Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Permit Firms To File a Form U4 Based on an Electronically Signed Copy of the Form, 13935-13939 [2021-05025]
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operative delay period. Based on the
foregoing, the Commission believes the
waiver of the operative delay is
consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.19
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.20
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:
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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–
CboeEDGA–2021–007 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–CboeEDGA–2021–007. 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
19 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
20 15 U.S.C. 78s(b)(3)(C).
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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–CboeEDGA–2021–007 and
should be submitted on or before April
1, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05031 Filed 3–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91262; File No. SR–FINRA–
2021–003]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Permit Firms To File
a Form U4 Based on an Electronically
Signed Copy of the Form
March 5, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act,’’
‘‘Exchange Act,’’ or ‘‘SEA’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that on February 23, 2021, the
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. The
Commission is publishing this notice to
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
1 15
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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 FINRA
Rule 1010 (Electronic Filing
Requirements for Uniform Forms) to
permit firms to file a Form U4 (Uniform
Application for Securities Industry
Registration or Transfer) based on an
electronically signed copy of the form.
In addition, FINRA proposes to make a
conforming amendment to FINRA Rule
2263 (Arbitration Disclosure to
Associated Persons Signing or
Acknowledging Form U4).
Below is the text of the proposed rule
change. Proposed new language is
italicized; proposed deletions are in
brackets.
*
*
*
*
*
1000. MEMBER APPLICATION AND
ASSOCIATED PERSON REGISTRATION
1010. Electronic Filing Requirements for
Uniform Forms
(a) through (b) No Change.
(c) Form U4 Filing Requirements.
(1) Except as provided in paragraphs (c)(2)
and (c)(3) of this Rule [below], every initial
and transfer electronic Form U4 filing and
any amendments to the disclosure
information on Form U4 shall be based on a
[manually] signed Form U4 provided to the
member or applicant for membership by the
person on whose behalf the Form U4 is being
filed. As part of the member’s recordkeeping
requirements, it shall retain the person’s
[manually] signed Form U4 or amendments
to the disclosure information on Form U4 in
accordance with SEA Rule 17a–4(e)(1) and
make them available promptly upon
regulatory request. An applicant for
membership also shall retain in accordance
with SEA Rule 17a–4(e)(1) every [manually]
signed Form U4 it receives during the
application process and make them available
promptly upon regulatory request.
(2) A member may file electronically
amendments to the disclosure information on
Form U4 without obtaining the subject
associated person’s [manual] signature on the
form, provided that the member shall use
reasonable efforts to:
(A) Provide the associated person with a
copy of the amended disclosure information
prior to filing; and
(B) obtain the associated person’s written
acknowledgment (which may be electronic)
prior to filing that the information has been
received and reviewed. As part of the
member’s recordkeeping requirements, the
member shall retain this acknowledgment in
accordance with SEA Rule 17a–4(e)(1) and
make it available promptly upon regulatory
request.
(3) In the event a member is not able to
obtain an associated person’s [manual]
signature or written acknowledgement of
amended disclosure information on Form U4
prior to filing of such information pursuant
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to paragraph (c)(1) or (2), the member is
obligated to file the disclosure information as
to which it has knowledge in accordance
with Article V, Section 2 of the FINRA ByLaws. The member shall use reasonable
efforts to provide the associated person with
a copy of the amended disclosure
information that was filed.
(4) No Change.
(d) through (e) No Change.
• • • Supplementary Material
.01 through .02 No Change.
.03 Filing of Amendments Involving
Disclosure Information. In the event a
member is not able to obtain an associated
person’s [manual] signature or written
acknowledgement of amended disclosure
information on that person’s Form U4 prior
to filing of such amendment reflecting the
information pursuant to paragraph (c)(3) of
this Rule (examples of reasons why a member
may not be able to obtain the [manual]
signature or written acknowledgement may
include, but are not limited to, the associated
person refuses to acknowledge such
information, is on active military service or
otherwise is unavailable during the period
provided for filing of such amendments
under Article V of the FINRA By-Laws), the
member shall enter ‘‘Representative Refused
to Sign/Acknowledge’’ or ‘‘Representative
Not Available’’ or a substantially similar
entry in the electronic Form U4 field for the
associated person’s signature.
.04 No Change.
*
*
*
*
*
2200. COMMUNICATIONS AND
DISCLOSURES
*
*
*
*
*
*
*
2260. Disclosures
*
*
*
2263. Arbitration Disclosure to Associated
Persons Signing or Acknowledging Form U4
A member shall provide an associated
person with the following written statement
whenever the associated person is asked,
pursuant to FINRA Rule 1010, to [manually]
sign an initial or amended Form U4, or
otherwise provide written (which may be
electronic) acknowledgment of an
amendment to the Form U4:
The Form U4 contains a predispute
arbitration clause. It is in item 5 of Section
15A of the Form U4. You should read that
clause now. Before signing the Form U4, you
should understand the following:
(1) through (8) No Change.
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*
*
*
*
*
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
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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
Background
FINRA has been conducting an
ongoing review of its rulebook to
identify and amend rules to permit the
use of electronic signatures. For
instance, in 2019, FINRA amended Rule
4512 (Customer Account Information) to
provide firms the option of obtaining
the electronic signature of authorized
associated persons who are exercising
investment discretion.4 Rule 1010 is the
last remaining FINRA rule that
expressly requires a manual signature.
Specifically, Rule 1010(c) (Form U4
Filing Requirements) currently requires
that every initial and transfer Form U4
filed with FINRA by a member, or an
applicant for membership, be based on
a manually signed copy of the Form U4
provided to the member, or applicant
for membership, by the individual on
whose behalf the Form U4 is being
filed.5 The member, or applicant for
membership, must obtain the manually
signed copy of the Form U4 prior to
filing the CRD Form U4 with FINRA.
For any amendments to the disclosure
information on the CRD Form U4 filed
with FINRA, Rule 1010(c) currently
provides a member the option of filing
the CRD Form U4 based on: (1) A
manually signed copy of the amended
Form U4 provided to the member prior
to the filing by the associated person on
whose behalf the amended Form U4 is
being filed; or (2) a written
acknowledgment (which may be
electronic) from the associated person
prior to the filing that the amended
disclosure information was received and
reviewed.6 If the member cannot obtain
either the manual signature or the
written acknowledgment prior to the
filing, the firm must still proceed with
filing the amended disclosure
information as to which it has
knowledge and use reasonable efforts to
provide the associated person with a
copy of the amended disclosure
information that was filed with FINRA.7
4 See
Regulatory Notice 19–13 (April 2019).
Rule 1010(c)(1). Members, and applicants
for membership, file initial, transfer and amended
Form U4s electronically with FINRA through the
Central Registration Depository (‘‘CRD®’’) system
(the ‘‘CRD Form U4’’).
6 See Rules 1010(c)(1) and (c)(2).
7 See Rule 1010(c)(3). In such cases, the firm must
enter ‘‘Representative Refused to Sign/
5 See
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Neither the manually signed copy of
the Form U4 nor the written
acknowledgment is filed with FINRA,
but rather is used for authentication and
evidentiary purposes.8 The manually
signed copy and, if applicable, the
written acknowledgment must be
retained by the member, or applicant for
membership, in accordance with SEC
rules and made available promptly upon
regulatory request.9
In addition, Rule 2263 currently
requires a firm to provide each
associated person with certain written
disclosures regarding the nature and
process of arbitration proceedings
whenever the firm asks an associated
person, pursuant to Rule 1010(c), to
‘‘manually’’ sign a Form U4, or to
otherwise provide written
acknowledgment of an amendment to
the firm.
As noted above, FINRA has been
amending its rules on an ongoing basis
to permit the use of electronic
signatures, and Rule 1010 is the last
remaining rule that specifically requires
a manual signature. In addition, the
COVID–19 pandemic has amplified the
need to permit the use of electronic
signatures. In 2020, in response to the
outbreak of the COVID–19 pandemic,
FINRA began providing temporary relief
to member firms from FINRA rules and
requirements via frequently asked
questions (‘‘FAQs’’) on its website.10
One of these FAQs temporarily permits
firms to file an initial or a transfer Form
U4 with FINRA prior to obtaining the
manual signature of the applicant.11
Proposed Rule Change
To facilitate the use of electronic
signatures and to provide members, and
applicants for membership, with an
Acknowledge,’’ ‘‘Representative Not Available,’’ or
a substantially similar entry in the CRD Form U4
signature field for the associated person’s signature.
See Rule 1010.03 (Filing of Amendments Involving
Disclosure Information).
8 For the purposes of the CRD Form U4 filing, the
member, or applicant for membership, must type
the individual’s name in the CRD Form U4
signature field to indicate that the individual has
signed the form or acknowledged the information
in the form.
9 See Rules 1010(c)(1) and (c)(2). For record
retention purposes, such records may be preserved
on any of the acceptable media specified in SEA
Rule 17a–4, including electronic storage media
consistent with SEA Rule 17a–4(f). The records
must be retained for at least three years after the
associated person’s employment and any other
connection with the firm has terminated.
10 See Frequently Asked Questions Related to
Regulatory Relief Due to the Coronavirus Pandemic,
available at https://www.finra.org/rules-guidance/
key-topics/covid-19/faq.
11 See Temporary Relief Relating to Rule 1010
(Electronic Filing Requirements for Uniform Forms)
(added March 18, 2020), available at https://
www.finra.org/rules-guidance/key-topics/covid-19/
faq#indiv.
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opportunity to better manage the
operational challenges presented by the
current pandemic, FINRA proposes to
amend Rule 1010(c) to provide the
option of filing an initial or a transfer
CRD Form U4 with FINRA based on a
manually or an electronically signed
copy of the form provided to the
member, or applicant for membership,
by the individual on whose behalf the
form is being filed.12 With respect to
any amendments to the disclosure
information on the CRD Form U4 filed
with FINRA, the proposed rule change
provides a member the option of filing
such amendments based on a manually
or an electronically signed copy of the
amended Form U4 provided to the
member by the associated person on
whose behalf the Form U4 is being
filed.13
Firms that choose to rely on a copy of
the Form U4 electronically signed by
the associated person will be required to
retain the copy in accordance with SEC
rules and make it available promptly
upon request.14 The proposed rule
change would not require the use of a
particular type of technology to obtain
a valid electronic signature from the
associated person. For purposes of the
proposed rule change, a valid electronic
signature would be any electronic mark
that clearly identifies the signatory and
is otherwise in compliance with the
Electronic Signatures in Global and
National Commerce Act (‘‘E-Sign Act’’),
the guidance issued by the SEC relating
to the E-Sign Act, and the guidance
provided by FINRA staff through
interpretive letters.15
12 See proposed Rule 1010(c)(1). FINRA is
providing additional guidance on its website
regarding the obligations of firms under Rule
1010(c) during the ongoing COVID–19 pandemic.
See Frequently Asked Questions Related to
Regulatory Relief Due to the Coronavirus Pandemic,
available at https://www.finra.org/rules-guidance/
key-topics/covid-19/faq.
13 See proposed Rule 1010(c)(1). For any
amendments to the disclosure information on the
CRD Form U4 filed with FINRA, the member would
not be required to obtain a manually or an
electronically signed copy of the form from the
associated person, provided that the member
obtains the associated person’s written
acknowledgment (which may be electronic) prior to
the filing, as currently specified in Rule 1010(c)(2).
Moreover, as currently specified in Rule 1010(c)(3),
if the member cannot obtain either the manual or
electronic signature of the associated person or the
written acknowledgment of the associated person
prior to the filing, the member must still proceed
with filing the amended disclosure information as
to which it has knowledge and use reasonable
efforts to provide the associated person with a copy
of the amended information that was filed with
FINRA.
14 See proposed Rules 1010(c)(1) and (c)(2). These
requirements are consistent with the current
requirements for a manually signed copy.
15 See accord Securities Exchange Act Release
No. 85282 (March 11, 2019), 84 FR 9573 (March 15,
2019) (Order Approving File No. SR–FINRA–2018–
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In conjunction with the proposed
change to Rule 1010(c), FINRA proposes
to make a conforming change to Rule
2263 to remove the reference to
‘‘manual’’ signature.
The proposed rule change is
consistent with the SEC’s recent
amendments to Regulation S–T and the
Electronic Data Gathering, Analysis, and
Retrieval system (‘‘EDGAR’’) Filer
Manual to permit the use of electronic
signatures in signature authentication
documents required under Regulation
S–T in connection with electronic
filings on EDGAR that are required to be
signed.16
FINRA has filed the proposed rule
change for immediate effectiveness and
has requested that the SEC waive the
requirement that the proposed rule
change not become operative for 30 days
after the date of the filing so that FINRA
can implement the proposed rule
change immediately.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,17 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. The proposed rule
change provides firms with the
flexibility to rely on electronic
signatures to satisfy the signature
requirements of Rule 1010. Considering
the technological advancements that
provide for enhanced authentication
and security of electronic signatures,
FINRA believes that it is appropriate to
amend Rule 1010 to provide such
flexibility. The proposed rule change
also addresses the on-going public
health risks stemming from the outbreak
of COVID–19 and the operational
challenges facing firms. Significantly,
FINRA understands that some firms are
still unable to obtain the manual
signature of applicants for registration
resulting in a significant operational
backlog. By immediately permitting
these firms to rely on electronic
signatures to satisfy the signature
requirements of Rule 1010, the proposed
rule change will reduce or eliminate this
backlog.
040) (discussing valid electronic signatures under
existing guidance).
16 See Electronic Signatures in Regulation S–T
Rule 302, Securities Exchange Act Release No.
90441 (November 17, 2020), 85 FR 78224
(December 4, 2020).
17 15 U.S.C. 78o–3(b)(6).
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13937
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.
Economic Impact Assessment
1. Regulatory Objective
Members, and applicants for
membership, file initial, transfer and
amended Form U4s electronically with
FINRA through the CRD system. Rule
1010(c) currently requires that certain
Form U4s filed through the CRD system
be based on a manually signed copy of
the form provided to a member, or an
applicant for membership, by the
individual (applicant for registration or
associated person) on whose behalf the
form is being filed. This requires that
the individual on whose behalf the form
is filed manually sign a printed hard
copy of the completed form and return
it to the member or applicant for
membership. Upon receiving the
manually signed copy of the form, the
member, or applicant for membership,
may proceed with filing the electronic
version of the form through the CRD
system. The manually signed copy of
the Form U4 is not filed with FINRA.
For purposes of the CRD filing, the
member, or applicant for membership,
types the individual’s name in the
signature field of the electronic form in
the CRD system to indicate that the
individual has signed the form.
However, the member, or applicant for
membership, must retain the manually
signed copy for record retention
purposes and make it available
promptly upon regulatory request. The
manually signed copy may be retained
in hard copy form or on compliant
electronic storage media. The signature
requirement is for authentication and
evidentiary purposes.
The COVID–19 outbreak has
amplified the need for providing
members, and applicants for
membership, the flexibility to obtain the
electronic signature of the individual on
whose behalf the Form U4 is being filed.
As noted above, the SEC recently
amended its rules to provide similar
relief.18 Further, with enhanced
authentication and security of electronic
signatures created through technological
development, FINRA believes that it is
appropriate to amend Rule 1010(c) to
provide such flexibility.
18 See
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2. Economic Baseline
Under the current signature
requirement, the completed Form U4
must be printed in hard copy and
manually signed by the individual on
whose behalf the form is being filed.
The individual may manually sign it in
person at the member’s, or applicant for
membership’s, location. Alternatively,
the individual may manually sign it and
return it to the member, or applicant for
membership, by mailing it back or by
scanning and emailing it back.19 Upon
receiving the manually signed copy of
the form, the member, or applicant for
membership, can proceed with filing the
electronic version of the form through
the CRD system. The manually signed
copy must be retained for at least three
years after the associated person’s
employment and any other connection
with the member has terminated, and it
is subject to examination by regulators.
As of the end of 2019, there were
approximately 625,000 registered
persons. In addition, approximately one
million initial, transfer and amended
Form U4s were filed with FINRA in
2019. Each such filing subject to a
manual signature process requires labor
time and costs associated with printing,
scanning or mailing.20 If the manually
signed copies are stored in a hard copy
form, there are costs associated with
such storage.
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3. Economic Impact
The proposed rule change would
permit individuals on whose behalf the
Form U4 is filed to provide an
electronic signature, as an additional
option to a manual signature, to
evidence that they have signed the form.
The proposed rule change is expected to
generate cost savings for such
individuals as well as for members and
applicants for membership. Specifically,
they may experience the saving of time
and costs related to printing and, in
some cases, mailing the wet signatures.
Firms may also experience the saving of
costs related to the storage of records as
the proposed rule change gives them the
ability to turn the entire Form U4 filing
19 There is currently no data on how the wet
signature is being returned to the member,
specifically the extent to which it was mailed,
scanned and emailed, or signed in person.
20 As previously noted, for Form U4 amendments
to disclosure information, the member is not
required to obtain a signed copy of the form from
the associated person, provided that the member
obtains the associated person’s written
acknowledgement or the member files the
amendment consistent with the conditions
described in Rule 1010.03. In addition, for Form U4
amendments to administrative information, the
member is not required to obtain the associated
person’s signature or written acknowledgment. See
Rule 1010(c)(4).
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process electronic. The extent of the
cost saving is, however, not uniform
across the filings and cannot be
estimated in aggregate for two reasons.
First, as noted, we do not know how the
individuals are currently returning the
wet signature to the member, by mail,
email of the scanned copy, or in-person
signature. The expected cost saving
would be greater for transactions
shifting from in-person or mail signature
to electronic signature and less for
changes from emailing of the scanned
copy to electronically signing it.
Second, we do not know the nature of
the Form U4 amendments, some of
which currently do not require a
signature.21
The proposed rule change implies
limited costs and minimal distributional
impacts by giving individuals the
option, not the requirement, to sign
electronically. Individuals and firms
would choose to adopt electronic
signatures if they perceive the expected
benefits exceeding the expected costs.
The costs of obtaining electronic
signature software would be greatest for
first time users, either through a thirdparty provider or in-house developed
software. In circumstances where firms
already have the software for doing
business, the incremental cost of
extending the usage to the Form U4
copy would be minimal.
Alternatives Considered
For initial and transfer Form U4s,
FINRA considered whether to provide
members, and applicants for
membership, the option of obtaining the
written acknowledgment of the
individual on whose behalf the form is
being filed, rather than obtaining the
individual’s manual or electronic
signature on the Form U4 copy. FINRA
determined not to provide this option.
FINRA believes that it is important to
have clear evidence of an individual’s
execution of an initial or a transfer Form
U4, including his or her agreement to
the attestations set forth in the form.
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
21 See
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supra note 20.
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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 22 and Rule 19b–
4(f)(6) thereunder.23
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii), the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
FINRA has asked the Commission to
waive the 30-day operative delay so that
the proposed rule change may become
operative immediately upon filing.
The Commission notes that the
proposed rule change does not impose
any new obligations on FINRA members
or applicants for membership. Instead,
the proposed rule change provides
members and applicants for
membership with the flexibility to use
either manual or electronic signatures
on their Form U4, which is consistent
with the temporary COVID–19 relief
that FINRA has provided.24 As
discussed above, the proposed rule
change also eliminates the need for
members and applicants for
membership to obtain a manual
signature pursuant to FINRA’s
temporary COVID–19 relief, if they
choose to rely on an electronic signature
pursuant to the amended rules. As
FINRA stated above, the proposed rule
change would provide members and
applicants for membership with an
opportunity to better manage the
operational challenges presented by the
current pandemic by facilitating the use
of electronic signatures.25 FINRA stated
that the COVID–19 pandemic amplified
the need to permit the use of electronic
signatures, and FINRA responded to this
need by providing temporary relief via
an FAQ on its website permitting firms
to file an initial or a transfer Form U4
with FINRA prior to obtaining the
manual signature of the applicant.26 The
Commission believes that waiving the
30-day operative delay would aid
members and applicants for
membership by providing them with the
option to immediately rely on an
electronic signature pursuant to this
rule, as well as promote operational
efficiency by allowing FINRA to
immediately update its existing
guidance regarding the obligations of
22 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
24 See supra notes 10, 11.
25 See supra note 12 and accompanying text.
26 See supra notes 10, 11 and accompanying text.
23 17
E:\FR\FM\11MRN1.SGM
11MRN1
Federal Register / Vol. 86, No. 46 / Thursday, March 11, 2021 / Notices
members and applicants for
membership under Rule 1010(c) in its
temporary COVID–19 relief to reflect the
proposed rule change. For these reasons,
the Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposal operative upon filing.27
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:
khammond on DSKJM1Z7X2PROD with NOTICES
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–2021–003 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2021–003. 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
27 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
VerDate Sep<11>2014
16:53 Mar 10, 2021
Jkt 253001
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2021–003 and should be submitted on
or before April 1, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05025 Filed 3–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91264; File No. SR–
CboeBZX–2020–070]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
Amendment Nos. 1 and 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment Nos. 1 and 3, To List and
Trade Shares of the Ø1x Short VIX
Futures ETF Under BZX Rule
14.11(f)(4) (Trust Issued Receipts)
March 5, 2021.
I. Introduction
On September 4, 2020, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the ¥1x Short VIX
Futures ETF (‘‘Fund’’), a series of VS
Trust (‘‘Trust’’), under BZX Rule
14.11(f)(4) (Trust Issued Receipts). The
proposed rule change was published for
comment in the Federal Register on
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
13939
September 23, 2020.3 On October 30,
2020, pursuant to Section 19(b)(2) of the
Act,4 the Commission designated a
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On December 14, 2020, the Commission
instituted proceedings pursuant to
Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.7
On January 28, 2021, the Exchange filed
Amendment No. 1 to the proposed rule
change, which replaced and superseded
the proposed rule change as originally
filed.8 On February 19, 2021, the
3 See Securities Exchange Act Release No. 89901
(Sept. 17, 2020), 85 FR 59836 (‘‘Notice’’). Comments
on the proposed rule change can be found at:
https://www.sec.gov/comments/sr-cboebzx-2020070/srcboebzx2020070.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 90292,
85 FR 70678 (Nov. 5, 2020). The Commission
designated December 22, 2020, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 90659,
85 FR 82536 (December 18, 2020) (‘‘OIP’’).
8 In Amendment No. 1, the Exchange: (i) Updated
the information regarding the Fund’s registration
statement; (ii) clarified that the Index (defined
below) seeks to reflect the returns that are
potentially available from holding an unleveraged
short position in first- and second-month VIX
Futures Contracts (defined below) by measuring its
daily performance from the weighted average price
of VIX Futures Contracts; (iii) stated that the
Sponsor (defined below) will seek to minimize the
market impact of rebalances across all exchange
traded products based on VIX Futures Contracts
(‘‘VIX ETPs’’) that it sponsors (‘‘Funds’’) on the
price of VIX Futures Contracts by limiting such
Funds’ participation, on any given day, in VIX
Futures Contracts to no more than ten percent
(10%) of the contracts traded on Cboe Futures
Exchange during any Rebalance Period (defined
below); (iv) stated that, in the event the Funds
expect to hit this 10% threshold during the primary
Rebalance Period from 3:45 p.m. to 4:00 p.m. E.T.,
the Funds would extend their respective rebalances
into additional Rebalance Periods and the Trade At
Settlement (‘‘TAS’’) market; (v) stated that, to limit
participation during periods of market illiquidity,
the Sponsor may vary the manner and period over
which all funds it sponsors are rebalanced,
including the Fund, and that Funds will be
allocated executions based on their percentage of
notional transaction volume required; (vi) stated
that the Index’s use of a weighted average price
reference and the Sponsor’s commitment to cap
participation in the VIX futures market during any
Rebalance Period to no more than 10% for all
Funds should, among other things, help reduce the
market impact of all exposure to the VIX futures
market; (vii) stated that, in reviewing VIX Futures
Contracts trading back to March 26, 2004, the Fund
expects that it would have participated in an
Extended Rebalance Period (defined below) on one
or more days only in February 2018 and March
2020; and (viii) made technical, clarifying, and
conforming changes. Amendment No. 1 is available
at: https://www.sec.gov/comments/sr-cboebzx-2020070/srcboebzx2020070-8308776-228419.pdf.
E:\FR\FM\11MRN1.SGM
11MRN1
]]>Agencies
[Federal Register Volume 86, Number 46 (Thursday, March 11, 2021)]
[Notices]
[Pages 13935-13939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05025]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91262; File No. SR-FINRA-2021-003]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Permit Firms To File a Form U4 Based on an
Electronically Signed Copy of the Form
March 5, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act,'' ``Exchange Act,'' or ``SEA'') \1\ and Rule 19b-4
thereunder,\2\ notice is hereby given that on February 23, 2021, the
Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by FINRA. FINRA has designated the proposed rule
change as constituting a ``non-controversial'' rule change under
paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which renders the
proposal effective upon receipt of this filing by the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 1010 (Electronic Filing
Requirements for Uniform Forms) to permit firms to file a Form U4
(Uniform Application for Securities Industry Registration or Transfer)
based on an electronically signed copy of the form. In addition, FINRA
proposes to make a conforming amendment to FINRA Rule 2263 (Arbitration
Disclosure to Associated Persons Signing or Acknowledging Form U4).
Below is the text of the proposed rule change. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
1000. MEMBER APPLICATION AND ASSOCIATED PERSON REGISTRATION
1010. Electronic Filing Requirements for Uniform Forms
(a) through (b) No Change.
(c) Form U4 Filing Requirements.
(1) Except as provided in paragraphs (c)(2) and (c)(3) of this
Rule [below], every initial and transfer electronic Form U4 filing
and any amendments to the disclosure information on Form U4 shall be
based on a [manually] signed Form U4 provided to the member or
applicant for membership by the person on whose behalf the Form U4
is being filed. As part of the member's recordkeeping requirements,
it shall retain the person's [manually] signed Form U4 or amendments
to the disclosure information on Form U4 in accordance with SEA Rule
17a-4(e)(1) and make them available promptly upon regulatory
request. An applicant for membership also shall retain in accordance
with SEA Rule 17a-4(e)(1) every [manually] signed Form U4 it
receives during the application process and make them available
promptly upon regulatory request.
(2) A member may file electronically amendments to the
disclosure information on Form U4 without obtaining the subject
associated person's [manual] signature on the form, provided that
the member shall use reasonable efforts to:
(A) Provide the associated person with a copy of the amended
disclosure information prior to filing; and
(B) obtain the associated person's written acknowledgment (which
may be electronic) prior to filing that the information has been
received and reviewed. As part of the member's recordkeeping
requirements, the member shall retain this acknowledgment in
accordance with SEA Rule 17a-4(e)(1) and make it available promptly
upon regulatory request.
(3) In the event a member is not able to obtain an associated
person's [manual] signature or written acknowledgement of amended
disclosure information on Form U4 prior to filing of such
information pursuant
[[Page 13936]]
to paragraph (c)(1) or (2), the member is obligated to file the
disclosure information as to which it has knowledge in accordance
with Article V, Section 2 of the FINRA By-Laws. The member shall use
reasonable efforts to provide the associated person with a copy of
the amended disclosure information that was filed.
(4) No Change.
(d) through (e) No Change.
Supplementary Material
.01 through .02 No Change.
.03 Filing of Amendments Involving Disclosure Information. In
the event a member is not able to obtain an associated person's
[manual] signature or written acknowledgement of amended disclosure
information on that person's Form U4 prior to filing of such
amendment reflecting the information pursuant to paragraph (c)(3) of
this Rule (examples of reasons why a member may not be able to
obtain the [manual] signature or written acknowledgement may
include, but are not limited to, the associated person refuses to
acknowledge such information, is on active military service or
otherwise is unavailable during the period provided for filing of
such amendments under Article V of the FINRA By-Laws), the member
shall enter ``Representative Refused to Sign/Acknowledge'' or
``Representative Not Available'' or a substantially similar entry in
the electronic Form U4 field for the associated person's signature.
.04 No Change.
* * * * *
2200. COMMUNICATIONS AND DISCLOSURES
* * * * *
2260. Disclosures
* * * * *
2263. Arbitration Disclosure to Associated Persons Signing or
Acknowledging Form U4
A member shall provide an associated person with the following
written statement whenever the associated person is asked, pursuant
to FINRA Rule 1010, to [manually] sign an initial or amended Form
U4, or otherwise provide written (which may be electronic)
acknowledgment of an amendment to the Form U4:
The Form U4 contains a predispute arbitration clause. It is in
item 5 of Section 15A of the Form U4. You should read that clause
now. Before signing the Form U4, you should understand the
following:
(1) through (8) No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
FINRA has been conducting an ongoing review of its rulebook to
identify and amend rules to permit the use of electronic signatures.
For instance, in 2019, FINRA amended Rule 4512 (Customer Account
Information) to provide firms the option of obtaining the electronic
signature of authorized associated persons who are exercising
investment discretion.\4\ Rule 1010 is the last remaining FINRA rule
that expressly requires a manual signature.
---------------------------------------------------------------------------
\4\ See Regulatory Notice 19-13 (April 2019).
---------------------------------------------------------------------------
Specifically, Rule 1010(c) (Form U4 Filing Requirements) currently
requires that every initial and transfer Form U4 filed with FINRA by a
member, or an applicant for membership, be based on a manually signed
copy of the Form U4 provided to the member, or applicant for
membership, by the individual on whose behalf the Form U4 is being
filed.\5\ The member, or applicant for membership, must obtain the
manually signed copy of the Form U4 prior to filing the CRD Form U4
with FINRA.
---------------------------------------------------------------------------
\5\ See Rule 1010(c)(1). Members, and applicants for membership,
file initial, transfer and amended Form U4s electronically with
FINRA through the Central Registration Depository (``CRD[supreg]'')
system (the ``CRD Form U4'').
---------------------------------------------------------------------------
For any amendments to the disclosure information on the CRD Form U4
filed with FINRA, Rule 1010(c) currently provides a member the option
of filing the CRD Form U4 based on: (1) A manually signed copy of the
amended Form U4 provided to the member prior to the filing by the
associated person on whose behalf the amended Form U4 is being filed;
or (2) a written acknowledgment (which may be electronic) from the
associated person prior to the filing that the amended disclosure
information was received and reviewed.\6\ If the member cannot obtain
either the manual signature or the written acknowledgment prior to the
filing, the firm must still proceed with filing the amended disclosure
information as to which it has knowledge and use reasonable efforts to
provide the associated person with a copy of the amended disclosure
information that was filed with FINRA.\7\
---------------------------------------------------------------------------
\6\ See Rules 1010(c)(1) and (c)(2).
\7\ See Rule 1010(c)(3). In such cases, the firm must enter
``Representative Refused to Sign/Acknowledge,'' ``Representative Not
Available,'' or a substantially similar entry in the CRD Form U4
signature field for the associated person's signature. See Rule
1010.03 (Filing of Amendments Involving Disclosure Information).
---------------------------------------------------------------------------
Neither the manually signed copy of the Form U4 nor the written
acknowledgment is filed with FINRA, but rather is used for
authentication and evidentiary purposes.\8\ The manually signed copy
and, if applicable, the written acknowledgment must be retained by the
member, or applicant for membership, in accordance with SEC rules and
made available promptly upon regulatory request.\9\
---------------------------------------------------------------------------
\8\ For the purposes of the CRD Form U4 filing, the member, or
applicant for membership, must type the individual's name in the CRD
Form U4 signature field to indicate that the individual has signed
the form or acknowledged the information in the form.
\9\ See Rules 1010(c)(1) and (c)(2). For record retention
purposes, such records may be preserved on any of the acceptable
media specified in SEA Rule 17a-4, including electronic storage
media consistent with SEA Rule 17a-4(f). The records must be
retained for at least three years after the associated person's
employment and any other connection with the firm has terminated.
---------------------------------------------------------------------------
In addition, Rule 2263 currently requires a firm to provide each
associated person with certain written disclosures regarding the nature
and process of arbitration proceedings whenever the firm asks an
associated person, pursuant to Rule 1010(c), to ``manually'' sign a
Form U4, or to otherwise provide written acknowledgment of an amendment
to the firm.
As noted above, FINRA has been amending its rules on an ongoing
basis to permit the use of electronic signatures, and Rule 1010 is the
last remaining rule that specifically requires a manual signature. In
addition, the COVID-19 pandemic has amplified the need to permit the
use of electronic signatures. In 2020, in response to the outbreak of
the COVID-19 pandemic, FINRA began providing temporary relief to member
firms from FINRA rules and requirements via frequently asked questions
(``FAQs'') on its website.\10\ One of these FAQs temporarily permits
firms to file an initial or a transfer Form U4 with FINRA prior to
obtaining the manual signature of the applicant.\11\
---------------------------------------------------------------------------
\10\ See Frequently Asked Questions Related to Regulatory Relief
Due to the Coronavirus Pandemic, available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq.
\11\ See Temporary Relief Relating to Rule 1010 (Electronic
Filing Requirements for Uniform Forms) (added March 18, 2020),
available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq#indiv.
---------------------------------------------------------------------------
Proposed Rule Change
To facilitate the use of electronic signatures and to provide
members, and applicants for membership, with an
[[Page 13937]]
opportunity to better manage the operational challenges presented by
the current pandemic, FINRA proposes to amend Rule 1010(c) to provide
the option of filing an initial or a transfer CRD Form U4 with FINRA
based on a manually or an electronically signed copy of the form
provided to the member, or applicant for membership, by the individual
on whose behalf the form is being filed.\12\ With respect to any
amendments to the disclosure information on the CRD Form U4 filed with
FINRA, the proposed rule change provides a member the option of filing
such amendments based on a manually or an electronically signed copy of
the amended Form U4 provided to the member by the associated person on
whose behalf the Form U4 is being filed.\13\
---------------------------------------------------------------------------
\12\ See proposed Rule 1010(c)(1). FINRA is providing additional
guidance on its website regarding the obligations of firms under
Rule 1010(c) during the ongoing COVID-19 pandemic. See Frequently
Asked Questions Related to Regulatory Relief Due to the Coronavirus
Pandemic, available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq.
\13\ See proposed Rule 1010(c)(1). For any amendments to the
disclosure information on the CRD Form U4 filed with FINRA, the
member would not be required to obtain a manually or an
electronically signed copy of the form from the associated person,
provided that the member obtains the associated person's written
acknowledgment (which may be electronic) prior to the filing, as
currently specified in Rule 1010(c)(2). Moreover, as currently
specified in Rule 1010(c)(3), if the member cannot obtain either the
manual or electronic signature of the associated person or the
written acknowledgment of the associated person prior to the filing,
the member must still proceed with filing the amended disclosure
information as to which it has knowledge and use reasonable efforts
to provide the associated person with a copy of the amended
information that was filed with FINRA.
---------------------------------------------------------------------------
Firms that choose to rely on a copy of the Form U4 electronically
signed by the associated person will be required to retain the copy in
accordance with SEC rules and make it available promptly upon
request.\14\ The proposed rule change would not require the use of a
particular type of technology to obtain a valid electronic signature
from the associated person. For purposes of the proposed rule change, a
valid electronic signature would be any electronic mark that clearly
identifies the signatory and is otherwise in compliance with the
Electronic Signatures in Global and National Commerce Act (``E-Sign
Act''), the guidance issued by the SEC relating to the E-Sign Act, and
the guidance provided by FINRA staff through interpretive letters.\15\
---------------------------------------------------------------------------
\14\ See proposed Rules 1010(c)(1) and (c)(2). These
requirements are consistent with the current requirements for a
manually signed copy.
\15\ See accord Securities Exchange Act Release No. 85282 (March
11, 2019), 84 FR 9573 (March 15, 2019) (Order Approving File No. SR-
FINRA-2018-040) (discussing valid electronic signatures under
existing guidance).
---------------------------------------------------------------------------
In conjunction with the proposed change to Rule 1010(c), FINRA
proposes to make a conforming change to Rule 2263 to remove the
reference to ``manual'' signature.
The proposed rule change is consistent with the SEC's recent
amendments to Regulation S-T and the Electronic Data Gathering,
Analysis, and Retrieval system (``EDGAR'') Filer Manual to permit the
use of electronic signatures in signature authentication documents
required under Regulation S-T in connection with electronic filings on
EDGAR that are required to be signed.\16\
---------------------------------------------------------------------------
\16\ See Electronic Signatures in Regulation S-T Rule 302,
Securities Exchange Act Release No. 90441 (November 17, 2020), 85 FR
78224 (December 4, 2020).
---------------------------------------------------------------------------
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing so that FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed rule change provides firms with the
flexibility to rely on electronic signatures to satisfy the signature
requirements of Rule 1010. Considering the technological advancements
that provide for enhanced authentication and security of electronic
signatures, FINRA believes that it is appropriate to amend Rule 1010 to
provide such flexibility. The proposed rule change also addresses the
on-going public health risks stemming from the outbreak of COVID-19 and
the operational challenges facing firms. Significantly, FINRA
understands that some firms are still unable to obtain the manual
signature of applicants for registration resulting in a significant
operational backlog. By immediately permitting these firms to rely on
electronic signatures to satisfy the signature requirements of Rule
1010, the proposed rule change will reduce or eliminate this backlog.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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.
Economic Impact Assessment
1. Regulatory Objective
Members, and applicants for membership, file initial, transfer and
amended Form U4s electronically with FINRA through the CRD system. Rule
1010(c) currently requires that certain Form U4s filed through the CRD
system be based on a manually signed copy of the form provided to a
member, or an applicant for membership, by the individual (applicant
for registration or associated person) on whose behalf the form is
being filed. This requires that the individual on whose behalf the form
is filed manually sign a printed hard copy of the completed form and
return it to the member or applicant for membership. Upon receiving the
manually signed copy of the form, the member, or applicant for
membership, may proceed with filing the electronic version of the form
through the CRD system. The manually signed copy of the Form U4 is not
filed with FINRA. For purposes of the CRD filing, the member, or
applicant for membership, types the individual's name in the signature
field of the electronic form in the CRD system to indicate that the
individual has signed the form. However, the member, or applicant for
membership, must retain the manually signed copy for record retention
purposes and make it available promptly upon regulatory request. The
manually signed copy may be retained in hard copy form or on compliant
electronic storage media. The signature requirement is for
authentication and evidentiary purposes.
The COVID-19 outbreak has amplified the need for providing members,
and applicants for membership, the flexibility to obtain the electronic
signature of the individual on whose behalf the Form U4 is being filed.
As noted above, the SEC recently amended its rules to provide similar
relief.\18\ Further, with enhanced authentication and security of
electronic signatures created through technological development, FINRA
believes that it is appropriate to amend Rule 1010(c) to provide such
flexibility.
---------------------------------------------------------------------------
\18\ See supra note 16.
---------------------------------------------------------------------------
[[Page 13938]]
2. Economic Baseline
Under the current signature requirement, the completed Form U4 must
be printed in hard copy and manually signed by the individual on whose
behalf the form is being filed. The individual may manually sign it in
person at the member's, or applicant for membership's, location.
Alternatively, the individual may manually sign it and return it to the
member, or applicant for membership, by mailing it back or by scanning
and emailing it back.\19\ Upon receiving the manually signed copy of
the form, the member, or applicant for membership, can proceed with
filing the electronic version of the form through the CRD system. The
manually signed copy must be retained for at least three years after
the associated person's employment and any other connection with the
member has terminated, and it is subject to examination by regulators.
---------------------------------------------------------------------------
\19\ There is currently no data on how the wet signature is
being returned to the member, specifically the extent to which it
was mailed, scanned and emailed, or signed in person.
---------------------------------------------------------------------------
As of the end of 2019, there were approximately 625,000 registered
persons. In addition, approximately one million initial, transfer and
amended Form U4s were filed with FINRA in 2019. Each such filing
subject to a manual signature process requires labor time and costs
associated with printing, scanning or mailing.\20\ If the manually
signed copies are stored in a hard copy form, there are costs
associated with such storage.
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\20\ As previously noted, for Form U4 amendments to disclosure
information, the member is not required to obtain a signed copy of
the form from the associated person, provided that the member
obtains the associated person's written acknowledgement or the
member files the amendment consistent with the conditions described
in Rule 1010.03. In addition, for Form U4 amendments to
administrative information, the member is not required to obtain the
associated person's signature or written acknowledgment. See Rule
1010(c)(4).
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3. Economic Impact
The proposed rule change would permit individuals on whose behalf
the Form U4 is filed to provide an electronic signature, as an
additional option to a manual signature, to evidence that they have
signed the form. The proposed rule change is expected to generate cost
savings for such individuals as well as for members and applicants for
membership. Specifically, they may experience the saving of time and
costs related to printing and, in some cases, mailing the wet
signatures. Firms may also experience the saving of costs related to
the storage of records as the proposed rule change gives them the
ability to turn the entire Form U4 filing process electronic. The
extent of the cost saving is, however, not uniform across the filings
and cannot be estimated in aggregate for two reasons. First, as noted,
we do not know how the individuals are currently returning the wet
signature to the member, by mail, email of the scanned copy, or in-
person signature. The expected cost saving would be greater for
transactions shifting from in-person or mail signature to electronic
signature and less for changes from emailing of the scanned copy to
electronically signing it. Second, we do not know the nature of the
Form U4 amendments, some of which currently do not require a
signature.\21\
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\21\ See supra note 20.
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The proposed rule change implies limited costs and minimal
distributional impacts by giving individuals the option, not the
requirement, to sign electronically. Individuals and firms would choose
to adopt electronic signatures if they perceive the expected benefits
exceeding the expected costs. The costs of obtaining electronic
signature software would be greatest for first time users, either
through a third-party provider or in-house developed software. In
circumstances where firms already have the software for doing business,
the incremental cost of extending the usage to the Form U4 copy would
be minimal.
Alternatives Considered
For initial and transfer Form U4s, FINRA considered whether to
provide members, and applicants for membership, the option of obtaining
the written acknowledgment of the individual on whose behalf the form
is being filed, rather than obtaining the individual's manual or
electronic signature on the Form U4 copy. FINRA determined not to
provide this option. FINRA believes that it is important to have clear
evidence of an individual's execution of an initial or a transfer Form
U4, including his or her agreement to the attestations set forth in the
form.
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 \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. FINRA has asked the Commission to
waive the 30-day operative delay so that the proposed rule change may
become operative immediately upon filing.
The Commission notes that the proposed rule change does not impose
any new obligations on FINRA members or applicants for membership.
Instead, the proposed rule change provides members and applicants for
membership with the flexibility to use either manual or electronic
signatures on their Form U4, which is consistent with the temporary
COVID-19 relief that FINRA has provided.\24\ As discussed above, the
proposed rule change also eliminates the need for members and
applicants for membership to obtain a manual signature pursuant to
FINRA's temporary COVID-19 relief, if they choose to rely on an
electronic signature pursuant to the amended rules. As FINRA stated
above, the proposed rule change would provide members and applicants
for membership with an opportunity to better manage the operational
challenges presented by the current pandemic by facilitating the use of
electronic signatures.\25\ FINRA stated that the COVID-19 pandemic
amplified the need to permit the use of electronic signatures, and
FINRA responded to this need by providing temporary relief via an FAQ
on its website permitting firms to file an initial or a transfer Form
U4 with FINRA prior to obtaining the manual signature of the
applicant.\26\ The Commission believes that waiving the 30-day
operative delay would aid members and applicants for membership by
providing them with the option to immediately rely on an electronic
signature pursuant to this rule, as well as promote operational
efficiency by allowing FINRA to immediately update its existing
guidance regarding the obligations of
[[Page 13939]]
members and applicants for membership under Rule 1010(c) in its
temporary COVID-19 relief to reflect the proposed rule change. For
these reasons, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\27\
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\24\ See supra notes 10, 11.
\25\ See supra note 12 and accompanying text.
\26\ See supra notes 10, 11 and accompanying text.
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change'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. 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2021-003 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2021-003. 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 submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2021-003 and should be submitted
on or before April 1, 2021.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05025 Filed 3-10-21; 8:45 am]
BILLING CODE 8011-01-P
