[Federal Register Volume 85, Number 222 (Tuesday, November 17, 2020)]
[Notices]
[Pages 73302-73304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25271]
[[Page 73302]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90390; File No. SR-NASDAQ-2020-076]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Harmonize Exchange Rules 1015, 9261, 9524 and 9830 With Recent Changes
by the Financial Industry Regulatory Authority, Inc.
November 10, 2020.
Pursuant to 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 5, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, 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\ 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 harmonize Exchange Rules 1015, 9261, 9524
and 9830 with recent changes by the Financial Industry Regulatory
Authority, Inc. (``FINRA''). These amendments would temporarily grant
the Exchange's Office of Hearing Officers (``OHO'') and the Exchange
Review Council (``ERC'') authority \3\ to conduct hearings in
connection with appeals of Membership Application Program decisions,
disciplinary actions, eligibility proceedings and temporary and
permanent cease and desist orders by video conference, if warranted by
the current COVID-19-related public health risks posed by an in-person
hearing. As proposed, these temporary amendments would be in effect
through December 31, 2020.\4\
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\3\ For OHO hearings under Exchange Rules 9261 and 9830, the
proposed rule change temporarily grants authority to the Chief or
Deputy Chief Hearing Officer to order that a hearing be conducted by
video conference. For ERC hearings under Exchange Rules 1015 and
9524, this temporary authority is granted to the ERC or relevant
Subcommittee.
\4\ If the Exchange requires temporary relief from the rule
requirements identified in this proposal beyond December 31, 2020,
the Exchange may submit a separate rule filing to extend the
expiration date of the temporary amendments under these rules. The
amended Exchange rules will revert back to their current state at
the conclusion of the temporary relief period and any extension
thereof.
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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 harmonize Exchange Rules 1015, 9261, 9524
and 9830 with recent changes by FINRA to its Rules 1015, 9261, 9524 and
9830 in order to temporarily grant its OHO and the ERC authority to
conduct hearings in connection with appeals of Membership Application
Program decisions, disciplinary actions, eligibility proceedings and
temporary and permanent cease and desist orders by video conference, if
warranted by the current COVID-19-related public health risks posed by
an in-person hearing. As proposed, these temporary amendments would be
in effect through December 31, 2020.
Background
The Exchange's rules regarding hearing and evidentiary processes as
set forth in Rules 1015, 9261, 9524 and 9830 model FINRA rules. As
adopted, the text of Exchange Rule 1015 is substantially the same as
FINRA Rule 1015, excepting additional provisions for Ex Parte
Communications, Recusal or Disqualification, and conforming and
technical differences. Similarly, the text of Exchange Rules 9261, 9524
and 9830 are substantially the same as FINRA Rules 9261, 9524 and 9830,
except for conforming and technical differences.
In view of the ongoing spread of COVID-19 and its effect on FINRA's
adjudicatory functions nationwide, FINRA recently filed a temporary
rule change to grant FINRA's 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.\5\ Accordingly, the Exchange
proposes to file this temporary rule change to align with FINRA.
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\5\ See Securities Exchange Act Release Nos. 89737 (September 2,
2020), 85 FR 55712 (September 9, 2020) (SR-FINRA-2020-027) (``FINRA
Filing'').
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A. OHO Hearings
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.\6\ 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.\7\
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\6\ See id. at 55713.
\7\ See id.
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Pursuant to a regulatory services agreement (``RSA'') between the
Exchange and FINRA, FINRA's OHO administers all aspects of
adjudications, including assigning hearing officers to serve as
Exchange hearing officers. A hearing officer from the OHO, among other
things, presides over the disciplinary hearing, selects and chairs the
hearing panel, and prepares and issues written decisions. The Chief or
Deputy Hearing Officer for all Exchange disciplinary hearings are
currently drawn from the OHO and are all FINRA employees. The Exchange
believes that the 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 OHO administer 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, pursuant to the RSA, to conduct
virtual hearings on its behalf.
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B. ERC Hearings
Mirroring FINRA's NAC, the ERC is the Exchange's appellate body,
which reviews initial decisions issued by its OHO and--through
Subcommittees--holds evidentiary hearings for Membership Application
Program decision appeals and eligibility proceedings under Exchange
Rules 1015 or 9524. As with OHO hearings discussed above, this
temporary proposed rule change will allow the ERC or relevant
Subcommittee to make an assessment as to whether an in-person hearing
would compromise the health and safety of the hearing participants such
that the hearing should proceed by video conference.
Proposed Rule Change
Consistent with FINRA's temporary amendment to FINRA Rules 1015,
9261, 9524 and 9830, the Exchange proposes to temporarily grant its OHO
and the ERC authority to conduct hearings in connection with appeals of
Membership Application Program decisions, disciplinary actions,
eligibility proceedings and temporary and permanent cease and desist
orders by video conference, if warranted by the current COVID-19-
related public health risks posed by an in-person hearing. The proposed
change will permit the OHO and the ERC to make an assessment, based on
critical COVID-19 data and criteria and the guidance of health and
security consultants, whether an in-person hearing would compromise the
health and safety of the hearing participants such that the hearing
should proceed by video conference. As noted, FINRA has adopted a
detailed and thorough protocol to ensure that hearings conducted by
video conference will maintain fair process for the parties.\8\ The
Exchange believes that this is a reasonable procedure to follow in
hearings under Rules 1015, 9261, 9524 and 9830.\9\
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\8\ See id. at 55713.
\9\ 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 also FINRA Filing, 85 FR at
55714, n. 21.
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To effectuate these changes, the Exchange proposes to add the
following sentence to Rule 1015(f):
Upon consideration of the current public health risks presented
by an in-person hearing, the Exchange Review Council or Subcommittee
may, on a temporary basis, determine that the hearing shall be
conducted, in whole or in part, by video conference.
The proposed text is substantially the same as the language adopted
by FINRA, excepting conforming and technical differences.\10\
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\10\ See FINRA Filing, 85 FR at 55712.
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Similarly, the Exchange proposes to add the following sentence to
Rule 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.\11\
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\11\ Id.
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Similarly, the Exchange proposes to add the following sentence to
Rule 9524(a):
Upon consideration of the current public health risks presented
by an in-person hearing, the Exchange Review Council or Review
Subcommittee may, on a temporary basis, determine that the hearing
shall be conducted, in whole or in part, by video conference.
The proposed text is substantially the same as the language adopted
by FINRA, excepting conforming and technical differences.\12\
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\12\ Id.
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Similarly, the Exchange proposes to add the following sentence to
Rule 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.
The proposed text is identical to the language adopted by
FINRA.\13\
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\13\ Id.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ in particular, in that it is designed 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, by providing greater harmonization between the Exchange rules
and FINRA rules of similar purpose, resulting in less burdensome and
more efficient regulatory compliance.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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As previously noted, with certain exceptions, the text of Exchange
Rules 1015, 9261, 9524 and 9830 are substantially the same as FINRA's
rules. 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 \16\ to effectively conduct hearings during the
COVID-19 pandemic in situations where in-person hearings present likely
public health risks. The ability to conduct hearings by video
conference will thereby permit the adjudicatory functions of the
Exchange's 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.
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\16\ As noted herein, FINRA and its OHO administer disciplinary
hearings on the Exchange's behalf.
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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 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.
The Exchange believes that the temporary proposed rule change
strikes
[[Page 73304]]
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 accounting for the significant
health and safety risks of in-person hearings stemming from the
outbreak of COVID-19.
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 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. 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 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.\17\
The Exchange accordingly incorporates FINRA's abbreviated economic
impact assessment by reference.
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\17\ See FINRA Filing, 85 FR at 55716.
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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
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)(iii) of the Act \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
The Exchange has satisfied this requirement.
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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-2020-076 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-2020-076. 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
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-2020-076 and
should be submitted on or before December 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25271 Filed 11-16-20; 8:45 am]
BILLING CODE 8011-01-P