87 FR 158 pgs. 50680-50684 - Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize Rules 10.9261 and 10.9830 With Recent Changes by the Financial Industry Regulatory Authority, Inc.
Type: NOTICEVolume: 87Number: 158Pages: 50680 - 50684
Pages: 50680, 50681, 50682, 50683, 50684Docket number: [Release No. 34-95477; File No. SR-NYSECHX-2022-19]
FR document: [FR Doc. 2022-17667 Filed 8-16-22; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95477; File No. SR-NYSECHX-2022-19]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize Rules 10.9261 and 10.9830 With Recent Changes by the Financial Industry Regulatory Authority, Inc.
August 11, 2022.
Pursuant to Section 19(b)(1)? 1 of the Securities Exchange Act of 1934 ("Act")? 2 and Rule 19b-4 thereunder, 3 notice is hereby given that on July 29, 2022, the NYSE Chicago, Inc. ("NYSE Chicago" or the "Exchange") filed with the Securities and Exchange Commission (the "Commission") the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?15 U.S.C. 78a.
3 ?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 harmonize Rules 10.9261 and 10.9830 with recent changes by the Financial Industry Regulatory Authority, Inc. ("FINRA") that temporarily grants the Chief or Deputy Chief Hearing Officer the authority to order that hearings be conducted by video conference if warranted by public health risks posed by in-person hearings during the ongoing novel coronavirus ("COVID-19") pandemic. As proposed, these temporary amendments would be in effect through October 31, 2022. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to harmonize Rules 10.9261 (Evidence and Procedure in Hearing) and 10.9830 (Hearing) with recent changes by FINRA to its Rules 9261 and 9830 that temporarily grants to the Chief or Deputy Chief Hearing Officer the authority to order that hearings be conducted by video conference if warranted by public health risks posed by in-person hearings during the ongoing COVID-19 pandemic. As proposed, these temporary amendments would be in effect through October 31, 2022. 4
Footnotes:
4 ?The Exchange may submit a separate rule filing to extend the expiration date of the proposed temporary amendments if the Exchange requires temporary relief from the rule requirements identified in this proposal beyond October 31, 2022. The amended NYSE Chicago rules will revert back to their original [current] [sic] state at the conclusion of the temporary relief period and any extension thereof.
Background
[top] In 2022, NYSE Chicago adopted disciplinary rules that are, with certain exceptions, substantially the same as the disciplinary rules of its affiliate NYSE Arca, Inc., which are in turn substantially similar to the FINRA Rule
Footnotes:
5 ? See Securities Exchange Act Release No. 95020 (June 1, 2022), 87 FR 35034, (June 8, 2022) (SR-NYSECHX-2022-10) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Adopt Investigation, Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules of the Exchange's Affiliates) ("2022 Notice of Disciplinary Rules").
In adopting disciplinary rules modeled on FINRA's rules, NYSE Chicago adopted the hearing and evidentiary processes set forth in Rule 10.9261 and in Rule 10.9830 for hearings in matters involving temporary and permanent cease and desist orders under the Rule 9800 Series. As adopted, the text of Rule 10.9261 and Rule 10.9830 are substantially the same as the FINRA rules with certain modifications. 6
Footnotes:
6 ? See id.
In 2020, in view of the ongoing spread of COVID-19 and its effect on FINRA's adjudicatory functions nationwide, FINRA filed a temporary rule change to grant FINRA's Office of Hearing Officers ("OHO") and the National Adjudicatory Council ("NAC") the authority to conduct certain hearings by video conference, if warranted by the current COVID-19-related public health risks posed by in-person hearings. Among the rules FINRA amended were Rules 9261 and 9830. 7
Footnotes:
7 ? See Securities Exchange Act Release Nos. 83289 (September 2, 2020), 85 FR 55712 (September 9, 2020) (SR-FINRA-2020-027) ("Initial FINRA Filing"). FINRA also proposed to temporarily amend FINRA Rules 1015 and 9524. FINRA Rule 1015 governs the process by which an applicant for new or continuing membership can appeal a decision rendered by FINRA's Department of Member Supervision under FINRA Rule 1014 or 1017 and request a hearing which would be conducted by a subcommittee of the NAC. See id. at 55714. The Exchange has not adopted FINRA Rule 1015. FINRA Rule 9524 governs the process by which a statutorily disqualified member firm or associated person can appeal the Department's recommendation to deny a firm or sponsoring firm's application to the NAC. See id. Under the Exchange's version of Rule 10.9524, if the CRO rejects the application, the ETP Holder or applicant may request a review by the Exchange Board of Directors. This differs from FINRA's process, which provides for a hearing before the NAC and further consideration by the FINRA Board of Directors.
FINRA represented in its filing that its protocol for conducting hearings by video conference would ensure that such hearings maintain fair process for the parties by, among other things, FINRA's use of a high quality, secure and user-friendly video conferencing service and provide thorough instructions, training and technical support to all hearing participants. 8 According to FINRA, the proposed changes were a reasonable interim solution to allow FINRA's critical adjudicatory processes to continue to function while protecting the health and safety of hearing participants as FINRA works towards resuming in-person hearings in a manner that is compliant with the current guidance of public health authorities. 9
Footnotes:
8 ? See Initial FINRA Filing, 85 FR at 55713.
9 ? See id.
Since the Initial FINRA Filing (in 2020), FINRA periodically extended the temporary relief as the COVID-19 pandemic and concerns surrounding its spread persisted. 10 According to FINRA, even though it has been more than two years since the World Health Organization declared COVID-19 a pandemic, uncertainty still remains around this disease. The continued presence of COVID-19 variants including the quickly emerging Omicron BA.4 and BA.5 subvariants, dissimilar vaccination rates throughout the United States, and the current medium to high COVID-19 community levels in many states indicate that COVID-19 remains an active and real public health concern. 11
Footnotes:
10 ? See, e.g., Securities Exchange Act Release No. 94430 (March 16, 2022), 87 FR 16262 (March 22, 2022) (SR-FINRA-2022-004) (most recent extension of temporary relief until July 31, 2022).
11 ? See Securities Exchange Act Release No. 95281 (July 14, 2022), 87 FR 43335 (July 20, 2022) (SR-FINRA-2022-018) ("SR-FINRA-2022-018"). FINRA noted that, for example, there has been a notable upward trend in the number of daily COVID-19 cases in the United States since April 1, 2022. See https://covid.cdc.gov/covid-data-tracker/#trends_dailycases. In addition, on June 9, 2022, the Biden Administration announced its operational plan for COVID-19 vaccinations for children under the age of five. See https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/09/fact-sheetbiden-administration-announces-operational-plan-for-covid-19-vaccinations-for-children-under-5/. See SR-FINRA-2022-018, 87 FR at 43335, n. 6.
Due to the uncertainty and the lack of a clear timeframe for a sustained and widespread abatement of COVID-19-related health concerns and corresponding restrictions, 12 FINRA believes that there is a continued need for temporary relief beyond its most recent extension until July 31, 2022. 13 On July 8, 2022, FINRA accordingly filed to extend the expiration date of the temporary rule amendments to, among other rules, FINRA Rule 9261 and 9830 from July 31, 2022, to October 31, 2022. 14
Footnotes:
12 ?For instance, FINRA noted that the Centers for Disease Control and Prevention ("CDC") recommends that people wear a mask in public indoor settings in areas with a high COVID-19 community level regardless of vaccination status or individual risk. See https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/about-face-coverings.html. The CDC also recommends that people wear a mask in indoor areas of public transportation and transportation hubs to protect themselves and those around them and help keep travel and public transportation safer for everyone. See https://www.cdc.gov/coronavirus/2019-ncov/travelers/masks-public-transportation.html. Furthermore, numerous states currently have mask mandates in certain settings, such as healthcare and correctional facilities. See SR-FINRA-2022-018, 87 FR at 43335, n. 7.
13 ? See SR-FINRA-2022-018, 87 FR at 43335.
14 ? See SR-FINRA-2022-018, 87 FR at 43335-36.
Pursuant to a regulatory services agreement ("RSA"), FINRA's Office of Hearing Officers will administer all aspects of adjudications, including assigning hearing officers to serve as NYSE Chicago hearing officers. A hearing officer from OHO will, among other things, preside over the disciplinary hearing, select and chair the hearing panel, and prepare and issue written decisions. The Chief or Deputy Hearing Officer for all Exchange disciplinary hearings are currently drawn from OHO and are all FINRA employees. The Exchange believes that OHO will utilize the same video conference protocol and processes for Exchange matters under the RSA as it proposes for FINRA matters.
Given that FINRA and its Office of Hearing Officers administers disciplinary hearings on the Exchange's behalf, and given that the public health concerns addressed by FINRA's amendments apply equally to the Exchange's disciplinary hearings, the Exchange proposes to temporarily amend its disciplinary rules to allow FINRA to conduct virtual hearings on its behalf.
Proposed Rule Change
Rule 10.9261(b) states that if a disciplinary hearing is held, a party shall be entitled to be heard in-person, by counsel, or by the party's representative. Absent an agreement by all parties to proceed in another manner, an Exchange disciplinary hearings are in-person. As noted, the Chief and Deputy Hearing Officers for all Exchange and cross-market matters are supplied by OHO and are FINRA employees. Accordingly, absent an agreement by all parties to proceed in another manner, under Rule 10.9261(b) the Chief or Deputy Hearing Officer conducts disciplinary hearings in-person.
Similarly, Rule 10.9830 outlines the requirements for hearings for temporary and permanent cease and desist orders. Rule 10.9830(a), however, does not specify that a party shall be entitled to be heard in-person, by counsel, or by the party's representative.
[top] Consistent with FINRA's temporary amendment to FINRA Rules 9261 and 9830, the Exchange proposes to temporarily grant the Chief or Deputy Chief Hearing Officer temporary authority to order, upon consideration
Footnotes:
15 ? See Initial FINRA Filing, 85 FR at 55713.
16 ?The Exchange notes, as did FINRA, that SEC's Rules of Practice pertaining to temporary cease-and-desist orders provide that parties and witnesses may participate by telephone or, in the Commission's discretion, through the use of alternative technologies that allow remote access, such as a video link. See SEC Rule of Practice 511(d)(3); Comment (d); see Initial FINRA Filing, 85 FR at 55714, n. 21.
To effectuate these changes, the Exchange proposes to add the following sentence to Rule 10.9261(b):
Upon consideration of the current public health risks presented by an in-person hearing, the Chief Hearing Officer or Deputy Chief Hearing Officer may, on a temporary basis, determine that the hearing shall be conducted, in whole or in part, by video conference.
The proposed text is identical to the language adopted by FINRA. 17
Footnotes:
17 ? See Initial FINRA Filing, 85 FR at 55712.
Similarly, the Exchange proposes to add the following text to Rule 10.9830(a):
Upon consideration of the current public health risks presented by an in-person hearing, the Chief Hearing Officer or Deputy Chief Hearing Officer may, on a temporary basis, determine that the hearing shall be conducted, in whole or in part, by video conference.
Once again, the proposed language is identical to the language adopted by FINRA. 18
Footnotes:
18 ? Id.
Consistent with FINRA's most recent filing, the Exchange proposes that these temporary amendments would be in effect through October 31, 2022. 19
Footnotes:
19 ? See SR-FINRA-2022-018, 87 FR at 43337. See supra note 4.
As noted below, the Exchange has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the Exchange can implement the proposed rule change immediately.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act, 20 in general, and furthers the objectives of Section 6(b)(5), 21 in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is designed to provide a fair procedure for the disciplining of members and persons associated with members, consistent with Sections 6(b)(7) and 6(d) of the Act. 22
Footnotes:
20 ?15 U.S.C. 78f(b).
21 ?15 U.S.C. 78f(b)(5).
22 ?15 U.S.C. 78f(b)(7) and 78f(d).
The Exchange believes that the proposed rule change support the objectives of the Act by providing greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance. As previously noted, the text of Rule 10.9261 and Rule 10.9830 is substantially the same as FINRA's rule. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will remove impediments to and perfect the mechanism of a free and open market and a national market system.
The Exchange believes that the proposed temporary rule change will permit the Exchange to effectively conduct hearings during the COVID-19 pandemic in situations where in-person hearings present likely public health risks. Given the current and frequently changing COVID-19 conditions and the uncertainty around when those conditions will see meaningful, widespread and sustained improvement, without this relief allowing OHO to proceed by video conference, some or all hearings may have to be postponed.
The ability to conduct hearings by video conference will thereby permit the adjudicatory functions of the Exchange's disciplinary rules to continue unabated, thereby avoiding protracted delays. The Exchange believes that this is especially important in matters where temporary and permanent cease and desist orders are sought because the proposed rule change would enable those hearings to proceed without delay, thereby enabling the Exchange to take immediate action to stop significant, ongoing customer harm, to the benefit of the investing public.
Conducting hearings via video conference will give the parties and adjudicators simultaneous visual and oral communication without the risks inherent in physical proximity during a pandemic. Temporarily permitting hearings for disciplinary matters to proceed by video conference maintains fair process by providing respondents a timely opportunity to address and potentially resolve any allegations of misconduct.
As noted, FINRA will use a high quality, secure video conferencing technology with features that will allow the parties to reasonably approximate those tasks that are typically performed at an in-person hearing, such as sharing documents, marking documents, and utilizing breakout rooms. FINRA will also provide training for participants on how to use the video conferencing platform and detailed guidance on the procedures that will govern such hearings. Moreover, the Chief or Deputy Chief Hearing Officer may take into consideration, among other things, a hearing participant's access to connectivity and technology in scheduling a video conference hearing and can also, at their discretion, allow a party or witness to participate by telephone, if necessary, to address such access issues. 23
Footnotes:
23 ? See text accompanying note 8, supra.
[top] The Exchange believes that the temporary relief to permit hearings to be conducted via video conference maintains fair process and will continue to provide fair process consistent with Sections 6(b)(7) and 6(d) of the Act? 24 while striking an appropriate balance between providing fair process and enabling the Exchange to fulfill its statutory obligations to protect investors and maintain fair and orderly markets while avoiding the COVID-19-related public health risks for hearing participants. The Exchange notes that this proposal provides only temporary relief, which would be in place through October 31, 2022. As noted in herein ( see supra note 4), the amended rules will revert back to their original state at the conclusion of the temporary relief
Footnotes:
24 ?15 U.S.C. 78f(b)(7) & 78f(d).
Accordingly, the proposed rule change extending this temporary relief is in the public interest and consistent with the Act's purpose.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed temporary rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but is rather intended solely to provide temporary relief given the impacts of the COVID-19 pandemic and the related health and safety risks of conducting in-person activities. In the Initial FINRA Filing, FINRA provides an abbreviated economic impact assessment maintaining that the changes are necessary to temporarily rebalance the attendant benefits and costs of the obligations under FINRA Rules 1015, 9261, 9524 and 9830 in response to the impacts of the COVID-19 pandemic that is equally applicable to the changes the Exchange proposes. 25 The Exchange accordingly incorporates FINRA's abbreviated economic impact assessment by reference. The Exchange believes that the proposed rule change will prevent unnecessary impediments to critical adjudicatory processes and its ability to fulfill its statutory obligations to protect investors and maintain fair and orderly markets that would otherwise result if the temporary amendments were not in place.
Footnotes:
25 ? See Initial FINRA Filing, 85 FR at 55716.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule change.
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)(iii) of the Act? 26 and Rule 19b-4(f)(6) thereunder. 27 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 prior to 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.
Footnotes:
26 ?15 U.S.C. 78s(b)(3)(A)(iii).
27 ?17 CFR 240.19b-4(f)(6).
A proposed rule change filed under Rule 19b-4(f)(6)? 28 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii), 29 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 has indicated that the proposal would provide greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance at a time when the health risks of in-person hearings are significant. The Exchange also states that the temporary relief provided in this proposal immediately upon filing and without a 30-day operative delay will allow the Exchange to continue critical adjudicatory and review processes so that the Exchange may continue to operate effectively and meet its critical investor protection goals, while also protecting the health and safety of hearing participants. 30 As proposed, the temporary changes would be in place through October 31, 2022 and the amended rules will revert back to their original state at the conclusion of the temporary relief period and, if applicable, any extension thereof. 31 For these reasons, the Commission believes that waiver of the 30-day operative delay for this proposal is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing. 32
Footnotes:
28 ?17 CFR 240.19b-4(f)(6).
29 ?17 CFR 240.19b-4(f)(6)(iii).
30 ? See 87 FR 43335, at 43337-38 (noting the same in granting FINRA's request to waive the 30-day operative delay so that SR-FINRA-2022-018 would become operative immediately upon filing).
31 ? See supra note 4. As noted above, the Exchange states that if it requires temporary relief from the rule requirements identified in this proposal beyond October 31, 2022, it may submit a separate rule filing to extend the effectiveness of the temporary relief under these rules.
32 ?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 such 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)? 33 of the Act to determine whether the proposed rule change should be approved or disapproved.
Footnotes:
33 ?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 ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-NYSECHX-2022-19 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.
[top] All submissions should refer to File Number SR-NYSECHX-2022-19. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 34
Footnotes:
34 ?17 CFR 200.30-3(a)(12).
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17667 Filed 8-16-22; 8:45 am]
BILLING CODE 8011-01-P