[Federal Register Volume 85, Number 19 (Wednesday, January 29, 2020)]
[Notices]
[Pages 5261-5263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01521]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88023; File No. SR-FINRA-2020-001]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Expiration Date of FINRA Rule 0180 
(Application of Rules to Security-Based Swaps)

January 23, 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 January 10, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') 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 FINRA. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend the expiration date of FINRA Rule 0180 
(Application of Rules to Security-Based Swaps) to September 1, 2021. 
FINRA Rule 0180 temporarily limits, with certain exceptions, the 
application of FINRA rules with respect to security-based swaps.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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
    On July 1, 2011, the SEC issued an Order granting temporary 
exemptive relief (the ``Temporary Exemptions'') from compliance with 
certain provisions of the Exchange Act in connection with the revision, 
pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''),\4\ of the Exchange Act 
definition of ``security'' to encompass security-based swaps.\5\ 
Consistent with the Commission's action, on July 8, 2011, FINRA filed 
for immediate effectiveness FINRA Rule 0180,\6\ which, with certain 
exceptions, is intended to temporarily limit the

[[Page 5262]]

application of FINRA rules \7\ with respect to security-based swaps, 
thereby helping to avoid undue market disruptions resulting from the 
change to the definition of ``security'' under the Act.\8\
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    \4\ Public Law 111-203, 124 Stat. 1376 (2010).
    \5\ See Securities Exchange Act Release No. 64795 (July 1, 
2011), 76 FR 39927 (July 7, 2011) (Order Granting Temporary 
Exemptions Under the Securities Exchange Act of 1934 in Connection 
With the Pending Revision of the Definition of ``Security'' To 
Encompass Security-Based Swaps, and Request for Comment) (the 
``Exemptive Release''). The term ``security-based swap'' is defined 
in Section 761 of the Dodd-Frank Act. See also Securities Exchange 
Act Release No. 67453 (July 18, 2012), 77 FR 48207 (August 13, 2012) 
(Further Definition of ``Swap,'' ``Security-Based Swap,'' and 
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap 
Agreement Recordkeeping).
    \6\ See Securities Exchange Act Release No. 64884 (July 14, 
2011), 76 FR 42755 (July 19, 2011) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2011-033) 
(``FINRA Rule 0180 Notice of Filing''). See also Securities Exchange 
Act Release No. 85062 (February 6, 2019), 84 FR 3524 (February 12, 
2019) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change; File No. SR-FINRA-2019-001) (extending the expiration date 
of FINRA Rule 0180 to February 12, 2020).
    \7\ Prior to FINRA's rule change pursuant to File No. SR-FINRA-
2019-009, the FINRA rulebook consisted of: (1) FINRA Rules; (2) NASD 
Rules; and (3) rules incorporated from NYSE (``Incorporated NYSE 
Rules'') and their corresponding Incorporated NYSE Rule 
Interpretations. Pursuant to File No. SR-FINRA-2019-009, as part of 
the process of completing the consolidated FINRA rulebook, FINRA 
adopted, without substantive changes, the remaining NASD Rules as 
FINRA Rules in the consolidated FINRA rulebook and the remaining 
Incorporated NYSE Rules and Incorporated NYSE Rule Interpretations 
in the consolidated FINRA rulebook as a separate Temporary Dual 
FINRA-NYSE Member Rules Series. See Securities Exchange Act Release 
No. 85589 (April 10, 2019), 84 FR 15646 (April 16, 2019) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt Remaining Legacy NASD and Incorporated NYSE Rules as FINRA 
Rules; File No. SR-FINRA-2019-009). For more information about the 
rulebook consolidation process, see Information Notice, March 12, 
2008 (Rulebook Consolidation Process).
    \8\ In its Exemptive Release, the Commission noted that the 
relief is targeted and does not include, for instance, relief from 
the Act's antifraud and anti-manipulation provisions. FINRA has 
noted that FINRA Rule 0180 is similarly targeted. For instance, 
paragraph (a) of FINRA Rule 0180 provides that FINRA rules shall not 
apply to members' activities and positions with respect to security-
based swaps, except for FINRA Rules 2010 (Standards of Commercial 
Honor and Principles of Trade), 2020 (Use of Manipulative, Deceptive 
or Other Fraudulent Devices), 3310 (Anti-Money Laundering Compliance 
Program) and 4240 (Margin Requirements for Credit Default Swaps). 
See also paragraphs (b) and (c) of FINRA Rule 0180 (addressing the 
applicability of additional rules) and FINRA Rule 0180 Notice of 
Filing.
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    The Commission, noting the need to avoid a potential unnecessary 
disruption to the security-based swap market in the absence of an 
extension of the Temporary Exemptions, and the need for additional time 
to consider the potential impact of the revision of the Exchange Act 
definition of ``security'' in light of ongoing Commission rulemaking 
efforts under Title VII of the Dodd-Frank Act, issued an Order which 
extended and refined the applicable expiration dates for the previously 
granted Temporary Exemptions.\9\ The Commission previously noted that 
extending the Temporary Exemptions would facilitate a coordinated 
consideration of these issues with the relief provided pursuant to 
FINRA Rule 0180.\10\ In establishing Rule 0180, and in extending the 
rule's expiration date, FINRA noted that the relief provided by Rule 
0180 is appropriate pending the implementation of the Commission's 
rules and guidance with respect to security-based swaps activity and 
the termination of relevant provisions of the Temporary Exemptions.\11\
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    \9\ See Securities Exchange Act Release No. 71485 (February 5, 
2014), 79 FR 7731 (February 10, 2014) (Order Extending Temporary 
Exemptions Under the Securities Exchange Act of 1934 in Connection 
With the Revision of the Definition of ``Security'' to Encompass 
Security-Based Swaps, and Request for Comment) (``2014 Extension 
Release'') stating that, for those expiring Temporary Exemptions 
``that are not directly linked to pending security-based swap 
rulemakings, the Commission is extending the expiration date until 
the earlier of such time as the Commission issues an order or rule 
determining whether any continuing exemptive relief is appropriate 
for security-based swap activities with respect to any of these 
Exchange Act provisions or until three years following the effective 
date of this Order.'' The 2014 Extension Release further stated that 
for each expiring Temporary Exemption ``that is related to pending 
security-based swap rulemakings, the Commission is extending the 
expiration date until the compliance date for the related security-
based swap-specific rulemaking.'' In early 2019, the Commission 
extended certain Temporary Exemptions that are not directly linked 
to a security-based swap rulemaking to February 5, 2020. See 
Securities Exchange Act Release No. 84991 (January 25, 2019), 84 FR 
863 (January 31, 2019) (Order Granting a Limited Exemption From the 
Exchange Act Definition of ``Penny Stock'' for Security-Based Swap 
Transactions Between Eligible Contract Participants; Granting a 
Limited Exemption from the Exchange Act Definition of ``Municipal 
Securities'' for Security-Based Swaps; and Extending Certain 
Temporary Exemptions Under the Exchange Act in Connection With the 
Revision of the Definition of ``Security'' To Encompass Security-
Based Swaps) (``2019 Extension Release''). See also note 13 infra.
    \10\ See Securities Exchange Act Release No. 68864 (February 7, 
2013), 78 FR 10218 (February 13, 2013) (Order Extending Temporary 
Exemptions Under the Securities Exchange Act of 1934 in Connection 
With the Revision of the Definition of ``Security'' to Encompass 
Security-Based Swaps, and Request for Comment).
    \11\ See note 6 supra.
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    The Commission has finalized a majority of its rulemakings pursuant 
to Title VII of the Dodd-Frank Act (the ``Title VII rulemakings'').\12\ 
Further, the Commission has specified an extended compliance period for 
these new rules and guidance so as to permit sufficient time to prepare 
for and come into compliance with the new requirements.\13\ 
Notwithstanding the expiration of the Temporary Exemptions that are not 
directly linked to a security-based swap rulemaking,\14\ FINRA believes 
it is appropriate and in the public interest to extend FINRA Rule 0180 
for a limited period, to September 1, 2021, so as to avoid undue 
burdens on market participants and undue market disruption, pending the 
extended compliance period for the Commission's new security-based swap 
related requirements.\15\
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    \12\ See Securities Exchange Act Release No. 75611 (August 5, 
2015), 80 FR 48964 (August 14, 2015) (Final Rule: Registration 
Process for Security-Based Swap Dealers and Major Security-Based 
Swap Participants) (``Registration Process Release''); Securities 
Exchange Act Release No. 77617 (April 14, 2016), 81 FR 29960 (May 
13, 2016) (Final Rule: Business Conduct Standards for Security-Based 
Swap Dealers and Major Security-Based Swap Participants) (the 
``Business Conduct Standards Release''); Securities Exchange Act 
Release No. 78011 (June 8, 2016), 81 FR 39808 (June 17, 2016) (Final 
Rule: Trade Acknowledgment and Verification of Security-Based Swap 
Transactions) (``Trade Acknowledgment and Verification Release''); 
Securities Exchange Act Release No. 86175 (June 21, 2019), 84 FR 
43872 (August 22, 2019) (Final Rule: Capital, Margin, and 
Segregation Requirements for Security-Based Swap Dealers and Major 
Security-Based Swap Participants and Capital and Segregation 
Requirements for Broker-Dealers) (``Capital, Margin, and Segregation 
Release''); Securities Exchange Act Release No. 87005 (September 19, 
2019), 84 FR 68550 (December 16, 2019) (Final Rule: Recordkeeping 
and Reporting Requirements for Security-Based Swap Dealers, Major 
Security-Based Swap Participants, and Broker-Dealers) 
(``Recordkeeping Release''); Securities Exchange Act Release No. 
87780 (December 18, 2019), (Final Rules; Guidance: Rule Amendments 
and Guidance Addressing Cross-Border Application of Certain 
Security-Based Swap Requirements) (``Cross-Border Release''); 
Securities Exchange Act Release No. 87782 (December 18, 2019), 
(Final Rule: Risk Mitigation Techniques for Uncleared Security-Based 
Swaps) (``Risk Mitigation Release'').
    \13\ Except as otherwise specified by the Commission, the 
Commission has broadly coordinated the compliance date for the Title 
VII rulemakings with the compliance date for registration (the 
``Registration Compliance Date''), pursuant to the Registration 
Process Release, of security-based swap dealers and major security-
based swap participants (together, referred to as ``SBS Entities''). 
See Cross-Border Release, at Part X.B. The Commission has stated 
that the Registration Compliance Date for SBS Entities will be 18 
months after the effective date (the ``effective date'') of the 
rules adopted pursuant to the Cross-Border Release. Such effective 
date will be later of (1) March 1, 2020 or (2) 60 days after 
publication of the Cross-Border Release in the Federal Register. See 
Cross-Border Release, at Part X.A; see also Capital, Margin, and 
Segregation Release, 84 FR at 43954; Recordkeeping Release, 84 FR at 
68600; and Risk Mitigation Release, at Part V. The Temporary 
Exemptions that are directly linked to specific Title VII 
rulemakings will generally expire on the Registration Compliance 
Date, or such other dates or pursuant to such conditions as 
otherwise specified by the Commission. The Temporary Exemptions that 
are not directly linked to a security-based swap rulemaking will 
generally expire on February 5, 2020. See, e.g., Cross-Border 
Release, at Part X.D; 2019 Extension Release, 84 FR 863 through 866.
    \14\ The Commission notes that, after FINRA filed its proposed 
rule change, the Commission extended certain of the Temporary 
Exemptions not directly linked to a security-based swap rulemaking 
but did not extend the remainder of such Temporary Exemptions. See 
Securities Exchange Act Release No. 87943 (January 10, 2020) (Order 
Extending Temporary Exemptions from Exchange Act Section 8 and 
Exchange Act Rules 8c-1, 10b-16, 15a-1, 15c2-1 and 15c2-5 in 
Connection with the Revision of the Definition of ``Security'' to 
Encompass Security-Based Swaps).
    \15\ The proposed expiration date of September 1, 2021, broadly 
aligns with the Commission's Registration Compliance Date. See note 
13 supra. FINRA may amend the expiration date of FINRA Rule 0180 
based on any related Commission action.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the implementation date of the 
proposed rule change will be February 12, 2020.

[[Page 5263]]

2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\16\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change would 
further the purposes of the Act because the proposed rule change will 
help to avoid undue burdens on market participants and undue market 
disruption that could result if FINRA Rule 0180 expires before the 
Registration Compliance Date that the Commission has specified.
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    \16\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA 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. FINRA believes that the 
proposed rule change would prevent undue burdens on market participants 
and undue market disruption that would otherwise result if FINRA Rule 
0180 expires before the Registration Compliance Date that the 
Commission has specified. FINRA believes that, by extending the 
expiration of FINRA Rule 0180, the proposed rule change will serve to 
promote regulatory clarity and consistency, thereby reducing burdens on 
the marketplace and facilitating investor protection.

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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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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 [email protected]. Please include 
File Number SR-FINRA-2020-001 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-FINRA-2020-001. 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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. 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-
FINRA-2020-001 and should be submitted on or before February 19, 2020.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-01521 Filed 1-28-20; 8:45 am]
BILLING CODE 8011-01-P