[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85782-85784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28672]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90758; File No. SR-Phlx-2020-53]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Harmonize 
Exchange Rule General 3, Section 16 With Recent Changes by the 
Financial Industry Regulatory Authority, Inc.

December 21, 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 11, 2020, Nasdaq PHLX LLC (``Phlx'' 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 
substantially by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to harmonize Exchange Rule General 3, Section 
16 with recent changes by the Financial Industry Regulatory Authority, 
Inc. (``FINRA''). This amendment would temporarily grant the Exchange 
Review Council (``ERC'') authority \3\ to conduct hearings in 
connection with appeals of Membership Application Program decisions by 
video conference, if warranted by the current COVID-19-related public 
health risks posed by an in-person hearing. As proposed, the temporary 
amendment would be in effect through April 30, 2021.\4\
---------------------------------------------------------------------------

    \3\ For ERC hearings under Exchange Rule General 3, Section 16, 
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 April 30, 2021, 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 original state at the 
conclusion of the temporary relief period and any extension thereof.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/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 Rule General 3, Section 
16 with recent changes to FINRA Rule 1015 in order to temporarily grant 
the ERC authority to conduct hearings in connection with appeals of 
Membership Application Program decisions by video conference, if 
warranted by the current COVID-19-related public health risks posed by 
an in-person hearing.\5\ As proposed, these temporary amendments would 
be in effect through April 30, 2021.
---------------------------------------------------------------------------

    \5\ See Exchange Act Release No. 89737 (September 2, 2020), 85 
FR 55712 (September 9, 2020) (SR-FINRA-2020-027) (``FINRA Filing''). 
See also Exchange Act Release No. 90619 (December 9, 2020), 85 FR 
81250 (December 15, 2020) (SR-FINRA-2020-042) (extending the relief 
in the FINRA Filing through April 30, 2021). The Exchange notes that 
the FINRA Filing also proposed to temporarily amend FINRA Rules 
9261, 9524, and 9830, which govern hearings in connection with 
appeals of disciplinary actions, eligibility proceedings, and 
temporary and permanent cease and desist orders. The Exchange's 
Rules 9261, 9524, and 9830 incorporate by reference The Nasdaq Stock 
Market LLC rules, which are the subject of a separate filing. See 
SR-NASDAQ-2020-076 (November 5, 2020). Therefore, the Exchange is 
not proposing to adopt that aspect of the FINRA Filing.
---------------------------------------------------------------------------

Background
    The Exchange's rule regarding the hearing and evidentiary process 
for appeals of Membership Application Program decisions as set forth in 
Rule

[[Page 85783]]

General 3, Section 16 is based on FINRA's Rule 1015. As adopted, the 
text of Exchange Rule General 3, Section 16 is substantially the same 
as FINRA Rule 1015, with the exception of 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 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.\6\ Accordingly, the Exchange proposes to file this temporary 
rule change to align with the temporary rule change filed by FINRA.
---------------------------------------------------------------------------

    \6\ See FINRA Filing, 85 FR at 55712.
---------------------------------------------------------------------------

    Mirroring FINRA's NAC, the ERC is the Exchange's appellate body, 
which reviews initial decisions issued by FINRA's Office of Hearing 
Officers (``OHO'') and--through Subcommittees--holds evidentiary 
hearings for Membership Application Program decision appeals and 
eligibility proceedings under Exchange Rule General 3, Section 16. 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 Rule 1015, the 
Exchange proposes to temporarily grant the ERC authority to conduct 
hearings in connection with appeals of Membership Application Program 
decisions 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 ERC to make an assessment, based on critical 
COVID-19 data and criteria, 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. The Exchange believes 
that this is a reasonable procedure to follow in hearings under Rule 
General 3, Section 16.
    To effectuate these changes, the Exchange proposes to add the 
following sentence to General 3, Section 16(a)(vi):

    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.\7\
---------------------------------------------------------------------------

    \7\ See id. at 55712.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As previously noted, the text of Exchange Rule General 3, Section 
16 is substantially the same as FINRA's rule. 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 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 Exchange's adjudicatory functions to continue 
unabated, thereby avoiding protracted delays. 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.
    The Exchange believes that the temporary proposed rule change 
strikes 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 temporary 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 Rule 1015 in response to the impacts of the 
COVID-19 pandemic that is equally applicable to the changes the 
Exchange proposes.\10\ The Exchange accordingly incorporates FINRA's 
abbreviated economic impact assessment by reference.
---------------------------------------------------------------------------

    \10\ See FINRA Filing, 85 FR at 55716.
---------------------------------------------------------------------------

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 \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    The Exchange believes that this filing is non-controversial and 
eligible to become effective immediately because the proposal promotes 
uniformity in rules across self-regulatory organizations thereby 
enabling the Exchange to conduct hearings during the COVID-19 pandemic 
by video conference where the health risks of in-person hearings are 
significant. The proposed rule change is based on, and

[[Page 85784]]

similar to, recent changes made to FINRA Rule 1015 that addressed the 
issue of balancing public health risks with conducting hearings during 
the COVID-19 pandemic. The Exchange proposes to adopt the rule change 
in substantially the same form as it was adopted by FINRA. The Exchange 
further believes that the proposed rule change would not significantly 
affect the protection of investors or the public interest or impose any 
significant burden on competition because the changes are based on the 
rules of FINRA. Moreover, the proposed rule change is not intended to 
address competitive issues but rather is concerned solely with 
providing temporary relief given the impacts of the COVID-19 pandemic.
    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-Phlx-2020-53 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-Phlx-2020-53. 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-Phlx-2020-53 and should be submitted on 
or before January 19, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28672 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P