Document ID: SEC-2021-1208-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-09-08T04:00Z

[Federal Register Volume 86, Number 171 (Wednesday, September 8, 2021)]
[Notices]
[Pages 50391-50394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19291]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92837; File No. SR-FINRA-2021-021]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Expiration Dates of FINRA Rules 0180 
(Application of Rules to Security-Based Swaps) and 4240 (Margin 
Requirements for Credit Default Swaps) and Amend FINRA Rule 4240 To Add 
Supplementary Material .02

September 1, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 20, 2021, the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by FINRA. FINRA has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under paragraph (f)(6) 
of Rule 19b-4 under the Act,\3\ which renders the proposal effective 
upon receipt of this filing by the Commission. 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\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to (i) extend the expiration date of FINRA Rule 
0180 (Application of Rules to Security-Based Swaps) to February 6, 2022 
and (ii) extend to April 6, 2022 the implementation of FINRA Rule 4240 
(Margin Requirements for Credit Default Swaps) and clarify that the 
rule does not apply if a member is registered with the SEC as a 
security-based swap (``SBS'') dealer (``SBSD'').
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On July 8, 2011, FINRA filed for immediate effectiveness FINRA Rule 
0180, which, with certain exceptions, temporarily limits the 
application of FINRA rules with respect to SBS, thereby avoiding undue 
market disruptions resulting from the change to the definition of 
``security'' under the Act to expressly encompass SBS.\4\ Pending the 
SEC's final implementation of its rulemakings under Title VII of the 
Dodd-Frank Act,\5\ FINRA extended the expiration date of FINRA Rule 
0180 a number of times, most recently in January 2020, when FINRA 
extended the expiration date to September 1, 2021.\6\ In addition, on 
May 22, 2009, the Commission approved FINRA Rule 4240,\7\ which 
implements an interim pilot program (the ``Interim Pilot Program'') 
with respect to margin requirements for certain transactions in credit 
default swaps (``CDS'').\8\ On June 2, 2020, FINRA filed a proposed 
rule change for immediate effectiveness extending the implementation of 
FINRA Rule 4240 to September 1, 2021.\9\ Therefore, both FINRA Rule 
0180 and the Interim Pilot Program under FINRA Rule 4240 are currently 
scheduled to expire on September 1, 2021.
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    \4\ See Securities Exchange Act Release No. 64884 (July 14, 
2011), 76 FR 42755 (July 19, 2011) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2011-033).
    \5\ See Public Law 111-203, 124 Stat. 1376 (2010), Section 701.
    \6\ See Securities Exchange Act Release No. 88023 (January 23, 
2020), 85 FR 5261 (January 29, 2020) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2020-001).
    \7\ See Securities Exchange Act Release No. 59955 (May 22, 
2009), 74 FR 25586 (May 28, 2009) (Order Approving File No. SR-
FINRA-2009-012).
    \8\ In March 2012, the SEC approved amendments to FINRA Rule 
4240 that, among other things, limit the rule's application to CDS 
that are SBS. See Securities Exchange Act Release No. 66527 (March 
7, 2012), 77 FR 14850 (March 13, 2012) (Order Approving File No. SR-
FINRA-2012-015).
    \9\ See Securities Exchange Act Release No. 89036 (June 10, 
2020), 85 FR 36458 (June 16, 2020) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2020-016).
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    On April 26, 2021, FINRA filed a proposed rule change to amend 
FINRA Rules 0180, 4120, 4210, 4220, 4240 and 9610 to clarify the 
application of its rules to SBS following the SEC's completion of its 
rulemaking under Title VII of the Dodd-Frank Act regarding SBSDs and 
major SBS participants (collectively, ``SBS Entities'').\10\ Among 
other things, the Proposal would adopt a new FINRA Rule 0180, to 
replace expiring current FINRA Rule 0180, that would generally apply 
FINRA rules to members' activities and positions with respect to SBS, 
while providing limited exceptions for SBS in circumstances where FINRA 
believes such exceptions are appropriate. The Proposal would also adopt 
a new margin rule specifically applicable to SBS, which would replace 
the expiring Interim Pilot Program

[[Page 50392]]

establishing margin requirements for CDS. FINRA originally proposed 
that the effective date of the Proposal would be October 6, 2021, to 
align with the SEC's compliance date for registration of SBS Entities 
(the ``Registration Compliance Date''). FINRA noted in the Proposal 
that it intended to extend the expiration dates of existing FINRA Rules 
0180 and 4240 to October 6, 2021 to align with the Registration 
Compliance Date and implementation of the Proposal.\11\
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    \10\ See Securities Exchange Act Release No. 91789 (May 7, 
2021), 86 FR 26084 (May 12, 2021) (Notice of Filing of File No. SR-
FINRA-2021-008) (``Proposal'').
    \11\ See Proposal, supra note 10, at 26086 n.18.
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    After consideration of comments on the Proposal, as well as further 
feedback from member firms, on August 9, 2021 FINRA filed Partial [sic] 
Amendment No. 1 to the Proposal.\12\ The Amendment (1) extends the 
effective date of the proposed amendments to FINRA Rules 0180, 4120 and 
9610 from October 6, 2021 to February 6, 2022; (2) extends the 
effective date of the proposed amendments to FINRA Rules 4210, 4220 and 
4240 from October 6, 2021 to April 6, 2022; and (3) conforms the 
proposed definition of ``Legacy Swap'' in proposed FINRA Rule 
4240(d)(12) to reflect the new effective date of April 6, 2022. FINRA 
noted in the Amendment that it intended to extend the expiration date 
of existing FINRA Rule 0180 until February 6, 2022, and the expiration 
date of existing FINRA Rule 4240 until April 6, 2022, so as to align 
with the new effective dates of the Proposal described above.\13\ 
Accordingly, the proposed rule change (i) amends existing FINRA Rule 
0180 to extend the expiration date of the rule from September 1, 2021 
to February 6, 2022 and (ii) amends existing FINRA Rule 4240 to extend 
the expiration date of the Interim Pilot Program from September 1, 2021 
to April 6, 2022. FINRA believes it is appropriate to extend the 
expiring rules so as to align with the effective dates of the new rules 
that will replace them, thereby avoiding undue burdens on market 
participants and undue market disruption.
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    \12\ See Securities Exchange Act Release No. 92617 (August 9, 
2021), 86 FR 44761 (August 13, 2021) (Notice of Filing of Amendment 
No. 1 and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove the Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to Security-Based Swaps) (``Amendment'').
    \13\ See supra note 12.
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    FINRA also noted in the Amendment that, beginning on the 
Registration Compliance Date, members may register with the SEC as 
SBSDs, and thereby become subject to the margin requirements applicable 
to SBSDs under Exchange Act Rule 18a-3.\14\ Therefore, if a member were 
to register as an SBSD on the Registration Compliance Date or during 
the period between the Registration Compliance Date and April 6, 2022, 
the member would be subject to both the new margin requirements for SBS 
under Exchange Act Rule 18a-3 and the expiring Interim Pilot Program 
for CDS. In order to avoid unnecessary regulatory duplication or any 
potential conflicting obligations as between Exchange Act Rule 18a-3 
and the Interim Pilot Program, FINRA is also amending existing, 
expiring FINRA Rule 4240 to add Supplementary Material .02 to clarify 
that the rule does not apply to a member that is registered with the 
SEC as an SBSD.\15\
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    \14\ See supra note 12.
    \15\ FINRA notes that this provision is consistent with the new 
SBS margin rule under the Proposal, which provides that a member 
that is registered as an SBSD shall instead comply with Exchange Act 
Rule 18a-3. As discussed in the Proposal, FINRA believes it should 
defer to the SEC's margin framework for registered SBSDs rather than 
impose additional or different requirements on such entities. See 
Proposal, supra note 10, at 26098.
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    FINRA 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 FINRA can implement the proposed rule change on 
September 1, 2021.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\16\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change would 
further the purposes of the Act because the proposed rule change will 
help to avoid undue burdens on market participants and undue market 
disruption that could result if existing FINRA Rule 0180 expires before 
the effective date of new FINRA Rule 0180. Similarly, FINRA believes 
that the proposed rule change is consistent with the Act because 
extending the implementation of FINRA Rule 4240 will ensure that the 
Interim Pilot Program establishing margin requirements for CDS will 
continue to apply until the new SBS margin rule under new FINRA Rule 
4240 becomes effective, thereby helping to promote stability in the 
financial markets and regulatory certainty for members. FINRA further 
believes that clarifying that the Interim Pilot Program does not apply 
to a registered SBSD will promote legal certainty and avoid unnecessary 
regulatory duplication.
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    \16\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA 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. FINRA believes that the 
proposed rule change would prevent undue burdens on market participants 
and undue market disruption that would otherwise result if FINRA Rule 
0180 expires before the effective date of new FINRA Rule 0180. FINRA 
believes that, by extending the expiration of FINRA Rule 0180, the 
proposed rule change will serve to promote regulatory clarity and 
consistency, thereby reducing burdens on the marketplace and 
facilitating investor protection. Similarly, FINRA believes that 
extending the implementation of the Interim Pilot Program under FINRA 
Rule 4240 will ensure that the Interim Pilot Program establishing 
margin requirements for CDS will continue to apply until the new SBS 
margin rule under new FINRA Rule 4240 becomes effective, thereby 
helping to promote stability in the financial markets and regulatory 
certainty for members. FINRA further believes that clarifying that the 
Interim Pilot Program does not apply to a registered SBSD will promote 
legal certainty and avoid unnecessary regulatory duplication.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days 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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant

[[Page 50393]]

to Rule 19b-4(f)(6)(iii),\19\ the Commission may designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. FINRA has requested that the Commission waive the 
30-day operative delay requirement so that the proposed rule change may 
become operative on September 1, 2021. The Commission hereby grants the 
request. The proposed rule change is consistent with the goals set 
forth by the Commission when it issued the original temporary exemptive 
relief,\20\ as well as the subsequent extensions of the temporary 
exemptive relief,\21\ and will help avoid undue market interruption 
resulting from the change of the definition of ``security'' under the 
Exchange Act and the expiration of FINRA Rules 0180 and 4240. 
Furthermore, the Commission finds that adding Supplemental Material .02 
would help avoid unnecessary regulatory duplication or any potential 
conflicting obligations as between Exchange Act Rule 18a-3 and the 
Interim Pilot Program. Therefore, the Commission believes it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay requirement.\22\ Therefore, the 
Commission designates the proposal as operative on September 1, 2021.
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    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ See Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 
39927 (Jul. 7, 2011) (Order Granting Temporary Exemptions Under the 
Securities Exchange Act of 1934 in Connection With the Pending 
Revision of the Definition of ``Security'' To Encompass Security-
Based Swaps, and Request for Comment); see also supra note 7.
    \21\ See supra note 9 (extending the implementation of FINRA 
Rule 4240 to September 1, 2021); supra note 6 (extending the 
expiration date of FINRA Rule 0180 to September 1, 2021); Exchange 
Act Release No. 85981 (May 31, 2019), 84 FR 26486 (Jun. 6, 2019) 
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2019-016) (extending the implementation of FINRA Rule 4240 to July 
20, 2020); Exchange Act Release No. 85062 (Feb. 6, 2019), 84 FR 3524 
(Feb. 12, 2019) (Notice of Filing and Immediate Effectiveness of 
File No. SR-FINRA-2019-001) (extending the expiration date of FINRA 
Rule 0180 to February 12, 2020); Exchange Act Release No. 83474 
(Jun. 20, 2018), 83 FR 29840 (Jun. 26, 2018) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2018-025) (extending 
the implementation of FINRA Rule 4240 to July 18, 2019); Exchange 
Act Release No. 82480 (Jan. 10, 2018), 83 FR 2480 (Jan. 17, 2018) 
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2018-001) (extending the expiration date of FINRA Rule 0180 to 
February 12, 2019); Exchange Act Release No. 81035 (Jun. 27, 2017), 
82 FR 30914 (Jul. 3, 2017) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2017-019) (extending the 
implementation of FINRA Rule 4240 to July 18, 2018); Exchange Act 
Release No. 79752 (Jan. 6, 2017), 82 FR 3824 (Jan. 12, 2017) (Notice 
of Filing and Immediate Effectiveness of File No. SR-FINRA-2017-001) 
(extending the expiration date of FINRA Rule 0180 to February 12, 
2018); Exchange Act Release No. 78182 (Jun. 28, 2016), 81 FR 43690 
(Jul. 5, 2016) (Notice of Filing and Immediate Effectiveness of File 
No. SR-FINRA-2016-020) (extending the implementation of FINRA Rule 
4240 to July 18, 2017); Exchange Act Release No. 76850 (Jan. 7, 
2016), 81 FR 1666 (Jan. 13, 2016) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2016-001) (extending the 
expiration date of FINRA Rule 0180 to February 11, 2017); Exchange 
Act Release No. 75069 (May 29, 2015), 80 FR 31931 (Jun. 4, 2015) 
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2015-013) (extending the implementation of FINRA Rule 4240 to July 
18, 2016); Exchange Act Release No. 74049 (Jan. 14, 2015), 80 FR 
2983 (Jan. 21, 2015) (Notice of Filing and Immediate Effectiveness 
of File No. SR-FINRA-2015-001) (extending the expiration date of 
FINRA Rule 0180 to February 11, 2016); Exchange Act Release No. 
72522 (Jul. 2, 2014), 79 FR 39031 (Jul. 9, 2014) (Notice of Filing 
and Immediate Effectiveness of File No. SR-FINRA-2014-029) 
(extending the implementation of FINRA Rule 4240 to July 17, 2015); 
Exchange Act Release No. 71485 (Feb. 5, 2014), 79 FR 7731 (Feb. 10, 
2014) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2014-001) (extending the expiration date of FINRA Rule 0180 to 
February 11, 2015); Exchange Act Release No. 69993 (Jul. 16, 2013), 
78 FR 43945 (Jul. 22, 2013) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2013-030) (extending the 
implementation of FINRA Rule 4240 to July 17, 2014); Exchange Act 
Release No. 69262 (Apr. 1, 2013), 78 FR 20708 (Apr. 5, 2013) (Notice 
of Filing and Immediate Effectiveness of File No. SR-FINRA-2013-019) 
(extending the expiration date of FINRA Rule 0180 to February 11, 
2014); Exchange Act Release No. 68471 (Dec. 19, 2012), 77 FR 76113 
(Dec. 26, 2012) (Notice of Filing and Immediate Effectiveness of 
File No. SR-FINRA-2012-056) (extending the expiration date of FINRA 
Rule 0180 to July 17, 2013); Exchange Act Release No. 67449 (Jul. 
17, 2012), 77 FR 43128 (Jul. 23, 2012) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2012-035) (extending 
the implementation of FINRA Rule 4240 to July 17, 2013); Exchange 
Act Release No. 66528 (Mar. 7, 2012), 77 FR 14848 (Mar. 13, 2012) 
(Notice of Filing and Order Granting Accelerated Approval of File 
No. SR-FINRA-2012-014) (extending the implementation of Rule 4240 to 
July 17, 2012); Exchange Act Release No. 66156 (Jan. 13, 2012), 77 
FR 3027 (Jan. 20, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-004) (extending the 
expiration date of FINRA Rule 0180 to January 17, 2013); Exchange 
Act Release No. 64892 (Jul. 14, 2011), 76 FR 43360 (Jul. 20, 2011) 
(Notice of Filing and Order Granting Accelerated Approval of File 
No. SR-FINRA-2011-034) (extending the implementation of Rule 4240 to 
January 17, 2012); Exchange Act Release No. 64884 (Jul. 14, 2011), 
76 FR 42755 (Jul. 19, 2011) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2011–033) (extending the 
expiration date of FINRA Rule 0180 to January 17, 2012); Exchange 
Act Release No. 63391 (Nov. 30, 2010), 75 FR 75718 (Dec. 6, 2010) 
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2010-063) (extending the implementation of Rule 4240 to July 16, 
2011); Exchange Act Release No. 60722 (Sep. 25, 2009), 74 FR 50856 
(Oct. 1, 2010) (Notice of Filing and Immediate Effectiveness of File 
No. SR-FINRA-2009-063) (extending the implementation of Rule 4240 to 
November 30, 2010).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2021-021 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-FINRA-2021-021. 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 (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 Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. 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-
FINRA-

[[Page 50394]]

2021-021 and should be submitted on or before September 29, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19291 Filed 9-7-21; 8:45 am]
BILLING CODE 8011-01-P