Document ID: SEC-2021-0999-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-07-20T04:00Z

[Federal Register Volume 86, Number 136 (Tuesday, July 20, 2021)]
[Notices]
[Pages 38395-38397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15338]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92403; File No. SR-FINRA-2021-018]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Make Technical and Other Non-Substantive 
Changes Within FINRA Rules

July 14, 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 July 6, 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, 
II, and III 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). Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to give the Commission written notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. FINRA 
has satisfied this requirement.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to make technical and other non-substantive 
changes within FINRA rules.
    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.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

Schedule A to the By-Laws of the Corporation

* * * * *

IM-Section 4(b)(1) and (e) Exemption From Certain Registration and 
Membership Application Fees for Certain NYSE and NYSE [Alternext 
US]American LLC Member Organizations

    NYSE and NYSE [Alternext US]American LLC member organizations that 
become members of FINRA pursuant to IM-1013-1 and IM-1013-2, 
respectively, shall not be assessed the fee set forth in Section 
4(b)(1) to Schedule A of the FINRA By-Laws for the initial Form U4 
filed by firms for the registration of any representative or principal 
associated with the member organization at the time a firm submits its 
application for FINRA membership. Such firms also shall not be assessed 
the membership application fee set forth in Section 4(e) to Schedule A 
of the FINRA By-Laws. However, those firms will otherwise remain 
subject to FINRA's By-Laws and Schedules to By-Laws, including Schedule 
A.
* * * * *

FINRA Rules

* * * * *

1000. Member Application and Associated Person Registration

* * * * *

IM-1011-1. Safe Harbor for Business Expansions

    This interpretive material concerns the types of business 
expansions that will not require a member to submit a Rule 1017 
application to obtain FINRA's approval of the expansion. This safe 
harbor applies to: (1) Firms that do not have a membership agreement, 
and (2) firms that have a membership agreement that does not contain a 
restriction on the factors listed below.
* * * * *
    The safe harbor is not available to any member that has 
disciplinary history. For purposes of this Interpretation, 
``disciplinary history'' means a finding of a violation by the member 
or a principal of the member in the past five years by the SEC, a self-
regulatory organization, or a foreign financial

[[Page 38396]]

regulatory authority of one or more of the following provisions (or a 
comparable foreign provision) or rules or regulations thereunder: 
Violations of the types enumerated in Section 15(b)(4)(E) and Section 
15(c) of the Exchange Act; Section 17(a) of the Securities Act; SEA 
Rules 10b-5 and 15g-1 through 15g-9; FINRA Rules 2010 (only if the 
finding of a violation is for unauthorized trading, churning, 
conversion, material misrepresentations or omissions to a customer, 
frontrunning, trading ahead of research reports or excessive markups), 
2020, 2111, 2121, 2150, 4330, 3110 (failure to supervise only), 5210, 
and 5230; and MSRB Rules G-19, G-30, and G-37(b) and (c), and all 
predecessor NASD rules to such FINRA rules.
* * * * *

1017. Application for Approval of Change in Ownership, Control, or 
Business Operations

    (a) through (k) No Change.
(l) Removal or Modification of Restriction on Department's Initiative
    The Department shall modify or remove a restriction on its own 
initiative if the Department determines such action is appropriate in 
light of the considerations set forth in paragraph ([h]i)(1). The 
Department shall notify the member in writing of the Department's 
determination and inform the member that it may apply for further 
modification or removal of a restriction by filing an application under 
paragraph (a).
    (m) No Change.
* * * * *

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 March 26, 2020, the Commission approved amendments to Rule 1017, 
among other rules, as part of FINRA's efforts to help further address 
the issue of customer recovery of unpaid arbitration awards.\4\ Before 
the amendments to Rule 1017, paragraph (h)(1) related to FINRA's 
decision on an application for continuing FINRA membership, and 
specified some factors that create a presumption to deny an 
application. File No. SR-FINRA-2019-030 renumbered that paragraph to 
paragraph (i)(1). Currently, Rule 1017(l) cross-references to paragraph 
(h)(1), which, as a result of SR-FINRA-2019-030, requires an applicant 
for continuing FINRA membership to promptly provide FINRA written 
notification of any arbitration claim involving the applicant or its 
associated persons that is filed, awarded or becomes unpaid before a 
decision constituting final action of FINRA is served on the applicant. 
In File No. SR-FINRA-2019-030, FINRA did not propose a change to Rule 
1017(l) to reflect the rule cross-reference change from paragraph 
(h)(1) to paragraph (i)(1). With this proposed rule change, FINRA is 
proposing to make this corrective non-substantive, technical change to 
Rule 1017(l).\5\
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    \4\ See Securities Exchange Act Release No. 88482 (March 26, 
2020), 85 FR 18299 (April 1, 2020) (Order Approving File No. SR-
FINRA-2019-030, as Modified by Amendment No. 1). FINRA announced 
September 14, 2020 as the effective date of the rule change in 
Regulatory Notice 20-15 (May 2020).
    \5\ FINRA notes that the proposed rule change would impact all 
members, including members that have elected to be treated as 
capital acquisition brokers (``CABs'') and are subject to CAB rules. 
CAB Rule 116 (Application for Approval of Change in Ownership, 
Control, or Business Operations) incorporates by reference Rule 
1017.
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    On April 10, 2019, the Commission announced the immediate 
effectiveness of the adoption of the remaining legacy NASD rules as 
FINRA rules in the consolidated FINRA rulebook and the remaining 
Incorporated NYSE Rules and Incorporated NYSE Rule Interpretations in 
the consolidated FINRA rulebook as a separate Temporary Dual FINRA-NYSE 
Member Rules Series.\6\ Among these legacy NASD rules was then NASD 
Interpretative Material (``IM'')-1011-1 (Safe Harbor for Business 
Expansions). In general, this rule created a safe harbor for specified 
categories of business expansions, subject to certain thresholds and 
conditions, that a member may undergo without filing an application for 
continuing membership with FINRA, but this safe harbor was unavailable 
to a member with a defined ``disciplinary history.'' Under NASD IM-
1011-1, the term ``disciplinary history'' meant a finding of a 
violation by the member or a principal of the member in the past five 
years by the SEC, a self-regulatory organization, or a foreign 
financial regulatory authority of one or more specified provisions that 
included NASD Rule 2440 (Fair Prices and Commissions), the predecessor 
rule to FINRA Rule 2121 (Fair Prices and Commissions).\7\ Through File 
No. SR-FINRA-2019-009, FINRA adopted NASD IM-1011-1 as FINRA IM-1011-1 
with the intention of replacing therein all references to an NASD rule 
with its corresponding FINRA rule. The reference to NASD Rule 2440, or 
``2440'' as written in NASD IM-1011-1, was inadvertently omitted from 
the rule text presented in Exhibit 4 and Exhibit 5 to File No. SR-
FINRA-2019-009 and as a result, the list of rules for ``disciplinary 
history'' as they currently appear in FINRA IM-1011-1 omits the 
reference to FINRA Rule 2121. With this proposed rule change, FINRA is 
proposing to correct this technical error by including a reference to 
``2121'' to the sequence of FINRA rules defining ``disciplinary 
history'' under FINRA IM-1011-1.
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    \6\ See Securities Exchange Act Release No. 85589 (April 10, 
2019), 84 FR 15646 (April 16, 2019) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2019-009).
    \7\ In 2014, FINRA adopted NASD Rule 2440 and its IMs, without 
material change, as FINRA Rule 2121. See Securities Exchange Act 
Release No. 72208 (May 21, 2014), 79 FR 30675 (May 28, 2014) (Notice 
of filing and Immediate Effectiveness of File No. SR-FINRA-2014-
023).
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    Finally, the proposed rule change would change the references to 
``NYSE Alternext US'' in IM-Section 4(b)(1) and (e) of Schedule A to 
the FINRA By-Laws to ``NYSE American.'' \8\
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    \8\ NYSE Alternext US LLC is a predecessor entity to NYSE 
American LLC. See Securities Exchange Act Release No. 80283 (March 
21, 2017), 82 FR 15244 (March 27, 2017) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NYSEMKT-2017-14).
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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 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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. The proposed rule change will make corrective non-
substantive, technical updates that

[[Page 38397]]

FINRA believes will provide greater clarity to FINRA rules.
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    \9\ 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. The proposed rule change brings 
clarity and consistency to FINRA rules without adding any burden on 
firms.

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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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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-2021-018 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-2021-018. 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 10:00 a.m. and 
3:00 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-2021-018 and should be submitted 
on or before August 10, 2021.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15338 Filed 7-19-21; 8:45 am]
BILLING CODE 8011-01-P