Notice2025-14567
Self-Regulatory Organizations; NYSE Texas, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize NYSE Texas Rule 11.3110 With FINRA Rule 3110
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 1, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 146 (Friday, August 1, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 146 (Friday, August 1, 2025)]
[Notices]
[Pages 36218-36227]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14567]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103583; File No. SR-NYSETEX-2025-21]
Self-Regulatory Organizations; NYSE Texas, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Harmonize NYSE
Texas Rule 11.3110 With FINRA Rule 3110
July 29, 2025.
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 July 14, 2025, the NYSE Texas, Inc. (``NYSE Texas'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to harmonize NYSE Texas Rule 11.3110
(Supervision) with certain changes by the Financial Industry Regulatory
Authority, Inc. (``FINRA'') to FINRA Rule 3110 to permit eligible
Participants to participate in FINRA's remote inspections program
(``FINRA Pilot Program'') and to adopt FINRA's Residential Supervisory
Location
[[Page 36219]]
(``RSL'') classification. The proposed rule change is available on the
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a> and at the principal office of the
Exchange.
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 Texas Rule 11.3110
(Supervision) with certain changes by FINRA to FINRA Rule 3110 to
permit eligible Participants to participate in the FINRA Pilot Program
and to adopt FINRA's RSL classification.\4\ 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 Texas Rule 11.3110 and proposed
Supplementary Material .19 to NYSE Texas Rule 11.3110 would be
substantially similar to FINRA Rule 3110.18 and FINRA Rule 3110.19,
respectively, this rule change enables NYSE Texas Rule 11.3110 to
continue to be incorporated into the agreement between NYSE Texas and
FINRA to allocate regulatory responsibility for common rules (the
``17d-2 Agreement'').\5\
---------------------------------------------------------------------------
\4\ This proposed change also aligns with NYSE Rule 3110, which
was recently updated to conform with FINRA Rule 3110 regarding
Supervision. See Securities Exchange Act Release No. 101325 (October
15, 2024), 89 FR 84221 (October 21, 2024) (SR-NYSE-2024-64). See
also NYSE Rule 3110.
\5\ 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 Texas 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.
---------------------------------------------------------------------------
Background and Proposed Rule Change
NYSE Texas Rule 11.3110 is based on FINRA Rule 3110 \6\ and
requires Participant Firms 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.\7\ Under NYSE Texas
Rule 11.3110, final responsibility for proper supervision rests with
the Participant Firm.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 100187 (May 21,
2024), 89 FR 46191 (May 28, 2024) (SR-NYSECHX-2024-18). On March 28,
2025, NYSE Chicago, Inc. equities market became NYSE Texas, Inc. See
Securities Exchange Act Release No.102507 (February 28, 2025), 90 FR
11445 (March 6, 2025) (SR-NYSECHX-2025-01) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Repeal the
Exchange's Certificate of Incorporation; Adopt the Certificate of
Formation of NYSE Texas, Inc.; Amend the Exchange's By-Laws, Rules,
and Certain Fee Schedules; and Amend the Certificate of
Incorporation and By-Laws of the Exchange's Holding Company To
Reflect the Conversion of the Exchange to a Texas Corporation and
the Renaming of NYSE Chicago Holdings, Inc.).
\7\ See NYSE Texas Rule 11.3110(a).
---------------------------------------------------------------------------
As part of an overall supervisory system, Participant Firms 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; \8\ non-supervisory branch offices, at least every
three years; \9\ and non-branch locations on a periodic schedule,
presumed to be at least every three years.\10\ Moreover, Participant
Firms 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.\11\ If
applicable to the location being inspected, the inspection report must
include the testing and verification of the Participant Firm's policies
and procedures, including supervisory policies and procedures, in
specified areas.\12\ Finally, the rule requires a Participant 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.\13\ The factors governing what constitutes a reasonable
review are set out in NYSE Texas Rule 11.3110.12 (Standards for
Reasonable Review).
---------------------------------------------------------------------------
\8\ See NYSE Texas Rule 11.3110(c)(1)(A).
\9\ See NYSE Texas Rule 11.3110(c)(1)(B).
\10\ See NYSE Texas Rules 11.3110(c)(1)(C) and 11.3110.13
(General Presumption of Three-Year Limit for Periodic Inspection
Schedules).
\11\ See NYSE Texas Rule 11.3110(c)(2).
\12\ See NYSE Texas Rule 11.3110(c)(2)(A).
\13\ See NYSE Texas Rule 11.3110(c)(3)(B). Rule 3110(c)(3)(C)
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 11.3110.14 (Exception to
Persons Prohibited from Conducting Inspections).
---------------------------------------------------------------------------
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.\14\ The FINRA Pilot Program is 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.\15\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 98982 (November 17,
2023), 88 FR 82464 (November 24, 2023) (SR-FINRA-2023-007) (Order
Approving a Proposed Rule Change To Adopt Supplementary Material .18
(Remote Inspections Pilot Program) Under FINRA Rule 3110
(Supervision)).
\15\ 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)).
---------------------------------------------------------------------------
The Exchange proposes to incorporate each of these amendments into
NYSE Texas Rule 11.3110, as follows.
[[Page 36220]]
NYSE Texas Rule 11.3110, Supplementary Material .18 \16\
---------------------------------------------------------------------------
\16\ The Exchange would add new Supplementary Material .17
marked ``Reserved'' in order to maintain consistency with FINRA.
---------------------------------------------------------------------------
The Exchange proposes, consistent with current FINRA Rule 3110,
Supplementary Material .18, to adopt new Supplementary Material .18 to
NYSE Texas Rule 11.3110 in order to provide eligible Participant Firms
that are also FINRA members \17\ 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 Texas Rule 11.3110(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. Participant Firms 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.
---------------------------------------------------------------------------
\17\ Currently, all NYSE Texas Participant Firms with one
exception are also FINRA members.
---------------------------------------------------------------------------
Proposed NYSE Texas Rule 11.3110.18(a) (Scope)
Proposed Supplementary Material .18(a) of NYSE Texas Rule 11.3110
would establish the standards by which a Participant Firm that is also
a FINRA member may participate in the FINRA Pilot Program.
Proposed subsection (a) would permit Participant Firms 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 Texas Rule
11.3110, 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 Participant Firms in the FINRA Pilot
Program, Participant Firms 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,\18\
proposed NYSE Texas Rule 11.3110.18(a) is substantially the same as
FINRA Rule 3110.18(a).
---------------------------------------------------------------------------
\18\ 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 ``Participant Firm;'' changed cross-references to FINRA
rules to cross-references to Exchange rules unless there was no
equivalent NYSE Texas rule; and made other non-substantive technical
or grammatical changes.
---------------------------------------------------------------------------
Proposed NYSE Texas Rule 11.3110.18(b) (Risk Assessment)
Proposed Supplementary Material .18(b) of NYSE Texas Rule 11.3110
governing risk assessment would outline the need for Participant Firms
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 Participant
Firm could elect to conduct the applicable inspection remotely, without
an on-site visit for an office or location, when such Participant Firm
reasonably determines that the purposes of the Supplementary Material
can be accomplished by conducting such required inspection remotely.
The Participant Firm 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
Texas Rule 11.3110.12 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
Participant Firm 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
Participant Firm would remain subject to the other requirements of NYSE
Texas Rule 11.3110(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 Participant Firm 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; \19\
---------------------------------------------------------------------------
\19\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(A), mirroring
FINRA Rule 3110.18(b)(2)(A).
---------------------------------------------------------------------------
<bullet> the volume and nature of outside business activities,
particularly investment-related; \20\
---------------------------------------------------------------------------
\20\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(B), mirroring
FINRA Rule 3110.18(b)(2)(B).
---------------------------------------------------------------------------
<bullet> the volume and complexity of products offered; \21\
---------------------------------------------------------------------------
\21\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(C), mirroring
FINRA Rule 3110.18(b)(2)(C).
---------------------------------------------------------------------------
<bullet> the nature of the customer base, including vulnerable
adult investors; \22\
---------------------------------------------------------------------------
\22\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(D), mirroring
FINRA Rule 3110.18(b)(2)(D).
---------------------------------------------------------------------------
<bullet> whether associated persons are subject to heightened
supervision; \23\
---------------------------------------------------------------------------
\23\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(E), mirroring
FINRA Rule 3110.18(b)(2)(E).
---------------------------------------------------------------------------
<bullet> failures by associated persons to comply with the
Participant Firm's written supervisory procedures; \24\ and
---------------------------------------------------------------------------
\24\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(F), mirroring
FINRA Rule 3110.18(b)(2)(F).
---------------------------------------------------------------------------
<bullet> any recordkeeping violations.\25\
---------------------------------------------------------------------------
\25\ See proposed NYSE Texas Rule 11.3110.18(b)(2)(G), mirroring
FINRA Rule 3110.18(b)(2)(G).
---------------------------------------------------------------------------
Further, proposed Supplementary Material .18(b)(2) would prescribe
that Participant Firms 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 Texas Rule 11.3110(a).
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.18(b) is
[[Page 36221]]
substantially the same as FINRA Rule 3110.18(b).
Proposed NYSE Texas Rule 11.3110.18(c) (Written Supervisory Procedures
for Remote Inspections)
Proposed Supplementary Material .18(c) would provide that,
consistent with a Participant Firm's obligation under NYSE Texas Rule
11.3110(b), a Participant Firm 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; \26\
---------------------------------------------------------------------------
\26\ See proposed NYSE Texas Rule 11.3110.18(c)(1), mirroring
FINRA Rule 3110.18(c)(1).
---------------------------------------------------------------------------
<bullet> the factors considered in the risk assessment made for
each applicable office or location pursuant to proposed Supplementary
Material .18(b); \27\
---------------------------------------------------------------------------
\27\ See proposed NYSE Texas Rule 11.3110.18(c)(2), mirroring
FINRA Rule 3110.18(c)(2).
---------------------------------------------------------------------------
<bullet> the procedures specified in paragraph (h)(1)(G) and (h)(4)
of FINRA Rule 3310.18; \28\ and
---------------------------------------------------------------------------
\28\ See proposed NYSE Texas Rule 11.3110.18(c)(3), mirroring
FINRA Rule 3110.18(c)(3).
---------------------------------------------------------------------------
<bullet> the use of other risk-based systems employed generally by
the Participant Firm 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.\29\
---------------------------------------------------------------------------
\29\ See proposed NYSE Texas Rule 11.3110.18(c)(4), mirroring
FINRA Rule 3110.18(c)(4).
---------------------------------------------------------------------------
With the exception of conforming and technical changes and the
addition of a reference to Exchange rules in proposed NYSE Texas Rule
11.3110.18(c)(4), proposed NYSE Texas Rule 11.3110.18(c) is
substantially the same as FINRA Rule 3110.18(c).
Proposed NYSE Texas Rule 11.3110.18(d) (Effective Supervisory System)
Proposed NYSE Texas Rule 11.3110.18(d) would provide that the
requirement to conduct inspections of offices and locations is one part
of the Participant Firm's overall obligation to have an effective
supervisory system and therefore the Participant Firm must maintain its
ongoing review of the activities and functions occurring at all offices
and locations, whether or not the Participant Firm conducts inspections
remotely.
Further, a Participant Firm'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 Texas Rule 11.3110.12. Where a Participant Firm's
remote inspection of an office or location identifies any ``red
flags,'' the Participant Firm 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 Texas Rule 11.3110.18(d) is substantially the same as FINRA Rule
3110.18(d).
Proposed NYSE Texas Rule 11.3110.18(e) (Documentation Requirement)
Proposed NYSE Texas Rule 11.3110.18(e) would set forth
documentation requirements for a Participant Firm's participating in
the FINRA Pilot Program. In particular, proposed NYSE Texas Rule
11.3110.18(e) would require Participant Firms 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.\30\ In addition, proposed NYSE Texas Rule
11.3110.18(e) would require documentation of the results of a remote
inspection for any offices or locations for which the Participant Firm
determined to impose additional supervisory procedures or more frequent
monitoring, as provided in proposed NYSE Texas Rule 11.3110.18(d).
Further, a Participant Firm'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.\31\
---------------------------------------------------------------------------
\30\ See proposed NYSE Texas Rule 11.3110.18(e)(1), mirroring
FINRA Rule 3110.18(e)(1).
\31\ See proposed NYSE Texas Rule 11.3110.18(e)(2), mirroring
FINRA Rule 3110.18(e)(2).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.18(e) is substantially the same as FINRA Rule
3110.18(e).
Proposed NYSE Texas Rule 11.3110.18(f) (Firm Level Requirements)
Proposed NYSE Texas Rule 11.3110.18(f)(1) would set forth certain
firm level ineligibility conditions for further participation in the
FINRA Pilot Program. As proposed, a Participant Firm 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 Participant Firm:
<bullet> is or becomes designated as a Restricted Firm under FINRA
Rule 4111; \32\
---------------------------------------------------------------------------
\32\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(A), mirroring
FINRA Rule 3110.18(f)(1)(A). The Exchange has not adopted FINRA Rule
4111.
---------------------------------------------------------------------------
<bullet> is or becomes designated as a Taping Firm under FINRA Rule
3170; \33\
---------------------------------------------------------------------------
\33\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(B), mirroring
FINRA Rule 3110.18(f)(1)(B).
---------------------------------------------------------------------------
<bullet> receives a notice pursuant to NYSE Texas Rule 10.9557
regarding capital compliance related matters under NYSE Texas Article
7, Rule 3 (Net Capital and Aggregate Indebtedness) or NYSE Texas
Article 7, Rule 8 (Operational Capability); \34\
---------------------------------------------------------------------------
\34\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(C), mirroring
FINRA Rule 3110.18(f)(1)(C). Proposed NYSE Texas Rule
11.3110.18(f)(1)(C) differs from FINRA Rule 3110.18(f)(1)(C) in that
the proposed rule refers to NYSE Texas Article 7, Rule 3 and NYSE
Texas Article 7, Rule 4 rather than to FINRA Rules 4110, 4120 and
4130, which rules have not been adopted by the Exchange.
---------------------------------------------------------------------------
<bullet> is or becomes suspended from Exchange or FINRA membership;
\35\
---------------------------------------------------------------------------
\35\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(D), mirroring
FINRA Rule 3110.18(f)(1)(D).
---------------------------------------------------------------------------
<bullet> based on the date in the Central Registration Depository
(CRD), had its FINRA membership become effective within the prior 12
months; \36\ or
---------------------------------------------------------------------------
\36\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(E), mirroring
FINRA Rule 3110.18(f)(1)(E).
---------------------------------------------------------------------------
<bullet> is or has been found by the Commission, FINRA or the
Exchange to be in violation of office inspection obligations under
FINRA Rule 3110(c) (Internal Inspections) or NYSE Texas Rule 11.3110(c)
(Internal Inspections) within the past three years.\37\
---------------------------------------------------------------------------
\37\ See proposed NYSE Texas Rule 11.3110.18(f)(1)(F), mirroring
FINRA Rule 3110.18(f)(1)(F).
---------------------------------------------------------------------------
Proposed NYSE Texas Rule 11.3110.18(f)(2) would set forth the firm-
level conditions a Participant Firm must satisfy as part of the
requirements in NYSE Texas Rule 11.3110.18(b) to develop a reasonably
designed risk-
[[Page 36222]]
based approach to using remote inspections and to conduct and document
a risk assessment for each office or location. Specifically,
Participant Firms 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 Participant Firm's own
written supervisory procedures under NYSE Texas Rule 3110; \38\
---------------------------------------------------------------------------
\38\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(A)(i),
mirroring FINRA Rule 3110.18(f)(2)(A)(i).
---------------------------------------------------------------------------
<bullet> such records are not physically or electronically
maintained and preserved at the office or location subject to the
remote inspection; \39\ and
---------------------------------------------------------------------------
\39\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(A)(ii),
mirroring FINRA Rule 3110.18(f)(2)(A)(ii).
---------------------------------------------------------------------------
<bullet> the Participant Firm has prompt access to such
records.\40\
---------------------------------------------------------------------------
\40\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(A)(iii),
mirroring FINRA Rule 3110.18(f)(2)(A)(iii).
---------------------------------------------------------------------------
In addition, Participant Firms must determine that its 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; \41\
---------------------------------------------------------------------------
\41\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(B)(i),
mirroring FINRA Rule 3110.18(f)(2)(B)(i).
---------------------------------------------------------------------------
<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);
\42\ and
---------------------------------------------------------------------------
\42\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(B)(ii),
mirroring FINRA Rule 3110.18(f)(2)(B)(ii).
---------------------------------------------------------------------------
<bullet> system security tools such as secure network connections
and effective cybersecurity protocols.\43\
---------------------------------------------------------------------------
\43\ See proposed NYSE Texas Rule 11.3110.18(f)(2)(B)(iii),
mirroring FINRA Rule 3110.18(f)(2)(B)(iii).
---------------------------------------------------------------------------
With the exception of conforming and technical changes and the
addition of a reference to Exchange rules in proposed NYSE Texas Rule
11.3110.18(f)(2)(A)(i), proposed NYSE Texas Rule 11.3110.18(f)(1) and
(2) are substantially the same as FINRA Rule 3110.18(f)(1) and (2).
Proposed NYSE Texas Rule 11.3110.18(g) (Location Level Requirements)
Proposed NYSE Texas Rule 11.3110.18(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
Texas Rule 11.3110.18(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;
\44\
---------------------------------------------------------------------------
\44\ See proposed NYSE Texas Rule 11.3110.18(g)(1)(A), mirroring
FINRA Rule 3110.18(g)(1)(A).
---------------------------------------------------------------------------
<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
Participant Firm 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; \45\
---------------------------------------------------------------------------
\45\ See proposed NYSE Texas Rule 11.3110.18(g)(1)(B), mirroring
FINRA Rule 3110.18(g)(1)(B).
---------------------------------------------------------------------------
<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;
\46\
---------------------------------------------------------------------------
\46\ See proposed NYSE Texas Rule 11.3110.18g)(1)(C), mirroring
FINRA Rule 3110.18(g)(1)(C).
---------------------------------------------------------------------------
<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; \47\
---------------------------------------------------------------------------
\47\ See proposed NYSE Texas Rule 11.3110.18(g)(1)(D), mirroring
FINRA Rule 3110.18(g)(1)(D).
---------------------------------------------------------------------------
<bullet> one or more associated persons at such office or location
is or becomes subject to a disciplinary action taken by the Participant
Firm that is or was reportable under NYSE Texas Rule 11.4530(a)(2);
\48\
---------------------------------------------------------------------------
\48\ See proposed NYSE Texas Rule 11.3110.18(g)(1)(E), mirroring
FINRA Rule 3110.18(g)(1)(E).
---------------------------------------------------------------------------
<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; \49\ or
---------------------------------------------------------------------------
\49\ See proposed NYSE Texas Rule 11.3110.18(g)(1)(F), mirroring
FINRA Rule 3110.18(g)(1)(F).
---------------------------------------------------------------------------
<bullet> the office or location handles customer funds or
securities.\50\
---------------------------------------------------------------------------
\50\ See proposed NYSE Texas Rule 11.3110.18(g)(1))(G),
mirroring FINRA Rule 3110.18(g)(1)(G).
---------------------------------------------------------------------------
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
Texas Rule 11.3110.18(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 Participant Firm's electronic system; \51\
---------------------------------------------------------------------------
\51\ See proposed NYSE Texas Rule 11.3110.18(g)(2)(A), mirroring
FINRA Rule 3110.18(g)(2)(A).
---------------------------------------------------------------------------
<bullet> the associated person's correspondence and communications
with the public are subject to the firm's supervision in accordance
with NYSE Texas Rule 11.3110; \52\ and
---------------------------------------------------------------------------
\52\ See proposed NYSE Texas Rule 11.3110.18(g)(2)(B), mirroring
FINRA Rule 3110.18(g)(2)(B).
---------------------------------------------------------------------------
<bullet> no books or records of the Participant Firm required to be
made and kept current, and preserved under applicable securities laws
and regulations, FINRA and Exchange rules and the Participant Firm's
own written supervisory procedures under NYSE Texas Rule 11.3110 are
physically or electronically maintained and preserved at such office or
location.\53\
---------------------------------------------------------------------------
\53\ See proposed NYSE Texas Rule 11.3110.18(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 Texas Rule
11.3110.18(g)(1)(A) and (B), proposed NYSE Texas Rule 11.3110.18(g)(1)
and (2) are substantially the same as FINRA Rule 3110.18(g)(1) and (2).
Proposed NYSE Texas Rule 11.3110.18(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:
[[Page 36223]]
<bullet> the number of offices and locations with an inspection
completed during each calendar quarter; \54\
---------------------------------------------------------------------------
\54\ See FINRA Rule 3110.18(h)(1)(A).
---------------------------------------------------------------------------
<bullet> the number of those offices or locations in each calendar
quarter that were inspected remotely; \55\
---------------------------------------------------------------------------
\55\ 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 such inspections that were on-site because of a finding; \56\
---------------------------------------------------------------------------
\56\ 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;
\57\ and
---------------------------------------------------------------------------
\57\ 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.\58\
---------------------------------------------------------------------------
\58\ 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.\59\ 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.
---------------------------------------------------------------------------
\59\ See FINRA Rule 3110.18(h)(1)(G).
---------------------------------------------------------------------------
Proposed NYSE Texas Rule 11.3110.18(h) on data and information
collection requirement would require Participant Firms 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 Texas Rule
11.3110.18(h) which substantially mirrors FINRA Rule 3110.18(h)(4)
would require Participant Firms 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 Texas Rule 11.3110.18(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.\60\
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.
---------------------------------------------------------------------------
\60\ FINRA Rule 3110.18(i) contains provisions for firms wishing
to opt-in of the FINRA Pilot Program.
---------------------------------------------------------------------------
Proposed NYSE Texas Rule 11.3110.18(i) would govern elections to
participate in the Pilot Program and would require Participant Firms
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 Participant
Firms 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 Participant Firms can properly elect to participate in, or
subsequently withdraw from, the Pilot Program.
Proposed NYSE Texas Rule 11.3110.18(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 Texas Rule
11.3110.19(j) on failure to satisfy conditions would specify that any
Participant Firm 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
Participant Firms would need to conduct on-site inspections of each
office and location on the required cycle in accordance with NYSE Texas
Rule 11.3110(c).
Proposed NYSE Texas Rule 11.3110.18(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 Texas Rule
11.3110.18(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 Participant Firm is
no longer eligible to participate in the FINRA Pilot Program if the
Participant Firm fails to comply with the requirements of FINRA or NYSE
Texas Rule 11.3110.18. The proposed rule would further provide that, in
such instances, FINRA or the Exchange will provide written notice to
the Participant Firm of such determination and the Participant Firm
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 Texas Rule 11.3110(c). With the
exception of conforming and technical changes, proposed NYSE Texas Rule
11.3110.18(k) is substantially the same as FINRA Rule 3110.18(k).
[[Page 36224]]
Proposed NYSE Texas Rule 11.3110.18(l) (Definitions)
The Exchange proposes to adopt FINRA Rule 3110.18(l) setting forth
definitions applicable to Supplementary Material .18 verbatim. As
proposed, NYSE Texas Rule 11.3110.18(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, 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 Texas Rule 11.3110, Supplementary Material .19
NYSE Texas Rule 11.3110.19(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 Texas Rule
11.3110.19(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
Participant Firms to designate a location that is the associated
person's private residence where specified supervisory activities are
conducted as an RSL.
As proposed, NYSE Texas Rule 11.3110.19 would provide that,
notwithstanding any other provisions of NYSE Texas Rule 11.3110(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 Texas Rule 11.3110(e)(1)(D) through (G) or in NYSE Texas Rule
11.3110(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; \61\
---------------------------------------------------------------------------
\61\ See proposed NYSE Texas Rule 11.3110.19(a)(1), mirroring
FINRA Rule 3110.19(a)(1).
---------------------------------------------------------------------------
<bullet> the location is not held out to the public as an office;
\62\
---------------------------------------------------------------------------
\62\ See proposed NYSE Texas Rule 11.3110.19(a)(2), mirroring
FINRA Rule 3110.19(a)(2).
---------------------------------------------------------------------------
<bullet> the associated person does not meet with customers or
prospective customers at the location; \63\
---------------------------------------------------------------------------
\63\ See proposed NYSE Texas Rule 11.3110.19(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 Texas Rule
11.3110(e)(2)(A)(ii) or (iii); \64\
---------------------------------------------------------------------------
\64\ See proposed NYSE Texas Rule 11.3110.19(a)(4), mirroring
FINRA Rule 3110.19(a)(4).
---------------------------------------------------------------------------
<bullet> neither customer funds nor securities are handled at that
location; \65\
---------------------------------------------------------------------------
\65\ See proposed NYSE Texas Rule 11.3110.19(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; \66\
---------------------------------------------------------------------------
\66\ See proposed NYSE Texas Rule 11.3110.19(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; \67\
---------------------------------------------------------------------------
\67\ See proposed NYSE Texas Rule 11.3110.19(a)(7), mirroring
FINRA Rule 3110.19(a)(7).
---------------------------------------------------------------------------
<bullet> the associated persons electronic communications (e.g.,
email) are made through the Participant Firm's electronic system; \68\
---------------------------------------------------------------------------
\68\ See proposed NYSE Texas Rule 11.3110.19(a)(8), mirroring
FINRA Rule 3110.19(a)(8).
---------------------------------------------------------------------------
<bullet> (A) the Participant Firm 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 Participant Firm's own written
supervisory procedures under NYSE Texas Rule 11.3110; (B) such records
are not physically or electronically maintained and preserved at the
office or location; and (C) the Participant Firm has prompt access to
such records; \69\ and
---------------------------------------------------------------------------
\69\ See proposed NYSE Texas Rule 11.3110.19(a)(9), mirroring
FINRA Rule 3110.19(a)(9).
---------------------------------------------------------------------------
<bullet> the Participant Firm 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.\70\
---------------------------------------------------------------------------
\70\ See proposed NYSE Texas Rule 11.3110.19(a)(10), mirroring
FINRA Rule 3110.19(a)(10).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.19(a) is substantially the same as FINRA Rule
3110.19(a).
NYSE Texas Rule 11.3110.19(b) (Participant Firm 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 Texas Rule 11.3110.19(b) would mirror these criteria and provide
that a Participant Firm is ineligible from designating an office or
location as an RSL if the Participant Firm:
<bullet> is currently designated as a restricted firm under FINRA
Rule 4111; \71\
---------------------------------------------------------------------------
\71\ See proposed NYSE Texas Rule 11.3110.19(b)(1), mirroring
FINRA Rule 3110.19(b)(1).
---------------------------------------------------------------------------
<bullet> is currently designated as a Taping Firm under FINRA Rule
3170; \72\
---------------------------------------------------------------------------
\72\ See proposed NYSE Texas Rule 11.3110.19(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; \73\
---------------------------------------------------------------------------
\73\ See proposed NYSE Texas Rule 11.3110.19(b)(3), mirroring
FINRA Rule 3110.19(b)(3).
---------------------------------------------------------------------------
<bullet> receives a notice pursuant to NYSE Texas Rule 10.9557,
regarding compliance with NYSE Texas Article 7, Rule 3 or NYSE Texas
Article 7, Rule 8, unless the Exchange has otherwise permitted such
activities in writing pursuant to such rule; \74\
---------------------------------------------------------------------------
\74\ See proposed NYSE Texas Rule 11.3110.19(b)(4), mirroring
FINRA Rule 3110.19(b)(4). Proposed NYSE Texas Rule 11.3110.19(b)(4)
differs from FINRA Rule 3110.19(b)(4) in that the proposed rule
refers to NYSE Texas Article 7, Rule 3 and NYSE Texas Article 7,
Rule 8 rather than to FINRA Rules 4110, 4120 and 4130, which rules
have not been adopted by the Exchange.
---------------------------------------------------------------------------
[[Page 36225]]
<bullet> is or becomes suspended by the Exchange or FINRA; \75\
---------------------------------------------------------------------------
\75\ See proposed NYSE Texas Rule 11.3110.19(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; \76\ or
---------------------------------------------------------------------------
\76\ See proposed NYSE Texas Rule 11.3110.19(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 Texas Rule 11.3110(c) or FINRA Rule
3110(c) within the past three years.\77\
---------------------------------------------------------------------------
\77\ See proposed NYSE Texas Rule 11.3110.19(b)(7), mirroring
FINRA Rule 3110.19(b)(7).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.19(b) is substantially the same as FINRA Rule
3110.19(b).
NYSE Texas Rule 11.3110.19(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 Texas Rule
11.3110.19(c) would mirror these criteria. As proposed, NYSE Texas Rule
11.3110.19(c) 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 Participant Firm, or an
affiliate or subsidiary of the Participant Firm that is registered as a
broker-dealer or investment adviser; \78\
---------------------------------------------------------------------------
\78\ See proposed NYSE Texas Rule 11.3110.19(c)(1), mirroring
FINRA Rule 3110.19(c)(1).
---------------------------------------------------------------------------
<bullet> is functioning as a principal for a limited period in
accordance with NYSE Texas Rule 11.1210.03; \79\
---------------------------------------------------------------------------
\79\ See proposed NYSE Texas Rule 11.3110.19(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; \80\
---------------------------------------------------------------------------
\80\ See proposed NYSE Texas Rule 11.3110.19(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
Participant Firm 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; \81\
---------------------------------------------------------------------------
\81\ See proposed NYSE Texas Rule 11.3110.19(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; \82\ or
---------------------------------------------------------------------------
\82\ See proposed NYSE Texas Rule 11.3110.19(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 Participant
Firm'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.\83\
---------------------------------------------------------------------------
\83\ See proposed NYSE Texas Rule 11.3110.19(c)(6), mirroring
FINRA Rule 3110.19(c)(6).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.19(c) is substantially the same as FINRA Rule
3110.19(c).
NYSE Texas Rule 11.3110.19(d) (Obligation To Provide Information
Identifying RSLs)
Proposed NYSE Texas Rule 11.3110.19(d) setting forth the
obligations to provide information identifying RSLs would fully mirror
the provisions of FINRA Rule 3110.19(d) and would require Participant
Firms electing to designate any office or location of that Participant
Firm as an RSL to provide current information identifying all locations
designated as RSLs in the frequency, manner and format (e.g., through
an electronic process or such other process) as FINRA may
prescribe.\84\
---------------------------------------------------------------------------
\84\ Pursuant to Rule 0, reference to Exchange staff or Exchange
departments in the NYSE Texas 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 Texas Rule 11.3110.19(d) is substantially the same as FINRA Rule
3110.19(d).
NYSE Texas Rule 11.3110.19(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 Texas Rule 11.3110.19(e) would
mirror the provisions of FINRA Rule 3110.19(e). Specifically, a
Participant Firm 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 Participant Firms 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; \85\
---------------------------------------------------------------------------
\85\ See proposed NYSE Texas Rule 11.3110.19(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; \86\
---------------------------------------------------------------------------
\86\ See proposed NYSE Texas Rule 11.3110.19(e)(2), mirroring
FINRA Rule 3110.19(e)(2).
---------------------------------------------------------------------------
<bullet> any failure to comply with the Participant Firm's written
supervisory procedures; \87\
---------------------------------------------------------------------------
\87\ See proposed NYSE Texas Rule 11.3110.19(e)(3), mirroring
FINRA Rule 3110.19(e)(3).
---------------------------------------------------------------------------
<bullet> any recordkeeping violation; \88\ and
---------------------------------------------------------------------------
\88\ See proposed NYSE Texas Rule 11.3110.19(e)(4), mirroring
FINRA Rule 3110.19(e)(4).
---------------------------------------------------------------------------
[[Page 36226]]
<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
Participant Firm 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 Texas
Rule 11.3110(a), the Participant Firm's supervisory system must take
into consideration any indicators of irregularities or misconduct
(i.e., ``red flags'') when designating an office or 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 Participant Firm should consider evidencing steps taken to address
those red flags where appropriate.\89\
---------------------------------------------------------------------------
\89\ See proposed NYSE Texas Rule 11.3110.19(e)(5), mirroring
FINRA Rule 3110.19(e)(5).
---------------------------------------------------------------------------
With the exception of conforming and technical changes, proposed
NYSE Texas Rule 11.3110.19(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,\90\ in general, and furthers the objectives of Section
6(b)(5),\91\ 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.
---------------------------------------------------------------------------
\90\ 15 U.S.C. 78f(b).
\91\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change furthers the
objectives of the Act by permitting Participant Firms that are FINRA
members to participate in the FINRA Pilot Program and for all
Participant Firms 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,\92\ provide Participant Firms 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.
---------------------------------------------------------------------------
\92\ 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 Texas Rule 11.3110 and proposed Supplementary
Material .19 to NYSE Texas Rule 11.3110 are substantially similar to
FINRA Rule 3110.18 and FINRA Rule 3110.19, respectively, this rule
change enables NYSE Texas Rule 11.3110 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 Participant Firm's compliance with FINRA Rules
3110.18 and 3110.19 shall mean the Participant Firm is also in
compliance with proposed Supplementary Material.18 to NYSE Texas Rule
11.3110 and proposed Supplementary Material .19 to NYSE Texas Rule
11.3110, 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 Texas Rule 11.3110 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 Participant Firms and a consistent and uniform regulatory
framework for which Participant Firms 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 Participant Firms by
aligning NYSE Texas Rule 11.3110 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 \93\ and Rule 19b-4(f)(6) thereunder.\94\
Because the proposed rule change does not: (i)
[[Page 36227]]
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.
---------------------------------------------------------------------------
\93\ 15 U.S.C. 78s(b)(3)(A)(iii).
\94\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
---------------------------------------------------------------------------
\95\ 17 CFR 240.19b-4(f)(6).
\96\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
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) \97\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\97\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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#2d5f584148004e4240404843595e6d5e484e034a425b"><span class="__cf_email__" data-cfemail="5022253c357d333f3d3d353e2423102335337e373f26">[email protected]</span></a>. Please include
file number SR-NYSETEX-2025-21 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-NYSETEX-2025-21. 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 filing 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-NYSETEX-2025-21 and should be submitted
on or before August 22, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\98\
---------------------------------------------------------------------------
\98\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-14567 Filed 7-31-25; 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 August 1, 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.