[Federal Register Volume 85, Number 219 (Thursday, November 12, 2020)]
[Notices]
[Pages 71979-71982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24967]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90359; File No. SR-NASDAQ-2020-073]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Temporary Supplementary Material .13 (Temporary Extension of the
Limited Period for Registered Persons To Function as Principals) Under
Nasdaq Rule 1.1210
November 5, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on October 29, 2020, The Nasdaq Stock Market LLC (``Nasdaq''
or ``Exchange'') filed with the Securities and Exchange Commission
[[Page 71980]]
(the ``Commission'') the 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt temporary Supplementary Material .13
(Temporary Extension of the Limited Period for Registered Persons to
Function as Principals) under Exchange Rule 1.1210 of General 4
(Registration Requirements).
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 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 adopt temporary Supplementary Material .13
(Temporary Extension of the Limited Period for Registered Persons to
Function as Principals) under Exchange Rule 1.1210 of General 4
(Registration Requirements). The proposed rule change would extend the
120-day period that certain individuals can function as a principal
without having successfully passed an appropriate qualification
examination through December 31, 2020,\4\ and would apply only to those
individuals who were designated to function as a principal prior to
September 3, 2020. This proposed rule change is based on a filing
recently submitted by the Financial Regulatory Authority, Inc.
(``FINRA'') \5\ and is intended to harmonize the Exchange's
registration rules with those of FINRA so as to promote uniform
standards across the securities industry.
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\4\ If the Exchange seeks to provide additional temporary relief
from the rule requirements identified in this proposed rule change
beyond December 31, 2020, the Exchange will submit a separate rule
filing to further extend the temporary extension of time.
\5\ See Securities Exchange Act Release No. 89732 (September 1,
2020), 85 FR 55535 (September 8, 2020) (SR-FINRA-2020-026) (``FINRA
Filing''). The Exchange notes that the FINRA Filing also provides
temporarily relief to individuals registered with FINRA as
Operations Professionals under FINRA Rule 1220. The Exchange does
not have a registration category for Operations Professionals and
therefore, the Exchange is not proposing to adopt that aspect of the
FINRA Filing.
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In response to COVID-19, earlier this year FINRA began providing
temporary relief by way of frequently asked questions (``FAQs'') \6\ to
address disruptions to the administration of FINRA qualification
examinations caused by the pandemic that have significantly limited the
ability of individuals to sit for examinations due to Prometric test
center capacity issues.\7\
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\6\ See https://www.finra.org/rules-guidance/key-topics/covid-19/faq#qe.
\7\ At the outset of the COVID-19 pandemic, all FINRA
qualification examinations were administered at test centers
operated by Prometric. Based on the health and welfare concerns
resulting from COVID-19, in March Prometric closed all of its test
centers in the United States and Canada and began to slowly reopen
some of them at limited capacity in May. At this time, not all of
these Prometric test centers have reopened at full capacity.
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FINRA published the first FAQ on March 20, 2020, providing that
individuals who were designated to function as principals under FINRA
Rule 1210.04 \8\ prior to February 2, 2020, would be given until May
31, 2020, to pass the appropriate principal qualification
examination.\9\ On May 19, 2020, FINRA extended the relief to pass the
appropriate examination until June 30, 2020. Most recently, on June 29,
2020, FINRA again extended the temporary relief providing that
individuals who were designated to function as principals under FINRA
Rule 1210.04 prior to May 4, 2020, would be given until August 31,
2020, to pass the appropriate principal qualification examination.
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\8\ Exchange Rule 1.1210.04 is the corresponding rule to FINRA
Rule 1210.04.
\9\ FINRA Rule 1210.04 (Requirements for Registered Persons
Functioning as Principals for a Limited Period) allows a member firm
to designate certain individuals to function in a principal capacity
for 120 calendar days before having to pass an appropriate principal
qualification examination. Exchange Rule 1.1210.04 provides the same
allowance to members.
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One of the impacts of COVID-19 continues to be serious
interruptions in the administration of FINRA qualification examinations
at Prometric test centers and the limited ability of individuals to sit
for the examinations.\10\ Although Prometric has begun reopening test
centers, Prometric's safety practices mean that currently not all test
centers are open, some of the open test centers are at limited
capacity, and some open test centers are delivering only certain
examinations that have been deemed essential by the local
government.\11\ Furthermore, Prometric has had to close some reopened
test centers due to incidents of COVID-19 cases. The initial nationwide
closure in March along with the inability to fully reopen all Prometric
test centers due to COVID-19 have led to a significant backlog of
individuals who are waiting to sit for FINRA examinations.\12\
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\10\ Information about the continued impact of COVID-19 on
FINRA-administered examinations is available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq#qe.
\11\ Information from Prometric about its safety practices and
the impact of COVID-19 on its operations is available at https://www.prometric.com/corona-virus-update. See also supra note 10.
\12\ Although an online test delivery service has been launched
to help address the backlog, the General Securities Principal
Examination (Series 24) is not available online. See supra note 10.
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In addition, firms are continuing to experience operational
challenges with much of their personnel working from home due to
shelter-in-place orders, restrictions on businesses and social activity
imposed in various states, and adherence to other social distancing
guidelines consistent with the recommendations of public health
officials.\13\ As a result, firms continue to face potentially
significant disruptions to their normal business operations that may
include a limitation of in-person activities and staff absenteeism as a
result of the health and welfare concerns stemming from COVID-19. Such
potential disruptions may be further exacerbated and may even affect
client services if firms cannot continue to keep principal positions
filled as they may have difficulty finding other qualified individuals
to transition into these roles or may need to reallocate employee time
and resources away from other critical responsibilities at the firm.
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\13\ See, e.g., Centers for Disease Control and Prevention, How
to Protect Yourself & Others, https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/prevention.html.
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These ongoing, extenuating circumstances make it impracticable for
members to ensure that the individuals whom they have designated to
function in a principal capacity, as set forth in Exchange Rule
1.1210.04, are able to successfully sit for and pass an appropriate
qualification examination within the 120-calendar day period required
under the rule, or to find other
[[Page 71981]]
qualified staff to fill this position. The ongoing circumstances also
require individuals to be exposed to the health risks associated with
taking an in-person examination, because the General Securities
Principal (Series 24) Examination is not available online. Therefore,
the Exchange is proposing to continue the temporary relief provided
through the FINRA FAQs by adopting Rule 1.1210.13 to extend the 120-day
period during which an individual can function as a principal before
having to pass an applicable qualification examination until December
31, 2020.\14\ The proposed rule change would apply only to those
individuals who were designated to function as a principal prior to
September 3, 2020. Any individuals designated to function as a
principal on or after September 3, 2020, would need to successfully
pass an appropriate qualification examination within 120 days.
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\14\ See also supra note 4.
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The Exchange believes that this proposed continued extension of
time is tailored to address the needs and constraints on a member's
operations during the COVID-19 pandemic, without significantly
compromising critical investor protection. The proposed extension of
time will help to minimize the impact of COVID-19 on members by
providing continued flexibility so that members can ensure that
principal positions remain filled. The potential risks from the
proposed extension of the 120-day period are mitigated by the member's
continued requirement to supervise the activities of these designated
individuals and ensure compliance with federal securities laws and
regulations, as well as Exchange rules.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ 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.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is intended to minimize the impact of
COVID-19 on member operations by extending the 120-day period certain
individuals may function as a principal without having successfully
passed an appropriate qualification examination under Exchange Rule
1.1210.04 until December 31, 2020. The proposed rule change does not
relieve members from maintaining, under the circumstances, a reasonably
designed system to supervise the activities of their associated persons
to achieve compliance with applicable securities laws and regulations,
and with applicable Exchange rules that directly serve investor
protection. In a time when faced with unique challenges resulting from
the COVID-19 pandemic, the Exchange believes that the proposed rule
change is a sensible accommodation that will continue to afford members
the ability to ensure that critical positions are filled and client
services maintained, while continuing to serve and promote the
protection of investors and the public interest in this unique
environment.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed 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
intended to provide temporary relief given the impacts of the COVID-19
pandemic crisis and to also maintain consistency with the rules of
other self-regulatory organizations (``SROs'') with respect to the
registration requirements applicable to members and their registered
personnel. In that regard, the Exchange believes that any burden on
competition would be clearly outweighed by providing members with
temporary relief in this unique environment while also ensuring clear
and consistent requirements applicable across SROs and mitigating any
risk of SROs implementing different standards in these important areas.
In its 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 Rule 1210
in response to the impacts of the COVID-19 pandemic that is equally
applicable to the changes the Exchange proposes.\17\ The Exchange
accordingly incorporates FINRA's abbreviated economic impact assessment
by reference.
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\17\ FINRA Filing, 85 FR at 55537.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) \19\ thereunder.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
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 of the proposed
rule change, or such shorter time as designated by the Commission.
Nasdaq has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the
Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately upon filing. As noted
above, the Exchange stated that the temporary proposed rule change is
based on a recent rule change by FINRA and is intended to harmonize
Nasdaq's registration rules with those of FINRA to promote uniform
standards across the securities industry.\20\ The Exchange states that
it will also help minimize the impact of the COVID-19 outbreak on
Nasdaq members' operations by allowing them to keep principal positions
filled and minimizing disruptions to client services and other critical
responsibilities. The ongoing extenuating circumstances of the COVID-19
pandemic make it impractical to ensure that individuals designated to
act in principal capacities are able to take and pass the appropriate
qualification examination during the 120-calendar day period required
under the rules. Shelter-in-place orders, quarantining, restrictions on
business and social activity and adherence to other social distancing
guidelines
[[Page 71982]]
consistent with the recommendation of public officials remain in place
in various states.\21\ Further, the Exchange states that Prometric test
centers have experienced serious interruptions in the administration of
FINRA qualification examinations, resulting in a backlog of individuals
waiting to take these examinations. Following a nationwide closure of
all test centers earlier in the year, some test centers have re-opened,
but are operating at limited capacity or are only delivering certain
examinations that have been deemed essential by the local
government.\22\ FINRA has launched an online test delivery service to
help address this backlog. However, the General Securities Principal
(Series 24) Examination is not available online. The Exchange states
that the temporary proposed rule change will provide needed flexibility
to ensure that these positions remain filled and is tailored to address
the constraints on members' operations during the COVID-19 pandemic
without significantly compromising critical investor protection.\23\
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\20\ See FINRA Filing, 85 FR at 55538.
\21\ See supra note 13.
\22\ See supra notes 10 and 11. The Exchange states that
Prometric has also had to close some reopened test centers due to
incidents of COVID-19 cases.
\23\ The Exchange states that members remain subject to the
continued requirement to supervise the activities of these
designated individuals and ensure compliance with federal securities
laws and regulations, as well as Exchange rules.
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The Commission also notes that the proposal provides only temporary
relief from the requirement to pass certain qualification examinations
within the 120-day period in the rules. As proposed, this relief would
extend the 120-day period that certain individuals can function as
principals through December 31, 2020. The Exchange has also stated that
if it requires temporary relief from the rule requirements identified
in this proposal beyond December 31, 2020, it may submit a separate
rule filing to extend the effectiveness of the temporary relief under
these rules.\24\ For these reasons, the Commission believes that waiver
of the 30-day operative delay is consistent with the protection of
investors and the public interest.\25\ Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\26\
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\24\ See supra note 4.
\25\ As noted above by the Exchange, this proposed temporary
change is based on a recent filing by FINRA that the Commission
approved with a waiver of the 30-day operative delay. See FINRA
Filing, 85 FR at 55538.
\26\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2020-073 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-NASDAQ-2020-073. 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, on business days between the
hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of Nasdaq. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-073 and should be submitted
on or before December 3, 2020.
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\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24967 Filed 11-10-20; 8:45 am]
BILLING CODE 8011-01-P