Document ID: SEC-2023-0202-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2023-02-21T05:00Z

[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10567-10569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03477]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96915; File No. SR-IEX-2023-03]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX 
Rule 1.160

February 14, 2023.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on February 7, 2023, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II and III 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\ 15 U.S.C. 78a.
    \3\ 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

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to amend IEX Rule 1.160.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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    The Exchange has designated this proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \6\ and provided 
the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
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, 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 statement 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 of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend IEX Rule 1.160(y) ``Person 
Associated with a Member or Associated Person of a Member,'' to align 
those terms to the definition of the same terms in FINRA's By-Laws \8\ 
with respect to Statutory Disqualifications.\9\ Currently, IEX Rule 
1.160(y) defines the terms ``Person Associated with a Member'' or 
``Associated Person of a Member'' as
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    \8\ See FINRA Regulation, Inc. By-laws, Article I, paragraph 
(ee).
    \9\ The term ``Statutory Disqualification'' means any statutory 
disqualification as defined in Section 3(a)(39) of the Act. See IEX 
Rule 1.160(mm).

any partner, officer, director, or branch manager of a Member (or 
person occupying a similar status or performing similar functions), 
any person directly or indirectly controlling, controlled by, or 
under common control with such Member, or any employee of such 
Member, except that any person associated with a Member whose 
functions are solely clerical or ministerial shall not be included 
in the meaning of such term for purposes of these Rules.\10\
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    \10\ See IEX Rule 1.160(y) (emphasis added).

    Therefore, under IEX's current rules, an entity that is under 
common control of a Member is considered a Person Associated with a 
Member or Associated Person of a Member. Because IEX requires Members 
to submit a MC-400A application for continuance as a member if any 
Person Associated with the Member becomes subject to a Statutory 
Disqualification \11\, IEX's current rules require Members to file MC-
400A applications for affiliates under common control that would be 
subject to Statutory Disqualification under the securities laws.
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    \11\ See IEX Rule 9.522(b)(1)(B).
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    By contrast, FINRA does not define ``Person Associated with a 
Member'' or ``Associated Person of a Member'' as

[[Page 10568]]

including affiliates under common control of the FINRA member.\12\ 
Thus, a firm that is both an IEX Member and a FINRA member, which has 
an affiliate under common control that would be subject to Statutory 
Disqualification under the securities laws, is required to file a Form 
MC-400A with IEX but not with FINRA.
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    \12\ FINRA Regulation, Inc. By-laws, Article I, paragraph (ee) 
defines the terms ``person associated with a member'' or 
``associated person of a member'' in relevant part as: ``(2) a sole 
proprietor, partner, officer, director, or branch manager of a 
member, or other natural person occupying a similar status or 
performing similar functions, or a natural person engaged in the 
investment banking or securities business who is directly or 
indirectly controlling or controlled by a member, whether or not any 
such person is registered or exempt from registration with the 
Corporation under these By-Laws or the Rules of the Corporation; and 
(3) for purposes of Rule 8210, any other person listed in Schedule A 
of Form BD.'' (emphasis added).
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    The Exchange therefore proposes to amend IEX Rule 1.160(y) to add a 
new subparagraph (2) defining Person Associated with a Member or 
Associated Person of a Member in connection with Section 3(a)(39) of 
the Act \13\ using language that matches the FINRA definition (though 
with an internal cross-reference to IEX's Rule 8.210 in place of FINRA 
Rule 8210). By adopting the definition substantially identical to the 
FINRA definition for the purposes of Statutory Disqualification, the 
Exchange would align its application of Statutory Disqualifications 
with that of FINRA. The proposed amendment would avoid potentially 
different outcomes for members of both FINRA and IEX with respect to 
ineligibility for membership and association. IEX also notes that the 
Nasdaq Stock Market LLC (``Nasdaq'') General 3 Rule 1002 \14\ was 
amended by Nasdaq to align with FINRA's definitions for purposes of 
Statutory Disqualifications.\15\
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    \13\ 15 U.S.C. 78c(a)(39).
    \14\ See Nasdaq General 3 Rule 1002.
    \15\ See Securities Exchange Act Release No. 94473 (March 18, 
2022), 87 FR 16804 (March 24, 2022) (SR-NASDAQ-2022-022).
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \16\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \17\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Exchange's proposal to adopt FINRA's definitions 
of Person Associated with a Member or Associated Person of a Member, as 
provided within FINRA Regulation, Inc. By-laws, Article I, paragraph 
(ee), for purposes of Statutory Disqualification pursuant to Section 
3(a)(39) of the Act \18\ is consistent with the Act. Aligning these 
terms for purposes of Statutory Disqualifications would avoid 
potentially different outcomes for members of both FINRA and IEX with 
respect to ineligibility for membership and association as a result of 
Statutory Disqualification. Additionally, it will remove impediments to 
a free and open market by providing a consistent Statutory 
Disqualification review process for industry members seeking to 
continue their membership after an affiliate's Statutory 
Disqualification.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78c(a)(39).
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    The Exchange believes the proposed rule change will promote just 
and equitable principles of trade and protect investors and the public 
interest by ensuring market participants that are members of both FINRA 
and IEX are held to the same standard with respect to Statutory 
Disqualification. Additionally, the Exchange notes that this proposal 
raises no issues not already considered by the Commission, because the 
Commission has already allowed other SROs (FINRA and Nasdaq) to use the 
same language as that proposed by IEX when applying the definitions of 
Person Associated with a Member or Associated Person of a Member, for 
purposes of Statutory Disqualifications.
    The Exchange believes its proposal will promote just and equitable 
principles of trade and protect investors and the public interest by 
ensuring market participants that are members of both FINRA and IEX are 
held to the same standard with respect to Statutory Disqualification.

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

    IEX 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 is not 
designed to address any competitive issue but to align the Exchange's 
rules with those of FINRA. Aligning the terms ``person associated with 
a member'' or ``associated person of a member'' with paragraph (ee) of 
Article I, Definitions, of FINRA's By-Laws would avoid potentially 
different outcomes for members of both FINRA and IEX with respect to 
ineligibility for membership and association as a result of Statutory 
Disqualification and ensure that all FINRA and IEX members are held to 
the same standard with respect to Statutory Disqualification. 
Consequently, the Exchange does not believe that the proposed change 
implicates competition at all.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \19\ of the Act and Rule 19b-4(f)(6) \20\ 
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    The Exchange's proposal to amend IEX Rule 1.160(y) and define the 
terms ``person associated with a member'' or ``associated person of a 
member'' as provided within FINRA By-Law Article I, paragraph (ee), for 
purposes of Statutory Disqualification pursuant to Section 3(a)(39) of 
Act,\21\ does not significantly affect the protection of investors or 
the public interest as the proposal would align IEX's application of 
Statutory Disqualification with FINRA's process and avoid potentially 
different outcomes for members of both FINRA and IEX with respect to 
ineligibility for membership and association. Additionally, this 
proposal does not impose any significant burden on competition as the 
proposal would ensure that all FINRA and IEX members are held to the 
same standard with respect to Statutory Disqualification.
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    \21\ 15 U.S.C. 78c(a)(39).
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    In addition, 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

[[Page 10569]]

least five business days prior to the date of filing.\22\
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    \22\ 17 CFR 240.19b-4(f)(6)(iii).
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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 under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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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 [email protected]. Please include 
File Number SR-IEX-2023-03 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-IEX-2023-03. 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-IEX-2023-03 and should be submitted on 
or before March 14, 2023.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03477 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P