[Federal Register Volume 85, Number 227 (Tuesday, November 24, 2020)]
[Notices]
[Pages 75097-75103]
[FR Doc No: 2020-25902]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90454; File No. SR-FINRA-2020-040]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Temporary Supplementary Material .17
(Temporary Relief To Allow Remote Inspections for Calendar Year 2020
and Calendar Year 2021) Under FINRA Rule 3110 (Supervision)

November 18, 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 November 6, 2020, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    FINRA is proposing to adopt temporary Supplementary Material .17
(Temporary Relief to Allow Remote Inspections for Calendar Year 2020
and Calendar Year 2021) under FINRA Rule 3110 (Supervision) to provide
member firms the option, subject to specified requirements under the
proposed supplementary material, to complete remotely their calendar
year 2020 and calendar year 2021 inspection obligations under FINRA
Rule 3110(c) (Internal Inspections), without an on-site visit to the
office or location.\4\ The temporary rule change is necessitated by the
compelling health and safety concerns and the operational challenges
member firms are facing due to the sustained COVID-19 pandemic.\5\
---------------------------------------------------------------------------

    \4\ SEC staff and FINRA have stated in guidance that inspections
must include a physical, on-site review component. See SEC National
Examination Risk Alert, Volume I, Issue 2 (November 30, 2011) and
Regulatory Notice 11-54 (November 2011) (``Notice 11-54'') (joint
SEC and FINRA guidance stating, a ``broker-dealer must conduct on-
site inspections of each of its office locations; Office of
Supervisory Jurisdictions (``OSJs'') and non-OSJ branches that
supervise non-branch locations at least annually, all non-
supervising branch offices at least every three years; and non-
branch offices periodically.'') (footnote defining an OSJ omitted).
See also SEC Division of Market Regulation, Staff Legal Bulletin No.
17: Remote Office Supervision (March 19, 2004) (``SLB 17'')
(stating, in part, that broker-dealers that conduct business through
geographically dispersed offices have not adequately discharged
their supervisory obligations where there are no on-site routine or
``for cause'' inspections of those offices).
    \5\ The proposed rule change will automatically sunset on
December 31, 2021. If FINRA seeks to extend the duration of the
temporary proposed rule beyond December 31, 2021, FINRA will submit
a separate rule filing to further renew the temporary relief.
---------------------------------------------------------------------------

    Below is the text of the proposed rule change. Proposed new
language is italicized; proposed deletions are bracketed.
* * * * *

3000. Supervision and Responsibilities Relating to Associated Persons

3100. Supervisory Responsibilities

3110. Supervision

(a) through (f) No Change

   Supplementary Material

.01 through .16 No Change

    .17 Temporary Relief To Allow Remote Inspections for Calendar Year
2020 and Calendar Year 2021
    (a) Use of Remote Inspections. Each member obligated to conduct an
inspection of an office of supervisory jurisdiction, branch office or
non-branch location in calendar year 2020 and calendar year 2021
pursuant to, as applicable, paragraphs (c)(1)(A), (B) and (C) under
Rule 3110 may, subject to the requirements of this Rule 3110.17,
satisfy such obligation by conducting the applicable inspection
remotely, without an on-site visit to the office or location. In
accordance with Rule 3110.16, inspections for calendar year 2020 must
be completed on or before March 31, 2021 and inspections for

calendar year 2021 must be completed on or before December 31, 2021.
Notwithstanding Rule 3110.17, a member shall remain subject to the
other requirements of Rule 3110(c).
    (b) Written Supervisory Procedures for Remote Inspections.
Consistent with a member's obligation under Rule 3110(b)(1), a member
that elects to conduct each of its calendar year 2020 or calendar year
2021 inspections remotely must amend or supplement its written
supervisory procedures to provide for remote inspections that are
reasonably designed to assist in detecting and preventing violations of
and achieving compliance with applicable securities laws and
regulations, and with applicable FINRA rules. Reasonably designed
procedures for conducting remote inspections of offices or locations
should include, among other things: (1) A description of the
methodology, including technologies permitted by the member, that may
be used to conduct remote inspections; and (2) the use of other risk-
based systems employed generally by the member firm to identify and
prioritize for review those areas that pose the greatest risk of
potential violations of applicable securities laws and regulations, and
of applicable FINRA rules.
    (c) Effective Supervisory System. The requirement to conduct
inspections of offices and locations is one part of the member's
overall obligation to have an effective supervisory system and
therefore, the member must continue with its ongoing review of the
activities and functions occurring at all offices and locations,
whether or not the member conducts inspections remotely. A member's use
of a remote inspection of an office or location will be held to the
same standards for review as set forth under Rule 3110.12. Where a
member's remote inspection of an office or location identifies any
indicators of irregularities or misconduct (i.e., ``red flags''), the
member may need to impose additional supervisory procedures for that
office or location or may need to provide for more frequent monitoring
of that office or location, including potentially a subsequent
physical, on-site visit on an announced or unannounced basis when the
member's operational difficulties associated with COVID-19 abate,
nationally or locally as relevant, and the challenges a member is
facing in light of the public health and safety concerns make such on-
site visits feasible using reasonable best efforts. The temporary
relief provided by this Rule 3110.17 does not extend to a member's
inspection requirements beyond calendar year 2021 and such inspections
must be conducted in compliance with Rule 3110(c).
    (d) Documentation Requirement. A member must maintain and preserve
a centralized record for each of calendar year 2020 and calendar year
2021 that separately identifies: (1) All offices or locations that had
inspections that were conducted remotely; and (2) any offices or
locations for which the member determined to impose additional
supervisory procedures or more frequent monitoring, as provided in Rule
3110.17(c). A member's documentation of the results of a remote
inspection for an office or location must identify any additional
supervisory procedures or more frequent monitoring for that office or
location that were imposed as a result of the remote inspection.
* * * * *

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
    On March 13, 2020 the United States declared a national emergency
in response to the pandemic.\6\ Around this time, many states issued
stay-at-home orders and imposed restrictions on businesses, social
activities, and travel to slow the spread of COVID-19 and reduce the
burden on the U.S. health care system in accordance with the
recommendations of public health experts.\7\ In response, like many
employers across the U.S., member firms closed their offices to the
public, transitioned their employees to telework arrangements to comply
with stay-at-home orders, and implemented other restrictive measures in
an effort to slow the spread of COVID-19 such as curtailing or
eliminating non-essential business travel, and significantly limiting
or canceling in-person activities.\8\ These pandemic-related
operational changes have made it impracticable for member firms to
conduct the on-site inspection component of Rule 3110(c) at many or
most locations for calendar year 2020 because this compliance function
requires firm employees to travel to geographically dispersed OSJs,
branch offices, and non-branch locations. Such travel not only has been
restricted at times by government orders, but also puts the health and
safety of employees at great risk of contracting and spreading COVID-
19.\9\ By mid-year, with many restrictive measures still in place, and
in some instances additional quarantine requirements imposed on
interstate travel, on-site inspections of offices or locations
scheduled for calendar year 2020 continued to remain in abeyance.\10\
In recognition of the logistical challenges firms were facing at that
time to satisfy the on-site regulatory component of Rule 3110(c), FINRA
adopted Rule 3110.16 (Temporary Extension of Time to Complete Office
Inspections), extending the time by which member firms must complete

their calendar year 2020 inspection obligations under Rule 3110(c) to
March 31, 2021, but emphasizing that the extension of time did not
relieve firms from conducting the on-site portion of the inspections of
their OSJs, branch offices, and non-branch locations.\11\
---------------------------------------------------------------------------

    \6\ See Centers for Disease Control and Prevention (``CDC''),
International Classification of Diseases, Tenth Revision, Clinical
Modification, https://www.cdc.gov/nchs/data/icd/Announcement-New-ICD-code-for-coronavirus-3-18-2020.pdf. See also WHO Director-
General, Opening Remarks at the Media Briefing on COVID-19 (March
11, 2020), https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020.
    \7\ See S.J. Lange et al., Potential Indirect Effects of the
COVID-19 Pandemic on Use of Emergency Departments for Acute Life-
Threatening Conditions--United States, January-May 2020, Morbidity
and Mortality Weekly Report (June 26, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6925e2.htm.
    \8\ See generally Regulatory Notice 20-16 (May 2020) (``Notice
20-16'') (describing practices implemented by firms to transition
to, and supervise in, remote work environment during the COVID-19
pandemic).
    \9\ See CDC, Travel During the COVID-19 Pandemic (stating in
part, ``Travel increases your chance of getting and spreading COVID-
19. Staying home is the best way to protect yourself and others from
COVID-19.''), https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html (updated October 21, 2020).
    \10\ See, e.g., Government of the District of Columbia, Phase
Two (June 22, 2020) (announcing certain businesses to reopen and
activities to resume under specified conditions and stating that
anyone coming into Washington, DC from states specified as high-risk
is required to self-quarantine for 14 days), https://coronavirus.dc.gov/phasetwo (last visited November 6, 2020); New
York Department of Health, Interim Guidance for Quarantine
Restrictions on Travelers Arriving in New York State Following Out
of State Travel (November 3, 2020), available at https://coronavirus.health.ny.gov/covid-19-travel-advisory (last visited
November 6, 2020); and Chicago Department of Public Health,
Emergency Travel Order (issued July 2, 2020) (directing travelers
entering or returning to Chicago from specified states experiencing
a surge in new COVID-19 cases to quarantine for a 14-day period from
the time of last contact within the identified state), https://www.chicago.gov/city/en/sites/covid-19/home/emergency-travel-order.html (updated October 27, 2020).
    \11\ See Securities Exchange Act Release No. 89188 (June 30,
2020), 85 FR 40713 (July 7, 2020) (Notice of Filing and Immediate
Effectiveness of File No SR-FINRA-2020-019) (stating, among other
things, that FINRA will consider whether additional relief may be
warranted to address any backlog of 2020 inspections that may
continue to exist in light of ongoing public health and safety
concerns).
---------------------------------------------------------------------------

    The acute health and safety concerns related to COVID-19 persist,
with the number of confirmed cases of COVID-19 in the U.S. continuing
to rise since March 13, 2020.\12\ While firms have continued to
supervise OSJs, branch offices, and non-branch locations by, among
other things, implementing remote supervisory practices through novel
uses of technology as well as existing methods of supervision (e.g.,
supervisory checklists, surveillance tools, incident trackers, email
review, and trade exception reports),\13\ firms are still experiencing
logistical challenges related to conducting the on-site portion of
their inspections due to continuing business and governmental
restrictions and public health concerns.\14\
---------------------------------------------------------------------------

    \12\ See Johns Hopkins, Coronavirus Resource Center, COVID-19
Dashboard by the Center for Systems Science and Engineering at Johns
Hopkins University, https://coronavirus.jhu.edu/map.html (last
visited November 6, 2020).
    \13\ See Notice 20-16.
    \14\ See supra note 10.
---------------------------------------------------------------------------

    Based on feedback described in Notice 20-16, in comment letters
submitted in response to File No. SR-FINRA-2020-019,\15\ and through
recent discussions with FINRA's advisory committees and other industry
representatives, FINRA understands that since approximately March 2020,
many firms have suspended the on-site component of their inspections
scheduled for calendar year 2020. With no certainty as to when
pandemic-related health concerns and restrictions will subside, firms
will have a considerable backlog of 2020 inspections that may be
difficult, if not impossible, to overcome on or before March 31, 2021,
even if restrictions are lifted sometime between now and then.
Moreover, FINRA recognizes that planning on-site inspections for
calendar year 2021 for OSJs, branch offices, and non-branch locations
in the current environment may now be impacted as well. In light of
pandemic-related developments, including those since the adoption of
Rule 3110.16, and the approaching end of year 2020, FINRA believes
further sensible and tailored temporary relief is warranted for member
firms to meet their inspection obligations under Rule 3110(c) for
calendar years 2020 and 2021.
---------------------------------------------------------------------------

    \15\ See Submitted Comments to Securities Exchange Act Release
No. 89188 (June 30, 2020), 85 FR 40713 (July 7, 2020) (Notice of
Filing and Immediate Effectiveness of File No SR-FINRA-2020-019),
https://www.sec.gov/comments/sr-finra-2020-019/srfinra2020019.htm.
---------------------------------------------------------------------------

Proposed Supplementary Material .17 to Rule 3110
    In order to proactively address these concerns, FINRA is proposing
to adopt temporary Supplementary Material .17. Temporary proposed
Supplementary Material .17 would provide member firms, subject to
specified requirements therein, the option to conduct remotely the
inspections of their OSJs, branch offices, and non-branch locations for
calendar year 2020 and calendar year 2021, without the requirement to
conduct an on-site visit to such office or location. As described
further below, proposed Rule 3110.17 would set forth the dates by which
inspections for calendar years 2020 and 2021 are due, the requirement
to amend or supplement written supervisory procedures for remote
inspections, the use of remote inspections as part of an effective
supervisory system, and documentation requirements. FINRA believes this
temporary remote inspection option is a reasonable alternative to
provide to firms to fulfill their Rule 3110(c) obligations during these
pressing times, and is designed to achieve the investor protection
objectives of the inspection requirements under these unique
circumstances.
    The responsibility of firms to supervise their associated persons
is a critical component of broker-dealer regulation.\16\ The temporary
proposed supplementary material is not intended to alter this core
responsibility, embodied in Rule 3110, to establish and maintain a
system to supervise the activities of each associated person that is
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules. The advent of
technology and automation in the financial industry has significantly
changed the way in which members and their associated persons conduct
their business, communicate, and meet their regulatory obligations.
FINRA recognizes that firms generally use an array of technological
tools to facilitate their supervisory practices (e.g., surveillance
systems; electronic tracking programs or applications; electronic
communications, including video conferencing tools), which many firms
have leveraged to create and implement remote inspection plans, on a
temporary basis, in response to pandemic-related operational
challenges.\17\ FINRA believes that proposed Rule 3110.17 would provide
a sensibly tailored regulatory alternative for firms to fulfill their
obligations under Rule 3110(c) that would not materially diminish, and
is reasonably designed to achieve, the investor protection objectives
of the inspection requirements under these unique circumstances. FINRA
further notes that the proposed relief would be limited in duration to
align with the extended dates set forth under Rule 3110.16 of March 31,
2021 for calendar year 2020 inspections and December 31, 2021 for
calendar year 2021 inspections.\18\
---------------------------------------------------------------------------

    \16\ See SLB 17. See also Notice 11-54 and Notice to Members 98-
38 (May 1998) (``Notice 98-38'').
    \17\ See Notice 20-16. See generally FINRA White Paper,
``Technology Based Innovations for Regulatory Compliance
(``RegTech'') in the Securities Industry'' (September 2018)
(reporting, among other things, that as financial services firms
seek to keep pace with regulatory compliance requirements, they are
turning to new and innovative regulatory tools to assist them in
meeting their obligations in an effective and efficient manner),
https://www.finra.org/sites/default/files/2018_RegTech_Report.pdf.
    \18\ See supra note 5.
---------------------------------------------------------------------------

A. Deadlines To Complete Calendar Year 2020 Inspections and Calendar
Year 2021 Inspections (Proposed Rule 3110.17(a))
    Currently, Rule 3110(c)(1) provides that an inspection of an office
or location must occur on a designated frequency, and the periodicity
of the required inspection varies depending on the classification of
the location or the nature of the activities that take place. OSJs and
supervisory branch offices must be inspected at least annually (on a
calendar-year basis); non-supervisory branch offices, at least every
three years; and non-branch locations, on a periodic schedule, presumed
to be at least every three years.\19\ Under Rule 3110.16, firms have
until March 31, 2021 to complete their calendar year 2020 inspections
in accordance with the current requirements of Rule 3110(c) that
include physical, on-site inspections.\20\
---------------------------------------------------------------------------

    \19\ See generally Rule 3110(c)(1) and Rule 3110.13 (General
Presumption of Three-Year Limit for Periodic Inspection Schedules).
    \20\ See supra note 4.
---------------------------------------------------------------------------

    Proposed Rule 3110.17(a) would provide that a member firm that is
obligated to conduct an inspection of an OSJ, branch office or non-
branch location in calendar year 2020 and calendar year 2021 pursuant
to the applicable periodicity set forth under

Rule 3110(c)(1) may satisfy such obligation by conducting the
applicable inspection remotely, without an on-site visit to the office
or location subject to the other requirements set forth under the
proposed supplementary material. In addition, the proposed
supplementary material would expressly provide that in accordance with
Rule 3110.16, inspections for calendar year 2020 must be completed on
or before March 31, 2021 and inspections for calendar year 2021 must be
completed on or before December 31, 2021. FINRA believes that providing
firms with the option to satisfy the inspection component of Rule
3110(c) remotely would enable firms to finish their 2020 inspections on
or before March 31, 2021, and their upcoming 2021 inspections on or
before December 31, 2021, particularly given the uncertainty
surrounding planning inspections at this time. Further, proposed Rule
3110.17(a) would affirm that notwithstanding Rule 3110.17, a member
would remain subject to the other requirements of Rule 3110(c).\21\
---------------------------------------------------------------------------

    \21\ In addition to requiring firms to conduct inspections of
their offices and locations on a designated frequency, Rule 3110(c)
generally requires a member to retain a written record of the date
upon which each review and inspection occurred, reduce a location's
inspection to a written report and keep each inspection report on
file either for a minimum of three years or, if the location's
inspection schedule is longer than three years, until the next
inspection report has been written. If applicable to the location
being inspected, the inspection report must include, without
limitation, the testing and verification of the member's policies
and procedures, including supervisory policies and procedures, in
specified areas. See Rule 3110(c)(2). In addition, to prevent
compromising the effectiveness of inspections due to conflicts of
interest, the rule requires a member to ensure that the person
conducting the inspection is not an associated person assigned to
the location or is not directly or indirectly supervised by, or
otherwise reporting to, an associated person assigned to that
location. See Rule 3110(c)(3).
---------------------------------------------------------------------------

B. Written Supervisory Procedures for Remote Inspections (Proposed Rule
3110.17(b))
    FINRA has long emphasized that member firms have a fundamental
obligation to implement a supervisory system that is tailored
specifically to the member firm's business and addresses the activities
of all its associated persons.\22\ As part of an effective supervisory
system, a member must establish and maintain written procedures.\23\
Paragraph (1) (General Requirements) under Rule 3110(b) (Written
Procedures) provides that a member must establish, maintain, and
enforce written procedures to supervise the types of business in which
it engages and the activities of its associated persons that are
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules.
---------------------------------------------------------------------------

    \22\ See Notice to Members 99-45 (June 1999) (``Notice 99-45'');
see generally Regulatory Notice 18-15 (April 2018).
    \23\ See Rule 3110(a)(1).
---------------------------------------------------------------------------

    To underscore the importance of this existing requirement in the
context of remote inspections, proposed Rule 3110.17(b) would expressly
provide that consistent with a member's obligation under Rule
3110(b)(1), a member that elects to conduct each of its calendar year
2020 or calendar year 2021 inspections remotely must amend or
supplement its written supervisory procedures to provide for remote
inspections that are reasonably designed to assist in detecting and
preventing violations of and achieving compliance with applicable
securities laws and regulations, and with applicable FINRA rules. Under
proposed Rule 3110.17(b), reasonably designed procedures for conducting
remote inspection of offices or locations should include, among other
things, a description of the methodology, including technologies
permitted by the member, that may be used to conduct remote
inspections. In addition, such procedures should include the use of
other risk-based systems employed generally by the member firm to
identify and prioritize for review those areas that pose the greatest
risk of potential violations of applicable securities laws and
regulations, and of applicable FINRA rules.\24\
---------------------------------------------------------------------------

    \24\ Offices or locations that may present a higher risk profile
would include, for example, those that have associated persons
engaging in activities that involve handling customer funds or
securities, maintaining books and records as described under
applicable federal securities laws and FINRA rules, order execution
or other activities that may be more susceptible to higher risks of
operational or sales practice wrongdoing, or have associated persons
assigned to an office or location who may be subject to additional
or heightened supervisory procedures.
---------------------------------------------------------------------------

C. An Effective Supervisory System (Proposed Rule 3110.17(c))
    Internal inspections are a critical component of a member's
fundamental obligation under Rule 3110 to establish and maintain a
system to supervise the activities of each associated person that is
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules.\25\ Proposed
Rule 3110.17(c) would expressly affirm this principle that the
requirement to conduct inspections of offices and locations is one part
of the member's overall ongoing obligation to have an effective
supervisory system and therefore, a member must continue with its
reviews of the activities and functions occurring at all offices and
locations whether or not such offices or locations are due for an
inspection under Rule 3110(c) in a given year, and the member's
election to conduct such inspections remotely. In addition, under the
proposed supplementary material, a member's remote inspection of an
office or location, like the traditional on-site inspection, would be
held to the same standards for review as set forth under Rule 3110.12
(Standards for Reasonable Review).\26\ Further, in accordance with this
obligation, proposed Rule 3110.17(c) would provide that where a
member's remote inspection of an office or location identifies any
indicators of irregularities or misconduct (i.e., ``red flags''),\27\
the member may need to impose additional supervisory

procedures for that office or location, or may need to provide for more
frequent monitoring or oversight of that office or location, or both,
including potentially a subsequent physical, on-site visit on an
announced or unannounced basis when the member's operational
difficulties associated with COVID-19 meetings abate, nationally or
locally as relevant, and the challenges the member is facing in light
of the public health and safety concerns make such physical, on-site
visits feasible, using reasonable best efforts.
---------------------------------------------------------------------------

    \25\ See SLB 17 (stating, in part, ``Inspections are a vital
component of a supervisory system.'').
    \26\ Rule 3110.12 provides: ``In fulfilling its obligations
under Rule 3110(c), each member must conduct a review, at least
annually, of the businesses in which it engages. The review must be
reasonably designed to assist in detecting and preventing violations
of and achieving compliance with applicable securities laws and
regulations and with FINRA rules. Each member shall establish and
maintain supervisory procedures that must take into consideration,
among other things, the firm's size, organizational structure, scope
of business activities, number and location of the firm's offices,
the nature and complexity of the products and services offered by
the firm, the volume of business done, the number of associated
persons assigned to a location, the disciplinary history of
registered representatives or associated persons, and any indicators
of irregularities or misconduct (i.e., ``red flags''), etc. The
procedures established and reviews conducted must provide that the
quality of supervision at remote locations is sufficient to ensure
compliance with applicable securities laws and regulations and with
FINRA rules. A member must be especially diligent in establishing
procedures and conducting reasonable reviews with respect to a non-
branch location where a registered representative engages in
securities activities. Based on the factors outlined above, members
may need to impose reasonably designed supervisory procedures for
certain locations or may need to provide for more frequent reviews
of certain locations.''
    \27\ Red flags that suggest the increased risk or occurrence of
violations may include, among other events: Customer complaints; an
unexplained increase or change in the types of investments or
trading concentration that a representative is recommending or
trading; an unexpected improvement in a representative's production,
lifestyle, or wealth; questionable or frequent transfers of cash or
securities between customer or third party accounts, or to or from
the representative; a representative that serves as a power of
attorney, trustee or in a similar capacity for a customer or has
discretionary control over a customer's account(s); representative
with disciplinary records; customer investments in one or a few
securities or class of securities that is inconsistent with firm
policies related to such investments; churning; trading that is
inconsistent with customer objectives; numerous trade corrections,
extensions, liquidations; or significant switching activity of
mutual funds or variable products held for short time periods. See
generally SLB 17. See also Notice 98-38 and Notice 99-45.
---------------------------------------------------------------------------

    Finally, to underscore the limited duration of proposed Rule
3110.17, the proposed supplementary material expressly states that the
temporary relief would not extend to a member's inspection requirements
beyond calendar year 2021 and that such inspections must be conducted
in compliance with Rule 3110(c).
D. Documentation Requirement (Proposed Rule 3110.17(d))
    In general, Rule 3110(c)(2) describes the documentation
requirements associated with conducting internal inspections. The rule
requires a member to reduce the inspection and review conducted under
Rule 3110(c)(1) to a written report and specifies how long the member
must keep the report on file.\28\ If applicable to the location being
inspected, Rule 3110(c)(2)(A) specifies that the inspection report must
include, without limitation, the testing and verification of the
member's policies and procedures, including supervisory policies and
procedures for: (1) Safeguarding of customer funds and securities; (2)
maintaining books and records; (3) supervision of supervisory
personnel; (4) transmittals of funds from customers to third party
accounts, from customer accounts to outside entities, from customer
accounts to locations other than a customer's primary residence, and
between customers and registered representatives, including the hand-
delivery of checks; and (5) changes of customer account information,
including address and investment objectives changes, and validation of
such changes.\29\
---------------------------------------------------------------------------

    \28\ See supra note 21.
    \29\ See Rule 3110(c)(2)(A)(i)-(v).
---------------------------------------------------------------------------

    In addition to the requirements under Rule 3110(c)(2), proposed
Rule 3110.17(d) would require supplemental documentation by a member
that avails itself of the remote inspection option. The member must
maintain and preserve a centralized record for each of calendar year
2020 and calendar year 2021 that separately identifies: (1) All offices
or locations that had inspections that were conducted remotely; and (2)
any offices or locations that the member determined to impose
additional supervisory procedures or more frequent monitoring, as
provided in Rule 3110.17(c). A member's documentation of the results of
a remote inspection for an office or location must identify any
additional supervisory procedures or more frequent monitoring for that
office or location that were imposed as a result of the remote
inspection. FINRA believes that this documentation requirement would
help readily distinguish the offices and locations that underwent
remote inspections and their attendant supervisory procedures, and
their more frequent monitoring, as applicable.
    FINRA notes that even in the current environment, member firms have
an ongoing obligation to establish and maintain a system to supervise
the activities of their associated persons that is reasonably designed
to achieve compliance with applicable securities laws and regulations,
and with applicable FINRA rules. FINRA emphasizes that proposed Rule
3110.17 is not intended to lessen the core obligations prescribed under
Rule 3110. FINRA believes that proposed Rule 3110.17, which would
permit firms to remotely inspect, subject to specified requirements
described above, their offices and locations for calendar years 2020
and 2021 instead of an on-site visit to the office or location would
provide firms a way to comply with Rule 3110(c) that would not
materially diminish, and is reasonably designed to achieve, the
investor protection objectives of the inspection requirements under
these unique circumstances. FINRA notes that potential risks that may
arise from providing firms the option to conduct their inspections
remotely are mitigated by firms' use of technology to meet their
supervisory obligations on an ongoing basis, the unique circumstances
under which they are operating, and the temporary nature of proposed
Rule 3110.17, which would be in place through December 31, 2021.\30\
FINRA will continue to monitor the situation and engage with member
firms, other financial regulators, and governmental authorities to
determine whether further regulatory relief or guidance related to Rule
3110(c) may be appropriate. In addition, during the time that proposed
Rule 3110.17 remains in effect, FINRA will closely monitor the
effectiveness of remote inspections and their impacts--positive or
negative--on firms' overall supervisory systems to assess whether FINRA
should propose to make permanent a remote inspection option for some or
all locations that would not materially diminish, and is reasonably
designed to achieve, the investor protection objectives of the
requirement to inspect offices or locations in accordance with Rule
3110(c).\31\
---------------------------------------------------------------------------

    \30\ See supra note 5.
    \31\ In Regulatory Notice 17-38 (November 2017) (``Notice 17-
38''), FINRA had requested comment on a proposed permanent amendment
to Rule 3110 that had contemplated providing firms with the option
to conduct remote inspections of ``qualifying offices'' that met
specified criteria. At this time, FINRA intends to defer further
consideration of the proposal described in Notice 17-38 and will
reassess that proposal in light of the experience with and impacts
of temporary proposed Rule 3110.17.
---------------------------------------------------------------------------

    FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\32\ 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. In recognition of the impact of COVID-19 on performing
the on-site inspection component of Rule 3110(c), the proposed rule
change is intended to provide firms a temporary regulatory option to
conduct inspections of offices and locations remotely for calendar year
2020 in accordance with Rule 3110.16, and for calendar year 2021. This
temporary proposed supplementary material does not relieve firms from
meeting the core regulatory obligation to establish and maintain a
system to supervise the activities of each associated person that is
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules that directly
serve investor protection. In a time when faced with unique challenges
resulting from the COVID-19 pandemic, FINRA believes that the proposed
rule change provides sensibly tailored relief that will afford firms
the ability to observe the recommendations of public health officials
to provide for the health and safety of their personnel, while
continuing to serve and promote the protection of investors and the
public interest.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78o-3(b)(6).

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

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

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
intended solely to provide temporary relief given the impacts of the
COVID-19 pandemic crisis.\33\ As a result of the temporary nature of
the proposed relief, an abbreviated economic impact assessment is
appropriate.
---------------------------------------------------------------------------

    \33\ See also Regulatory Notice 20-08 (March 2020).
---------------------------------------------------------------------------

Economic Impact Assessment
1. Regulatory Objective
    FINRA is proposing Rule 3110.17 to address an issue that has arisen
due to the impacts of the coronavirus outbreak and restrictions related
to health and safety concerns. As pandemic-related health and safety
concerns persist across the U.S., firms are continuing to face
operational challenges with respect to fulfilling the on-site review
component of Rule 3110(c). These challenges persist even with the
extended date set forth under Rule 3110.16 to complete calendar year
2020 inspections. In addition, as the end of year 2020 is approaching,
planning efforts for the on-site component of year 2021 inspections
have also likely been impacted.
    Proposed Rule 3110.17 is intended to provide firms a sensibly
tailored and temporary regulatory accomodation to fulfill their Rule
3110(c) obligation remotely for calendar year 2020 in accordance with
Rule 3110.16 and for calendar year 2021, that would not materially
diminish, and is reasonably designed to achieve, the investor
protection objectives of the requirement to inspect offices or
locations in accordance with Rule 3110(c). Such accommodation is needed
given the current pandemic-related limitations that still remain in
place across the U.S. The temporary proposed rule change would permit
firms to continue to comply with stay-at-home orders imposed in various
states, and limit business travel and other in-person activities for
the health and safety of their employees.
2. Economic Baseline
    The Economic Baseline of the proposed temporary relief is the
obligation under Rule 3110(c), as described above, and the current
number and types of FINRA member locations that require on-site
internal inspections.
3. Economic Impact
    FINRA initially believes that economic impacts of the proposal
would result in both benefits and costs to firms that would not
materially diminish, and is reasonably designed to achieve, the
investor protection objectives of the requirement to inspect offices or
locations in accordance with Rule 3110(c). FINRA will undertake an
evaluation of the efficacy of remote inspections within a reasonable
period following the implementation date. The aim of such an evaluation
is to ensure that the program is meeting its goals, without materially
diminishing investor protections or unintentially increasing regulatory
burdens on any relevant parties.
    The temporary proposed relief is expected to benefit firms by
potentially reducing the costs and health-related risks and constraints
associated with conducting on-site inspections of offices or locations.
These benefits may also include reduced travel costs and lost
productivity during travel, as well as avoiding the health and safety
risks associated with on-site inspections in the current environment.
Firms will be able to better manage any backlog of 2020 inspections
that may continue to exist in light of ongoing public health and
safety, and upcoming 2021 inspection planning efforts.
    In addition to the public safety-related aspects of the temporary
proposed rule change, the ability to conduct remote inspections may
free up firm resources that could potentially be allocated to other
risk monitoring and mitigating programs. For example, firms might
improve existing technologies and capabilities or invest in new ones.
This could provide long-term benefits by further enhancing a firm's
ability to fulfill its ongoing obligation to have an effective
supervisory system that includes reviewing the activities and functions
occurring at all offices and locations. The proposed rule change may
also provide the opportunity for a firm to enhance its risk management
programs, and assess the effectiveness of remote inspections and
impacts on the firm's supervisory systems. Finally, FINRA preliminarily
believes that the temporary proposed rule change would benefit the
investor community. Such benefits would stem from the application of a
remote monitoring and supervisory system on the firm's activities
taking place at the offices and locations, despite the travel
restrictions and resulting inability to conduct on-site inspections
during the pandemic.
    FINRA believes that the temporary proposed rule change would not
result in additional significant cost burdens on firms. FINRA
recognizes that there may be some firms that have already incurred, or
will incur short-term increased costs derived mainly from having to
shift to the remote work environment (e.g., relying more on electronic
formats and purchasing new hardware and software). FINRA anticipates
firms would incur some costs stemming from the proposed documentation
requirements. FINRA believes that costs stemming from the need to
aggregate branch and office reports of additional supervisory
procedures or more frequent monitoring into a centralized record should
be minimal, relying on existing firm infrastructure and compliance
systems. FINRA additionally believes that the proposed requirement to
maintain a centralized record may require firms to incur technology
costs to generate such record and could also result in firms being more
focused on any additional supervisory procedures or more frequent
monitoring that may be imposed on a location or office.
    Overall, FINRA believes that the proposal provides a balanced
approach to the potential costs and benefits. As noted above, the
proposed rule change would be limited in time, and cover the inspection
cycles of calendar year 2020 and 2021, 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 \34\ and Rule 19b-
4(f)(6) thereunder.\35\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
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 of the proposed
rule change, or such shorter time as designated by the Commission.
FINRA has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does
not

become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. In its filing with the Commission,
FINRA has asked the Commission to waive the 30-day operative delay so
that the proposed rule change may become operative immediately upon
filing. As noted above, the ongoing extenuating circumstances of the
COVID-19 pandemic make it impractical for FINRA member firms to conduct
the on-site inspection component of Rule 3110(c) at many or most
locations. Consequently, FINRA believes that firms will have a
considerable backlog of 2020 inspections and that planning on-site
inspections for 2021 may be impacted as well. FINRA stated that the
temporary proposed rule change would help FINRA member firms meet their
obligations under Rule 3110(c) using a regulatory alternative that
would not materially diminish, and is reasonably designed to achieve,
the investor protection objectives of the inspection requirements under
these unique circumstances.
    The Commission believes that waiving the operative delay is
consistent with the protection of investors and the public interest
because it would allow the proposed change to become operative on the
date of filing and to provide immediate temporary relief to firms
during these extenuating circumstances. In reaching this conclusion,
the Commission notes the proposed rule change would provide only
temporary relief based on the compelling health and safety concerns and
the operational challenges member firms are facing due to the sustained
COVID-19 pandemic.\36\ Furthermore, the Commission notes that the
proposed rule change would not relieve firms from meeting the core
regulatory obligation to establish and maintain a system to supervise
the activities of each associated person that is reasonably designed to
achieve compliance with applicable securities laws and regulations, and
with applicable FINRA rules that directly serve investor protection.
Accordingly, the Commission waives the 30-day operative delay and
designates the proposed rule change operative upon filing.\37\
---------------------------------------------------------------------------

    \36\ See supra note 5.
    \37\ For purposes only of waiving the operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    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-2020-040 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-2020-040. 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, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. 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-2020-040 and
should be submitted on or before December 15, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25902 Filed 11-23-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: March 6, 2008 (Volume 73, Number 45)]
[Notices]
[Page 12236-12237]
[DOCID:fr06mr08-115]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57406; File No. SR-DTC-2007-06]

Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change To Modify the Hearing Procedures
Afforded to Interested Persons for Membership and Harmonize Them With
Similar Rules of Its Affiliates

February 29, 2008.

I. Introduction

    On April 30, 2007, the Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2007-06 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ The proposed rule change
was published for comment in the Federal Register on December 6,
2007.\2\ No comment letters were received on the proposal. This order
approves the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 56863 (Nov. 29, 2007),
72 FR 68920.
---------------------------------------------------------------------------

II. Description

    The proposed rule change (1) modifies DTC's rules regarding hearing
procedures afforded to Interested Persons \3\ and (2) where practicable
or beneficial, harmonizes such rules with similar rules of DTC's
affiliates, the Fixed Income Clearing Corporation (``FICC'') and the
National Securities Clearing Corporation (``NSCC'').\4\
---------------------------------------------------------------------------

    \3\ An Interested Person is defined by DTC's Rules as a
Participant, Pledgee, or applicant to become a Participant or
Pledgee, or issuer of a Security. Rule 22, Section 1.
    \4\ FICC and NSCC have filed similar proposed rule changes.
Securities Exchange Act Release No. 56864 (Nov. 29, 2007), 72 FR
68922, Securities Exchange Act Release No. 57405 (Feb. 29, 2008)
[SR-FICC-2007-06]. Securities Exchange Act Release No. 56865 (Nov.
29, 2007), 72 FR 68930, Securities Exchange Act Release No. 57404
(Feb. 29, 2008) [SR-NSCC-2007-06].
---------------------------------------------------------------------------

A. Minor Rule Violation Plan

    In 1984, the Commission adopted amendments to Rule 19d-1(c) under
the Act \5\ that allow self-regulatory organizations with Commission
approval to adopt plans for the disposition of minor violations of
rules.\6\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.19d-1(c).
    \6\ Securities Exchange Act Release No. 21013 (June 1, 1984), 49
FR 23828 (June 8, 1984) [File No. S7-983A].
---------------------------------------------------------------------------

    Currently under DTC's rules, an Interested Person subject to
disciplinary action has a right to a hearing before a panel selected by
the Chairman of the Board from a pool of persons that are employed by
or are partners of DTC's participants. Because some rule violations are
not sufficiently serious to merit Board review, DTC is adopting a Minor
Rule Violation Plan within the meaning of Rule 19d-1(c)(2) under the
Act for those rule violations DTC deems minor. Consistent with Rule
19d-1(c)(2) under the Act, DTC is designating as minor rule violations
those rule violations for which a fine may be assessed in an amount not
to exceed $5,000. If an Interested Person disputes a fine imposed by
DTC by filing a written request for hearing and a written statement
setting forth, among other things, the action or proposed action with
respect to which the hearing is being requested and the basis for
objection to such action, DTC management would have the authority to
waive the fine. DTC management would notify the Board of Directors or a
Committee authorized by the Board of Directors of its determination to
waive the fine and would provide the reasons for the waiver. The Board
or Committee could in its discretion decide to reinstate any fine
waived by DTC management. If DTC management were not to waive the fine,
the Interested Person could appeal the decision to a panel comprised of
DTC officers (``Minor Rule Violation Panel'').

B. Hearings for All Other Violations and Minor Rule Violation Appeals

    For matters involving (1) an alleged violation of a DTC rule for
which a fine in an amount of over $5,000 is assessed, (2) applicants
for membership, (3) other disciplinary actions to which the Minor Rule
Violation Plan would not apply, or (4) for appeals from a Minor Rule
Violation Panel decision adverse to an Interested Person, the
Interested Person is entitled to a hearing before a panel selected by
the Chairman of the Board from a pool of persons that are employed by
or are partners of participants. Members of the pool are appointed by
the Board or by the Chairman. Decisions of the panel are final;
however, the full Board of Directors retains the right to modify any
sanction or reverse any decision of the panel that is adverse to the
Interested Person.
    Currently with respect to hearings, an Interested Person is
afforded the opportunity to be heard and may be represented by counsel
if desired. A record is kept of the hearing, and at the discretion of
the panel, the associated cost may be charged in whole or part to the
Interested Person in the event that the decision is adverse to the
Interested Person. The Interested Person is advised of the panel's
decision within ten

business days after the conclusion of the hearing. These procedures
would also apply with respect to the Minor Rule Violation Plan.

C. Administrative Changes: Uniformity of Time Frames

    The rule changes will implement uniform time periods among DTC,
FICC, and NSCC governing actions an Interested Person would be required
to take in order to request a hearing.\7\ Under the rule change, an
Interested Person has five business days from the date on which DTC
first informs it of a sanction or a denial of membership in which to
request a hearing.
---------------------------------------------------------------------------

    \7\ Except that FICC and NSCC rules impose an accelerated
deadline for a member or applicant to request a hearing in the case
of summary action taken against the member or applicant. A summary
action is an action taken prior to a hearing to determine the
propriety of the action.
---------------------------------------------------------------------------

    Within seven business days, or three business days in the case of a
summary action taken against the Interested Person, after filing a
request for a hearing with DTC, the Interested Person is required to
submit to DTC a clear and concise written statement setting forth the
action or proposed action of DTC with respect to which the hearing is
requested, the basis for objection to such action, whether the
Interested Person intends to attend the hearing, and whether the
Interested Person chooses to be represented by counsel at the hearing.

III. Discussion

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a registered clearing agency. In particular,
the Commission believes the proposal is consistent with the
requirements of Section 17A(b)(3)(F),\8\ which, among other things,
requires that the rules of a clearing agency are designed to remove
impediments to and perfect the mechanisms of a national system for the
prompt and accurate clearance and settlement of securities transactions
and with the requirements of Section 17A(b)(3)(H) \9\ which, among
other things, requires that the rules of a clearing agency provide a
fair procedure with respect to the disciplining of participants and the
denial of participation to any person seeking to be a participant. The
Commission finds that the proposed rule change, which harmonizes DTC's
hearing procedure rules with those of FICC and NSCC and which adopts a
Minor Rule Violation Plan, is consistent with those statutory
obligations.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 15 U.S.C. 78q-1(b)(3)(H).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \10\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (File No. SR-DTC-2007-06) be,
and hereby is, approved.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
    \12\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-4342 Filed 3-5-08; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register: May 10, 2010 (Volume 75, Number 89)]
[Notices]
[Page 25872]
[DOCID:fr10my10-65]

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

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

[Docket No. USCG-2010-0316]

National Boating Safety Advisory Committee; Vacancies

AGENCY: Coast Guard, DHS.

ACTION: Request for applications.

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

SUMMARY: The Coast Guard seeks applications for membership on the
National Boating Safety Advisory Council (NBSAC). This Council advises
the Coast Guard on recreational boating safety regulations and other
major boating safety matters.

DATES: Completed application forms should reach us on or before July 9,
2010.

ADDRESSES: Application forms are available:
    (1) For download on the Advisory Committee's Web site at http://
homeport.uscg.mil/NBSAC. Look for the NBSAC Application under ``General
Information; ''
    (2) By writing to Commandant (CG-5422)/NBSAC, U.S. Coast Guard,
2100 Second St. SW., STOP 7581, Washington, DC 20593-7581; calling 202-
372-1061; or e-mailing<EMAIL_ADDRESS>and
    (3) In our online docket, USCG-2010-0316, at http://
www.regulations.gov.
    Send your completed application to Jeff Ludwig, the Alternate
Designated Federal Officer (ADFO), at the street address above.

FOR FURTHER INFORMATION CONTACT: Jeff Ludwig, ADFO of National Boating
Safety Advisory Committee; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>; or
e-mail at jeffrey.a.ludwig @uscg.mil.

SUPPLEMENTARY INFORMATION:
    The National Boating Safety Advisory Council (``NBSAC'') is a
Federal advisory committee under 5 U.S.C. App. (Pub. L. 92-463). It was
established under authority of 46 U.S.C. 13110 and advises the Coast
Guard on boating safety regulations and other major boating safety
matters. NBSAC has 21 members: Seven representatives of State officials
responsible for State boating safety programs, seven representatives of
recreational boat manufacturers and associated equipment manufacturers,
and seven representatives of national recreational boating
organizations and the general public. Members are appointed by the
Secretary of the Department of Homeland Security.
    The Council meets at least twice each year at a location selected
by the Coast Guard. It may also meet for extraordinary purposes.
Subcommittees or working groups may also meet to consider specific
problems.
    We will consider applications for seven positions that expire or
become vacant on December 31, 2010:
     Two representatives of State officials responsible for
State boating safety programs;
     Three representatives of recreational boat and associated
equipment manufacturers; and
     Two representatives of the general public or national
recreational boating organizations.
    Applicants are considered for membership on the basis of their
particular expertise, knowledge, and experience in recreational boating
safety. Applicants for the 2010 vacancies announced in the Federal
Register on May 12, 2009, (74 FR 22174) will be considered for the 2011
vacancies and do not need to submit another application. Applicants for
years prior to 2010 should submit an updated application to ensure
consideration for the vacancies announced in this notice.
    To be eligible, you should have experience in one of the categories
listed above. Registered lobbyists are not eligible to serve on Federal
advisory committees. Registered lobbyists are lobbyists required to
comply with provisions contained in the Lobbying Disclosure Act of 1995
(Pub. L. 110-81, as amended). Each member serves for a term of three
years. Members may be considered to serve consecutive terms. All
members serve at their own expense and receive no salary, or other
compensation from the Federal Government. The exception to this policy
is when attending NBSAC meetings, members are reimbursed for travel
expenses and provided per diem in accordance with Federal Travel
Regulations.
    In support of the policy of the Coast Guard on gender and ethnic
nondiscrimination, we encourage qualified men and women and members of
all racial and ethnic groups to apply. The Coast Guard values
diversity; all the different characteristics and attributes of persons
that enhance the mission of the Coast Guard.
    If you are selected as a member who represents the general public,
you will be appointed and serve as a special Government employee (SGE)
as defined in section 202(a) of title 18, United States Code. As a
candidate for appointment as a SGE, applicants are required to complete
a Confidential Financial Disclosure Report (OGE Form 450). A completed
OGE Form 450 is not releasable to the public except under an order
issued by a Federal court or as otherwise provided under the Privacy
Act (5 U.S.C. 552a). Only the Designated Agency Ethics Official or his
or her designate may release a Confidential Financial Disclosure
Report.
    If you are interested in applying to become a member of the
Committee, send a completed application to Jeff Ludwig, Alternate
Designated Federal Officer (ADFO) of NBSAC at Commandant (CG-5422)/
NBSAC, U.S. Coast Guard, 2100 Second St., SW., STOP 7581, Washington,
DC 20593-7581. Send the application in time for it to be received by
the ADFO on or before July 9, 2010. Ensure the application is signed
and include the short page which allows us to maintain political
affiliation on file. In addition to your ``HOME ADDRESS,'' please
include a valid e-mail address in that block. In the ``TELEPHONE''
block, please include a valid contact number as well as a valid FAX
number if available. A copy of the application form is available in the
docket for this notice. To visit our online docket, go to http://
www.regulations.gov, enter the docket number for this notice (USCG-
2010-0316) in the Search box, and click ``Go.''

    Dated: April 29, 2010.
K.S. Cook,
Rear Admiral, U.S. Coast Guard, Director of Prevention Policy.
[FR Doc. 2010-10949 Filed 5-7-10; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register: October 17, 2007 (Volume 72, Number 200)]
[Notices]
[Page 58922-58923]
[DOCID:fr17oc07-121]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56646; File No. SR-ISE-2007-96]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Relating to Payment for Order Flow Fees

October 11, 2007.
    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 October 9, 2007, the International Securities Exchange, LLC (``ISE''
or ``Exchange'') 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 substantially prepared by the
Exchange. ISE has designated this proposal as one establishing or
changing a due, fee, or other charge imposed by ISE under Section
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\
which renders the proposal effective upon filing with the Commission.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The ISE is proposing to amend its payment for order flow program.
The text of the proposed rule change is available at the Exchange, the
Commission's Public Reference Room, and http://www.iseoptions.com.

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

    In its filing with the Commission, the Exchange 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. The ISE has substantially 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 Exchange currently has a payment-for-order-flow (``PFOF'')
program that helps its market makers establish PFOF arrangements with
an EAM (``Electronic Access Member'') in exchange for that EAM
preferencing some or all of its order flow to that market maker. This
program is funded through a fee paid by Exchange market makers for each
customer contract they execute, and is administered by both Primary
Market Makers (``PMM'') \5\ and Competitive Market Makers (``CMM''),\6\
depending on who the order is preferenced to. Further, the maximum
amount of PFOF fees currently collected by the exchange for PMMs and
CMMs to administer is $450,000 and $50,000, respectively. When the pool
balance exceeds these threshold levels, ISE rebates funds
proportionately to those who have paid the PFOF fees. The Exchange
states that it closely monitors the levels of the cap to ensure that
there are adequate funds available to market makers to be competitive.
In order to allow the Exchange's market makers to better compete in
attracting order flow to the Exchange, it proposes to adopt a uniform
PFOF cap of $100,000 for both its PMM- and CMM-administered pools.The
Exchange believes that the PMM ceiling of $450,000 is a considerable
amount of money, and thus seeks to reduce that amount to $100,000. With
regard to the CMM ceiling, the Exchange believes that $50,000 is too
little an amount for these market makers to better compete in
attracting order flow and thus proposes to raise that ceiling to
$100,000.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 43833 (January 10,
2001), 66 FR 7822 (January 25, 2001) (SR-ISE-00-10).
    \6\ See Securities Exchange Act Release No. 53127 (January 13,
2006), 71 FR 3582 (January 23, 2006) (SR-ISE-2005-57).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to amend its fee schedule to
reflect that PFOF funds are rebated on a monthly basis, instead of on a
quarterly basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \7\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \8\ in particular, because it
is an equitable allocation of reasonable dues, fees, and other charges
among exchange members and other persons using exchange facilities.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    The Exchange believes that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments with respect to the proposed rule
change.

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

    The foregoing proposed rule change has been designated as a fee
change pursuant to Section 19(b)(3)(A)(ii) of the Act \9\ and Rule 19b-
4(f)(2) \10\ thereunder, because it establishes or changes a due,

fee, or other charge imposed by the Exchange. Accordingly, the proposal
will take effect upon filing with the Commission. At any time within 60
days of the filing of such proposed rule change the Commission may
summarily abrogate 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-ISE-2007-96 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2007-96. This file
number should be included on the subject line if e-mail 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 Web site (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 inspection and
copying in the Commission's Public Reference Room on official business
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also
will be available for inspection and copying at the principal office of
ISE. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-ISE-
2007-96 and should be submitted on or before November 7, 2007.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-20460 Filed 10-16-07; 8:45 am]

BILLING CODE 8011-01-P