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[Federal Register Volume 89, Number 234 (Thursday, December 5, 2024)]
[Notices]
[Pages 96698-96701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28426]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101779; File No. SR-IEX-2024-26]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX 
Rule 2.160(a) To Better Reflect the Process for a Broker-Dealer To 
Become a Member (or Continue as a Member) of the Exchange 
Notwithstanding the Member (or a Person Associated With the Member) 
Being Subject to a Statutory Disqualification

November 29, 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 November 19, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the 
Commission a proposed rule change to amend IEX Rule 2.160(a) to better 
reflect the process for a broker-dealer to become a Member (or continue 
as a Member) of the Exchange notwithstanding the Member (or a person 
associated with the Member) being subject to a statutory 
disqualification. The Exchange has designated this proposed rule change 
as ``non-controversial'' under Section 19(b)(3)(A) of the Act \6\ and 
provided the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\7\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4.
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    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 
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
    The Exchange proposes to amend IEX Rule 2.160(a) to better reflect 
the process for a broker-dealer firm to become a Member \8\ (or 
continue as a Member) of the Exchange notwithstanding the Member (or a 
person associated with the Member) being subject to a statutory 
disqualification.\9\
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    \8\ See IEX Rule 1.160(s).
    \9\ Additionally, and as discussed further below, IEX is 
proposing this rule change to address a situation of first 
impression for the Exchange in which it is evaluating a firm's 
application for membership on the Exchange while that firm is in the 
process of eligibility proceedings related to a statutory 
disqualification with FINRA and other SROs of which the firm is 
already a member.
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    Section 3(a)(39) of the Act defines the term ``statutory 
disqualification'' and the circumstances that can cause a person 
(either a Member, or a person associated with a Member) to be subject 
to a statutory disqualification.\10\ For example, a broker-dealer is 
subject to a statutory disqualification if the Commission finds that 
the firm ``willfully aided, abetted, counseled, commanded, induced, or 
procured the violation of another person of the [Exchange Act] . . . or 
failed to reasonably supervise another person who commits such a 
violation.'' \11\ As discussed below, absent relief, a statutory 
disqualification would

[[Page 96699]]

preclude a broker-dealer or person associated with a broker-dealer from 
certain activities, including membership in a self-regulatory 
organization (``SRO'').
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    \10\ 15 U.S.C. 78c(a)(39).
    \11\ 15 U.S.C. 78o(b)(4)(E), which is cited in 15 U.S.C. 
78c(a)(39)(F).
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    Notwithstanding the above, there is a well-established process 
through which a broker-dealer (or a person associated with a broker-
dealer) may continue to operate in the securities industry (and either 
become a member of, or continue as a member of, one or more SROs) 
despite being subject to a statutory disqualification.\12\ In 
particular, SEC Rule 19h-1 \13\ describes several ways an SRO may seek 
relief for a member firm (or prospective member firm) that is subject 
to a statutory disqualification, including whether an SRO must file a 
notice with the Commission in order to allow the disqualified firm to 
become or continue as a member with the SRO (a ``19h-1 Notice''). For 
example, a 19h-1 Notice does not need to be filed by an SRO if the firm 
subject to a statutory disqualification is a member of at least one 
other SRO, and that SRO intends to file a 19h-1 Notice for the 
firm.\14\
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    \12\ See FINRA Regulatory Notice 09-19 (``Amendments to FINRA 
Rule 9520 Series to Establish Procedures Applicable to Firms and 
Associated Persons Subject to Certain Statutory 
Disqualifications'').
    \13\ 17 CFR 240.19h-1
    \14\ Exchange Act Rule 19h-1(a)(3), 17 CFR 240.19h-1(a)(3).
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    Several IEX rules address statutory disqualifications and the 
process for seeking relief from those disqualifications. For example, 
IEX Rule 2.160(a)(3) states that ``No person may become a Member or 
continue as a Member in any capacity on the Exchange where such person 
is subject to a statutory disqualification, except that a person may 
become a Member or continue as a Member where, pursuant to Rules 19d-1, 
19d-2, 19d-3 and 19h-1 of the Act,\15\ the Commission has issued an 
order providing relief from such a disqualification and permitting such 
a person to become a Member.'' And IEX Rule 9.522 describes the process 
by which a Member or a person associated with a Member may continue as 
a Member of IEX notwithstanding being subject to a statutory 
disqualification. Notably, several sections of IEX Rule 9.522 mirror 
sections of Rule 19h-1; for example, IEX Rule 9.522(e)(1)(C)(i) mirrors 
Rule 19h-1(a)(3)(i) in that both describe how an SRO like IEX need not 
file a 19h-1 Notice with the Commission for a Member subject to a 
statutory disqualification, if the firm is a member of at least one 
other SRO, and that SRO intends to file a 19h-1 Notice for the 
firm.\16\
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    \15\ See 17 CFR 240.19d-1, 17 CFR 240.19d-2, 17 CFR 240.19d-3, 
and 17 CFR 240.19h-1.
    \16\ See IEX Rule 9.522(e)(1)(C)(i) and Rule 19h-1(a)(3)(i).
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    A broker-dealer firm that recently became subject to a statutory 
disqualification applied for IEX membership. In the course of reviewing 
this membership application, IEX identified that its rules do not 
specifically address this situation, which has not previously occurred 
with respect to IEX. Specifically, the Exchange believes that its rules 
regarding the process by which a prospective Member that is subject to 
a statutory disqualification can be approved for membership on IEX 
notwithstanding the statutory disqualification could be enhanced to 
provide additional clarity and more clearly align with the processes 
set forth in Rule 19h-1 for a membership applicant that is subject to a 
statutory disqualification. IEX notes that other exchanges rules do 
address this issue--specifically BOX, Cboe BZX, Cboe BYX, Cboe EDGX, 
and Cboe EDGA, amended their respective rules in 2016 to provide more 
clarity as to the authority of each Exchange to determine whether to 
admit a prospective Member that is subject to a statutory 
disqualification.\17\ The 2016 rule change filings of these exchanges 
also amended several other aspects of their application procedures, but 
IEX is only seeking to harmonize its rules insofar as they apply to 
Members and prospective Members (and associated person of the Members) 
that are subject to a statutory disqualification in order to address 
the membership application described herein.\18\
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    \17\ See Securities Exchange Act Release No. 78449 (August 1, 
2016), 81 FR 51947 (August 5, 2016) (SR-BOX-2016-26); Securities 
Exchange Act Release No. 79229 (November 3, 2016), 81 FR 78875 
(November 9, 2016) (SR-BatsBZX-2016-67); Securities Exchange Act 
Release No. 79233 (November 3, 2016), 81 FR 78869 (November 9, 2016) 
(SR-BatsBYX-2016-28); Securities Exchange Act Release No. 79234 
(November 3, 2016), 81 FR 78867 (November 9, 2016) (SR-BatsEDGA-
2016-23); Securities Exchange Act Release No. 79236 (November 3, 
2016), 81 FR 78878 (November 9, 2016) (SR-BatsEDGX-2016-59).
    \18\ The 2016 rule filings also added some other conditions for 
eligibility for exchange membership such as adding a restriction 
that members must meet any condition the exchange placed on such 
member, which IEX believes are adequately addressed in other IEX 
Rules. See, e.g., IEX Rules 2.160 and 2.170 which address membership 
restrictions and agreements.
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    Accordingly, IEX proposes to amend its rules to align them with 
those of these other exchanges, specifically with respect to the 
process of assessing an applicant for membership that is subject to a 
statutory disqualification. \19\
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    \19\ The proposed changes mirror the language in the following 
rules: BOX Rule 2040(a) and IM-2040-08; Cboe BZX Rule 2.5(a) and 
Interpretation and Policies .04; Cboe BYX Rule 2.5(a) and 
Interpretation and Policies .04; Cboe EDGA Rule 2.5(a) and 
Interpretation and Policies .04; and Cboe EDGX Rule 2.5(a) and 
Interpretation and Policies .04.
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    First, IEX proposes to add Supplementary Material .01 to IEX Rule 
2.160(a), to provide that the Exchange could approve an applicant for 
membership (or association with a Member) that is subject to a 
statutory disqualification when a proceeding is pending before another 
SRO to determine whether to permit a Member or associated person of a 
Member to become or continue membership or association notwithstanding 
a statutory disqualification. This provision, which is consistent with 
SEC Rule 19h-1(a)(3), would provide as follows:

Statutory Disqualification Proceedings Pending Before Another SRO

    The Exchange may waive the provisions of this Rule when a 
proceeding is pending before another self-regulatory organization to 
determine whether to permit a member or associated person of a 
member to become or continue membership or association 
notwithstanding a statutory disqualification. In the event the 
Exchange determines to waive the provisions of this Rule with 
respect to a prospective IEX Member, existing IEX Member, or 
associated person of such Member or prospective Member, the Exchange 
shall determine whether the Exchange will concur in any Exchange Act 
Rule 19h-1 filing made by another self-regulatory organization with 
respect to the member or associated person.

    IEX notes that this Supplementary Material is substantively 
identical to Interpretation and Policies .04 to Cboe BZX, BYX, EDGX, 
and EDGA Rules 2.5, except for the addition of some language to clarify 
that the new supplementary material would apply to both prospective and 
existing IEX Members.
    Second, IEX proposes a conforming amendment to IEX Rule 2.160(a)(3) 
to remove the language that states that a person subject to statutory 
disqualification may not become a Member unless, pursuant to Rules 19d-
1, 19d-2, 19d-3, and 19h-1 of the Act, the Commission has issued an 
order providing relief from such disqualification. IEX makes this 
proposed rule change because, as discussed above with respect to Rule 
19h-1, not every statutory disqualification requires an SRO to make a 
filing under Rule 19h-1 of the Act and not all filings require a 
Commission order. As proposed the rule will now read: ``No person may 
become a Member or continue as a Member in any capacity on the Exchange 
where such person is subject to a statutory

[[Page 96700]]

disqualification.'' As discussed above and in Item 7, below, IEX is 
making this proposed rule change, and seeking a waiver of the 30-day 
operative delay for the rule change, in order to address an unusual 
situation in which a firm subject to a statutory disqualification seeks 
to become an IEX Member during the pendency of the process by which the 
firm is seeking relief from the statutory disqualification.
    IEX believes that these proposed rule changes would appropriately 
align IEX's rules with the SEC's rules regarding statutory 
disqualifications and enable a consistent process across IEX and 
several other SROs to make appropriate SEC filings with respect to a 
prospective Member that is subject to a statutory disqualification. 
Specifically, in the event that an applicant for membership is subject 
to a statutory disqualification, IEX will be able to assess whether to 
approve the applicant and join in any Rule 19h-1 Notices filed on 
behalf of the prospective Member once approved for IEX membership, as 
consistent with the public interest and protection of investors. The 
Exchange notes that in assessing the statutory disqualification of a 
Member (or prospective Member), it must act consistent with the 
protection of investors and in the public interest and is prohibited 
from unfairly discriminating against Members or prospective 
Members.\20\ Further, any prospective Member that has been denied 
membership in the Exchange or barred from becoming associated with a 
Member is entitled to certain due process pursuant to Chapter 9 of the 
Exchange's rules, which includes, but is not limited to, potential 
review by the Commission.\21\
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    \20\ 15 U.S.C. 78f(b)(5).
    \21\ See Chapter 9 of the Exchange's Rules.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \22\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \23\ 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.
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    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule changes are consistent 
with the requirements above. Specifically, the Exchange believes the 
proposed changes would better align IEX's rules with the SEC's rules 
regarding statutory disqualifications and enable a consistent process 
across IEX and several other SROs to make appropriate SEC filings with 
respect to a prospective Member that is subject to a statutory 
disqualification, thereby protecting investors and the public interest 
by providing more clarity and consistency with respect to the process 
of seeking relief from a statutory disqualification.\24\
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    \24\ In a 2009 order approving a similar rule change proposal 
filed by CBOE, the Commission found that the proposed rule change 
was consistent with Section 6(b)(5) of the Act because it enabled 
CBOE to more efficiently administer its statutory disqualification 
program. See Securities Exchange Act Release No. 60370 (July 23, 
2009), 74 FR 37758 (July 29, 2009) (SR-CBOE-2009-033).
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    Additionally, the Exchange believes that the clarity this rule 
change will provide to Members, prospective Members, and persons 
associated with Members or prospective Member will remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system.
    Furthermore, the Exchange believes is it reasonable to remove the 
references to Rules 19d-1, 19d-2, 19d-3, and 19h-1, as well as the 
language regarding a Commission order providing relief from a statutory 
disqualification from Rule 2.160(a)(3), because, as discussed in the 
Purpose section, not every statutory disqualification requires an SRO 
to make a filing pursuant to Commission Rule 19h-1 to allow a Member or 
person associated with a Member to continue working in the securities 
industry notwithstanding a statutory disqualification, and not every 
filing pursuant to Rule 19h-1 requires a Commission order. Further, 
these proposed changes would align IEX's Rule 2.160(a)(3) with the 
equivalent rules of BOX, Cboe BZX, Cboe BYX, Cboe EDGA, and Cboe EDGX.
    Finally, as noted in the Purpose section, this rule change is 
substantively identical to rules of BOX, Cboe BZX, Cboe BYX, Cboe EDGA, 
and Cboe EDGX.\25\ Thus, IEX does not believe that this proposal raises 
any new or novel issues that have not already been considered by the 
Commission.
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    \25\ See supra notes 17 and 18. As noted in the Purpose section, 
IEX only seeks to mirror the language in these other exchanges' 
rules with respect to current or prospective Members that are 
subject to a statutory disqualification.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is not 
designed to address any competitive issue but to align the Exchange's 
rules with those of other exchanges and with the Commission's approach 
to handling firms that are subject to statutory disqualification. 
Consequently, the Exchange does not believe that the proposed change 
implicates competition at all.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6) thereunder.\27\
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 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, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\29\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. IEX has asked the 
Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. IEX states that waiving 
the 30-day delay in this manner would allow IEX to appropriately 
address a pending membership application, and would permit the Exchange 
to harmonize the aspects of its statutory disqualification-related 
rules that are the subject of this proposed rule change filing with the 
other exchanges described herein upon effectiveness of the proposed 
rule filing. Further, IEX believes that the waiver of the operative 
delay will avoid any potential confusion that may otherwise occur on 
the part of

[[Page 96701]]

Members and applicants as to the applicable rules governing statutory 
disqualifications. For these reasons, the Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal operative upon 
filing.
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    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-IEX-2024-26 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-IEX-2024-26. 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-2024-26 and should 
be submitted on or before December 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28426 Filed 12-4-24; 8:45 am]
BILLING CODE 8011-01-P
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