Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 1306 (Branch Offices) and Exchange Rule 1308 (Supervision of Accounts) To Harmonize With FINRA Rules, 97664-97673 [2024-28769]

Download as PDF 97664 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 24 of the Act to determine whether the proposed rule change 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: ddrumheller on DSK120RN23PROD with NOTICES1 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– PEARL–2024–55 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–PEARL–2024–55. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or 24 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–PEARL–2024–55 and should be submitted on or before December 30, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–28762 Filed 12–6–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101803; File No. SR–MIAX– 2024–44] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 1306 (Branch Offices) and Exchange Rule 1308 (Supervision of Accounts) To Harmonize With FINRA Rules December 3, 2024. Pursuant to the provisions of 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 November 25, 2024, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to 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 The Exchange proposes to: (i) amend Rule 1306 (Branch Offices) to adopt the definition used by Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) of Office of Supervisory Jurisdiction (‘‘OSJ’’); (ii) amend Rule 1308 (Supervision of Accounts) to adopt FINRA’s inspection requirement for non-branch location; (iii) harmonize Rule 1308 (Supervision of Accounts) with certain changes by FINRA to FINRA Rule 3110 to permit eligible Members 3 to participate in FINRA’s 25 17 CFR 200.30–3(a)(12), (59). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights 1 15 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 remote inspections program (‘‘FINRA Pilot Program’’); 4 and (iv) adopt FINRA’s Residential Supervisory Location (‘‘RSL’’) classification. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/miax-options/rule-filings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to (i) amend Rule 1306 to adopt FINRA’s definition of OSJ; (ii) amend Rule 1308 to adopt FINRA’s inspection requirement for non-branch location; (iii) harmonize Rule 1308 with certain changes by FINRA to FINRA Rule 3110 to permit eligible Members to participate in FINRA’s Remote Inspections Pilot Program; and (iv) adopt FINRA’s RSL classification. The proposed changes would harmonize the Exchange’s office and other location inspection rules with those of FINRA and thus promote uniform inspection standards across the securities industry resulting in less burdensome and more efficient regulatory compliance for common members.5 Additionally, the proposed changes would allow Members who participate in FINRA’s Remote Inspections Pilot Program to also satisfy the equivalent internal inspections requirements set out in Rule 1308. The associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 4 See Securities Exchange Act Release No. 97398 (April 28, 2023), 88 FR 28620 (May 4, 2023) (‘‘Remote Inspections Pilot Program Proposal’’); Securities Exchange Act Release No. 98982 (November 17, 2023), 88 FR 82464 (November 24, 2023) (‘‘Remote Inspections Pilot Program Approval Order’’) (SR–FINRA–2023–007). 5 Currently, all Exchange Members are also FINRA members. E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices Exchange notes that Exchange Rules 1306 and 1308 as proposed to be amended by this filing, are incorporated by reference into the rulebooks of the Exchange’s affiliate MIAX PEARL, LLC (‘‘MIAX Pearl’’), MIAX Emerald, LLC (‘‘MIAX Emerald’’), and MIAX Sapphire, LLC (‘‘MIAX Sapphire’’). As such, the amendment to Exchange Rules 1306 and 1308 proposed herein will also apply to MIAX Pearl, MIAX Emerald, and MIAX Sapphire members. Proposal To Adopt FINRA’s Definition of OSJ The Exchange proposes to adopt paragraph (j) of Rule 1306 to adopt FINRA’s definition of OSJ. Currently, Exchange Rule 1306(a) only requires Members to file with the Exchange and keep current a list of each of its branch offices showing the location of each such office and the name of the manager of each such office. FINRA Rule 3110.01 provides that a member’s main office location is required to be registered and designated as a branch office or OSJ if it meets the definitions of a ‘‘branch office’’ or ‘‘office of supervisory jurisdiction’’ as set forth in FINRA Rule 3110(f). The purpose of the proposed change is to harmonize Exchange Rule 1306 with FINRA Rule 3110.01 to provide that both branch offices and OSJs will be subject to the office registration requirements set forth in Exchange Rule 1306(a). The proposed Exchange Rule 1306(j) is substantively identical to FINRA Rule 3110(f)(1). The proposed definition of OSJ defined in Rule 1306(j) will read as follows: ddrumheller on DSK120RN23PROD with NOTICES1 ‘‘Office of Supervisory Jurisdiction’’ means any office of a member at which any one or more of the following functions take place: (1) order execution or market making; (2) structuring of public offerings or private placements; (3) maintaining custody of customers’ funds or securities; (4) final acceptance (approval) of new accounts on behalf of the Member; (5) review and endorsement of customer orders; (6) final approval of retail communications for use by persons associated with the Member, pursuant to FINRA Rule 2210(b)(1), except for an office that solely conducts final approval of research reports; or (7) responsibility for supervising the activities of persons associated with the Member at one or more other branch offices of the Member. The Exchange proposes to add ‘‘offices of supervisory jurisdictions’’ to Exchange Rule 1306(a) as follows: Every Member approved to do options business with the public under this Chapter shall file with the Exchange and keep current a list of each of its branch offices and offices of supervisory jurisdictions showing the location of each such office and the name of the manager of each such office. VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 Additionally, the Exchange proposes to add ‘‘OSJ’’ to Exchange Rule 1308(d)(1) and its subparagraph (i) to provide that both branch offices and OSJs that supervise one or more nonbranch locations must be inspected no less than once each calendar year. In the event that it has been demonstrated to the satisfaction of the Exchange that because of proximity, special reporting or supervisory practice, other arrangements may satisfy this Rule’s requirements for a particular branch office or OSJ, the Member does not have inspect such office no less than once every calendar year. The proposed Rule 1308(d)(1) is substantively identical to FINRA Rule 3110(c)(1)(A). The purpose of the proposed change is to harmonize Exchange Rule 1308(d) with FINRA Rule 3110(c), resulting in less burdensome and more efficient regulatory compliance for common members. The proposed rule change would enable Exchange Rule 1308 to continue to be incorporated into the agreement between the Exchange and FINRA to allocate regulatory responsibility for common rules (the ‘‘17d–2 Agreement’’), thereby facilitating FINRA’s performance of its regulatory performance on the 17d–2 Agreement.6 Proposal To Adopt FINRA’s Inspection Requirement for Non-Branch Location Next, the Exchange propose to amend Rule 1308(d)(3) to adopt FINRA’s inspection requirement for non-branch location. Exchange Rule 1308 sets forth the main requirements for inspections. An inspection of an office or location must occur on a designated frequency. The periodicity of the required inspection varies depending on the classification of the location or the nature of the activities that take place. Currently, Exchange Rule 1308(d) provides that each branch office that supervises one or more non-branch locations must be inspected no less often than once each calendar year; 7 and every branch office, without exception, must be inspected at least once every three calendar-years.8 The Exchange proposes to amend Rule 1308(d)(3) to provide that each nonbranch office should be inspected on a regular periodic schedule. The Member 6 See Securities Exchange Act Release No. 68363 (December 5, 2012), 77 FR 73711 (December 11, 2012) (File No. S7–966). The 17d–2 Agreement includes a certification by the Exchange that states that the requirements contained in certain Exchange rules are identical to, or substantially similar to, certain FINRA rules that have been identified as comparable. 7 See Exchange Rule 1308(d)(1). 8 See Exchange Rule 1308(d)(2). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 97665 shall consider the nature and complexity of the securities activities for which the location is responsible and the nature and extent of contact with customers when establishing the schedule. In addition, the Member should have written supervisory and inspection procedures to set forth the schedule and an explanation regarding how the Member determined the frequency of the examination. FINRA Rule 3110(c) requires Members to inspect every branch office that supervises one or more non-branch locations at least annually, every branch office that does not supervise one or more non-branch locations at least every three years, and every non-branch location on a regular periodic schedule. The proposed Exchange Rule 1308(d)(3) is substantively identical to FINRA Rule 3110(c)(1)(C). The purpose of the proposed change is to harmonize Exchange Rule 1308(d) with FINRA Rule 3110(c), resulting in less burdensome and more efficient regulatory compliance for common members and facilitating FINRA’s performance of its regulatory performance on the 17d–2 Agreement.9 The proposed Exchange Rule 1308(d)(3) will read as follows: Each Member shall inspect on a regular periodic schedule every non-branch location. In establishing such schedule, the Member shall consider the nature and complexity of the securities activities for which the location is responsible and the nature and extent of contact with customers. The Member’s written supervisory and inspection procedures shall set forth the schedule and an explanation regarding how the Member determined the frequency of the examination. The Exchange proposes to amend the hierarchical headings in Exchange Rule 1308 so that subparagraphs (d)(3)–(5) will be renumbered as (d)(4)–(6). In addition, the Exchange proposes to amend proposed renumbered subparagraph (d)(6) of Rule 1308 to replace certain internal cross references to other paragraphs of Rule 1308 in light of the hierarchical heading changes described above. In particular, the Exchange propose to amend the cross references contained in proposed renumbered subparagraph (d)(6) of Rule 1308 that are to subparagraphs (d)(4) and (d)(5), to now to be subparagraphs (d)(5) and (d)(6), respectively. The Exchange proposes to add the reference to subparagraph (d)(3) in the sentence describing Member complying with the requirements of the New York Stock Exchange or FINRA in proposed renumbered Rule 1308(d)(4). With the proposed changes, proposed 9 See E:\FR\FM\09DEN1.SGM supra note 6. 09DEN1 97666 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices renumbered Rule 1308(d)(4) will provide that a Member that complies with requirements of the New York Stock Exchange or FINRA that are substantially similar to the requirements in paragraphs (d)(1), (d)(2), and (d)(3) of Rule 1308 as well as other related requirements in paragraphs (e) and (f) of Rule 1308 will be deemed to have met inspection requirements set forth in Rule 1308. Proposal To Adopt FINRA Remote Inspections Pilot Program The Exchange proposes to adopt subparagraph (d)(7) of Rule 1308, which would provide that any Member that participates in the FINRA Remote Inspections Pilot Program, 10 thereby satisfying the internal inspections requirements in FINRA Rule 3110(c), would also satisfy the equivalent annual branch office inspections requirements in Exchange Rule 1308(d). This proposed rule change would supplant Rule 1308(d)(5) (to be renumbered as Rule 1308(d)(6)), which allowed Members to fulfill any calendar year 2024 internal inspection obligations set forth in Rule 1308(d)(5) (to be renumbered as Rule 1308(d)(6)) by conducting remote inspections of the applicable branch offices 11 or nonbranch locations.12 This temporary relief, which was analogous to relief that FINRA provided for, automatically sunset on June 30, 2024.13 As described below, adding proposed subparagraph (d)(7) of Rule 1308 would harmonize the Exchange’s annual branch office inspections obligations for its Members with FINRA’s comparable obligations for its members, thereby avoiding confusion to Members with respect to the applicability of participation in the FINRA Remote Inspections Pilot Program and compliance with Exchange Rule 1308. Additionally, because the proposed subparagraph (d)(7) of Rule 1308 would incorporate by reference FINRA Rule 3110.18, this rule change would enable Exchange Rule 1308 to continue to be incorporated into the 17d–2 Agreement.14 ddrumheller on DSK120RN23PROD with NOTICES1 10 See FINRA Rule 3110.18. 11 See Exchange Rule 1306(c). 12 See Exchange Rule 1308(d)(5) (to be renumbered as Rule 1308(d)(6)) (Temporary Relief to Allow Remote Inspections for Calendar Years 2021, 2022, 2023, and Through the Earlier of the Effective Date of the Remote Inspections Pilot Program or June 30, 2024). 13 See Id. The equivalent temporary relief offered by FINRA also sunset on June 30, 2024. See FINRA Rule 3110.17 14 See supra note 6. VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 Standards for Supervision of Remote Offices The responsibility of firms to supervise their associated persons is a critical component of broker-dealer regulation.15 Members must supervise all of their associated persons, regardless of their location, compensation or employment arrangement, or registration status. Exchange Rule 1308(d), which is substantially identical to FINRA Rule 3110(c), requires any Member, regardless of size or type, to have a supervisory system for the activities of its associated persons that is reasonably designed to achieve compliance with the applicable securities laws and regulations and Exchange rules, and that sets forth the minimum requirements for such supervisory system.16 The internal inspection obligation under Exchange Rule 1308(d) and FINRA Rule 3110(c) is one component of such system. Exchange Rule 1308(d), as amended herein, sets forth three main requirements for inspections. First, an inspection of an office or location must occur on a designated frequency. The periodicity of the required inspection varies depending on the classification of the location or the nature of the activities that take place: each branch office that supervises one or more nonbranch locations must be inspected no less often than once each calendar year; 17 and every branch office, without exception, must be inspected at least once every three calendar-years.18 Second, written reports reflecting the results of such inspections are to be maintained with the Member for the longer of three years or until the next branch office inspection.19 Third, to prevent compromising the effectiveness of inspections due to conflicts of interest, the rule requires a Member to ensure that the person conducting the inspection is independent of the direct supervision and control of the branch office in question (i.e., not the branch office manager, or any person who directly or indirectly reports to such manager, or any person to whom such manager directly reports).20 15 See generally SEC Division of Market Regulation, Staff Legal Bulletin No. 17: Remote Office Supervision (March 19, 2004) (‘‘SLB 17’’) (SEC guidance on remote office supervision), available at https://www.sec.gov/interps/legal/ mrslb17.htm; and Regulatory Notice 11–54 (November 2011) (‘‘Notice 11–54’’) (joint SEC and FINRA guidance on effective policies and procedures for broker-dealer branch inspections). 16 See Exchange Rule 1308(d). 17 See Exchange Rule 1308(d)(1). 18 See Exchange Rule 1308(d)(2). 19 Id. 20 Id. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 Further, Rule 1306(i) sets out factors that should be considered when developing risk-based sampling techniques to determine the appropriateness of on-site for cause reviews of selected residences and other remote locations shall include, but not be limited to, the following: (1) the firm’s size; (2) the firm’s organizational structure; (3) the scope of business activities; (4) the number and location of offices; (5) the number of associated persons assigned to a location; (6) the nature and complexity of products and services offered; (7) the volume of business done; (8) whether the location has a Series 9/10-qualified person onsite; (9) the disciplinary history of the registered persons or associated persons, including a review of such person’s customer complaints and Forms U4 and U5; and (10) the nature and extent of a registered person’s or associated person’s outside business activities, whether or not related to the securities business. Rule 1306(h) further states that the written supervisory procedures pertaining to supervision of sales activities conducted at the associated person’s primary residence and other remote locations must be designed to assure compliance with applicable securities laws and regulations and with Exchange Rules. Notably, all of the above requirements about supervision and inspections of branch offices reflected a business environment in which Members conducted in-person inspections of all of their offices.21 FINRA’s Recent Attempts To Change the In-Person Inspection Requirements of Offices of Supervisory Jurisdiction, Branch Offices, and Non-Branch Locations In the Remote Inspections Pilot Program Proposal, FINRA described its efforts during the past several years to offer its members the option of remotely conducting internal inspections of their OSJs, branch offices, and non-branch locations.22 As stated therein, FINRA believed that as more recordkeeping moved from paper to electronic records, and as more meetings were conducted virtually using platforms such as Zoom and WebEx, the burden on FINRA members of conducting in-person inspections for all their remote office locations became harder to justify.23 Thus, when the COVID–19 pandemic required many securities industry professionals to work from home, 21 See SLB 17 and Notice 11–54, supra note 15. Remote Inspections Pilot Program Proposal, supra note 4. 23 See Id. 22 See E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 FINRA implemented several forms of regulatory relief to its members, including introducing FINRA Rule 3110.17, which the Exchange also introduced as subparagraph (d)(5) of Exchange Rule 1308 (to be renumbered as Rule 1308(d)(6)), to permit remote internal inspections of their branch offices. The pandemic accelerated the industry’s adoption of a broad remote work environment and the Exchange recognizes that the pandemic has profoundly changed attitudes on where work can occur. As a result of this change many firms have adopted, in varying scale, hybrid work models involving personnel who are working at least part time from alternative work locations (e.g., private residences). As part of an effort to modernize its rules to reflect evolving technologies and business models, in April 2023, FINRA filed the Remote Inspections Pilot Program Proposal with the Securities and Exchange Commission (‘‘SEC’’) to establish a voluntary, three-year remote inspections pilot program that would allow eligible firms to conduct inspections of all or some offices or locations, remotely, subject to the specified terms therein.24 The SEC approved the FINRA Remote Inspection Pilot Program Proposal in November 2023, 25 and FINRA commenced the pilot program on July 1, 2024.26 FINRA’s Remote Inspections Pilot Program FINRA’s Remote Inspection Pilot Program builds on the terms of the temporary relief in FINRA Rule 3110.17, while requiring members to provide even more information about their remote inspections to allow FINRA to assess the overall impact and effectiveness of remote inspections.27 The pilot program is designed to provide broader systemized information to supplement the information obtained through the FINRA examination process in an environment where offices and locations were closed. The information firms would be required to produce as a pilot program participant will help FINRA more accurately assess the overall impact and effectiveness of remote inspections.28 FINRA’s Remote Inspection Pilot Program includes, among other things, the following requirements for participating firms: 24 See Id. Remote Inspections Pilot Program Approval Order, supra note 4. 26 See FINRA Regulatory Notice 24–02. 27 See Remote Inspections Pilot Program Proposal, supra note 4. 28 See Id. 25 See VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 • Risk Assessment. Prior to electing a remote inspection for an office or location, participating firms must develop a reasonable risk-based approach to using remote inspections and conduct and document a risk assessment for that office or location.29 • Written Supervisory Procedures for Remote Inspections. Participating firms must establish, maintain, and enforce written procedures that are reasonably designed for conducting remote inspections and reasonably designed to achieve compliance with applicable securities laws and regulations.30 • Effective Supervisory System. Participating firms must have an effective supervisory system for remote inspections that will be held to the same standards of review (set forth under FINRA Rule 3110.12). Where a member’s remote inspection of an office or location identifies any ‘‘red flags,’’ the member may need to impose additional supervisory procedures for that office or location or may need to provide for more frequent monitoring of that office or location, including potentially a subsequent on-site visit on an announced or unannounced basis.31 • Documentation Requirement. Participating firms must maintain and preserve a centralized record for each of the Pilot Years specified in the pilot program that separately identifies: (1) all offices or locations that were inspected remotely; and (2) any offices or locations for which the member determined to impose additional supervisory procedures or more frequent monitoring, as provided in FINRA Rule 3110.18(d). A member’s documentation of the results of a remote inspection for an office or location must identify any additional supervisory procedures or more frequent monitoring for that office or location that were imposed as a result of the remote inspection, including whether an on-site inspection was conducted at such office or location.32 • Firm Level Requirements. Participating firms must meet certain firm- level eligibility requirements to participate in the program set forth in FINRA Rule 3110.18(f)(1). For example, a firm cannot participate if it is designated as: (i) Restricted Firm under FINRA Rule 4111 or (ii) a Taping Firm under FINRA Rule 3170. Additionally, firms with suspended or new (effective less than 12 months) FINRA memberships or that have been found by the SEC or FINRA to have violated FINRA Rule 3110.18(b). FINRA Rule 3110.18(c). 31 See FINRA Rule 3110.18(d). 32 See FINRA Rule 3110.18(e). FINRA Rule 3110(c) are ineligible to participate. Participating firms must also comply with firm- level conditions to participate in the program. For example, a firm must have a recordkeeping system that keeps records current and promptly accessible, and that does not maintain physical or electronic records at the location subject to remote inspection. Additionally, participating firms must have firm-wide tools such as electronic recordkeeping systems, system security tools such as secure network connections and effective cybersecurity protocols, and tools specifically applied to each office or location based on the activities of associated persons, products offered, or any restrictions on the activity of the office or location.33 • Location Level Requirements. Participating firms must exclude from participating in the program any locations that do not meet the location level eligibility criteria set forth in FINRA Rule 3110.18(g)(1) (e.g., the location includes: (i) persons subject to a disciplinary action, a statutory disqualification, or a mandated heightened supervisory plan; (ii) persons engaged in proprietary trading; or (iii) the handling of customer funds or securities). Additionally, eligible locations must use the firm’s electronic communication system and may not maintain any original copies of books or records at the location.34 • Data and Information Collection Requirement. Participating firms must collect and on a quarterly basis produce to FINRA data consisting of separate counts for OSJs, supervisory branch offices, non-supervisory branch offices, and non-branch locations. This data must include information about the number of remote inspections conducted and any significant findings. Firms shall establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the data collection and transmission requirements.35 • Election to Participate in Remote Inspections Pilot Program. Participating firms must opt-in to the pilot program in a manner specified by FINRA.36 • Failure to Satisfy Conditions and Determination of Ineligibility. Participating firms that fail to satisfy terms of the Remote Inspections Pilot Program will be ineligible to participate in the pilot program and return to 29 See 33 See 30 See 34 See PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 97667 FINRA Rule 3110.18(f). FINRA Rule 3110.18(g). 35 See FINRA Rule 3110.18(h). 36 See FINRA Rule 3110.18(i). E:\FR\FM\09DEN1.SGM 09DEN1 97668 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices conducting only on-site inspections.37 FINRA may also make a determination to revoke a member’s eligibility to participate if FINRA finds it to be in the public interest.38 • Definitions of Pilot Year periods. Includes clarifications that Pilot Year 1 is the second half of 2024, and Pilot Year 4 is the first half of 2027.39 Proposal The Exchange now proposes to adopt subparagraph (d)(7) of Exchange Rule 1308. This proposed new paragraph reads as follows: Members that are obligated to conduct an inspection of an office of supervisory jurisdiction, branch office or non-branch location pursuant to, as applicable, Rule 1308(d)(1), (2), and (3) may satisfy such obligation by participating in the FINRA Remote Inspections Pilot Program, as set forth in FINRA Rule 3110.18. The FINRA Remote Inspections Pilot Program shall cover required inspections of such offices or locations for a period of three years starting on [effective date] (‘‘pilot period’’), and such pilot period shall expire on July 1, 2027. If the pilot period is not extended, this subparagraph will automatically sunset on July 1, 2027. Members will not be able to participate in the FINRA Remote Inspections Pilot Program after such date.40 As stated in proposed new Exchange Rule 1308(d)(7), any Member that participates in the FINRA Remote Inspections Pilot Program, thereby satisfying the annual branch office inspections requirements in FINRA Rule 3110(c), will satisfy the equivalent annual branch office inspections requirements in Exchange Rule 1308(d). The Exchange is not proposing to add the entire FINRA Remote Inspections Pilot Program to its rules, because it would be unnecessarily duplicative and burdensome for Members to submit the data and information required as part of the Remote Inspections Pilot Program to both the Exchange and FINRA.41 The Exchange understands that adopting proposed paragraph (d)(7) of Exchange Rule 1308 would update Rule 1308 so that it remains substantially similar to FINRA Rule 3110, such that they remain common rules subject to the 17d–2 Agreement.42 As a result, regulatory responsibility for Exchange Rule 37 See FINRA Rule 3110.18(j). FINRA Rule 3110.18(k). 39 See FINRA Rule 3110.18(l). 40 Proposed Exchange Rule 1308(d)(6). 41 Pursuant to this proposed rule change, Members will be required to collect and on a quarterly basis produce to FINRA data regarding its participation in the Remote Inspections Pilot Program. See FINRA Rule 3110.18(h). But Members will not be required to produce that information directly to the Exchange. 42 See supra note 6. ddrumheller on DSK120RN23PROD with NOTICES1 38 See VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 1308(d) would continue to be allocated to FINRA. As noted above, all Members were temporarily eligible to conduct remote office inspections until June 30, 2024. This proposed rule change would allow those Members who have enrolled in FINRA’s Remote Inspections Pilot Program to continue to use remote inspections as part of an effective supervisory system.43 The Exchange believes this Remote Inspections Pilot Program is a reasonable alternative for firms to fulfill their Rule 1308(d) obligations while permitting FINRA to collect data as the regulatory authority in this area under the 17d–2 Agreement to assess the efficacy and long-term viability of a permanent remote office inspections program. The Exchange emphasizes that the inspection requirement is one aspect of a firm’s overall supervisory system, and that the inspection, whether done in accordance with the FINRA Remote Inspections Pilot Program, or on-site, would be held to the existing standards of review under Exchange Rule 1308(d).44 Adopt FINRA’s RSL Classification The Exchange proposes to adopt paragraph (d)(8) of Rule 1308, which would allow a location that is the private residence of a person associated with a Member where supervisory activities are conducted, including those described in proposed Rule 1306(j)(4) through (7) or Rule 1306(c)(2), that satisfies the conditions for designation as RSL set forth in FINRA Rule 3110.19 to also be considered a non-branch location (i.e., an unregistered office) for those activities under the Exchange rules. Without this proposed rule change, any private residence at which a person associated with a member conducts supervisory activities is subject to registration, an annual inspection and, in some cases, additional licensing requirements.45 As described below, adding proposed paragraph (d)(8) of Rule 1308 would harmonize the Exchange’s internal inspections obligations for its Members with FINRA’s comparable obligations 43 The Exchange notes that any inspections conducted by its Members in the brief period between July 1, 2024 and the effective date of this filing will not satisfy Exchange Rule 1308(d), but believes this will not be an issue for its Members because the remote inspections process outlined in the pilot program is an ongoing process that cannot be completed in the few days between the start of the FINRA’s pilot program and the effectiveness of this rule filing. 44 Those standards provide, in part that based on the factors set forth under Exchange Rule 1308(d)(6)(ii), Members ‘‘may need to provide for more frequent monitoring or oversight of that office or location.’’ 45 See Exchange Rules 1306(d) and 1308(d)(1). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 for its members, thereby avoiding confusion to Members with respect to the applicability of FINRA’s new RSL designation with respect to compliance with Rule 1308(d).46 Additionally, because proposed paragraph (d)(8) of Rule 1308 would incorporate by reference FINRA Rule 3110.19, this rule change would enable Exchange Rule 1308 to continue to be incorporated into the 17d–2 agreement.47 Background Early in 2020, the COVID–19 pandemic prompted FINRA to provide temporary relief to member firms from certain regulatory requirements to address the public health crisis.48 As mentioned above, FINRA subsequently adopted temporary relief to allow remote inspections of an OSJ, branch office, or non-branch location for calendar years 2020 and 2021; 49 FINRA extended the temporary relief several times to include calendar years 2022, 2023, and the first half of 2024.50 The Exchange, following FINRA, offered its Members the same temporary relief to allow remote inspections of OSJs, branch offices, and non-branch locations for calendar years 2021, 2022, 2023, and until June 30, 2024.51 FINRA 46 The Exchange notes that all Members are currently FINRA members. 47 See supra note 6. 48 Among the temporary regulatory relief provided, FINRA adopted relief pertaining to branch office registration requirements through Form BR (Uniform Branch Office Registration Form) and FINRA Rule 3110(c) inspection requirements. Specifically, FINRA temporarily suspended the requirement for member firms to submit branch office applications on Form BR for any newly opened temporary office locations or space-sharing arrangements established as a result of the pandemic. See Regulatory Notice 20–08 (March 2020). With respect to inspection obligations, FINRA adopted temporary Rule 3110.16 that provided additional time for member firms to complete their calendar year 2020 inspection obligations. See Securities Exchange Act Release No. 89188 (June 30, 2020), 85 FR 40713 (July 7, 2020) (SR–FINRA–2020–019). 49 See Securities Exchange Act Release No. 90454 (November 18, 2020), 85 FR 75097 (November 24, 2020) (SR–FINRA–2020–040). 50 See Securities Exchange Act Release No. 96241 (November 4, 2022), 87 FR 67969 (November 10, 2022) (SR–FINRA–2022–030); Securities Exchange Act Release No. 93002 (September 15, 2021), 86 FR 52508 (September 21, 2021) (SR–FINRA–2021–023); Securities Exchange Act Release No. 94018 (January 20, 2022), 87 FR 4072 (January 26, 2022) (SR– FINRA–2022–001); and Securities Exchange Act Release No. 98560 (September 27, 2023), 88 FR 68258 (October 3, 2023) (SR–FINRA–2023–012). 51 See Securities Exchange Act Release Nos. 90937 (January 15, 2021), 86 FR 6944 (January 25, 2021) (SR–MIAX–2021–01) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 1308, Supervision of Accounts, To Adopt Temporary Rules To Extend the Time by Which Members Must Complete Their Branch Office Inspections for the Calendar Year 2020 and To Provide Temporary Remote Inspection Relief for Their Office Inspections for Calendar E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 replaced the temporary remote inspections relief with the Remote Inspections Pilot Program 52 that impacts the internal inspections requirements of FINRA Rule 3110(c); the Exchange proposes to amend its supervision rules such that any Member that participates in the FINRA pilot shall be deemed to satisfy the equivalent internal inspection requirements in Exchange Rule 1308(d) as above. In response to the pandemic, many private and government employers closed their offices and their employees continued with their work from alternative locations such as private residences. The Exchange, like FINRA, believes this model will endure, irrespective of the state of the pandemic. The pandemic accelerated reliance on technological advances in surveillance and monitoring capabilities and prompted significant changes in lifestyles and work habits, including the growing expectation for workplace flexibility. Moreover, the technology advancements that facilitated the transition to working outside the conventional office setting on a broad scale have not only effected a profound change in lifestyle and workplace practices for member firms, but provided SROs such as FINRA and the Exchange an opportunity to consider aspects of their supervision rules that may benefit from modernization.53 As such, the Exchange, like FINRA, believes measured changes to its regulatory approach would allow firms to effectively and more efficiently carry out their supervisory responsibilities to review the activities of each office or location while preserving investor protections. Years 2020 and 2021); 94251 (February 15, 2022), 87 FR 9764 (February 22, 2022) (SR–MIAX–2022– 09) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by Miami International Securities Exchange, LLC To Amend Exchange Rule 1308, Supervision of Accounts); 96867 (February 9, 2023), 88 FR 9919 (February 15, 2023) (SR–MIAX– 2023–04) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 1308, Supervision of Accounts); and 99548 (February 15, 2024), 89 FR 13386 (February 22, 2024) (SR–MIAX–2024–10) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule1308 To Extend the Temporary Remote Inspection Relief for Members Through June 30, 2024). 52 See FINRA Rule 3110.18. 53 See Securities Exchange Act Release No. 97237 (March 31, 2023), 88 FR 20568 n. 8 (April 6, 2023) (SR–FINRA–2023–006) (‘‘FINRA RSL Proposal’’) (describing FINRA’s ‘‘practice of periodically reviewing its rules to ensure they continue to promote their intended investor protection objectives in a manner that is effective and efficient, without imposing undue burdens, particularly in light of technological, industry and market changes.’’) VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 Requirements To Register and Inspect Offices Exchange Rule 1308 requires a Member, regardless of size or type, to have a supervisory system for the activities of its associated persons. Proposed Exchange Rule 1306(a) would set forth the minimum requirements of a Member’s supervisory system that includes registering a location as an OSJ or branch office that meets the definitions under paragraph (c) and proposed paragraph (j) of Exchange Rule 1306. Proposed Exchange Rule 1308(d) would require Members to inspect all offices and locations. The proposed rule would categorize offices or locations as an OSJ or supervisory branch office, a non-supervisory branch office, or a nonbranch location.54 The requirements to register, inspect and have a principal on-site vary based on the categorization. Specifically, proposed Rule 1306(a) would require the registration as an OSJ or branch office of each location, that meets their respective definition under paragraph (c) and proposed paragraph (j) of Exchange Rule 1306, as described in more detail below.55 An OSJ is a type of branch office. The Exchange defines a ‘‘branch office’’ as ‘‘any location where one or more associated persons of a Member regularly conduct the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, or is held out as such[.]’’ 56 In addition, any location that is responsible for supervising the activities of persons associated with a Member at one or more non-branch locations of such Member is considered to be a branch office.57 A location registered as a branch office must file with the Exchange and keep current a list of each of its branch offices showing the location of each such office and the name of the manager of each such office,58 and is subject to an inspection at least every three years, unless it is a supervisory branch office in which case it is subject to at least an annual inspection.59 Depending upon the functions occurring at a branch office, it may be further classified as an OSJ. As described above, proposed paragraph (j) of Rule 1306 would define as any office of a member at which any one or more 54 See proposed Exchange Rules 1308(d)(1), (2), and proposed paragraph (3). 55 See Exchange Rule 1306(a). 56 See Exchange Rule 1306(c). 57 See Exchange Rule 1306(d). 58 See Exchange Rule 1306(a). 59 See proposed Exchange Rules 1308(d)(1) and (2). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 97669 of the following functions take place: (1) order execution or market making; (2) structuring of public offerings or private placements; (3) maintaining custody of customers’ funds or securities; (4) final acceptance (approval) of new accounts on behalf of the Member; (5) review and endorsement of customer orders; (6) final approval of retail communications for use by persons associated with the Member, pursuant to FINRA Rule 2210(b)(1), except for an office that solely conducts final approval of research reports; or (7) responsibility for supervising the activities of persons associated with the Member at one or more other branch offices of the Member.60 Under the proposed rule change, each OSJ would need to be inspected at least annually.61 However, subject to specified conditions, an office or location may be deemed a ‘‘non-branch location,’’ and excluded from registration as a branch office. Currently, Exchange Rule 1306(c) sets forth seven exclusions—often referred to as unregistered offices or non-branch locations—of which two pertain to residential locations.62 One such exclusion appears under Exchange Rule 1306(c)(2) and exempts from registration as a branch office an associated person’s primary residence subject to the following express conditions: (1) only one associated person, or multiple associated persons who reside at that location and are members of the same immediate family, conduct business at the location; (2) the location is not held out to the public as an office and the associated person does not meet with customers at the location; (3) neither customer funds nor securities are handled at that location; (4) the associated person is assigned to a 60 See proposed Exchange Rules 1306 (j)(1)–(7). proposed Exchange Rule 1308(d)(1). 62 See generally Rule 1306(c)(1) and Rule 1306(c)(4) (7) which, in addition to the primary residence and the non-primary residence exclusions that are further described, excludes the following from the definition of ‘‘branch office’’: (1) any location that is established solely for customer service or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office; (2) any office of convenience, where associated persons occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office; (3) any location that is used primarily to engage in non-securities activities and from which the associated person(s) effects no more than 25 securities transactions in any one calendar year; provided that any retail communication identifying such location also sets forth the address and telephone number of the location from which the associated person(s) conducting business at the non-branch locations are directly supervised; (4) the Floor of a registered national securities exchange where a member conducts a direct access business with public customers; or (5) a temporary location established in response to the implementation of a business continuity plan. 61 See E:\FR\FM\09DEN1.SGM 09DEN1 97670 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices designated branch office, and such designated branch office is reflected on all business cards, stationery, retail communications and other communications to the public by such associated person; (5) the associated person’s correspondence and communications with the public are subject to all supervisory provisions of the Exchange’s Rules; (6) electronic communications (e.g., email) are made through the Member’s electronic system; (7) all orders are entered through the designated branch office or an electronic system established by the Member that is reviewable at the branch office; (8) written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the Member; and (9) a list of the residence locations is maintained by the Member (‘‘primary residence exclusion’’).63 The second exclusion that pertains to a residential location appears under Rule 1306(c)(3) is any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided that the Member complies with the provisions of (ii) through (viii) of Exchange Rule 1306(c) (2) (‘‘non-primary residence exclusion’’).64 In general, the nonprimary residence exclusion typically refers to a vacation or second home.65 Under the proposed rule change, a nonbranch location would need to be inspected on a periodic schedule, presumed to be at least every three years.66 Notwithstanding either of these two residential exclusions or the other exclusions listed under Exchange Rule 1306(c)(1),67 a primary or non-primary residence location that is responsible for either the supervisory activities set forth in the OSJ definition or for supervising the activities of persons associated with the Member at one or more non-branch locations of the Member is considered an OSJ or (supervisory) branch office, respectively.68 Consequently, such residential supervisory offices would be subject to registration, an annual inspection and, in some cases, additional licensing requirements.69 ddrumheller on DSK120RN23PROD with NOTICES1 63 See Exchange Rule 1306(c)(2)(i)–(ix). The primary residence exclusion is also set forth in FINRA Rule 3110(f)(2)(A)(ii). 64 See Exchange Rule 1306(c)(3). 65 See NASD [FINRA] Notice to Members 06–12 (March 2006). 66 See proposed Exchange Rule 1308(d)(3). 67 See generally Exchange Rule 1306(c)(1) and Exchange Rules 1306(c)(4)–(7). 68 See proposed Exchange Rules 1306(j)(4)–(7). 69 See proposed Exchange Rule 1308(d)(1) and Exchange Rule 1306(d). VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 FINRA Residential Supervisory Location Rule Effective June 1, 2024, FINRA implemented a rule change that establishes a new RSL designation for a private residence at which an associated person engages in specified supervisory activities, subject to specified investor protection safeguards and limitations.70 This new non-branch location designation targets the subset of residential locations that have many of the attributes contained in the primary residence exclusion, but must be registered as an OSJ or branch office because of the supervisory functions taking place there. As described in the FINRA RSL Proposal,71 the definition of an RSL is based largely on several existing aspects of FINRA Rule 3110(f) (and therefore on the functionally identical to Exchange Rule 1306). In particular, the RSL definition incorporates the existing supervisory functions appearing in the OSJ definition (FINRA Rule 3110(f)(1)) and branch office definition (FINRA Rule 3110(f)(2)(A)) with the existing residential exclusions set forth in the branch office definition to classify an RSL as a non-branch location. Under current Exchange rules, a private residence at which these supervisory functions occur must be registered as a branch office under Exchange Rule 1306(d), and inspected at least annually under proposed Exchange Rule 1308(d)(1). By treating such location as a non-branch location, the private residence would become subject to inspections on a regular periodic schedule under proposed Exchange Rule 1308(d)(3).72 FINRA Rule 3110.19 incorporates some existing safeguards and limitations members must already satisfy to rely on the primary residence exclusion.73 As described in the FINRA RSL Proposal, FINRA intends for the terms underlying the RSL designation to be interpreted consistently with their meaning in FINRA Rule 3110(f) and existing related guidance.74 The requirements for designation of a location as an RSL, which are set forth in FINRA Rule 3110.19, include the following key elements: • A location where supervisory activities are conducted shall be 70 See FINRA Regulatory Notice 24–02. Securities Exchange Act Release No. 97237 (March 31, 2023), 88 FR 20568 n. 8 (April 6, 2023) (SR–FINRA–2023–006) (‘‘FINRA RSL Proposal’’). 72 See proposed Exchange Rule 1308(d)(3). 73 See FINRA Rule 3110(f)(2)(A)(ii)a., b., c., d., e., f., and i. 74 See, e.g., NASD [FINRA] Notice to Members 06–12 (March 2006). 71 See PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 considered for those activities a nonbranch location provided that: 75 Æ only one associated person (or members of the same immediate family) may conduct business at the location; 76 Æ the location is not held out to the public as an office: 77 Æ the associated person does not meet with customers or prospective customers at the location; 78 Æ any sales activity that takes place at the location complies with the conditions set forth under FINRA Rule 3110(f)(2)(A)(ii) (the primary residence exclusion 79) or FINRA Rule 3110(f)(2)(A)(iii) (the non-primary residence exclusion; 80) 81 Æ neither customer funds nor securities are handled at that location; 82 Æ the associated person is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, retail communications and other communications to the public by such associated person; 83 Æ the associated person’s correspondence and communications with the public are subject to the firm’s supervision in accordance with FINRA’s supervision rule; 84 Æ the associated person’s electronic communications are made through the member’s electronic system; 85 Æ the member must have a recordkeeping system to make and keep current, and preserve records required to be made and kept current, and preserved under applicable securities laws and regulations, FINRA rules, and the member’s own written supervisory procedures under Rule 3110; such records are not physically or electronically maintained and preserved at the office or location; and the member has prompt access to such records; 86 and Æ the member must determine that its surveillance and technology tools are appropriate to supervise the types of risks presented by each Residential Supervisory Location, and these tools may include but are not limited to: firmwide tools such as, electronic recordkeeping system; electronic surveillance of email and correspondence; electronic trade 75 See FINRA Rule 3110.19(a). FINRA Rule 3110.19(a)(1). 77 See FINRA Rule 3110.19(a)(2). 78 See FINRA Rule 3110.19(a)(3). 79 See Exchange Rule 1306(c)(2)(i)–(ix). 80 See Exchange Rule 1306(c)(3). 81 See FINRA Rule 3110.19(a)(4). 82 See FINRA Rule 3110.19(a)(5). 83 See FINRA Rule 3110.19(a)(6). 84 See FINRA Rule 3110.19(a)(7). 85 See FINRA Rule 3110.19(a)(8). 86 See FINRA Rule 3110.19(a)(9). 76 See E:\FR\FM\09DEN1.SGM 09DEN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices blotters; regular activity-based sampling reviews; and tools for visual inspections; tools specific to the RSL based on the activities of associated person assigned to the location, products offered, restrictions on the activity of the RSL; and system tools such as secure network connections and effective cybersecurity protocols.87 • FINRA members shall not be eligible to designate an office or location as an RSL if, among other things, the FINRA member is designated as: (i) Restricted Firm under FINRA Rule 4111 or (ii) a Taping Firm under FINRA Rule 3170. Additionally, firms with suspended or new (effective less than 12 months) FINRA memberships or that have been found within the past three years by the SEC or FINRA to have violated FINRA Rule 3110(c) are ineligible to participate.88 • An office or location shall not be eligible for designation as an RSL if one or more associated persons at such office or location: 89 Æ is a designated supervisor who has less than one year of direct supervisory experience with the member, or an affiliate or subsidiary of the member that is registered as a broker-dealer or investment adviser; 90 Æ is functioning as a principal for a limited period in accordance with FINRA Rule 1210.04; 91 Æ is subject to a mandatory heightened supervisory plan under the rules of the SEC, FINRA or state regulatory agency; 92 Æ is statutorily disqualified, unless such disqualified person has been approved (or is otherwise permitted pursuant to FINRA rules and the federal securities laws) to associate with a member and is not subject to a mandatory heightened supervisory plan under FINRA Rule 3110.19(c)(3) or otherwise as a condition to approval or permission for such association; 93 Æ has an event in the prior three years that required a ‘‘yes’’ response to any item in Questions 14A(1)(a) and 2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4; 94 or Æ has been notified in writing that such associated person is now subject to, any Investigation or Proceeding, as such terms are defined in the Explanation of Terms for the Form U4 (Uniform Application for Securities 87 See FINRA Rule 3110.19(a)(10). FINRA Rule 3110.19(b). 89 See FINRA Rule 3110.19(c). 90 See FINRA Rule 3110.19(c)(1). 91 See FINRA Rule 3110.19(c)(2). 92 See FINRA Rule 3110.19(c)(3). 93 See FINRA Rule 3110.19(c)(4). 94 See FINRA Rule 3110.19(c)(5). 88 See VerDate Sep<11>2014 16:08 Dec 06, 2024 Industry Registration or Transfer), by the SEC, an SRO, including FINRA, or state securities commission (or agency or office performing like functions) (each, a ‘‘Regulator’’) expressly alleging they have failed reasonably to supervise another person subject to their supervision, with a view to preventing the violation of any provision of the Securities Act, the Exchange Act, the Investment Advisers Act, the Investment Company Act, the Commodity Exchange Act, any state law pertaining to the regulation of securities or any rule or regulation under any of such Acts or laws, or any of the rules of the MSRB or other self-regulatory organization, including FINRA; provided, however, such office or location may be designated or redesignated as an RSL subject to the requirements of FINRA Rule 3110.19 upon the earlier of: (i) the member’s receipt of written notification from the applicable Regulator that such Investigation has concluded without further action; or (ii) one year from the date of the last communication from such Regulator relating to such Investigation.95 • FINRA members that elect to designate an office or location of the member as an RSL shall provide FINRA with a current list of all locations designated as RSLs by the 15th day of the month following each calendar quarter in the manner and format as FINRA may prescribe.96 • FINRA members must conduct a risk assessment prior to designating an office or location as an RSL. Specifically, the FINRA member must develop a reasonable risk-based approach to designating such office or location as an RSL, and conduct and document a risk assessment for the associated person assigned to that office or location. The assessment must document the factors considered, including among others, whether the associated person at such office or location is now subject to: (1) customer complaints, taking into account the volume and nature of the complaints; (2) heightened supervision other than where such office or location is ineligible for RSL designation under FINRA Rule 3110.19(c)(3); (3) any failure to comply with the member’s written supervisory procedures; (4) any recordkeeping violation; and (5) any regulatory communications from a Regulator, indicating that the associated person at such office or location failed reasonably to supervise another person subject to their supervision, including 95 See 96 See Jkt 265001 PO 00000 FINRA Rule 3110.19(c)(6). FINRA Rule 3110.19(d). Frm 00090 Fmt 4703 Sfmt 4703 97671 but not limited to, subpoenas, preliminary or routine regulatory inquiries or requests for information, deficiency letters, ‘‘blue sheet’’ requests or other trading questionnaires, or examinations. The FINRA member must take into account any higher risk activities that take place or a higher risk associated person that is assigned to that office or location. Consistent with its obligation under FINRA Rule 3110(a), the member’s supervisory system must take into consideration any indicators of irregularities or misconduct (i.e., ‘‘red flags’’) when designating an office or location as an RSL. Red flags should also be reviewed in determining whether it is reasonable to maintain the RSL designation of such office or location in accordance with the requirements of FINRA Rule 3110.19 and the member should consider evidencing steps taken to address those red flags where appropriate.97 Proposal The Exchange proposes to adopt subparagraph (d)(8) of Exchange Rule 1308. This proposed new paragraph reads as follows: Residential Supervisory Location. A location that is the private residence of a person associated with a Member where supervisory activities are conducted, including those described in Rule 1306(j)(4) through (7) or Rule 1306(c)(2), which satisfies the conditions for designation as a Residential Supervisory Location set forth in FINRA Rule 3110.19 shall also be considered a non-branch location for those activities pursuant to the Exchange Rules.98 As stated in proposed new paragraph (d)(8) of Rule 1308, any location that a Member designates as an RSL pursuant to FINRA Rule 3110.19 shall also be considered a non-branch location for those activities pursuant to Exchange rules. Pursuant to this proposed rule change, Members will be required to share information about designated RSLs with FINRA on a quarterly basis. The Exchange is not proposing to add the entire FINRA Residential Supervisory Location designation rule to its rules, because it would be unnecessarily duplicative and burdensome for Members to share the same quarterly RSL designation information with the Exchange. The Exchange understands that adopting paragraph (d)(8) of Rule 1308 would update Exchange Rule 1308 so that it remains substantially similar to FINRA Rule 3110, such that they remain common rules subject to the 17d–2 97 See 98 See E:\FR\FM\09DEN1.SGM FINRA Rule 3110.19(e). proposed paragraph (d)(8) of Rule 1308. 09DEN1 97672 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Agreement. As a result, regulatory responsibility for Exchange Rule 1308 would continue to be allocated to FINRA. The Exchange, like FINRA, believes that the current work environment merits a reevaluation of the regulatory benefit of requiring firms to designate a private residence, at which specified supervisory functions occur, as an OSJ or branch office. The Exchange’s proposal to incorporate by reference FINRA’s RSL designation is intended to reflect a pragmatic balance between the hybrid workforce model and the parameters that should ensure that all locations, including residential locations, are appropriately supervised. Separate and apart from the classification of the office or location and the attendant inspection obligations, Members will continue to have an ongoing obligation to supervise the activities of each associated person in a manner reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable the Exchange and FINRA rules.99 The Exchange, like FINRA, emphasizes that Members have a statutory duty to supervise their associated persons, regardless of their location, compensation or employment arrangement, or registration status, in accordance with the Exchange and FINRA rules.100 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b) 101 of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act 102 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange’s rule proposal is intended to harmonize the Exchange’s supervision rules, specifically with respect to the definition of OSJ, the requirements for inspections of Members’ all offices and locations, and designation of certain non-branch offices as RSL, with those of FINRA, on which they are based. As discussed in the Purpose section, because proposed Exchange Rules 1308(d)(7) and (8) would incorporate by 99 See FINRA Rule 3110.12. 15 U.S.C. 78o(b)(4)(E) and 15 U.S.C. 78o(b)(6)(A). 101 15 U.S.C. 78f(b). 102 15 U.S.C. 78f(b)(5). 100 See VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 reference FINRA Rule 3110.18 and 3110.19, the proposed rule changes would enable Exchange Rule 1308 to continue to be incorporated into the 17d–2 Agreement, resulting in less burdensome and more efficient regulatory compliance. Specifically, the proposed change will conform the Exchange’s rules to changes made to corresponding FINRA rules insofar as a Member’s compliance with FINRA Rule 3110.18 and 3110.19 shall mean the Member would be also in compliance with Exchange Rule 1308, thus promoting the application of consistent regulatory standards with respect to rules that FINRA enforces. Adopting the definition of OSJ is to harmonize Exchange Rule 1306 with FINRA Rule 3110.01 to provide that both branch offices and OSJs will be subject to the office registration requirements set forth in Exchange Rule 1306(a). Adopting FINRA’s inspection requirement for non-branch locations is to harmonize Exchange Rule 1308(d) with FINRA Rule 3110(c) so that a Member’s compliance with FINRA Rule 3110(c) shall mean the Member would be also in compliance with Exchange Rule 1308(d). As such, the proposed rule changes would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market system in accordance with Section 6(b)(5) of the Act.103 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule changes are not designed to address any competitive issue but rather to provide greater harmonization among the Exchange and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance for common members and facilitating FINRA’s performance of its regulatory performance. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 103 15 PO 00000 U.S.C. 78f(b)(5). Frm 00091 Fmt 4703 Sfmt 4703 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 104 and Rule 19b– 4(f)(6) 105 thereunder. Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. In addition, the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing.106 A proposed rule change filed under Rule 19b–4(f)(6) 107 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),108 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange stated that this proposed rule change is noncontroversial because it does not present any new or novel issues. In particular, MIAX is harmonizing the Exchange’s supervision rules with those of FINRA, on which they are based and which have been previously approved by the Commission. By conforming the Exchange’s rules to FINRA’s, the proposed rule change would promote the application of consistent regulatory standards with respect to rules that FINRA enforces pursuant to the 17d–2 Agreement. As such, the Exchange believes that the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market 104 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 106 17 CFR 240.19b–4(f)(6)(iii). 107 17 CFR 240.19b–4(f)(6). 108 17 CFR 240.19b–4(f)(6)(iii). 105 17 E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 89, No. 236 / Monday, December 9, 2024 / Notices system in accordance with Exchange Act Section 6(b)(5). Further, the Exchange stated that waiver of the operative delay would be consistent with the protection of investors and the public interest because such waiver would allow the Exchange to immediately harmonize its supervision rule with the FINRA rule on which it is based without delay, thereby eliminating the possibility of a significant regulatory gap between the FINRA and Exchange rules, providing more uniform inspection standards across the securities industry, and helping to avoid confusion for Exchange Members that are also FINRA members. For these reasons, the Commission believes that waiver of the 30-day operative delay for this proposed rule change is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change operative upon filing.109 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 110 of the Act 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: ddrumheller on DSK120RN23PROD with NOTICES1 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– MIAX–2024–44 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. 109 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). 110 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 16:08 Dec 06, 2024 Jkt 265001 97673 All submissions should refer to file number SR–MIAX–2024–44. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–MIAX–2024–44 and should be submitted on or before December 30, 2024. Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matter of the closed meeting will consist of the following topics: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to examinations and enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information, please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Authority: 5 U.S.C. 552b. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.111 Sherry R. Haywood, Assistant Secretary. Dated: December 5, 2024. J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–28769 Filed 12–6–24; 8:45 am] [FR Doc. 2024–28987 Filed 12–5–24; 4:15 pm] BILLING CODE 8011–01–P BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings 2:00 p.m. on Thursday, December 12, 2024. PLACE: The meeting will be held via remote means and/or at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the TIME AND DATE: SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101802; File No. SR– CboeBZX–2024–115] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Fee Schedule Relating to Fee Codes and Volume Tiers December 3, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 1 15 111 17 PO 00000 CFR 200.30–3(a)(12). Frm 00092 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\09DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 09DEN1

Agencies

[Federal Register Volume 89, Number 236 (Monday, December 9, 2024)]
[Notices]
[Pages 97664-97673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28769]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101803; File No. SR-MIAX-2024-44]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 1306 (Branch Offices) and 
Exchange Rule 1308 (Supervision of Accounts) To Harmonize With FINRA 
Rules

December 3, 2024.
    Pursuant to the provisions of 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 November 25, 2024, Miami International 
Securities Exchange, LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. 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.
---------------------------------------------------------------------------

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

    The Exchange proposes to: (i) amend Rule 1306 (Branch Offices) to 
adopt the definition used by Financial Industry Regulatory Authority, 
Inc. (``FINRA'') of Office of Supervisory Jurisdiction (``OSJ''); (ii) 
amend Rule 1308 (Supervision of Accounts) to adopt FINRA's inspection 
requirement for non-branch location; (iii) harmonize Rule 1308 
(Supervision of Accounts) with certain changes by FINRA to FINRA Rule 
3110 to permit eligible Members \3\ to participate in FINRA's remote 
inspections program (``FINRA Pilot Program''); \4\ and (iv) adopt 
FINRA's Residential Supervisory Location (``RSL'') classification.
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ See Securities Exchange Act Release No. 97398 (April 28, 
2023), 88 FR 28620 (May 4, 2023) (``Remote Inspections Pilot Program 
Proposal''); Securities Exchange Act Release No. 98982 (November 17, 
2023), 88 FR 82464 (November 24, 2023) (``Remote Inspections Pilot 
Program Approval Order'') (SR-FINRA-2023-007).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings, at MIAX's principal office, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to (i) amend Rule 1306 to adopt FINRA's 
definition of OSJ; (ii) amend Rule 1308 to adopt FINRA's inspection 
requirement for non-branch location; (iii) harmonize Rule 1308 with 
certain changes by FINRA to FINRA Rule 3110 to permit eligible Members 
to participate in FINRA's Remote Inspections Pilot Program; and (iv) 
adopt FINRA's RSL classification. The proposed changes would harmonize 
the Exchange's office and other location inspection rules with those of 
FINRA and thus promote uniform inspection standards across the 
securities industry resulting in less burdensome and more efficient 
regulatory compliance for common members.\5\ Additionally, the proposed 
changes would allow Members who participate in FINRA's Remote 
Inspections Pilot Program to also satisfy the equivalent internal 
inspections requirements set out in Rule 1308. The

[[Page 97665]]

Exchange notes that Exchange Rules 1306 and 1308 as proposed to be 
amended by this filing, are incorporated by reference into the 
rulebooks of the Exchange's affiliate MIAX PEARL, LLC (``MIAX Pearl''), 
MIAX Emerald, LLC (``MIAX Emerald''), and MIAX Sapphire, LLC (``MIAX 
Sapphire''). As such, the amendment to Exchange Rules 1306 and 1308 
proposed herein will also apply to MIAX Pearl, MIAX Emerald, and MIAX 
Sapphire members.
---------------------------------------------------------------------------

    \5\ Currently, all Exchange Members are also FINRA members.
---------------------------------------------------------------------------

Proposal To Adopt FINRA's Definition of OSJ
    The Exchange proposes to adopt paragraph (j) of Rule 1306 to adopt 
FINRA's definition of OSJ. Currently, Exchange Rule 1306(a) only 
requires Members to file with the Exchange and keep current a list of 
each of its branch offices showing the location of each such office and 
the name of the manager of each such office. FINRA Rule 3110.01 
provides that a member's main office location is required to be 
registered and designated as a branch office or OSJ if it meets the 
definitions of a ``branch office'' or ``office of supervisory 
jurisdiction'' as set forth in FINRA Rule 3110(f). The purpose of the 
proposed change is to harmonize Exchange Rule 1306 with FINRA Rule 
3110.01 to provide that both branch offices and OSJs will be subject to 
the office registration requirements set forth in Exchange Rule 
1306(a). The proposed Exchange Rule 1306(j) is substantively identical 
to FINRA Rule 3110(f)(1). The proposed definition of OSJ defined in 
Rule 1306(j) will read as follows:

    ``Office of Supervisory Jurisdiction'' means any office of a 
member at which any one or more of the following functions take 
place: (1) order execution or market making; (2) structuring of 
public offerings or private placements; (3) maintaining custody of 
customers' funds or securities; (4) final acceptance (approval) of 
new accounts on behalf of the Member; (5) review and endorsement of 
customer orders; (6) final approval of retail communications for use 
by persons associated with the Member, pursuant to FINRA Rule 
2210(b)(1), except for an office that solely conducts final approval 
of research reports; or (7) responsibility for supervising the 
activities of persons associated with the Member at one or more 
other branch offices of the Member.

    The Exchange proposes to add ``offices of supervisory 
jurisdictions'' to Exchange Rule 1306(a) as follows:

    Every Member approved to do options business with the public 
under this Chapter shall file with the Exchange and keep current a 
list of each of its branch offices and offices of supervisory 
jurisdictions showing the location of each such office and the name 
of the manager of each such office.

    Additionally, the Exchange proposes to add ``OSJ'' to Exchange Rule 
1308(d)(1) and its subparagraph (i) to provide that both branch offices 
and OSJs that supervise one or more non-branch locations must be 
inspected no less than once each calendar year. In the event that it 
has been demonstrated to the satisfaction of the Exchange that because 
of proximity, special reporting or supervisory practice, other 
arrangements may satisfy this Rule's requirements for a particular 
branch office or OSJ, the Member does not have inspect such office no 
less than once every calendar year. The proposed Rule 1308(d)(1) is 
substantively identical to FINRA Rule 3110(c)(1)(A). The purpose of the 
proposed change is to harmonize Exchange Rule 1308(d) with FINRA Rule 
3110(c), resulting in less burdensome and more efficient regulatory 
compliance for common members. The proposed rule change would enable 
Exchange Rule 1308 to continue to be incorporated into the agreement 
between the Exchange and FINRA to allocate regulatory responsibility 
for common rules (the ``17d-2 Agreement''), thereby facilitating 
FINRA's performance of its regulatory performance on the 17d-2 
Agreement.\6\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 68363 (December 5, 
2012), 77 FR 73711 (December 11, 2012) (File No. S7-966). The 17d-2 
Agreement includes a certification by the Exchange that states that 
the requirements contained in certain Exchange rules are identical 
to, or substantially similar to, certain FINRA rules that have been 
identified as comparable.
---------------------------------------------------------------------------

Proposal To Adopt FINRA's Inspection Requirement for Non-Branch 
Location
    Next, the Exchange propose to amend Rule 1308(d)(3) to adopt 
FINRA's inspection requirement for non-branch location. Exchange Rule 
1308 sets forth the main requirements for inspections. An inspection of 
an office or location must occur on a designated frequency. The 
periodicity of the required inspection varies depending on the 
classification of the location or the nature of the activities that 
take place. Currently, Exchange Rule 1308(d) provides that each branch 
office that supervises one or more non-branch locations must be 
inspected no less often than once each calendar year; \7\ and every 
branch office, without exception, must be inspected at least once every 
three calendar-years.\8\ The Exchange proposes to amend Rule 1308(d)(3) 
to provide that each non-branch office should be inspected on a regular 
periodic schedule. The Member shall consider the nature and complexity 
of the securities activities for which the location is responsible and 
the nature and extent of contact with customers when establishing the 
schedule. In addition, the Member should have written supervisory and 
inspection procedures to set forth the schedule and an explanation 
regarding how the Member determined the frequency of the examination. 
FINRA Rule 3110(c) requires Members to inspect every branch office that 
supervises one or more non-branch locations at least annually, every 
branch office that does not supervise one or more non-branch locations 
at least every three years, and every non-branch location on a regular 
periodic schedule. The proposed Exchange Rule 1308(d)(3) is 
substantively identical to FINRA Rule 3110(c)(1)(C). The purpose of the 
proposed change is to harmonize Exchange Rule 1308(d) with FINRA Rule 
3110(c), resulting in less burdensome and more efficient regulatory 
compliance for common members and facilitating FINRA's performance of 
its regulatory performance on the 17d-2 Agreement.\9\ The proposed 
Exchange Rule 1308(d)(3) will read as follows:
---------------------------------------------------------------------------

    \7\ See Exchange Rule 1308(d)(1).
    \8\ See Exchange Rule 1308(d)(2).
    \9\ See supra note 6.

    Each Member shall inspect on a regular periodic schedule every 
non-branch location. In establishing such schedule, the Member shall 
consider the nature and complexity of the securities activities for 
which the location is responsible and the nature and extent of 
contact with customers. The Member's written supervisory and 
inspection procedures shall set forth the schedule and an 
explanation regarding how the Member determined the frequency of the 
---------------------------------------------------------------------------
examination.

    The Exchange proposes to amend the hierarchical headings in 
Exchange Rule 1308 so that subparagraphs (d)(3)-(5) will be renumbered 
as (d)(4)-(6). In addition, the Exchange proposes to amend proposed 
renumbered subparagraph (d)(6) of Rule 1308 to replace certain internal 
cross references to other paragraphs of Rule 1308 in light of the 
hierarchical heading changes described above. In particular, the 
Exchange propose to amend the cross references contained in proposed 
renumbered subparagraph (d)(6) of Rule 1308 that are to subparagraphs 
(d)(4) and (d)(5), to now to be subparagraphs (d)(5) and (d)(6), 
respectively. The Exchange proposes to add the reference to 
subparagraph (d)(3) in the sentence describing Member complying with 
the requirements of the New York Stock Exchange or FINRA in proposed 
renumbered Rule 1308(d)(4). With the proposed changes, proposed

[[Page 97666]]

renumbered Rule 1308(d)(4) will provide that a Member that complies 
with requirements of the New York Stock Exchange or FINRA that are 
substantially similar to the requirements in paragraphs (d)(1), (d)(2), 
and (d)(3) of Rule 1308 as well as other related requirements in 
paragraphs (e) and (f) of Rule 1308 will be deemed to have met 
inspection requirements set forth in Rule 1308.
Proposal To Adopt FINRA Remote Inspections Pilot Program
    The Exchange proposes to adopt subparagraph (d)(7) of Rule 1308, 
which would provide that any Member that participates in the FINRA 
Remote Inspections Pilot Program,\10\ thereby satisfying the internal 
inspections requirements in FINRA Rule 3110(c), would also satisfy the 
equivalent annual branch office inspections requirements in Exchange 
Rule 1308(d). This proposed rule change would supplant Rule 1308(d)(5) 
(to be renumbered as Rule 1308(d)(6)), which allowed Members to fulfill 
any calendar year 2024 internal inspection obligations set forth in 
Rule 1308(d)(5) (to be renumbered as Rule 1308(d)(6)) by conducting 
remote inspections of the applicable branch offices \11\ or non-branch 
locations.\12\ This temporary relief, which was analogous to relief 
that FINRA provided for, automatically sunset on June 30, 2024.\13\ As 
described below, adding proposed subparagraph (d)(7) of Rule 1308 would 
harmonize the Exchange's annual branch office inspections obligations 
for its Members with FINRA's comparable obligations for its members, 
thereby avoiding confusion to Members with respect to the applicability 
of participation in the FINRA Remote Inspections Pilot Program and 
compliance with Exchange Rule 1308. Additionally, because the proposed 
subparagraph (d)(7) of Rule 1308 would incorporate by reference FINRA 
Rule 3110.18, this rule change would enable Exchange Rule 1308 to 
continue to be incorporated into the 17d-2 Agreement.\14\
---------------------------------------------------------------------------

    \10\ See FINRA Rule 3110.18.
    \11\ See Exchange Rule 1306(c).
    \12\ See Exchange Rule 1308(d)(5) (to be renumbered as Rule 
1308(d)(6)) (Temporary Relief to Allow Remote Inspections for 
Calendar Years 2021, 2022, 2023, and Through the Earlier of the 
Effective Date of the Remote Inspections Pilot Program or June 30, 
2024).
    \13\ See Id. The equivalent temporary relief offered by FINRA 
also sunset on June 30, 2024. See FINRA Rule 3110.17
    \14\ See supra note 6.
---------------------------------------------------------------------------

Standards for Supervision of Remote Offices
    The responsibility of firms to supervise their associated persons 
is a critical component of broker-dealer regulation.\15\ Members must 
supervise all of their associated persons, regardless of their 
location, compensation or employment arrangement, or registration 
status. Exchange Rule 1308(d), which is substantially identical to 
FINRA Rule 3110(c), requires any Member, regardless of size or type, to 
have a supervisory system for the activities of its associated persons 
that is reasonably designed to achieve compliance with the applicable 
securities laws and regulations and Exchange rules, and that sets forth 
the minimum requirements for such supervisory system.\16\ The internal 
inspection obligation under Exchange Rule 1308(d) and FINRA Rule 
3110(c) is one component of such system.
---------------------------------------------------------------------------

    \15\ See generally SEC Division of Market Regulation, Staff 
Legal Bulletin No. 17: Remote Office Supervision (March 19, 2004) 
(``SLB 17'') (SEC guidance on remote office supervision), available 
at https://www.sec.gov/interps/legal/mrslb17.htm; and Regulatory 
Notice 11-54 (November 2011) (``Notice 11-54'') (joint SEC and FINRA 
guidance on effective policies and procedures for broker-dealer 
branch inspections).
    \16\ See Exchange Rule 1308(d).
---------------------------------------------------------------------------

    Exchange Rule 1308(d), as amended herein, sets forth three main 
requirements for inspections. First, an inspection of an office or 
location must occur on a designated frequency. The periodicity of the 
required inspection varies depending on the classification of the 
location or the nature of the activities that take place: each branch 
office that supervises one or more non-branch locations must be 
inspected no less often than once each calendar year; \17\ and every 
branch office, without exception, must be inspected at least once every 
three calendar-years.\18\ Second, written reports reflecting the 
results of such inspections are to be maintained with the Member for 
the longer of three years or until the next branch office 
inspection.\19\ Third, to prevent compromising the effectiveness of 
inspections due to conflicts of interest, the rule requires a Member to 
ensure that the person conducting the inspection is independent of the 
direct supervision and control of the branch office in question (i.e., 
not the branch office manager, or any person who directly or indirectly 
reports to such manager, or any person to whom such manager directly 
reports).\20\
---------------------------------------------------------------------------

    \17\ See Exchange Rule 1308(d)(1).
    \18\ See Exchange Rule 1308(d)(2).
    \19\ Id.
    \20\ Id.
---------------------------------------------------------------------------

    Further, Rule 1306(i) sets out factors that should be considered 
when developing risk-based sampling techniques to determine the 
appropriateness of on-site for cause reviews of selected residences and 
other remote locations shall include, but not be limited to, the 
following: (1) the firm's size; (2) the firm's organizational 
structure; (3) the scope of business activities; (4) the number and 
location of offices; (5) the number of associated persons assigned to a 
location; (6) the nature and complexity of products and services 
offered; (7) the volume of business done; (8) whether the location has 
a Series 9/10-qualified person on-site; (9) the disciplinary history of 
the registered persons or associated persons, including a review of 
such person's customer complaints and Forms U4 and U5; and (10) the 
nature and extent of a registered person's or associated person's 
outside business activities, whether or not related to the securities 
business. Rule 1306(h) further states that the written supervisory 
procedures pertaining to supervision of sales activities conducted at 
the associated person's primary residence and other remote locations 
must be designed to assure compliance with applicable securities laws 
and regulations and with Exchange Rules.
    Notably, all of the above requirements about supervision and 
inspections of branch offices reflected a business environment in which 
Members conducted in-person inspections of all of their offices.\21\
---------------------------------------------------------------------------

    \21\ See SLB 17 and Notice 11-54, supra note 15.
---------------------------------------------------------------------------

FINRA's Recent Attempts To Change the In-Person Inspection Requirements 
of Offices of Supervisory Jurisdiction, Branch Offices, and Non-Branch 
Locations
    In the Remote Inspections Pilot Program Proposal, FINRA described 
its efforts during the past several years to offer its members the 
option of remotely conducting internal inspections of their OSJs, 
branch offices, and non-branch locations.\22\ As stated therein, FINRA 
believed that as more recordkeeping moved from paper to electronic 
records, and as more meetings were conducted virtually using platforms 
such as Zoom and WebEx, the burden on FINRA members of conducting in-
person inspections for all their remote office locations became harder 
to justify.\23\
---------------------------------------------------------------------------

    \22\ See Remote Inspections Pilot Program Proposal, supra note 
4.
    \23\ See Id.
---------------------------------------------------------------------------

    Thus, when the COVID-19 pandemic required many securities industry 
professionals to work from home,

[[Page 97667]]

FINRA implemented several forms of regulatory relief to its members, 
including introducing FINRA Rule 3110.17, which the Exchange also 
introduced as subparagraph (d)(5) of Exchange Rule 1308 (to be 
renumbered as Rule 1308(d)(6)), to permit remote internal inspections 
of their branch offices.
    The pandemic accelerated the industry's adoption of a broad remote 
work environment and the Exchange recognizes that the pandemic has 
profoundly changed attitudes on where work can occur. As a result of 
this change many firms have adopted, in varying scale, hybrid work 
models involving personnel who are working at least part time from 
alternative work locations (e.g., private residences). As part of an 
effort to modernize its rules to reflect evolving technologies and 
business models, in April 2023, FINRA filed the Remote Inspections 
Pilot Program Proposal with the Securities and Exchange Commission 
(``SEC'') to establish a voluntary, three-year remote inspections pilot 
program that would allow eligible firms to conduct inspections of all 
or some offices or locations, remotely, subject to the specified terms 
therein.\24\ The SEC approved the FINRA Remote Inspection Pilot Program 
Proposal in November 2023,\25\ and FINRA commenced the pilot program on 
July 1, 2024.\26\
---------------------------------------------------------------------------

    \24\ See Id.
    \25\ See Remote Inspections Pilot Program Approval Order, supra 
note 4.
    \26\ See FINRA Regulatory Notice 24-02.
---------------------------------------------------------------------------

FINRA's Remote Inspections Pilot Program
    FINRA's Remote Inspection Pilot Program builds on the terms of the 
temporary relief in FINRA Rule 3110.17, while requiring members to 
provide even more information about their remote inspections to allow 
FINRA to assess the overall impact and effectiveness of remote 
inspections.\27\ The pilot program is designed to provide broader 
systemized information to supplement the information obtained through 
the FINRA examination process in an environment where offices and 
locations were closed. The information firms would be required to 
produce as a pilot program participant will help FINRA more accurately 
assess the overall impact and effectiveness of remote inspections.\28\
---------------------------------------------------------------------------

    \27\ See Remote Inspections Pilot Program Proposal, supra note 
4.
    \28\ See Id.
---------------------------------------------------------------------------

    FINRA's Remote Inspection Pilot Program includes, among other 
things, the following requirements for participating firms:
     Risk Assessment. Prior to electing a remote inspection for 
an office or location, participating firms must develop a reasonable 
risk-based approach to using remote inspections and conduct and 
document a risk assessment for that office or location.\29\
---------------------------------------------------------------------------

    \29\ See FINRA Rule 3110.18(b).
---------------------------------------------------------------------------

     Written Supervisory Procedures for Remote Inspections. 
Participating firms must establish, maintain, and enforce written 
procedures that are reasonably designed for conducting remote 
inspections and reasonably designed to achieve compliance with 
applicable securities laws and regulations.\30\
---------------------------------------------------------------------------

    \30\ See FINRA Rule 3110.18(c).
---------------------------------------------------------------------------

     Effective Supervisory System. Participating firms must 
have an effective supervisory system for remote inspections that will 
be held to the same standards of review (set forth under FINRA Rule 
3110.12). Where a member's remote inspection of an office or location 
identifies any ``red flags,'' the member may need to impose additional 
supervisory procedures for that office or location or may need to 
provide for more frequent monitoring of that office or location, 
including potentially a subsequent on-site visit on an announced or 
unannounced basis.\31\
---------------------------------------------------------------------------

    \31\ See FINRA Rule 3110.18(d).
---------------------------------------------------------------------------

     Documentation Requirement. Participating firms must 
maintain and preserve a centralized record for each of the Pilot Years 
specified in the pilot program that separately identifies: (1) all 
offices or locations that were inspected remotely; and (2) any offices 
or locations for which the member determined to impose additional 
supervisory procedures or more frequent monitoring, as provided in 
FINRA Rule 3110.18(d). A member's documentation of the results of a 
remote inspection for an office or location must identify any 
additional supervisory procedures or more frequent monitoring for that 
office or location that were imposed as a result of the remote 
inspection, including whether an on-site inspection was conducted at 
such office or location.\32\
---------------------------------------------------------------------------

    \32\ See FINRA Rule 3110.18(e).
---------------------------------------------------------------------------

     Firm Level Requirements. Participating firms must meet 
certain firm- level eligibility requirements to participate in the 
program set forth in FINRA Rule 3110.18(f)(1). For example, a firm 
cannot participate if it is designated as: (i) Restricted Firm under 
FINRA Rule 4111 or (ii) a Taping Firm under FINRA Rule 3170. 
Additionally, firms with suspended or new (effective less than 12 
months) FINRA memberships or that have been found by the SEC or FINRA 
to have violated FINRA Rule 3110(c) are ineligible to participate. 
Participating firms must also comply with firm- level conditions to 
participate in the program. For example, a firm must have a 
recordkeeping system that keeps records current and promptly 
accessible, and that does not maintain physical or electronic records 
at the location subject to remote inspection. Additionally, 
participating firms must have firm-wide tools such as electronic 
recordkeeping systems, system security tools such as secure network 
connections and effective cybersecurity protocols, and tools 
specifically applied to each office or location based on the activities 
of associated persons, products offered, or any restrictions on the 
activity of the office or location.\33\
---------------------------------------------------------------------------

    \33\ See FINRA Rule 3110.18(f).
---------------------------------------------------------------------------

     Location Level Requirements. Participating firms must 
exclude from participating in the program any locations that do not 
meet the location level eligibility criteria set forth in FINRA Rule 
3110.18(g)(1) (e.g., the location includes: (i) persons subject to a 
disciplinary action, a statutory disqualification, or a mandated 
heightened supervisory plan; (ii) persons engaged in proprietary 
trading; or (iii) the handling of customer funds or securities). 
Additionally, eligible locations must use the firm's electronic 
communication system and may not maintain any original copies of books 
or records at the location.\34\
---------------------------------------------------------------------------

    \34\ See FINRA Rule 3110.18(g).
---------------------------------------------------------------------------

     Data and Information Collection Requirement. Participating 
firms must collect and on a quarterly basis produce to FINRA data 
consisting of separate counts for OSJs, supervisory branch offices, 
non-supervisory branch offices, and non-branch locations. This data 
must include information about the number of remote inspections 
conducted and any significant findings. Firms shall establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with the data collection and transmission 
requirements.\35\
---------------------------------------------------------------------------

    \35\ See FINRA Rule 3110.18(h).
---------------------------------------------------------------------------

     Election to Participate in Remote Inspections Pilot 
Program. Participating firms must opt-in to the pilot program in a 
manner specified by FINRA.\36\
---------------------------------------------------------------------------

    \36\ See FINRA Rule 3110.18(i).
---------------------------------------------------------------------------

     Failure to Satisfy Conditions and Determination of 
Ineligibility. Participating firms that fail to satisfy terms of the 
Remote Inspections Pilot Program will be ineligible to participate in 
the pilot program and return to

[[Page 97668]]

conducting only on-site inspections.\37\ FINRA may also make a 
determination to revoke a member's eligibility to participate if FINRA 
finds it to be in the public interest.\38\
---------------------------------------------------------------------------

    \37\ See FINRA Rule 3110.18(j).
    \38\ See FINRA Rule 3110.18(k).
---------------------------------------------------------------------------

     Definitions of Pilot Year periods. Includes clarifications 
that Pilot Year 1 is the second half of 2024, and Pilot Year 4 is the 
first half of 2027.\39\
---------------------------------------------------------------------------

    \39\ See FINRA Rule 3110.18(l).
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to adopt subparagraph (d)(7) of Exchange 
Rule 1308. This proposed new paragraph reads as follows:

    Members that are obligated to conduct an inspection of an office 
of supervisory jurisdiction, branch office or non-branch location 
pursuant to, as applicable, Rule 1308(d)(1), (2), and (3) may 
satisfy such obligation by participating in the FINRA Remote 
Inspections Pilot Program, as set forth in FINRA Rule 3110.18. The 
FINRA Remote Inspections Pilot Program shall cover required 
inspections of such offices or locations for a period of three years 
starting on [effective date] (``pilot period''), and such pilot 
period shall expire on July 1, 2027. If the pilot period is not 
extended, this subparagraph will automatically sunset on July 1, 
2027. Members will not be able to participate in the FINRA Remote 
Inspections Pilot Program after such date.\40\
---------------------------------------------------------------------------

    \40\ Proposed Exchange Rule 1308(d)(6).

    As stated in proposed new Exchange Rule 1308(d)(7), any Member that 
participates in the FINRA Remote Inspections Pilot Program, thereby 
satisfying the annual branch office inspections requirements in FINRA 
Rule 3110(c), will satisfy the equivalent annual branch office 
inspections requirements in Exchange Rule 1308(d).
    The Exchange is not proposing to add the entire FINRA Remote 
Inspections Pilot Program to its rules, because it would be 
unnecessarily duplicative and burdensome for Members to submit the data 
and information required as part of the Remote Inspections Pilot 
Program to both the Exchange and FINRA.\41\ The Exchange understands 
that adopting proposed paragraph (d)(7) of Exchange Rule 1308 would 
update Rule 1308 so that it remains substantially similar to FINRA Rule 
3110, such that they remain common rules subject to the 17d-2 
Agreement.\42\ As a result, regulatory responsibility for Exchange Rule 
1308(d) would continue to be allocated to FINRA.
---------------------------------------------------------------------------

    \41\ Pursuant to this proposed rule change, Members will be 
required to collect and on a quarterly basis produce to FINRA data 
regarding its participation in the Remote Inspections Pilot Program. 
See FINRA Rule 3110.18(h). But Members will not be required to 
produce that information directly to the Exchange.
    \42\ See supra note 6.
---------------------------------------------------------------------------

    As noted above, all Members were temporarily eligible to conduct 
remote office inspections until June 30, 2024. This proposed rule 
change would allow those Members who have enrolled in FINRA's Remote 
Inspections Pilot Program to continue to use remote inspections as part 
of an effective supervisory system.\43\ The Exchange believes this 
Remote Inspections Pilot Program is a reasonable alternative for firms 
to fulfill their Rule 1308(d) obligations while permitting FINRA to 
collect data as the regulatory authority in this area under the 17d-2 
Agreement to assess the efficacy and long-term viability of a permanent 
remote office inspections program. The Exchange emphasizes that the 
inspection requirement is one aspect of a firm's overall supervisory 
system, and that the inspection, whether done in accordance with the 
FINRA Remote Inspections Pilot Program, or on-site, would be held to 
the existing standards of review under Exchange Rule 1308(d).\44\
---------------------------------------------------------------------------

    \43\ The Exchange notes that any inspections conducted by its 
Members in the brief period between July 1, 2024 and the effective 
date of this filing will not satisfy Exchange Rule 1308(d), but 
believes this will not be an issue for its Members because the 
remote inspections process outlined in the pilot program is an 
ongoing process that cannot be completed in the few days between the 
start of the FINRA's pilot program and the effectiveness of this 
rule filing.
    \44\ Those standards provide, in part that based on the factors 
set forth under Exchange Rule 1308(d)(6)(ii), Members ``may need to 
provide for more frequent monitoring or oversight of that office or 
location.''
---------------------------------------------------------------------------

Adopt FINRA's RSL Classification
    The Exchange proposes to adopt paragraph (d)(8) of Rule 1308, which 
would allow a location that is the private residence of a person 
associated with a Member where supervisory activities are conducted, 
including those described in proposed Rule 1306(j)(4) through (7) or 
Rule 1306(c)(2), that satisfies the conditions for designation as RSL 
set forth in FINRA Rule 3110.19 to also be considered a non-branch 
location (i.e., an unregistered office) for those activities under the 
Exchange rules. Without this proposed rule change, any private 
residence at which a person associated with a member conducts 
supervisory activities is subject to registration, an annual inspection 
and, in some cases, additional licensing requirements.\45\ As described 
below, adding proposed paragraph (d)(8) of Rule 1308 would harmonize 
the Exchange's internal inspections obligations for its Members with 
FINRA's comparable obligations for its members, thereby avoiding 
confusion to Members with respect to the applicability of FINRA's new 
RSL designation with respect to compliance with Rule 1308(d).\46\ 
Additionally, because proposed paragraph (d)(8) of Rule 1308 would 
incorporate by reference FINRA Rule 3110.19, this rule change would 
enable Exchange Rule 1308 to continue to be incorporated into the 17d-2 
agreement.\47\
---------------------------------------------------------------------------

    \45\ See Exchange Rules 1306(d) and 1308(d)(1).
    \46\ The Exchange notes that all Members are currently FINRA 
members.
    \47\ See supra note 6.
---------------------------------------------------------------------------

Background
    Early in 2020, the COVID-19 pandemic prompted FINRA to provide 
temporary relief to member firms from certain regulatory requirements 
to address the public health crisis.\48\ As mentioned above, FINRA 
subsequently adopted temporary relief to allow remote inspections of an 
OSJ, branch office, or non-branch location for calendar years 2020 and 
2021; \49\ FINRA extended the temporary relief several times to include 
calendar years 2022, 2023, and the first half of 2024.\50\ The 
Exchange, following FINRA, offered its Members the same temporary 
relief to allow remote inspections of OSJs, branch offices, and non-
branch locations for calendar years 2021, 2022, 2023, and until June 
30, 2024.\51\ FINRA

[[Page 97669]]

replaced the temporary remote inspections relief with the Remote 
Inspections Pilot Program \52\ that impacts the internal inspections 
requirements of FINRA Rule 3110(c); the Exchange proposes to amend its 
supervision rules such that any Member that participates in the FINRA 
pilot shall be deemed to satisfy the equivalent internal inspection 
requirements in Exchange Rule 1308(d) as above.
---------------------------------------------------------------------------

    \48\ Among the temporary regulatory relief provided, FINRA 
adopted relief pertaining to branch office registration requirements 
through Form BR (Uniform Branch Office Registration Form) and FINRA 
Rule 3110(c) inspection requirements. Specifically, FINRA 
temporarily suspended the requirement for member firms to submit 
branch office applications on Form BR for any newly opened temporary 
office locations or space-sharing arrangements established as a 
result of the pandemic. See Regulatory Notice 20-08 (March 2020). 
With respect to inspection obligations, FINRA adopted temporary Rule 
3110.16 that provided additional time for member firms to complete 
their calendar year 2020 inspection obligations. See Securities 
Exchange Act Release No. 89188 (June 30, 2020), 85 FR 40713 (July 7, 
2020) (SR-FINRA-2020-019).
    \49\ See Securities Exchange Act Release No. 90454 (November 18, 
2020), 85 FR 75097 (November 24, 2020) (SR-FINRA-2020-040).
    \50\ See Securities Exchange Act Release No. 96241 (November 4, 
2022), 87 FR 67969 (November 10, 2022) (SR-FINRA-2022-030); 
Securities Exchange Act Release No. 93002 (September 15, 2021), 86 
FR 52508 (September 21, 2021) (SR-FINRA-2021-023); Securities 
Exchange Act Release No. 94018 (January 20, 2022), 87 FR 4072 
(January 26, 2022) (SR-FINRA-2022-001); and Securities Exchange Act 
Release No. 98560 (September 27, 2023), 88 FR 68258 (October 3, 
2023) (SR-FINRA-2023-012).
    \51\ See Securities Exchange Act Release Nos. 90937 (January 15, 
2021), 86 FR 6944 (January 25, 2021) (SR-MIAX-2021-01) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Exchange Rule 1308, Supervision of Accounts, To Adopt 
Temporary Rules To Extend the Time by Which Members Must Complete 
Their Branch Office Inspections for the Calendar Year 2020 and To 
Provide Temporary Remote Inspection Relief for Their Office 
Inspections for Calendar Years 2020 and 2021); 94251 (February 15, 
2022), 87 FR 9764 (February 22, 2022) (SR-MIAX-2022-09) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change by 
Miami International Securities Exchange, LLC To Amend Exchange Rule 
1308, Supervision of Accounts); 96867 (February 9, 2023), 88 FR 9919 
(February 15, 2023) (SR-MIAX-2023-04) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 1308, Supervision of Accounts); and 99548 (February 15, 2024), 
89 FR 13386 (February 22, 2024) (SR-MIAX-2024-10) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend 
Exchange Rule1308 To Extend the Temporary Remote Inspection Relief 
for Members Through June 30, 2024).
    \52\ See FINRA Rule 3110.18.
---------------------------------------------------------------------------

    In response to the pandemic, many private and government employers 
closed their offices and their employees continued with their work from 
alternative locations such as private residences. The Exchange, like 
FINRA, believes this model will endure, irrespective of the state of 
the pandemic. The pandemic accelerated reliance on technological 
advances in surveillance and monitoring capabilities and prompted 
significant changes in lifestyles and work habits, including the 
growing expectation for workplace flexibility. Moreover, the technology 
advancements that facilitated the transition to working outside the 
conventional office setting on a broad scale have not only effected a 
profound change in lifestyle and workplace practices for member firms, 
but provided SROs such as FINRA and the Exchange an opportunity to 
consider aspects of their supervision rules that may benefit from 
modernization.\53\ As such, the Exchange, like FINRA, believes measured 
changes to its regulatory approach would allow firms to effectively and 
more efficiently carry out their supervisory responsibilities to review 
the activities of each office or location while preserving investor 
protections.
---------------------------------------------------------------------------

    \53\ See Securities Exchange Act Release No. 97237 (March 31, 
2023), 88 FR 20568 n. 8 (April 6, 2023) (SR-FINRA-2023-006) (``FINRA 
RSL Proposal'') (describing FINRA's ``practice of periodically 
reviewing its rules to ensure they continue to promote their 
intended investor protection objectives in a manner that is 
effective and efficient, without imposing undue burdens, 
particularly in light of technological, industry and market 
changes.'')
---------------------------------------------------------------------------

Requirements To Register and Inspect Offices
    Exchange Rule 1308 requires a Member, regardless of size or type, 
to have a supervisory system for the activities of its associated 
persons. Proposed Exchange Rule 1306(a) would set forth the minimum 
requirements of a Member's supervisory system that includes registering 
a location as an OSJ or branch office that meets the definitions under 
paragraph (c) and proposed paragraph (j) of Exchange Rule 1306. 
Proposed Exchange Rule 1308(d) would require Members to inspect all 
offices and locations. The proposed rule would categorize offices or 
locations as an OSJ or supervisory branch office, a non-supervisory 
branch office, or a non-branch location.\54\ The requirements to 
register, inspect and have a principal on-site vary based on the 
categorization. Specifically, proposed Rule 1306(a) would require the 
registration as an OSJ or branch office of each location, that meets 
their respective definition under paragraph (c) and proposed paragraph 
(j) of Exchange Rule 1306, as described in more detail below.\55\
---------------------------------------------------------------------------

    \54\ See proposed Exchange Rules 1308(d)(1), (2), and proposed 
paragraph (3).
    \55\ See Exchange Rule 1306(a).
---------------------------------------------------------------------------

    An OSJ is a type of branch office. The Exchange defines a ``branch 
office'' as ``any location where one or more associated persons of a 
Member regularly conduct the business of effecting any transactions in, 
or inducing or attempting to induce the purchase or sale of any 
security, or is held out as such[.]'' \56\ In addition, any location 
that is responsible for supervising the activities of persons 
associated with a Member at one or more non-branch locations of such 
Member is considered to be a branch office.\57\ A location registered 
as a branch office must file with the Exchange and keep current a list 
of each of its branch offices showing the location of each such office 
and the name of the manager of each such office,\58\ and is subject to 
an inspection at least every three years, unless it is a supervisory 
branch office in which case it is subject to at least an annual 
inspection.\59\
---------------------------------------------------------------------------

    \56\ See Exchange Rule 1306(c).
    \57\ See Exchange Rule 1306(d).
    \58\ See Exchange Rule 1306(a).
    \59\ See proposed Exchange Rules 1308(d)(1) and (2).
---------------------------------------------------------------------------

    Depending upon the functions occurring at a branch office, it may 
be further classified as an OSJ. As described above, proposed paragraph 
(j) of Rule 1306 would define as any office of a member at which any 
one or more of the following functions take place: (1) order execution 
or market making; (2) structuring of public offerings or private 
placements; (3) maintaining custody of customers' funds or securities; 
(4) final acceptance (approval) of new accounts on behalf of the 
Member; (5) review and endorsement of customer orders; (6) final 
approval of retail communications for use by persons associated with 
the Member, pursuant to FINRA Rule 2210(b)(1), except for an office 
that solely conducts final approval of research reports; or (7) 
responsibility for supervising the activities of persons associated 
with the Member at one or more other branch offices of the Member.\60\ 
Under the proposed rule change, each OSJ would need to be inspected at 
least annually.\61\
---------------------------------------------------------------------------

    \60\ See proposed Exchange Rules 1306 (j)(1)-(7).
    \61\ See proposed Exchange Rule 1308(d)(1).
---------------------------------------------------------------------------

    However, subject to specified conditions, an office or location may 
be deemed a ``non-branch location,'' and excluded from registration as 
a branch office. Currently, Exchange Rule 1306(c) sets forth seven 
exclusions--often referred to as unregistered offices or non-branch 
locations--of which two pertain to residential locations.\62\ One such 
exclusion appears under Exchange Rule 1306(c)(2) and exempts from 
registration as a branch office an associated person's primary 
residence subject to the following express conditions: (1) only one 
associated person, or multiple associated persons who reside at that 
location and are members of the same immediate family, conduct business 
at the location; (2) the location is not held out to the public as an 
office and the associated person does not meet with customers at the 
location; (3) neither customer funds nor securities are handled at that 
location; (4) the associated person is assigned to a

[[Page 97670]]

designated branch office, and such designated branch office is 
reflected on all business cards, stationery, retail communications and 
other communications to the public by such associated person; (5) the 
associated person's correspondence and communications with the public 
are subject to all supervisory provisions of the Exchange's Rules; (6) 
electronic communications (e.g., email) are made through the Member's 
electronic system; (7) all orders are entered through the designated 
branch office or an electronic system established by the Member that is 
reviewable at the branch office; (8) written supervisory procedures 
pertaining to supervision of sales activities conducted at the 
residence are maintained by the Member; and (9) a list of the residence 
locations is maintained by the Member (``primary residence 
exclusion'').\63\ The second exclusion that pertains to a residential 
location appears under Rule 1306(c)(3) is any location, other than a 
primary residence, that is used for securities business for less than 
30 business days in any one calendar year, provided that the Member 
complies with the provisions of (ii) through (viii) of Exchange Rule 
1306(c) (2) (``non-primary residence exclusion'').\64\ In general, the 
non-primary residence exclusion typically refers to a vacation or 
second home.\65\ Under the proposed rule change, a non-branch location 
would need to be inspected on a periodic schedule, presumed to be at 
least every three years.\66\
---------------------------------------------------------------------------

    \62\ See generally Rule 1306(c)(1) and Rule 1306(c)(4) (7) 
which, in addition to the primary residence and the non-primary 
residence exclusions that are further described, excludes the 
following from the definition of ``branch office'': (1) any location 
that is established solely for customer service or back office type 
functions where no sales activities are conducted and that is not 
held out to the public as a branch office; (2) any office of 
convenience, where associated persons occasionally and exclusively 
by appointment meet with customers, which is not held out to the 
public as an office; (3) any location that is used primarily to 
engage in non-securities activities and from which the associated 
person(s) effects no more than 25 securities transactions in any one 
calendar year; provided that any retail communication identifying 
such location also sets forth the address and telephone number of 
the location from which the associated person(s) conducting business 
at the non-branch locations are directly supervised; (4) the Floor 
of a registered national securities exchange where a member conducts 
a direct access business with public customers; or (5) a temporary 
location established in response to the implementation of a business 
continuity plan.
    \63\ See Exchange Rule 1306(c)(2)(i)-(ix). The primary residence 
exclusion is also set forth in FINRA Rule 3110(f)(2)(A)(ii).
    \64\ See Exchange Rule 1306(c)(3).
    \65\ See NASD [FINRA] Notice to Members 06-12 (March 2006).
    \66\ See proposed Exchange Rule 1308(d)(3).
---------------------------------------------------------------------------

    Notwithstanding either of these two residential exclusions or the 
other exclusions listed under Exchange Rule 1306(c)(1),\67\ a primary 
or non-primary residence location that is responsible for either the 
supervisory activities set forth in the OSJ definition or for 
supervising the activities of persons associated with the Member at one 
or more non-branch locations of the Member is considered an OSJ or 
(supervisory) branch office, respectively.\68\ Consequently, such 
residential supervisory offices would be subject to registration, an 
annual inspection and, in some cases, additional licensing 
requirements.\69\
---------------------------------------------------------------------------

    \67\ See generally Exchange Rule 1306(c)(1) and Exchange Rules 
1306(c)(4)-(7).
    \68\ See proposed Exchange Rules 1306(j)(4)-(7).
    \69\ See proposed Exchange Rule 1308(d)(1) and Exchange Rule 
1306(d).
---------------------------------------------------------------------------

FINRA Residential Supervisory Location Rule
    Effective June 1, 2024, FINRA implemented a rule change that 
establishes a new RSL designation for a private residence at which an 
associated person engages in specified supervisory activities, subject 
to specified investor protection safeguards and limitations.\70\ This 
new non-branch location designation targets the subset of residential 
locations that have many of the attributes contained in the primary 
residence exclusion, but must be registered as an OSJ or branch office 
because of the supervisory functions taking place there.
---------------------------------------------------------------------------

    \70\ See FINRA Regulatory Notice 24-02.
---------------------------------------------------------------------------

    As described in the FINRA RSL Proposal,\71\ the definition of an 
RSL is based largely on several existing aspects of FINRA Rule 3110(f) 
(and therefore on the functionally identical to Exchange Rule 1306). In 
particular, the RSL definition incorporates the existing supervisory 
functions appearing in the OSJ definition (FINRA Rule 3110(f)(1)) and 
branch office definition (FINRA Rule 3110(f)(2)(A)) with the existing 
residential exclusions set forth in the branch office definition to 
classify an RSL as a non-branch location. Under current Exchange rules, 
a private residence at which these supervisory functions occur must be 
registered as a branch office under Exchange Rule 1306(d), and 
inspected at least annually under proposed Exchange Rule 1308(d)(1). By 
treating such location as a non-branch location, the private residence 
would become subject to inspections on a regular periodic schedule 
under proposed Exchange Rule 1308(d)(3).\72\
---------------------------------------------------------------------------

    \71\ See Securities Exchange Act Release No. 97237 (March 31, 
2023), 88 FR 20568 n. 8 (April 6, 2023) (SR-FINRA-2023-006) (``FINRA 
RSL Proposal'').
    \72\ See proposed Exchange Rule 1308(d)(3).
---------------------------------------------------------------------------

    FINRA Rule 3110.19 incorporates some existing safeguards and 
limitations members must already satisfy to rely on the primary 
residence exclusion.\73\ As described in the FINRA RSL Proposal, FINRA 
intends for the terms underlying the RSL designation to be interpreted 
consistently with their meaning in FINRA Rule 3110(f) and existing 
related guidance.\74\ The requirements for designation of a location as 
an RSL, which are set forth in FINRA Rule 3110.19, include the 
following key elements:
---------------------------------------------------------------------------

    \73\ See FINRA Rule 3110(f)(2)(A)(ii)a., b., c., d., e., f., and 
i.
    \74\ See, e.g., NASD [FINRA] Notice to Members 06-12 (March 
2006).
---------------------------------------------------------------------------

     A location where supervisory activities are conducted 
shall be considered for those activities a non-branch location provided 
that: \75\
---------------------------------------------------------------------------

    \75\ See FINRA Rule 3110.19(a).
---------------------------------------------------------------------------

    [cir] only one associated person (or members of the same immediate 
family) may conduct business at the location; \76\
---------------------------------------------------------------------------

    \76\ See FINRA Rule 3110.19(a)(1).
---------------------------------------------------------------------------

    [cir] the location is not held out to the public as an office: \77\
---------------------------------------------------------------------------

    \77\ See FINRA Rule 3110.19(a)(2).
---------------------------------------------------------------------------

    [cir] the associated person does not meet with customers or 
prospective customers at the location; \78\
---------------------------------------------------------------------------

    \78\ See FINRA Rule 3110.19(a)(3).
---------------------------------------------------------------------------

    [cir] any sales activity that takes place at the location complies 
with the conditions set forth under FINRA Rule 3110(f)(2)(A)(ii) (the 
primary residence exclusion \79\) or FINRA Rule 3110(f)(2)(A)(iii) (the 
non-primary residence exclusion; \80\) \81\
---------------------------------------------------------------------------

    \79\ See Exchange Rule 1306(c)(2)(i)-(ix).
    \80\ See Exchange Rule 1306(c)(3).
    \81\ See FINRA Rule 3110.19(a)(4).
---------------------------------------------------------------------------

    [cir] neither customer funds nor securities are handled at that 
location; \82\
---------------------------------------------------------------------------

    \82\ See FINRA Rule 3110.19(a)(5).
---------------------------------------------------------------------------

    [cir] the associated person is assigned to a designated branch 
office, and such designated branch office is reflected on all business 
cards, stationery, retail communications and other communications to 
the public by such associated person; \83\
---------------------------------------------------------------------------

    \83\ See FINRA Rule 3110.19(a)(6).
---------------------------------------------------------------------------

    [cir] the associated person's correspondence and communications 
with the public are subject to the firm's supervision in accordance 
with FINRA's supervision rule; \84\
---------------------------------------------------------------------------

    \84\ See FINRA Rule 3110.19(a)(7).
---------------------------------------------------------------------------

    [cir] the associated person's electronic communications are made 
through the member's electronic system; \85\
---------------------------------------------------------------------------

    \85\ See FINRA Rule 3110.19(a)(8).
---------------------------------------------------------------------------

    [cir] the member must have a recordkeeping system to make and keep 
current, and preserve records required to be made and kept current, and 
preserved under applicable securities laws and regulations, FINRA 
rules, and the member's own written supervisory procedures under Rule 
3110; such records are not physically or electronically maintained and 
preserved at the office or location; and the member has prompt access 
to such records; \86\ and
---------------------------------------------------------------------------

    \86\ See FINRA Rule 3110.19(a)(9).
---------------------------------------------------------------------------

    [cir] the member must determine that its surveillance and 
technology tools are appropriate to supervise the types of risks 
presented by each Residential Supervisory Location, and these tools may 
include but are not limited to: firm-wide tools such as, electronic 
recordkeeping system; electronic surveillance of email and 
correspondence; electronic trade

[[Page 97671]]

blotters; regular activity-based sampling reviews; and tools for visual 
inspections; tools specific to the RSL based on the activities of 
associated person assigned to the location, products offered, 
restrictions on the activity of the RSL; and system tools such as 
secure network connections and effective cybersecurity protocols.\87\
---------------------------------------------------------------------------

    \87\ See FINRA Rule 3110.19(a)(10).
---------------------------------------------------------------------------

     FINRA members shall not be eligible to designate an office 
or location as an RSL if, among other things, the FINRA member is 
designated as: (i) Restricted Firm under FINRA Rule 4111 or (ii) a 
Taping Firm under FINRA Rule 3170. Additionally, firms with suspended 
or new (effective less than 12 months) FINRA memberships or that have 
been found within the past three years by the SEC or FINRA to have 
violated FINRA Rule 3110(c) are ineligible to participate.\88\
---------------------------------------------------------------------------

    \88\ See FINRA Rule 3110.19(b).
---------------------------------------------------------------------------

     An office or location shall not be eligible for 
designation as an RSL if one or more associated persons at such office 
or location: \89\
---------------------------------------------------------------------------

    \89\ See FINRA Rule 3110.19(c).
---------------------------------------------------------------------------

    [cir] is a designated supervisor who has less than one year of 
direct supervisory experience with the member, or an affiliate or 
subsidiary of the member that is registered as a broker-dealer or 
investment adviser; \90\
---------------------------------------------------------------------------

    \90\ See FINRA Rule 3110.19(c)(1).
---------------------------------------------------------------------------

    [cir] is functioning as a principal for a limited period in 
accordance with FINRA Rule 1210.04; \91\
---------------------------------------------------------------------------

    \91\ See FINRA Rule 3110.19(c)(2).
---------------------------------------------------------------------------

    [cir] is subject to a mandatory heightened supervisory plan under 
the rules of the SEC, FINRA or state regulatory agency; \92\
---------------------------------------------------------------------------

    \92\ See FINRA Rule 3110.19(c)(3).
---------------------------------------------------------------------------

    [cir] is statutorily disqualified, unless such disqualified person 
has been approved (or is otherwise permitted pursuant to FINRA rules 
and the federal securities laws) to associate with a member and is not 
subject to a mandatory heightened supervisory plan under FINRA Rule 
3110.19(c)(3) or otherwise as a condition to approval or permission for 
such association; \93\
---------------------------------------------------------------------------

    \93\ See FINRA Rule 3110.19(c)(4).
---------------------------------------------------------------------------

    [cir] has an event in the prior three years that required a ``yes'' 
response to any item in Questions 14A(1)(a) and 2(a), 14B(1)(a) and 
2(a), 14C, 14D and 14E on Form U4; \94\ or
---------------------------------------------------------------------------

    \94\ See FINRA Rule 3110.19(c)(5).
---------------------------------------------------------------------------

    [cir] has been notified in writing that such associated person is 
now subject to, any Investigation or Proceeding, as such terms are 
defined in the Explanation of Terms for the Form U4 (Uniform 
Application for Securities Industry Registration or Transfer), by the 
SEC, an SRO, including FINRA, or state securities commission (or agency 
or office performing like functions) (each, a ``Regulator'') expressly 
alleging they have failed reasonably to supervise another person 
subject to their supervision, with a view to preventing the violation 
of any provision of the Securities Act, the Exchange Act, the 
Investment Advisers Act, the Investment Company Act, the Commodity 
Exchange Act, any state law pertaining to the regulation of securities 
or any rule or regulation under any of such Acts or laws, or any of the 
rules of the MSRB or other self-regulatory organization, including 
FINRA; provided, however, such office or location may be designated or 
redesignated as an RSL subject to the requirements of FINRA Rule 
3110.19 upon the earlier of: (i) the member's receipt of written 
notification from the applicable Regulator that such Investigation has 
concluded without further action; or (ii) one year from the date of the 
last communication from such Regulator relating to such 
Investigation.\95\
---------------------------------------------------------------------------

    \95\ See FINRA Rule 3110.19(c)(6).
---------------------------------------------------------------------------

     FINRA members that elect to designate an office or 
location of the member as an RSL shall provide FINRA with a current 
list of all locations designated as RSLs by the 15th day of the month 
following each calendar quarter in the manner and format as FINRA may 
prescribe.\96\
---------------------------------------------------------------------------

    \96\ See FINRA Rule 3110.19(d).
---------------------------------------------------------------------------

     FINRA members must conduct a risk assessment prior to 
designating an office or location as an RSL. Specifically, the FINRA 
member must develop a reasonable risk-based approach to designating 
such office or location as an RSL, and conduct and document a risk 
assessment for the associated person assigned to that office or 
location. The assessment must document the factors considered, 
including among others, whether the associated person at such office or 
location is now subject to: (1) customer complaints, taking into 
account the volume and nature of the complaints; (2) heightened 
supervision other than where such office or location is ineligible for 
RSL designation under FINRA Rule 3110.19(c)(3); (3) any failure to 
comply with the member's written supervisory procedures; (4) any 
recordkeeping violation; and (5) any regulatory communications from a 
Regulator, indicating that the associated person at such office or 
location failed reasonably to supervise another person subject to their 
supervision, including but not limited to, subpoenas, preliminary or 
routine regulatory inquiries or requests for information, deficiency 
letters, ``blue sheet'' requests or other trading questionnaires, or 
examinations. The FINRA member must take into account any higher risk 
activities that take place or a higher risk associated person that is 
assigned to that office or location. Consistent with its obligation 
under FINRA Rule 3110(a), the member's supervisory system must take 
into consideration any indicators of irregularities or misconduct 
(i.e., ``red flags'') when designating an office or location as an RSL. 
Red flags should also be reviewed in determining whether it is 
reasonable to maintain the RSL designation of such office or location 
in accordance with the requirements of FINRA Rule 3110.19 and the 
member should consider evidencing steps taken to address those red 
flags where appropriate.\97\
---------------------------------------------------------------------------

    \97\ See FINRA Rule 3110.19(e).
---------------------------------------------------------------------------

Proposal
    The Exchange proposes to adopt subparagraph (d)(8) of Exchange Rule 
1308. This proposed new paragraph reads as follows:

    Residential Supervisory Location. A location that is the private 
residence of a person associated with a Member where supervisory 
activities are conducted, including those described in Rule 
1306(j)(4) through (7) or Rule 1306(c)(2), which satisfies the 
conditions for designation as a Residential Supervisory Location set 
forth in FINRA Rule 3110.19 shall also be considered a non-branch 
location for those activities pursuant to the Exchange Rules.\98\
---------------------------------------------------------------------------

    \98\ See proposed paragraph (d)(8) of Rule 1308.

    As stated in proposed new paragraph (d)(8) of Rule 1308, any 
location that a Member designates as an RSL pursuant to FINRA Rule 
3110.19 shall also be considered a non-branch location for those 
activities pursuant to Exchange rules.
    Pursuant to this proposed rule change, Members will be required to 
share information about designated RSLs with FINRA on a quarterly 
basis. The Exchange is not proposing to add the entire FINRA 
Residential Supervisory Location designation rule to its rules, because 
it would be unnecessarily duplicative and burdensome for Members to 
share the same quarterly RSL designation information with the Exchange. 
The Exchange understands that adopting paragraph (d)(8) of Rule 1308 
would update Exchange Rule 1308 so that it remains substantially 
similar to FINRA Rule 3110, such that they remain common rules subject 
to the 17d-2

[[Page 97672]]

Agreement. As a result, regulatory responsibility for Exchange Rule 
1308 would continue to be allocated to FINRA.
    The Exchange, like FINRA, believes that the current work 
environment merits a reevaluation of the regulatory benefit of 
requiring firms to designate a private residence, at which specified 
supervisory functions occur, as an OSJ or branch office. The Exchange's 
proposal to incorporate by reference FINRA's RSL designation is 
intended to reflect a pragmatic balance between the hybrid workforce 
model and the parameters that should ensure that all locations, 
including residential locations, are appropriately supervised.
    Separate and apart from the classification of the office or 
location and the attendant inspection obligations, Members will 
continue to have an ongoing obligation to supervise the activities of 
each associated person in a manner reasonably designed to achieve 
compliance with applicable securities laws and regulations, and with 
applicable the Exchange and FINRA rules.\99\ The Exchange, like FINRA, 
emphasizes that Members have a statutory duty to supervise their 
associated persons, regardless of their location, compensation or 
employment arrangement, or registration status, in accordance with the 
Exchange and FINRA rules.\100\
---------------------------------------------------------------------------

    \99\ See FINRA Rule 3110.12.
    \100\ See 15 U.S.C. 78o(b)(4)(E) and 15 U.S.C. 78o(b)(6)(A).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \101\ of the Act in general, and 
furthers the objectives of Section 6(b)(5) of the Act \102\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The Exchange's 
rule proposal is intended to harmonize the Exchange's supervision 
rules, specifically with respect to the definition of OSJ, the 
requirements for inspections of Members' all offices and locations, and 
designation of certain non-branch offices as RSL, with those of FINRA, 
on which they are based. As discussed in the Purpose section, because 
proposed Exchange Rules 1308(d)(7) and (8) would incorporate by 
reference FINRA Rule 3110.18 and 3110.19, the proposed rule changes 
would enable Exchange Rule 1308 to continue to be incorporated into the 
17d-2 Agreement, resulting in less burdensome and more efficient 
regulatory compliance. Specifically, the proposed change will conform 
the Exchange's rules to changes made to corresponding FINRA rules 
insofar as a Member's compliance with FINRA Rule 3110.18 and 3110.19 
shall mean the Member would be also in compliance with Exchange Rule 
1308, thus promoting the application of consistent regulatory standards 
with respect to rules that FINRA enforces. Adopting the definition of 
OSJ is to harmonize Exchange Rule 1306 with FINRA Rule 3110.01 to 
provide that both branch offices and OSJs will be subject to the office 
registration requirements set forth in Exchange Rule 1306(a). Adopting 
FINRA's inspection requirement for non-branch locations is to harmonize 
Exchange Rule 1308(d) with FINRA Rule 3110(c) so that a Member's 
compliance with FINRA Rule 3110(c) shall mean the Member would be also 
in compliance with Exchange Rule 1308(d). As such, the proposed rule 
changes would foster cooperation and coordination with persons engaged 
in facilitating transactions in securities and would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system in accordance with Section 6(b)(5) of the Act.\103\
---------------------------------------------------------------------------

    \101\ 15 U.S.C. 78f(b).
    \102\ 15 U.S.C. 78f(b)(5).
    \103\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule changes are not designed to address any competitive issue but 
rather to provide greater harmonization among the Exchange and FINRA 
rules of similar purpose, resulting in less burdensome and more 
efficient regulatory compliance for common members and facilitating 
FINRA's performance of its regulatory performance.

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

    No written comments were either solicited or received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \104\ and Rule 19b-4(f)(6) \105\ thereunder. 
Because the proposed rule change does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder. In addition, the Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing.\106\
---------------------------------------------------------------------------

    \104\ 15 U.S.C. 78s(b)(3)(A).
    \105\ 17 CFR 240.19b-4(f)(6).
    \106\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \107\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\108\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
---------------------------------------------------------------------------

    \107\ 17 CFR 240.19b-4(f)(6).
    \108\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Exchange stated that this proposed rule change is non-
controversial because it does not present any new or novel issues. In 
particular, MIAX is harmonizing the Exchange's supervision rules with 
those of FINRA, on which they are based and which have been previously 
approved by the Commission. By conforming the Exchange's rules to 
FINRA's, the proposed rule change would promote the application of 
consistent regulatory standards with respect to rules that FINRA 
enforces pursuant to the 17d-2 Agreement. As such, the Exchange 
believes that the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market

[[Page 97673]]

system in accordance with Exchange Act Section 6(b)(5).
    Further, the Exchange stated that waiver of the operative delay 
would be consistent with the protection of investors and the public 
interest because such waiver would allow the Exchange to immediately 
harmonize its supervision rule with the FINRA rule on which it is based 
without delay, thereby eliminating the possibility of a significant 
regulatory gap between the FINRA and Exchange rules, providing more 
uniform inspection standards across the securities industry, and 
helping to avoid confusion for Exchange Members that are also FINRA 
members. For these reasons, the Commission believes that waiver of the 
30-day operative delay for this proposed rule change is consistent with 
the protection of investors and the public interest. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\109\
---------------------------------------------------------------------------

    \109\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \110\ of the Act to determine whether the proposed 
rule should be approved or disapproved.
---------------------------------------------------------------------------

    \110\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-MIAX-2024-44 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-MIAX-2024-44. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection.

All submissions should refer to file number SR-MIAX-2024-44 and should 
be submitted on or before December 30, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\111\
---------------------------------------------------------------------------

    \111\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-28769 Filed 12-6-24; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.