[Federal Register Volume 81, Number 76 (Wednesday, April 20, 2016)]
[Notices]
[Pages 23333-23334]
[FR Doc No: 2016-09064]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77623; File No. SR-NASDAQ-2016-028]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Designation of a Longer Period for Commission Action on
Proposed Rule Change Relating to the Listing and Trading of the Shares
of the iSectors Post-MPT Growth ETF of ETFis Series Trust I

April 14, 2016.
    On February 23, 2016, The NASDAQ Stock Market LLC (``Nasdaq'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares of the iSectors Post-MPT Growth ETF, a series of
ETFis Series Trust I, under Nasdaq Rule 5735. The proposed rule change
was published for comment in the Federal Register on March 11, 2016.\3\
The Commission received no comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77301 (Mar. 7,
2016), 81 FR 978.
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    Section 19(b)(2) of the Act \4\ provides that within 45 days of the
publication of notice of the filing of a proposed rule change, or
within such longer period up to 90 days as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding, or as to which the self-regulatory organization
consents, the Commission shall either approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether the proposed rule change should be disapproved. The
45th day after publication of the notice for this proposed rule change
is April 25, 2016. The Commission is extending this 45-day time period.
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    \4\ 15 U.S.C. 78s(b)(2).
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    The Commission finds it appropriate to designate a longer period
within which to take action on the proposed rule change so that it has
sufficient time to consider this proposed rule change. Accordingly, the
Commission, pursuant to Section 19(b)(2) of the Act,\5\ designates June
9, 2016, as the date by which the Commission shall either approve or
disapprove, or institute proceedings to determine whether to

disapprove, the proposed rule change (File No. SR-NASDAQ-2016-028).
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    \5\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(31).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09064 Filed 4-19-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Page 35670]
[FR Doc No: 2012-14521]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER12-1912-000]

RE McKenzie 2 LLC; Supplemental Notice That Initial Market-Based
Rate Filing Includes Request for Blanket Section 204 Authorization

    This is a supplemental notice in the above-referenced proceeding of
RE McKenzie 2 LLC application for market-based rate authority, with an
accompanying rate tariff, noting that such application includes a
request for blanket authorization, under 18 CFR part 34, of future
issuances of securities and assumptions of liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, in accordance with Rules 211 and 214 of the Commission's
Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone
filing a motion to intervene or protest must serve a copy of that
document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is June 21, 2012.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically should submit an original and
14 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426.
    The filings in the above-referenced proceeding are accessible in
the Commission's eLibrary system by clicking on the appropriate link in
the above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive email notification
when a document is added to a subscribed docket(s). For assistance with
any FERC Online service, please email<EMAIL_ADDRESS>or
call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

    Dated: June 1, 2012.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2012-14521 Filed 6-13-12; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register: February 12, 2009 (Volume 74, Number 28)]
[Notices]
[Page 7101-7102]
[DOCID:fr12fe09-86]

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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

[Docket No. FMCSA-00-8398; FMCSA-00-7165; FMCSA-04-18885; FMCSA-04-
17984; FMCSA-06-24783]

Qualification of Drivers; Exemption Renewals; Vision

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.

ACTION: Notice of final disposition.

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SUMMARY: FMCSA previously announced its decision to renew the
exemptions from the vision requirement in the Federal Motor Carrier
Safety Regulations for 26 individuals. FMCSA has statutory authority to
exempt individuals from the vision requirement if the exemptions
granted will not compromise safety. The Agency has reviewed the
comments submitted in response to the previous announcement and
concluded that granting these exemptions will provide a level of safety
that will be equivalent to, or greater than, the level of safety
maintained without the exemptions for these commercial motor vehicle
(CMV) drivers.

FOR FURTHER INFORMATION CONTACT: Dr. Mary D. Gunnels, Director, Medical
Programs,<PHONE_NUMBER><EMAIL_ADDRESS>FMCSA, Department of
Transportation, 400 Seventh Street, SW., Room 8301, Washington, DC
20590-0001. Office hours are from 8:30 a.m. to 5 p.m., Monday through
Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access

    You may see all the comments online through the Federal Document
Management System (FDMS) at http://www.regulations.gov.

Background

    Under 49 U.S.C. 31136(e) and 31315, FMCSA may grant an exemption
for a 2-year period if it finds ``such exemption would likely achieve a
level of safety that is equivalent to, or greater than, the level that
would be achieved absent such exemption.'' The statute also allows the
Agency to renew exemptions at the end of the 2-year period. The comment
period ended on November 17, 2008.

Discussion of Comments

    FMCSA received one comment in this proceeding. The comment was
considered and discussed below.

    Advocates for Highway and Auto Safety (Advocates) expressed
opposition to FMCSA's policy to grant exemptions from the FMCSR,
including the driver qualification standards. Specifically, Advocates:
(1) Objects to the manner in which FMCSA presents driver information to
the public and makes safety determinations; (2) objects to the Agency's
reliance on conclusions drawn from the vision waiver program; (3)
claims the Agency has misinterpreted statutory language on the granting
of exemptions (49 U.S.C. 31136(e) and 31315); and finally (4) suggests
that a 1999 Supreme Court decision affects the legal validity of vision
exemptions.
    The issues raised by Advocates were addressed at length in 64 FR
51568 (September 23, 1999), 64 FR 66962 (November 30, 1999), 64 FR
69586 (December 13, 1999), 65 FR 159 (January 3, 2000), 65 FR 57230
(September 21, 2000), and 66 FR 13825 (March 7, 2001). We will not
address these points again here, but refer interested parties to those
earlier discussions.

Conclusion

    The Agency has not received any adverse evidence on any of these
drivers that indicates that safety is being compromised. Based upon its
evaluation of the 26 renewal applications, FMCSA renews the Federal
vision exemptions for Paul G. Albrecht, Elijah A. Allen, Jr., David W.
Brown, Monty G. Calderon, David J. Caldwell, Walden V. Clarke, Awilda
S. Colon, David Hagadorn, Zane G. Harvey, Jr., Jeffrey M. Keyser,
Donnie A. Kildow, Carl M. McIntire, Daniel A. McNabb, David G. Meyers,
Robert E. Moore, Thomas L. Oglesby, Michael J. Paul, Russell A. Payne,
Rodgey M. Pegg, Raymond E. Peterson, Zbigniew P. Pietranik, John C.
Rodriguez, James A. Walker, Richard A. Westfall, Charles E. Wood, and
Joseph F. Wood.
    In accordance with 49 U.S.C. 31136(e) and 31315, each renewal
exemption willbe valid for 2 years unless revoked earlier by FMCSA. The
exemption will be revoked if: (1) The person fails to comply with the
terms and conditions of the exemption; (2) the exemption has resulted
in a lower level of safety than was maintained before it was granted;
or (3) continuation of the exemption would not be consistent with the
goals and objectives of 49 U.S.C. 31136 and 31315.

    Issued on: February 5, 2009.
Larry W. Minor,
Associate Administrator for Policy and Program Development.
 [FR Doc. E9-2954 Filed 2-11-09; 8:45 am]

BILLING CODE 4910-EX-P


[Federal Register Volume 87, Number 29 (Friday, February 11, 2022)]
[Rules and Regulations]
[Pages 7934-7938]
[FR Doc No: 2022-02552]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 249

[Release No. 34-87005D; File No. S7-05-14]
RIN 3235-AL45

Recordkeeping and Reporting Requirements for Security-Based Swap
Dealers, Major Security-Based Swap Participants, and Broker-Dealers;
Correction

AGENCY: Securities and Exchange Commission.

ACTION: Correcting amendment.

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SUMMARY: On September 19, 2019, the Securities and Exchange Commission
(the ``Commission'') adopted recordkeeping, reporting, and notification
requirements applicable to security-based swap dealers and major
security-based swap participants, securities count requirements
applicable to certain security-based swap dealers, and additional
recordkeeping requirements applicable to broker-dealers to account for
their security-based swap and swap activities. Release 34-87005 (Sept.
19, 2019) was published in the Federal Register on Dec. 16, 2019. This
document corrects technical inaccuracies in that release.

DATES: Effective February 11, 2022.

FOR FURTHER INFORMATION CONTACT: Valentina Minak Deng, Special Counsel,
at<PHONE_NUMBER>; Division of Trading and Markets, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: We are making technical corrections to Part
II and Part IIC of Form X-17A-5 (referenced in 17 CFR 249.617). The
release resulting in the technical inaccuracies was published in the
Federal Register on December 16, 2019 at 84 FR 68550, and adopted by
the Commission in Exchange Act Release No. 87005 on September 19, 2019.

List of Subjects in 17 CFR Part 249

    Brokers, Recordkeeping and reporting requirements, Securities.

    Accordingly, 17 CFR part 249 is corrected by making the following
amendments:

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
1. The authority citation for part 249 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012);
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001,
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
    Section 249.617 is also issued under Pub. L. 111-203, 939, 939A,
124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
* * * * *

0
2. Amend Part II of Form X-17A-5 (referenced in Sec.  249.617 of this
chapter) by:
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TR11FE22.000

    Note: The text of Part II of Form X-17A-5 does not and this
amendment will not appear in the Code of Federal Regulations.

0
3. Amend Part IIC of Form X-17A-5 (referenced in Sec.  249.617 of this
chapter) by:

[GRAPHIC] [TIFF OMITTED] TR11FE22.001

[GRAPHIC] [TIFF OMITTED] TR11FE22.002

[GRAPHIC] [TIFF OMITTED] TR11FE22.003

    Note: The text of Part IIC of Form X-17A-5 does not and this
amendment will not appear in the Code of Federal Regulations.

    Dated: February 2, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02552 Filed 2-10-22; 8:45 am]
BILLING CODE 8011-01-C


Paper''), https://esas-joint-committee.europa.eu/Publications/Discussion%20Paper/20151204_JC_2015_080_discussion_paper_on_Automation_in_Financial_Advice.pdf; see also ESMA et al., Report on Automation in Financial
Advice at 8-9 (2016) (``ESMA Report''), https://esas-joint-committee.europa.eu/Publications/Reports/EBA%20BS%202016%20422%20(JC%20SC%20CPFI%20Final%20Report%20on%20autom
ated%20advice%20tools).pdf (discussing views on the benefits and
risks of automated advice from respondents to the ESMA Discussion
Paper).
    \94\ S[ouml]hnke M. Bartram, J[uuml]rgen Branke, and Mehrshad
Motahari, Artificial Intelligence in Asset Management, CFA Institute
Research Foundation Literature Review 25 (2020) (``CFA Literature
Review''), https://www.cfainstitute.org/-/media/documents/book/rf-lit-review/2020/rflr-artificial-intelligence-in-asset-management.ashx; see also ESMA Discussion Paper, supra note 93, at
17 (``A well-developed algorithm may be more consistently accurate
than the human brain at complex repeatable regular processes, and in
making predictions. Automated advice tools therefore could reduce
some elements of behavioural biases, human error, or poor judgement
that may exist when advice is provided by a human. A well-developed
algorithm could ensure equal and similar advice to all consumers
with similar characteristics.''). But see ESMA Report, supra note
93, at 9 (stating that several respondents ``stated that whether or
not automated advice is more consistent and accurate depends on both
the underlying logic of the algorithm and the quality and
completeness of the information inputted''); text accompanying infra
note 97.
    \95\ See, e.g., World Economic Forum, The New Physics of
Financial Services: Understanding How Artificial Intelligence is
Transforming the Financial Ecosystem 114-123 (Aug. 2018), http://www3.weforum.org/docs/WEF_New_Physics_of_Financial_Services.pdf.
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5. Potential Risks
    At the same time, these developments may pose new or different
risks to clients, including risks presented by investment advisers'
reliance on technology and any third parties that provide or service
such technology. For example, digital advisers may limit clients'
access to human personnel, including when clients are considering major
life changes such as retirement or when clients have questions that are
highly fact-specific. Clients of internet investment advisers may have
issues accessing the interactive websites, which can present unique
challenges when the website is the sole means for advice delivery. The
quality of the investment advice may depend on an algorithm that human
personnel may monitor infrequently, incorrectly or face challenges
overseeing.\96\ The use of

algorithms may be subject to their own risks, including risks related
to the input data (such as a mismatch between data used for training
the algorithm and the actual input data used during operations),
algorithm design (such as flawed assumptions or judgments), and output
decisions (such as disregard of underlying assumptions).\97\ Digital
advisers may encourage clients to trade more to the extent that the
adviser integrates trade execution services, which may benefit the
adviser at the expense of the client.\98\ Depending on the quality,
recency, and thoroughness of a client's information incorporated into
an algorithm, as well as how broadly client risk tolerances or
investment goals are generalized by the algorithm, the use of
algorithms may cause some clients to receive investment advice that is
less individualized than they reasonably expect. Similarly, clients may
face risks when AI/ML models use poor quality, inaccurate, or biased
data that produces outputs that are or lead to poor or biased advice.
In this respect, biased data may be incorporated unintentionally
through use of data sets that include irrelevant or outdated
information, including information that exists due to historical
practices or outcomes, or through the selection by human personnel of
the data or types of data to be incorporated into a particular
algorithm.\99\
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    \96\ See, e.g., In the Matter of AXA Rosenberg Group LLC et al.,
Advisers Act Release No. 3149 (Feb. 3, 2011) (settled action); see
also In the Matter of Barr M. Rosenberg, Advisers Act Release No.
3285 (Sept. 22, 2011) (settled action) (finding, in part, that an
adviser breached his fiduciary duty by directing others to keep
quiet about, and delay fixing, a material error in computer code
underlying his company's automated model).
    \97\ See Deloitte Report, supra note 77, at 4.
    \98\ See CFA Literature Review, supra note 94, at 25 (``At the
same time, because robo-advisors have trade execution services
integrated into them, they often encourage investors to trade more.
This increased trading can be both a benefit, in terms of
encouraging investors to rebalance positions more often, and a
pitfall, because it can lead to excessive trading that benefits
robo-advising systems through commissions at the expense of
investors.'').
    \99\ See FINRA AI Report, supra note 11, at 14; see also
Treasury RFI, supra note 11, at 16840 (``Because the AI algorithm is
dependent upon the training data, an AI system generally reflects
any limitations of that dataset. As a result, as with other systems,
AI may perpetuate or even amplify bias or inaccuracies in the
training data, or make incorrect predictions if that data set is
incomplete or non-representative.''); Jessica Fjeld et al.,
Principled Artificial Intelligence: Mapping Consensus in Ethical and
Rights-based Approaches to Principles for AI 47-49 (Berkman Klein
Center for internet & Society at Harvard University, Research
Publication, 2020).
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    To the extent that a third party, rather than the investment
adviser, develops the analytical tools, the adviser may face challenges
in understanding or overseeing those third parties or the technology.
For example, there may be challenges in cases where software or a model
is based on an approach or technology that is proprietary to the third
party or is hosted by a third party, or where the investment adviser's
personnel do not have the knowledge or experience necessary to
understand the technology or to challenge its results. These
circumstances may exacerbate exposure of investment advisers and their
clients to cybersecurity and data privacy risks. Further, these risks
may affect more clients than those posed by investment advisers using
traditional methods because of the scale at which investment advisers
are able to reach clients through digital platforms.
    Clients' ability to understand these and other risks rests on the
quality and sufficiency of their investment advisers' disclosures,
which may be particularly important to the extent that these
developments reflect the use of underlying technology that is complex
or otherwise requires technical expertise. Disclosure can put clients
in a position to understand the different roles played by technology
and advisory personnel in developing the investment advice that clients
receive. Investment advisers may face challenges in disclosing
sufficiently these types of risks where any such disclosure might be
necessarily technical.
    There may also be systemic risks associated with widespread use of
AI/ML, including deep learning, supervised learning, unsupervised
learning, and reinforcement learning, which may affect the maintenance
of fair, orderly, and efficient markets. For example, the Financial
Stability Board has stated that ``applications of AI and machine
learning could result in new and unexpected forms of interconnectedness
between financial markets, for instance based on the use by various
institutions of previously unrelated data sources.'' \100\ In addition,
there could be systemic risk to the extent that digital advisers employ
models (including models from third-party model providers) that rely on
past performance and volatility, which could constitute input data that
is inappropriate for the current market. These and other risks may
continue to grow as the use of AI continues to increase among
investment advisers.
---------------------------------------------------------------------------

    \100\ FSB AI Report, supra note 11, at 1.
---------------------------------------------------------------------------

    We request comment on all aspects of investment advisers' use of
technology, particularly with respect to developing and providing
investment advice, and the potential effect on investor protection and
regulatory compliance. We specifically request comment on the
following:
    4.1 How do investment advisers currently use technology in
developing and providing investment advice? What types of technology do
advisers use for these purposes? How do investment advisers use
technology in any quantitative investment processes that they employ?
    4.2 Are our descriptions of the potential benefits and risks of
investment advisers' use of technology in developing and providing
investment advice accurate and comprehensive? If not, what additional
benefits or risks to advisory clients are there from such use? What
additional benefits or risks does using these types of technology
provide to investment advisers? How do investment advisers weigh these
benefits and risks in using technology to develop and provide
investment advice? Does technology enable investment advisers to
develop investment advice in a more cost-effective way and are clients
able to receive less expensive advice as a result? Does technology
increase access to investment advice for some clients who would
otherwise not afford it or mitigate (or have the potential to mitigate)
biases in the market that may have prevented access to some clients or
prospective clients? Are there risks associated with the quality of
services clients ultimately receive? If so, what are they and how do
investment advisers address such risks? What factors do advisory
clients consider in choosing to engage a robo-adviser rather than a
traditional investment adviser? In what ways does investment advice
developed or provided by a robo-adviser differ from investment advice
developed or provided by a traditional investment adviser?
    4.3 To the extent investment advisers use technology in developing
and providing investment advice, do advisers assess whether the
technology or its underlying models are explainable to advisory
personnel or to clients? Is the technology or underlying model
explainable? To what extent do investment advisers assess whether the
results are reproducible? If so, are the results reproducible? To what
extent do investment advisers rely on third parties to make these
assessments?
    4.4 How do investment advisers develop, test, deploy, monitor, and
oversee the technology they use to develop and provide investment
advice? Do investment advisers develop, test, and monitor AI/ML models
differently from how they develop, test, and monitor traditional
algorithms? How do investment advisers assess the effect on client
accounts of any material change to advisers' technology, algorithm, or

model prior to implementation? Do investment advisers communicate with
clients about such material changes? If so, how?
    4.5 What, if anything, do investment advisers do to understand how
AI/ML models will operate during periods of unusual or volatile market
activity or other periods where such models may have less, or less
relevant, input data with which to operate? How does the use of these
models by investment advisers affect the market more generally? What
formal governance mechanisms do investment advisers have in place for
oversight of the vendors that create or manage these models?
    4.6 How do investment advisers disclose the use of algorithms or
models to their clients, including the role of advisory personnel or
third parties in creating and managing these algorithms or models? Do
these disclosures address any effects that such use may have on client
outcomes? When investment advice is developed and provided through an
automated algorithm, how do advisers disclose the use of that automated
algorithm? Do investment advisers assess how effective these
disclosures are in informing clients about such use? If so, how
effective are such disclosures? Please provide any available data to
show how effective such disclosures are. What are clients' expectations
for investment advice produced by an investment adviser's automated
algorithm, and how are those expectations shaped by investment
advisers' disclosures?
    4.7 How do investment advisers account for the use of any poor
quality, inaccurate, or biased data that are used by AI/ML models, and
how do investment advisers determine the effect of this kind of data on
the algorithms' output or seek to reduce the use of this kind of data?
To what extent can the use of AI/ML models in developing investment
advice perpetuate social biases and disparities? How have commenters
seen this in practice with regard to the use of AI/ML models (e.g.,
through marketing, asset allocation, fees, etc.)? To what extent and
how do investment advisers employ controls to identify and mitigate any
such biases or disparities? For example, do investment advisers
evaluate the output of their models to identify and mitigate biases
that would raise investor protection concerns? Do investment advisers
utilize human oversight to identify biases that would raise investor
protection concerns, in both the initial coding of their models or in
the resulting output of those models?
    4.8 Are there any particular challenges or impediments that
investment advisers face in using AI/ML to develop and provide
investment advice? If so, what are they and how do investment advisers
address such challenges or impediments and any risks associated with
them?
    4.9 When relying on AI/ML models to develop investment advice, how
do advisers determine whether those models are behaving as expected?
How do advisers verify the quality of the assumptions and methodologies
incorporated into such models? How frequently do advisers test these
models? For example, do advisers test a model each time it is updated?
What model risk management steps should advisers undertake? What is
advisers' understanding of their responsibility to monitor, test, and
verify model outputs? How do advisers' approaches with respect to AI/ML
models differ from other models that advisers may use in developing
investment advice?
    4.10 In the context of developing and providing investment advice,
what is the objective function of AI/ML models (e.g., revenue
generation)? What are the inputs relied on by AI/ML models used in
developing and providing investment advice (e.g., visual cues or
feedback)? Does the ability to collect individual-specific data impact
the effectiveness of the AI/ML model in maximizing its objective
functions?
    4.11 What cybersecurity and data security risks result from
investment advisers' use of technology in developing and providing
investment advice? How do investment advisers address or otherwise
manage those risks and how do investment advisers disclose these risks
to clients? Do investment advisers believe that delivering investment
advice through email, which may be encrypted, is more secure than
delivery through online client portals? Conversely, do investment
advisers believe that delivery through online client portals is more
secure? How do investment advisers address these concerns when clients
are using mobile apps?
    4.12 How do investment advisers generate records to support the
investment advice they develop from using these types of technology?
What types of records do they produce and how do investment advisers
retain them? Does an investment adviser's recordkeeping process differ
based on the type of technology it uses? If so, how?
    4.13 Do investment advisers generate and retain records with
respect to the testing of, or due diligence with respect to, the
technology that they use in developing and providing investment advice?
    4.14 To what extent do investment advisers market the types of
technology the adviser uses in developing and providing investment
advice? To the extent investment advisers market their use of
technology, do advisers demonstrate that use to clients? To what extent
do prospective and existing clients seek to assess investment advisers'
understanding of the technology, or seek to understand the technology
for themselves, in determining whether to hire or retain an investment
adviser? If prospective or existing clients make such an assessment,
how do they do so?
    4.15 How do investment advisers disclose the types of technology
used in developing and providing investment advice? What types of
potential risks and conflicts of interest are disclosed? How are fees
disclosed? To what extent does investment advisers' use of technology
produce conflicts of interest that are similar to those of investment
advisers that do not use such technologies? To what extent does
investment advisers' use of technology produce conflicts that result
from such use?
    4.16 In what ways do investment advisers assess whether using these
types of technology to develop and provide investment advice enables
them to satisfy their fiduciary duty to their clients? How do
investment advisers assess their ability to satisfy their duty of care
and duty of loyalty when using these types of technology? How does an
investment adviser determine whether the advice produced by its
automated algorithm is in the best interest of a particular client? To
what extent and how often do advisory personnel review investment
advisers' algorithms to be sure that such advice is in the client's
best interest? In conducting such review, to what extent do advisory
personnel understand the algorithm, how it was created, and how it
operates in practice? How do advisers take into account their fiduciary
duty when developing, testing, monitoring, and overseeing these types
of technology? To what extent do investment advisers rely on technology
vendors or other third parties to provide technical knowledge so that
advisers can understand the algorithms and the information or analysis
they generate? When relying on such vendors or third parties, how do
investment advisers assess whether the investment advisers are able to
satisfy their duty of care and duty of loyalty?
    4.17 What types of policies and procedures do investment advisers

maintain with respect to the technologies they use in developing and
providing investment advice to clients? For example, do these
investment advisers maintain policies and procedures under rule 206(4)-
7 of the Advisers Act that are designed to address the technologies
that they use or provide to clients? How do investment advisers'
policies and procedures address their use of technology and the duties
they owe their clients? Do they address how advisers determine how to
incorporate information or analysis developed by these types of
technologies into investment advice that satisfies their fiduciary
duty? If so, how? How do investment advisers introduce new technology
to their personnel?
    4.18 What types of operational risks do investment advisers face
using digital platforms to interact with clients? How do investment
advisers interact with clients when the platform is unavailable--for
example, when the adviser has lost internet service or when the
platform is undergoing maintenance? What alternative means of
communication are available to clients during those times? When issues
arise, is the investment adviser responsible to the client for
resolving those issues, or does the investment adviser rely on others
to resolve the issues or to be responsible to the client? What terms of
service do investment advisers put in place with cloud service
providers in connection with the potential for loss of service or loss
of data? We understand that investment advisers, like other financial
services companies, may rely on a small number of cloud service
providers.\101\ What risks does this reliance present to the industry
(and advisory clients)?
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    \101\ See, e.g., Sophia Furber, As `Big Tech' Dominates Cloud
Use for Banks, Regulators May Need to Get Tougher, S&P Global (Aug.
18, 2020), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/as-big-tech-dominates-cloud-use-for-banks-regulators-may-need-to-get-tougher-59669007.
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    4.19 Under what circumstances do robo-advisers typically override
their algorithm, and in what ways? What steps do robo-advisers take to
ensure that any override of the algorithm is consistent with the
adviser's disclosure and clients' best interest? Do robo-advisers
document their determinations to override the algorithm and, if so,
what specifically is documented? What have robo-advisers found to be
the outcomes from overriding an algorithm?
    4.20 When evaluating digital platforms, how do investment advisers
weigh the platform's cost and quality of service?
    4.21 Should the Commission consider amending Form ADV to collect
information about the types of technology that advisers use to develop
and provide investment advice? If so, what type of technology and why?
What information about technology should we consider collecting? Should
the Commission require investment advisers to describe their efforts to
monitor the outputs of technology upon which they rely? Should the
Commission consider another method of collecting this information?
    4.22 What costs or benefits do investment advisers experience in
registering with the Commission under the exemption for internet
investment advisers? What costs or benefits do clients of internet
investment advisers experience as compared to clients of other
investment advisers registered with the Commission? Do commenters
believe that the exemption for internet investment advisers should be
updated in any way, including to facilitate its use or to modernize it?
Are its conditions appropriate? Should we consider changes to, for
example, the de minimis exception for non-internet clients or the
recordkeeping requirement? Should we consider changes to the
exemption's definition of ``interactive website''? Should the exemption
specify what it means to provide investment advice ``exclusively''
through the interactive website? Would additional guidance on any of
the exemption's conditions or definitions be useful?
    4.23 The Commission has stated that an investment adviser relying
on the internet investment adviser exemption ``may not use its advisory
personnel to elaborate or expand upon the investment advice provided by
its interactive website, or otherwise provide investment advice to its
internet clients.'' \102\ Should the Commission consider eliminating or
modifying this language? Should the Commission consider changes to the
exemption that reflect or otherwise address this language? Should the
Commission provide additional guidance about the internet investment
adviser exemption?
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    \102\ Internet Investment Adviser Adopting Release, supra note
83, at 77621.
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    4.24 As discussed above, the Commission acknowledged that the
internet investment adviser exemption was designed to balance these
advisers' multiple state registration requirements with the Advisers
Act's allocation of responsibility for regulating smaller advisers to
state securities authorities. Consistent with this design, are there
changes to the exemption that might help to ensure that it encompasses
those investment advisers that provide advice through the internet
while ensuring that advisers that use the internet only as a marketing
tool, for example, remain subject to state registration? Should the
Commission consider creating a registration exemption that reflects
investment advisers' current use of technology in providing investment
advice in a better way than the internet investment adviser exemption?
    4.25 To what extent do investment advisers use digital platforms
and other analytical tools in connection with wrap fee programs? \103\
For example, do these programs use model portfolios or portfolio
allocation models (whether developed by the investment adviser or by a
third party that provides such models to the adviser for its use) to
recommend investor allocations? \104\ Do wrap fee programs with an
online presence allow clients to engage directly with the portfolio
manager managing the client's assets or provide access to a wider array
of service providers than the client might otherwise have? Are there
concerns with respect to these programs for clients with minimal or no
trading activity as commissions for trade execution have moved toward
zero? \105\

Are such concerns different for wrap fee programs sponsored by robo-
advisers as compared to those sponsored by traditional investment
advisers?
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    \103\ In a wrap fee program, clients generally are charged one
fee in exchange for investment advisory services, the execution of
transactions, and custody (or safekeeping) as well as other
services. An adviser acting as a sponsor to such a program may
choose the service providers, including other investment advisers,
and provide clients with access to those services through internet-
based platforms that enable clients to engage directly with service
providers.
    \104\ A model portfolio generally consists of a diversified
group of assets (often mutual funds or ETFs) designed to achieve a
particular expected return with exposure to corresponding risks that
are rebalanced over time. See Morningstar, 2020 Model Portfolio
Landscape (2020) (noting that, while models can focus on a single
asset class, most models combine multiple asset classes). Model
portfolios are distinct from portfolio allocation models, which can
be educational tools that investors use to obtain a general sense of
which asset classes (as opposed to which specific securities) are
appropriate for the investor to allocate its assets to (e.g.,
appropriate balance of equities, fixed income, and other assets
given age and other facts and circumstances).
    \105\ See generally Securities and Exchange Commission, Division
of Examinations, Risk Alert: Observations from Examinations of
Investment Advisers Managing Client Accounts That Participate in
Wrap Fee Programs (July 21, 2021), at 4 (``Infrequent trading in
wrap fee accounts was also identified at several examined advisers,
raising concerns that clients whose wrap fee accounts are managed by
portfolio managers with low trading activity are paying higher total
fees and costs than they would in non-wrap fee accounts.''), https://www.sec.gov/files/wrap-fee-programs-risk-alert_0.pdf. The Risk
Alert represents the views of the staff of the Division of
Examinations. It is not a rule, regulation, or statement of the
Commission. The Commission has neither approved nor disapproved its
content. The Risk Alert, like all staff statements, has no legal
force or effect: It does not alter or amend applicable law, and it
creates no new or additional obligations for any person.
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    4.26 To what extent do robo-advisers (as well as other sponsors of
investment advisory programs) rely on Rule 3a-4 to determine that they
are not sponsoring or otherwise operating investment companies under
the Investment Company Act of 1940 (the ``Investment Company Act'')?
\106\ If such sponsors do not rely on the rule, what policies and
practices have sponsors adopted to prevent their investment advisory
programs from being deemed to be investment companies?
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    \106\ See 17 CFR 270.3a-4. Certain discretionary investment
advisory programs may meet the definition of ``investment company''
under the Investment Company Act, but the Commission has indicated
that investment advisory programs that provide each client with
individualized treatment and the ability to maintain indicia of
ownership of the securities in their accounts are not investment
companies. Whether such a program is an investment company is a
factual determination and depends on whether the program is an
issuer of securities under the Investment Company Act and the
Securities Act. Rule 3a-4 under the Investment Company Act provides
a non-exclusive safe harbor from the definition of ``investment
company'' to investment advisory programs that are organized and
operated in the manner provided in the rule. A note to the rule also
states that there is no registration requirement under Section 5 of
the Securities Act for programs that rely on the rule, and that the
rule is not intended to create any presumption about a program that
does not meet the rule's provisions.
---------------------------------------------------------------------------

    4.27 To satisfy the conditions of Rule 3a-4, among other things, a
sponsor and personnel of the manager of the client's account who are
knowledgeable about the account and its management must be reasonably
available to the client for consultation. The rule does not dictate the
manner in which such consultation with clients should occur. How do
sponsors and other advisers satisfy this condition? Should we consider
amending Rule 3a-4 to address technological developments, such as
chatbots and/or other responsive technologies providing novel ways of
interacting with clients? Should the Commission address these
developments in some other way? Should the Commission provide
additional guidance about this condition? If yes, what specifically
should this guidance address?
    4.28 To satisfy the conditions of Rule 3a-4, among other things,
each client's account must be managed on the basis of the client's
financial situation and investment objectives. Sponsors must obtain
information from each client about their financial situation and
investment objectives at account opening and must contact each client
at least annually thereafter to determine whether there have been any
changes in the client's financial situation or investment objectives.
The Commission stated that the receipt of individualized advice is
``one of the key differences between clients of investment advisers and
investors in investment companies.'' \107\ How do sponsors ensure that
they have sufficient information about a client's financial situation
and investment objectives to provide investment advice that is in the
best interest of the client, including advice that is suitable for the
client? Given the availability of new technology for developing and
providing investment advice, does a sponsor's reliance on Rule 3a-4
heighten the risk of clients receiving unsuitable advice? If so, are
there other requirements or conditions that might address this risk?
---------------------------------------------------------------------------

    \107\ See Status of Investment Advisory Programs under the
Investment Company Act of 1940, Investment Company Act Rel. No.
21260 (July 27, 1995), 60 FR 39574 (Aug. 2, 1995). The Commission
also stated that to fulfill its duty to provide only suitable
investment advice, ``an investment adviser must make a reasonable
determination that the investment advice provided is suitable for
the client based on the client's financial situation and investment
objectives. The adviser's use of a model to manage client accounts
would not alter this obligation in any way.'' See Status of
Investment Advisory Programs under the Investment Company Act of
1940, Investment Company Act Rel. No. 22579 (Mar. 24, 1997), 62 FR
15098 (Mar. 31, 1997).
---------------------------------------------------------------------------

    4.29 One of the conditions of Rule 3a-4 is that investment advisory
programs relying on the rule be managed in accordance with any
reasonable restrictions imposed by the client on the management of the
client's account. In addition, the client must have the opportunity to
impose reasonable restrictions at the time the account is opened and
must be asked at least annually whether the client might wish to impose
any reasonable restrictions or reasonably modify existing restrictions.
The Commission explained that the ability of a client to impose
reasonable restrictions on the management of a client account is a
critical difference between a client receiving investment advisory
services and an investor in an investment company. Since the rule was
adopted, enhanced technological capabilities and industry practices may
have made it practical for sponsors to provide clients with other means
of receiving meaningful individualized treatment regarding the
management of their accounts. Do sponsors of investment advisory
programs currently provide their clients with ways of customizing or
personalizing their accounts other than through the imposition of
reasonable restrictions? If yes, please provide examples of such
practices. To what extent do clients avail themselves of those options
for individualized treatment and do they find them to be valuable or
important? Should we consider amending Rule 3a-4 to address these
developments or should we address them in some other way, such as by
providing additional guidance about this condition?
    4.30 In view of the variety and increasing availability of
technologies used by investment advisers to develop and provide
investment advice, are there other regulatory matters that the
Commission should consider? If so, what are they, and why? To the
extent commenters recommend any modifications to existing regulations
or additional regulations, what economic costs and benefits do
commenters believe would result from their recommendations? Please
provide or identify any relevant data and other information.

IV. General Request for Comment

    This Request is not intended to limit the scope of comments, views,
issues, or approaches to be considered. In addition to broker-dealers,
investment advisers and investors, we welcome comment from other
interested parties, researchers and particularly welcome statistical,
empirical, and other data from commenters that may support their views
or support or refute the views or issues raised by other commenters.

    By the Commission.

    Dated: August 27, 2021.
Vanessa A. Countryman,
Secretary.

Appendix A--Tell Us About Your Experiences With Online Trading and
Investment Platforms

    We're asking individual investors like you what you think about
online trading or investment platforms such as websites and mobile
applications (``apps''). It's important to us at the SEC to hear
from investors who trade and invest this way so we can understand
your experiences.
    Please take a few minutes to answer any or all of these
questions. Please provide your comments on or before October 1,
2021--and thank you for your feedback!
    1. Do you have one or more online trading or investment
accounts?

[cir] Yes, I have one or more accounts that I access online using a
computer.
[cir] Yes, I have one or more accounts that I access using a mobile
app.
[cir] Yes, I have one or more accounts that I access both online
using a computer and using a mobile app.
[cir] Yes, I have one or more accounts that I access online, either
using a computer or a mobile app, but I also access the account(s)
in other ways (e.g., by calling or visiting in person).

[cir] I have one or more accounts, but I do not access them online
using a computer or using a mobile app.
[cir] No, I don't have a trading or investment account.

    2. If your response to Question 1 is ``Yes'', do you think you
would trade or invest if you could not do so online using a computer
or using a mobile app?

[cir] Yes
[cir] No
    3. On average, how often do you access your online account?

[cir] Daily/more than once a day
[cir] Once to a few times a week
[cir] Once to a few times per month
[cir] Less often than once a month
[cir] Never
[cir] Other

    If Other, Explain:

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    4. On average, how often are trades made in your online account,
whether by you or someone else?

[cir] Daily/more than once a day
[cir] Once to a few times a week
[cir] Once to a few times per month
[cir] Less often than once a month
[cir] Never
[cir] Other

    If Other, Explain:

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    5. If you access your account online, did you have the account
first, and only began to access it electronically later? Or did you
open the account with the idea that you would access it
electronically immediately?

[cir] I had a pre-existing account and downloaded an app or visited
a website to access my account.
[cir] I downloaded an app or visited a website first, and then
opened up an account with the company.

    6. My goals for trading or investing in my online account are
(check all that apply):

[squ] Keep the amount of money I have, while keeping up with
inflation
[squ] Save and grow my money for short-term goals (in the next year
or two)
[squ] Save and grow my money for medium- to long-term goals
[squ] Have fun
[squ] Other

    If Other, Explain:

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    7. What would you like us to know about your experience with the
features of your online trading or investment platform? (Examples of
features are: Social networking tools; games, streaks, or contests
with prizes; points, badges, and leaderboards; notifications;
celebrations for trading; visual cues, like changing colors; ideas
presented at order placement or other curated lists or features;
subscription and membership tiers; or chatbots.)

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    8. If you were trading or investing prior to using an online
account, how have your investing and trading behaviors changed since
you started using your online account? (For example, the amount of
money you have invested, your interest in learning about investing
and saving for retirement, the amount of time you have spent
trading, your knowledge of financial products, the number of trades
you have made, the amount of money you have made in trading, your
knowledge of the markets, the number of different types of financial
products you have traded, or your use of margin.)

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    9. How much experience do you have trading or investing in the
following products (None, Less than 12 months, 1-2 years, 2-5 years,
5+ years):

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Less than 12
                        Investment products                                None            months         1-2 years        2-5 years         5+ years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Stocks.............................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Bonds..............................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Options............................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Mutual Funds.......................................................           [cir]            [cir]            [cir]            [cir]            [cir]
ETFs...............................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Futures............................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Cryptocurrencies...................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Commodities........................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Closed-End Funds...................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Money Market Funds.................................................           [cir]            [cir]            [cir]            [cir]            [cir]
Variable Insurance Products........................................           [cir]            [cir]            [cir]            [cir]            [cir]
Business Development Companies.....................................           [cir]            [cir]            [cir]            [cir]            [cir]
Unit Investment Trusts.............................................           [cir]            [cir]            [cir]            [cir]            [cir]
--------------------------------------------------------------------------------------------------------------------------------------------------------

    10. What is your understanding, if any, of the circumstances
under which trading or investing in your account can be suspended or
restricted?

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------------------------------------------------------------------------

    11. What else would you like us to know--positive or negative--
about your experience with online trading and investing?

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Other Ways to Submit Your Feedback

    You also can send us feedback in the following ways (include the
file number S7-10-21 in your response):

Print Your Responses and Mail

Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090

Print a PDF of Your Responses and Email

Use the printer-friendly page and select a PDF printer to create a
file you can email to<EMAIL_ADDRESS>
Print a Blank Copy of this Flyer, Fill it Out, and Mail

Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090

Contact Info (Not Required; to submit anonymously, leave blank)

First Name:------------------------------------------------------------
Last Name:-------------------------------------------------------------
    We will post your feedback on our website. Your submission will
be posted without change; we do not redact or edit personal
identifying information from submissions. You should only make
submissions that you wish to make available publicly.

    If you are interested in more information on the proposal, or
want to provide feedback on additional questions, click here.
Comments should be received on or before October 1, 2021.
    Thank you!

[FR Doc. 2021-18901 Filed 8-31-21; 8:45 am]
BILLING CODE P