Notice2025-11421
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Effectiveness of Certain Immediately Effective FINRA Sanctions and Actions
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
June 23, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 118 (Monday, June 23, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 118 (Monday, June 23, 2025)]
[Notices]
[Pages 26667-26674]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-11421]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103285; File No. SR-FINRA-2025-006]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to the Effectiveness of Certain
Immediately Effective FINRA Sanctions and Actions
June 17, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 4, 2025, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend provisions of the FINRA Rule 9000
Series (Code of Procedure) and Funding Portal Rule 900 Series (Code of
Procedure) that require or allow for a sanction (e.g., a suspension or
bar) or other regulatory measure (such as a denial of a statutory
disqualification application, imposition of a cease and desist order,
or imposition of conditions, requirements or restrictions) to take
effect immediately. The proposed amendments would provide FINRA staff
and adjudicators authority to grant respondents and applicants, where
appropriate, the opportunity to seek a stay from the SEC or take other
appropriate action before the sanction or other regulatory measure
takes effect, and in certain instances, would expressly prescribe such
amount of time by rule.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Summary
FINRA is proposing amendments to rules addressing disciplinary,
expedited, eligibility, temporary cease and desist order (``TCDO'') and
permanent cease and desist order (``PCDO'') proceedings that currently
allow for a sanction (e.g., a suspension or bar) or other regulatory
measure (such as a denial of a statutory disqualification application,
imposition of a cease and desist order, or
[[Page 26668]]
imposition of conditions, requirements or restrictions) to take effect
immediately without the opportunity for respondents or applicants to
seek a stay or take other appropriate action. The proposed rule change
would provide authority for FINRA staff and adjudicators, including
Hearing Officers, Hearing Panels, the National Adjudicatory Council
(the ``NAC'') and the FINRA Board of Governors (the ``Board''), to
grant respondents and applicants the opportunity to seek a stay from
the SEC or take other appropriate action (such as comply with a FINRA
notice of requirements or restrictions or file a request with FINRA
adjudicators for a hearing and stay) before the sanction or other
regulatory measure takes effect. In certain instances, the proposed
rule change would expressly prescribe such amount of time by rule. The
proposed amendments are consistent with current FINRA rules that
contemplate a brief delay before sanctions become effective, as well as
SEC precedent granting interim stays to preserve the status quo pending
review of an action by a self-regulatory organization (``SRO'').
Specifically, the proposed rule change would amend Rules 9269
(Default Decisions), 9285 (Interim Orders and Mandatory Heightened
Supervision While on Appeal or on Discretionary Review), 9524 (National
Adjudicatory Council Consideration), 9525 (Discretionary Review by the
FINRA Board), 9557 (Procedures for Regulating Activities Under Rules
4110, 4120 and 4130 Regarding a Member Experiencing Financial or
Operational Difficulties), 9558 (Summary Proceedings for Actions
Authorized by Section 15A(h)(3) of the Exchange Act), 9559 (Hearing
Procedures for Expedited Proceedings Under the Rule 9550 Series), 9561
(Procedures for Regulating Activities Under Rule 4111) (with conforming
changes to related Rule 4111 (Restricted Firm Obligations)), 9840
(Issuance of Order by Hearing Panel), 9850 (Review by Hearing Panel),
9870 (Application to SEC for Review) and Funding Portal Rule 900(b)
(Eligibility Proceedings).
Some sanctions and other regulatory measures that are immediately
effective under current FINRA rules could have significant near-term
effects, for example, if FINRA staff suspends part of a member's
business operations to address operational or financial difficulties
under Rule 9557.\4\ Accordingly, FINRA believes it is appropriate for
FINRA staff and adjudicators to have authority to briefly delay the
effectiveness of sanctions and other regulatory measures, where
appropriate. However, the proposed rule change is not intended to
operate as a delay of such sanctions and other regulatory measures in
all cases. FINRA anticipates that there will continue to be instances
in which imposed sanctions and other regulatory measures, including
ones that could have significant near-term effects, take effect
immediately in accordance with FINRA protocol and precedent, for
example, where the member or associated person poses a risk to
investors.\5\
---------------------------------------------------------------------------
\4\ See infra note 5.
\5\ FINRA Rules 9360, 9370, 9524, 9525, 9527 and 9559, and
Funding Portal Rule 900(b), as discussed herein, incorporate
amendments made in proposed rule change SR-FINRA-2025-004 to stay
the effectiveness of certain expulsions of members, cancellations of
membership, and denials of applications for continued membership of
disqualified members to allow for SEC review. SR-FINRA-2025-004
aligns FINRA rules relating to expulsions in expedited proceedings,
and other FINRA actions against members that may result in a
sanction or action that shares the relevant characteristics of such
expulsions, with the ruling of the United States Court of Appeals
for the D.C. Circuit in Alpine Securities Corp. v. FINRA (the
``Alpine Preliminary Injunction Decision''). See Alpine Securities
Corp. v. Fin. Indus. Regul. Auth., 121 F.4th 1314 (D.C. Cir. 2024),
cert. denied (June 2, 2025) (No. 24-904). FINRA notes that this
litigation is ongoing and FINRA does not waive any rights or
arguments it may have in connection with this or any other pending
or future matter. The instant filing would amend rules relating to
the effectiveness of sanctions and other regulatory measures that do
not share the relevant characteristics of the sanction at issue in
the Alpine Preliminary Injunction Decision and thus are not in scope
for the stay of effectiveness proposed in SR-FINRA-2025-004.
---------------------------------------------------------------------------
The specific proposed amendments are discussed in greater detail
below.\6\
---------------------------------------------------------------------------
\6\ FINRA notes that the proposed rule change would impact all
members, including members that are funding portals or have elected
to be treated as capital acquisition brokers (``CABs''), given that
the funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference, with limited exceptions. However, the proposed
changes to Rules 9557 and 9561 do not affect funding portals because
Rules 9557 and 9561 are not incorporated in the Funding Portal Rules
(See Funding Portal Rule 900(a)). Further, as discussed herein,
Funding Portal Rule 900(b) sets forth separate rules governing
eligibility proceedings for funding portal members and certain
provisions of that Rule will be amended pursuant to the proposed
rule change.
---------------------------------------------------------------------------
Disciplinary Proceedings
FINRA rules addressing disciplinary proceedings under the Rule 9200
Series and Rule 9300 Series generally automatically stay, or authorize
FINRA adjudicators to provide respondents time to seek a stay of,
sanctions or other regulatory measures before they take effect. A
Hearing Panel (or Hearing Officer, in the case of default decisions)
must specify the effective date of any sanctions, including, fines,
suspensions, bars, or orders to pay restitution,\7\ imposed in a
disciplinary decision.\8\
---------------------------------------------------------------------------
\7\ See FINRA Rules 8310, 9268 and 9269. See also FINRA's
Sanction Guidelines.
\8\ See FINRA Rules 9268(b)(6) and 9269(b).
---------------------------------------------------------------------------
A member seeking review of a decision under the Rule 9200 Series
must appeal to the National Adjudicatory Council (``NAC'') \9\ in the
first instance and not directly to the SEC.\10\ With limited
exceptions, all sanctions imposed by a Hearing Panel or Hearing
Officer, including bars, expulsions, and suspensions, are automatically
stayed during the pendency of an appeal to or call for review by the
NAC.\11\ Under Rules 9349(b)(6) and 9360, the NAC may set an effective
date of any sanction that affords the respondent an opportunity to seek
a stay from the SEC before the sanction takes effect.\12\ If the Board
calls the matter for review, the stay entered under Rule 9311(b) or
Rule 9312(b) shall continue \13\ and, in its decision, the Board may
set an effective date of any sanction that affords the respondent an
opportunity to seek a stay from the SEC before the sanction takes
effect.\14\
---------------------------------------------------------------------------
\9\ The NAC is FINRA's appellate body and presides primarily
over disciplinary matters that have been appealed to or called for
review by the NAC pursuant to the FINRA Rule 9300 Series and
statutory disqualification proceedings pursuant to the FINRA Rule
9520 Series. For most matters the NAC considers, its written
decision becomes final FINRA action if the FINRA Board does not call
the proposed decision for review pursuant to FINRA Rule 9351. With
respect to expedited proceedings, the NAC's Review Subcommittee may
call for review by the NAC a proposed decision prepared by a Hearing
Officer or Panel; the FINRA Board does not have discretion to call
the NAC's decision for review under FINRA rules.
\10\ See generally FINRA Rule 9300 Series (Review of
Disciplinary Decision by National Adjudicatory Council and FINRA
Board; Application for SEC Review). See also, e.g., Edward J.
Jakubik, Jr., Exchange Act Release No. 61541, 2010 SEC LEXIS 1014,
at *13 (Feb. 18, 2010) (dismissing appeal and holding that applicant
``failed to exhaust his administrative remedies by appealing to the
NAC, as required by NASD's rules. We have repeatedly held that the
Commission will not consider an application for review if the
applicant failed to follow NASD procedures.'') (internal citations
omitted).
\11\ See FINRA Rules 9311(b) and 9312(b). An appeal to the NAC,
or call for review by the NAC, will not stay a decision, or that
part of a decision, that imposes a permanent cease and desist order.
\12\ See, e.g., Dep't of Enf't. v. Sandlapper Sec., LLC,
Complaint No. 2014041860801, 2020 FINRA Discip. LEXIS 30, at *72
(FINRA NAC June 23, 2020) (providing that expulsion and bars imposed
on firm and its officers were effective seven calendar days after
issuance of the NAC decision, per the terms of the NAC's decision).
\13\ If the Board calls a matter for review, the review shall
not stay a decision, or part of that decision, that imposes a
permanent cease and desist order.
\14\ See FINRA Rules 9349(b)(6) and 9351(d).
---------------------------------------------------------------------------
Proposed Amendments to Rule 9269
Under current Rule 9269(d), in the case of default decisions issued
by a
[[Page 26669]]
Hearing Officer, ``[u]nless otherwise provided in the default decision,
the sanctions shall become effective on a date to be determined by
FINRA staff, except that a bar or expulsion shall become effective
immediately upon the default decision becoming the final disciplinary
action of FINRA.'' FINRA believes that the rule as currently structured
could potentially be confusing. Accordingly, FINRA is proposing to make
a conforming change to Rule 9269(d) to clarify that the phrase ``unless
otherwise provided in the default decision'' also applies to bars and
expulsions.
Specifically, the amendment would restructure Rule 9269(d) into
three subparagraphs, and new subparagraph (d)(2) would state that
unless otherwise provided in the default decision, ``a sanction (other
than a bar or expulsion) specified in a decision constituting final
disciplinary action of FINRA for purposes of SEA Rule 19d-1(c)(1) shall
become effective on a date to be determined by FINRA staff'' and ``a
bar or expulsion specified in a decision shall become effective
immediately upon the default decision becoming the final disciplinary
action of FINRA for purposes of SEA Rule 19d-1(c)(1).'' This amendment
would achieve consistency with the structure of existing Rule 9268(f),
which governs the effectiveness of sanctions in other disciplinary
decisions.
Proposed Amendments to Rule 9285
Pursuant to Rule 9285, in a disciplinary proceeding appealed to or
called for review by the NAC, a Hearing Officer is authorized to impose
any conditions or restrictions on the activities of a respondent that
the Hearing Officer considers reasonably necessary to prevent customer
harm. Such conditions or restrictions are effective even though the
sanctions imposed by a Hearing Panel or Hearing Officer are stayed
during the pendency of the NAC's review. A respondent may file a motion
with the Review Subcommittee \15\ to modify or remove any or all of the
conditions or restrictions under Rule 9285(b). Under current Rule
9285(d), interim conditions or restrictions imposed by a Hearing
Officer that are not subject to any stay, or imposed by the Review
Subcommittee, may take effect immediately and remain effective until
FINRA's final decision in the underlying disciplinary proceeding takes
effect and all appeals, including an appeal to the SEC, are exhausted.
---------------------------------------------------------------------------
\15\ The Review Subcommittee is appointed by the NAC pursuant to
FINRA By-Laws to determine whether disciplinary and membership
proceedings decisions should be called for review and perform other
functions authorized by FINRA rules. See FINRA Reg By-Laws Art. V,
Sec. 5.13.
---------------------------------------------------------------------------
Rule 9285(d) would be amended to provide that ``[c]onditions or
restrictions imposed by a Hearing Officer that are not subject to any
stay shall become effective 10 days after issuance of the Hearing
Officer's written order.'' This proposed amendment would provide
respondents a brief amount of time to take appropriate action (i.e.,
file a motion with the Review Subcommittee) before the conditions or
restrictions imposed by a Hearing Officer become effective.
Expedited Proceedings
Certain actions against members or associated persons may be
brought as expedited proceedings under the Rule 9550 Series. These
actions include, among others, proceedings for failure to provide
information or keep information current; failure to pay FINRA dues,
fees, and other charges; failure to comply with an arbitration award or
related settlement; and failure to comply with temporary or permanent
cease and desist orders or orders that impose conditions or
restrictions.\16\ In most expedited proceedings, the respondent may be
afforded an opportunity to seek a stay from the SEC or take other
appropriate action before a sanction or other regulatory measure takes
effect.
---------------------------------------------------------------------------
\16\ See generally FINRA Rule 9550 Series.
---------------------------------------------------------------------------
Upon receipt of notice, a respondent facing a sanction or other
regulatory measure in an expedited proceeding may request a hearing
before a Hearing Officer or Hearing Panel. In many expedited
proceedings, a respondent's timely filing of a request for a hearing
will automatically stay the sanction or other regulatory measure
provided in the notice.\17\ If the respondent does not request a
hearing within the time prescribed in the notice, the notice shall
constitute final FINRA action.\18\ With limited exceptions, a Hearing
Officer or Hearing Panel may approve, modify or withdraw any sanctions,
requirements, restrictions or limitations imposed by the notice and,
pursuant to Rule 8310(a), may also impose any other fitting sanction.
The Hearing Officer or Hearing Panel (or the NAC, in matters that the
NAC calls for review under Rule 9559(q)) generally may delay the
effective date of any sanction pursuant to Rule 9559(p)(6), which
provides that the written decision in an expedited proceeding shall
include the date upon which such sanction or measure shall become
effective, if they are not already effective.\19\
---------------------------------------------------------------------------
\17\ Pursuant to Rule 9559(c), a timely request for a hearing
shall stay the effectiveness of a notice issued under Rules 9551
through 9557 and 9561(b), with limited exceptions. However, a
respondent's timely filing of a hearing request will not stay the
effectiveness of a notice under Rules 9555(a)(2) (a notice regarding
failure to meet the eligibility or qualification standards or
prerequisites for access to services with respect to services to
which the member or person does not already have access), 9558
(summary proceedings for actions authorized by Section 15A(h)(3) of
the Act), or 9561(a) (notices under Rule 4111). In addition, the
stay provided for in Rule 9559(c) does not apply to a petition filed
by FINRA staff for subsequent proceedings in connection with a
failure to comply with a TCDO or PCDO pursuant to Rule 9556(h).
\18\ See Rules 9551(f), 9553(f), 9554(f), 9555(f), 9556(f), and
9558(f). See also, e.g., Rule 9552(h) (providing that a member or
person that is suspended under Rule 9552 after receiving notice and
failing to timely request a hearing and that subsequently fails to
request termination of such suspension within three months of
issuance of the notice shall be automatically expelled or barred)
and Rule 9559(m) (providing that failure to appear at a pre-hearing
conference or hearing or to comply with a Hearing Officer order
requiring the production of information shall be considered an
abandonment of the respondent's defense and waiver of any
opportunity for a hearing provided by the Rule 9550 Series and such
action shall result in a notice issued under the Rule 9550 Series to
be deemed a final FINRA action).
\19\ As amended in SR-FINRA-2025-004, Rule 9559(p)(6) provides
that an expulsion or cancellation of membership shall not become
effective until the time for filing an application for review with
the SEC has expired and no such application is filed or, if such an
application is timely filed, until the SEC completes its review
under Exchange Act Section 19.
---------------------------------------------------------------------------
Rules 9557, 9558 and 9561, however, currently contemplate
immediately effective sanctions or other regulatory measures and do not
provide FINRA staff and adjudicators authority to afford parties time
to seek a stay from the SEC or take other appropriate action.
Proposed Amendments to Rules 9557 and 9559
Rule 9557 outlines FINRA's process for issuing a notice to a member
experiencing financial or operational difficulties that may have led to
noncompliance with provisions of Rules 4110, 4120 or 4130. Pursuant to
Rule 9557(a) and (c), FINRA will issue a notice setting forth the
specific grounds and factual basis for the action and the requirements
or restrictions being imposed on the member. Under current Rule
9557(d), such requirements or restrictions are immediately effective.
Pursuant to Rule 9557(f), the failure to comply with these requirements
or restrictions shall be deemed to ``result in automatic and immediate
suspension'' without further notice, unless FINRA staff issues a letter
of withdrawal of the requirements or restrictions.
A member served with a Rule 9557 notice may file a written request
for a hearing with the Office of Hearing
[[Page 26670]]
Officers,\20\ and under Rule 9557(d), a timely request for a hearing
stays the effectiveness of the notice, unless FINRA's Chief Executive
Officer (or such other senior officer as the Chief Executive Officer
may designate) determines otherwise. Under current Rule 9559(n)(3), if
a Hearing Panel approves the requirements or restrictions imposed in
the Rule 9557 notice and finds that the respondent has not complied
with them, the Hearing Panel must impose an immediate suspension. Under
current Rule 9559(o)(4)(A), the Hearing Panel's written order is
effective when issued.
---------------------------------------------------------------------------
\20\ See FINRA Rule 9557(e). A member may also request from
FINRA staff a letter of withdrawal of the notice pursuant to Rule
9557(g)(2).
---------------------------------------------------------------------------
Rule 9557(d) would be amended to provide that the requirements and
restrictions imposed by a notice under Rule 9557(a) are immediately
effective ``[u]nless otherwise specified therein.'' Therefore, the
proposed rule change would give FINRA staff authority to afford the
member an opportunity to take action before a requirement or
restriction takes effect. FINRA is proposing a conforming change to
Rule 9557(c)(3), which addresses the contents of a notice issued under
Rule 9557, to reflect amended paragraph (d). Specifically, paragraph
(c)(3) would provide that the notice will state that the requirements
and restrictions imposed by the notice are immediately effective
``unless otherwise specified therein.''
Rule 9557(f) would be amended to provide that FINRA staff will
issue a notice of suspension in the event the member fails to comply
with the requirements or restrictions imposed under the Rule. FINRA is
proposing that such suspension would be effective five business days
after service of the notice pursuant to paragraph (b). Thus, firms
would no longer be subject to automatic and immediate suspension under
the Rule and would have an opportunity to take action before the
sanction takes effect. FINRA believes that five business days is a
reasonable and sufficient amount of time for a firm to take action
(such as comply with the original notice of requirements or
restrictions, or file a notice of appeal and request a stay with the
SEC) without undermining the purpose of Rule 9557, which is designed to
ensure that FINRA can respond to emergency circumstances, such as when
a firm is experiencing financial or operational difficulty. Rule
9557(f) also would be amended to include certain procedural
requirements for issuance and service of a notice of suspension.
Specifically, FINRA is proposing the following changes to Rule
9557(f). First, the title of this paragraph would be changed to
``Notice of Suspension for Failure to Comply with Requirements or
Restrictions under this Rule.'' In addition, the amended rule would
comprise five new subparagraphs:
<bullet> Rule 9557(f)(1): The proposed title for Rule 9557(f)(1) is
``Notice of Suspension'' and the phrases ``without further notice from
FINRA staff'' and ``and immediately'' would be removed and the phrase
``effective five business days after service of a notice of suspension
issued by FINRA staff'' would be added.
<bullet> Rule 9557(f)(2): The proposed title for Rule 9557(f)(2) is
``Service of Notice of Suspension.'' The proposed rule text provides
that FINRA staff shall serve the member subject to a notice of
suspension issued under new paragraph (f) in accordance with the
service provisions in Rule 9557(b).
<bullet> Rule 9557(f)(3): The proposed title for Rule 9557(f)(3) is
``Contents of Notice of Suspension.'' This proposed provision is
substantially similar to the requirements relating to the contents of
notices relating to disciplinary proceedings and other expedited
proceedings under existing rules. Specifically, the proposed rule text
states that, ``[a] notice of suspension issued and served under this
paragraph (f) shall identify the requirements and restrictions with
which the member is alleged to have not complied and shall contain a
statement of facts specifying the alleged failure. The notice of
suspension shall state when the FINRA action will take effect and
explain what the respondent must do to avoid such action.'' Thus, the
notice of suspension must inform the member that the effective date of
the suspension will be five business days after service of the notice,
in accordance with paragraph (f)(4).
<bullet> Rule 9557(f)(4): The proposed title for Rule 9557(f)(4) is
``Effective Date.'' The proposed text states that the effective date
for a notice of suspension issued and served under new Rule 9557(f)
shall become effective five business days after service of such notice.
<bullet> Rule 9557(f)(5): The proposed title for Rule 9557(f)(5) is
``Application to SEC for Review.'' The proposed text mirrors that of
Rule 9559(r) and states that, ``[a] notice of suspension issued and
served under this paragraph (f) constitutes final action by FINRA. The
right to have any action under this paragraph reviewed by the SEC is
governed by Section 19 of the Exchange Act.''
FINRA is proposing a conforming change to Rule 9557(c)(5) relating
to contents of a notice to reflect amended paragraph (f). Specifically,
the phrase ``without further notice from FINRA staff'' would be removed
and the phrase ``effective five business days after service of a notice
of suspension'' would be added. Thus, the member will be on notice that
if they fail to comply with the requirements or restrictions, they will
receive a subsequent notice and have a limited period in which to take
action before they are suspended.
Finally, FINRA is proposing several additional conforming and
clarifying changes to Rule 9557. First, in connection with Rule
9557(c), the proposed rule change would add the phrase ``of
requirements or restrictions'' to the title and introductory text and
the phrase ``paragraph a'' to the introductory text to clarify that
this paragraph addresses the initial notice issued under Rule 9557
prescribing the requirements or restrictions imposed under the Rule.
Second, the proposed rule change removes the word ``immediate'' from
Rule 9557(c)(9) to reflect proposed amendments to Rule 9559(n)
discussed below. Third, in Rule 9557(e), FINRA proposes to add the
phrase ``other than a notice of suspension under paragraph (f)'' to
clarify that paragraph (e) does not apply to notices of suspension. In
other words, a member would not be able to request a withdrawal or a
hearing in connection with a notice of suspension issued under
paragraph (f). Finally, Rule 9557(g)(2)(B) would be amended to remove
the phrase ``by a notice'' and the word ``immediately'' and to add the
phrase ``in accordance with this Rule'' to account for the two types of
notices that can be issued under the proposed changes to Rule 9557(f)
and the revisions throughout Rule 9557 that will provide a brief period
of time for respondents to seek a stay before a suspension takes
effect.
In connection with the proposed amendments to Rule 9557, FINRA is
proposing changes to applicable provisions of Rule 9559. The proposed
rule change would remove the word ``immediate'' from Rule 9559(n)(3)
and add the phrase ``unless otherwise specified therein'' to Rule
9559(o)(4)(A) to provide adjudicators authority to grant respondents a
brief amount of time to seek a stay from the SEC before a suspension
becomes effective.
Proposed Amendments to Rule 9558
Rule 9558 authorizes FINRA's Chief Executive Officer, or such other
senior officer as the Chief Executive Officer may designate, to provide
written
[[Page 26671]]
authorization to FINRA staff to issue on a case-by-case basis a written
notice that ``summarily'': (1) suspends a member, person associated
with a member, or person subject to FINRA's jurisdiction who has been
expelled or suspended from any SRO or barred or suspended from being
associated with a member of any SRO; (2) suspends a member who is in
such financial or operational difficulty that FINRA staff determines
the member cannot be permitted to continue to do business as a member
with safety to investors, creditors, other members, or FINRA; or (3)
limits or prohibits any person with respect to access to services
offered by FINRA in the aforementioned situations or, in the case of a
person who is not a member, if FINRA's CEO or such other senior officer
as the CEO may designate determines that such person does not meet the
qualification requirements or other prerequisites for such access and
cannot be permitted to continue to have such access with safety to
investors, creditors, members or FINRA. Under current Rule 9558(d), a
prohibition or suspension set forth in the notice is immediately
effective.
Under Rule 9558(e), a member or person served with a notice may
file a written request for a hearing with the Office of Hearing
Officers. A timely request for a hearing shall not stay the
effectiveness of a Rule 9558 notice, unless the Chief Hearing Officer
or the Hearing Officer assigned to the matter orders otherwise for good
cause shown,\21\ and the member or person must separately request a
stay.
---------------------------------------------------------------------------
\21\ See FINRA Rule 9559(c)(3).
---------------------------------------------------------------------------
FINRA is proposing to amend Rule 9558(d) to add the phrase ``unless
otherwise specified therein'' to provide FINRA authority to afford
respondents an opportunity to take appropriate action before the
requirements or restrictions imposed in the notice take effect.
Proposed Amendments to Rules 9561 and 9559
Rule 9561 provides procedures for notices issued under Rule 4111,
which addresses risks from members with a significant history of
misconduct. Under Rule 9561(a)(1), FINRA's Department of Member
Supervision (formerly known as and referred to in FINRA rules as
``Member Regulation'') will issue a notice of its determination under
Rule 4111 that a firm is a ``Restricted Firm'' and the requirements,
conditions or restrictions to which the firm is subject. Under current
Rule 9561(a)(4), such requirements, conditions or restrictions are
immediately effective. If the member fails to comply with them, the
member will be issued a notice under Rule 9561(b) that failure to
comply within seven days of service will result in a suspension or
cancellation of membership.
Under Rule 9559, a member can request a hearing in connection with
a notice issued under Rule 9561(a) (Notice of Requirements or
Restrictions) within seven days after service or, if the notice is
issued under Rule 9561(b) (Notice of Suspension or Cancellation),
before the effective date of the notice. Pursuant to Rule 9559(c)(4), a
timely request for a hearing shall not stay the effectiveness of the
Rule 9561(a) notice.\22\ By contrast, however, a timely request for a
hearing in connection with a Rule 9561(b) notice shall stay the
suspension or cancellation under Rule 9559(c)(1).
---------------------------------------------------------------------------
\22\ However, if the firm requests review of Member
Supervision's determination that imposes a deposit requirement on
the firm for the first time, the firm shall be required to deposit
only 25 percent of its restricted deposit requirement or 25 percent
of its average excess net capital over the prior year, whichever is
less, while the hearing is pending.
---------------------------------------------------------------------------
FINRA is proposing to amend Rule 9561(a)(4) to provide that the
Rule 4111 requirements, conditions or restrictions imposed by a notice
under paragraph (a) are immediately effective, ``unless otherwise
specified therein.'' In the proposal to adopt Rule 9561, FINRA
recognized the importance of making requirements imposed by a notice
issued under Rule 9561 immediately effective to protect investors
during the pendency of an expedited proceeding given the nature and
risk of firms identified as Restricted Firms.\23\ Under the proposed
rule change, FINRA staff would continue to have authority to impose
immediately effective Rule 4111 requirements, conditions or
restrictions where even a short delay would pose a risk to investors.
---------------------------------------------------------------------------
\23\ See Securities Exchange Act Release No. 90527 (November 27,
2020), 85 FR 78540 (December 4, 2020) (Notice of Filing of File No.
SR-FINRA-2020-041).
---------------------------------------------------------------------------
In addition, FINRA is proposing to amend Rule 9559(c)(4) to add
``unless the Chief Hearing Officer or the Hearing Officer assigned to
the matter orders otherwise for good cause shown,'' to provide
authority, upon written request, to stay the notice and afford
respondents an opportunity to take appropriate action before the
requirements or restrictions take effect. FINRA notes that the proposed
language mirrors current Rule 9559(c)(3) relating to hearing procedures
for Rule 9558 expedited proceedings.
Finally, FINRA is proposing to make conforming changes to Rule
4111. The proposed changes remove the phrase ``No Stays'' from the
title of Rule 4111(e)(2) and add the phrase ``unless otherwise ordered
pursuant to Rule 9559(c)(4)'' to align with the proposed changes to
Rule 9559(c)(4).
Eligibility Proceedings
The Rule 9520 Series sets forth eligibility proceedings under which
FINRA may allow a firm or individual subject to statutory
disqualification to become or remain a FINRA member, or associate or
continue to associate with a FINRA member, respectively. Rules 9524 and
9525 govern NAC and Board decisions addressing statutory
disqualification applications.
Pursuant to Rule 9524, in the event that Member Supervision
recommends denial of an application, an applicant may request a hearing
before the NAC. Under Rule 9524(b)(3), a decision to deny a
disqualified member's application for continued membership ``shall not
become effective until the time for filing an application for review
with the SEC has expired and no such application is filed or, if such
an application is timely filed, until the SEC completes its review
under Exchange Act Section 19,'' and a decision to deny any other
application under the Rule 9520 Series (e.g., an individual's
application for continued association) shall be effective
immediately.\24\ If the Board calls the proceeding for review, under
Rule 9525(e), the Board's decision to deny the application (other than
an application for continued membership) is effective immediately.
---------------------------------------------------------------------------
\24\ As amended in SR-FINRA-2025-004, Rules 9524 and 9525
provide that a decision to deny an application for continued
membership shall not become effective until the time for filing an
application for review with the SEC has expired and no such
application is filed or, if such an application is timely filed,
until the SEC completes its review under Exchange Act Section 19.
---------------------------------------------------------------------------
The Funding Portal rules, which generally provide that funding
portal members are otherwise subject to the FINRA Code of Procedure,
contain provisions governing eligibility proceedings that are
comparable to Rules 9524(b)(3) and 9525(e). Funding Portal Rule 900(b)
provides that a funding portal member or associated person who becomes
statutorily disqualified may apply to maintain membership or
association notwithstanding the disqualification. Like Rules 9524 and
9525, current Funding Portal Rules 900(b)(12)(M) and 900(b)(13)(E)
provide that the NAC's or the Board's decision to deny a statutory
disqualification application other than an application for continued
[[Page 26672]]
membership shall be effective immediately.\25\
---------------------------------------------------------------------------
\25\ As amended in SR-FINRA-2025-004, Funding Portal Rules
900(b)(12)(M) and 900(b)(13)(E) provide that a decision to deny an
application for a disqualified funding portal member's continued
membership shall not become effective until the time for filing an
application for review with the SEC has expired and no such
application is filed or, if such an application is timely filed,
until the SEC completes its review under Exchange Act Section 19.
---------------------------------------------------------------------------
Proposed Amendments to Rules 9524 and 9525
FINRA is proposing to amend Rules 9524(b)(3) and 9525(e) to add the
phrase ``unless otherwise specified therein'' after ``[a] decision to
deny any other application under the Rule 9520 Series shall be
effective immediately.'' The proposed change would provide the NAC and
Board, respectively, authority to grant applicants, other than for
continued membership, an opportunity to take action, such as seek a
stay from the SEC, before the denial takes effect.
Proposed Amendments to Funding Portal Rule 900
Consistent with the amendments to Rules 9524 and 9525, the proposed
rule change would add the phrase ``unless otherwise specified therein''
to Funding Portal Rules 900(b)(12)(M) and 900(b)(13)(E) to provide the
NAC and the Board, respectively, authority to grant applicants, other
than for continued membership, an opportunity to seek a stay from the
SEC before the denial takes effect.\26\
---------------------------------------------------------------------------
\26\ The attached Exhibit 5 reflects the text of Rules 9524 and
9525 and Funding Portal Rules 900(b)(12)(M) and 900(b)(13)(E), as
amended in SR-FINRA-2025-004.
---------------------------------------------------------------------------
Temporary and Permanent Cease and Desist Order Proceedings
FINRA may initiate a TCDO proceeding (``TCDO Proceeding'') or PCDO
proceeding (``PCDO Proceeding'') under the Rule 9800 Series when a
member or associated person is alleged to have violated certain
rules.\27\ TCDOs and PCDOs issued pursuant to the Rule 9800 Series
constitute final and immediately effective disciplinary sanctions
imposed by FINRA.\28\
---------------------------------------------------------------------------
\27\ Specifically, FINRA may initiate a TCDO Proceeding with
respect to alleged violations of Section 10(b) of the Exchange Act
and SEA Rule 10b-5 thereunder; SEA Rules 15g-1 through 15g-9; FINRA
Rule 2010 (if the alleged violation is unauthorized trading, or
misuse or conversion of customer assets, or based on violations of
Section 17(a) of the Securities Act); Rule 2020; or Rule 4330 (if
the alleged violation is misuse or conversion of customer assets) or
a PCDO Proceeding with respect to alleged violations of
Supplementary Material .03 to Rule 5210. See FINRA Rule 9810.
\28\ See FINRA Rule 9870.
---------------------------------------------------------------------------
Under current Rule 9840(f), a TCDO or PCDO shall become effective
when service of the Hearing Panel's written decision is complete. At
any time after the Office of Hearing Officers serves the TCDO or PCDO,
a party may apply to have the order modified, set aside, limited or
suspended.\29\ Under current Rule 9850, the filing of an application
for review of a TCDO or PCDO with a Hearing Panel shall not stay the
effectiveness of the order. Under current Rule 9870, the filing of an
application for review of a TCDO or PCDO with the SEC shall not stay
the effectiveness of the order unless the SEC otherwise orders.
---------------------------------------------------------------------------
\29\ See FINRA Rule 9850.
---------------------------------------------------------------------------
Proposed Amendments to Rules 9840, 9850 and 9870
The proposed rule change would add the phrase ``unless otherwise
specified therein'' to Rules 9840(f) and 9870 to provide FINRA
adjudicators authority to grant applicants an opportunity to seek a
stay from the SEC or take other appropriate action before the TCDO or
PCDO takes effect. In addition, the proposed rule change would add the
phrase ``unless the Chief Hearing Officer or the Deputy Hearing Officer
assigned to the matter orders otherwise for good cause shown'' to Rule
9850 to provide authority to stay the effectiveness of a TCDO or PCDO
upon the filing of an application for review by the Hearing Panel,
where appropriate. This language mirrors language in current Rule
9559(c) relating to hearing requests on notices under current Rule 9558
and, as amended in the proposed rule change, Rule 9561(a).
In sum, the proposed amendments to Rules 9269, 9285, 9524, 9525,
9557, 9558, 9559, 9561 (with a conforming change to related Rule 4111),
9840, 9850, 9870, and Funding Portal Rule 900 are consistent with other
FINRA rules addressing disciplinary and expedited proceedings that
either expressly prescribe a brief delay of effectiveness \30\ or
provide FINRA staff and adjudicators authority to grant respondents and
applicants an opportunity to seek a stay from the SEC or otherwise take
appropriate action before a sanction or other regulatory measure takes
effect. In addition, the proposed amendments are consistent with SEC
precedent granting interim stays in appropriate cases to preserve the
status quo pending review of an action by an SRO.\31\
---------------------------------------------------------------------------
\30\ But see supra note 5.
\31\ See, e.g., High Speed Net Solutions, Inc., Exchange Act
Release No. 43434, 2000 SEC LEXIS 2942, at *1 (Oct. 12, 2000)
(stating that the SEC previously had granted ``an interim stay of
the NASD's decision [to remove the quotation of applicant's
securities from the OTCBB] to provide an opportunity to determine
whether a stay should be granted pending review''); Intelispan,
Inc., 54 S.E.C. 629, 629 (2000) (stating that the SEC earlier had
granted an interim stay of the NASD's prohibition on members posting
quotations in applicant's securities ``to preserve the status quo
ante''). See also Securities Exchange Act Release No. 43102 (August
1, 2000), 65 FR 48266, 48269 (August 7, 2000) (Order Approving File
No. SR-NASD-99-76) (noting, among other things, that denials of
statutory disqualification applications are effective upon service
on applicants, subject to the applicant's requesting a stay of
effectiveness from the Commission).
---------------------------------------------------------------------------
The proposed rule change affects a small number of cases. A review
of FINRA records from January 2020 through March 31, 2025, found that
there was a total of 15 cases involving one of the amended provisions:
nine instances where conditions and restrictions were imposed under
Rule 9285, three instances where an individual's statutory
disqualification application was denied under Rule 9524 and three
instances where notices were issued under Rule 9557.
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be 30 days after the date of
filing.
2. Statutory Basis
FINRA believes the proposed rule change is consistent with Section
15A(b)(6) of the Act,\32\ which requires, among other things, that
FINRA rules be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. FINRA believes
that the proposed rule change is consistent with the provisions of
Section 15A(b)(8) of the Act,\33\ which requires that FINRA rules
provide a fair procedure for, among other things, the disciplining of
members and persons associated with members.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78o-3(b)(6).
\33\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------
FINRA believes that the proposed rule change would further the goal
of providing a fair process for members and associated persons because
it would provide FINRA staff and adjudicators authority to grant
respondents and applicants an opportunity to seek a stay from the SEC
or take other appropriate action before a sanction (e.g., a suspension
or a bar) or other regulatory measure (such as a statutory
disqualification denial, imposition of a cease and desist order or
imposition of conditions, requirements or restrictions) takes effect.
FINRA believes that such authority is appropriate given that some
sanctions and other regulatory measures that are immediately effective
under current FINRA rules could have significant near-term effects. The
[[Page 26673]]
proposed rule change is consistent with other FINRA rules that
contemplate a brief delay before sanctions become effective \34\ and
align with SEC precedent granting interim stays to maintain the status
quo pending review of an action by an SRO.
---------------------------------------------------------------------------
\34\ But see supra note 5.
---------------------------------------------------------------------------
In certain instances, the proposed rule change would prescribe such
time by rule. FINRA believes that the proposed changes to Rule 9557(f)
(and conforming changes to Rule 9559) provide a fair process for
issuing a notice of suspension to members experiencing financial or
operational difficulties in the event that they fail to comply with
restrictions or requirements imposed by FINRA staff. Similarly, the
proposed changes to Rule 9285 further the goal of providing a fair
process for members and associated persons in that the changes provide
a brief amount of time for respondents to request review of a Hearing
Officer's order imposing conditions or restrictions on their activities
before they become effective.
FINRA believes the proposed amendments will not impede the prompt
resolution of cases and the remediation of issues the rules are
designed to address because the proposed rule change provides FINRA
staff and adjudicators authority to briefly delay the effectiveness of
sanctions and other regulatory measures; it does not mandate a delay in
every case. Thus, where appropriate, FINRA would have authority under
the amended rules to allow the sanctions or other regulatory measures
to take effect immediately in accordance with FINRA protocol and
precedent. Further, FINRA believes that the proposed changes to Rule
9557 (and conforming changes to Rule 9559) provide a streamlined
process for suspending members, if necessary, to address the potential
risks posed by members experiencing financial or operational
difficulties.
FINRA's disciplinary, expedited, eligibility, TCDO and PCDO
proceedings and other review processes serve a critical role in
providing investor protection and maintaining fair and orderly markets
by, for example, sanctioning misconduct and preventing further customer
harm by members and associated persons. While the immediately effective
provisions that FINRA is proposing to amend have investor-protection
benefits, FINRA contemplates that any delay would be brief and
reasonably tailored to prevent the imposition of a sanction or other
regulatory measure before a respondent or applicant has a chance to
seek a stay or take other appropriate action. And, as noted above,
where appropriate to protect investors and the public, including, for
example, in instances where the member or associated person poses a
risk to investors, FINRA would have authority under the amended rules
to allow the sanctions or other regulatory measures to take effect
immediately in accordance with FINRA protocol and precedent. Further,
the proposed procedures for a notice of suspension under Rule 9557 in
the event of a member's non-compliance under the Rule will continue to
allow for the efficient and expeditious handing of emergency situations
where a firm is experiencing certain financial or operational failures.
Accordingly, FINRA does not believe that the proposed rule change would
harm investor protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change
provides FINRA staff and adjudicators the authority to grant parties
subject to certain types of proceedings an opportunity to seek a stay
from the SEC or take other appropriate action before a sanction or
other regulatory measure takes effect. The proposed rule change would
make these rules consistent with other FINRA rules that contemplate a
brief delay before sanctions become effective \35\ and align with SEC
precedent concerning interim stays. In so doing, FINRA is not imposing
new or additional costs or impacts on members or investors.
---------------------------------------------------------------------------
\35\ But see supra note 5.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \36\ and Rule 19b-
4(f)(6) thereunder.\37\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="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#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="d0a2a5bcb5fdb3bfbdbdb5bea4a390a3b5b3feb7bfa6">[email protected]</span></a>. Please include
File Number SR-FINRA-2025-006 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2025-006. 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 such filing also will be available for
inspection and
[[Page 26674]]
copying at the principal office of FINRA. 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-FINRA-2025-006 and should be submitted on or
before July 14, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11421 Filed 6-20-25; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 23, 2025.
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.