[Federal Register Volume 89, Number 196 (Wednesday, October 9, 2024)]
[Notices]
[Pages 81971-81976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23286]



[[Page 81971]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101237; File No. SR-IEX-2024-19]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
Supplementary Material .17 to IEX Rule 5.110 (Supervision), so That Any 
Location That Is the Private Residence of a Person Associated With a 
Member at Which Supervisory Activities Are Conducted, Which the Member 
Has Designated as a Residential Supervisory Location Pursuant to FINRA 
Rule 3110.19, Would Also Be Considered a Non-Branch Location Pursuant 
to IEX's Rules

October 3, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 20, 2024, the Investors Exchange LLC (``IEX'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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.
---------------------------------------------------------------------------

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

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

    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 adopt Supplementary Material .17 
to IEX Rule 5.110 (Supervision), so that any location that is the 
private residence of a person associated with a Member \6\ at which 
supervisory activities are conducted, which the Member has designated 
as a Residential Supervisory Location (``RSL'') pursuant to FINRA Rule 
3110.19, would also be considered a non-branch location pursuant to 
IEX's rules.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See IEX Rule 1.160(y).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, 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 adopt Supplementary Material .17 to IEX Rule 5.110, 
which would allow a location that is the private residence of a person 
associated with a Member where supervisory activities are conducted, 
including those described in IEX Rule 5.110(f)(1)(D) through (G) or IEX 
Rule 5.110(f)(2), that satisfies the conditions for designation as a 
RSL set forth in FINRA Rule 3110.19 to also be considered a non-branch 
location (i.e., an unregistered office) for those activities under IEX 
rules. Without this proposed rule change, any private residence at 
which a person associated with a member conducts supervisory activities 
is subject to registration, an annual inspection and, in some cases, 
additional licensing requirements.\7\ As described below, adding 
Proposed Supplementary Material .17 to IEX Rule 5.110 would harmonize 
IEX's internal inspections obligations for its Members \8\ with FINRA's 
comparable obligations for its members, thereby avoiding confusion to 
IEX Members with respect to the applicability of FINRA's new RSL 
designation with respect to compliance with IEX Rule 5.110.\9\ 
Additionally, because Proposed Supplementary Material .17 to IEX Rule 
5.110 incorporates by reference FINRA Rule 3110.19, this rule change 
enables IEX Rule 5.110 to continue to be incorporated into the 
agreement between IEX and FINRA to allocate regulatory responsibility 
for common rules (the ``17d-2 Agreement'').\10\
---------------------------------------------------------------------------

    \7\ See IEX Rules 5.110(a)(4) and 5.110(c)(1)(A).
    \8\ See IEX Rule 1.160(s).
    \9\ IEX notes that all IEX Members are currently FINRA members, 
or in the process of becoming FINRA members.
    \10\ See Securities Exchange Act Release No. 93324 (October 14, 
2021), 86 FR 58110 (October 20, 2021) (File No. 4-700). The 17d-2 
Agreement includes a certification by IEX that states that the 
requirements contained in certain Exchange rules are identical to, 
or substantially similar to, certain FINRA rules that have been 
identified as comparable.
---------------------------------------------------------------------------

Background
    Early in 2020, the COVID-19 pandemic prompted FINRA to provide 
temporary relief to member firms from certain regulatory requirements 
to address the public health crisis.\11\ FINRA subsequently adopted 
temporary relief to allow remote inspections of an Office of 
Supervisory Jurisdiction (``OSJ''), branch office, or non-branch 
location for calendar years 2020 and 2021; \12\ FINRA extended the 
temporary relief several times to include calendar years 2022, 2023, 
and the first half of 2024.\13\ IEX, following FINRA, offered its 
Members the same temporary relief to allow remote inspections of OSJs, 
branch offices, and non-branch locations for calendar years 2021, 2022, 
2023, and until June 30, 2024.\14\ FINRA replaced the temporary remote 
inspections relief with the Remote Inspections Pilot Program \15\ that 
impacts the internal inspections requirements of FINRA Rule 3110(c); 
IEX subsequently amended its supervision rules such that any IEX Member 
that participates in the FINRA pilot shall be deemed to satisfy the

[[Page 81972]]

equivalent internal inspection requirements in IEX Rule 5.110(c).\16\
---------------------------------------------------------------------------

    \11\ Among the temporary regulatory relief provided, FINRA 
adopted relief pertaining to branch office registration requirements 
through Form BR (Uniform Branch Office Registration Form) and FINRA 
Rule 3110(c) inspection requirements. Specifically, FINRA 
temporarily suspended the requirement for member firms to submit 
branch office applications on Form BR for any newly opened temporary 
office locations or space-sharing arrangements established as a 
result of the pandemic. See Regulatory Notice 20-08 (March 2020). 
With respect to inspection obligations, FINRA adopted temporary Rule 
3110.16 that provided additional time for member firms to complete 
their calendar year 2020 inspection obligations. See Securities 
Exchange Act Release No. 89188 (June 30, 2020), 85 FR 40713 (July 7, 
2020) (SR-FINRA-2020-019).
    \12\ See Securities Exchange Act Release No. 90454 (November 18, 
2020), 85 FR 75097 (November 24, 2020) (SR-FINRA-2020-040).
    \13\ See Securities Exchange Act Release No. 96241 (November 4, 
2022), 87 FR 67969 (November 10, 2022) (SR-FINRA-2022-030); 
Securities Exchange Act Release No. 93002 (September 15, 2021), 86 
FR 52508 (September 21, 2021) (SR-FINRA-2021-023); Securities 
Exchange Act Release No. 94018 (January 20, 2022), 87 FR 4072 
(January 26, 2022) (SR-FINRA-2022-001); and Securities Exchange Act 
Release No. 98560 (September 27, 2023), 88 FR 68258 (October 3, 
2023) (SR-FINRA-2023-012).
    \14\ See Securities Exchange Act Release No. 92222 (June 22, 
2021), 86 FR 34069 (June 28, 2021) (SR-IEX-2021-09); Securities 
Exchange Act Release No. 96460 (December 7, 2022), 87 FR 76222 
(December 13, 2022) (SR-IEX-2022-12); Securities Exchange Act 
Release No. 96606 (January 6, 2023), 88 FR 2140 (January 12, 2023) 
(SR-IEX-2022-14); and Securities Exchange Act Release No. 99383 
(January 17, 2024), 89 FR 4355 (January 23, 2024) (SR-IEX-2024-02).
    \15\ See FINRA Rule 3110.18.
    \16\ See Securities Exchange Act Release No. 101025 (September 
16, 2024); see also Supplementary Material .16 to IEX Rule 5.110.
---------------------------------------------------------------------------

    In response to the pandemic, many private and government employers 
closed their offices and their employees continued with their work from 
alternative locations such as private residences. IEX, like FINRA, 
believes this model will endure, irrespective of the state of the 
pandemic. The pandemic accelerated reliance on technological advances 
in surveillance and monitoring capabilities and prompted significant 
changes in lifestyles and work habits, including the growing 
expectation for workplace flexibility. Moreover, the technology 
advancements that facilitated the transition to working outside the 
conventional office setting on a broad scale have not only effected a 
profound change in lifestyle and workplace practices for member firms, 
but provided SROs such as FINRA and IEX an opportunity to consider 
aspects of their supervision rules that may benefit from 
modernization.\17\ As such, IEX, like FINRA, believes measured changes 
to its regulatory approach would allow firms to effectively and more 
efficiently carry out their supervisory responsibilities to review the 
activities of each office or location while preserving investor 
protections.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 97237 (March 31, 
2023), 88 FR 20568 n. 8 (April 6, 2023) (SR-FINRA-2023-006) (``FINRA 
RSL Proposal'') (describing FINRA's ``practice of periodically 
reviewing its rules to ensure they continue to promote their 
intended investor protection objectives in a manner that is 
effective and efficient, without imposing undue burdens, 
particularly in light of technological, industry and market 
changes.'')
---------------------------------------------------------------------------

Current IEX Requirements to Register and Inspect Offices
    Currently, IEX Rule 5.110 (Supervision) requires a Member, 
regardless of size or type, to have a supervisory system for the 
activities of its associated persons that is reasonably designed to 
achieve compliance with applicable securities laws and regulations, and 
IEX rules.\18\ The rule sets forth the minimum requirements of a 
Member's supervisory system that includes registering a location as an 
OSJ or branch office that meets the definitions under IEX Rule 5.110(f) 
and inspecting all offices and locations in accordance with IEX Rule 
5.110(c). The rule categorizes offices or locations as an OSJ or 
supervisory branch office, a non-supervisory branch office, or a non-
branch location.\19\ The requirements to register, inspect and have a 
principal on-site vary based on the categorization. Specifically, the 
rule requires the registration and designation as an OSJ or branch 
office of each location, including the main office, that meets their 
respective definition under paragraphs (f)(1) and (f)(2) of IEX Rule 
5.110, as described in more detail below.\20\
---------------------------------------------------------------------------

    \18\ See IEX Rule 5.110(a).
    \19\ See IEX Rule 5.110(f).
    \20\ See IEX Rule 5.110(a)(3) and Supplementary Material .01 to 
IEX Rule 5.110.
---------------------------------------------------------------------------

    An OSJ is a type of branch office. IEX defines a ``branch office'' 
as ``any location where one or more associated persons of a member firm 
regularly conducts the business of effecting any transactions in, or 
inducing or attempting to induce the purchase or sale of, any security, 
or is held out as such[.]'' \21\ In addition, any location that is 
responsible for supervising the activities of persons associated with 
the member at one or more non-branch locations of the member is 
considered to be a supervisory branch office.\22\ A location registered 
as a branch office must have one or more appropriately registered 
representatives or principals in each office, and is subject to an 
inspection at least every three years, unless it is a supervisory 
branch office in which case it is subject to at least an annual 
inspection.\23\
---------------------------------------------------------------------------

    \21\ See IEX Rule 5.110(f)(2).
    \22\ See IEX Rule 5.110(f)(4).
    \23\ See IEX Rule 5.110(c)(1)(A) & (B).
---------------------------------------------------------------------------

    Depending upon the functions occurring at a branch office, it may 
be further classified as an OSJ, which IEX Rule 5.110(f)(1) defines as 
a member's business location at which any one or more of the following 
functions take place: (1) order execution or market making; (2) 
structuring of public offerings or private placements; (3) maintaining 
custody of customers' funds or securities; (4) final acceptance 
(approval) of new accounts on behalf of the member; (5) review and 
endorsement of customer orders, pursuant to IEX Rule 5.110(b)(2); (6) 
final approval of retail communications for use by Persons Associated 
with the Member, pursuant to IEX Rule 3.280, except for an office that 
solely conducts final approval of research reports; or (7) 
responsibility for supervising the activities of persons associated 
with the member at one or more other branch offices of the Member.\24\ 
An office designated as an OSJ must have an appropriately registered 
principal on-site at the location, and must be inspected at least 
annually.\25\
---------------------------------------------------------------------------

    \24\ See IEX Rule 5.110(f)(1)(A)-(G).
    \25\ See IEX Rules 5.110(a)(4) and 5.110(c)(1)(A).
---------------------------------------------------------------------------

    However, subject to specified conditions, an office or location may 
be deemed a ``non-branch location,'' and excluded from registration as 
a branch office. Currently, IEX Rule 5.110(f)(2) sets forth seven 
exclusions--often referred to as unregistered offices or non-branch 
locations--of which two pertain to residential locations.\26\ One such 
exclusion appears under IEX Rule 5.110(f)(2)(B) and exempts from 
registration as a branch office an associated person's primary 
residence subject to the following express conditions: (1) only one 
associated person, or multiple associated persons who reside at that 
location and are members of the same immediate family, conduct business 
at the location; (2) the location is not held out to the public as an 
office and the associated person does not meet with customers at the 
location; (3) neither customer funds nor securities are handled at that 
location; (4) the associated person is assigned to a designated branch 
office, and such designated branch office is reflected on all business 
cards, stationery, retail communications and other communications to 
the public by such associated person; (5) the associated person's 
correspondence and communications with the public are subject to the 
firm's supervision in accordance with IEX Rule 5.110; (6) electronic 
communications (e.g., email) are made through the Member's electronic 
system; (7) all orders are entered through the designated branch office 
or an electronic system established by the Member that is reviewable at 
the branch office; (8) written supervisory procedures pertaining to 
supervision of sales activities conducted at the residence are 
maintained by the Member; and (9) a list of the residence locations is 
maintained

[[Page 81973]]

by the Member (``primary residence exclusion'').\27\ The second 
exclusion that pertains to a residential location appears under IEX 
Rule 5.110(f)(2)(C) is any location, other than a primary residence, 
that is used for securities business for less than 30 business days in 
any one calendar year, provided that the Member complies with the 
conditions described in (1) through (8) above (``non-primary residence 
exclusion'').\28\ In general, the non-primary residence exclusion 
typically refers to a vacation or second home.\29\ A non-branch 
location must be inspected on a periodic schedule, presumed to be at 
least every three years.\30\
---------------------------------------------------------------------------

    \26\ See generally IEX Rule 5.110(f)(2)(A) and IEX Rule 
5.110(f)(2)(D)-(G) which, in addition to the primary residence and 
the non-primary residence exclusions that are further described, 
excludes the following from the definition of ``branch office'': (1) 
any location that is established solely for customer service or back 
office type functions where no sales activities are conducted and 
that is not held out to the public as a branch office; (2) any 
office of convenience, where associated persons occasionally and 
exclusively by appointment meet with customers, which is not held 
out to the public as an office; (3) any location that is used 
primarily to engage in non-securities activities and from which the 
associated person(s) effects no more than 25 securities transactions 
in any one calendar year; provided that any retail communication 
identifying such location also sets forth the address and telephone 
number of the location from which the associated person(s) 
conducting business at the non-branch locations are directly 
supervised; (4) the Floor of a registered national securities 
exchange where a member conducts a direct access business with 
public customers; or (5) a temporary location established in 
response to the implementation of a business continuity plan.
    \27\ See IEX Rule 5.110(f)(2)(B)(i)-(ix). The primary residence 
exclusion is also set forth in FINRA Rule 3110(f)(2)(A)(ii).
    \28\ See IEX Rule 5.110(f)(2)(C). The non-primary residence 
exclusion is also set forth in FINRA Rule 3110(f)(2)(A)(iii).
    \29\ See NASD [FINRA] Notice to Members 06-12 (March 2006).
    \30\ See IEX Rule 5.110(c)(1)(C) and Supplementary Material .13 
to IEX Rule 5.110.
---------------------------------------------------------------------------

    Notwithstanding either of these two residential exclusions or the 
other exclusions listed under Rule 5.110(f)(2)(A),\31\ a primary or 
non-primary residence location that is responsible for either the 
supervisory activities set forth in the OSJ definition or for 
supervising the activities of persons associated with the Member at one 
or more non-branch locations of the Member is considered an OSJ or 
(supervisory) branch office, respectively.\32\ Consequently, such 
residential supervisory offices are subject to registration, an annual 
inspection and, in some cases, additional licensing requirements.\33\
---------------------------------------------------------------------------

    \31\ See generally IEX Rule 5.110(f)(2)(A) and IEX Rule 
5.110(f)(2)(D)-(G).
    \32\ See IEX Rule 5.110(f)(1)(D)-(G) and IEX Rule 5.110(f)(4).
    \33\ See IEX Rules 5.110(a)(4) and 5.110(c)(1)(A).
---------------------------------------------------------------------------

FINRA Residential Supervisory Location Rule
    Effective June 1, 2024, FINRA implemented a rule change that 
establishes a new Residential Supervisory Location (``RSL'') 
designation for a private residence at which an associated person 
engages in specified supervisory activities, subject to specified 
investor protection safeguards and limitations.\34\ This new non-branch 
location targets the subset of residential locations that have many of 
the attributes contained in the primary residence exclusion, but must 
be registered as an OSJ or branch office because of the supervisory 
functions taking place there.
---------------------------------------------------------------------------

    \34\ See FINRA Regulatory Notice 24-02.
---------------------------------------------------------------------------

    As described in the FINRA RSL Proposal, the definition of an RSL is 
based largely on several existing aspects of FINRA Rule 3110(f) (and 
therefore on the functionally identical IEX Rule 5.110(f)). In 
particular, the RSL definition incorporates the existing supervisory 
functions appearing in the OSJ definition (FINRA Rule 3110(f)(1)) and 
branch office definition (FINRA Rule 3110(f)(2)(A) with the existing 
residential exclusions set forth in the branch office definition to 
classify an RSL as a non-branch location. Under current IEX rules, a 
private residence at which these supervisory functions occur must be 
registered and designated as a branch office or OSJ under IEX Rule 
5.110(a)(3), and inspected at least annually under IEX Rule 
5.110(c)(1)(A). By treating such location as a non-branch location, the 
private residence would become subject to inspections on a regular 
periodic schedule under IEX Rule 5.110(c)(1)(C), presumed to be every 
three years.\35\
---------------------------------------------------------------------------

    \35\ See IEX Rule 5.110(c)(1)(C) and Supplementary Material .13 
to IEX Rule 5.110.
---------------------------------------------------------------------------

    FINRA Rule 3110.19 incorporates some existing safeguards and 
limitations members must already satisfy to rely on the primary 
residence exclusion.\36\ As described in the FINRA RSL Proposal, FINRA 
intends for the terms underlying the RSL designation to be interpreted 
consistently with their meaning in FINRA Rule 3110(f) and existing 
related guidance.\37\ The requirements for designation of a location as 
an RSL, which are set forth in FINRA Rule 3110.19, include the 
following key elements:
---------------------------------------------------------------------------

    \36\ See FINRA Rule 3110(f)(2)(A)(ii)a., b., c., d., e., f., and 
i.
    \37\ See, e.g., NASD [FINRA] Notice to Members 06-12 (March 
2006).
---------------------------------------------------------------------------

    <bullet> A location where supervisory activities are conducted 
shall be considered for those activities a non-branch location provided 
that: \38\
---------------------------------------------------------------------------

    \38\ See FINRA Rule 3110.19(a).
---------------------------------------------------------------------------

    [cir] only one associated person (or members of the same immediate 
family) may conduct business at the location; \39\
---------------------------------------------------------------------------

    \39\ See FINRA Rule 3110.19(a)(1).
---------------------------------------------------------------------------

    [cir] the location is not held out to the public as an office; \40\
---------------------------------------------------------------------------

    \40\ See FINRA Rule 3110.19(a)(2).
---------------------------------------------------------------------------

    [cir] the associated person does not meet with customers or 
prospective customers at the location; \41\
---------------------------------------------------------------------------

    \41\ See FINRA Rule 3110.19(a)(3).
---------------------------------------------------------------------------

    [cir] any sales activity that takes place at the location complies 
with the conditions set forth under FINRA Rule 3110(f)(2)(A)(ii) (the 
primary residence exclusion \42\) or FINRA Rule 3110(f)(2)(A)(iii) (the 
non-primary residence exclusion \43\); \44\
---------------------------------------------------------------------------

    \42\ See IEX Rule 5.110(f)(2)(B)(i)-(ix).
    \43\ See IEX Rule 5.110(f)(2)(C).
    \44\ See FINRA Rule 3110.19(a)(4).
---------------------------------------------------------------------------

    [cir] neither customer funds nor securities are handled at that 
location; \45\
---------------------------------------------------------------------------

    \45\ See FINRA Rule 3110.19(a)(5).
---------------------------------------------------------------------------

    [cir] the associated person is assigned to a designated branch 
office, and such designated branch office is reflected on all business 
cards, stationery, retail communications and other communications to 
the public by such associated person; \46\
---------------------------------------------------------------------------

    \46\ See FINRA Rule 3110.19(a)(6).
---------------------------------------------------------------------------

    [cir] the associated person's correspondence and communications 
with the public are subject to the firm's supervision in accordance 
with FINRA's supervision rule; \47\
---------------------------------------------------------------------------

    \47\ See FINRA Rule 3110.19(a)(7).
---------------------------------------------------------------------------

    [cir] the associated person's electronic communications are made 
through the member's electronic system; \48\
---------------------------------------------------------------------------

    \48\ See FINRA Rule 3110.19(a)(8).
---------------------------------------------------------------------------

    [cir] the member must have a recordkeeping system to make and keep 
current, and preserve records required to be made and kept current, and 
preserved under applicable securities laws and regulations, FINRA 
rules, and the member's own written supervisory procedures under Rule 
3110; such records are not physically or electronically maintained and 
preserved at the office or location; and the member has prompt access 
to such records; \49\ and
---------------------------------------------------------------------------

    \49\ See FINRA Rule 3110.19(a)(9).
---------------------------------------------------------------------------

    [cir] the member must determine that its surveillance and 
technology tools are appropriate to supervise the types of risks 
presented by each Residential Supervisory Location, and these tools may 
include but are not limited to: firm-wide tools such as, electronic 
recordkeeping system; electronic surveillance of email and 
correspondence; electronic trade blotters; regular activity-based 
sampling reviews; and tools for visual inspections; tools specific to 
the RSL based on the activities of associated person assigned to the 
location, products offered, restrictions on the activity of the RSL; 
and system tools such as secure network connections and effective 
cybersecurity protocols.\50\
---------------------------------------------------------------------------

    \50\ See FINRA Rule 3110.19(a)(10).
---------------------------------------------------------------------------

    <bullet> FINRA members shall not be eligible to designate an office 
or location as an RSL if, among other things, the FINRA member is 
designated as: (i) Restricted Firm under FINRA Rule 4111 or (ii) a 
Taping Firm under FINRA Rule 3170. Additionally, firms with suspended 
or new (effective less than 12 months) FINRA memberships or that

[[Page 81974]]

have been found within the past three years by the SEC or FINRA to have 
violated FINRA Rule 3110(c) are ineligible to participate.\51\
---------------------------------------------------------------------------

    \51\ See FINRA Rule 3110.19(b).
---------------------------------------------------------------------------

    <bullet> An office or location shall not be eligible for 
designation as an RSL if one or more associated persons at such office 
or location: \52\
---------------------------------------------------------------------------

    \52\ See FINRA Rule 3110.19(c).
---------------------------------------------------------------------------

    [cir] is a designated supervisor who has less than one year of 
direct supervisory experience with the member, or an affiliate or 
subsidiary of the member that is registered as a broker-dealer or 
investment adviser; \53\
---------------------------------------------------------------------------

    \53\ See FINRA Rule 3110.19(c)(1).
---------------------------------------------------------------------------

    [cir] is functioning as a principal for a limited period in 
accordance with FINRA Rule 1210.04; \54\
---------------------------------------------------------------------------

    \54\ See FINRA Rule 3110.19(c)(2).
---------------------------------------------------------------------------

    [cir] is subject to a mandatory heightened supervisory plan under 
the rules of the SEC, FINRA or state regulatory agency; \55\
---------------------------------------------------------------------------

    \55\ See FINRA Rule 3110.19(c)(3).
---------------------------------------------------------------------------

    [cir] is statutorily disqualified, unless such disqualified person 
has been approved (or is otherwise permitted pursuant to FINRA rules 
and the federal securities laws) to associate with a member and is not 
subject to a mandatory heightened supervisory plan under FINRA Rule 
3110.19(c)(3) or otherwise as a condition to approval or permission for 
such association; \56\
---------------------------------------------------------------------------

    \56\ See FINRA Rule 3110.19(c)(4).
---------------------------------------------------------------------------

    [cir] has an event in the prior three years that required a ``yes'' 
response to any item in Questions 14A(1)(a) and 2(a), 14B(1)(a) and 
2(a), 14C, 14D and 14E on Form U4; \57\ or
---------------------------------------------------------------------------

    \57\ See FINRA Rule 3110.19(c)(5).
---------------------------------------------------------------------------

    [cir] has been notified in writing that such associated person is 
now subject to, any Investigation or Proceeding, as such terms are 
defined in the Explanation of Terms for the Form U4 (Uniform 
Application for Securities Industry Registration or Transfer), by the 
SEC, an SRO, including FINRA, or state securities commission (or agency 
or office performing like functions) (each, a ``Regulator'') expressly 
alleging they have failed reasonably to supervise another person 
subject to their supervision, with a view to preventing the violation 
of any provision of the Securities Act, the Exchange Act, the 
Investment Advisers Act, the Investment Company Act, the Commodity 
Exchange Act, any state law pertaining to the regulation of securities 
or any rule or regulation under any of such Acts or laws, or any of the 
rules of the MSRB or other self-regulatory organization, including 
FINRA; provided, however, such office or location may be designated or 
redesignated as an RSL subject to the requirements of FINRA Rule 
3110.19 upon the earlier of: (i) the member's receipt of written 
notification from the applicable Regulator that such Investigation has 
concluded without further action; or (ii) one year from the date of the 
last communication from such Regulator relating to such 
Investigation.\58\
---------------------------------------------------------------------------

    \58\ See FINRA Rule 3110.19(c)(6).
---------------------------------------------------------------------------

    <bullet> FINRA members that elect to designate an office or 
location of the member as an RSL shall provide FINRA with a current 
list of all locations designated as RSLs by the 15th day of the month 
following each calendar quarter in the manner and format as FINRA may 
prescribe.\59\
---------------------------------------------------------------------------

    \59\ See FINRA Rule 3110.19(d).
---------------------------------------------------------------------------

    <bullet> FINRA members must conduct a risk assessment prior to 
designating an office or location as an RSL. Specifically, the FINRA 
member must develop a reasonable risk-based approach to designating 
such office or location as an RSL, and conduct and document a risk 
assessment for the associated person assigned to that office or 
location. The assessment must document the factors considered, 
including among others, whether the associated person at such office or 
location is now subject to: (1) customer complaints, taking into 
account the volume and nature of the complaints; (2) heightened 
supervision other than where such office or location is ineligible for 
RSL designation under FINRA Rule 3110.19(c)(3); (3) any failure to 
comply with the member's written supervisory procedures; (4) any 
recordkeeping violation; and (5) any regulatory communications from a 
Regulator, indicating that the associated person at such office or 
location failed reasonably to supervise another person subject to their 
supervision, including but not limited to, subpoenas, preliminary or 
routine regulatory inquiries or requests for information, deficiency 
letters, ``blue sheet'' requests or other trading questionnaires, or 
examinations. The FINRA member must take into account any higher risk 
activities that take place or a higher risk associated person that is 
assigned to that office or location. Consistent with its obligation 
under FINRA Rule 3110(a), the member's supervisory system must take 
into consideration any indicators of irregularities or misconduct 
(i.e., ``red flags'') when designating an office or location as an RSL. 
Red flags should also be reviewed in determining whether it is 
reasonable to maintain the RSL designation of such office or location 
in accordance with the requirements of FINRA Rule 3110.19 and the 
member should consider evidencing steps taken to address those red 
flags where appropriate.\60\
---------------------------------------------------------------------------

    \60\ See FINRA Rule 3110.19(e).
---------------------------------------------------------------------------

Proposal
    IEX proposes to adopt Supplementary Material .17 to IEX Rule 5.110. 
This proposed new supplementary material reads as follows:

    Residential Supervisory Location. Notwithstanding any other 
provisions of IEX Rule 5.110(f), a location that is the private 
residence of a person associated with a Member where supervisory 
activities are conducted, including those described in IEX Rule 
5.110(f)(1)(D) through (G) or IEX Rule 5.110(f)(2)(B), which 
satisfies the conditions for designation as a Residential 
Supervisory Location set forth in FINRA Rule 3110.19 shall also be 
considered a non-branch location for those activities pursuant to 
IEX's Rules.\61\
---------------------------------------------------------------------------

    \61\ Proposed Supplementary Material .17 to IEX Rule 5.110.

    As stated in proposed new Supplementary Material .17 to IEX Rule 
5.110, any location that an IEX Member designates as an RSL pursuant to 
FINRA Rule 3110.19 shall also be considered a non-branch location for 
those activities pursuant to IEX's rules.
    Pursuant to this proposed rule change, IEX Members will be required 
to share information about designated RSLs with FINRA on a quarterly 
basis. IEX is not proposing to add the entire FINRA Residential 
Supervisory Location designation rule to its rules, because it would be 
unnecessarily duplicative and burdensome for IEX Members to share the 
same quarterly RSL designation information with IEX. Based upon 
conversations with FINRA staff, IEX understands that adopting Proposed 
Supplementary Material .17 to IEX Rule 5.110 would update IEX Rule 
5.110 so that it remains substantially similar to FINRA Rule 3110, such 
that they remain common rules subject to the 17d-2 Agreement. As a 
result, regulatory responsibility for IEX Rule 5.110 would continue to 
be allocated to FINRA.
    IEX, like FINRA, believes that the current work environment merits 
a reevaluation of the regulatory benefit of requiring firms to 
designate a private residence, at which specified supervisory functions 
occur, as an OSJ or branch office. IEX's proposal to incorporate by 
reference FINRA's RSL designation is intended to reflect a pragmatic 
balance between the hybrid workforce model and the parameters that 
should ensure that all locations,

[[Page 81975]]

including residential locations, are appropriately supervised.
    Separate and apart from the classification of the office or 
location and the attendant inspection obligations, Members will 
continue to have an ongoing obligation to supervise the activities of 
each associated person in a manner reasonably designed to achieve 
compliance with applicable securities laws and regulations, and with 
applicable IEX and FINRA rules.\62\ IEX, like FINRA, emphasizes that 
member firms have a statutory duty to supervise their associated 
persons, regardless of their location, compensation or employment 
arrangement, or registration status, in accordance with the IEX and 
FINRA rules.\63\
---------------------------------------------------------------------------

    \62\ See Supplementary Material .12 to IEX Rule 5.110.
    \63\ See 15 U.S.C. 78o(b)(4)(E) and 15 U.S.C. 78o(b)(6)(A).
---------------------------------------------------------------------------

    IEX notes that although FINRA's RSL designation first became 
available on June 1, 2024, the first action required by FINRA members 
is the October 15, 2024 deadline for submitting the first list of 
designated RSLs to FINRA.\64\ As described below, IEX is seeking waiver 
of the 30-day operative delay for this rule change proposal, so that 
IEX Members that designate any locations as RSLs by October 15, 2024 
will know that the designation also applies to IEX's supervision rules.
---------------------------------------------------------------------------

    \64\ See FINRA Regulatory Notice 24-02.
---------------------------------------------------------------------------

2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \65\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \66\ 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 designation of 
certain non-branch offices as Residential Supervisory Locations, with 
those of FINRA, on which they are based. As discussed in the Purpose 
section, because Proposed Supplementary Material .17 to IEX Rule 5.110 
incorporates by reference FINRA Rule 3110.19, this rule change enables 
IEX Rule 5.110 to continue to be incorporated into the 17d-2 Agreement, 
resulting in less burdensome and more efficient regulatory compliance. 
Specifically, the proposed change will conform the Exchange's rules to 
changes made to corresponding FINRA rules insofar as a Member's 
compliance with FINRA Rule 3110.19 shall mean the Member is also in 
compliance with Supplementary Material .17 to IEX Rule 5.110, thus 
promoting the application of consistent regulatory standards with 
respect to rules that FINRA enforces pursuant to the 17d-2 Agreement. 
As such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system in accordance with 
Section 6(b)(5) of the Act.\67\
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78f.
    \66\ 15 U.S.C. 78f(b)(5).
    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 rather to provide greater 
harmonization among IEX and FINRA rules of similar purpose, resulting 
in less burdensome and more efficient regulatory compliance for common 
members and facilitating FINRA's performance of its regulatory 
performance on the pending 17d-2 Agreement.

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) \68\ of the Act and Rule 19b-4(f)(6) \69\ 
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.\70\
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78s(b)(3)(A).
    \69\ 17 CFR 240.19b-4(f)(6).
    \70\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \71\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\72\ 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.
---------------------------------------------------------------------------

    \71\ 17 CFR 240.19b-4(f)(6).
    \72\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Exchange stated that this proposed rule change is non-
controversial because it does not present any new or novel issues. In 
particular, IEX is harmonizing its supervision rules with those of 
FINRA, on which they are based and which have been previously approved 
by the Commission. By conforming the Exchange's rules to FINRA's, the 
proposed rule change would promote the application of consistent 
regulatory standards with respect to rules that FINRA enforces pursuant 
to the 17d-2 Agreement. As such, the Exchange believes that the 
proposed rule change would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system in accordance with Exchange Act 
Section 6(b)(5).
    In addition, the Exchange stated that since FINRA first made its 
Residential Supervisory Location designation available to its members 
on June 1, 2024, waiving the 30-day operative delay would provide 
assurances to IEX members who wish to designate certain private 
residences as RSLs that they can plan the remainder of their 2024 
inspection program under a harmonized rule set, particularly because 
the first list of designated RSLs is not due to FINRA until October 15, 
2024,\73\ while at the same time assuring that IEC members continue to 
perform their supervisory obligations. Further, the Exchange stated 
that waiver of the operative delay should avoid any

[[Page 81976]]

potential confusion that may otherwise occur on the part of IEX members 
as to the applicable rules governing inspections of branch offices and 
other locations. 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.\74\
---------------------------------------------------------------------------

    \73\ See FINRA Regulatory Notice 24-02.
    \74\ 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).
---------------------------------------------------------------------------

    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) \75\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee"><span class="__cf_email__" data-cfemail="e391968f86ce808c8e8e868d9790a3908680cd848c95">[email protected]</span></a>. Please include 
file number SR-IEX-2024-19 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-2024-19. 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-2024-19 and should 
be submitted on or before October 30, 2024.
---------------------------------------------------------------------------

    \76\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-23286 Filed 10-8-24; 8:45 am]
BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>