Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the By-Laws of FINRA Regulation, Inc. To Align the Grounds for Member Removal From the NAC With an Existing Provision in the FINRA By-Laws, 71387-71390 [2020-24787]

Download as PDF Federal Register / Vol. 85, No. 217 / Monday, November 9, 2020 / Notices updates to the RWD Plan would improve the accuracy of the inventory of OCC’s Recovery Tools and improve OCC’s evaluation of scenarios which may potentially prevent OCC from providing its Critical Services as a going-concern, as well as OCC’s plans for recovery or orderly wind-down. Further, the proposed changes to the Plan would update and improve the information that a resolution authority may reasonably anticipate as necessary for purposes of recovery and orderly wind-down planning.24 In this regard, OCC believes its proposed rule change is consistent with Rule 17Ad– 22(e)(3)(ii).25 The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. khammond on DSKJM1Z7X2PROD with NOTICES (B) Clearing Agency’s Statement on Burden on Competition Section 17A(b)(3)(I) of the Act 26 requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. OCC does not believe that the proposed rule change would impact or impose any burden on competition.27 The proposed rule change would update OCC’s RWD Plan. The proposed updates to the RWD Plan are the result of OCC’s annual review and update process; these proposed changes would revise certain factual representations, update certain organizational discussion and make changes to conform to OCC’s adopted Capital Management Policy. None of the proposed updates to the RWD Plan would affect Clearing Members’ access to OCC’s services or impose any direct burdens on clearing members. Accordingly, the proposed rule change would not unfairly inhibit access to OCC’s services or disadvantage or favor any particular user in relationship to another user. For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not impact or impose a burden on competition. 24 See 81 FR at 70810. CFR 240.17Ad–22(e)(3)(ii). 26 15 U.S.C. 78q–1(b)(3)(I). 27 15 U.S.C. 78q–1(b)(3)(I). 25 17 VerDate Sep<11>2014 16:35 Nov 06, 2020 Jkt 253001 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2020–013 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–OCC–2020–013. 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 (https://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 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 71387 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 OCC and on OCC’s website at https://www.theocc.com/CompanyInformation/Documents-and-Archives/ By-Laws-and-Rules. 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–OCC–2020–013 and should be submitted on or before November 30, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–24783 Filed 11–6–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90324; File No. SR–FINRA– 2020–037] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the By-Laws of FINRA Regulation, Inc. To Align the Grounds for Member Removal From the NAC With an Existing Provision in the FINRA ByLaws November 3, 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 October 22, 2020, 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. The Commission is publishing this notice to 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\09NON1.SGM 09NON1 71388 Federal Register / Vol. 85, No. 217 / Monday, November 9, 2020 / Notices solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend the ByLaws of FINRA Regulation, Inc. (‘‘FINRA Regulation’’), FINRA’s regulatory subsidiary, to further align the grounds for member removal from the National Adjudicatory Council (‘‘NAC’’) with an existing provision in the FINRA By-Laws related to the removal of a FINRA Governor from the FINRA Board of Governors (‘‘FINRA Board’’).3 Below is the text of the proposed rule change. Proposed new language is italicized. * * * * * BY–LAWS OF FINRA REGULATION, INC. * * * * * ARTICLE V NATIONAL ADJUDICATORY COUNCIL * * * * * Removal Sec. 5.8 Any or all of the members of the National Adjudicatory Council may be removed from office at any time for refusal, failure, neglect, or inability to discharge the duties of such office, or for any cause affecting the best interests of the National Adjudicatory Council the sufficiency of which the FINRA Board shall be the sole judge, by majority vote of the FINRA Board. * * * * * khammond on DSKJM1Z7X2PROD with NOTICES 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. 3 In 2008, the FINRA Regulation By-Laws were amended to, among other things, designate the FINRA Board as the body authorized to oversee the NAC and empowered to remove NAC members for refusal, failure, neglect, or inability to discharge duties. See Securities Exchange Act Release No. 58909 (November 6, 2008), 73 FR 68467 (November 18, 2008) (Order Approving File No. SR–FINRA– 2008–046). Under the FINRA By-Laws, members of the FINRA Board can be removed under the same grounds, plus an additional ground. See infra note 8. VerDate Sep<11>2014 16:35 Nov 06, 2020 Jkt 253001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose FINRA Regulation is the regulatory subsidiary of FINRA and operates according to the Plan of Allocation and Delegation of Functions by FINRA to Subsidiaries (the ‘‘Plan’’).4 The FINRA Regulation By-Laws authorize the NAC to function on behalf of the FINRA Board in several capacities.5 For example, the NAC presides over disciplinary matters appealed to or called for review by the NAC; acts on applications in statutory disqualification and membership proceedings; exercises exemptive authority; and acts in other proceedings as set forth in the FINRA Rule 9000 Series (Code of Procedure). The FINRA Board may also delegate other powers and duties to the NAC as the FINRA Board deems appropriate and in a manner not inconsistent with the Plan.6 For most matters that the NAC considers, the NAC prepares proposed written decisions that become final FINRA action if the FINRA Board does not call them for review. FINRA periodically reviews its and FINRA Regulation’s By-Laws to ensure adherence to effective governance practices. The FINRA Regulation ByLaws currently permit the FINRA Board to remove ‘‘any or all members’’ of the NAC from office at any time for refusal, failure, neglect, or inability to discharge the duties of the office.7 By comparison, the FINRA By-Laws include those grounds for removal of a Governor from the FINRA Board plus an additional ground allowing for removal for any cause affecting the best interests of FINRA the sufficiency of which the FINRA Board shall be the sole judge.8 The proposed rule change would amend Article V, Section 5.8 of the FINRA Regulation By-Laws to align the bases for removal of a member of the NAC in the FINRA Regulation By-Laws with those of the FINRA By-Laws for removal of a Governor. Specifically, the proposed rule change would provide that a NAC member could be removed by a majority vote of the FINRA Board for any cause affecting the best interests 4 See Plan, II. FINRA Regulation, Inc., https:// www.finra.org/rules-guidance/rulebooks/corporateorganization/ii-finra-regulation-inc. 5 See Article V, Sec. 5.1 of the FINRA Regulation By-Laws. 6 See supra note 5. 7 See Article V, Section 5.8 of the FINRA Regulation By-Laws. 8 See Article VII, Section 1(b) of the FINRA ByLaws. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 of the NAC, the sufficiency of which the FINRA Board shall be the sole judge. FINRA notes that the voting threshold for removal of a NAC member differs from that of a Governor. The former requires a majority vote of the FINRA Board, while the latter requires a twothirds vote.9 The higher voting threshold for removal of a Governor reflects the historical standard that existed at the National Association of Securities Dealers (‘‘NASD’’) prior to its 2007 merger with the member regulation, enforcement and arbitration operations of the New York Stock Exchange (‘‘NYSE’’) that formed FINRA, and provides an additional safeguard at the FINRA Board level to ensure a diverse, majority non-industry composition, and fair representation of the industry in governance matters.10 Given the NAC’s adjudicatory role, the best interests of the NAC are more targeted than the best interests of FINRA. The best interests of the NAC are reflected in conduct and attributes that ensure that the NAC remains an unbiased and competent adjudicatory body that is free of conflicts of interest, that its members conduct themselves with integrity, and that its decisions are rendered fairly and consistently with the law and rules that govern FINRA members and their associated persons. In considering whether to remove a NAC member for a cause affecting the best interests of the NAC, the FINRA Board may consider, among other things, a NAC member’s adherence to general standards concerning actual and apparent adjudicator conflicts of interest and bias,11 and to the NAC’s Conflict of Interest and Bias Policy (‘‘Policy’’). The Policy sets forth broad-based principles of behavior that are expected from NAC members.12 Removal of a NAC member 9 Both FINRA and FINRA Regulation are corporations organized under Delaware law. The Delaware General Corporation Law provides that, in general, directors may be removed by a majority vote of the shares then entitled to vote at an election of directors. See Del. Code Ann. tit. 8, § 141(k). While the standard for removal of NAC members is not directly subject to the Delaware General Corporation Law, FINRA has adopted a removal threshold for NAC members that is consistent with the removal threshold for directors under the Delaware Corporation Law. 10 The FINRA Regulation By-Laws addressing the composition of the NAC also provide for a diverse, majority non-industry composition, and for the fair representation of industry. See Article V, Section 5.2(a) of the FINRA Regulation By-Laws; See also Securities Exchange Act Release No. 78094 (June 17, 2016), 81 FR 40932, 40934–35 (June 23, 2016). 11 See, e.g., Article IV, Section 4.14(a) of the FINRA Regulation By-Laws. 12 The principles outlined in the Policy are Independence, Impartiality, Integrity, Accountability and Transparency; and place upon NAC adjudicators the responsibility for recognizing and reporting actual and apparent conflicts of interest and bias. E:\FR\FM\09NON1.SGM 09NON1 Federal Register / Vol. 85, No. 217 / Monday, November 9, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES from office is a facts and circumstances determination. The additional removal authority provided in the proposed rule change may, depending on the facts and circumstances, overlap in part with the FINRA Board’s existing authority to remove a NAC member. However, depending on the facts and circumstances, it may also provide an additional basis for removal for a cause affecting the best interests of the NAC that does not fall within the scope of the FINRA Board’s current removal authority. In order to balance the NAC’s ability to perform certain actions on behalf of FINRA 13 with the FINRA Board’s authority to review such actions,14 FINRA believes that it is reasonable and appropriate to amend the FINRA Regulation By-Laws to align the grounds under which members of the NAC and FINRA Board can be removed. In doing so, the proposed rule change will strengthen the FINRA Board’s oversight of the NAC and benefit the appellate portion of FINRA’s disciplinary process, in which the NAC prepares the decision that becomes FINRA’s final action in the vast majority of cases. If the Commission approves the proposed rule change, the effective date of the proposed rule change will be the date of Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,15 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; and Section 15A(b)(4) of the Act, which requires, among other things, that FINRA rules be designed to assure a fair representation of FINRA’s members in the administration of its affairs.16 FINRA believes that the proposed By-Laws change will strengthen its governance practices by aligning grounds for removal of NAC members with those of the FINRA Governors. The FINRA By-Law provision that allows for the Board’s direct ability to remove a Governor for any cause affecting the best interests of FINRA existed in the By-Laws of the NASD prior to its 2007 merger with the NYSE, and was also a part of the ByLaws that were previously found to supra note 5. Plan, I(B). FINRA, Inc., https:// www.finra.org/rules-guidance/rulebooks/corporateorganization/i-finra-inc. 15 15 U.S.C. 78o–3(b)(6). 16 15 U.S.C. 78o–3(b)(4). meet the statutory requirement when the NASD merged with the member regulation, enforcement and arbitration operations of the NYSE to form FINRA.17 FINRA also believes applying the same standard to removal of NAC members will support a fair and impartial disciplinary process for members and their associated persons. FINRA further believes that the proposed rule change will strengthen investor protection and further the public interest by bolstering the integrity of the NAC and strengthening existing FINRA Regulation By-Laws that foster a framework in which NAC members may perform their duties free from bias or conflicts of interest. In addition, FINRA believes that the proposed rule change furthers FINRA’s ability to assure a fair representation of FINRA members on the NAC by enhancing the FINRA Board’s ability to remove NAC members for conduct that might hamper the NAC’s adjudicatory function. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. FINRA has evaluated the potential for economic impacts associated with the proposed rule change and determined that no material costs or benefits were likely to arise. The proposed rule change would not require member firms or other persons appearing before the NAC to incur any direct costs or change their behaviors in any way. All potential actions taken pursuant to the proposed rule change would be taken by the FINRA Board. Further, FINRA’s other By-Law provisions remain unchanged, so the proposed rule change will have no material impact on fair process to litigants. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) 13 See 14 See VerDate Sep<11>2014 16:35 Nov 06, 2020 Jkt 253001 17 See Securities Exchange Act Release No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007), as amended by Securities Exchange Act Release No. 56145A (May 30, 2008), 73 FR 32377 (June 6, 2008) (Order Approving File No. SR–NASD–2007–023). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 71389 as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2020–037 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–2020–037. 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 (https://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 E:\FR\FM\09NON1.SGM 09NON1 71390 Federal Register / Vol. 85, No. 217 / Monday, November 9, 2020 / Notices submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA– 2020–037 and should be submitted on or before November 30, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–24787 Filed 11–6–20; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Data Collection Available for Public Comments 60-Day notice and request for comments. ACTION: The Small Business Administration (SBA) intends to request approval, from the Office of Management and Budget (OMB) for the collection of information described below. The Paperwork Reduction Act (PRA) requires federal agencies to publish a notice in the Federal Register concerning each proposed collection of information before submission to OMB, and to allow 60 days for public comment in response to the notice. This notice complies with that requirement. DATES: Submit comments on or before January 8, 2021. ADDRESSES: Send all comments to, Kelly Templeton Financial Analyst, Office of Portfolio Management and Office of Financial Program Operations, Small Business Administration, 409 3rd Street, 6th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Kelly Templeton, Financial Analyst Office of Portfolio Management and Office of Financial Program Operations Kelly.templeton@sba.gov Curtis B. Rich, Management Analyst, 202–205–7030, curtis.rich@sba.gov. SUPPLEMENTARY INFORMATION: Lenders requesting SBA to purchase the guaranty portion of a loan are required to supply the Agency with a certified transcript of the loan account. This form is uniform and convenient means for lenders to report and certify loan accounts to purchase by SBA. The Agency uses the information to determine date of loan default and whether Lender disbursed and serviced the loan according to Loan Guaranty agreement. khammond on DSKJM1Z7X2PROD with NOTICES SUMMARY: 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:35 Nov 06, 2020 Jkt 253001 Solicitation of Public Comments SBA is requesting comments on (a) Whether the collection of information is necessary for the agency to properly perform its functions; (b) whether the burden estimates are accurate; (c) whether there are ways to minimize the burden, including through the use of automated techniques or other forms of information technology; and (d) whether there are ways to enhance the quality, utility, and clarity of the information. Summary of Information Collection (1) Title: Lender’s Transcript of Account. Description of Respondents: SBA Lenders. Form Number: SBA Form 1149. Total Estimated Annual Responses: 3,600. Total Estimated Annual Hour Burden: 36,000. primarily to make loans under section 7(a) of the Small Business Act. As sole regulator of these institutions, SBA requires them to submit audited financial statements annually as well as interim, quarterly financial statements and other reports to facilitate the Agency’s oversight of these lenders. Solicitation of Public Comments SBA is requesting comments on (a) Whether the collection of information is necessary for the agency to properly perform its functions; (b) whether the burden estimates are accurate; (c) whether there are ways to minimize the burden, including through the use of automated techniques or other forms of information technology; and (d) whether there are ways to enhance the quality, utility, and clarity of the information. Data Collection Available for Public Comments Summary of Information Collection Collection: 3245–0077. Title of Collection: Reports to SBA Provisions of 13 CFR 120.464. Description of Respondents: Small Business Lending Companies (SBLCs) and Non-federally regulated lenders (NFRLs). Total Estimated Annual Responses: 594. Total Estimated Annual Hour Burden: 7,110. 60-Day notice and request for comments. Curtis Rich, Management Analyst. Curtis Rich, Management Analyst. [FR Doc. 2020–24764 Filed 11–6–20; 8:45 am] BILLING CODE 8026–03–P SMALL BUSINESS ADMINISTRATION ACTION: The Small Business Administration (SBA) intends to request approval, from the Office of Management and Budget (OMB) for the collection of information described below. The Paperwork Reduction Act (PRA) requires federal agencies to publish a notice in the Federal Register concerning each proposed collection of information before submission to OMB, and to allow 60 days for public comment in response to the notice. This notice complies with that requirement. DATES: Submit comments on or before January 8, 2021. ADDRESSES: Send all comments to, Susan Streich, Director, Office of Credit Risk Management, Small Business Administration, 409 3rd Street, 7th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Susan Streich, Director, Office of Credit Risk Management 202–205–6641, susan.streich@sba.gov or Curtis B. Rich, Management Analyst, 202–205–7030, curtis.rich@sba.gov. SUPPLEMENTARY INFORMATION: Small Business Lending Companies (SBLCs) and Non-federally regulated lenders (NFRLs). NFRL’S are non-depository lending institutions authorized by SBA SUMMARY: PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 [FR Doc. 2020–24770 Filed 11–6–20; 8:45 am] BILLING CODE 8026–03–P DEPARTMENT OF STATE [Public Notice 11246] 30-Day Notice of Proposed Information Collection: Individual, Corporate or Foundation, and Government Donor Letter Applications Notice of request for public comment and submission to OMB of proposed collection of information. ACTION: The Department of State has submitted the information collection described below to the Office of Management and Budget (OMB) for approval. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this Notice is to allow 30 days for public comment. DATES: Submit comments up to December 9, 2020. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent SUMMARY: E:\FR\FM\09NON1.SGM 09NON1

Agencies

[Federal Register Volume 85, Number 217 (Monday, November 9, 2020)]
[Notices]
[Pages 71387-71390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24787]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90324; File No. SR-FINRA-2020-037]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
the By-Laws of FINRA Regulation, Inc. To Align the Grounds for Member 
Removal From the NAC With an Existing Provision in the FINRA By-Laws

November 3, 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 October 22, 2020, 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. The 
Commission is publishing this notice to

[[Page 71388]]

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    FINRA is proposing to amend the By-Laws of FINRA Regulation, Inc. 
(``FINRA Regulation''), FINRA's regulatory subsidiary, to further align 
the grounds for member removal from the National Adjudicatory Council 
(``NAC'') with an existing provision in the FINRA By-Laws related to 
the removal of a FINRA Governor from the FINRA Board of Governors 
(``FINRA Board'').\3\
---------------------------------------------------------------------------

    \3\ In 2008, the FINRA Regulation By-Laws were amended to, among 
other things, designate the FINRA Board as the body authorized to 
oversee the NAC and empowered to remove NAC members for refusal, 
failure, neglect, or inability to discharge duties. See Securities 
Exchange Act Release No. 58909 (November 6, 2008), 73 FR 68467 
(November 18, 2008) (Order Approving File No. SR-FINRA-2008-046). 
Under the FINRA By-Laws, members of the FINRA Board can be removed 
under the same grounds, plus an additional ground. See infra note 8.
---------------------------------------------------------------------------

    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *

BY-LAWS OF FINRA REGULATION, INC.

* * * * *

ARTICLE V NATIONAL ADJUDICATORY COUNCIL

* * * * *

Removal

    Sec. 5.8 Any or all of the members of the National Adjudicatory 
Council may be removed from office at any time for refusal, failure, 
neglect, or inability to discharge the duties of such office, or for 
any cause affecting the best interests of the National Adjudicatory 
Council the sufficiency of which the FINRA Board shall be the sole 
judge, by majority vote of the FINRA Board.
* * * * *

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
    FINRA Regulation is the regulatory subsidiary of FINRA and operates 
according to the Plan of Allocation and Delegation of Functions by 
FINRA to Subsidiaries (the ``Plan'').\4\ The FINRA Regulation By-Laws 
authorize the NAC to function on behalf of the FINRA Board in several 
capacities.\5\ For example, the NAC presides over disciplinary matters 
appealed to or called for review by the NAC; acts on applications in 
statutory disqualification and membership proceedings; exercises 
exemptive authority; and acts in other proceedings as set forth in the 
FINRA Rule 9000 Series (Code of Procedure). The FINRA Board may also 
delegate other powers and duties to the NAC as the FINRA Board deems 
appropriate and in a manner not inconsistent with the Plan.\6\ For most 
matters that the NAC considers, the NAC prepares proposed written 
decisions that become final FINRA action if the FINRA Board does not 
call them for review.
---------------------------------------------------------------------------

    \4\ See Plan, II. FINRA Regulation, Inc., https://www.finra.org/rules-guidance/rulebooks/corporate-organization/ii-finra-regulation-inc.
    \5\ See Article V, Sec. 5.1 of the FINRA Regulation By-Laws.
    \6\ See supra note 5.
---------------------------------------------------------------------------

    FINRA periodically reviews its and FINRA Regulation's By-Laws to 
ensure adherence to effective governance practices. The FINRA 
Regulation By-Laws currently permit the FINRA Board to remove ``any or 
all members'' of the NAC from office at any time for refusal, failure, 
neglect, or inability to discharge the duties of the office.\7\ By 
comparison, the FINRA By-Laws include those grounds for removal of a 
Governor from the FINRA Board plus an additional ground allowing for 
removal for any cause affecting the best interests of FINRA the 
sufficiency of which the FINRA Board shall be the sole judge.\8\ The 
proposed rule change would amend Article V, Section 5.8 of the FINRA 
Regulation By-Laws to align the bases for removal of a member of the 
NAC in the FINRA Regulation By-Laws with those of the FINRA By-Laws for 
removal of a Governor. Specifically, the proposed rule change would 
provide that a NAC member could be removed by a majority vote of the 
FINRA Board for any cause affecting the best interests of the NAC, the 
sufficiency of which the FINRA Board shall be the sole judge.
---------------------------------------------------------------------------

    \7\ See Article V, Section 5.8 of the FINRA Regulation By-Laws.
    \8\ See Article VII, Section 1(b) of the FINRA By-Laws.
---------------------------------------------------------------------------

    FINRA notes that the voting threshold for removal of a NAC member 
differs from that of a Governor. The former requires a majority vote of 
the FINRA Board, while the latter requires a two-thirds vote.\9\ The 
higher voting threshold for removal of a Governor reflects the 
historical standard that existed at the National Association of 
Securities Dealers (``NASD'') prior to its 2007 merger with the member 
regulation, enforcement and arbitration operations of the New York 
Stock Exchange (``NYSE'') that formed FINRA, and provides an additional 
safeguard at the FINRA Board level to ensure a diverse, majority non-
industry composition, and fair representation of the industry in 
governance matters.\10\
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    \9\ Both FINRA and FINRA Regulation are corporations organized 
under Delaware law. The Delaware General Corporation Law provides 
that, in general, directors may be removed by a majority vote of the 
shares then entitled to vote at an election of directors. See Del. 
Code Ann. tit. 8, Sec.  141(k). While the standard for removal of 
NAC members is not directly subject to the Delaware General 
Corporation Law, FINRA has adopted a removal threshold for NAC 
members that is consistent with the removal threshold for directors 
under the Delaware Corporation Law.
    \10\ The FINRA Regulation By-Laws addressing the composition of 
the NAC also provide for a diverse, majority non-industry 
composition, and for the fair representation of industry. See 
Article V, Section 5.2(a) of the FINRA Regulation By-Laws; See also 
Securities Exchange Act Release No. 78094 (June 17, 2016), 81 FR 
40932, 40934-35 (June 23, 2016).
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    Given the NAC's adjudicatory role, the best interests of the NAC 
are more targeted than the best interests of FINRA. The best interests 
of the NAC are reflected in conduct and attributes that ensure that the 
NAC remains an unbiased and competent adjudicatory body that is free of 
conflicts of interest, that its members conduct themselves with 
integrity, and that its decisions are rendered fairly and consistently 
with the law and rules that govern FINRA members and their associated 
persons. In considering whether to remove a NAC member for a cause 
affecting the best interests of the NAC, the FINRA Board may consider, 
among other things, a NAC member's adherence to general standards 
concerning actual and apparent adjudicator conflicts of interest and 
bias,\11\ and to the NAC's Conflict of Interest and Bias Policy 
(``Policy''). The Policy sets forth broad-based principles of behavior 
that are expected from NAC members.\12\ Removal of a NAC member

[[Page 71389]]

from office is a facts and circumstances determination. The additional 
removal authority provided in the proposed rule change may, depending 
on the facts and circumstances, overlap in part with the FINRA Board's 
existing authority to remove a NAC member. However, depending on the 
facts and circumstances, it may also provide an additional basis for 
removal for a cause affecting the best interests of the NAC that does 
not fall within the scope of the FINRA Board's current removal 
authority.
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    \11\ See, e.g., Article IV, Section 4.14(a) of the FINRA 
Regulation By-Laws.
    \12\ The principles outlined in the Policy are Independence, 
Impartiality, Integrity, Accountability and Transparency; and place 
upon NAC adjudicators the responsibility for recognizing and 
reporting actual and apparent conflicts of interest and bias.
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    In order to balance the NAC's ability to perform certain actions on 
behalf of FINRA \13\ with the FINRA Board's authority to review such 
actions,\14\ FINRA believes that it is reasonable and appropriate to 
amend the FINRA Regulation By-Laws to align the grounds under which 
members of the NAC and FINRA Board can be removed. In doing so, the 
proposed rule change will strengthen the FINRA Board's oversight of the 
NAC and benefit the appellate portion of FINRA's disciplinary process, 
in which the NAC prepares the decision that becomes FINRA's final 
action in the vast majority of cases.
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    \13\ See supra note 5.
    \14\ See Plan, I(B). FINRA, Inc., https://www.finra.org/rules-guidance/rulebooks/corporate-organization/i-finra-inc.
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    If the Commission approves the proposed rule change, the effective 
date of the proposed rule change will be the date of Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\15\ 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; and Section 15A(b)(4) of the Act, which requires, 
among other things, that FINRA rules be designed to assure a fair 
representation of FINRA's members in the administration of its 
affairs.\16\ FINRA believes that the proposed By-Laws change will 
strengthen its governance practices by aligning grounds for removal of 
NAC members with those of the FINRA Governors. The FINRA By-Law 
provision that allows for the Board's direct ability to remove a 
Governor for any cause affecting the best interests of FINRA existed in 
the By-Laws of the NASD prior to its 2007 merger with the NYSE, and was 
also a part of the By-Laws that were previously found to meet the 
statutory requirement when the NASD merged with the member regulation, 
enforcement and arbitration operations of the NYSE to form FINRA.\17\ 
FINRA also believes applying the same standard to removal of NAC 
members will support a fair and impartial disciplinary process for 
members and their associated persons. FINRA further believes that the 
proposed rule change will strengthen investor protection and further 
the public interest by bolstering the integrity of the NAC and 
strengthening existing FINRA Regulation By-Laws that foster a framework 
in which NAC members may perform their duties free from bias or 
conflicts of interest. In addition, FINRA believes that the proposed 
rule change furthers FINRA's ability to assure a fair representation of 
FINRA members on the NAC by enhancing the FINRA Board's ability to 
remove NAC members for conduct that might hamper the NAC's adjudicatory 
function.
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    \15\ 15 U.S.C. 78o-3(b)(6).
    \16\ 15 U.S.C. 78o-3(b)(4).
    \17\ See Securities Exchange Act Release No. 56145 (July 26, 
2007), 72 FR 42169 (August 1, 2007), as amended by Securities 
Exchange Act Release No. 56145A (May 30, 2008), 73 FR 32377 (June 6, 
2008) (Order Approving File No. SR-NASD-2007-023).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA has evaluated the 
potential for economic impacts associated with the proposed rule change 
and determined that no material costs or benefits were likely to arise. 
The proposed rule change would not require member firms or other 
persons appearing before the NAC to incur any direct costs or change 
their behaviors in any way. All potential actions taken pursuant to the 
proposed rule change would be taken by the FINRA Board. Further, 
FINRA's other By-Law provisions remain unchanged, so the proposed rule 
change will have no material impact on fair process to litigants.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2020-037 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-2020-037. 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 (https://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

[[Page 71390]]

submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FINRA-2020-037 and should be submitted on or before November 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24787 Filed 11-6-20; 8:45 am]
BILLING CODE 8011-01-P
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