Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices 34069 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

Additionally, section 57(j)(1) of the Act 

expressly permits any director, officer or 

employee of a BDC to acquire warrants, 

options and rights to purchase voting 

securities of such BDC, and the 

securities issued upon the exercise or 

conversion thereof, pursuant to an 

executive compensation plan which 

meets the requirements of section 

61(a)(3)(B) of the Act. Applicant submits 

that the issuance of Restricted Stock 

pursuant to the 2021 Plan poses no 

greater risk to stockholders than the 

issuances permitted by section 57(j)(1) 

of the Act. 

Section 23(c) 

9. Section 23(c) of the Act, which is 

made applicable to BDCs by section 63 

of the Act, generally prohibits a BDC 

from purchasing any securities of which 

it is the issuer except in the open market 

pursuant to tenders, or under other 

circumstances as the Commission may 

permit to ensure that the purchases are 

made in a manner or on a basis that 

does not unfairly discriminate against 

any holders of the class or classes of 

securities to be purchased. Applicant 

states that the withholding or purchase 

of shares of Restricted Stock and 

common stock in payment of applicable 

withholding tax obligations or of 

common stock in payment for the 

exercise price of a stock option might be 

deemed to be purchases by the 

Company of its own securities within 

the meaning of section 23(c) and 

therefore prohibited by the Act. 

10. Section 23(c)(3) of the Act permits 

a BDC to purchase securities of which 

it is the issuer in circumstances in 

which the repurchase is made in a 

manner or on a basis that does not 

unfairly discriminate against any 

holders of the class or classes of 

securities to be purchased. Applicant 

believes that the requested relief meets 

the standards of section 23(c)(3). 

11. Applicant submits that these 

purchases will be made in a manner that 

does not unfairly discriminate against 

Applicant’s stockholders because all 

purchases of Applicant’s stock will be at 

the closing price of the common stock 

on the Nasdaq Global Market (or any 

primary exchange on which its shares of 

common stock may be traded in the 

future) on the relevant date (i.e., the 

public market price on the date of grant 

of Restricted Stock). Applicant submits 

that because all transactions with 

respect to the 2021 Plan will take place 

at the public market price for the 

Applicant’s common stock, these 

transactions will not be significantly 

different than could be achieved by any 

stockholder selling in a market 

transaction. Applicant represents that 

no transactions will be conducted 

pursuant to the requested order on days 

where there are no reported market 

transactions involving Applicant’s 

shares. 

12. Applicant represents that the 

withholding provisions in the 2021 Plan 

do not raise concerns about preferential 

treatment of Applicant’s insiders 

because the 2021 Plan is a bona fide 

compensation plan of the type that is 

common among corporations generally. 

Furthermore, the vesting schedule is 

determined at the time of the initial 

grant of the Restricted Stock. Applicant 

represents that all purchases may be 

made only as permitted by the 2021 

Plan, which will be approved by the 

Applicant’s stockholders prior to any 

application of the relief. Applicant 

believes that granting the requested 

relief would be consistent with the 

policies underlying the provisions of the 

Act permitting the use of equity 

compensation as well as prior 

exemptive relief granted by the 

Commission under section 23(c) of the 

Act. 

Applicant’s Conditions 

Applicant agrees that the order 

granting the requested relief will be 

subject to the following conditions: 

1. The 2021 Plan will be authorized 

by the Company’s shareholders. 

2. Each issuance of Restricted Stock to 

officers and employees will be approved 

by the required majority, as defined in 

section 57(o) of the Act, of the 

Company’s directors on the basis that 

such grant is in the best interests of the 

Company and its shareholders. 

3. The amount of voting securities 

that would result from the exercise of all 

of the Company’s outstanding warrants, 

options, and rights, together with any 

Restricted Stock issued and outstanding 

pursuant to the 2021 Plan and any other 

compensation plans of the Company, at 

the time of issuance shall not exceed 

25% of the outstanding voting securities 

of the Company, except that if the 

amount of voting securities that would 

result from the exercise of all of the 

Company’s outstanding warrants, 

options, and rights issued to the 

Company’s directors, officers, and 

employees, together with any Restricted 

Stock issued pursuant to the 2021 Plan 

and any other compensation plans of 

the Company, would exceed 15% of the 

outstanding voting securities of the 

Company, then the total amount of 

voting securities that would result from 

the exercise of all outstanding warrants, 

options, and rights, together with any 

Restricted Stock issued pursuant to the 

2021 Plan and any other compensation 

plans of the Company, at the time of 

issuance shall not exceed 20% of the 

outstanding voting securities of the 

Company. 

4. The amount of Restricted Stock 

issued and outstanding will not at the 

time of issuance of any Restricted Stock 

exceed 10% of the Company’s 

outstanding voting securities. 

5. The Board will review the 2021 

Plan at least annually. In addition, the 

Board will review periodically the 

potential impact that the issuance of 

Restricted Stock under the 2021 Plan 

could have on the Company’s earnings 

and NAV per share, such review to take 

place prior to any decisions to grant 

Restricted Stock under the 2021 Plan, 

but in no event less frequently than 

annually. Adequate procedures and 

records will be maintained to permit 

such review. The Board will be 

authorized to take appropriate steps to 

ensure that the issuance of Restricted 

Stock under the 2021 Plan will be in the 

best interests of the Company’s 

shareholders. This authority will 

include the authority to prevent or limit 

the granting of additional Restricted 

Stock under the 2021 Plan. All records 

maintained pursuant to this condition 

will be subject to examination by the 

Commission and its staff. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–13664 Filed 6–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34 –92222; File No. SR–IEX– 

2021–09] 

Self-Regulatory Organizations: 

Investors Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Provide 

Temporary Remote Inspection Relief to 

IEX Members for Calendar Year 2021 

June 22, 2021. 

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 June 11, 

2021, 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 


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34070 Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices 

4 15 U.S.C. 78s(b)(1). 

5 17 CFR 240.19b–4. 

6See IEX Rule 1.160(s). 

7SEC and Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) staff have stated in 

guidance that inspections must include a physical, 

on-site review component. See SEC National 

Examination Risk Alert, Volume I, Issue 2 

(November 30, 2011) and FINRA Regulatory Notice 

11–54 (November 2011) (joint SEC and FINRA 

guidance stating, a ‘‘broker-dealer must conduct onsite inspections of each of its office locations; Office 

of Supervisory Jurisdictions (‘OSJs’) and non-OSJ 

branches that supervise non-branch locations at 

least annually, all non-supervising branch offices at 

least every three years; and non-branch offices 

periodically.’’) (footnote defining an OSJ omitted). 

See also SEC Division of Market Regulation, Staff 

Legal Bulletin No. 17: Remote Office Supervision 

(March 19, 2004) (stating, in part, that brokerdealers that conduct business through 

geographically dispersed offices have not 

adequately discharged their supervisory obligations 

where there are no on-site routine or ‘‘for cause’’ 

inspections of those offices). 

8See Securities Exchange Act Release No. 90454 

(November 18, 2020), 85 FR 75097 (November 24, 

2020) (SR–FINRA–2020–040). FINRA’s rule change 

also permitted FINRA members to complete their 

2020 remote inspections remotely, but IEX is only 

seeking to permit temporary remote inspections for 

calendar year 2021 because the applicable 

deadlines to complete the 2020 inspections have 

elapsed. 

9The proposed rule change will automatically 

sunset on December 31, 2021. If IEX seeks to extend 

the duration of the temporary proposed rule beyond 

December 31, 2021, IEX will submit a separate rule 

filing to further renew the temporary relief. 

10See IEX Rule 5.110(f)(1). 

11See IEX Rule 5.110(f)(2). 

12See Centers for Disease Control and Prevention 

(‘‘CDC’’), International Classification of Diseases, 

Tenth Revision, Clinical Modification, https://

www.cdc.gov/nchs/data/icd/Announcement-NewICD-code-for-coronavirus-3-18-2020.pdf. See also 

WHO Director-General, Opening Remarks at the 

Media Briefing on COVID–19 (March 11, 2020), 

https://www.who.int/director-general/speeches/ 

detail/who-director-general-s-opening-remarks-atthe-media-briefing-on-covid-19---11-march-2020. 

13See S.J. Lange et al., Potential Indirect Effects 

of the COVID–19 Pandemic on Use of Emergency 

Departments for Acute Life-Threatening 

Conditions—United States, January–May 2020, 

Morbidity and Mortality Weekly Report (June 26, 

2020), https://www.cdc.gov/mmwr/volumes/69/wr/ 

mm6925e2.htm. 

14See generally FINRA Regulatory Notice 20–16 

(May 2020) (describing practices implemented by 

FINRA member firms to transition to, and supervise 

in, a remote work environment during the COVID– 

19 pandemic). 

15See CDC, Travel During the COVID–19 

Pandemic (stating in part, ‘‘Travel increases your 

chance of getting and spreading COVID–19. . . . 

Delay travel and stay home to protect yourself and 

others from COVID–19.’’), https://www.cdc.gov/ 

coronavirus/2019-ncov/travelers/travel-duringcovid19.html (updated February 16, 2021). 

16See, e.g., Government of the District of 

Columbia, Phase Two (June 22, 2020) (announcing 

certain businesses to reopen and activities to 

resume under specified conditions and stating that 

anyone coming into Washington, DC from states 

specified as high-risk is required to self-quarantine 

for 14 days), https://coronavirus.dc.gov/phasetwo 

(last visited March 2, 2021); New York Department 

of Health, Interim Guidance for Quarantine 

Restrictions on Travelers Arriving in New York 

State Following Out of State Travel (November 3, 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

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 IEX is filing with the 

Commission a proposed rule change to 

amend IEX Rule 5.110 (Supervision) to 

provide temporary remote inspection 

relief to IEX Members for calendar year 

2021. 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.iextrading.com, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of 

and basis for the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of these statement 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 

In light of the operational challenges 

that IEX Members 6 are facing due to the 

outbreak of the coronavirus disease 

(COVID–19), the Exchange proposes to 

amend IEX Rule 5.110 (Supervision) to 

adopt Supplementary Material .15 

(Temporary Relief to Allow Remote 

Inspections for Calendar Year 2021) to 

provide member firms the option, 

subject to specified requirements under 

the proposed supplementary material, to 

complete remotely their calendar year 

2021 inspection obligations under IEX 

Rule 5.110(c) (Internal Inspections), 

without an on-site visit to the office or 

location.7 The proposed rule change 

would harmonize IEX Rule 5.110 with 

FINRA Rule 3110.17, which provides 

FINRA member firms with the option, 

subject to specified requirements under 

the supplementary material, to complete 

remotely their calendar year 2021 

inspection obligations without an onsite visit to the office or location.8 The 

proposed rule change is necessitated by 

the compelling health and safety 

concerns and the operational challenges 

that Members are facing due to the 

sustained COVID–19 pandemic.9

IEX Rule 5.110(c), Internal 

Inspections, requires, inter alia, that ‘‘(1) 

[e]ach Member shall conduct a review, 

at least annually (on a calendar year 

basis), of the businesses in which it 

engages . . . .’’ Subparagraph (1)(A) of 

the rule requires, in relevant part, that 

‘‘[e]ach Member shall inspect annually 

(on a calendar year basis) every [Office 

of Supervisory Jurisdiction or ‘‘OSJ’’] 10

and any branch office 11 that supervises 

one or more non-branch locations.’’ 

Subparagraph (1)(B) of the rule requires, 

in relevant part, that ‘‘[e]ach Member 

shall inspect at least every three years 

every branch office that does not 

supervise one or more non-branch 

locations . . . .’’ Subparagraph (1)(B) 

further provides the criteria that a 

Member must consider when 

establishing the frequency of 

inspections for such branch locations. 

On March 13, 2020 the United States 

declared a national emergency in 

response to the pandemic.12 Around 

this time, many states issued stay-athome orders and imposed restrictions 

on businesses, social activities, and 

travel to slow the spread of COVID–19 

and reduce the burden on the U.S. 

health care system in accordance with 

the recommendations of public health 

experts.13 In response, like many 

employers across U.S., Members closed 

their offices to the public, transitioned 

their employees to telework 

arrangements to comply with stay-athome orders, and implemented other 

restrictive measures in an effort to slow 

the spread of COVID–19 such as 

curtailing or eliminating non-essential 

business travel, and significantly 

limiting or canceling in-person 

activities.14

These pandemic-related operational 

changes have made it impracticable for 

Members to conduct on-site inspections 

of OSJs, branch offices, and non-branch 

locations because this compliance 

function requires employees of the 

Member to travel to geographically 

dispersed locations. Such travel not 

only has been restricted at times by 

government orders, but also puts the 

health and safety of employees at great 

risk of contracting and spreading 

COVID–19.15 By mid-year 2020, with 

many restrictive measures still in place, 

and in some instances additional 

quarantine requirements imposed on 

interstate travel, on-site inspections of 

offices or locations scheduled for 

calendar year 2020 continued to remain 

in abeyance.16


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2020), available at https://

coronavirus.health.ny.gov/system/files/documents/ 

2020/11/interm_guidance_travel_advisory.pdf (last 

visited March 2, 2021); and Chicago Department of 

Public Health, Emergency Travel Order (issued July 

2, 2020 and last updated February 23, 2021, 

requiring travelers from states and territories 

meeting certain daily test metrics to test negative for 

COVID–19 pre-arrival and quarantine for 10 days), 

https://www.chicago.gov/city/en/sites/covid-19/ 

home/emergency-travel-order.html. 

17See Securities Exchange Act Release No. 89188 

(June 30, 2020), 85 FR 40713 (July 7, 2020) (SR– 

FINRA–2020–19). In this rule filing, FINRA stated, 

among other things, that FINRA would consider 

whether additional relief may be warranted to 

address any backlog of 2020 inspections that may 

continue to exist in light of ongoing public health 

and safety concerns). 

18See supra note 8. 

19See Johns Hopkins, Coronavirus Resource 

Center, COVID–19 Dashboard by the Center for 

Systems Science and Engineering at Johns Hopkins 

University, https://coronavirus.jhu.edu/map.html 

(last visited March 2, 2021). 

20See FINRA Regulatory Notice 20–16. 

21See FINRA Regulatory Notice 20–16. See 

generally FINRA White Paper, ‘‘Technology Based 

Innovations for Regulatory Compliance (‘‘RegTech’’) 

in the Securities Industry’’ (September 2018) 

(reporting, among other things, that as financial 

services firms seek to keep pace with regulatory 

compliance requirements, they are turning to new 

and innovative regulatory tools to assist them in 

meeting their obligations in an effective and 

efficient manner), https://www.finra.org/sites/ 

default/files/2018_RegTech_Report.pdf. 

22See supra note 8. 

In recognition of the logistical 

challenges firms were facing at that time 

to satisfy their on-site inspection 

obligations, FINRA adopted Rule 

3110.16 (Temporary Extension of Time 

to Complete Office Inspections), 

extending the time by which firms must 

complete their calendar year 2020 

inspection obligations under FINRA 

Rule 3110(c) to March 31, 2021, but 

emphasizing that the extension of time 

did not relieve firms from conducting 

the on-site portion of the inspections of 

their OSJs, branch offices, and nonbranch locations.17 As noted above, 

FINRA thereafter adopted Rule 3110.17 

to allow for FINRA member firms to 

conduct calendar year 2020 inspections 

and calendar year 2021 inspections 

remotely, without an on-site visit to the 

office or location.18

The acute health and safety concerns 

related to COVID–19 persist, with the 

number of confirmed cases of COVID– 

19 in the U.S. continuing to increase 

since March 13, 2020.19 While Members 

have continued to supervise OSJs, 

branch offices, and non-branch 

locations by, among other things, 

implementing remote supervisory 

practices through novel uses of 

technology as well as existing methods 

of supervision (e.g., supervisory 

checklists, surveillance tools, incident 

trackers, email review, and trade 

exception reports),20 Members are still 

experiencing logistical challenges 

related to conducting the on-site portion 

of their inspections due to continuing 

business and governmental restrictions 

and public health concerns. 

Based on feedback described in 

FINRA’s Regulatory Notice 20–16, in 

comment letters submitted in response 

to FINRA’s proposed rule changes, and 

discussions with industry 

representatives, FINRA understood that 

beginning in or about March 2020, many 

firms had suspended the on-site 

component of their inspections 

scheduled for calendar year 2020. With 

no certainty as to when pandemicrelated health concerns and restrictions 

will subside, firms will have a 

considerable backlog of 2020 

inspections. Moreover, planning on-site 

inspections for calendar year 2021 for 

OSJs, branch offices, and non-branch 

locations in the current environment 

may be impacted as well. In light of 

pandemic-related developments, IEX 

believes further sensible and tailored 

temporary relief is warranted for 

Members to meet their inspection 

obligations under IEX Rule 5.110(c) for 

calendar year 2021. 

Proposed Supplementary Material .15 to 

IEX Rule 5.110 

In order to proactively address these 

concerns and to align its Supervision 

rule with corresponding FINRA rules 

covered by its regulatory services 

agreement with FINRA, IEX is 

proposing to adopt Supplementary 

Material .15. As proposed, 

Supplementary Material .15 would 

provide Members, subject to specified 

requirements therein, the option to 

conduct remotely the inspections of 

their OSJs, branch offices, and nonbranch locations for any inspections to 

be conducted in calendar year 2021, 

without the requirement to conduct an 

on-site visit to such office or location. 

As described further below, the 

proposed rule change would set forth 

the dates by which inspections for 

calendar year 2021 are due, the 

requirement to amend or supplement 

written supervisory procedures for 

remote inspections, the use of remote 

inspections as part of an effective 

supervisory system, and documentation 

requirements. The Exchange believes 

this temporary remote inspection option 

is a reasonable alternative to provide to 

Members to fulfill their IEX Rule 

5.110(c) obligations during these 

pressing times, and is designed to 

achieve the investor protection 

objectives of the inspection 

requirements under these unique 

circumstances. 

The responsibility of Members to 

supervise their associated persons is a 

critical component of broker-dealer 

regulation. IEX Rule 5.110(a) requires 

that ‘‘[e]ach Member . . . 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 IEX Rules . . . .’’ The 

proposed Supplementary Material is not 

intended to alter this core 

responsibility. The advent of technology 

and automation in the financial industry 

has significantly changed the way in 

which Members and their associated 

persons conduct their business, 

communicate, and meet their regulatory 

obligations. IEX recognizes that 

Members generally use an array of 

technological tools to facilitate their 

supervisory practices (e.g., surveillance 

systems; electronic tracking programs or 

applications; and electronic 

communications, including video 

conferencing tools), which many firms 

have leveraged to create and implement 

remote inspection plans, on a temporary 

basis, in response to pandemic-related 

operational challenges.21

IEX believes that proposed 

Supplementary Material .15 to IEX Rule 

5.110 would provide a sensibly tailored 

regulatory alternative for Members to 

fulfill their obligations under IEX Rule 

5.110(c) that would not materially 

diminish, and is reasonably designed to 

achieve, the investor protection 

objectives of the inspection 

requirements under these unique 

circumstances. IEX further notes that 

the proposed relief would be limited in 

duration to align with the extended date 

set forth under FINRA Rule 3110.16 of 

December 31, 2021 for calendar year 

2021 inspections.22

A. Deadlines To Complete Calendar 

Year 2021 Inspections 

Currently, IEX Rule 5.110(c)(1) 

provides that an inspection of an office 

or location must occur on a designated 

frequency, and the periodicity of the 

required inspection varies depending on 

the classification of the location or the 

nature of the activities that take place. 

OSJs and supervisory branch offices 

must be inspected at least annually (on 

a calendar-year basis); non-supervisory 

branch offices, at least every three years; 

and non-branch locations, on a periodic 

schedule at least once every three years. 

Proposed Supplementary Material 

.15(a) would provide that a Member that 

is obligated to complete a 2021 

inspection of an OSJ, branch office or 

non-branch location, pursuant to the 

applicable periodicity set forth under 


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23 In addition to requiring firms to conduct 

inspections of their offices and locations on a 

designated frequency, IEX Rule 5.110(c) generally 

requires a member to retain a written record of the 

date upon which each review and inspection 

occurred, reduce a location’s inspection to a written 

report and keep each inspection report on file either 

for a minimum of three years or, if the location’s 

inspection schedule is longer than three years, until 

the next inspection report has been written. If 

applicable to the location being inspected, the 

inspection report must include, without limitation, 

the testing and verification of the member’s policies 

and procedures, including supervisory policies and 

procedures, in specified areas. See IEX Rule 

5.110(c)(2). In addition, to prevent compromising 

the effectiveness of inspections due to conflicts of 

interest, IEX Rule 5.110(c)(3)(B) requires a Member 

to ensure that the person conducting the inspection 

is not an associated person assigned to the location 

or is not directly or indirectly supervised by, or 

otherwise reporting to, an associated person 

assigned to that location. 

24Offices or locations that may present a higher 

risk profile would include, for example, those that 

have associated persons engaging in activities that 

involve handling customer funds or securities, 

maintaining books and records as described under 

applicable federal securities laws and IEX rules, 

order execution or other activities that may be more 

susceptible to higher risks of operational or sales 

practice wrongdoing, or have associated persons 

assigned to an office or location who may be subject 

to additional or heightened supervisory procedures. 

25 IEX Rule 5.110, Supplementary Material .12 

provides: ‘‘In fulfilling its obligations under IEX 

Rule 5.110(c), each Member must conduct a review, 

at least annually, of the businesses in which it 

engages. The review must be reasonably designed 

to assist in detecting and preventing violations of 

and achieving compliance with applicable 

securities laws and regulations and with IEX rules. 

Each Member shall establish and maintain 

supervisory procedures that must take into 

consideration, among other things, the firm’s size, 

organizational structure, scope of business 

activities, number and location of the firm’s offices, 

the nature and complexity of the products and 

services offered by the firm, the volume of business 

done, the number of associated persons assigned to 

a location, the disciplinary history of registered 

representatives or associated persons, and any 

indicators of irregularities or misconduct (i.e., ‘red 

flags’), etc. The procedures established and reviews 

conducted must provide that the quality of 

supervision at remote locations is sufficient to 

ensure compliance with applicable securities laws 

and regulations and with IEX rules. A Member must 

be especially diligent in establishing procedures 

and conducting reasonable reviews with respect to 

a non-branch location where a registered 

representative engages in securities activities. Based 

on the factors outlined above, Members may need 

to impose reasonably designed supervisory 

procedures for certain locations or may need to 

provide for more frequent reviews of certain 

locations.’’ 

26Red flags that suggest the increased risk or 

occurrence of violations may include, among other 

events: Customer complaints; an unexplained 

increase or change in the types of investments or 

trading concentration that a representative is 

recommending or trading; an unexpected 

improvement in a representative’s production, 

lifestyle, or wealth; questionable or frequent 

transfers of cash or securities between customer or 

third party accounts, or to or from the 

representative; a representative that serves as a 

power of attorney, trustee or in a similar capacity 

for a customer or has discretionary control over a 

customer’s account(s); representative with 

disciplinary records; customer investments in one 

or a few securities or class of securities that is 

inconsistent with firm policies related to such 

investments; churning; trading that is inconsistent 

with customer objectives; numerous trade 

corrections, extensions, liquidations; or significant 

switching activity of mutual funds or variable 

products held for short time periods. See generally 

SEC Division of Market Regulation, Staff Legal 

Bulletin No. 17: Remote Office Supervision (March 

19, 2004); see also FINRA Regulatory Notices 98– 

38 and 99–45. 

IEX Rule 5.110(c)(1), may satisfy such 

obligation by conducting the applicable 

inspection remotely, without an on-site 

visit to the office or location subject to 

the other requirements set forth under 

the proposed supplementary material. 

In addition, the proposed 

Supplementary Material would 

expressly provide that inspections for 

calendar year 2021 must be completed 

on or before December 31, 2021. IEX 

believes that providing firms with the 

option to satisfy the inspection 

component of IEX Rule 5.110(c) 

remotely would enable firms to finish 

their calendar year 2021 inspections on 

or before December 31, 2021, 

particularly given the uncertainty 

surrounding planning inspections at 

this time. Further, proposed 

Supplementary Material .15(a) would 

affirm that a Member would remain 

subject to the other requirements of IEX 

Rule 5.110(c).23

B. Written Supervisory Procedures for 

Remote Inspections 

IEX Rule 5.110(a) requires that 

Members establish and maintain a 

supervisory system that is tailored 

specifically to the member firm’s 

business and addresses the activities of 

all its associated persons. The Rule 

requires that a Member’s supervisory 

system shall include a number of 

elements, including ‘‘[t]he 

establishment and maintenance of 

written procedures required by this IEX 

Rule 5.110 . . . .’’ Under IEX Rule 

5.110(b) (Written Procedures) a Member 

must establish, maintain, and enforce 

written procedures to supervise the 

types of business in which it engages 

and the activities of its associated 

persons that are reasonably designed to 

achieve compliance with applicable 

securities laws and regulations, and 

with applicable IEX rules. 

To underscore the importance of this 

existing requirement in the context of 

remote inspections, proposed 

Supplementary Material .15(b) would 

expressly provide that consistent with a 

Member’s obligation under Rule 

5.110(b)(1), a Member that elects to 

conduct its calendar year 2021 

inspections remotely must amend or 

supplement its written supervisory 

procedures to provide for remote 

inspections that are reasonably designed 

to assist in detecting and preventing 

violations of and achieving compliance 

with applicable securities laws and 

regulations, and with applicable IEX 

rules. As proposed by the Exchange, 

reasonably designed procedures for 

conducting remote inspection of offices 

or locations should include, among 

other things, a description of the 

methodology, including technologies 

permitted by the member, that may be 

used to conduct remote inspections. In 

addition, such procedures should 

include the use of other risk-based 

systems employed generally by the 

Member to identify and prioritize for 

review those areas that pose the greatest 

risk of potential violations of applicable 

securities laws and regulations, and of 

applicable IEX rules.24

C. An Effective Supervisory System 

Internal inspections are a critical 

component of a Member’s fundamental 

obligation under IEX Rule 5.110 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 IEX 

rules. Proposed Supplementary Material 

.15(c) would expressly affirm this 

principle that: (i) The requirement to 

conduct inspections of offices and 

locations is one part of the Member’s 

overall ongoing obligation to have an 

effective supervisory system; and (ii) a 

Member must continue with its reviews 

of the activities and functions occurring 

at all offices and locations, whether or 

not such offices or locations are due for 

an inspection under IEX Rule 5.110(c) 

in a given year or the Member’s election 

to conduct such inspections remotely. 

In addition, under the proposed 

Supplementary Material, a Member’s 

remote inspection of an office or 

location, like the traditional on-site 

inspection, would be held to the same 

standards for review as set forth under 

IEX Rule 5.110, Supplementary Material 

.12 (Standards for Reasonable 

Review).25 Further, in accordance with 

this obligation, proposed 

Supplementary Material .15(c) would 

provide that where a Member’s remote 

inspection of an office or location 

identifies any indicators of irregularities 

or misconduct (i.e., ‘‘red flags’’),26 the 

Member may need to impose additional 

supervisory procedures for that office or 

location, or may need to provide for 

more frequent monitoring or oversight 

of that office or location, or both, 

including potentially a subsequent 

physical, on-site visit on an announced 


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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices 34073 

27 In addition to requiring Members to conduct 

inspections of their offices and locations on a 

designated frequency, IEX Rule 5.110(c) generally 

requires a Member to retain a written record of the 

date upon which each review and inspection 

occurred, reduce a location’s inspection to a written 

report and keep each inspection report on file either 

for a minimum of three years or, if the location’s 

inspection schedule is longer than three years, until 

the next inspection report has been written. If 

applicable to the location being inspected, the 

inspection report must include, without limitation, 

the testing and verification of the member’s policies 

and procedures, including supervisory policies and 

procedures, in specified areas. See IEX Rule 

5.110(c)(2). In addition, to prevent compromising 

the effectiveness of inspections due to conflicts of 

interest, the rule requires a Member to ensure that 

the person conducting the inspection is not an 

associated person assigned to the location or is not 

directly or indirectly supervised by, or otherwise 

reporting to, an associated person assigned to that 

location. See IEX Rule 5.110(c)(3). 28See supra note 9. 

29 15 U.S.C. 78f. 

30 15 U.S.C. 78f(b)(5). 

or unannounced basis when the 

Member’s operational difficulties 

associated with COVID–19 meetings 

abate, nationally or locally as relevant, 

and the challenges the Member is facing 

in light of the public health and safety 

concerns make such physical, on-site 

visits feasible, using reasonable best 

efforts. Finally, to underscore the 

limited duration of proposed 

supplementary material expressly states 

that the temporary relief would not 

extend to a Member’s inspection 

requirements beyond calendar year 2021 

and that such inspections must be 

conducted in compliance with IEX Rule 

5.110(c). 

D. Documentation Requirement 

In general, IEX Rule 5.110(c)(2) 

describes the documentation 

requirements associated with 

conducting internal inspections. The 

rule requires a member to reduce the 

inspection and review conducted under 

IEX Rule 5.110(c)(1) to a written report 

and specifies how long the member 

must keep the report on file.27 If 

applicable to the location being 

inspected, IEX Rule 5.110(c)(2)(A) 

specifies that the inspection report must 

include, without limitation, the testing 

and verification of the member’s 

policies and procedures, including 

supervisory policies and procedures for: 

(i) Safeguarding of customer funds and 

securities; (ii) maintaining books and 

records; (iii) supervision of supervisory 

personnel; (iv) transmittals of funds 

from customers to third party accounts, 

from customer accounts to outside 

entities, from customer accounts to 

locations other than a customer’s 

primary residence, and between 

customers and registered 

representatives, including the hand 

delivery of checks; and (v) changes of 

customer account information, 

including address and investment 

objectives changes, and validation of 

such changes. In addition to the 

requirements under IEX Rule 

5.110(c)(2), proposed Supplementary 

Material .15(d) would require 

supplemental documentation by a 

Member that avails itself of the remote 

inspection option. The Member must 

maintain and preserve a centralized 

record for calendar year 2021 that 

separately identifies: (1) All offices or 

locations that had inspections that were 

conducted remotely; and (2) any offices 

or locations that the Member 

determined to impose additional 

supervisory procedures or more 

frequent monitoring, as provided in 

Supplementary Material .15(c). A 

Member’s documentation of the results 

of a remote inspection for an office or 

location must identify any additional 

supervisory procedures or more 

frequent monitoring for that office or 

location that were imposed as a result 

of the remote inspection. IEX believes 

that this documentation requirement 

would help readily distinguish the 

offices and locations that underwent 

remote inspections and their attendant 

supervisory procedures, and their more 

frequent monitoring, as applicable. IEX 

notes that even in the current 

environment, Members have an ongoing 

obligation to establish and maintain a 

system to supervise the activities of 

their associated persons that is 

reasonably designed to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable IEX rules. IEX emphasizes 

that its proposed rule change is not 

intended to lessen the core obligations 

prescribed under IEX Rule 5.110. IEX 

believes that proposed Supplementary 

Material .15, which would permit firms 

to remotely inspect, subject to specified 

requirements described above, their 

offices and locations for any calendar 

year 2021 inspections, instead of an onsite visit to the office or location would 

provide Members a way to comply with 

IEX Rule 5.110(c) that would not 

materially diminish, and is reasonably 

designed to achieve, the investor 

protection objectives of the inspection 

requirements under these unique 

circumstances. IEX notes that potential 

risks that may arise from providing 

Members the option to conduct their 

inspections remotely are mitigated by 

Members’ use of technology to meet 

their supervisory obligations on an 

ongoing basis, the unique circumstances 

under which they are operating, and the 

temporary nature of proposed rule 

change, which would remain in place 

through December 31, 2021.28 IEX will 

continue to monitor the situation and 

engage with Members, other financial 

regulators, and governmental authorities 

to determine whether further regulatory 

relief or guidance related to IEX Rule 

5.110(c) may be appropriate. 

In addition, during the time that 

proposed Supplementary Material .15 

remains in effect, IEX will closely 

monitor the effectiveness of remote 

inspections and their impacts—positive 

or negative—on Members’ overall 

supervisory systems to assess whether 

to propose to make permanent a remote 

inspection option for some or all 

locations that would not materially 

diminish, and is reasonably designed to 

achieve, the investor protection 

objectives underpinning the 

requirement to inspect branch offices or 

locations in accordance with IEX Rule 

5.110(c). 

IEX has filed the proposed rule 

change for immediate effectiveness and 

has requested that the SEC waive the 

requirement that the proposed rule 

change not become operative for 30 days 

after the date of the filing, so IEX can 

implement the proposed rule change 

immediately. 

2. Statutory Basis 

IEX believes that the proposed rule 

change is consistent with the provisions 

of Section 6(b) 29 of the Act in general, 

and furthers the objectives of Section 

6(b)(5) of the Act 30 in particular, in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

Exchange’s rule proposal is intended to 

harmonize IEX’s supervision rules, 

specifically with respect to the 

requirements for inspections of 

Members’ branch offices and other 

locations, with those of FINRA, on 

which they are based. Consequently, the 

proposed change will conform the 

Exchange’s rules to changes made to 

corresponding FINRA rules, thus 

promoting application of consistent 

regulatory standards with respect to 

rules that FINRA enforces pursuant to 

its regulatory services agreement with 

the Exchange. 

In recognition of the impact of 

COVID–19 on performing on-site 

inspections, the proposed rule change is 

intended to provide firms a temporary 

regulatory option to conduct inspections 

of offices and locations remotely for 


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34074 Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices 

31 15 U.S.C. 78s(b)(3)(A). 

32 17 CFR 240.19b–4(f)(6). 33 15 U.S.C. 78s(b)(2)(B). 

34 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

calendar year 2021 inspections. This 

proposed supplementary material does 

not relieve firms from meeting the core 

regulatory obligation to establish and 

maintain a system to supervise the 

activities of each associated person that 

is reasonably designed to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable IEX rules that directly serve 

investor protection. In a time when 

faced with unique challenges resulting 

from the COVID–19 pandemic, IEX 

believes that the proposed rule change 

provides sensibly tailored relief that 

will afford firms the ability to observe 

the recommendations of public health 

officials to provide for the health and 

safety of their personnel, while 

continuing to serve and promote the 

protection of investors and the public 

interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

IEX does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed rule change is not designed to 

address any competitive issue but to 

align the Exchange’s rules with those of 

FINRA, which will assist FINRA in its 

oversight work done pursuant to a 

regulatory services agreement with IEX. 

The proposed rule change will also 

provide for consistent application of the 

Exchange’s supervision rules with those 

of FINRA, on which they are based. 

Consequently, the Exchange does not 

believe that the proposed change 

implicates competition at all. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments on the proposed 

rule change were neither solicited nor 

received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has designated this rule 

filing as non-controversial under 

Section 19(b)(3)(A) 31 of the Act and 

Rule 19b–4(f)(6) 32 thereunder. Because 

the proposed rule change does not: (i) 

Significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

for 30 days from the date on which it 

was filed, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act and Rule 19b– 

4(f)(6) thereunder. 

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) 33 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

IEX–2021–09 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–2021–09. This file 

number should be included in the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Section, 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 will also be available for 

inspection and copying at the IEX’s 

principal office and on its internet 

website at www.iextrading.com. All 

comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. All submissions should refer 

to File Number SR–IEX–2021–09 and 

should be submitted on or before July 

19, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–13652 Filed 6–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92230; File No. SR–BX– 

2021–028] 

Self-Regulatory Organizations; Nasdaq 

BX, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the 

Exchange’s Transaction Fees, at 

Equity 7, Section 118(e) 

June 22, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1, and Rule 19b–4 thereunder,2

notice is hereby given that on June 10, 

2021, Nasdaq BX, Inc. (‘‘BX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Exchange’s transaction fees, at Equity 7, 

Section 118(e), as described further 

below. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/bx/rules, at the principal office 


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