Document ID: SEC-2020-0403-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Long-Term StockExchange
Posted Date: 2020-03-20T04:00Z

[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Notices]
[Pages 16170-16172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05840]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88394; File No. SR-LTSE-2020-05]

Self-Regulatory Organizations; Long-Term Stock Exchange; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Fingerprint-Based Background Checks

March 16, 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 March 6, 2020, Long-Term Stock Exchange (``LTSE'' or ``Exchange'') 
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 the self-regulatory 
organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    LTSE proposes a rule change to amend its rule relating to 
fingerprint-based background checks of directors, officers, employees, 
and others, and to utilize the services of an Federal Bureau of 
Investigation (``FBI'') approved Channel Partner to conduct 
fingerprinting.
    The text of the proposed rule change is available at the Exchange's 
website at https://longtermstockexchange.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement on the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement on the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 1.180 (Fingerprint-Based 
Background Checks of Employees and Independent Contractors), which was 
based on the corresponding rule of the Investors Exchange (``IEX''),\3\ 
to adopt with only minor differences as discussed below, the provisions 
of the New York Stock Exchange (``NYSE'') fingerprinting rule.\4\ In 
addition, the proposed rule change would allow the Exchange to utilize 
the services of an FBI-approved Channel Partner, as is common with 
other national securities exchanges, including the NYSE.
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    \3\ See IEX Rule 1.180.
    \4\ See NYSE Rule 28.

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[[Page 16171]]

Background and Proposed Rule Change
    Section 17(f)(2) of the Act, as amended by the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act''),\5\ provides that every member of a national securities 
exchange, broker, dealer, registered transfer agent, registered 
clearing agency, registered securities information processors, national 
securities exchanges and national securities associations shall require 
each of its partners, directors, officers, and employees to be 
fingerprinted and submit those fingerprints (or cause the fingerprints 
to be submitted) to the Attorney General of the United States 
(``Attorney General'') for identification. Section 17(f)(2) explicitly 
directs the Attorney General to provide self-regulatory organizations 
(``SROs'') designated by the Commission with access to criminal history 
record information. Further, SEC Rule 17f-2 authorizes SROs to store 
criminal record information received from the FBI, which maintains on 
behalf of the Attorney General a database of fingerprint-based criminal 
history records.\6\
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    \5\ See 15 U.S.C. 78q(f)(2); Dodd-Frank Act, Public Law 111-203, 
929S, 124 Stat. 1376, 1867 (2010).
    \6\ See 17 CFR 240.17f-2(d).
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    While existing LTSE Rule 1.180 meets the requirements of section 
17(f)(2) of the Act, it contemplates only the use of fingerprint 
``cards,'' is not tailored to the Exchange's organizational structure, 
and has a substantive error.\7\ Accordingly, the Exchange proposes to 
adopt the fingerprinting rule of the NYSE, with minor differences 
described below.
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    \7\ The rule was copied verbatim from IEX Rule 1.180, with 
changes only to reflect the different names of the exchanges. LTSE 
Rule 1.180(c) also erroneously references FINRA as the source of 
background information from the fingerprints, instead of the 
Attorney General of the United States or his or her designee.
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    Proposed LTSE Rule 1.180(a) would be identical to NYSE Rule 28(a) 
with the exception of the phrase ``and its principal subsidiaries.'' 
This phrase is proposed to be omitted because the Exchange does not 
have any subsidiaries; the Exchange is a wholly-owned subsidiary of 
LTSE Group. The phrase ``each of'' also would be omitted to make the 
first sentence of the proposed rule grammatically correct.
    Proposed LTSE Rule 1.180(b) would be identical to NYSE Rule 28(b) 
with the exception of the sentence that states ``The Exchange, however, 
may provide a subsidiary with access to information from background 
checks based on fingerprints obtained from that subsidiary.'' Again, 
the Exchange proposes to omit that sentence because it does not have 
subsidiaries.
    Proposed LTSE Rule 1.180(c) and Supplementary Material .01 would be 
identical to NYSE Rule 28(c) and Supplementary Material .10. Finally, 
the Exchange proposes to amend the title of Rule 1.180 to be identical 
to the title of NYSE Rule 28, which is a more accurate description of 
the rule.
    In addition, consistent with the practice at NYSE and other 
national securities exchanges, the Exchange intends to utilize a Live-
Scan \8\ electronic system to capture and transmit fingerprints 
directly to the FBI. The capture and transmittal function, and 
corresponding receipt of criminal history information from the FBI, 
would be handled directly by Exchange personnel and/or an FBI-approved 
``Channel Partner'' \9\ who would maintain and operate, on behalf of 
the Exchange, a LiveScan and/or other electronic system(s) for the 
submission of fingerprints to the FBI; receive and maintain criminal 
history record information from the FBI; and disseminate such 
information, through secure systems, to a limited set of approved 
reviewing officials within the Exchange. The Exchange believes that 
Rule 1.180 allows for the retention of a Channel Partner for these 
purposes.
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    \8\ Live-Scan refers to the process of capturing fingerprints 
directly into a digitized format as opposed to traditional ink and 
paper methods. Live-Scan technology captures and transfers images to 
a central location and/or interface for identification processing.
    \9\ FBI-approved Channel Partners receive the fingerprint 
submission and relevant data, collect the associated fee(s), 
electronically forward the fingerprint submission with the necessary 
information to the FBI Criminal Justice Information Services 
Division (``CJIS'') for a national Criminal History Summary check, 
and receive the electronic summary check result for dissemination to 
the authorized employer entity. See Securities Exchange Act Release 
No. 71066 (December 12, 2013), 78 FR 76667 (December 18, 2013) (SR-
ISE-2013-66). The Exchange would retain ultimate legal 
responsibility for the fulfillment of its statutory and self-
regulatory obligations under the Act, including compliance with 
Section 17(f)(2) of the Act as amended by the Dodd-Frank Act.
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    The Exchange believes that the foregoing interpretation is 
consistent with the Exchange's authority under Section 17(f)(2) of the 
Act, as amended by the Dodd-Frank Act,\10\ which requires, inter alia, 
that employees of exchanges be fingerprinted and that exchanges ``shall 
submit such fingerprints, or cause the same to be submitted, to the 
Attorney General of the United States for identification and 
appropriate processing.''
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    \10\ See 15 U.S.C. 17(f)(2); Dodd-Frank Act, Public Law 111-203, 
929S, 124 Stat. 1376, 1867 (2010).
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    The Exchange accordingly believes that under LTSE Rule 1.180 (as 
adopted and as proposed) and applicable statutes, the Exchange has the 
authority to engage an FBI-approved Channel Partner for some or all of 
the fingerprinting processes described in the Rule. Finally, the 
Exchange believes that this proposed interpretation would ensure the 
Exchange's continued compliance with its Rules and applicable state and 
federal law.\11\
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    \11\ Access to the FBI's fingerprint-based database of criminal 
records is permitted only when authorized by law. Section 17(f)(2) 
of the Act explicitly directs the Attorney General to provide SROs 
designated by the Commission (e.g., the Exchange) with access to 
such criminal history record information. Further, as amended by the 
Dodd-Frank Act, Section 17(f)(2) specifically requires, inter alia, 
that employees of national securities exchanges be fingerprinted. 
New York's General Business Law also requires SROs to fingerprint 
employees ``as a condition of employment,'' as well as certain non-
employee service providers. N.Y. Gen. Bus. Law Sec.  359-e 
(McKinney).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act,\13\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, to foster cooperation and coordination with persons engaged 
in facilitating transactions in securities, to remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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    Continuing to run fingerprint-based background checks is imperative 
for the Exchange, as this process helps to identify persons with 
criminal history records who may pose a threat to the safety of 
Exchange personnel and/or the security of Exchange facilities and 
records. This identification and screening process thus enhances 
business continuity, workplace safety, and the security of the 
Exchange's operations. The use of an FBI-approved Channel Partner in 
some or all phases of this process is consistent with LTSE Rule 1.180 
and applicable state and federal law, and in furtherance of the 
important objectives described herein. Additionally, the use of a 
Channel Partner is consistent with the fingerprinting method currently 
employed by other SROs.\14\ For all these

[[Page 16172]]

reasons, the proposal is also designed to protect investors as well as 
the public interest.
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    \14\ See e.g., NYSE Rule 28; Chicago Board Options Exchange 
(``CBOE'') Rule 15.10. See generally Securities Exchange Act Release 
No. 76422 (November 10, 2015), 80 FR 71868 (November 17, 2015) (SR-
NYSE-2015-45) (citing Securities Exchange Act Release No. 71066 
(December 12, 2013), 78 FR 76667, 76668 n. 12 (December 18, 2013) 
(SR-ISE-2013-66) (noting that ``[a]n FBI-approved Channel Partner 
simply helps expedite the delivery of Criminal History Summary 
information on behalf of the FBI'', and that the ``process for 
making a request through an FBI-approved Channel Partner is 
consistent with FBI submission procedures'')).
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    Additionally, the proposed rule is nearly identical to NYSE Rule 28 
\15\ and corrects an erroneous reference to FINRA in LTSE Rule 
1.180(c).\16\
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    \15\ See supra text accompanying note 4.
    \16\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues but rather update its 
existing fingerprint rule to match, with only minor differences, NYSE 
Rule 28, and to allow the use of an FBI-approved Channel Partner as 
described above.\17\
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    \17\ See supra text accompanying note 8 [sic].
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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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, 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. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay to 
permit the Exchange to amend its fingerprinting rule to be accurate, 
tailored to the Exchange, and substantially similar to NYSE Rule 28 and 
to begin utilizing the services of an FBI-approved Channel Partner as 
soon as practicable. The minor differences noted herein do not raise 
substantive or novel issues.\22\ Thus the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest and hereby waives the operative 
delay and designates the proposed rule change operative upon 
filing.\23\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ See supra Background and Proposed Rule Change.
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule'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.

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-LTSE-2020-05 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-LTSE-2020-05. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. 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-LTSE-2020-05 and should be submitted on 
or before April 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05840 Filed 3-19-20; 8:45 am]
BILLING CODE 8011-01-P