```

[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90089-90098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26406]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101533; File No. SR-PEARL-2024-51]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 2300 (Supervision)

November 7, 2024.
    Pursuant to the provisions of 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 1, 2024, MIAX PEARL, LLC (``MIAX 
Pearl'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
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.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Exchange Rule 2300 (Supervision) 
with certain changes by the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') to FINRA Rule 3110 to permit eligible Members \3\ to 
participate in FINRA's remote inspections program (``FINRA Pilot 
Program'') and to adopt FINRA's Residential Supervisory Location 
(``RSL'') classification.
---------------------------------------------------------------------------

    \3\ The term ``Member'' herein refers to ``Equity Member.'' The 
term ``Equity Member'' is a Member authorized by the Exchange to 
transact business on MIAX Pearl Equities. See Exchange Rule 1901.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings, at MIAX Pearl's principal office, and at the 
Commission's Public Reference Room.

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

    In its filing with the Commission, 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 Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 90090]]

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

1. Purpose
    The Exchange proposes to harmonize Exchange Rule 2300 (Supervision) 
with certain changes by FINRA to FINRA Rule 3110 to permit eligible 
Members to participate in the FINRA Pilot Program and to adopt FINRA's 
RSL classification. The proposed rule change would harmonize the 
Exchange's office and other location inspection rules with those of 
FINRA and thus promote uniform inspection standards across the 
securities industry. Additionally, because proposed Interpretations and 
Policies .18 and .19 of Rule 2300 would be substantially similar to 
FINRA Rule 3110.18 and FINRA Rule 3110.19, respectively, this rule 
change enables Rule 2300 to continue to be incorporated into the 
agreement between the Exchange and FINRA to allocate regulatory 
responsibility for common rules (the ``17d-2 Agreement'').\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 79929 (February 2, 
2017), 82 FR 9757 (February 8, 2017).The 17d-2 Agreement includes a 
certification by the Exchange 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 and Proposed Rule Change
    Exchange Rule 2300 is based on FINRA Rule 3110 \5\ and requires 
Members 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 Exchange rules, and sets forth the minimum requirements for 
such supervisory system.\6\ Under Exchange Rule 2300, final 
responsibility for proper supervision rests with the Member.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 91303 (March 11, 
2021), 86 FR 14659 (March 17, 2021) (SR-PEARL-2021-04).
    \6\ See Exchange Rule 2300(a).
---------------------------------------------------------------------------

    As part of an overall supervisory system, Members must conduct 
inspections of each of their offices or locations on a designated 
frequency depending on the classification of the location or the nature 
of the activities that take place: an office of supervisory 
jurisdiction (``OSJ'') and supervisory branch offices must be inspected 
at least annually; \7\ non-supervisory branch offices, at least every 
three years; \8\ and non-branch locations on a periodic schedule, 
presumed to be at least every three years.\9\ Moreover, Members must 
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.\10\ If 
applicable to the location being inspected, the inspection report must 
include the testing and verification of the Member's policies and 
procedures, including supervisory policies and procedures, in specified 
areas.\11\ Finally, 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 the 
location.\12\ The factors governing what constitutes a reasonable 
review are set out in Interpretations and Policies .12 of Exchange Rule 
2300 (Standards for Reasonable Review).
---------------------------------------------------------------------------

    \7\ See Exchange Rule 2300(c)(1)(A).
    \8\ See Exchange Rule 2300(c)(1)(B).
    \9\ See Exchange Rule 2300(c)(1)(C) and Interpretations and 
Policies .13 of Exchange Rule 2300 (General Presumption of Three-
Year Limit for Periodic Inspection Schedules).
    \10\ See Exchange Rule 2300(c)(2).
    \11\ See Exchange Rule 2300(c)(2)(A).
    \12\ See Exchange Rule 2300(c)(3)(B).
---------------------------------------------------------------------------

    In 2023, recognizing how operations and business models within the 
financial services industry have evolved with changes in technology 
that were accelerated by the COVID-19 pandemic, including in particular 
the implementation by a large number of firms of a hybrid work 
environment during the public health crisis, FINRA adopted two 
amendments to FINRA Rule 3110. First, FINRA established a voluntary, 
three-year remote inspections pilot program to allow eligible members 
to fulfill their FINRA Rule 3110(c)(1) inspection obligation of 
qualified branch offices, including OSJs and non-branch locations 
remotely, without an on-site visit to such offices or locations subject 
to certain conditions and criteria.\13\ The FINRA Pilot Program is set 
forth in Supplementary Material .18 of FINRA Rule 3110. Second, FINRA 
adopted new Supplementary Material .19 to FINRA Rule 3110 that treats 
an associated person's private residence where specified supervisory 
activities are conducted, subject to certain safeguards and 
limitations, as a non-branch location (i.e., unregistered office). As a 
non-branch location under FINRA Rule 3110(c), the RSL would be subject 
to inspections on a regular periodic schedule instead of the annual 
inspection currently required for every OSJ and supervisory branch 
offices.\14\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 98982 (November 17, 
2023), 88 FR 82464 (November 24, 2023) (File No. SR-FINRA-2023-007) 
(Order Approving a Proposed Rule Change To Adopt Supplementary 
Material .18 (Remote Inspections Pilot Program) Under FINRA Rule 
3110 (Supervision)). Pursuant to FINRA Rule 3110.18(m), on the 
sunset of Rule 3110.18, if FINRA Rule 3110.18 has not already 
expired by its own terms, FINRA Rule 3110.18 will automatically 
sunset on June 30, 2024.
    \14\ See Securities Exchange Act Release No. 98980 (November 17, 
2023), 88 FR 82447 (November 24, 2023) (File No. SR-FINRA-2023-006) 
(Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 
and 2, To Adopt Supplementary Material .19 (Residential Supervisory 
Location) Under FINRA Rule 3110 (Supervision)).
---------------------------------------------------------------------------

    The Exchange proposes to incorporate each of these amendments into 
Exchange Rule 2300, as follows.
Interpretations and Policies .18 of Exchange Rule 2300 \15\
---------------------------------------------------------------------------

    \15\ The Exchange would add new Interpretations and Policies 
.15, .16, and .17 marked ``Reserved'' in order to maintain 
consistency with FINRA.
---------------------------------------------------------------------------

    The Exchange proposes, consistent with current FINRA Rule 3110, 
Supplementary Material .18, to adopt new Interpretations and Policies 
.18 of Exchange Rule 2300 in order to provide eligible Members that are 
also FINRA members \16\ with the flexibility to opt into the FINRA 
Pilot Program, consisting of a voluntary, three-year remote inspections 
pilot program to fulfill their office inspection obligations under 
Exchange Rule 2300(c) by conducting inspections of eligible OSJs, 
branch offices, and non-branch locations remotely without an on-site 
visit to such locations, subject to certain conditions and criteria. 
The requirements in connection with the participation in the FINRA 
Pilot Program under proposed Interpretations and Policies .18 of 
Exchange Rule 2300 would mirror in all material respects the 
requirements with respect to a FINRA member's participation under FINRA 
rules in the FINRA Pilot Program. Members opting into the FINRA Pilot 
Program would do so pursuant to the provisions of proposed 
Interpretations and Policies .18 of Exchange Rule 2300 and through the 
mechanisms and processes established by FINRA in connection with the 
FINRA Pilot Program. The proposed rule change also re-orders and 
streamlines some of the provisions of FINRA Rule 3110.18, as described 
below.
---------------------------------------------------------------------------

    \16\ Currently, all Exchange Members with one exception are also 
FINRA members.

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

[[Page 90091]]

Proposed Interpretations and Policies .18(a) of Exchange Rule 2300 
(Scope)
    Proposed Interpretations and Policies .18(a) of Exchange Rule 2300 
would establish the standards by which a Member that is also a FINRA 
member may participate in the FINRA Pilot Program.
    Proposed Interpretations and Policies .18(a) of Exchange Rule 2300 
would permit Members to avail themselves of the FINRA Pilot Program for 
the required inspection of OSJs, branch offices and non-branch 
locations pursuant to, as applicable, paragraphs (c)(1)(A), (B) and (C) 
of Rule 2300 for a period starting on the effective date of the 
proposed rule filing and expiring on June 30, 2027. If FINRA extends 
the pilot program and the proposed Interpretations and Policies .18 is 
not amended to allow continued participation by Members in the FINRA 
Pilot Program, Members would not be able to participate in the FINRA 
Pilot Program after the prescribed provisions under the proposed 
Interpretations and Policies .18 sunset.
    With the exception of conforming and technical changes,\17\ 
proposed Interpretations and Policies .18(a) of Exchange Rule 2300 is 
substantially the same as FINRA Rule 3110.18(a).
---------------------------------------------------------------------------

    \17\ Where the Exchange states herein that only conforming and 
technical changes have been made, the Exchange is referring to 
instances in which it changed FINRA's ``member'' to the Exchange's 
equivalent ``Member;'' changed cross-references to FINRA rules to 
cross-references to Exchange rules unless there was no equivalent 
Exchange rule; and made other non-substantive technical or 
grammatical changes.
---------------------------------------------------------------------------

Proposed Interpretations and Policies .18(b) of Exchange Rule 2300 
(Risk Assessment)
    Proposed Interpretations and Policies .18(b) of Exchange Rule 2300 
governing risk assessment would outline the need for Members to 
undertake a risk assessment in order to participate in the FINRA Pilot 
Program.
    Proposed Interpretations and Policies .18(b) of Exchange Rule 2300 
would set forth the applicable standard for review and would provide 
that a Member could elect to conduct the applicable inspection 
remotely, without an on-site visit for an office or location, when such 
Member reasonably determines that the purposes of the Interpretations 
and Policies .18 can be accomplished by conducting such required 
inspection remotely. The Member would be required to develop a 
reasonable risk-based approach to using remote inspections and conduct 
and document a risk assessment for an office or location prior to 
conducting a remote inspection. The risk assessment must document the 
factors considered, including, among other things, the factors set 
forth in current Rule Interpretations and Policies .12 of Exchange Rule 
2300 such as a 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''), and must take into account any higher-risk 
activities that take place at, or higher-risk associated persons that 
are assigned to, that office or location. Additionally, proposed 
Interpretations and Policies .18(b)(1) of Exchange Rule 2300 would 
require a Member to conduct an on-site inspection on the required cycle 
for such offices or locations that are ineligible for remote office 
inspections because of not having met the firm or location level 
requirements under proposed Interpretations and Policies .18(f) or (g), 
respectively. Notwithstanding proposed Interpretations and Policies .18 
of Exchange 2300, a Member would remain subject to the other 
requirements of Rule 2300(c).
    Proposed Interpretations and Policies .18(b)(2) would address other 
risk assessment factors and would provide that when conducting the risk 
assessment of each office or location in accordance with proposed 
paragraph (b)(1) of Interpretations and Policies .18, a Member must 
consider, among other things, the following factors with respect to an 
office or location in making its risk assessment for remotely 
inspecting an office or location:
     the volume and nature of customer complaints; \18\
---------------------------------------------------------------------------

    \18\ See proposed Interpretations and Policies .18(b)(2)(A), 
mirroring FINRA Rule 3110.18(b)(2)(A).
---------------------------------------------------------------------------

     the volume and nature of outside business activities, 
particularly investment-related; \19\
---------------------------------------------------------------------------

    \19\ See proposed Interpretations and Policies .18(b)(2)(B), 
mirroring FINRA Rule 3110.18(b)(2)(B).
---------------------------------------------------------------------------

     the volume and complexity of products offered; \20\
---------------------------------------------------------------------------

    \20\ See proposed Interpretations and Policies .18(b)(2)(C), 
mirroring FINRA Rule 3110.18(b)(2)(C).
---------------------------------------------------------------------------

     the nature of the customer base, including vulnerable 
adult investors; \21\
---------------------------------------------------------------------------

    \21\ See proposed Interpretations and Policies .18(b)(2)(D), 
mirroring FINRA Rule 3110.18(b)(2)(D).
---------------------------------------------------------------------------

     whether associated persons are subject to heightened 
supervision; \22\
---------------------------------------------------------------------------

    \22\ See proposed Interpretations and Policies .18(b)(2)(E), 
mirroring FINRA Rule 3110.18(b)(2)(E).
---------------------------------------------------------------------------

     failures by associated persons to comply with the Member's 
written supervisory procedures; \23\ and
---------------------------------------------------------------------------

    \23\ See proposed Interpretations and Policies .18(b)(2)(F), 
mirroring FINRA Rule 3110.18(b)(2)(F).
---------------------------------------------------------------------------

     any recordkeeping violations.\24\
---------------------------------------------------------------------------

    \24\ See proposed Interpretations and Policies .18(b)(2)(G), 
mirroring FINRA Rule 3110.18(b)(2)(G).
---------------------------------------------------------------------------

    Further, proposed Interpretations and Polices .18(b)(2) would 
prescribe that Members should conduct on-site inspections or make more 
frequent use of unannounced, on-site inspections for high-risk offices 
or locations or when there are red flags, and supervisory systems must 
take into consideration any red flags when determining whether to 
conduct a remote inspection of an office or location, consistent with 
Exchange Rule 2300(a).
    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .18(b) is substantially the same as FINRA 
Rule 3110.18(b).
Proposed Interpretations and Policies .18(c) of Exchange Rule 2300 
(Written Supervisory Procedures for Remote Inspections)
    Proposed Interpretations and Policies .18(c) would provide that, 
consistent with a Member's obligation under Exchange Rule 2300(b), a 
Member that elects to participate in the FINRA Pilot Program must 
establish, maintain, and enforce written supervisory procedures 
regarding remote inspections that are reasonably designed to detect and 
prevent violations of and achieve compliance with applicable securities 
laws and regulations, and with applicable FINRA and Exchange rules.
    As proposed, reasonably designed procedures for conducting remote 
inspections of offices or locations must address, among other things:
     the methodology, including technology, that may be used to 
conduct remote inspections; \25\
---------------------------------------------------------------------------

    \25\ See proposed Interpretations and Policies .18(c)(1), 
mirroring FINRA Rule 3110.18(c)(1).
---------------------------------------------------------------------------

     the factors considered in the risk assessment made for 
each applicable office or location pursuant to paragraph (b) of these 
Interpretations and Policies .18; \26\
---------------------------------------------------------------------------

    \26\ See proposed Interpretations and Policies .18(c)(2), 
mirroring FINRA Rule 3110.18(c)(2).
---------------------------------------------------------------------------

     the procedures specified in paragraph (h)(1)(G) and (h)(4) 
of FINRA Rule 3310.18; \27\ and
---------------------------------------------------------------------------

    \27\ See proposed Interpretations and Policies .18(c)(3), 
mirroring FINRA Rule 3110.18(c)(3).
---------------------------------------------------------------------------

     the use of other risk-based systems employed generally by 
the Member to identify and prioritize for review those areas that pose 
the greatest risk of potential violations of applicable

[[Page 90092]]

securities laws and regulations, and of applicable FINRA and Exchange 
rules.\28\
---------------------------------------------------------------------------

    \28\ See proposed Interpretations and Policies .18(c)(4), 
mirroring FINRA Rule 3110.18(c)(4).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes and the 
addition of a reference to Exchange rules in proposed Interpretations 
and Policies .18(c)(4), proposed Interpretations and Policies .18(c) of 
Exchange Rule 2300 is substantially the same as FINRA Rule 3110.18(c).
Proposed Interpretations and Polices .18(d) of Exchange Rule 2300 
(Effective Supervisory System)
    Proposed Interpretations and Policies .18(d) would provide that 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 maintain its ongoing review of the 
activities and functions occurring at all offices and locations, 
whether or not the Member conducts inspections remotely.
    Further, 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 Interpretations and Policies .12 of Exchange Rule 2300. Where a 
Member's remote inspection of an office or location identifies any 
``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 on-site visit on an announced or unannounced basis.
    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .18(d) is substantially the same as FINRA 
Rule 3110.18(d).
Proposed Interpretations and Policies .18(e) of Exchange Rule 2300 
(Documentation Requirement)
    Proposed Interpretations and Policies .18(e) would set forth 
documentation requirements for a Member's participating in the FINRA 
Pilot Program. In particular, Interpretations and Policies .18(e) would 
require Members to maintain and preserve a centralized record for each 
of the Pilot Years specified in this FINRA Pilot Program that 
separately identifies all offices or locations that were inspected 
remotely.\29\ In addition, proposed Interpretations and Policies .18(e) 
would require documentation of the results of a remote inspection for 
any offices or locations for which the Member determined to impose 
additional supervisory procedures or more frequent monitoring, as 
provided in proposed Interpretations and Policies .18(d). Further, 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, including whether an on-
site inspection was conducted at such office or location.\30\
---------------------------------------------------------------------------

    \29\ See proposed Interpretations and Policies .18(e)(1), 
mirroring FINRA Rule 3110.18(e)(1).
    \30\ See proposed Interpretations and Policies .18(e)(2), 
mirroring FINRA Rule 3110.18(e)(2).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .18(e) is substantially the same as FINRA 
Rule 3110.18(e).
Proposed Interpretations and Policies .18(f) of Exchange Rule 2300 
(Firm Level Requirements)
    Proposed Interpretations and Policies .18(f)(1) would set forth 
certain firm level ineligibility conditions for further participation 
in the FINRA Pilot Program. As proposed, a Member would be ineligible 
to conduct remote inspections of any of its offices or locations under 
the FINRA Pilot Program if at any time during the Pilot Period that 
Member:
     is or becomes designated as a Restricted Firm under FINRA 
Rule 4111; \31\
---------------------------------------------------------------------------

    \31\ See proposed Interpretations and Policies .18(f)(1)(A), 
mirroring FINRA Rule 3110.18(f)(1)(A). The Exchange has not adopted 
FINRA Rule 4111.
---------------------------------------------------------------------------

     is or become designated a taping firm under FINRA Rule 
3170; \32\
---------------------------------------------------------------------------

    \32\ See proposed Interpretations and Policies .18(f)(1)(B), 
mirroring FINRA Rule 3110.18(f)(1)(B). The Exchange has not adopted 
FINRA Rule 3170.
---------------------------------------------------------------------------

     receives a notice pursuant to FINRA Rule 9557 regarding 
capital compliance related matters under FINRA Rules 4110 (Capital 
Compliance), FINRA 4120 (Regulatory Notification and Business 
Curtailment) or FINRA Rule 4130 (Regulation of Activities of Section 
15C Members Experiencing Financial and/or Operational Difficulties); 
\33\
---------------------------------------------------------------------------

    \33\ See proposed Interpretations and Policies .18(f)(1)(C), 
mirroring FINRA Rule 3110.18(f)(1)(C). The Exchange has not adopted 
FINRA Rule 9557, 4110, 4120, or 4130.
---------------------------------------------------------------------------

     is or becomes suspended from Exchange or FINRA membership; 
\34\
---------------------------------------------------------------------------

    \34\ See proposed Interpretations and Policies .18(f)(1)(D), 
mirroring FINRA Rule 3110.18(f)(1)(D).
---------------------------------------------------------------------------

     based on the date in the Central Registration Depository 
(CRD), had its FINRA membership become effective within the prior 12 
months; \35\ or
---------------------------------------------------------------------------

    \35\ See proposed Interpretations and Policies .18(f)(1)(E), 
mirroring FINRA Rule 3110.18(f)(1)(E).
---------------------------------------------------------------------------

     is or has been found by the Securities and Exchange 
Commission (``the Commission''), FINRA or the Exchange to be in 
violation of office inspection obligations under FINRA or Exchange Rule 
2300(c) within the past three years.\36\
---------------------------------------------------------------------------

    \36\ See proposed Interpretations and Policies .18(f)(1)(F), 
mirroring FINRA Rule 3110.18(f)(1)(F).
---------------------------------------------------------------------------

    Proposed Interpretations and Polices .18(f)(2) would set forth the 
firm-level conditions a Member must satisfy as part of the requirements 
in Interpretations and Policies .18(b) to develop a reasonably designed 
risk-based approach to using remote inspections and to conduct and 
document a risk assessment for each office or location. Specifically, 
Members 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, Exchange rules, and the Member's own written 
supervisory procedures under Exchange Rule 2300; \37\
---------------------------------------------------------------------------

    \37\ See proposed Interpretations and Policies .18(f)(2)(A)(i), 
mirroring FINRA Rule 3110.18(f)(2)(A)(i).
---------------------------------------------------------------------------

     such records are not physically or electronically 
maintained and preserved at the office or location subject to the 
remote inspection; \38\ and
---------------------------------------------------------------------------

    \38\ See proposed Interpretations and Policies .18(f)(2)(A)(ii), 
mirroring FINRA Rule 3110.18(f)(2)(A)(ii).
---------------------------------------------------------------------------

     the Member has prompt access to such records.\39\
---------------------------------------------------------------------------

    \39\ See proposed Interpretations and Policies 
.18(f)(2)(A)(iii), mirroring FINRA Rule 3110.18(f)(2)(A)(iii).
---------------------------------------------------------------------------

    In addition, Members must determine that the surveillance and 
technology tools are appropriate to supervise the types of risks 
presented by each such remotely supervised office or location. As 
proposed, these tools may include but are not limited to:
     firm-wide tools such as electronic recordkeeping systems; 
electronic surveillance of email and correspondence; electronic trade 
blotters; regular activity-based sampling reviews; and tools for visual 
inspections; \40\
---------------------------------------------------------------------------

    \40\ See proposed Interpretations and Policies .18(f)(2)(B)(i), 
mirroring FINRA Rule 3110.18(f)(2)(B)(i).
---------------------------------------------------------------------------

     tools specifically applied to such office or location 
based on the activities of associated persons, products offered, 
restrictions on the activity of the office or location (including 
holding out to customers and handling of customer funds or securities); 
\41\ and
---------------------------------------------------------------------------

    \41\ See proposed Interpretations and Policies .18(f)(2)(B)(ii), 
mirroring FINRA Rule 3110.18(f)(2)(B)(ii).

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

[[Page 90093]]

     system security tools such as secure network connections 
and effective cybersecurity protocols.\42\
---------------------------------------------------------------------------

    \42\ See proposed Interpretations and Policies 
.18(f)(2)(B)(iii), mirroring FINRA Rule 3110.18(f)(2)(B)(iii).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes and the 
addition of a reference to Exchange rules in proposed Interpretations 
and Policies .18(f)(2)(A)(i), proposed Interpretations and Policies 
.18(f)(1) and (2) are substantially the same as FINRA Rule 
3110.18(f)(1) and (2).
Proposed Interpretations and Policies .18(g) of Exchange Rule 2300 
(Location Level Requirements)
    Proposed Interpretations and Policies .18(g) would set forth the 
criteria under the FINRA Pilot Program that would render a particular 
office or location ineligible for remote office inspection. As 
proposed, Interpretations and Policies .18(g)(1), offices or locations 
would be ineligible for a remote office inspection if at any time 
during the FINRA Pilot Period:
     one or more associated persons at such office or location 
is or becomes subject to a mandatory heightened supervisory plan under 
the rules of the SEC, FINRA, the Exchange or a state regulatory agency; 
\43\
---------------------------------------------------------------------------

    \43\ See proposed Interpretations and Policies .18(g)(1)(A), 
mirroring FINRA Rule 3110.18(g)(1)(A).
---------------------------------------------------------------------------

     one or more associated persons at such office or location 
is or becomes statutorily disqualified, unless such disqualified person 
has been approved (or is otherwise permitted pursuant to FINRA or 
Exchange rules and the federal securities laws) to associate with a 
Member and is not subject to a mandatory heightened supervisory plan 
under paragraph (g)(1)(A) of Interpretations and Policies .18 or 
otherwise as a condition to approval or permission for such 
association; \44\
---------------------------------------------------------------------------

    \44\ See proposed Interpretations and Policies .18(g)(1)(B), 
mirroring FINRA Rule 3110.18(g)(1)(B).
---------------------------------------------------------------------------

     the firm is or becomes subject to FINRA Rule 1017(a)(7) as 
a result of one or more associated persons at such office or location; 
\45\
---------------------------------------------------------------------------

    \45\ See proposed Interpretations and Policies .18(g)(1)(C), 
mirroring FINRA Rule 3110.18(g)(1)(C).
---------------------------------------------------------------------------

     one or more associated persons at such office or location 
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; \46\
---------------------------------------------------------------------------

    \46\ See proposed Interpretations and Policies .18(g)(1)(D), 
mirroring FINRA Rule 3110.18(g)(1)(D).
---------------------------------------------------------------------------

     one or more associated persons at such office or location 
is or becomes subject to a disciplinary action taken by the Member that 
is or was reportable under FINRA Rule 4530(a)(2); \47\
---------------------------------------------------------------------------

    \47\ See proposed Interpretations and Policies .18(g)(1)(E), 
mirroring FINRA Rule 3110.18(g)(1)(E). The Exchange has not adopted 
FINRA Rule 4530.
---------------------------------------------------------------------------

     one or more associated persons at such office or location 
is engaged in proprietary trading, including the incidental crossing of 
customer orders, or the direct supervision of such activities; \48\ or
---------------------------------------------------------------------------

    \48\ See proposed Interpretations and Policies .18(g)(1)(F), 
mirroring FINRA Rule 3110.18(g)(1)(F).
---------------------------------------------------------------------------

     the office or location handles customer funds or 
securities.\49\
---------------------------------------------------------------------------

    \49\ See proposed Interpretations and Policies .18(g)(1)(G), 
mirroring FINRA Rule 3110.18(g)(1)(G).
---------------------------------------------------------------------------

    In addition, as part of the requirement to develop a reasonably 
designed risk-based approach to using remote inspections, and the 
requirement to conduct and document a risk assessment, proposed 
Interpretations and Policies .18(g)(2) would require that a specific 
office or location satisfy the following conditions to be eligible for 
remote inspections under the Pilot Program:
     electronic communications (e.g., email) are made through 
the Member's electronic system; \50\
---------------------------------------------------------------------------

    \50\ See proposed Interpretations and Policies .18(g)(2)(A), 
mirroring FINRA Rule 3110.18(g)(2)(A).
---------------------------------------------------------------------------

     the associated person's correspondence and communications 
with the public are subject to the firm's supervision in accordance 
with Exchange Rule 2300; \51\ and
---------------------------------------------------------------------------

    \51\ See proposed Interpretations and Policies .18(g)(2)(B), 
mirroring FINRA Rule 3110.18(g)(2)(B).
---------------------------------------------------------------------------

     no books or records of the Member required to be made and 
kept current, and preserved under applicable securities laws and 
regulations, FINRA and Exchange rules and the Member's own written 
supervisory procedures under Exchange Rule 2300 are physically or 
electronically maintained and preserved at such office or location.\52\
---------------------------------------------------------------------------

    \52\ See proposed Interpretations and Policies .18(g)(2)(C), 
mirroring FINRA Rule 3110.18(g)(2)(C).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes and the 
inclusion of references to Exchange rules in proposed Interpretations 
and Policies .18(g)(2)(B) and (C), proposed Interpretations and 
Policies .18(g)(1) and (2) are substantially the same as FINRA Rule 
3110.18(g)(1) and (2).
Proposed Interpretations and Policies .18(h) of Exchange Rule 2300 
(Data and Information Collection Requirement)
    FINRA Rule 3110.18(h) outlines requirements for FINRA members that 
elect to participate in the Pilot Program to collect specific data and 
information as part of the FINRA Pilot Program. Specifically, FINRA 
Rule 3110.18(h) requires firms to collect specific data points and to 
provide such data and information to FINRA on a quarterly basis, in the 
manner and format determined by FINRA, including:
     the number of offices and locations with an inspection 
completed during each calendar quarter; \53\
---------------------------------------------------------------------------

    \53\ See FINRA Rule 3110.18(h)(1)(A).
---------------------------------------------------------------------------

     the number of those offices or locations in each calendar 
quarter that were inspected remotely; \54\
---------------------------------------------------------------------------

    \54\ See FINRA Rule 3110.18(h)(1)(B).
---------------------------------------------------------------------------

     the number of those offices or locations in each calendar 
quarter that were the subject of an on-site inspection, as well as the 
number of such inspections that were on-site because of a finding; \55\
---------------------------------------------------------------------------

    \55\ See FINRA Rule 3110.18(h)(1)(C) and (D). Pursuant to FINRA 
Rule 3110.18(h)(1), a finding means a discovery made during an 
inspection that led to a remedial action or was listed on the 
member's inspection report.
---------------------------------------------------------------------------

     the number of offices and locations for which a remote 
office inspection was conducted in the calendar quarter that identified 
a finding, the number of findings, a list of the significant findings; 
\56\ and
---------------------------------------------------------------------------

    \56\ See FINRA Rule 3110.18(h)(1)(E).
---------------------------------------------------------------------------

     the number of locations for which an on-site inspection 
was conducted in the calendar quarter that identified a finding, the 
number of findings, and a list of the significant findings.\57\
---------------------------------------------------------------------------

    \57\ See FINRA Rule 3110.18(h)(1)(F).
---------------------------------------------------------------------------

    Moreover, FINRA members are required to provide FINRA with their 
written supervisory procedures for remote inspections that account for 
escalating significant findings; new hires; supervising brokers with a 
significant history of misconduct; and outside business activities and 
``doing business as'' (or DBA) designations.\58\ In addition, FINRA 
Rule 3110.18(h)(2) outlines requirements for FINRA member firms 
electing to participate in the Pilot Program to provide certain data 
and information for Pilot Year 1 if it is less than a full calendar 
year and FINRA Rule 3110.18(h)(3) lists additional data and information 
to be provided to FINRA for calendar year 2019 for member firms 
electing to participate in the FINRA Pilot Program.
---------------------------------------------------------------------------

    \58\ See FINRA Rule 3110.18(h)(1)(G).
---------------------------------------------------------------------------

    Proposed Interpretations and Policies .18(h) on data and 
information collection requirement would require Members to comply with 
the FINRA requirements with respect to the collection and submission of 
specified data and information, and in the manner and format required 
under the Pilot Program. In addition, proposed Interpretations and 
Policies .18(h) which substantially mirrors FINRA Rule

[[Page 90094]]

3110.18(h)(4) would require Members that elect to participate in the 
Pilot Program to establish, maintain and enforce written policies and 
procedures that are reasonably designed to comply with any specified 
data and information collection, and transmission requirements 
prescribed by FINRA.
Proposed Interpretations and Policies .18(i) of Exchange Rule 2300 
(Election To Participate in Pilot Program)
    FINRA Rule 3110.18(i) specifies how a firm elects to participate 
in, or subsequently withdraws from, the FINRA Pilot Program. 
Specifically, FINRA Rule 3110.18(i) states that a firm must, at least 
five calendar days before the beginning of a Pilot Year, provide FINRA 
an ``opt-in notice'' in the manner and format determined by FINRA.\59\ 
Moreover, FINRA Rule 3110.18(i) specifies that a FINRA member that 
elects to withdraw from subsequent Pilot Years (i.e., Pilot Year 2, 
Pilot Year 3, and Pilot Year 4, if applicable) shall, at least five 
calendar days before the end of the then current Pilot Year, provide 
FINRA with an ``opt-out notice'' in the manner and format determined by 
FINRA.
---------------------------------------------------------------------------

    \59\ FINRA Rule 3110.18(i) contains provisions for firms wishing 
to opt-in of the FINRA Pilot Program.
---------------------------------------------------------------------------

    Proposed Interpretations and Policies .18(i) would govern elections 
to participate in the Pilot Program and would require Members electing 
to participate in the Pilot Program to make their election in the 
manner and format as prescribed, in accordance with FINRA Rule 
3110.18(i). In addition, the proposed rule would require Members that 
elect to withdraw from the Pilot Program for subsequent years to 
provide such notice in the manner and format as prescribed in 
accordance with FINRA Rule 3110.18(i). These requirements will ensure 
that Members can properly elect to participate in, or subsequently 
withdraw from, the Pilot Program.
Proposed Interpretations and Policies .18(j) of Exchange Rule 2300 
(Failure To Satisfy Conditions)
    FINRA Rule 3110.18(j) governs failure to satisfy conditions and 
addresses situations in which a member fails to satisfy the 
requirements for participating in the FINRA Pilot Program. 
Specifically, FINRA Rule 3110.18(j) provides that FINRA members that 
fail to satisfy the conditions set forth to avail themselves of the 
FINRA Pilot Program, including the requirement to timely collect and 
submit the data and information to FINRA as set forth under FINRA Rule 
3110.18(h), shall be ineligible to participate in the FINRA Pilot 
Program. Such FINRA members would be required to conduct on-site 
inspections of each office and location on the required cycle in 
accordance with FINRA Rule 3110(c) on internal inspections.
    Consistent with FINRA Rule 3110.18(j), proposed Interpretations and 
Policies .18(j) on failure to satisfy conditions would specify that any 
Member that fails to satisfy the conditions of proposed Interpretations 
and Policies .18 and of FINRA Rule 3110.18, including the specified 
requirement to timely collect and submit data, would no longer be 
eligible to participate in the FINRA Pilot Program. Such Members would 
need to conduct on-site inspections of each office and location on the 
required cycle in accordance with Exchange Rule 2300(c).
Proposed Interpretations and Policies .18(k) (Determination of 
Ineligibility)
    FINRA Rule 3110.18(k) governs determinations of ineligibility and 
provides that FINRA may make a determination in the public interest and 
for the protection of investors that a FINRA member is no longer 
eligible to participate in the FINRA Pilot Program if the FINRA member 
fails to comply with the requirements of FINRA Rule 3110.18. In such 
instances, FINRA will provide written notice to the FINRA member of 
such determination and the member would no longer be eligible to 
participate in the FINRA Pilot Program and must conduct on-site 
inspections of required offices and locations in accordance with FINRA 
Rule 3110(c).
    Consistent with FINRA Rule 3110.18(k), proposed Interpretations and 
Policies .18(k) would govern ineligibility determinations and provide 
that FINRA or the Exchange may make a determination in the public 
interest and for the protection of investors that a Member is no longer 
eligible to participate in the FINRA Pilot Program if the Member fails 
to comply with the requirements of FINRA or Interpretations and 
Policies .18 of Exchange Rule 2300. The proposed rule would further 
provide that, in such instances, FINRA or the Exchange will provide 
written notice to the Member of such determination and the Member would 
no longer be eligible to participate in the FINRA Pilot Program and 
must conduct on-site inspections of required offices and locations in 
accordance with FINRA or Exchange Rule 2300(c). With the exception of 
conforming and technical changes, proposed Interpretations and Policies 
.18(k) is substantially the same as FINRA Rule 3110.18(k).
Proposed Interpretations and Policies .18(l) of Exchange Rule 2300 
(Definitions)
    The Exchange proposes to adopt FINRA Rule 3110.18(l) setting forth 
definitions applicable to Interpretations and Policies .18 verbatim. As 
proposed, Interpretations and Policies .18(l) would provide that for 
purposes of Interpretations and Policies .18, the term ``Pilot Year'' 
shall mean the following:
     Pilot Year 1 is the period beginning on July 1, 2024 and 
ending on December 31 of the same year;
     Pilot Year 2 means the calendar year period following 
Pilot Year 1, beginning on January 1 and ending on December 31;
     Pilot Year 3 means the calendar year period following 
Pilot Year 2, beginning on January 1 and ending on December 31; and
     If applicable, where Pilot Year 1 covers a period that is 
less than a full calendar year, then Pilot Year 4 means the period 
following Pilot Year 3, beginning on January 1 and ending on June 30, 
2027.
    Finally, FINRA also adopted FINRA Rule 3110.18(m) describing the 
sunset of FINRA Rule 3110.17, which the Exchange has not adopted. The 
Exchange accordingly does not propose to incorporate a provision 
similar to FINRA Rule 3110.18(m).
Interpretations and Policies .19 of Exchange Rule 2300
Interpretations and Policies .19(a) of Exchange Rule 2300 (Conditions 
for Designation as a Residential Supervisory Location (RSL)
    FINRA Rule 3110.19(a) lists the conditions for FINRA members to 
designate an office or location as an RSL. Proposed Interpretations and 
Policies .19(a) would set forth the conditions for designation as an 
RSL that would mirror the conditions set forth in FINRA Rule 3110.19(a) 
for Members to designate a location that is the associated person's 
private residence where specified supervisory activities are conducted 
as an RSL.
    As proposed, Interpretations and Policies .19 would provide that, 
notwithstanding any other provisions of Exchange Rule 2300(f) and 
subject to paragraphs (b) through (d) of the proposed Interpretations 
and Policies .19, a location that is the associated person's private 
residence where supervisory activities are conducted, including those 
described in Exchange

[[Page 90095]]

Rule 2300(f)(1)(D) through (G) or in Exchange Rule 2300(f)(4), shall be 
considered for those activities a non-branch location, provided that:
     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; \60\
---------------------------------------------------------------------------

    \60\ See proposed Interpretations and Policies .19(a)(1), 
mirroring FINRA Rule 3110.19(a)(1).
---------------------------------------------------------------------------

     the location is not held out to the public as an office; 
\61\
---------------------------------------------------------------------------

    \61\ See proposed Interpretations and Policies .19(a)(2), 
mirroring FINRA Rule 3110.19(a)(2).
---------------------------------------------------------------------------

     the associated person does not meet with customers or 
prospective customers at the location; \62\
---------------------------------------------------------------------------

    \62\ See proposed Interpretations and Policies .19(a)(3), 
mirroring FINRA Rule 3110.19(a)(3).
---------------------------------------------------------------------------

     any sales activity that takes place at the location 
complies with the conditions set forth under Exchange Rule 
2300(f)(2)(B) or (C); \63\
---------------------------------------------------------------------------

    \63\ See proposed Interpretations and Policies .19(a)(4), 
mirroring FINRA Rule 3110.19(a)(4).
---------------------------------------------------------------------------

     neither customer funds nor securities are handled at that 
location; \64\
---------------------------------------------------------------------------

    \64\ See proposed Interpretations and Policies .19(a)(5), 
mirroring FINRA Rule 3110.19(a)(5).
---------------------------------------------------------------------------

     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; \65\
---------------------------------------------------------------------------

    \65\ See proposed Interpretations and Policies .19(a)(6), 
mirroring FINRA Rule 3110.19(a)(6).
---------------------------------------------------------------------------

     the associated persons correspondence and communications 
with the public are subject to the firm's supervision in accordance 
with this Rule; \66\
---------------------------------------------------------------------------

    \66\ See proposed Interpretations and Policies .19(a)(7), 
mirroring FINRA Rule 3110.19(a)(7).
---------------------------------------------------------------------------

     the associated persons electronic communications (e.g., 
email) are made through the Member's electronic system; \67\
---------------------------------------------------------------------------

    \67\ See proposed Interpretations and Policies .19(a)(8), 
mirroring FINRA Rule 3110.19(a)(8).
---------------------------------------------------------------------------

     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, Exchange rules, and the Member's own written supervisory 
procedures under Exchange Rule 2300; (B) such records are not 
physically or electronically maintained and preserved at the office or 
location; and (C) the Member has prompt access to such records; \68\ 
and
---------------------------------------------------------------------------

    \68\ See proposed Interpretations and Policies .19(a)(9), 
mirroring FINRA Rule 3110.19(a)(9).
---------------------------------------------------------------------------

     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: (A) 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; (B) 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 (C) system tools such as secure network connections and effective 
cybersecurity protocols.\69\
---------------------------------------------------------------------------

    \69\ See proposed Interpretations and Policies .19(a)(10), 
mirroring FINRA Rule 3110.19(a)(10).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .19(a) is substantially the same as FINRA 
Rule 3110.19(a).
Interpretations and Policies .19(b) of Exchange Rule 2300 (Member 
Ineligibility Criteria)
    FINRA Rule 3110.19(b) outlines the conditions that would render its 
members ineligible from designating an office as an RSL. As proposed, 
Interpretations and Policies .19(b) would mirror these criteria and 
provide that a Member is ineligible from designating an office or 
location as an RSL if the Member:
     is currently designated as a restricted firm under FINRA 
Rule 4111; \70\
---------------------------------------------------------------------------

    \70\ See proposed Interpretations and Policies .19(b)(1), 
mirroring FINRA Rule 3110.19(b)(1). The Exchange has not adopted 
FINRA Rule 4111.
---------------------------------------------------------------------------

     is currently designated as a taping firm under FINRA Rule 
3170; \71\
---------------------------------------------------------------------------

    \71\ See proposed Interpretations and Policies .19(b)(2), 
mirroring FINRA Rule 3110.19(b)(2). The Exchange has not adopted 
FINRA Rule 3170.
---------------------------------------------------------------------------

     is currently undergoing, or is required to undergo, a 
review under FINRA Rule 1017(a)(7) as a result of one or more 
associated persons at such location; \72\
---------------------------------------------------------------------------

    \72\ See proposed Interpretations and Policies .19(b)(3), 
mirroring FINRA Rule 3110.19(b)(3).
---------------------------------------------------------------------------

     receives a notice pursuant to FINRA Rule 9557, regarding 
capital compliance related matters under FINRA Rules 4110, 4120 and 
4130, unless the Exchange has otherwise permitted such activities in 
writing pursuant to such rule; \73\
---------------------------------------------------------------------------

    \73\ See proposed Interpretations and Policies .19(b)(4), 
mirroring FINRA Rule 3110.19(b)(4). The Exchange has not adopted 
FINRA Rule 9557, 4110, 4120, or 4130.
---------------------------------------------------------------------------

     is or becomes suspended by the Exchange or FINRA; \74\
---------------------------------------------------------------------------

    \74\ See proposed Interpretations and Policies .19(b)(5), 
mirroring FINRA Rule 3110.19(b)(5).
---------------------------------------------------------------------------

     based on the date in the Central Registration Depository 
(CRD), had its FINRA membership become effective within the prior 12 
months; \75\ or
---------------------------------------------------------------------------

    \75\ See proposed Interpretations and Policies .19(b)(6), 
mirroring FINRA Rule 3110.19(b)(6).
---------------------------------------------------------------------------

     is or has been found to be in violation of office 
inspection obligations under Exchange Rule 2300(c) or FINRA Rule 
3110(c) within the past three years.\76\
---------------------------------------------------------------------------

    \76\ See proposed Interpretations and Policies .19(b)(7), 
mirroring FINRA Rule 3110.19(b)(7).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .19(b) is substantially the same as FINRA 
Rule 3110.19(b).
Interpretations and Policies .19(c) of Exchange Rule 2300 (Location 
Ineligibility Criteria)
    FINRA Rule 3110.19(c) sets forth the criteria that would render a 
particular office or location that is an associated person's private 
residence where specified supervisory activities are conducted 
ineligible for an RSL designation. Proposed Interpretations and 
Policies .19(c) would mirror these criteria. As proposed, 
Interpretations and Policies .19(c) would make an office ineligible for 
the RSL designation if one or more associated persons at such office or 
location:
     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; \77\
---------------------------------------------------------------------------

    \77\ See proposed Interpretations and Policies .19(c)(1), 
mirroring FINRA Rule 3110.19(c)(1).
---------------------------------------------------------------------------

     is functioning as a principal for a limited period in 
accordance with Interpretations and Policies .04 of Exchange Rule 3100; 
\78\
---------------------------------------------------------------------------

    \78\ See proposed Interpretations and Policies .19(c)(2), 
mirroring FINRA Rule 3110.19(c)(2).
---------------------------------------------------------------------------

     is subject to a mandatory heightened supervisory plan 
under the rules of the SEC, FINRA, the Exchange or state regulatory 
agency; \79\
---------------------------------------------------------------------------

    \79\ See proposed Interpretations and Policies .19(c)(3), 
mirroring FINRA Rule 3110.19(c)(3).
---------------------------------------------------------------------------

     is statutorily disqualified, unless such disqualified 
person has been approved (or is otherwise permitted pursuant to FINRA 
or Exchange rules and the federal securities laws) to associate with a 
Member and is not subject to a mandatory heightened supervisory plan 
under paragraph (c)(3) of Interpretations and Policies .19 or otherwise 
as a condition to approval or permission for such association; \80\
---------------------------------------------------------------------------

    \80\ See proposed Interpretations and Policies .19(c)(4), 
mirroring FINRA Rule 3110.19(c)(4).
---------------------------------------------------------------------------

     has an event in the prior three years that required a 
``yes'' response to any item in Questions 14A(1)(a) and 2(a),

[[Page 90096]]

14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; \81\ or
---------------------------------------------------------------------------

    \81\ See proposed Interpretations and Policies .19(c)(5), 
mirroring FINRA Rule 3110.19(c)(5).
---------------------------------------------------------------------------

     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, a self-regulatory organization, including the Exchange, 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 
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 Exchange or other self- regulatory 
organization, including the Exchange; provided, however, such office or 
location may be designated or redesignated as an RSL subject to the 
requirements of Interpretations and Policies .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.\82\
---------------------------------------------------------------------------

    \82\ See proposed Interpretations and Policies .19(c)(6), 
mirroring FINRA Rule 3110.19(c)(6).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .19(c) is substantially the same as FINRA 
Rule 3110.19(c).
Interpretations and Policies .19(d) of Exchange Rule 2300 (Obligation 
to Provide List of RSLs)
    Proposed Interpretations and Policies .19(d) setting forth the 
obligations to provide RSL list would fully mirror the provisions of 
FINRA Rule 3110.19(d) and would require Members electing to designate 
any office or location of that Member as an RSL to provide a current 
list of all offices or locations designated as RSLs by the 15th day of 
the month following each calendar quarter to FINRA in the manner and 
format as FINRA may prescribe.
    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .19(d) is substantially the same as FINRA 
Rule 3110.19(d).
Interpretations and Policies .19(e) of Exchange Rule 2300 (Risk 
Assessment)
    FINRA Rule 3110.19(e) requires its members, prior to designating an 
office or location as an RSL, to 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. Proposed Interpretations and Policies .19(e) 
would mirror the provisions of FINRA Rule 3110.19(e). Specifically, a 
Member would be required, prior to designating an office or location as 
an RSL, to 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(s) assigned to that office or location. In 
line with FINRA Rule 3110.19(e), the proposed rule would list certain 
factors, among others, that Members must consider in the risk 
assessment that include whether each associated person at such office 
or location is subject to:
     customer complaints, taking into account the volume and 
nature of the complaints; \83\
---------------------------------------------------------------------------

    \83\ See proposed Interpretations and Policies .19(e)(1), 
mirroring FINRA Rule 3110.19(e)(1).
---------------------------------------------------------------------------

     heightened supervision other than where such office or 
location is ineligible for RSL designation under paragraph (c)(3) of 
Interpretations and Policies .19; \84\
---------------------------------------------------------------------------

    \84\ See proposed Interpretations and Policies .19(e)(2), 
mirroring FINRA Rule 3110.19(e)(2).
---------------------------------------------------------------------------

     any failure to comply with the Member's written 
supervisory procedures; \85\
---------------------------------------------------------------------------

    \85\ See proposed Interpretations and Policies .19(e)(3), 
mirroring FINRA Rule 3110.19(e)(3).
---------------------------------------------------------------------------

     any recordkeeping violation; \86\ and
---------------------------------------------------------------------------

    \86\ See proposed Interpretations and Policies .19(e)(4), 
mirroring FINRA Rule 3110.19(e)(4).
---------------------------------------------------------------------------

     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 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 Exchange Rule 2300(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 Interpretations and Policies .19 and the Member should 
consider evidencing steps taken to address those red flags where 
appropriate.\87\
---------------------------------------------------------------------------

    \87\ See proposed Interpretations and Policies .19(e)(5), 
mirroring FINRA Rule 3110.19(e)(5).
---------------------------------------------------------------------------

    With the exception of conforming and technical changes, proposed 
Interpretations and Policies .19(e) is substantially the same as FINRA 
Rule 3110.19(e).
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\88\ in general, and furthers the objectives of Section 
6(b)(5),\89\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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.
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78f(b).
    \89\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change furthers the 
objectives of the Act by permitting Members that are FINRA members to 
participate in the FINRA Pilot Program and for all Members to utilize 
the RSL designation in order to continue to meet the core regulatory 
obligation to establish and maintain a supervisory system reasonably 
designed to achieve compliance with applicable securities laws and 
regulations and applicable Exchange rules that directly serve investor 
protection. The Exchange believes that the proposed changes, taken 
together, reasonably account for evolving work models while maintaining 
effective supervision. The Exchange believes that the proposed 
safeguards and controls built into both the remote inspection program 
and the RSL designation will, as FINRA noted,\90\

[[Page 90097]]

provide Members with greater flexibility to adapt to changing work 
conditions without compromising investor protection. The robust nature 
of the criteria that must be satisfied and circumstances that would 
make a location ineligible for remote office inspections, as well as 
requirements for supplemental written supervisory procedures related to 
remote inspections, documentation requirements, and obligations to 
share data with FINRA to allow for assessment of the pilot program, 
serve an important role in reducing the potential for fraud and 
manipulative acts. Similarly, important safeguards such as requiring 
risk assessments in connection with the RSL designation in addition to 
delineating specific criteria for locations that would be ineligible 
for designation as an RSL furthers the prevention of manipulative acts 
and practices and the protection of investors and the public interest.
---------------------------------------------------------------------------

    \90\ See Securities Exchange Act Release No. 97398 (November 17, 
2023), 88 FR 28620, 28635 (May 4, 2023) (SR-FINRA-2023-007) (Notice 
of Filing of a Proposed Rule Change To Adopt Supplementary Material 
.18 (Remote Inspections Pilot Program) Under FINRA Rule 3110 
(Supervision)); Securities Exchange Act Release No. 97237 (March 31, 
2023), 88 FR 20568 (April 6, 2023) (SR-FINRA-2023-006) (Notice of 
Filing of a Proposed Rule Change To Adopt Supplementary Material .19 
(Residential Supervisory Location) Under FINRA Rule 3110 
(Supervision)).
---------------------------------------------------------------------------

    As discussed in the Purpose section, because proposed 
Interpretations and Policies .18 and Interpretations of Exchange Rule 
2300 and Policies .19 of Exchange Rule 2300 are substantially similar 
to FINRA Rule 3110.18 and FINRA Rule 3110.19, respectively, this rule 
change enables Exchange Rule 2300 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 Rules 3110.18 and 3110.19 
shall mean the Member is also in compliance with proposed 
Interpretations and Policies .18 and Interpretations of Exchange Rule 
2300 and Policies .19 of Exchange Rule 2300, thus promoting the 
application of consistent regulatory standards with respect to rules 
that FINRA enforces pursuant to the 17d-2 Agreement. As previously 
noted, except for conforming and technical changes, the proposed text 
of proposed Interpretations and Policies .18 and.19 of Exchange Rule 
2300 is substantially the same as the text of FINRA Supplementary 
Material .18 and .19, respectively, to FINRA Rule 3110. As such, the 
proposed rule change would facilitate rule harmonization among self-
regulatory organizations with respect to inspection of Members and a 
consistent and uniform regulatory framework for which Members can avail 
themselves of the RSL designation, thereby fostering cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and will remove impediments to and perfect the mechanism of 
a free and open market and a national market system.

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

    The Exchange does not believe 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. The proposed rule change is 
not intended to address competitive issues but rather is intended 
solely to reduce potential compliance burdens on Members by aligning 
Exchange Rule 2300 with FINRA Rule 3110, resulting in less burdensome 
and more efficient regulatory compliance for common members and 
facilitating FINRA's performance under the 17d-2 Agreement.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \91\ and Rule 19b-4(f)(6) \92\ 
thereunder.
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 78s(b)(3)(A).
    \92\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \93\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\94\ 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 so that the proposal 
may become operative immediately upon filing.
---------------------------------------------------------------------------

    \93\ 17 CFR 240.19b-4(f)(6).
    \94\ 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, MIAX Pearl 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). Further, the Exchange stated that waiver 
of the operative delay should reduce any potential confusion that may 
otherwise occur on the part of joint members of the Exchange and FINRA 
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.\95\
---------------------------------------------------------------------------

    \95\ 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) \96\ of the Act to determine whether the proposed 
rule should be approved or disapproved.
---------------------------------------------------------------------------

    \96\ 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:

[[Page 90098]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-PEARL-2024-51 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-PEARL-2024-51. 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 
a.m. and 3 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-PEARL-2024-51 and should be 
submitted on or before December 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\97\
---------------------------------------------------------------------------

    \97\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26406 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
```