Document ID: SEC-2020-1442-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2020-09-09T04:00Z

[Federal Register Volume 85, Number 175 (Wednesday, September 9, 2020)]
[Notices]
[Pages 55712-55717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19838]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89737; File No. SR-FINRA-2020-027]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Temporarily Amend FINRA Rules 1015, 9261, 9524 
and 9830 To Permit Hearings Under Those Rules To Be Conducted by Video 
Conference

September 2, 2020.
    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 August 31, 2020, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. FINRA files the proposed rule change as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4. The Exchange provided the Commission with 
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 the proposed 
rule change as required by Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-
4(f)(6)(iii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to temporarily amend FINRA Rules 1015, 9261, 
9524 and 9830 to grant FINRA's Office of Hearing Officers (``OHO'') and 
the National Adjudicatory Council (``NAC'') authority \5\ to conduct 
hearings in connection with appeals of Membership Application Program 
decisions, disciplinary actions, eligibility proceedings and temporary 
and permanent cease and desist orders by video conference, if warranted 
by the current COVID-19-related public health risks posed by an in-
person hearing. As proposed, these temporary amendments would be in 
effect through December 31, 2020.\6\
---------------------------------------------------------------------------

    \5\ For OHO hearings under FINRA Rules 9261 and 9830, the 
proposed rule change temporarily grants authority to the Chief or 
Deputy Chief Hearing Officer to order that a hearing be conducted by 
video conference. For NAC hearings under FINRA Rules 1015 and 9524, 
this temporary authority is granted to the NAC or relevant 
Subcommittee.
    \6\ If FINRA requires temporary relief from the rule 
requirements identified in this proposal beyond December 31, 2020, 
FINRA may submit a separate rule filing to extend the expiration 
date of the temporary amendments under these rules. The amended 
FINRA rules will revert back to their current state at the 
conclusion of the temporary relief period and any extension thereof.
---------------------------------------------------------------------------

    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
    The outbreak of COVID-19 has disrupted critical adjudicatory 
functions nationwide due to the serious public health risks it poses in 
connection with conducting traditional, in-person hearings. In order to 
comply with the guidance of public health authorities and to ensure the 
safety and well-being

[[Page 55713]]

of parties, counsel, adjudicators and FINRA personnel, FINRA has 
administratively postponed in-person OHO and NAC hearings for over four 
months now--starting on March 16, 2020, with in-person hearings 
currently postponed through October 2, 2020. The result is an expanding 
backlog of cases, which if left unchecked, will compromise FINRA's 
ability to provide timely adjudicatory processes and fulfill its 
statutory obligations to protect investors and maintain fair and 
orderly markets.
    In order to proactively address this backlog of cases, and mitigate 
the consequences of a stalled adjudicatory system, FINRA is proposing 
this temporary rule change to grant OHO and the NAC the authority to 
conduct hearings by video conference, if warranted by the current 
COVID-19-related public health risks posed by an in-person hearing. 
This proposed rule change would allow OHO and the NAC to order that a 
hearing proceed by video conference over the objection of a party.\7\ 
As discussed in further detail below, FINRA will evaluate whether 
current COVID-19-related public health risks warrant a hearing by video 
conference based on an assessment of critical data and criteria and 
guidance from its outside health and security consultant.\8\
---------------------------------------------------------------------------

    \7\ Currently, if the parties jointly agree, OHO and the NAC 
will proceed with a hearing by video conference. As of August 21, 
2020, OHO has conducted three days of video conference hearings in 
connection with a disciplinary matter and scheduled hearings in 5 
other disciplinary matters to proceed by video conference, per joint 
agreement of the parties.
    \8\ See infra Assessment of Public Health Risks--Data and 
Criteria Used.
---------------------------------------------------------------------------

    FINRA's protocol for conducting hearings by video conference will 
ensure that such hearings maintain fair process for the parties. FINRA 
will, among other things, use a high quality, secure and user-friendly 
video conferencing service and provide thorough instructions, training 
and technical support to all hearing participants.\9\ In addition, 
FINRA has experience conducting numerous hearings and oral arguments 
utilizing video conferencing technology in similar contexts.\10\
---------------------------------------------------------------------------

    \9\ FINRA plans to conduct video conference hearings using Zoom, 
a program that has been vetted by FINRA's information technology 
staff. FINRA may consider alternate video conferencing services, if 
those services have features and capabilities analogous to those 
available through Zoom.
    \10\ From the postponement of in-person hearings starting on 
March 16, 2020, through August 21, 2020, 43 FINRA arbitration cases 
have proceeded with one or more video conference hearings conducted 
via Zoom. Of those 43 cases, 23 conducted one or more video 
conference hearings pursuant to the parties' joint motion. As of 
August 21, 2020, the NAC, through the relevant Subcommittee, has 
conducted 3 oral arguments by video conference using Zoom in 
connection with appeals of FINRA disciplinary proceedings pursuant 
to FINRA Rule 9341(d), as temporarily amended. See infra note 22.
---------------------------------------------------------------------------

    While FINRA's ultimate goal is to resume in-person hearings, doing 
so in a manner that is compliant with the current guidance of public 
health authorities is a complex, challenging and time-consuming process 
that presents numerous logistical challenges. Among other things, FINRA 
will need detailed procedures and related participant training on 
physical distancing and otherwise minimizing physical contact during 
in-person hearings, preparing spaces and providing protective equipment 
to protect the safety of hearing participants (including parties, 
counsel, adjudicators and FINRA personnel) and to address numerous 
other aspects of in-person hearings that pose a risk of COVID-19 
transmission.\11\ Even with the ability to put those protections in 
place, FINRA cannot conduct an in-person hearing where the hearing 
participants cannot safely travel to the hearing location. Furthermore, 
even if hearing participants are able to travel to a hearing location, 
state and local quarantining requirements may pose significant 
impediments to their ability to participate in person.
---------------------------------------------------------------------------

    \11\ See, e.g., Conducting Jury Trials and Convening Grand 
Juries During the Pandemic (June 4, 2020) (Outlining the ``multitude 
of issues'' courts need to consider before resuming jury selection 
and jury trials during the pandemic, including, among other things, 
reconfiguring courtrooms, the presentation and handling of evidence 
to reduce transmission risks, restricting access to physical spaces 
such as common areas and deciding when jurors will be permitted to 
leave the premises) available at https://www.uscourts.gov/sites/default/files/combined_jury_trial_post_covid_doc_6.10.20.pdf.
---------------------------------------------------------------------------

    With the assistance of its outside health and security consultant, 
FINRA is actively working to develop such a protocol for in-person 
hearings that takes into consideration the various health and safety 
considerations at play. Settling on a protocol for in-person hearings, 
however, continues to be a moving target, with public health guidance 
being continually updated and local and state transmission rates, 
government public health orders and other localized considerations in a 
constant state of flux. FINRA believes that permitting the Chief or 
Deputy Chief Hearing Officer or the NAC or relevant Subcommittee to 
exercise their judgment to conduct OHO and NAC hearings, respectively, 
by video conference \12\ on a temporary basis is a reasonable interim 
solution to allow FINRA's critical adjudicatory processes to continue 
to function in these extraordinary times--enabling FINRA to fulfill its 
statutory obligations to protect investors and maintain fair and 
orderly markets--while protecting the health and safety of hearing 
participants.\13\
---------------------------------------------------------------------------

    \12\ FINRA currently conducts certain hearing and pre-hearing 
conferences by remote means. Pursuant to FINRA Rule 9241(b) (Pre-
hearing Conference; Procedure), pre-hearing conferences conducted in 
connection with FINRA disciplinary proceedings can be conducted with 
one or more persons participating by telephone or ``other remote 
means.'' Pursuant to FINRA Rule 9559(d)(5) (Hearing Procedures for 
Expedited Proceedings Under the Rule 9550 Series), hearings in 
connection with expedited proceedings under the Rule 9550 Series are 
held by telephone conference, unless the Hearing Officer orders 
otherwise for good cause shown.
    \13\ FINRA notes that, in response to COVID-related risks, 
federal agencies such as the United States Patent and Trademark 
Office (USPTO) are also conducting a variety of meetings and 
hearings remotely, including trademark examining attorney interviews 
and oral hearings, until further notice. See USPTO Update on In-
Person Meetings (March 13, 2020) available at https://www.uspto.gov/about-us/news-updates/uspto-update-person-meetings.
---------------------------------------------------------------------------

(a) Background
    FINRA's adjudicatory functions performed by OHO and the NAC are 
essential to investor protection and market integrity. This proposed 
rule change would provide OHO and the NAC with temporary authority to 
order that OHO hearings for disciplinary matters and temporary and 
permanent cease and desist orders and NAC hearings for appeals of 
Membership Application Program (``MAP'') decisions and eligibility 
proceedings, take place by video conference, if warranted by the 
current COVID-19-related public health risks posed by an in-person 
hearing. As proposed, this temporary rule change would be in effect 
through December 31, 2020.
(1) OHO Hearings
    OHO conducts disciplinary hearings in-person at venues across the 
country before three-person hearing panels composed of one hearing 
officer and two industry members.\14\ Depending on the size and 
complexity of the case, OHO schedules the hearing for four to ten 
months after the filing of the complaint. OHO, on average, conducts 19 
disciplinary cases a year.\15\ FINRA Rule 9261(b) \16\ states that if a 
disciplinary hearing is held, a party shall be entitled to be heard in-
person, by counsel, or by the party's

[[Page 55714]]

representative. Absent an agreement by all parties to proceed in 
another manner, OHO conducts disciplinary hearings in-person.
---------------------------------------------------------------------------

    \14\ In limited circumstances, a hearing may proceed with a 
Hearing Officer and one panelist, which is permitted under FINRA 
rules.
    \15\ This number is based on an average of the hearings from the 
three-year period from January 2017 to December 2019.
    \16\ FINRA Rule 9261(b) (Disciplinary Proceedings; Hearing and 
Decision; Evidence and Procedure in Hearing; Party's Right to be 
Heard).
---------------------------------------------------------------------------

    OHO also conducts hearings for temporary and permanent cease and 
desist orders (``TCDOs'' and ``PCDOs''). Pursuant to FINRA Rule 
9810,\17\ FINRA's Department of Enforcement (``Enforcement'') initiates 
a TCDO or PCDO proceeding by filing a written notice with OHO and must 
simultaneously file a disciplinary complaint with the initiation of a 
TCDO or PCDO proceeding. These proceedings provide a mechanism to take 
necessary remedial action against a member or associated person where 
there is a significant risk that the alleged misconduct could cause 
continuing harm to the investing public, if not addressed 
expeditiously.\18\
---------------------------------------------------------------------------

    \17\ FINRA Rule 9810 (Code of Procedure; Temporary and Permanent 
Cease and Desist Orders; Initiation of Proceeding).
    \18\ Pursuant to FINRA Rule 9810(a), Enforcement may initiate a 
TCDO proceeding based on alleged violations of (i) Section 10(b) of 
the Exchange Act and SEA Rule 10b-5 thereunder; (ii) SEA Rules 15g-1 
through 15g-9; (iii) FINRA Rule 2010 (Standards of Commercial Honor 
and Principles of Trade), if the alleged violation is unauthorized 
trading, or misuse or conversion of customer assets, or based on 
violations of Section 17(a) of the Securities Act; (iv) FINRA Rule 
2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices); 
or (v) FINRA Rule 4330 (Customer Protection--Permissible Use of 
Customers' Securities), if the alleged violation is misuse or 
conversion of customer assets. Enforcement may initiate a PCDO 
proceeding pursuant to 9810(a) based on alleged violations of 
Supplemental Material .03 to FINRA Rule 5210 (Disruptive Quoting and 
Trading Activity Prohibited) for certain types of quoting and 
trading activity that are deemed to be disruptive and need to be 
resolved on an expedited basis.
---------------------------------------------------------------------------

    After OHO receives a notice initiating a TCDO or PCDO, it must hold 
a full evidentiary hearing before a three-person hearing panel within 
15 days.\19\ As with standard disciplinary matters, OHO typically 
conducts these proceedings in person, absent consent by all parties to 
proceed otherwise, at various venues across the country. FINRA Rule 
9830 outlines the requirements for a TCDO or PCDO hearing, however, it 
does not specify that a party shall be entitled to be heard in-person, 
by counsel, or by the party's representative.\20\
---------------------------------------------------------------------------

    \19\ FINRA Rule 9830(a) (Code of Procedure; Temporary and 
Permanent Cease and Desist Orders; Hearing; When Held).
    \20\ See supra note 19.
---------------------------------------------------------------------------

    The proposed rule change would temporarily amend FINRA Rules 9261 
and 9830 to grant OHO's Chief or Deputy Chief Hearing Officer temporary 
authority to order, upon consideration of the current COVID-19-related 
public health risks presented by an in-person hearing, that a hearing 
under those rules be conducted by video conference. This will allow OHO 
to make an assessment, based on critical COVID-19 data and criteria and 
the guidance of its outside health and security consultant, as to 
whether an in-person hearing would compromise the health and safety of 
the hearing participants such that the hearing should proceed by video 
conference.\21\
---------------------------------------------------------------------------

    \21\ The SEC's Rules of Practice pertaining to temporary cease-
and-desist orders provide that parties and witnesses may participate 
by telephone or, in the Commission's discretion, through the use of 
alternative technologies that allow remote access, such as a video 
link. See SEC Rule of Practice 511(d)(3); Comment (d).
---------------------------------------------------------------------------

(2) NAC Hearings
    The NAC is FINRA's appellate body, which reviews initial decisions 
issued by OHO and--through Subcommittees--holds evidentiary hearings 
for MAP decision appeals and eligibility proceedings.\22\ The proposed 
rule change would grant the NAC or relevant Subcommittee temporary 
authority to order, upon consideration of the current COVID-19-related 
public health risks presented by an in-person hearing, that a hearing 
in connection with a MAP decision or eligibility proceeding under Rule 
1015 or 9524 be conducted by video conference.
---------------------------------------------------------------------------

    \22\ FINRA Rule 9341(d) (Oral Argument; Attendance Required) 
provides that oral arguments made in connection with the review of a 
FINRA disciplinary proceeding take place before a Subcommittee of 
the NAC and requires all members of the relevant Subcommittee to be 
present for the oral argument. FINRA has temporarily amended FINRA 
Rule 9341(d) such that oral arguments made in connection with the 
review of FINRA disciplinary proceedings can be conducted by video 
conference. See Securities Exchange Act Release No. 88917 (May 20, 
2020), 85 FR 31832 (May 27, 2020) (Notice of Filing and Immediate 
Effectiveness File No. SR-FINRA-2020-015); Securities Exchange Act 
Release No. 89423 (July 29, 2020), 85 FR 47278 (August 4, 2020) 
(Notice of Filing and Immediate Effectiveness File No. SR-FINRA-
2020-022) (Further extending the expiration date of the temporary 
amendments in SR-FINRA-2020-15 from July 31, 2020, to a date to be 
specified in a public notice issued by FINRA, which date will be at 
least two weeks from the date of the notice, and no later than 
December 31, 2020).
---------------------------------------------------------------------------

(a) Membership Proceedings
    When a firm applies to become a FINRA member or seeks to make 
certain changes to its ownership, control or business operations, the 
firm files a membership application--a New Member Application (``Form 
NMA'') or Continuing Membership Application (``CMA'')--with FINRA's 
Department of Member Supervision (``Department''). The Department 
evaluates the application pursuant to FINRA Rule 1014 or 1017, 
depending on the type of application. FINRA Rule 1015 governs the 
process by which an applicant for new or continuing membership can 
appeal a decision rendered by the Department under FINRA Rule 1014 or 
1017 and request a hearing.\23\ If a hearing is requested, a 
Subcommittee of the NAC conducts the hearing. Rule 1015(f) does not 
require an in-person hearing, however, hearings are typically conducted 
in-person.\24\
---------------------------------------------------------------------------

    \23\ See FINRA Rule 1015(a) (Review by National Adjudicatory 
Council; Initiation of Review by Applicant).
    \24\ See FINRA Rule 1015(f) (Review by National Adjudicatory 
Council; Hearing).
---------------------------------------------------------------------------

(b) Eligibility Proceedings
    Pursuant to FINRA's By-Laws, a member firm subject to a statutory 
disqualification that wishes to retain their membership must file a 
Form MC-400A (``MC-400A'') application. If an associated person is 
subject to a statutory disqualification, a firm can sponsor the 
association of the disqualified person by filing a Form MC-400 
application (``MC-400''). The Department is responsible for evaluating 
MC-400A and MC-400 applications and making recommendations either to 
approve or deny the application to the NAC.\25\
---------------------------------------------------------------------------

    \25\ See FINRA Rule 9522 (Initiation of Eligibility Proceeding; 
Member Regulation Consideration).
---------------------------------------------------------------------------

    FINRA Rule 9524 governs the process by which a statutorily 
disqualified member firm or associated person can appeal the 
Department's recommendation to deny a firm or sponsoring firm's MC-400A 
or MC-400 application to the NAC.\26\ If the Department recommends 
denial of an application, the applicant can request an evidentiary 
hearing before a hearing panel, which routinely consists of two members 
of the NAC Statutory Disqualification Committee.\27\ FINRA Rule 
9524(a)(4) states that the parties are entitled to be heard in-person 
and represented by an attorney.
---------------------------------------------------------------------------

    \26\ See FINRA Rule 9524 (National Adjudicatory Council 
Consideration).
    \27\ See FINRA Rules 9522(e)(3) and 9524.
---------------------------------------------------------------------------

    The proposed rule change would temporarily amend FINRA Rules 
1015(f) and 9524(a)(4) to grant the NAC or Subcommittee (or Review 
Subcommittee) temporary authority to order, upon consideration of the 
current COVID-19-related public health risks presented by an in-person 
hearing, that a hearing under those rules be conducted by video 
conference. As with the OHO hearings discussed above, this temporary 
proposed rule change will allow the NAC or relevant Subcommittee to 
make an assessment, based on critical COVID-19 data and criteria and 
the guidance of its outside health and security consultant, as to

[[Page 55715]]

whether an in-person hearing would compromise the health and safety of 
the hearing participants such that the hearing should proceed by video 
conference.
(3) Assessment of Public Health Risks--Data and Criteria Used
    In light of the COVID-19 outbreak, determining the health and 
safety risks of a given in-person activity requires a complex facts and 
circumstances analysis and is a moving target. Public health guidance 
on how to minimize the risk of transmission is continually updated and 
localized considerations evolve rapidly. In order to assist FINRA 
through this challenging process, FINRA has engaged a health and 
security consultant to provide guidance on the multitude of issues that 
will need to be addressed in order to safely resume in-person 
activities.
    For purposes of this proposed temporary rule change, FINRA plans to 
rely on the guidance of its health and safety consultant, in 
conjunction with COVID-19 data and guidance issued by public health 
authorities, to determine whether the current public health risks 
presented by an in-person hearing may warrant a hearing by video 
conference. The following criteria, among others, will be considered in 
order to make this determination: (i) State and county virus trends and 
hospitalization rates at or around the hearing location; (ii) national, 
state and local orders addressing COVID-19; (iii) risks posed by 
requiring hearing participants to travel by air, use public 
transportation and stay in hotels; and (iv) the increased risk of 
exposure based on the length of the hearing or number of hearing 
participants. FINRA will also take into consideration any other 
relevant health, safety or similar concerns raised by the hearing 
participants.\28\
---------------------------------------------------------------------------

    \28\ In addition to an assessment of the public health risks, 
OHO's Chief or Deputy Chief Hearing Officer, or the NAC or relevant 
Subcommittee, may consider other factors in determining whether to 
schedule a video conference hearing. A non-exhaustive list of these 
factors includes a hearing participant's individual health concerns 
and access to the connectivity and technology necessary to 
participate in a video conference hearing. Moreover, as discussed 
infra, OHO and the NAC will have several means of addressing a 
hearing participant's access issues, including providing a hearing 
participant with the technology or hardware necessary to participate 
in a video conference or permitting a witness, for example, to 
participate by telephone to address connectivity issues. A FINRA 
case administrator will also participate in each video conference 
hearing to ensure participants have adequate technical support.
---------------------------------------------------------------------------

(4) Platform and Procedures for Conducting Video Conference Hearings
    FINRA has adopted a detailed and thorough protocol to ensure that 
hearings conducted by video conference will maintain fair process for 
the parties.\29\ As an initial matter, FINRA will use a high quality, 
secure and user-friendly video conferencing service.\30\ FINRA has 
provided a step-by-step breakdown of the enhanced security features 
that will be provided for video conference hearings.\31\ In addition, 
FINRA will use available video conferencing features to parallel an in-
person hearing experience such as waiting rooms to ensure that no party 
has time alone with the hearing panel and breakout rooms to allow for 
confidential communications. FINRA has also developed comprehensive 
guidelines for how video conference hearings will be conducted, 
including how objections and the introduction of new documents will be 
handled.\32\ These guidelines ensure that participants know what to 
expect during a video conference hearing and can prepare accordingly.
---------------------------------------------------------------------------

    \29\ The temporary proposed rule change will not alter the Chief 
or Deputy Chief Hearing Officer's, or the NAC or relevant 
Subcommittee's, existing discretion to allow a party or witness to 
participate by telephone, if necessary to address, among other 
things, impediments to a hearing participant's use of video 
conferencing technology such as connectivity issues. FINRA also 
notes that, to the extent feasible, it may, among other things, lend 
hearing participants the hardware necessary to participate in a 
video conference hearing (e.g., a video camera).
    \30\ As indicated above, FINRA has used video conferencing 
technology in other contexts to conduct hearings and oral arguments 
and take testimony. See supra notes 7 and 10.
    \31\ See Zoom Process for Disciplinary Hearings with the Office 
of Hearing Officers, available at https://www.finra.org/rules-guidance/key-topics/covid-19/hearings/zoom-office-hearing-officers. 
The enhanced securities features include randomly-generated meeting 
IDs and passwords for admittance, the use of a ``waiting room'' for 
all participants who join the hearing, the ability to ``lock'' the 
``hearing room'' so that no one else can enter, even if they have a 
password, and FINRA's Zoom process is restricted to Zoom's U.S. data 
centers only.
    \32\ See supra note 31.
---------------------------------------------------------------------------

    FINRA will also provide assistance to participants to ensure that 
they are adequately prepared to use the video conferencing software by 
conducting a mock hearing for the parties in advance of the hearing 
date. During the mock hearing, hearing participants will learn how to 
share documents and use other software features that allow participants 
to perform tasks typically done during in-person hearings, such as a 
highlighting feature that the parties can use to focus a witness on 
particular portions of a document during witness questioning. Further, 
FINRA will have a case administrator participate in each video 
conference hearing to ensure participants have adequate technical 
support during the hearing. These procedures and resources, among 
others, will provide fair process for all hearing participants.
    FINRA has filed the temporary proposed rule change for immediate 
effectiveness. The implementation date will be 30 days after the date 
of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\33\ 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 is also 
consistent with Section 15A(b)(8) of the Act,\34\ which requires, among 
other things, that FINRA rules provide a fair procedure for the 
disciplining of members and persons associated with members and the 
denial of membership of any person seeking membership.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78o-3(b)(6).
    \34\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------

    The underpinning of FINRA's regulatory purpose is to protect 
investors and safeguard the integrity of the securities markets. FINRA 
cannot accomplish these objectives in an effective manner without the 
ability to timely conduct hearings in connection with its core 
adjudicatory functions. The temporary proposed rule change will allow 
FINRA's core adjudicatory functions to operate effectively without 
protracted delays. For example, the temporary proposed rule change 
allowing TCDO hearings to be conducted by video conference is vitally 
important, as it will enable FINRA to take immediate action to stop 
significant, ongoing customer harm.
    With respect to eligibility proceedings, members and disqualified 
individuals who file an MC-400A or MC-400 application are permitted, in 
certain circumstances, to continue operations as a FINRA member and 
continue to work in the industry, respectively, while their application 
remains pending. Allowing hearings on these applications to proceed by 
video conference will prevent extended delays and allow members and 
disqualified individuals to receive an approval or denial of their 
applications. Accordingly, the proposed rule change, which would grant 
OHO and the NAC temporary authority to conduct hearings by video 
conference, is in the public interest and consistent with the Act's 
purpose.

[[Page 55716]]

    Further, the proposed rule change will continue to provide fair 
process in connection with OHO and NAC hearings.\35\ Conducting 
hearings via video conference will give the parties and adjudicators 
simultaneous visual and oral communication,\36\ but without the risks 
of individuals being physically close to one another. FINRA will use 
high quality, secure video conferencing technology with features that 
will allow the parties to reasonably approximate those tasks that are 
typically performed at an in-person hearing, such as sharing documents, 
marking documents, and utilizing breakout rooms. FINRA will also 
provide training for participants on how to use the video conferencing 
platform and detailed guidance on the procedures that will govern such 
hearings. Moreover, as noted above, the Chief or Deputy Chief Hearing 
Officer, or the NAC or relevant Subcommittee, may take into 
consideration, among other things, a hearing participant's access to 
connectivity and technology in scheduling a video conference hearing 
and can also, at their discretion, allow a party or witness to 
participate by telephone, if necessary, to address such access issues.
---------------------------------------------------------------------------

    \35\ FINRA notes that, in interpreting the fair procedure 
requirement under Section 15A(b)(8) of the Act, the Commission has 
emphasized that FINRA and its predecessor organization (NASD) have 
proceedings that are less formal than federal court proceedings. 
See, e.g., Sumner B. Cotzin, 45 SEC. 575, 579-80 (1974) (``When 
Congress provided for self-regulatory associations of securities 
dealers such as the NASD, it clearly did not intend to create 
formalistic tribunals akin to the courts or even to this Commission. 
Self-regulation or cooperative regulation necessarily calls for 
informality.''). See also David A. Gingras, 50 SEC. 1286, 1293 n.20 
(1992) (``NASD's proceedings are informal and do not resemble those 
of law courts.'').
    \36\ See Jeremy Graboyes, Admin. Conf. of U.S., Legal 
Considerations for Remote Hearings in Agency Adjudications at 12 
(June 16, 2020), available at https://www.acus.gov/report/legal-considerations-remote-hearings-agency-adjudications.
---------------------------------------------------------------------------

    In addition, temporarily permitting the OHO and NAC hearings for 
FINRA disciplinary matters to proceed by video conference maintains 
fair process by providing respondents a timely opportunity to address 
and potentially resolve any allegations of misconduct. With respect to 
applicants who receive an adverse MAP decision, they will have a timely 
opportunity to challenge the denial of their application. The temporary 
proposed rule change strikes an appropriate balance, providing fair 
process and enabling FINRA to fulfill its statutory obligations to 
protect investors and maintain fair and orderly markets while taking 
into consideration the significant health and safety risks of in-person 
hearings stemming from the outbreak of COVID-19.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the temporary 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 intended solely to provide temporary relief given the 
impacts of the COVID-19 outbreak. As a result of the temporary nature 
of the proposed relief, an abbreviated economic impact assessment is 
appropriate.
1. Economic Impact Assessment
(a) Regulatory Objective
    FINRA is proposing this temporary relief to address the public 
health risks and corresponding challenges of in-person hearings during 
the COVID-19 crisis. Social distancing, quarantining and other similar 
requirements to promote the health and safety of citizens make it 
exceedingly difficult to conduct in-person hearings. In recognition of 
these extraordinary times, the proposed rule change would temporarily 
grant OHO's Chief or Deputy Chief Hearing Officer, or the NAC or 
relevant Subcommittee, discretion to conduct OHO and NAC hearings, 
respectively, by video conference, if warranted by the current COVID-
19-related public health risks posed by an in-person hearing.
(b) Economic Baseline
    The obligations under FINRA Rules 1015, 9261, 9524 and 9830 are 
described above. OHO conducts approximately 19 regular disciplinary 
hearings per year.\37\ Since January 1, 2017, the NAC has held nine 
hearings. One hearing was conducted in connection with an appeal of a 
Membership Application Program decision and eight hearings related to 
eligibility proceedings. Under current FINRA rules, hearings conducted 
in connection with appeals of Membership Application Program decisions, 
disciplinary actions, eligibility proceedings and temporary and 
permanent cease and desist orders are typically conducted in person. In 
order to comply with the guidance of public health authorities relating 
to the COVID-19 pandemic and to ensure the safety of all participants 
and stakeholders, FINRA has administratively postponed in-person OHO 
and NAC hearings since March 16, 2020. To date, at least eight hearings 
have been delayed as a result of the pandemic.
---------------------------------------------------------------------------

    \37\ OHO also conducts hearings for TCDO and PCDO proceedings. 
OHO has not conducted a TCDO or PCDO hearing in the last three 
calendar years.
---------------------------------------------------------------------------

(c) Economic Impact
    The proposed rule change is intended solely to provide a temporary 
mechanism for FINRA to allow its critical adjudicatory functions to 
proceed while COVID-19 continues to pose health and safety risks for 
traditional, in-person hearings. The proposed rule change is necessary 
to temporarily rebalance the attendant benefits and costs of the 
obligations under FINRA Rules 1015, 9261, 9524 and 9830 in response to 
the impacts of the COVID-19 pandemic.
(1) Anticipated Benefits
    The benefits of the temporary proposed rule change will accrue to 
participants and stakeholders of hearings that are conducted by video 
conference rather than delayed until in-person hearings can be 
conducted safely. A benefit of the temporary proposed rule change will 
be reducing the potential costs associated with delayed proceedings 
resulting from the COVID-19 pandemic, as discussed in Item 3(b) above. 
The flexibility provided by this temporary proposed rule change--to 
conduct hearings by video conference as warranted by COVID-related 
public health risks--will also benefit hearing participants and other 
stakeholders by allowing them to avoid the health and safety risks 
associated with in-person hearings. In addition, hearing participants 
will benefit from the elimination of travel time and travel costs.
(2) Anticipated Costs
    As previously stated, the public health risks stemming from the 
COVID-19 outbreak have increased the costs associated with in-person 
hearings. Conducting hearings by video conference, however, presents 
some potential drawbacks. These may include technological challenges 
such as bandwidth or connectivity issues for participants, 
cybersecurity concerns or concerns related to the ability of hearing 
participants to represent themselves in a manner equivalent to an in-
person hearing.
    FINRA's approach to video conference hearings, however, which 
includes, among other things, the use of high quality, secure 
technology that allows hearing participants to perform tasks typically 
done during in-person hearings should mitigate the potential costs. As 
noted above, FINRA is currently conducting hearings using video 
conferencing technology in similar contexts. Moreover, the

[[Page 55717]]

temporary proposed rule change permits, but does not mandate that 
hearings be conducted by video conference. Therefore, OHO and the NAC 
will use the discretion permitted under the temporary proposed rule 
change to balance the costs of delaying a hearing with the public 
health risks of requiring an in-person hearing, and the costs 
associated with conducting hearings by video conference. Furthermore, 
the temporary proposed rule change will not alter the Chief or Deputy 
Chief Hearing Officer's, or the NAC or relevant Subcommittee's, 
discretion to consider other factors affecting an individual's ability 
to participate or allow a party or witness to participate by telephone, 
if necessary to address, among other things, impediments to a hearing 
participant's ability to use video conferencing technology such as 
connectivity issues, reducing the potential costs. Additionally, the 
proposed rule change is limited in time, providing temporary relief 
through December 31, 2020, or until the conclusion of any extension 
thereof.

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 \38\ and Rule 19b-
4(f)(6) thereunder.\39\
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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-2020-027 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-2020-027. 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, on business days between the 
hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE, 
Washington, DC 20549. 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-2020-027 and 
should be submitted on or before September 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19838 Filed 9-8-20; 8:45 am]
BILLING CODE 8011-01-P