Document ID: SEC-2021-1573-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-11-08T05:00Z

[Federal Register Volume 86, Number 213 (Monday, November 8, 2021)]
[Notices]
[Pages 61801-61804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24327]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93511]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Declaration of Effectiveness of the Fingerprint Plan 
of the Financial Industry Regulatory Authority, Inc.

November 2, 2021.
    On October 28, 2021, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a new fingerprint plan (``Plan'') \1\ 
pursuant to Rule 17f-2(c) \2\ under the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'').\3\ The Plan supersedes and replaces 
FINRA's current fingerprint plan, which was declared effective for the 
Commission by the Division of Trading and Markets, pursuant to 
delegated authority, on May 2, 2006 (``FINRA's 2006 Plan'').\4\
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    \1\ Attached hereto as Exhibit A. See also Letter from Richard 
Pullano, Vice President and Associate General Counsel, FINRA, to 
Devin Ryan, Assistant Director, Office of Chief Counsel, Division of 
Trading and Markets, dated October 28, 2021 (``FINRA Letter''), 
available at https://www.finra.org/sites/default/files/2021-11/fingerprint-plan.pdf.
    \2\ 17 CFR 240.17f-2(c).
    \3\ 15 U.S.C. 78a et seq.
    \4\ See Exchange Act Release No. 53751 (May 2, 2006), 71 FR 
27299 (May 10, 2006) (Declaration of Effectiveness of the 
Fingerprint Plan of the National Association of Securities Dealers, 
Inc.). FINRA will continue to channel fingerprints for these 
personnel consistent with the 2006 Fingerprint Plan until the new 
fingerprinting process set forth in the Plan is fully implemented.
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    FINRA states that it is adopting the Plan due to the age of FINRA's 
current fingerprint processing platform, and the availability of more 
modern alternatives offered by private vendors approved by the Federal 
Bureau of Investigation (``FBI'') to channel fingerprints.\5\ 
Therefore, as discussed in more detail below, FINRA states that in 
order to continue to facilitate compliance with the fingerprinting 
requirement in Section 17(f)(2) of the Exchange Act, it is 
transitioning to a new fingerprinting process for broker-dealer 
personnel (of both FINRA members and other broker-dealers) and for 
FINRA personnel using the services of an FBI-approved channeler (``FBI-
Approved Channel Partner'').\6\ FINRA will continue at this time its 
current role as the channeler for processing fingerprints of transfer 
agent and clearing agency personnel that are submitted to FINRA.\7\
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    \5\ See FINRA Letter at 1.
    \6\ See also infra Section 2. The FBI-Approved Channel Partner 
is one of a limited number of entities approved by the FBI to submit 
fingerprints to the FBI and receive the results on behalf of an 
organization using that information for authorized non-criminal 
justice purposes (e.g., employment suitability, licensing 
determinations, etc.). The FBI reviews and approves all outsourced 
channeling relationships consistent with its outsourcing standards 
and protocols. As outlined in the September 28, 2021 letter from the 
FBI's National Crime Prevention and Privacy Compact Council Office 
(``CCO Letter''), the FBI has reviewed and conditionally granted 
permission to FINRA to use a specified FBI-Approved Channel Partner 
contingent upon FINRA filing a fingerprint plan with the Commission 
and the Commission declaring that fingerprint plan effective. See 
FINRA Letter at 2, n.4 (discussing the CCO Letter, available at 
https://www.finra.org/sites/default/files/2021-11/fingerprint-plan.pdf). The terms of the CCO Letter are incorporated by reference 
in the Plan. See Exhibit A at 1, n. 3.
    \7\ See also infra Section 3. FINRA notes that it is seeking to 
identify an alternative approach that would enable transfer agents 
and clearing agencies to efficiently fulfill their obligations to 
fingerprint their personnel, but would not involve FINRA acting in a 
channeler role. FINRA notes that, for the last two years, transfer 
agent and clearing agency personnel have accounted for less than two 
percent of the fingerprints processed by FINRA. FINRA intends to 
work with the Commission, FBI and the transfer agent and clearing 
agency communities to identify this alternative approach. See FINRA 
Letter at 1.
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    For the reasons discussed below, the Commission finds that, 
pursuant to Rule 17f-2(c) of the Exchange Act, the Plan is not 
inconsistent with the public interest and the protection of investors 
and, therefore, declares the Plan to be effective.

1. Applicable Standard

    Section 17(f)(2) of the Act provides, in pertinent part, that every 
member of a national securities exchange, broker, dealer, registered 
transfer agent and registered clearing agency, and national securities 
association (as well as others), shall require that each of its 
partners, directors, officers, and employees be fingerprinted and shall 
submit such fingerprints, or cause the same to be submitted, to the 
Attorney General of the United States for identification and 
appropriate processing.\8\ However, in accordance with Exchange Act 
Rule 17f-2(c), the fingerprinting requirement of Section 17(f)(2) may 
be satisfied by submitting appropriate and complete fingerprint cards 
to, among others, a registered national securities association (such as 
FINRA) which, pursuant to a plan filed with and declared effective by, 
the Commission, forwards such fingerprint cards to the Attorney General 
of the United States (``Attorney General'') or its designee for 
identification and appropriate processing.\9\ Under Rule 17f-2(c), such 
fingerprinting plans--like FINRA's 2006 Plan and this Plan--shall not 
become effective unless it is declared effective

[[Page 61802]]

by the Commission, which requires the Commission to find that the plan 
is ``not inconsistent with the public interest or the protection of 
investors.'' \10\
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    \8\ 15 U.S.C. 78q(f)(2).
    \9\ 17 CFR 240.17f-2(c).
    \10\ See id. The Commission may also impose any terms and 
conditions relating to the provisions of the plan and the period of 
its effectiveness as it may deem necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act. See id.
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    FINRA states that the purpose of the Plan is to facilitate 
compliance with Section 17(f)(2) of the Act and Rule 17f-2 thereunder 
by providing a program for FINRA members,\11\ other broker-dealers, 
transfer agents, clearing agencies and FINRA to have the fingerprints 
of their partners, directors, officers, and employees processed by the 
Attorney General.\12\
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    \11\ For purposes of the Plan, the term ``members'' included 
Capital Acquisition Brokers, Funding Portals and applicants for 
FINRA membership.
    \12\ See Exhibit A.
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2. FINRA Members and Other Broker-Dealers

    Under FINRA's 2006 Plan, FINRA accepts fingerprints and identifying 
information from member firms and other securities industry 
participants required to be fingerprinted under Rule 17f-2.\13\ FINRA 
then transmits these fingerprints and identifying information to the 
FBI, which the Attorney General has designated to identify and process 
such fingerprints, consistent with protocols and requirements 
established by the Attorney General.\14\ However, as set forth in the 
Plan, FINRA is partnering with an FBI-Approved Channel Partner to 
process fingerprints and other identifying information from personnel 
of FINRA members and other broker-dealers required to be fingerprinted 
pursuant to Section 17(f)(2).\15\ Under the Plan, FINRA members or 
other broker-dealers will work with the FBI-Approved Channel Partner to 
fingerprint such personnel or accept fingerprints from such personnel 
(either in electronic or hard copy format), and the FBI-Approved 
Channel Partner will submit such fingerprints to the Attorney General 
for processing consistent with the protocols and requirements 
established by the Attorney General.\16\ The FBI-Approved Channel 
Partner will offer state-of-the-art fingerprint services to broker-
dealers that include collecting fingerprints at locations nationwide 
and leasing fingerprint equipment to broker-dealers that wish to 
fingerprint personnel in-house.\17\
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    \13\ See FINRA Letter at 1, n. 2. FINRA's current platform uses 
a customized application that include software licensed from a 
vendor, and specialized equipment (to scan, digitize and transmit 
fingerprints in accordance with FBI requirements). The vendor has 
discontinued the software used in the customized application and 
ceased providing support for it in July 2021. As a result, the 
customized application, while still fully operational, is currently 
supported only by FINRA technology resources. See id. at 1.
    \14\ See supra note 4, 71 FR at 27299-300.
    \15\ See Exhibit A at 1.
    \16\ See id.
    \17\ See FINRA Letter at 2.
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    Also under the terms of the Plan, at least the following three key 
aspects of FINRA's 2006 Plan will remain unchanged.\18\ First, FINRA 
will continue to receive results after the fingerprints have been 
processed by the Attorney General and FINRA will continue to make those 
results available to authorized recipients (i.e., to a member or other 
broker-dealer that submitted the fingerprints and to regulators, as 
appropriate, for licensing, registration and other regulatory 
purposes), consistent with protocols and requirements established by 
the Attorney General.\19\ Second, members and other broker-dealers will 
continue to be able to view the status and results of the processed 
fingerprints, including any relevant criminal history information, 
through FINRA systems.\20\ Third, FINRA will continue to review the 
fingerprint results to fulfill its regulatory responsibilities, store 
those results in the CRD or FPRD systems and make them available to 
other regulators that are authorized to view the results.\21\
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    \18\ See id. at 2-3. See also Exhibit A at 2.
    \19\ See Exhibit A at 2.
    \20\ These systems include the Central Registration Depository 
(``CRD'') and the Funding Portal Registration Depository (``FPRD''). 
See Exhibit A at 2.
    \21\ FINRA explains that it reviews fingerprint results to 
ensure that applicants for registration have reported appropriately 
information responsive to the questions on Form U4 (the Uniform 
Application for Securities Industry Registration or Transfer) 
relating to criminal history and to identify whether any broker-
dealer personnel required to be fingerprinted is subject to a 
statutory disqualification under the Exchange Act based upon a 
criminal conviction. See FINRA Letter at 3.
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3. Transfer Agents and Clearing Agencies

    Under the Plan, FINRA, rather than the FBI-Approved Channel Partner 
discussed above, will continue to use its current fingerprint 
processing platform to accept fingerprints and identifying information 
from transfer agent and clearing agency personnel who are required to 
be fingerprinted pursuant to Rule 17f-2 and who submit fingerprints to 
FINRA for processing.\22\ FINRA will also continue to transmit 
fingerprints from such personnel to the Attorney General for 
identification and processing consistent with protocols and 
requirements established by the Attorney General.\23\
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    \22\ See FINRA Letter at 3.
    \23\ FINRA also explains that, because transfer agents and 
clearing agencies do not use the CRD system for registration 
purposes, FINRA is unable to disseminate the fingerprint statuses 
and results through that system (as it does for broker-dealer 
personnel). See FINRA Letter at 3.
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4. FINRA Personnel

    The FBI-Approved Channel Partner will also process fingerprints and 
identifying information from FINRA personnel who are required to be 
fingerprinted under Section 17(f)(2) of the Act and consistent with its 
Policy to Conduct Fingerprint-Based Background Checks (``Fingerprint 
Policy'').\24\ The FBI-Approved Channel Partner will also transmit 
these fingerprints and identifying information to the Attorney General 
for identification and processing consistent with protocols and 
requirements established by the Attorney General and securely make the 
results available to FINRA after the fingerprints have been 
processed.\25\ FINRA will evaluate such results and take any 
appropriate action in accordance with the terms of its Fingerprint 
Policy.\26\
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    \24\ Securities Exchange Act Release No. 50157 (August 5, 2004), 
69 FR 49924 (August 12, 2004) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2004-095). See Exhibit A at 3.
    \25\ See id.
    \26\ See id.
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5. Commission's Declaration of Effectiveness of the Plan

    In accordance with Rule 17f-2(c) of the Act, the Commission has 
reviewed the procedures detailed in the Plan and believes that the Plan 
is not inconsistent with the public interest and the protection of 
investors.
    The Commission observes that most of FINRA's 2006 Plan, which the 
Commission found previously to be consistent with the public interest 
and the protection of investors,\27\ will remain largely unchanged.\28\ 
As a result, the Commission has no reason to revisit its prior finding 
with respect to those unchanged provisions.
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    \27\ See supra note 4 and accompanying text.
    \28\ For example, and as discussed above in section 2, at least 
three key aspects of FINRA's 2006 Plan will remain unchanged for 
FINRA members and other broker-dealers. See supra note 18 and 
accompanying text. FINRA also states that its customized application 
for processing fingerprints will remain fully operational, although 
it will be supported only by FINRA technology resources. See FINRA 
Letter at 1, n. 1. With respect to transfer agent and clearing agent 
personnel, the Plan simply memorializes FINRA's existing procedures 
for processing fingerprints and other identifying information for 
these personnel who are required to be fingerprinted pursuant to 
Section 17(f)(2). See id. at 3-4.
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    With respect to FINRA's decision to partner with a new FBI-Approved

[[Page 61803]]

Channel Partner \29\ to be the central point of intake and to process 
fingerprints and identifying information from its members, other 
broker-dealers and FINRA personnel, rather than doing so itself, the 
Commission observes the following representations made by FINRA. FINRA 
states that the FBI-Approved Channel Partner will offer state-of-the-
art fingerprint services that include collecting fingerprints at 
locations nationwide and leasing fingerprint equipment to broker-
dealers that wish to print personnel in-house.\30\ Notably, FINRA 
believes that the partnership with the FBI-Approved Channel Partner 
will enable FINRA to continue to reliably facilitate fingerprinting of 
the personnel of broker-dealers as required under Section 17(f)(2) of 
the Exchange Act.\31\ FINRA also believes this partnership will enable 
FINRA to continue to fulfill its critical regulatory and investor 
protection responsibilities, including the identification of broker-
dealer personnel required to be fingerprinted who may be subject to a 
statutory disqualification based on a criminal conviction.\32\ 
Similarly, FINRA states that the partnership will enable it to continue 
to fulfill its Exchange Act requirement to perform fingerprint-based 
background checks on covered FINRA personnel.\33\
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    \29\ See supra note 6 (discussing the FBI's conditional approval 
of FINRA using a specified FBI-Approved Channel Partner). See also 
Exhibit A at 1, n. 3.
    \30\ See FINRA Letter at 2.
    \31\ See id at 4.
    \32\ See id.
    \33\ See id.
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    The Commission agrees with FINRA that these statutorily-mandated 
fingerprint-based background checks--whether performed by FINRA itself 
under the 2006 Plan or by an FBI-Approved Channel Partner under this 
Plan--will continue to help protect investors and serve the public 
interest. Based on the foregoing, the Commission finds that, pursuant 
to Rule 17f-2(c) of the Exchange Act, the Plan is not inconsistent with 
the public interest and the protection of investors and, therefore, 
declares the Plan to be effective.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(17)(iii).
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J. Matthew DeLesDernier,
Assistant Secretary.

Exhibit A

Financial Industry Regulatory Authority; Fingerprint Plan

    The Financial Industry Regulatory Authority, Inc. (``FINRA'') 
submits this fingerprint plan (``Plan'') pursuant to Rule 17f-2(c) 
under the Securities Exchange Act of 1934 (``Exchange Act''). This Plan 
supersedes and replaces FINRA's current fingerprint plan, which was 
declared effective by the Securities and Exchange Commission 
(``Commission'') on May 2, 2006 (the ``2006 Fingerprint Plan'').\35\
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    \35\ Securities Exchange Act Release No. 53751 (May 2, 2006), 71 
FR 27299 (May 10, 2006) (Declaration of Effectiveness of the 
Fingerprint Plan of the National Association of Securities Dealers, 
Inc.). Pursuant to the 2006 Fingerprint Plan, FINRA channels 
fingerprints for, among others, FINRA members, other broker-dealers 
and FINRA personnel. FINRA will continue to channel fingerprints for 
these personnel consistent with the 2006 Fingerprint Plan until the 
new fingerprinting process set forth in the Plan is fully 
implemented.
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    The purpose of this Plan is to facilitate compliance with Section 
17(f)(2) of the Exchange Act by providing a program for FINRA 
members,\36\ other broker-dealers, transfer agents, clearing agencies, 
and FINRA to have the fingerprints of their partners, directors, 
officers, and employees processed by the Attorney General of the United 
States or its designee (hereinafter ``Attorney General'').
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    \36\ For purposes of the Plan, the term ``members'' includes 
Capital Acquisition Brokers, Funding Portals and applicants for 
FINRA membership.
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1. Members and Other Broker-Dealers

    FINRA is partnering with an FBI-approved private channeler (``FBI-
Approved Channel Partner'') \37\ to process fingerprints and 
identifying information from personnel of members and other broker-
dealers required to be fingerprinted pursuant to Exchange Act Section 
17(f)(2) and Rule 17f-2 thereunder. The FBI-Approved Channel Partner 
fingerprints such personnel or accepts fingerprints of such personnel 
(either in electronic or hard copy format) and submits such 
fingerprints to the Attorney General for processing consistent with 
protocols and requirements established by the Attorney General.\38\
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    \37\ The FBI-Approved Channel Partner is one of a limited number 
of entities approved by the FBI to submit fingerprints to the FBI 
and receive the results on behalf of an organization using that 
information for authorized non-criminal justice purposes (e.g., 
employment suitability, licensing determinations, etc.). The FBI 
reviews and approves all outsourced channeling relationships 
consistent with its outsourcing standards and protocols. As outlined 
in the September 28, 2021 letter from the FBI's National Crime 
Prevention and Privacy Compact Council Office (``CCO Letter''), the 
FBI has reviewed and conditionally granted permission to FINRA to 
use a specified FBI-Approved Channel Partner contingent upon FINRA 
filing a fingerprint plan with the Commission and the Commission 
declaring that fingerprint plan effective. See CCO Letter, available 
at https://www.finra.org/registration-exams-ce/classic-crd/fingerprints. The terms of the CCO Letter are incorporated by 
reference in the Plan.
    \38\ On its website, FINRA informs its members and other broker-
dealers of the availability of fingerprint services and any fees 
charged by FINRA in connection with those services and the 
processing of fingerprints pursuant to this Plan. See https://www.finra.org/registration-exams-ce/classic-crd/fingerprints.
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    FINRA receives results from the FBI-Approved Channel Partner after 
the fingerprints have been processed by the Attorney General and makes 
those results available to authorized recipients (i.e., to a member or 
other broker-dealer that submitted the fingerprints and to regulators, 
as appropriate, for licensing, registration and other regulatory 
purposes), consistent with protocols and requirements established by 
the Attorney General. With respect to members and other broker-dealers, 
FINRA also reviews any Criminal History Record Information returned by 
the Attorney General to identify persons who may be subject to 
statutory disqualification under the Exchange Act and to take action, 
as appropriate, with respect to such persons.
    FINRA maintains copies of fingerprint processing results received 
from the Attorney General with respect to fingerprints submitted by the 
FBI-Approved Channel Partner pursuant to this Plan in accordance with 
FINRA's records policy.\39\ Any maintenance of fingerprint records by 
FINRA shall be for FINRA's own administrative purposes; FINRA is not 
undertaking to maintain fingerprint records on behalf of FINRA members 
pursuant to Exchange Act Rule 17f-2(d)(2). FINRA records in FINRA 
systems the status of fingerprints of personnel of members and other 
broker-dealers submitted to the Attorney General.\40\ Through these 
systems, FINRA makes available to a member or other broker-dealer that 
has submitted fingerprints the status and results of such fingerprints 
after submission to the Attorney General.
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    \39\ FINRA's records policy is to maintain all records for at 
least five years.
    \40\ These systems include the Central Registration Depository 
(CRD[supreg]) and the Funding Portal Registration Depository 
(FPRD[supreg]).

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2. Transfer Agents and Clearing Agencies

    FINRA accepts fingerprints and identifying information from 
transfer agent personnel and clearing agency personnel who are required 
to be fingerprinted pursuant to Exchange Act Section 17(f)(2) and Rule 
17f-2 thereunder. FINRA accepts fingerprints of such personnel in hard 
copy format and transmits fingerprints to the Attorney General for 
identification and processing consistent with protocols and 
requirements established by the Attorney General.\41\ After receiving 
the processed results, FINRA transmits them to the submitting transfer 
agent or clearing agency (i.e., an authorized recipient of the 
results). FINRA informs transfer agents and clearing agencies of its 
fingerprint processing services and the fees associated with those 
services.
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    \41\ FINRA is channeling transfer agent and clearing agency 
fingerprints and not using the FBI-Approved Channel Partner for this 
purpose.
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3. FINRA Personnel

    FINRA partners with the FBI-Approved Channel Partner to obtain 
fingerprints and identifying information from FINRA personnel who are 
required to be fingerprinted under Exchange Act Section 17(f)(2) and 
consistent with its Policy to Conduct Fingerprint-Based Background 
Checks (``Fingerprint Policy'').\42\ The FBI-Approved Channel Partner 
transmits fingerprints to the Attorney General for identification and 
processing consistent with protocols and requirements established by 
the Attorney General and securely makes the results available to FINRA 
after the fingerprints have been processed. FINRA evaluates the 
fingerprint results and takes any appropriate action in accordance with 
the terms of the Fingerprint Policy.
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    \42\ Securities Exchange Act Release No. 50157 (August 5, 2004), 
69 FR 49924 (August 12, 2004) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2004-095).

[FR Doc. 2021-24327 Filed 11-5-21; 8:45 am]
BILLING CODE 8011-01-P