89 FR 36 pgs. 13386-13389 - Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1308 To Extend the Temporary Remote Inspection Relief for Members Through June 30, 2024
Type: NOTICEVolume: 89Number: 36Pages: 13386 - 13389
Pages: 13386, 13387, 13388, 13389Docket number: [Release No. 34-99548; File No. SR-MIAX-2024-10]
FR document: [FR Doc. 2024-03540 Filed 2-21-24; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99548; File No. SR-MIAX-2024-10]
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1308 To Extend the Temporary Remote Inspection Relief for Members Through June 30, 2024
February 15, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Exchange act" or "Act")? 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on February 6, 2024, Miami International Securities Exchange, LLC ("MIAX" or "Exchange") filed with the U.S. Securities and Exchange Commission ("Commission" or "SEC") 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.
Footnotes:
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 is filing a proposal to amend Exchange Rule 1308, Supervision of Accounts, to extend the temporary remote inspection relief for Members? 3 through June 30, 2024.
Footnotes:
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.
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 amend Exchange Rule 1308, Supervision of Accounts, to extend the temporary remote inspection relief for Members through June 30, 2024. The Exchange makes this proposal to provide its Members continuity related to conducting inspections as part of satisfying the obligations of Exchange Rule 1308, Supervision of Accounts, at offices and locations requiring inspection during the first half of calendar year 2024. 4 The Exchange believes that the proposed extension is necessary to provide firms the time to prepare for the implementation of the FINRA pilot program on remote inspections ("FINRA Pilot Program"). The U.S. Securities and Exchange Commission ("Commission" or "SEC") approved the FINRA Pilot Program on November 17, 2023, 5 and on January 23, 2024, FINRA announced the implementation date of July 1, 2024. 6 The Exchange plans to make a rule filing to incorporate the FINRA Pilot Program into Exchange Rule 1308, Supervision of Accounts, prior to the FINRA Pilot Program implementation date.
Footnotes:
4 ?Commission staff and FINRA have stated in guidance that inspections must include a physical, on-site review component. See SEC National Examination Risk Alert, Volume I, Issue 2 (November 30, 2011) and FINRA Regulatory Notice 11-54 (November 2011) (joint SEC and FINRA guidance stating, a "broker-dealer must conduct onsite inspections of each of its office locations; [OSJs] and non-OSJ branches that supervise non-branch locations at least annually, all non-supervising branch offices at least every three years; and non-branch offices periodically.") (footnote defining an OSJ omitted). See also SEC Division of Market Regulation, Staff Legal Bulletin No. 17: Remote Office Supervision (March 19, 2004) (stating, in part, that broker-dealers that conduct business through geographically dispersed offices have not adequately discharged their supervisory obligations where there are no on-site routine or "for cause" inspections of those offices).
5 ? See Securities Exchange Act Release Nos. 97398 (April 28, 2023), 88 FR 28620 (May 4, 2023) ("FINRA Pilot Program Proposal"); 98982 (November 17, 2023), 88 FR 82464 (November 24, 2023) ("FINRA Pilot Program Approval Order") (SR-FINRA-2023-007).
6 ? See FINRA Regulatory Notice 24-02 ("FINRA Pilot Program Notice"), https://www.finra.org/rules-guidance/notices/24-02. See supra note 5.
The COVID-19 pandemic has caused a host of operational disruptions to the securities industry and impacted Members, regulators, investors, and other stakeholders. In response to the pandemic, the Exchange began providing temporary relief to Members from specified Exchange Rules and requirements, including Exchange Rule 1308(d), Annual Branch Office Inspections, for calendar years 2020, 2021, 2022, and 2023, subject to specified conditions, 7 due to the logistical challenges of going on-site while public health and safety concerns related to COVID-19 persisted. The temporary relief provided in Exchange Rule 1308(d), Annual Branch Office Inspection, lapsed on December 31, 2023.
Footnotes:
7 ? 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); and 96867 (February 9, 2023), 88 FR 9919 (February 15, 2023) (SR-MIAX-2022-04) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 1308, Supervision of Accounts).
[top] 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 FINRA Pilot Program with the Commission. 8 The FINRA Pilot Program provides for a voluntary, three-year remote inspection pilot program to allow broker-dealers to elect to fulfill their obligation under FINRA Rule 3110(c), Internal Inspections, by conducting inspections of some or all branch offices and non-branch locations remotely without an on-site visit to such office or location, subject to specified terms. On November 17, 2023, the Commission approved the FINRA Pilot Program. 9 The FINRA Pilot Program is designed to allow both FINRA and the firms that are planning to participate in the FINRA Pilot Program additional time to develop the technology and processes that will be essential to operationalize compliance with the FINRA Pilot Program's requirements. For example, firms will need to conduct an eligibility review, and conduct and
Footnotes:
8 ? See supra note 5.
9 ? Id.
10 ? See supra note 4.
11 ?While the World Health Organization declared an end to COVID-19 as a public health emergency, COVID-19 remains an ongoing public health problem. See WHO Director-General, Statement on the fifteenth meeting of the IHR (2005) Emergency Committee on the COVID-19 pandemic (May 5, 2023) (stating, in part, that the "[w]hile the global risk assessment remains high, there is evidence of reducing risks to human health. . ."), available at https://www.who.int/news/item/05-05-2023-statement-on-the-fifteenth-meeting-of-the-international-health-regulations-(2005)-emergency-committee-regarding-the-coronavirus-disease-(covid-19)-pandemic?_sm_au_=iVVWFFPz51g33QZrctQ2NK76F2NJ1 (last visited January 10, 2024); see also Benjamin J. Silk, et al., COVID-19 Surveillance After Expiration of the Public Health Emergency Declaration-United States, May 11, 2023 (stating, among other things, that "[a]lthough COVID-19 no longer poses the societal emergency that it did when it first emerged in late 2019, COVID-19 remains an ongoing public health challenge. By April 26, 2023, more than 104 million U.S. COVID-19 cases, 6 million related hospitalizations, and 1.1 million COVID-19- associated deaths were reported to CDC[.]"), 72 MMWR Morb Mortal Wkly Rep, 523-528 (2023), https://www.cdc.gov/mmwr/volumes/72/wr/pdfs/mm7219e1-H.pdf (last visited January 10, 2024). Recent data on hospitalizations from the CDC indicate that the number of hospitalizations is up 20.4% in the most recent week (as of December 24 to December 30, 2023). See Centers for Disease Control and Prevents ("CDC"), COVID Data Tracker, Data Update for the United States, https://covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited January 10, 2024).
In sum, as calendar year 2024 begins, the proposed extension of Exchange Rule 1308(d) would provide firms continuity in meeting their inspection obligations and would allow FINRA time to operationalize the FINRA Pilot Program. Relatedly, the proposed extension would give time for: (1) firms that are planning to participate in the FINRA Pilot Program to implement the processes needed to comply with the proposed terms therein; and (2) firms that are not planning to participate or are excluded from participating in the FINRA Pilot Program, to prepare to resume conducting on-site inspections of their offices and locations as part of satisfying the obligations of Exchange Rule 1308(d).
The Exchange is not proposing to amend the other conditions of Exchange Rule 1308. The current conditions of the rule for firms that elect to conduct remote inspections would remain unchanged: such firms must amend or supplement their written supervisory procedures for remote inspections, use remote inspections as part of an effective supervisory system, and maintain the required documentation. The Exchange continues to believe this temporary remote inspection option is a reasonable alternative for firms to fulfill their Exchange Rule 1308 obligations under the current circumstances described above. This proposed extension is designed to maintain the investor protection objectives of the inspection requirements under these circumstances. As part of those objectives, firms should consider whether, under their particular operating conditions, continued reliance on Exchange Rule 1308(d) to conduct remote inspections would be reasonable under the circumstances. For example, firms with offices that are open to the public or that are otherwise doing business as usual should consider whether some in-person inspections would be feasible and add value to the firms' supervisory program. The Exchange emphasizes that the inspection requirement is one aspect of a firm's overall supervisory system, and that the inspection, whether done remotely under Exchange Rule 1308 or in accordance with the proposed FINRA Pilot Program, or on-site, would be held to the existing standards of review under Exchange Rule 1308. 12
Footnotes:
12 ?Those standards provide, in part, that based on the factors set forth under that supplementary material, members "may need to provide for more frequent review of certain locations."
The Exchange notes that the proposed rule change is substantively identical to the proposed rule changes recently filed the Investors Exchange LLC ("IEX"). 13 The Exchange notes that MIAX Chapter XIII is incorporated by reference into the rulebooks of the Exchange's affiliates, MIAX PEARL, LLC ("MIAX Pearl") and MIAX Emerald, LLC ("MIAX Emerald"). As such, the amendments to MIAX Chapter XIII proposed herein will also apply to MIAX Pearl and MIAX Emerald Chapters XIII.
Footnotes:
13 ? See Securities Exchange Act Release No. 99383 (Jan.17, 2024), 89 FR 4355 (Jan. 23, 2024) (SR-IEX-2024-02).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act. 14 Specifically, the Exchange believes that the proposed rule change is consistent with the Section 6(b)(5)? 15 requirements that the rules of an exchange be 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 regulating, clearing, settling, processing information with respect to, and 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 that the proposed rule change is consistent with the Section 6(b)(5)? 16 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange's rule proposal is intended to harmonize the Exchange's supervision rules, specifically with respect to the requirements for inspections of Members' branch offices and other locations, with those of FINRA, on which they are based. Consequently, the proposed change will conform the Exchange's rules to changes made to corresponding FINRA rules, thus promoting application of consistent regulatory standards with respect to rules that FINRA enforces pursuant to its regulatory services agreement with the Exchange. The proposed rule change would also avoid a potential lapse in the temporary relief while FINRA prepares for the implementation of its recently approved FINRA Pilot Program, and allow firms time to adapt to the pilot program, and prepare for conducting on-site inspections, as applicable, while continuing to serve and promote the protection of investors and the public interest.
Footnotes:
14 ?15 U.S.C. 78f(b).
15 ?15 U.S.C. 78f(b)(5).
16 ? Id.
B. Self-Regulatory Organization's Statement on Burden on Competition
[top] The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any competitive issue but to align the Exchange's rules with those of FINRA, which will assist FINRA in its oversight work done pursuant to a regulatory services agreement with the Exchange. The proposed rule change will also provide for consistent application of the Exchange's supervision rules with those of FINRA, on which they are based. Consequently,
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The Exchange has designated this rule filing as non-controversial under Section 19(b)(3)(A) of the Act? 17 and Rule 19b-4(f)(6)? 18 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 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. 19
Footnotes:
17 ?15 U.S.C. 78s(b)(3)(A).
18 ?17 CFR 240.19b-4(f)(6).
19 ?17 CFR 240.19b-4(f)(6)(iii).
The Exchange believes that this filing is non-controversial because it raises no novel issues and is consistent with FINRA rules previously approved by or filed with the Commission. In particular, the purpose of the proposed rule change is to harmonize with and conform to FINRA rules. The Exchange believes that the proposal promotes the protection of investors as it will harmonize the Exchange's supervision rules with those of FINRA, which will simplify the oversight process conducted by FINRA pursuant to a regulatory services agreement with the Exchange. Moreover, the Exchange does not believe that the proposed rule change implicates competition at all because the proposed change aligns the Exchange's rules with those of FINRA, which will assist it in its oversight work done pursuant to such regulatory services agreement. The proposed rule change is based on the recent changes by IEX, 20 and therefore, does not present any new or novel issues not already considered by the Commission.
Footnotes:
20 ? See supra note 13.
A proposed rule change filed under Rule 19b-4(f)(6)? 21 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii), 22 the Commission may designate a shorter time if such action is consistent with the protection of investors and public interest. The Exchange has asked the Commission to waive the 30-day operative delay to permit the Exchange to harmonize its rules with FINRA, as described herein, upon effectiveness of the proposed rule filing.
Footnotes:
21 ?17 CFR 240.19b-4(f)(6).
22 ?17 CFR 240.19b-4(f)(6)(iii).
Since the proposed rule change would address Members' ability to conduct remote inspections for any inspections to be conducted through June 30, 2024, waiving the 30-day operative delay would help ensure that Members could plan their 2024 inspection program and conduct remote inspections under a harmonized rule set, while at the same time helping ensure that its Members continue to perform their supervisory obligations. The Exchange stated that the proposed rule change does not present any new or novel issues because the Exchange is harmonizing its supervision rules with those of FINRA, on which they are based. The Exchange further stated that the proposed rule change would provide only temporary relief during the period in which the Exchange harmonizes its supervision rules with FINRA. 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 waives the 30-day operative delay and designates the proposed rule change operative upon filing. 23
Footnotes:
23 ?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)? 24 of the Act to determine whether the proposed rule should be approved or disapproved.
Footnotes:
24 ?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 rule-comments@sec.gov. Please include file number SR-MIAX-2024-10 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-2024-10. 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-2024-10 and should be submitted on or before March 14, 2024.
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For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 25
Footnotes:
25 ?17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03540 Filed 2-21-24; 8:45 am]
BILLING CODE 8011-01-P