[Federal Register Volume 89, Number 15 (Tuesday, January 23, 2024)]
[Notices]
[Pages 4355-4357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01202]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99383; File No. SR-IEX-2024-02]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Extend 
the Temporary Remote Inspection Relief to IEX Members To Include 
Calendar Year 2024 Inspection Obligations Through the Earlier of the 
Effective Date of the Recently Approved FINRA Pilot Program on Remote 
Inspections, or June 30, 2024

January 17, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on January 8, 2024, the Investors Exchange LLC (``IEX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the 
Commission a proposed rule change to amend Supplementary Material .15 
of IEX Rule 5.110 (Supervision) to extend the temporary remote 
inspection relief to IEX Members \6\ to include calendar year 2024 
inspection obligations through the earlier of the effective date of the 
recently-approved FINRA pilot program on remote inspections (the 
``Remote Inspections Pilot Program'') \7\, or June 30, 2024.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See IEX Rule 1.160(s).
    \7\ See Securities Exchange Act Release No. 97398 (April 28, 
2023), 88 FR 28620 (May 4, 2023) (``Remote Inspections Pilot Program 
Proposal''); Securities Exchange Act Release No. 98982 (November 17, 
2023), 88 FR 82464 (November 24, 2023) (``Remote Inspections Pilot 
Program Approval Order'') (SR-FINRA-2023-007).
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    The Exchange has designated this proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \8\ and provided 
the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at https://www.iexexchange.io/, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    IEX proposes to extend the temporary remote inspection relief of 
Supplementary Material .15 to IEX Rule 5.110 to IEX Members to include 
calendar year 2024 inspection obligations through the earlier of the 
effective date of the Remote Inspections Pilot Program, or June 30, 
2024. IEX makes this proposal to provide its Members continuity related 
to conducting inspections as part of satisfying the obligations of IEX 
Rule 5.110(c) (Internal Inspections) at offices and locations requiring 
inspection during the first half of calendar year 2024.\10\ IEX 
believes the proposed extension is necessary to provide firms the time 
to prepare for the implementation of the Remote Inspections Pilot 
Program. The SEC approved the Remote Inspections Pilot Program on 
November 17, 2023, but FINRA has not yet announced the implementation 
timeline.\11\ IEX plans to make a rule filing to incorporate the Remote 
Inspections Pilot Program into IEX Rule 5.110 (and specify the end date 
of the temporary remote inspection relief of Supplementary Material .15 
to IEX Rule 5.110) after FINRA provides details about the 
implementation plan in the Pilot Program Regulatory Notice.
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    \10\ 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 FINRA Regulatory Notice 11-54 (November 2011) (joint SEC 
and FINRA guidance stating, a ``broker-dealer must conduct onsite 
inspections of each of its office locations; [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) (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).
    \11\ In the Remote Inspections Pilot Program Proposal, FINRA 
stated it will announce the effective date of the program in a 
Regulatory Notice (``Pilot Program Regulatory Notice''). See Remote 
Inspections Pilot Program Proposal, 88 FR 28620, 28635.
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    The COVID-19 pandemic caused a host of operational disruptions to 
the securities industry and impacted IEX Members, regulators, 
investors, and other stakeholders. In response to the pandemic, IEX 
adopted Supplementary Material .15 of IEX Rule 5.110 to provide Members 
the temporary option of satisfying their inspection obligations for 
offices of supervisory jurisdiction, branch offices, or non-branch 
locations under IEX Rule 5.110 (Supervision) remotely for calendar 
years 2021, 2022, and 2023, subject to specified conditions,\12\ due to 
the logistical challenges of going on-site while public health and 
safety concerns related to COVID-19 persisted. Supplementary Material 
.15 of IEX Rule 5.110 lapsed on December 31, 2023.
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    \12\ See Securities Exchange Act Release No. 92222 (June 22, 
2021), 86 FR 34069 (June 28, 2021) (SR-IEX-2021-09) (providing 
remote inspection relief to Members for calendar year 2021), 
Securities Exchange Act Release No. 96460 (December 7, 2022), 87 FR 
76222 (December 13, 2022) (SR-IEX-2022-12) (providing remote 
inspection relief to Members for calendar year 2022), and Securities 
Exchange Act Release No. 96606 (January 6, 2023), 88 FR 2140 
(January 12, 2023) (SR-IEX-2022-14) (providing remote inspection 
relief to Members for calendar year 2023).
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    The pandemic accelerated the industry's adoption of a broad remote 
work environment and IEX recognizes that the pandemic has profoundly 
changed attitudes on where work can occur. As a result of this change 
many firms have adopted, in varying scale, hybrid work models involving 
personnel who are working at least part time from alternative work 
locations (e.g., private residences). As part of an effort to modernize 
its rules to reflect evolving technologies and business models, in 
April 2023, FINRA filed the

[[Page 4356]]

Remote Inspections Pilot Program Proposal with the Commission to 
establish a voluntary, three-year remote inspections pilot program that 
would allow eligible firms to conduct inspections of all or some 
offices or locations, remotely, subject to the specified terms 
therein.\13\
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    \13\ See supra note 7.
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    On November 17, 2023, the Commission approved the Remote 
Inspections Pilot Program.\14\ The Remote Inspections Pilot Program is 
designed to allow both FINRA and the firms that are planning to 
participate in the Remote Inspections Pilot Program additional time to 
develop the technology and processes that will be essential to 
operationalize compliance with the Remote Inspections Pilot Program's 
requirements. For example, firms will need to conduct an eligibility 
review, and conduct and document a risk assessment for each office and 
location that they elect to inspect remotely and implement technology 
to collect and report the required data and information to FINRA. 
Further, FINRA guidance will be needed to guide implementation in 
various circumstances.\15\ Firms that do not elect to participate or 
would be excluded from participating in the Remote Inspections Pilot 
Program will also be impacted and would need additional time to staff, 
schedule, and resume on-site inspections of offices or locations \16\ 
within the context of some lingering health concerns and fluid work 
locations.\17\
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    \14\ See supra note 7.
    \15\ See supra note 11.
    \16\ See supra note 10.
    \17\ While the World Health Organization declared an end to 
COVID-19 as a public health emergency, COVID-19 remains an ongoing 
public health problem. See WHO Director-General, Statement on the 
fifteenth meeting of the IHR (2005) Emergency Committee on the 
COVID-19 pandemic (May 5, 2023) (stating, in part, that the 
``[w]hile the global risk assessment remains high, there is evidence 
of reducing risks to human health''), https://www.who.int/news/item/05-05-2023-statement-on-the-fifteenth-meeting-of-the-international-health-regulations-(2005)-emergency-committee-regarding-the-
coronavirus-disease-(covid-19)-pandemic (last visited January 8, 
2024); see also Benjamin J. Silk, et al., COVID-19 Surveillance 
After Expiration of the Public Health Emergency Declaration--United 
States, May 11, 2023 (stating, among other things, that ``[a]lthough 
COVID-19 no longer poses the societal emergency that it did when it 
first emerged in late 2019, COVID-19 remains an ongoing public 
health challenge. By April 26, 2023, more than 104 million U.S. 
COVID-19 cases, 6 million related hospitalizations, and 1.1 million 
COVID-19-associated deaths were reported to CDC[.]''), 72 MMWR Morb 
Mortal Wkly Rep, 523-528 (2023), https://www.cdc.gov/mmwr/volumes/72/wr/pdfs/mm7219e1-H.pdf (last visited January 8, 2024). Recent 
data on hospitalizations from the CDC indicate that the number of 
hospitalizations is up 20.4% in the most recent week (as of December 
24 to December 30, 2023). See Centers for Disease Control and 
Prevents (``CDC''), COVID Data Tracker, Data Update for the United 
States, https://covid.cdc.gov/covid-data-tracker/#datatracker-home 
(last visited January 8, 2024).
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    In sum, as calendar year 2024 begins, the proposed extension of 
Supplementary Material .15 to IEX Rule 5.110 would provide firms 
continuity in meeting their inspection obligations and would allow 
FINRA time to operationalize the Remote Inspections Pilot Program. 
Relatedly, the proposed extension would give time for: (1) firms that 
are planning to participate in the Remote Inspections Pilot Program to 
implement the processes needed to comply with the proposed terms 
therein; and (2) firms that are not planning to participate or are 
excluded from participating in the Remote Inspections Pilot Program, to 
prepare to resume conducting on-site inspections of their offices and 
locations as part of satisfying the obligations of IEX Rule 5.110(c).
    IEX is not proposing to amend the other conditions of the temporary 
rule. The current conditions of the supplementary material for firms 
that elect to conduct remote inspections would remain unchanged: such 
firms must amend or supplement their written supervisory procedures for 
remote inspections, use remote inspections as part of an effective 
supervisory system, and maintain the required documentation. IEX 
continues to believe this temporary remote inspection option is a 
reasonable alternative for firms to fulfill their IEX Rule 5.110(c) 
obligations under the current circumstances described above. This 
proposed extension is designed to maintain the investor protection 
objectives of the inspection requirements under these circumstances. As 
part of those objectives, firms should consider whether, under their 
particular operating conditions, continued reliance on Supplementary 
Material .15 to IEX Rule 5.110 to conduct remote inspections would be 
reasonable under the circumstances. For example, firms with offices 
that are open to the public or that are otherwise doing business as 
usual should consider whether some in-person inspections would be 
feasible and add value to the firms' supervisory program. IEX 
emphasizes that the inspection requirement is one aspect of a firm's 
overall supervisory system, and that the inspection, whether done 
remotely under Supplementary Material .15 to IEX Rule 5.110 or in 
accordance with the proposed Remote Inspections Pilot Program, or on-
site, would be held to the existing standards of review under 
Supplementary Material .12 to IEX Rule 5.110 (Standards for Reasonable 
Review).\18\
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    \18\ Those standards provide, in part, that based on the factors 
set forth under that supplementary material, members ``may need to 
provide for more frequent review of certain locations.''
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \19\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \20\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Exchange's rule proposal is intended to harmonize 
IEX's supervision rules, specifically with respect to the requirements 
for inspections of Members' branch offices and other locations, with 
those of FINRA, on which they are based. Consequently, the proposed 
change will conform the Exchange's rules to changes made to 
corresponding FINRA rules, thus promoting application of consistent 
regulatory standards with respect to rules that FINRA enforces pursuant 
to its regulatory services agreement with the Exchange. The proposed 
rule change would also avoid a potential lapse in the temporary relief 
while FINRA prepares the implementation of its recently approved Remote 
Inspections Pilot Program and allow firms time to adapt to the pilot 
program, and prepare for conducting on-site inspections, as applicable, 
while continuing to serve and promote the protection of investors and 
the public interest.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX 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 not 
designed to address any competitive issue but to align the Exchange's 
rules with those of FINRA, which will assist FINRA in its oversight 
work done pursuant to a regulatory services agreement with IEX. The 
proposed rule change will also provide for consistent application of 
the Exchange's supervision rules with those of FINRA, on which they are 
based. Consequently, the Exchange does not believe that the proposed 
change implicates competition at all.

[[Page 4357]]

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \21\ of the Act and Rule 19b-4(f)(6) \22\ 
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder. In addition, 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.\23\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange believes that this filing is non-controversial because 
it raises no novel issues and is consistent with FINRA rules previously 
approved by or filed with the Commission. In particular, the purpose of 
the proposed rule change is to harmonize with and conform to FINRA 
rules. The Exchange believes that the proposal promotes the protection 
of investors as it will harmonize the Exchange's supervision rules with 
those of FINRA, which will simplify the oversight process conducted by 
FINRA pursuant to a regulatory services agreement with the Exchange. 
Moreover, the Exchange does not believe that the proposed rule change 
implicates competition at all because the proposed change aligns the 
Exchange's rules with those of FINRA, which will assist it in its 
oversight work done pursuant to such regulatory services agreement.
    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to permit the 
Exchange to harmonize its rules with FINRA, as described herein, upon 
effectiveness of the proposed rule filing.
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
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    Since the proposed rule change would address IEX Members' ability 
to conduct remote inspections for any inspections to be conducted 
through the earlier of the effective date of the Remote Inspections 
Pilot Program, or June 30, 2024, waiving the 30-day operative delay 
would help ensure that IEX Members could plan their 2024 inspection 
program and conduct remote inspections under a harmonized rule set, 
while at the same time helping ensure that its Members continue to 
perform their supervisory obligations. The Exchange stated that the 
proposed rule change does not present any new or novel issues because 
IEX is harmonizing its supervision rules with those of FINRA, on which 
they are based. IEX further stated that the proposed rule change would 
provide only temporary relief during the period in which IEX harmonizes 
its supervision rules with FINRA. For these reasons, the Commission 
believes that waiver of the 30-day operative delay for this proposed 
rule change is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\26\
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    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 under 
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \27\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="354740595018565a5858505b4146754650561b525a43">[email protected]</span></a>. Please include 
file number SR-IEX-2024-02 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-IEX-2024-02. 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 (https://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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-IEX-2024-02 and should 
be submitted on or before February 13, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01202 Filed 1-22-24; 8:45 am]
BILLING CODE 8011-01-P


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