Rule 3110.17, which the Exchange has not adopted. The
Exchange accordingly does not propose to incorporate a provision
similar to FINRA Rule 3110.18(m).
NYSE Rule 3110, Supplementary Material .19
NYSE Rule 3110.19(a) (Conditions for Designation as a Residential
Supervisory Location (RSL)
FINRA Rule 3110.19(a) lists the conditions for FINRA members to
designate an office or location as an RSL. Proposed NYSE Rule
3110.19(a) would set forth the conditions for designation as an RSL
that would mirror the conditions set forth in FINRA Rule 3110.19(a) for
member organizations to designate a location that is the associated
person's private residence where specified supervisory activities are
conducted as an RSL.
As proposed, NYSE Rule 3110.19 would provide that, notwithstanding
any other provisions of NYSE Rule 3110(e) and subject to paragraphs (b)
through (d) of the proposed Supplementary Material, a location that is
the associated person's private residence where supervisory activities
are conducted, including those described in NYSE Rule 3110(e)(1)(D)
through (G) or in NYSE Rule 3110(e)(2)(B), shall be considered for
those activities a non-branch location, provided that:
<bullet> 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; \60\
---------------------------------------------------------------------------
\60\ See proposed NYSE Rule 3110.19(a)(1), mirroring FINRA Rule
3110.19(a)(1).
---------------------------------------------------------------------------
<bullet> the location is not held out to the public as an office;
\61\
---------------------------------------------------------------------------
\61\ See proposed NYSE Rule 3110.19(a)(2), mirroring FINRA Rule
3110.19(a)(2).
---------------------------------------------------------------------------
<bullet> the associated person does not meet with customers or
prospective customers at the location; \62\
---------------------------------------------------------------------------
\62\ See proposed NYSE Rule 3110.19(a)(3), mirroring FINRA Rule
3110.19(a)(3).
---------------------------------------------------------------------------
<bullet> any sales activity that takes place at the location
complies with the conditions set forth under NYSE Rule
3110(e)(2)(A)(ii) or (iii); \63\
---------------------------------------------------------------------------
\63\ See proposed NYSE Rule 3110.19(a)(4), mirroring FINRA Rule
3110.19(a)(4).
---------------------------------------------------------------------------
<bullet> neither customer funds nor securities are handled at that
location; \64\
---------------------------------------------------------------------------
\64\ See proposed NYSE Rule 3110.19(a)(5), mirroring FINRA Rule
3110.19(a)(5).
---------------------------------------------------------------------------
<bullet> 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; \65\
---------------------------------------------------------------------------
\65\ See proposed NYSE Rule 3110.19(a)(6), mirroring FINRA Rule
3110.19(a)(6).
---------------------------------------------------------------------------
<bullet> the associated persons correspondence and communications
with the public are subject to the firm's supervision in accordance
with this Rule; \66\
---------------------------------------------------------------------------
\66\ See proposed NYSE Rule 3110.19(a)(7), mirroring FINRA Rule
3110.19(a)(7).
---------------------------------------------------------------------------
<bullet> the associated persons electronic communications (e.g.,
email) are made through the member organization's electronic system;
\67\
---------------------------------------------------------------------------
\67\ See proposed NYSE Rule 3110.19(a)(8), mirroring FINRA Rule
3110.19(a)(8).
---------------------------------------------------------------------------
<bullet> (A) the member organization must have a recordkeeping
system to make and keep current, and preserve records required to be
made and kept current, and preserved under applicable securities laws
and regulations, Exchange rules, and the member organization's own
written supervisory procedures under NYSE Rule 3110; (B) such records
are not physically or electronically maintained and preserved at the
office or location; and (C) the member organization has prompt access
to such records; \68\ and
---------------------------------------------------------------------------
\68\ See proposed NYSE Rule 3110.19(a)(9), mirroring FINRA Rule
3110.19(a)(9).
---------------------------------------------------------------------------
<bullet> the member organization must determine that its
surveillance and technology tools are appropriate to supervise the
types of risks presented by each Residential Supervisory Location, and
these tools may include but are not limited to: (A) firm-wide tools
such as, electronic recordkeeping system; electronic surveillance of
email and correspondence; electronic trade blotters; regular activity-
based sampling reviews; and tools for visual inspections; (B) tools
specific to the RSL based on the activities of associated person
assigned to the location, products offered, restrictions on the
activity of the RSL; and (C) system tools such as secure network
connections and effective cybersecurity protocols.\69\
---------------------------------------------------------------------------
\69\ See proposed NYSE Rule 3110.19(a)(10), mirroring FINRA Rule
3110.19(a)(10).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
Rule NYSE 3110.19(a) is substantially the same as FINRA Rule
3110.19(a).
NYSE Rule 3110.19(b) (Member Organization Ineligibility Criteria)
FINRA Rule 3110.19(b) outlines the conditions that would render its
members ineligible from designating an office as an RSL. As proposed,
NYSE Rule 3110.19(b) would mirror these criteria and provide that a
member organization is ineligible from designating an office or
location as an RSL if the member organization:
<bullet> is currently designated as a restricted firm under FINRA
Rule 4111; \70\
---------------------------------------------------------------------------
\70\ See proposed NYSE Rule 3110.19(b)(1), mirroring FINRA Rule
3110.19(b)(1).
---------------------------------------------------------------------------
<bullet> is currently designated as a taping firm under NYSE Rule
3170; \71\
---------------------------------------------------------------------------
\71\ See proposed NYSE Rule 3110.19(b)(2), mirroring FINRA Rule
3110.19(b)(2).
---------------------------------------------------------------------------
<bullet> is currently undergoing, or is required to undergo, a
review under FINRA Rule 1017(a)(7) as a result of one or more
associated persons at such location; \72\
---------------------------------------------------------------------------
\72\ See proposed NYSE Rule 3110.19(b)(3), mirroring FINRA Rule
3110.19(b)(3).
---------------------------------------------------------------------------
<bullet> receives a notice pursuant to NYSE Rule 9557, regarding
capital compliance related matters under NYSE Rules 4110, 4120 and
4130, unless the Exchange has otherwise permitted such activities in
writing pursuant to such rule; \73\
---------------------------------------------------------------------------
\73\ See proposed NYSE Rule 3110.19(b)(4), mirroring FINRA Rule
3110.19(b)(4).
---------------------------------------------------------------------------
<bullet> is or becomes suspended by the Exchange or FINRA; \74\
---------------------------------------------------------------------------
\74\ See proposed NYSE Rule 3110.19(b)(5), mirroring FINRA Rule
3110.19(b)(5).
---------------------------------------------------------------------------
<bullet> based on the date in the Central Registration Depository
(CRD), had its FINRA membership become effective within the prior 12
months; \75\ or
---------------------------------------------------------------------------
\75\ See proposed NYSE Rule 3110.19(b)(6), mirroring FINRA Rule
3110.19(b)(6).
---------------------------------------------------------------------------
<bullet> is or has been found to be in violation of office
inspection obligations under NYSE or FINRA Rule 3110(c) within the past
three years.\76\
---------------------------------------------------------------------------
\76\ See proposed NYSE Rule 3110.19(b)(7), mirroring FINRA Rule
3110.19(b)(7).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.19(b) is substantially the same as FINRA Rule
3110.19(b).
NYSE Rule 3110.19(c) (Location Ineligibility Criteria)
FINRA Rule 3110.19(c) sets forth the criteria that would render a
particular office or location that is an associated person's private
residence where specified supervisory activities are conducted
ineligible for an RSL designation. Proposed NYSE Rule 3110.19(c) would
mirror these criteria. As proposed, NYSE Rule 3110.19(c)
[[Page 84227]]
would make an office ineligible for the RSL designation if one or more
associated persons at such office or location:
<bullet> is a designated supervisor who has less than one year of
direct supervisory experience with the member organization, or an
affiliate or subsidiary of the member organization that is registered
as a broker-dealer or investment adviser; \77\
---------------------------------------------------------------------------
\77\ See proposed NYSE Rule 3110.19(c)(1), mirroring FINRA Rule
3110.19(c)(1).
---------------------------------------------------------------------------
<bullet> is functioning as a principal for a limited period in
accordance with NYSE Rule 1210.03; \78\
---------------------------------------------------------------------------
\78\ See proposed NYSE Rule 3110.19(c)(2), mirroring FINRA Rule
3110.19(c)(2).
---------------------------------------------------------------------------
<bullet> is subject to a mandatory heightened supervisory plan
under the rules of the SEC, FINRA, the Exchange or state regulatory
agency; \79\
---------------------------------------------------------------------------
\79\ See proposed NYSE Rule 3110.19(c)(3), mirroring FINRA Rule
3110.19(c)(3).
---------------------------------------------------------------------------
<bullet> is statutorily disqualified, unless such disqualified
person has been approved (or is otherwise permitted pursuant to FINRA
or Exchange rules and the federal securities laws) to associate with a
member organization and is not subject to a mandatory heightened
supervisory plan under paragraph (c)(3) of this Supplementary Material
or otherwise as a condition to approval or permission for such
association; \80\
---------------------------------------------------------------------------
\80\ See proposed NYSE Rule 3110.19(c)(4), mirroring FINRA Rule
3110.19(c)(4).
---------------------------------------------------------------------------
<bullet> 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; \81\ or
---------------------------------------------------------------------------
\81\ See proposed NYSE Rule 3110.19(c)(5), mirroring FINRA Rule
3110.19(c)(5).
---------------------------------------------------------------------------
<bullet> has been notified in writing that such associated person
is now subject to, any Investigation or Proceeding, as such terms are
defined in the Explanation of Terms for the Form U4 (Uniform
Application for Securities Industry Registration or Transfer), by the
SEC, a self-regulatory organization, including the Exchange, or state
securities commission (or agency or office performing like functions)
(each, a ``Regulator'') expressly alleging they have failed reasonably
to supervise another person subject to their supervision, with a view
to preventing the violation of any provision of the Securities Act, the
Act, the Investment Advisers Act, the Investment Company Act, the
Commodity Exchange Act, any state law pertaining to the regulation of
securities or any rule or regulation under any of such Acts or laws, or
any of the rules of the Exchange or other self-regulatory organization,
including the Exchange; provided, however, such office or location may
be designated or redesignated as an RSL subject to the requirements of
this Supplementary Material upon the earlier of: (i) the member
organization's receipt of written notification from the applicable
Regulator that such Investigation has concluded without further action;
or (ii) one year from the date of the last communication from such
Regulator relating to such Investigation.\82\
---------------------------------------------------------------------------
\82\ See proposed NYSE Rule 3110.19(c)(6), mirroring FINRA Rule
3110.19(c)(6).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.19(c) is substantially the same as FINRA Rule
3110.19(c).
NYSE Rule 3110.19(d) (Obligation To Provide List of RSLs)
Proposed NYSE Rule 3110.19(d) setting forth the obligations to
provide RSL list would fully mirror the provisions of FINRA Rule
3110.19(d) and would require member organizations electing to designate
any office or location of that member organization as an RSL to provide
a current list of all offices or locations designated as RSLs by the
15th day of the month following each calendar quarter to FINRA in the
manner and format as FINRA may prescribe.\83\
---------------------------------------------------------------------------
\83\ Pursuant to Rule 0, reference to Exchange staff or Exchange
departments in the NYSE rules should be understood as also referring
to FINRA staff and FINRA departments acting on behalf of the
Exchange.
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.19(d) is substantially the same as FINRA Rule
3110.19(d).
NYSE Rule 3110.19(e) (Risk Assessment)
FINRA Rule 3110.19(e) requires its members, prior to designating an
office or location as an RSL, to develop a reasonable risk-based
approach to designating such office or location as an RSL, and conduct
and document a risk assessment for the associated person assigned to
that office or location. Proposed NYSE Rule 3110.19(e) would mirror the
provisions of FINRA Rule 3110.19(e). Specifically, a member
organization would be required, prior to designating an office or
location as an RSL, to develop a reasonable risk-based approach to
designating such office or location as an RSL and conduct and document
a risk assessment for the associated person(s) assigned to that office
or location. In line with FINRA Rule 3110.19(e), the proposed rule
would list certain factors, among others, that member organizations
must consider in the risk assessment that include whether each
associated person at such office or location is subject to:
<bullet> customer complaints, taking into account the volume and
nature of the complaints; \84\
---------------------------------------------------------------------------
\84\ See proposed NYSE Rule 3110.19(e)(1), mirroring FINRA Rule
3110.19(e)(1).
---------------------------------------------------------------------------
<bullet> heightened supervision other than where such office or
location is ineligible for RSL designation under paragraph (c)(3) of
this Supplementary Material; \85\
---------------------------------------------------------------------------
\85\ See proposed NYSE Rule 3110.19(e)(2), mirroring FINRA Rule
3110.19(e)(2).
---------------------------------------------------------------------------
<bullet> any failure to comply with the member organization's
written supervisory procedures; \86\
---------------------------------------------------------------------------
\86\ See proposed NYSE Rule 3110.19(e)(3), mirroring FINRA Rule
3110.19(e)(3).
---------------------------------------------------------------------------
<bullet> any recordkeeping violation; \87\ and
---------------------------------------------------------------------------
\87\ See proposed NYSE Rule 3110.19(e)(4), mirroring FINRA Rule
3110.19(e)(4).
---------------------------------------------------------------------------
<bullet> any regulatory communications from a Regulator, indicating
that the associated person at such office or location failed reasonably
to supervise another person subject to their supervision, including but
not limited to, subpoenas, preliminary or routine regulatory inquiries
or requests for information, deficiency letters, ``blue sheet''
requests or other trading questionnaires, or examinations. The member
organization must take into account any higher risk activities that
take place or a higher risk associated person that is assigned to that
office or location. Consistent with its obligation under NYSE Rule
3110(a), the member organization's supervisory system must take into
consideration any indicators of irregularities or misconduct (i.e.,
``red flags'') when designating an office or
[[Page 84228]]
location as an RSL. Red flags should also be reviewed in determining
whether it is reasonable to maintain the RSL designation of such office
or location in accordance with the requirements of this Supplementary
Material and the member organization should consider evidencing steps
taken to address those red flags where appropriate.\88\
---------------------------------------------------------------------------
\88\ See proposed NYSE Rule 3110.19(e)(5), mirroring FINRA Rule
3110.19(e)(5).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Rule 3110.19(e) is substantially the same as FINRA Rule
3110.19(e).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\89\ in general, and furthers the objectives of Section
6(b)(5),\90\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, 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.
---------------------------------------------------------------------------
\89\ 15 U.S.C. 78f(b).
\90\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change furthers the
objectives of the Act by permitting member organizations that are FINRA
members to participate in the FINRA Pilot Program and for all member
organizations to utilize the RSL designation in order to continue to
meet the core regulatory obligation to establish and maintain a
supervisory system reasonably designed to achieve compliance with
applicable securities laws and regulations and applicable Exchange
rules that directly serve investor protection. The Exchange believes
that the proposed changes, taken together, reasonably account for
evolving work models while maintaining effective supervision. The
Exchange believes that the proposed safeguards and controls built into
both the remote inspection program and the RSL designation will, as
FINRA noted,\91\ provide member organizations with greater flexibility
to adapt to changing work conditions without compromising investor
protection. The robust nature of the criteria that must be satisfied
and circumstances that would make a location ineligible for remote
office inspections, as well as requirements for supplemental written
supervisory procedures related to remote inspections, documentation
requirements, and obligations to share data with FINRA to allow for
assessment of the pilot program, serve an important role in reducing
the potential for fraud and manipulative acts. Similarly, important
safeguards such as requiring risk assessments in connection with the
RSL designation in addition to delineating specific criteria for
locations that would be ineligible for designation as an RSL furthers
the prevention of manipulative acts and practices and the protection of
investors and the public interest.
---------------------------------------------------------------------------
\91\ See Securities Exchange Act Release No. 97398 (November 17,
2023), 88 FR 28620, 28635 (May 4, 2023) (SR-FINRA-2023-007) (Notice
of Filing of a Proposed Rule Change To Adopt Supplementary Material
.18 (Remote Inspections Pilot Program) Under FINRA Rule 3110
(Supervision)); Securities Exchange Act Release No. 97237 (March 31,
2023), 88 FR 20568 (April 6, 2023) (SR-FINRA-2023-006) (Notice of
Filing of a Proposed Rule Change To Adopt Supplementary Material .19
(Residential Supervisory Location) Under FINRA Rule 3110
(Supervision)).
---------------------------------------------------------------------------
As discussed in the Purpose section, because proposed Supplementary
Material .18 to NYSE Rule 3110 and proposed Supplementary Material .19
to NYSE Rule 3110 are substantially similar to FINRA Rule 3110.18 and
FINRA Rule 3110.19, respectively, this rule change enables NYSE Rule
3110 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
organization's compliance with FINRA Rules 3110.18 and 3110.19 shall
mean the member organization is also in compliance with proposed
Supplementary Material.18 to NYSE Rule 3110 and proposed Supplementary
Material .19 to NYSE Rule 3110, thus promoting the application of
consistent regulatory standards with respect to rules that FINRA
enforces pursuant to the 17d-2 Agreement. As previously noted, except
for conforming and technical changes, the proposed text of proposed
Supplementary Material .18 and .19 to NYSE Rule 3110 is substantially
the same as the text of FINRA Supplementary Material .18 and .19,
respectively, to FINRA Rule 3110. As such, the proposed rule change
would facilitate rule harmonization among self-regulatory organizations
with respect to inspection of member organizations and a consistent and
uniform regulatory framework for which member organizations can avail
themselves of the RSL designation, thereby fostering cooperation and
coordination with persons engaged in facilitating transactions in
securities and will remove impediments to and perfect the mechanism of
a free and open market and a national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather is intended
solely to reduce potential compliance burdens on member organizations
by aligning NYSE Rule 3110 with FINRA Rule 3110, resulting in less
burdensome and more efficient regulatory compliance for common members
and facilitating FINRA's performance under the 17d-2 Agreement.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \92\ and Rule 19b-4(f)(6) thereunder.\93\
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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) 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.\94\
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\92\ 15 U.S.C. 78s(b)(3)(A)(iii).
\93\ 17 CFR 240.19b-4(f)(6).
\94\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) \95\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\96\ the Commission
[[Page 84229]]
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 so that the proposal
may become operative immediately upon filing.
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\95\ 17 CFR 240.19b-4(f)(6).
\96\ 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, NYSE 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). Further, the Exchange stated that waiver of the
operative delay should reduce any potential confusion that may
otherwise occur on the part of joint members of the Exchange and FINRA
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.\97\
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\97\ 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 such 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) \98\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\98\ 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#1260677e773f717d7f7f777c6661526177713c757d64"><span class="__cf_email__" data-cfemail="9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb">[email protected]</span></a>. Please include
file number SR-NYSE-2024-64 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-NYSE-2024-64. 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 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
a.m. and 3 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-NYSE-2024-64 and should be
submitted on or before November 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\99\
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\99\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24201 Filed 10-18-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 21, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.