[Federal Register Volume 86, Number 100 (Wednesday, May 26, 2021)]
[Notices]
[Pages 28405-28407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11077]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91959; File No. SR-FINRA-2021-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 1011(p) (``Specified Risk Event'')

May 20, 2021.
    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 May 12, 2021, 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, 
II, and III below, which Items have been prepared by FINRA. 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

    FINRA is proposing to amend FINRA Rule 1011(p) (``specified risk 
event''), to correct an inadvertent drafting error and clarify the 
``final regulatory actions'' that are included in the ``specified risk 
event'' definition for purposes of the Rule 1000 Series (Member 
Application and Associated Person Registration). Rule 1011(p) was among 
the rules approved in File No. SR-FINRA-2020-011.\3\
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    \3\ See Securities Exchange Act Release No. 90635 (December 10, 
2020), 85 FR 81540 (December 16, 2020) (Order Approving File No. SR-
FINRA-2020-011) (``SEC Order''). FINRA announced the effective dates 
of the rule change in Regulatory Notice 21-09 (March 2021).
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

FINRA Rules

* * * * *

1000. MEMBER APPLICATION AND ASSOCIATED PERSON REGISTRATION

* * * * *

1011. Definitions

    Unless otherwise provided, terms used in the Rule 1000 Series shall 
have the meaning as defined in Rule 0160.

[[Page 28406]]

(a) through (o) No Change.

    (p) ``specified risk event''
    The term ``specified risk event'' means any one of the following 
events that are disclosed, or are or were required to be disclosed, on 
an applicable Uniform Registration Form:
    (1) through (3) No Change.
    (4) a final regulatory action where: (A) the total monetary 
sanctions (including civil and administrative penalties or fines, 
disgorgement, monetary penalties other than fines, or restitution) were 
ordered for a dollar amount at or above $15,000; or (B) the sanction 
against the person was a bar (permanently or temporarily), expulsion, 
rescission, revocation, or suspension[ from associating with a member].
    (q) through (r) No Change.
* * * * *

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 December 10, 2020, the Commission approved a proposed rule 
change concerning brokers with a significant history of misconduct.\4\ 
The SEC Order approved, in pertinent part, the amendment of the Rule 
1000 Series (Member Application and Associated Person Registration) to 
require a member firm to submit a written request to FINRA's Department 
of Member Regulation (``Member Regulation''), through the Membership 
Application Group (``MAP Group''), seeking a materiality consultation 
and approval of a continuing membership application, if required, when 
a natural person seeking to become an owner, control person, principal, 
or registered person of the member broker-dealer has, in the prior five 
years, one or more ``final criminal matters'' or two or more 
``specified risk events.'' \5\ The amendments to the Rule 1000 Series 
will become effective on September 1, 2021.\6\
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    \4\ See SEC Order, supra note 3.
    \5\ See SEC Order, supra note 3, at 81541.
    \6\ See Regulatory Notice 21-09 (March 2021).
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    The rules approved in the SEC Order relating to SR-FINRA-2020-011 
included Rule 1011(p), which defines ``specified risk event'' to mean 
``any one of the . . . events'' described in Rule 1011(p) ``that are 
disclosed, or are or were required to be disclosed, on an applicable 
Uniform Registration Form.'' The events described in Rule 1011(p) 
include, among others, a ``final regulatory action'' as set forth in 
Rule 1011(p)(4). Specifically, Rule 1011(p)(4) describes ``a final 
regulatory action'' to include final regulatory actions ``where (A) the 
total monetary sanctions (including civil and administrative penalties 
or fines, disgorgement, monetary penalties other than fines, or 
restitution) were ordered for a dollar amount at or above $15,000; or 
(B) the sanction against the person was a bar (permanently or 
temporarily), expulsion, rescission, revocation, or suspension from 
associating with a member.''
    The proposed rule change would delete from Rule 1011(p)(4) the 
phrase ``from associating with a member,'' which appears after the word 
``suspension.'' Including ``from associating with a member'' in Rule 
1011(p)(4) was an inadvertent drafting error that may suggest 
incorrectly that it narrows the ``final regulatory actions'' that are 
included in the ``specified risk event'' definition. For example, the 
current rule text may suggest that the ``specified risk event'' 
definition does not include final SEC and CFTC regulatory actions where 
the sanction against the person was a suspension other than a 
suspension from associating with a member.
    However, as evidenced by other provisions in Rule 1011(p), FINRA 
did not intend to narrow the scope of ``final regulatory actions'' that 
are included in the ``specified risk event'' definition in this manner. 
Rule 1011(p)(4) is intended to be consistent with Rule 1011(p)(3), 
which describes the ``final investment-related civil actions'' that are 
included in the ``specified risk event'' definition. Rule 1011(p)(3) 
includes final investment-related civil actions that result in a 
``suspension,'' and does not limit the suspensions to suspensions from 
associating with a member. Moreover, FINRA's intent to include ``final 
regulatory actions'' beyond those resulting in suspensions ``from 
associating with a member'' in the ``specified risk event'' definition 
is further evidenced by the mapping exhibits that FINRA provided in SR-
FINRA-2020-011, which showed how the ``final regulatory actions'' 
included within the scope of the ``specified risk event'' definition 
included final regulatory actions disclosed on the Uniform Registration 
Forms that resulted in a ``suspension.'' \7\ Those mapping exhibits, in 
turn, were and are consistent with how the relevant sanctions-related 
questions on the Uniform Registration Forms require the reporting of 
regulatory actions initiated by numerous regulators and self-regulatory 
organizations--not just FINRA--and include data fields for 
``suspension.'' \8\ By correcting the inadvertent drafting error and 
clarifying the ``final regulatory actions'' that are included in the 
``specified risk event'' definition, the proposed rule change will 
ensure that the rules approved in SR-FINRA-2020-011 fully serve their 
intended investor-protection purposes.\9\
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    \7\ See Form 19b-4, Exs. 3a and 3b, File No. SR-FINRA-2020-011, 
available at https://www.finra.org/sites/default/files/2020-04/SR-FINRA-2020-011.pdf.
    \8\ See Uniform Application for Securities Industry Registration 
or Transfer (Form U4), Regulatory Action Disclosure Reporting Page, 
Questions 1 (requesting information about which regulator initiated 
the regulatory action) and 13 (Sanction Detail); Uniform Application 
for Broker-Dealer Registration (Form BD), Regulatory Action 
Disclosure Reporting Page, Part II, Questions 1 (requesting 
information about which regulator initiated the regulatory action) 
and Question 2 (Principal Sanction). FINRA also notes that the data 
that FINRA provided in SR-FINRA-2020-011 concerning the regulatory 
action disclosures included regulatory actions that resulted in any 
suspension, not just suspensions from associating with a member.
    \9\ See SEC Order, supra note 3, at 81546 (explaining that the 
rules approved in SR-FINRA-2020-011 ``further promote investor 
protection by applying additional safeguards and disclosure 
obligations for a broker-dealer's continuing membership with FINRA 
and for changes to a current member broker-dealer's ownership, 
control, or business operations,'' where those changes involve 
persons with a significant history of misconduct).
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    If the Commission approves the proposed rule change, FINRA expects 
that the effective date will be September 1, 2021, the same effective 
date for the amendments to Rule 1000 Series that FINRA announced in 
Regulatory Notice 21-09.\10\
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    \10\ FINRA notes that the proposed rule change would apply to 
all members, including members that have elected to be treated as 
capital acquisition brokers (``CABs''), given that the CAB rule set 
incorporates FINRA Rule 1011 by reference.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative

[[Page 28407]]

acts and practices, to promote just and equitable principles of trade, 
and, in general, to protect investors and the public interest. FINRA 
believes that, by amending Rule 1011(p)(4) to correct an inadvertent 
drafting error, and fully and accurately describe the ``final 
regulatory actions'' that the definition of ``specified risk event'' 
includes, the proposed rule change will provide greater clarity to 
members and the public and serve the intended investor-protection 
purposes of the rules approved in SR-FINRA-2020-011.
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    \11\ 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 is associated 
with any material economic impacts or will result in any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change is not designed to 
address any competitive issues but rather to correct an inadvertent 
drafting error in Rule 1011(p)(4) that resulted in a narrower scope for 
the ``final regulatory actions'' that are included in the ``specified 
risk event'' definition than FINRA intended.
    The aspect of the economic impact assessment undertaken in File No. 
SR-FINRA-2020-011 that pertained to the amendments to the Rule 1000 
Series was based on the broader scope for the ``final regulatory 
actions'' that are included in the ``specified risk event'' definition 
that FINRA is proposing here. Consistent with FINRA's initial intent, 
the broader scope for the ``final regulatory actions'' that are 
included in the ``specified risk event'' definition includes, for 
example, final SEC and CFTC regulatory actions where the sanction 
against the person was a suspension other than a suspension from 
associating with a member.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2021-011 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-2021-011. This 
file number should be included on the subject line if e-mail 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-2021-011 and 
should be submitted on or before June 16, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11077 Filed 5-25-21; 8:45 am]
BILLING CODE 8011-01-P