[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]



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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 [email protected]. 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