[Federal Register Volume 85, Number 175 (Wednesday, September 9, 2020)]
[Notices]
[Pages 55712-55717]
[FR Doc No: 2020-19838]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89737; File No. SR-FINRA-2020-027]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Temporarily Amend FINRA Rules 1015, 9261, 9524
and 9830 To Permit Hearings Under Those Rules To Be Conducted by Video
Conference

September 2, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 31, 2020, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. FINRA files the proposed rule change as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4. The Exchange provided the Commission with
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing the proposed
rule change as required by Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-
4(f)(6)(iii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to temporarily amend FINRA Rules 1015, 9261,
9524 and 9830 to grant FINRA's Office of Hearing Officers (``OHO'') and
the National Adjudicatory Council (``NAC'') authority \5\ to conduct
hearings in connection with appeals of Membership Application Program
decisions, disciplinary actions, eligibility proceedings and temporary
and permanent cease and desist orders by video conference, if warranted
by the current COVID-19-related public health risks posed by an in-
person hearing. As proposed, these temporary amendments would be in
effect through December 31, 2020.\6\
---------------------------------------------------------------------------

    \5\ For OHO hearings under FINRA Rules 9261 and 9830, the
proposed rule change temporarily grants authority to the Chief or
Deputy Chief Hearing Officer to order that a hearing be conducted by
video conference. For NAC hearings under FINRA Rules 1015 and 9524,
this temporary authority is granted to the NAC or relevant
Subcommittee.
    \6\ If FINRA requires temporary relief from the rule
requirements identified in this proposal beyond December 31, 2020,
FINRA may submit a separate rule filing to extend the expiration
date of the temporary amendments under these rules. The amended
FINRA rules will revert back to their current state at the
conclusion of the temporary relief period and any extension thereof.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The outbreak of COVID-19 has disrupted critical adjudicatory
functions nationwide due to the serious public health risks it poses in
connection with conducting traditional, in-person hearings. In order to
comply with the guidance of public health authorities and to ensure the
safety and well-being

of parties, counsel, adjudicators and FINRA personnel, FINRA has
administratively postponed in-person OHO and NAC hearings for over four
months now--starting on March 16, 2020, with in-person hearings
currently postponed through October 2, 2020. The result is an expanding
backlog of cases, which if left unchecked, will compromise FINRA's
ability to provide timely adjudicatory processes and fulfill its
statutory obligations to protect investors and maintain fair and
orderly markets.
    In order to proactively address this backlog of cases, and mitigate
the consequences of a stalled adjudicatory system, FINRA is proposing
this temporary rule change to grant OHO and the NAC the authority to
conduct hearings by video conference, if warranted by the current
COVID-19-related public health risks posed by an in-person hearing.
This proposed rule change would allow OHO and the NAC to order that a
hearing proceed by video conference over the objection of a party.\7\
As discussed in further detail below, FINRA will evaluate whether
current COVID-19-related public health risks warrant a hearing by video
conference based on an assessment of critical data and criteria and
guidance from its outside health and security consultant.\8\
---------------------------------------------------------------------------

    \7\ Currently, if the parties jointly agree, OHO and the NAC
will proceed with a hearing by video conference. As of August 21,
2020, OHO has conducted three days of video conference hearings in
connection with a disciplinary matter and scheduled hearings in 5
other disciplinary matters to proceed by video conference, per joint
agreement of the parties.
    \8\ See infra Assessment of Public Health Risks--Data and
Criteria Used.
---------------------------------------------------------------------------

    FINRA's protocol for conducting hearings by video conference will
ensure that such hearings maintain fair process for the parties. FINRA
will, among other things, use a high quality, secure and user-friendly
video conferencing service and provide thorough instructions, training
and technical support to all hearing participants.\9\ In addition,
FINRA has experience conducting numerous hearings and oral arguments
utilizing video conferencing technology in similar contexts.\10\
---------------------------------------------------------------------------

    \9\ FINRA plans to conduct video conference hearings using Zoom,
a program that has been vetted by FINRA's information technology
staff. FINRA may consider alternate video conferencing services, if
those services have features and capabilities analogous to those
available through Zoom.
    \10\ From the postponement of in-person hearings starting on
March 16, 2020, through August 21, 2020, 43 FINRA arbitration cases
have proceeded with one or more video conference hearings conducted
via Zoom. Of those 43 cases, 23 conducted one or more video
conference hearings pursuant to the parties' joint motion. As of
August 21, 2020, the NAC, through the relevant Subcommittee, has
conducted 3 oral arguments by video conference using Zoom in
connection with appeals of FINRA disciplinary proceedings pursuant
to FINRA Rule 9341(d), as temporarily amended. See infra note 22.
---------------------------------------------------------------------------

    While FINRA's ultimate goal is to resume in-person hearings, doing
so in a manner that is compliant with the current guidance of public
health authorities is a complex, challenging and time-consuming process
that presents numerous logistical challenges. Among other things, FINRA
will need detailed procedures and related participant training on
physical distancing and otherwise minimizing physical contact during
in-person hearings, preparing spaces and providing protective equipment
to protect the safety of hearing participants (including parties,
counsel, adjudicators and FINRA personnel) and to address numerous
other aspects of in-person hearings that pose a risk of COVID-19
transmission.\11\ Even with the ability to put those protections in
place, FINRA cannot conduct an in-person hearing where the hearing
participants cannot safely travel to the hearing location. Furthermore,
even if hearing participants are able to travel to a hearing location,
state and local quarantining requirements may pose significant
impediments to their ability to participate in person.
---------------------------------------------------------------------------

    \11\ See, e.g., Conducting Jury Trials and Convening Grand
Juries During the Pandemic (June 4, 2020) (Outlining the ``multitude
of issues'' courts need to consider before resuming jury selection
and jury trials during the pandemic, including, among other things,
reconfiguring courtrooms, the presentation and handling of evidence
to reduce transmission risks, restricting access to physical spaces
such as common areas and deciding when jurors will be permitted to
leave the premises) available at https://www.uscourts.gov/sites/default/files/combined_jury_trial_post_covid_doc_6.10.20.pdf.
---------------------------------------------------------------------------

    With the assistance of its outside health and security consultant,
FINRA is actively working to develop such a protocol for in-person
hearings that takes into consideration the various health and safety
considerations at play. Settling on a protocol for in-person hearings,
however, continues to be a moving target, with public health guidance
being continually updated and local and state transmission rates,
government public health orders and other localized considerations in a
constant state of flux. FINRA believes that permitting the Chief or
Deputy Chief Hearing Officer or the NAC or relevant Subcommittee to
exercise their judgment to conduct OHO and NAC hearings, respectively,
by video conference \12\ on a temporary basis is a reasonable interim
solution to allow FINRA's critical adjudicatory processes to continue
to function in these extraordinary times--enabling FINRA to fulfill its
statutory obligations to protect investors and maintain fair and
orderly markets--while protecting the health and safety of hearing
participants.\13\
---------------------------------------------------------------------------

    \12\ FINRA currently conducts certain hearing and pre-hearing
conferences by remote means. Pursuant to FINRA Rule 9241(b) (Pre-
hearing Conference; Procedure), pre-hearing conferences conducted in
connection with FINRA disciplinary proceedings can be conducted with
one or more persons participating by telephone or ``other remote
means.'' Pursuant to FINRA Rule 9559(d)(5) (Hearing Procedures for
Expedited Proceedings Under the Rule 9550 Series), hearings in
connection with expedited proceedings under the Rule 9550 Series are
held by telephone conference, unless the Hearing Officer orders
otherwise for good cause shown.
    \13\ FINRA notes that, in response to COVID-related risks,
federal agencies such as the United States Patent and Trademark
Office (USPTO) are also conducting a variety of meetings and
hearings remotely, including trademark examining attorney interviews
and oral hearings, until further notice. See USPTO Update on In-
Person Meetings (March 13, 2020) available at https://www.uspto.gov/about-us/news-updates/uspto-update-person-meetings.
---------------------------------------------------------------------------

(a) Background
    FINRA's adjudicatory functions performed by OHO and the NAC are
essential to investor protection and market integrity. This proposed
rule change would provide OHO and the NAC with temporary authority to
order that OHO hearings for disciplinary matters and temporary and
permanent cease and desist orders and NAC hearings for appeals of
Membership Application Program (``MAP'') decisions and eligibility
proceedings, take place by video conference, if warranted by the
current COVID-19-related public health risks posed by an in-person
hearing. As proposed, this temporary rule change would be in effect
through December 31, 2020.
(1) OHO Hearings
    OHO conducts disciplinary hearings in-person at venues across the
country before three-person hearing panels composed of one hearing
officer and two industry members.\14\ Depending on the size and
complexity of the case, OHO schedules the hearing for four to ten
months after the filing of the complaint. OHO, on average, conducts 19
disciplinary cases a year.\15\ FINRA Rule 9261(b) \16\ states that if a
disciplinary hearing is held, a party shall be entitled to be heard in-
person, by counsel, or by the party's

representative. Absent an agreement by all parties to proceed in
another manner, OHO conducts disciplinary hearings in-person.
---------------------------------------------------------------------------

    \14\ In limited circumstances, a hearing may proceed with a
Hearing Officer and one panelist, which is permitted under FINRA
rules.
    \15\ This number is based on an average of the hearings from the
three-year period from January 2017 to December 2019.
    \16\ FINRA Rule 9261(b) (Disciplinary Proceedings; Hearing and
Decision; Evidence and Procedure in Hearing; Party's Right to be
Heard).
---------------------------------------------------------------------------

    OHO also conducts hearings for temporary and permanent cease and
desist orders (``TCDOs'' and ``PCDOs''). Pursuant to FINRA Rule
9810,\17\ FINRA's Department of Enforcement (``Enforcement'') initiates
a TCDO or PCDO proceeding by filing a written notice with OHO and must
simultaneously file a disciplinary complaint with the initiation of a
TCDO or PCDO proceeding. These proceedings provide a mechanism to take
necessary remedial action against a member or associated person where
there is a significant risk that the alleged misconduct could cause
continuing harm to the investing public, if not addressed
expeditiously.\18\
---------------------------------------------------------------------------

    \17\ FINRA Rule 9810 (Code of Procedure; Temporary and Permanent
Cease and Desist Orders; Initiation of Proceeding).
    \18\ Pursuant to FINRA Rule 9810(a), Enforcement may initiate a
TCDO proceeding based on alleged violations of (i) Section 10(b) of
the Exchange Act and SEA Rule 10b-5 thereunder; (ii) SEA Rules 15g-1
through 15g-9; (iii) FINRA Rule 2010 (Standards of Commercial Honor
and Principles of Trade), if the alleged violation is unauthorized
trading, or misuse or conversion of customer assets, or based on
violations of Section 17(a) of the Securities Act; (iv) FINRA Rule
2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices);
or (v) FINRA Rule 4330 (Customer Protection--Permissible Use of
Customers' Securities), if the alleged violation is misuse or
conversion of customer assets. Enforcement may initiate a PCDO
proceeding pursuant to 9810(a) based on alleged violations of
Supplemental Material .03 to FINRA Rule 5210 (Disruptive Quoting and
Trading Activity Prohibited) for certain types of quoting and
trading activity that are deemed to be disruptive and need to be
resolved on an expedited basis.
---------------------------------------------------------------------------

    After OHO receives a notice initiating a TCDO or PCDO, it must hold
a full evidentiary hearing before a three-person hearing panel within
15 days.\19\ As with standard disciplinary matters, OHO typically
conducts these proceedings in person, absent consent by all parties to
proceed otherwise, at various venues across the country. FINRA Rule
9830 outlines the requirements for a TCDO or PCDO hearing, however, it
does not specify that a party shall be entitled to be heard in-person,
by counsel, or by the party's representative.\20\
---------------------------------------------------------------------------

    \19\ FINRA Rule 9830(a) (Code of Procedure; Temporary and
Permanent Cease and Desist Orders; Hearing; When Held).
    \20\ See supra note 19.
---------------------------------------------------------------------------

    The proposed rule change would temporarily amend FINRA Rules 9261
and 9830 to grant OHO's Chief or Deputy Chief Hearing Officer temporary
authority to order, upon consideration of the current COVID-19-related
public health risks presented by an in-person hearing, that a hearing
under those rules be conducted by video conference. This will allow OHO
to make an assessment, based on critical COVID-19 data and criteria and
the guidance of its outside health and security consultant, as to
whether an in-person hearing would compromise the health and safety of
the hearing participants such that the hearing should proceed by video
conference.\21\
---------------------------------------------------------------------------

    \21\ The SEC's Rules of Practice pertaining to temporary cease-
and-desist orders provide that parties and witnesses may participate
by telephone or, in the Commission's discretion, through the use of
alternative technologies that allow remote access, such as a video
link. See SEC Rule of Practice 511(d)(3); Comment (d).
---------------------------------------------------------------------------

(2) NAC Hearings
    The NAC is FINRA's appellate body, which reviews initial decisions
issued by OHO and--through Subcommittees--holds evidentiary hearings
for MAP decision appeals and eligibility proceedings.\22\ The proposed
rule change would grant the NAC or relevant Subcommittee temporary
authority to order, upon consideration of the current COVID-19-related
public health risks presented by an in-person hearing, that a hearing
in connection with a MAP decision or eligibility proceeding under Rule
1015 or 9524 be conducted by video conference.
---------------------------------------------------------------------------

    \22\ FINRA Rule 9341(d) (Oral Argument; Attendance Required)
provides that oral arguments made in connection with the review of a
FINRA disciplinary proceeding take place before a Subcommittee of
the NAC and requires all members of the relevant Subcommittee to be
present for the oral argument. FINRA has temporarily amended FINRA
Rule 9341(d) such that oral arguments made in connection with the
review of FINRA disciplinary proceedings can be conducted by video
conference. See Securities Exchange Act Release No. 88917 (May 20,
2020), 85 FR 31832 (May 27, 2020) (Notice of Filing and Immediate
Effectiveness File No. SR-FINRA-2020-015); Securities Exchange Act
Release No. 89423 (July 29, 2020), 85 FR 47278 (August 4, 2020)
(Notice of Filing and Immediate Effectiveness File No. SR-FINRA-
2020-022) (Further extending the expiration date of the temporary
amendments in SR-FINRA-2020-15 from July 31, 2020, to a date to be
specified in a public notice issued by FINRA, which date will be at
least two weeks from the date of the notice, and no later than
December 31, 2020).
---------------------------------------------------------------------------

(a) Membership Proceedings
    When a firm applies to become a FINRA member or seeks to make
certain changes to its ownership, control or business operations, the
firm files a membership application--a New Member Application (``Form
NMA'') or Continuing Membership Application (``CMA'')--with FINRA's
Department of Member Supervision (``Department''). The Department
evaluates the application pursuant to FINRA Rule 1014 or 1017,
depending on the type of application. FINRA Rule 1015 governs the
process by which an applicant for new or continuing membership can
appeal a decision rendered by the Department under FINRA Rule 1014 or
1017 and request a hearing.\23\ If a hearing is requested, a
Subcommittee of the NAC conducts the hearing. Rule 1015(f) does not
require an in-person hearing, however, hearings are typically conducted
in-person.\24\
---------------------------------------------------------------------------

    \23\ See FINRA Rule 1015(a) (Review by National Adjudicatory
Council; Initiation of Review by Applicant).
    \24\ See FINRA Rule 1015(f) (Review by National Adjudicatory
Council; Hearing).
---------------------------------------------------------------------------

(b) Eligibility Proceedings
    Pursuant to FINRA's By-Laws, a member firm subject to a statutory
disqualification that wishes to retain their membership must file a
Form MC-400A (``MC-400A'') application. If an associated person is
subject to a statutory disqualification, a firm can sponsor the
association of the disqualified person by filing a Form MC-400
application (``MC-400''). The Department is responsible for evaluating
MC-400A and MC-400 applications and making recommendations either to
approve or deny the application to the NAC.\25\
---------------------------------------------------------------------------

    \25\ See FINRA Rule 9522 (Initiation of Eligibility Proceeding;
Member Regulation Consideration).
---------------------------------------------------------------------------

    FINRA Rule 9524 governs the process by which a statutorily
disqualified member firm or associated person can appeal the
Department's recommendation to deny a firm or sponsoring firm's MC-400A
or MC-400 application to the NAC.\26\ If the Department recommends
denial of an application, the applicant can request an evidentiary
hearing before a hearing panel, which routinely consists of two members
of the NAC Statutory Disqualification Committee.\27\ FINRA Rule
9524(a)(4) states that the parties are entitled to be heard in-person
and represented by an attorney.
---------------------------------------------------------------------------

    \26\ See FINRA Rule 9524 (National Adjudicatory Council
Consideration).
    \27\ See FINRA Rules 9522(e)(3) and 9524.
---------------------------------------------------------------------------

    The proposed rule change would temporarily amend FINRA Rules
1015(f) and 9524(a)(4) to grant the NAC or Subcommittee (or Review
Subcommittee) temporary authority to order, upon consideration of the
current COVID-19-related public health risks presented by an in-person
hearing, that a hearing under those rules be conducted by video
conference. As with the OHO hearings discussed above, this temporary
proposed rule change will allow the NAC or relevant Subcommittee to
make an assessment, based on critical COVID-19 data and criteria and
the guidance of its outside health and security consultant, as to

whether an in-person hearing would compromise the health and safety of
the hearing participants such that the hearing should proceed by video
conference.
(3) Assessment of Public Health Risks--Data and Criteria Used
    In light of the COVID-19 outbreak, determining the health and
safety risks of a given in-person activity requires a complex facts and
circumstances analysis and is a moving target. Public health guidance
on how to minimize the risk of transmission is continually updated and
localized considerations evolve rapidly. In order to assist FINRA
through this challenging process, FINRA has engaged a health and
security consultant to provide guidance on the multitude of issues that
will need to be addressed in order to safely resume in-person
activities.
    For purposes of this proposed temporary rule change, FINRA plans to
rely on the guidance of its health and safety consultant, in
conjunction with COVID-19 data and guidance issued by public health
authorities, to determine whether the current public health risks
presented by an in-person hearing may warrant a hearing by video
conference. The following criteria, among others, will be considered in
order to make this determination: (i) State and county virus trends and
hospitalization rates at or around the hearing location; (ii) national,
state and local orders addressing COVID-19; (iii) risks posed by
requiring hearing participants to travel by air, use public
transportation and stay in hotels; and (iv) the increased risk of
exposure based on the length of the hearing or number of hearing
participants. FINRA will also take into consideration any other
relevant health, safety or similar concerns raised by the hearing
participants.\28\
---------------------------------------------------------------------------

    \28\ In addition to an assessment of the public health risks,
OHO's Chief or Deputy Chief Hearing Officer, or the NAC or relevant
Subcommittee, may consider other factors in determining whether to
schedule a video conference hearing. A non-exhaustive list of these
factors includes a hearing participant's individual health concerns
and access to the connectivity and technology necessary to
participate in a video conference hearing. Moreover, as discussed
infra, OHO and the NAC will have several means of addressing a
hearing participant's access issues, including providing a hearing
participant with the technology or hardware necessary to participate
in a video conference or permitting a witness, for example, to
participate by telephone to address connectivity issues. A FINRA
case administrator will also participate in each video conference
hearing to ensure participants have adequate technical support.
---------------------------------------------------------------------------

(4) Platform and Procedures for Conducting Video Conference Hearings
    FINRA has adopted a detailed and thorough protocol to ensure that
hearings conducted by video conference will maintain fair process for
the parties.\29\ As an initial matter, FINRA will use a high quality,
secure and user-friendly video conferencing service.\30\ FINRA has
provided a step-by-step breakdown of the enhanced security features
that will be provided for video conference hearings.\31\ In addition,
FINRA will use available video conferencing features to parallel an in-
person hearing experience such as waiting rooms to ensure that no party
has time alone with the hearing panel and breakout rooms to allow for
confidential communications. FINRA has also developed comprehensive
guidelines for how video conference hearings will be conducted,
including how objections and the introduction of new documents will be
handled.\32\ These guidelines ensure that participants know what to
expect during a video conference hearing and can prepare accordingly.
---------------------------------------------------------------------------

    \29\ The temporary proposed rule change will not alter the Chief
or Deputy Chief Hearing Officer's, or the NAC or relevant
Subcommittee's, existing discretion to allow a party or witness to
participate by telephone, if necessary to address, among other
things, impediments to a hearing participant's use of video
conferencing technology such as connectivity issues. FINRA also
notes that, to the extent feasible, it may, among other things, lend
hearing participants the hardware necessary to participate in a
video conference hearing (e.g., a video camera).
    \30\ As indicated above, FINRA has used video conferencing
technology in other contexts to conduct hearings and oral arguments
and take testimony. See supra notes 7 and 10.
    \31\ See Zoom Process for Disciplinary Hearings with the Office
of Hearing Officers, available at https://www.finra.org/rules-guidance/key-topics/covid-19/hearings/zoom-office-hearing-officers.
The enhanced securities features include randomly-generated meeting
IDs and passwords for admittance, the use of a ``waiting room'' for
all participants who join the hearing, the ability to ``lock'' the
``hearing room'' so that no one else can enter, even if they have a
password, and FINRA's Zoom process is restricted to Zoom's U.S. data
centers only.
    \32\ See supra note 31.
---------------------------------------------------------------------------

    FINRA will also provide assistance to participants to ensure that
they are adequately prepared to use the video conferencing software by
conducting a mock hearing for the parties in advance of the hearing
date. During the mock hearing, hearing participants will learn how to
share documents and use other software features that allow participants
to perform tasks typically done during in-person hearings, such as a
highlighting feature that the parties can use to focus a witness on
particular portions of a document during witness questioning. Further,
FINRA will have a case administrator participate in each video
conference hearing to ensure participants have adequate technical
support during the hearing. These procedures and resources, among
others, will provide fair process for all hearing participants.
    FINRA has filed the temporary proposed rule change for immediate
effectiveness. The implementation date will be 30 days after the date
of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\33\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change is also
consistent with Section 15A(b)(8) of the Act,\34\ which requires, among
other things, that FINRA rules provide a fair procedure for the
disciplining of members and persons associated with members and the
denial of membership of any person seeking membership.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78o-3(b)(6).
    \34\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------

    The underpinning of FINRA's regulatory purpose is to protect
investors and safeguard the integrity of the securities markets. FINRA
cannot accomplish these objectives in an effective manner without the
ability to timely conduct hearings in connection with its core
adjudicatory functions. The temporary proposed rule change will allow
FINRA's core adjudicatory functions to operate effectively without
protracted delays. For example, the temporary proposed rule change
allowing TCDO hearings to be conducted by video conference is vitally
important, as it will enable FINRA to take immediate action to stop
significant, ongoing customer harm.
    With respect to eligibility proceedings, members and disqualified
individuals who file an MC-400A or MC-400 application are permitted, in
certain circumstances, to continue operations as a FINRA member and
continue to work in the industry, respectively, while their application
remains pending. Allowing hearings on these applications to proceed by
video conference will prevent extended delays and allow members and
disqualified individuals to receive an approval or denial of their
applications. Accordingly, the proposed rule change, which would grant
OHO and the NAC temporary authority to conduct hearings by video
conference, is in the public interest and consistent with the Act's
purpose.

    Further, the proposed rule change will continue to provide fair
process in connection with OHO and NAC hearings.\35\ Conducting
hearings via video conference will give the parties and adjudicators
simultaneous visual and oral communication,\36\ but without the risks
of individuals being physically close to one another. FINRA will use
high quality, secure video conferencing technology with features that
will allow the parties to reasonably approximate those tasks that are
typically performed at an in-person hearing, such as sharing documents,
marking documents, and utilizing breakout rooms. FINRA will also
provide training for participants on how to use the video conferencing
platform and detailed guidance on the procedures that will govern such
hearings. Moreover, as noted above, the Chief or Deputy Chief Hearing
Officer, or the NAC or relevant Subcommittee, may take into
consideration, among other things, a hearing participant's access to
connectivity and technology in scheduling a video conference hearing
and can also, at their discretion, allow a party or witness to
participate by telephone, if necessary, to address such access issues.
---------------------------------------------------------------------------

    \35\ FINRA notes that, in interpreting the fair procedure
requirement under Section 15A(b)(8) of the Act, the Commission has
emphasized that FINRA and its predecessor organization (NASD) have
proceedings that are less formal than federal court proceedings.
See, e.g., Sumner B. Cotzin, 45 SEC. 575, 579-80 (1974) (``When
Congress provided for self-regulatory associations of securities
dealers such as the NASD, it clearly did not intend to create
formalistic tribunals akin to the courts or even to this Commission.
Self-regulation or cooperative regulation necessarily calls for
informality.''). See also David A. Gingras, 50 SEC. 1286, 1293 n.20
(1992) (``NASD's proceedings are informal and do not resemble those
of law courts.'').
    \36\ See Jeremy Graboyes, Admin. Conf. of U.S., Legal
Considerations for Remote Hearings in Agency Adjudications at 12
(June 16, 2020), available at https://www.acus.gov/report/legal-considerations-remote-hearings-agency-adjudications.
---------------------------------------------------------------------------

    In addition, temporarily permitting the OHO and NAC hearings for
FINRA disciplinary matters to proceed by video conference maintains
fair process by providing respondents a timely opportunity to address
and potentially resolve any allegations of misconduct. With respect to
applicants who receive an adverse MAP decision, they will have a timely
opportunity to challenge the denial of their application. The temporary
proposed rule change strikes an appropriate balance, providing fair
process and enabling FINRA to fulfill its statutory obligations to
protect investors and maintain fair and orderly markets while taking
into consideration the significant health and safety risks of in-person
hearings stemming from the outbreak of COVID-19.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the temporary proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change is intended solely to provide temporary relief given the
impacts of the COVID-19 outbreak. As a result of the temporary nature
of the proposed relief, an abbreviated economic impact assessment is
appropriate.
1. Economic Impact Assessment
(a) Regulatory Objective
    FINRA is proposing this temporary relief to address the public
health risks and corresponding challenges of in-person hearings during
the COVID-19 crisis. Social distancing, quarantining and other similar
requirements to promote the health and safety of citizens make it
exceedingly difficult to conduct in-person hearings. In recognition of
these extraordinary times, the proposed rule change would temporarily
grant OHO's Chief or Deputy Chief Hearing Officer, or the NAC or
relevant Subcommittee, discretion to conduct OHO and NAC hearings,
respectively, by video conference, if warranted by the current COVID-
19-related public health risks posed by an in-person hearing.
(b) Economic Baseline
    The obligations under FINRA Rules 1015, 9261, 9524 and 9830 are
described above. OHO conducts approximately 19 regular disciplinary
hearings per year.\37\ Since January 1, 2017, the NAC has held nine
hearings. One hearing was conducted in connection with an appeal of a
Membership Application Program decision and eight hearings related to
eligibility proceedings. Under current FINRA rules, hearings conducted
in connection with appeals of Membership Application Program decisions,
disciplinary actions, eligibility proceedings and temporary and
permanent cease and desist orders are typically conducted in person. In
order to comply with the guidance of public health authorities relating
to the COVID-19 pandemic and to ensure the safety of all participants
and stakeholders, FINRA has administratively postponed in-person OHO
and NAC hearings since March 16, 2020. To date, at least eight hearings
have been delayed as a result of the pandemic.
---------------------------------------------------------------------------

    \37\ OHO also conducts hearings for TCDO and PCDO proceedings.
OHO has not conducted a TCDO or PCDO hearing in the last three
calendar years.
---------------------------------------------------------------------------

(c) Economic Impact
    The proposed rule change is intended solely to provide a temporary
mechanism for FINRA to allow its critical adjudicatory functions to
proceed while COVID-19 continues to pose health and safety risks for
traditional, in-person hearings. The proposed rule change is necessary
to temporarily rebalance the attendant benefits and costs of the
obligations under FINRA Rules 1015, 9261, 9524 and 9830 in response to
the impacts of the COVID-19 pandemic.
(1) Anticipated Benefits
    The benefits of the temporary proposed rule change will accrue to
participants and stakeholders of hearings that are conducted by video
conference rather than delayed until in-person hearings can be
conducted safely. A benefit of the temporary proposed rule change will
be reducing the potential costs associated with delayed proceedings
resulting from the COVID-19 pandemic, as discussed in Item 3(b) above.
The flexibility provided by this temporary proposed rule change--to
conduct hearings by video conference as warranted by COVID-related
public health risks--will also benefit hearing participants and other
stakeholders by allowing them to avoid the health and safety risks
associated with in-person hearings. In addition, hearing participants
will benefit from the elimination of travel time and travel costs.
(2) Anticipated Costs
    As previously stated, the public health risks stemming from the
COVID-19 outbreak have increased the costs associated with in-person
hearings. Conducting hearings by video conference, however, presents
some potential drawbacks. These may include technological challenges
such as bandwidth or connectivity issues for participants,
cybersecurity concerns or concerns related to the ability of hearing
participants to represent themselves in a manner equivalent to an in-
person hearing.
    FINRA's approach to video conference hearings, however, which
includes, among other things, the use of high quality, secure
technology that allows hearing participants to perform tasks typically
done during in-person hearings should mitigate the potential costs. As
noted above, FINRA is currently conducting hearings using video
conferencing technology in similar contexts. Moreover, the

temporary proposed rule change permits, but does not mandate that
hearings be conducted by video conference. Therefore, OHO and the NAC
will use the discretion permitted under the temporary proposed rule
change to balance the costs of delaying a hearing with the public
health risks of requiring an in-person hearing, and the costs
associated with conducting hearings by video conference. Furthermore,
the temporary proposed rule change will not alter the Chief or Deputy
Chief Hearing Officer's, or the NAC or relevant Subcommittee's,
discretion to consider other factors affecting an individual's ability
to participate or allow a party or witness to participate by telephone,
if necessary to address, among other things, impediments to a hearing
participant's ability to use video conferencing technology such as
connectivity issues, reducing the potential costs. Additionally, the
proposed rule change is limited in time, providing temporary relief
through December 31, 2020, or until the conclusion of any extension
thereof.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \38\ and Rule 19b-
4(f)(6) thereunder.\39\
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2020-027 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2020-027. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, on business days between the
hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly.
    All submissions should refer to File Number SR-FINRA-2020-027 and
should be submitted on or before September 30, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19838 Filed 9-8-20; 8:45 am]
BILLING CODE 8011-01-P