[Federal Register Volume 85, Number 241 (Tuesday, December 15, 2020)]
[Notices]
[Pages 81258-81261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27481]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90617; File No. SR-FINRA-2020-043]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Effective Date of the Temporary 
Amendments Set Forth in SR-FINRA-2020-026 From December 31, 2020 to 
April 30, 2021

December 9, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 4, 2020, the 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 and II 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 effective date of the temporary 
amendments set forth in SR-FINRA-2020-026 from December 31, 2020, to 
April 30, 2021.\4\ Due to the impacts of COVID-19 on the administration 
of FINRA qualification examinations at test centers, SR-FINRA-2020-026 
extended the 120-day period that certain individuals can function as a 
principal or Operations Professional without having successfully passed 
an appropriate qualification examination through December 31, 2020.
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    \4\ If FINRA seeks to provide additional temporary relief from 
the rule requirements identified in this proposed rule change beyond 
April 30, 2021, FINRA will submit a separate rule filing to further 
extend the temporary extension of time.
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    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
    The COVID-19 pandemic is an unpredictable, exogenous event that has 
resulted in unavoidable disruptions to the securities industry and 
impacted member firms, regulators, investors and other stakeholders. In 
response to COVID-19, earlier this year FINRA began providing temporary 
relief to member firms from FINRA rules and requirements via frequently 
asked questions (``FAQs'') on its website.\5\ Two of these FAQs \6\ 
provided temporary relief 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 these 
examinations due to Prometric test center capacity issues.\7\
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    \5\ See Frequently Asked Questions Related to Regulatory Relief 
Due to the Coronavirus Pandemic, available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq.
    \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. Currently, Prometric has 
resumed testing in many of its United States and Canada test 
centers, at either full or limited occupancy, based on local and 
government mandates.
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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 prior to February 2, 2020,

[[Page 81259]]

would be given until May 31, 2020, to pass the appropriate principal 
qualification examination.\8\ On May 19, 2020, FINRA extended the 
relief to pass the appropriate examination until June 30, 2020. 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\ 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.
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    FINRA published the second FAQ on May 15, 2020, providing that 
individuals who were designated to function as Operations Professionals 
under FINRA Rule 1220(b)(3)(B) prior to February 2, 2020, would be 
given until June 30, 2020, to pass the applicable qualification 
examination.\9\ On June 29, 2020, FINRA extended the temporary relief 
providing that individuals who were designated to function as 
Operations Professionals under FINRA Rule 1220(b)(3)(B) prior to May 4, 
2020, would be given until August 31, 2020, to pass the appropriate 
qualification examination.
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    \9\ Pursuant to FINRA Rule 1220(b)(3)(B) (Qualifications), a 
person registering as an Operations Professional may function in 
that capacity for 120 days before having to pass an applicable 
qualification examination.
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    On August 28, 2020, FINRA filed with the Commission a proposed rule 
change for immediate effectiveness to extend the temporary relief 
provided via the two FAQs by adopting: (1) Temporary Supplementary 
Material .12 (Temporary Extension of the Limited Period for Registered 
Persons to Function as Principals) under FINRA Rule 1210 (Registration 
Requirements), and (2) temporary Supplementary Material .07 (Temporary 
Extension of the Limited Period for Persons to Function as Operations 
Professionals) under FINRA Rule 1220 (Registration Categories).\10\ 
Pursuant to this rule filing, individuals who were designated prior to 
September 3, 2020, to function as a principal under FINRA Rule 1210.04 
or an Operations Professional under FINRA Rule 1220(b)(3)(B) have until 
December 31, 2020, to pass the appropriate qualification examination.
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    \10\ See Securities Exchange Act Release No. 89732 (September 1, 
2020), 85 FR 55535 (September 8, 2020) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2020-026).
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    The COVID-19 conditions necessitating the extension of relief 
provided in the FAQs and SR-FINRA-2020-026 persist and in fact appear 
to be worsening.\11\ 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.\12\ Although Prometric has 
been reopening its 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.\13\ 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 continued backlog of 
individuals who are waiting to sit for FINRA examinations that are not 
available online, including the General Securities Principal Exam 
(Series 24) and the Operations Professional Exam (Series 99).\14\
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    \11\ See, e.g., Meryl Kornfield, Jacqueline Dupree, Marisa Lati, 
Paulina Villegas, Siobhan O'Grady and Hamza Shaban, New daily 
coronavirus cases in U.S. rise to 145,000, latest all-time high, 
Wash. Post, November 11, 2020, https://www.washingtonpost.com/nation/2020/11/11/coronavirus-covid-live-updates-us/.
    \12\ 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/exams.
    \13\ Information from Prometric about its safety practices and 
the impact of COVID-19 on it operations is available at https://www.prometric.com/corona-virus-update. See also supra note 12.
    \14\ Earlier this year, an online test delivery service was 
launched for candidates seeking to take qualification examinations 
remotely. Only certain qualification examinations are available 
online. See supra note 12. FINRA is considering making additional 
qualification examinations available remotely on a limited basis.
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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.\15\ 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 or 
Operations Professional 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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    \15\ 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 
member firms to ensure that the individuals who they have designated to 
function in a principal or Operations Professional capacity, as set 
forth in FINRA Rules 1210.04 and 1220(b)(3)(B), are able to 
successfully sit for and pass an appropriate qualification examination 
within the 120-calendar day period required under the rules, or to find 
other qualified staff to fill these positions. 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 and Operations Professional examinations 
are not available online. Therefore, FINRA is proposing to extend the 
effective date of the temporary relief provided through SR-FINRA-2020-
026 until April 30, 2021. The proposed rule change would apply only to 
those individuals who have been designated to function as a principal 
or Operations Professional prior to January 1, 2021. Any individuals 
designated to function as a principal or Operations Professional on or 
after January 1, 2021, would need to successfully pass an appropriate 
qualification examination within 120 days.\16\
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    \16\ FINRA notes that the proposed rule change would impact 
members that have elected to be treated as capital acquisition 
brokers (``CABs''), given that the CAB rule set incorporates the 
impacted FINRA rules by reference.
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    FINRA believes that this proposed continued extension of time is 
tailored to address the needs and constraints on a firm'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 firms by providing continued 
flexibility so that firms can ensure that principal and Operations 
Professional positions remain filled. The potential risks from the 
proposed extension of the 120-day period are mitigated by the firm's 
continued requirement to supervise the activities of these designated 
individuals and ensure compliance with federal securities laws and 
regulations, as well as FINRA rules.
    FINRA has filed the proposed rule change for immediate 
effectiveness and

[[Page 81260]]

has requested that the SEC waive the requirement that the proposed rule 
change not become operative for 30 days after the date of the filing, 
so FINRA can implement the proposed rule change immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\17\ 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.
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    \17\ 15 U.S.C. 78o-3(b)(6).
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    The proposed rule change is intended to minimize the impact of 
COVID-19 on firm operations by further extending the 120-day period 
certain individuals may function as a principal or Operations 
Professional without having successfully passed an appropriate 
qualification examination under FINRA Rules 1210.04 and 1220(b)(3)(B) 
until April 30, 2021. The proposed rule change does not relieve firms 
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 FINRA rules that directly serve investor protection. In a 
time when faced with unique challenges resulting from the COVID-19 
pandemic, FINRA believes that the proposed rule change is a sensible 
accommodation that will continue to afford firms 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

    FINRA does not believe that the temporary proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As set forth in 
SR-FINRA-2020-026, the proposed rule change is intended solely to 
extend temporary relief necessitated by the continued impacts of the 
COVID-19 pandemic and the related health and safety risks of conducting 
in-person activities. FINRA believes that the proposed rule change is 
necessary to temporarily rebalance the attendant benefits and costs of 
the obligations under FINRA Rules 1210 and 1220 in response to the 
impacts of the COVID-19 pandemic that would otherwise result if the 
temporary amendments were to expire on December 31, 2020.

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) thereunder.\19\
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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. 
FINRA 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. FINRA 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, FINRA stated 
that the proposed extension of time will help minimize the impact of 
the COVID-19 outbreak on FINRA member firms' operations by allowing 
them to keep principal and Operations Professional positions filled and 
minimizing disruptions to client services and other critical 
responsibilities. FINRA further stated that the ongoing extenuating 
circumstances of the COVID-19 pandemic make it impractical to ensure 
that individuals designated to act in these capacities are able to take 
and pass the appropriate qualification examination during the 120-
calendar day period required under the rules. FINRA also stated that 
shelter-in-place orders, quarantining, restrictions on business and 
social activity and adherence to social distancing guidelines 
consistent with the recommendations of public officials remain in place 
in various states.\20\ FINRA also observed that, 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.\21\ FINRA has launched an online test delivery service to 
help address this backlog. However, FINRA states that the General 
Securities Principal (Series 24) and the Operations Profession (Series 
99) Examinations are not available online.\22\ FINRA also states that 
the proposed rule change will provide needed flexibility to ensure that 
these positions remain filled and is tailored to address the 
constraints on member firms' operations during the COVID-19 pandemic 
without significantly compromising critical investor protection.\23\
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    \20\ See supra note 15.
    \21\ See supra notes 12 and 13. FINRA states that Prometric has 
also had to close some reopened test centers due to incidents of 
COVID-19 cases.
    \22\ See supra note 14. FINRA is considering making additional 
qualification examinations available remotely on a limited basis.
    \23\ FINRA states that member firms 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 FINRA rules.
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    The Commission also notes that the proposal provides only an 
extension to 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 or Operations Professionals 
through April 30, 2021. FINRA also noted that if it requires a further 
extension of temporary relief from the rule requirements identified in 
this proposal beyond April 30, 2021, 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 FINRA, this proposal is an extension of 
temporary relief provided in a prior filing where FINRA also 
requested and the Commission granted a waiver of the 30-day 
operative delay. See supra note 10, 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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[[Page 81261]]

    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-2020-043 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-2020-043. 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 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-2020-043 and should be submitted 
on or before January 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27481 Filed 12-14-20; 8:45 am]
BILLING CODE 8011-01-P