[Federal Register Volume 88, Number 8 (Thursday, January 12, 2023)]
[Notices]
[Pages 2140-2142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00424]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96606; File No. SR-IEX-2022-14]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Supplementary Material .15 of IEX Rule 5.110 (Supervision)

January 6, 2023.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 23, 2022, the Investors Exchange LLC (``IEX'' 
or ``Exchange'') 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 IEX. IEX has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under section 19(b)(3)(A) \4\ of the Act 
and Rule 19b-4(f)(6) \5\ thereunder, which renders the proposed rule 
change 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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

    Pursuant to the provisions of section 19(b)(1) under the Act,\6\ 
and Rule 19b-4 thereunder,\7\ IEX is filing with the Commission a 
proposed rule change to amend Supplementary Material .15 of IEX Rule 
5.110 (Supervision) to extend the temporary remote inspection relief to 
IEX Members through the earlier of the effective date of the FINRA 
pilot program on remote inspections (the ``FINRA Pilot Program'') \8\, 
if approved, or December 31, 2023. The proposed extension would 
alleviate the ongoing operational challenges resulting from the COVID-
19 pandemic that many member firms may continue to face in planning for 
and timely conducting required on-site inspections at locations 
requiring inspection in calendar year 2023.
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    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 17 CFR 240.19b-4.
    \8\ See Securities Exchange Act Release No. 95452 (Aug. 9, 
2022), 87 FR 50144 (Aug. 15, 2022) (File No. SR-FINRA-2022-21).
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, 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 the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The COVID-19 pandemic has caused a host of operational disruptions 
to the securities industry and impacted IEX Members,\9\ regulators, 
investors, and other stakeholders. In response to the pandemic, IEX 
adopted Supplementary Material .15 of IEX Rule 5.110 to provide Members 
the temporary option of satisfying their inspection obligations for 
offices of supervisory jurisdiction, branch offices, or non-branch 
locations under IEX Rule 5.110 (Supervision) remotely for calendar 
years 2021 and 2022, subject to specified conditions,\10\ due to the 
logistical challenges of going on-site while public health and safety 
concerns related to COVID-19 persisted. While there are several signs 
that the pandemic has receded, much uncertainty still remains. The 
emergence of new variants, dissimilar vaccination rates throughout the 
U.S., and varying levels of transmissions of the virus all indicate 
that COVID-19 remains an active and real public health concern. Against 
this setting, IEX understands the complexity Members face in assessing 
when and how to effectively and safely recall their employees back into 
offices alongside fashioning permanent telework arrangements or a 
hybrid workforce model in which some employees may work on-site in a 
commercial office space and other employees may work off-site in an 
alternative location (e.g., a personal residence).\11\ Accordingly, due 
to the continued logistical challenges of going on-site to branch 
offices or locations while these public health and safety concerns 
related to COVID-19 persist coupled with several Members delaying their 
return-to-office plans, IEX believes that extending the temporary 
remote inspection relief to Members is warranted.
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    \9\ See IEX Rule 1.160(s).
    \10\ See Securities Exchange Act Release No. 92222 (June 22, 
2021), 86 FR 34069 (June 28, 2021) (SR-IEX-2021-09) (providing 
remote inspection relief to Members for calendar year 2021), and 
Securities Exchange Act Release No. 96460 (December 7, 2022), 87 FR 
76222 (December 13, 2022) (SR-IEX-2022-12) (providing remote 
inspection relief to Members for calendar year 2022).
    \11\ For example, IEX understands that both the Commission and 
FINRA do not currently require employees to return to the office. 
See SEC Fiscal Year 2022 Agency Financial Report, available at 
https://www.sec.gov/files/sec-2022-agency-financial-report.pdf and 
https://www.finra.org/rules-guidance/key-topics/covid-19.
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    FINRA has filed with the Commission File No. SR-FINRA-2022-021, a 
proposed rule change to adopt a voluntary, remote inspections pilot 
program that is currently pending Commission review. The FINRA Pilot 
Program would provide for a voluntary, three-year remote inspection 
pilot program to allow broker-dealers to elect to fulfill their 
obligation under FINRA Rule 3110(c) (Internal Inspections) by 
conducting inspections of some or all branch offices and non-branch 
locations remotely without an on-site visit to such office or location, 
subject to specified

[[Page 2141]]

terms. FINRA has stated that the review period for its rule filing may 
extend well into 2023. Given the potential length of that review 
period, and the pilot program's significant planning requirements and 
varying limitations applicable to specific firms and office locations, 
FINRA believes that firms that intend to participate in the pilot 
program, if approved, would need a significant number of months to 
prepare appropriately for the pilot program. Moreover, further FINRA 
guidance might be needed to guide implementation in various 
circumstances.
    To provide regulatory certainty while the pilot program filing is 
pending, and to avoid overlapping provisions if it is approved, IEX is 
proposing to amend Supplementary Material .15 of Rule 5.110 so that the 
temporary relief would expire on the earlier of the effective date of 
the FINRA Pilot Program or December 31, 2023. In the event the FINRA 
Pilot Program is not approved by December 31, 2023, the proposed rule 
change will automatically sunset on December 31, 2023. IEX will submit 
a separate rule filing if it seeks to extend the duration of the 
temporary proposed rule beyond December 31, 2023. In the event the 
FINRA Pilot Program is approved prior to December 31, 2023, IEX will 
file a conforming rule change with the Commission.
    The proposed rule change will conform IEX's rules with those of 
FINRA, which has extended the same temporary remote inspection relief 
to all FINRA member firms.\12\ This proposed extension would provide 
further clarity to Members on regulatory requirements and account for 
time needed for many Members to carefully assess when and how to have 
their employees safely return to their offices considering vaccination 
coverage in the U.S. and transmission levels of the virus, including 
any emergent variants throughout the country.
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    \12\ See Securities Exchange Act Release No. 94018 (January 20, 
2022), 87 FR 4072 (January 26, 2022) (SR-FINRA-2022-001) and 
Securities Exchange Act Release No. 96241 (November 4, 2022) 87 FR 
67969 (November 10, 2022) (SR-FINRA-2022-030).
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    The proposed amendment would provide that Members have the option 
to conduct remotely those inspections described in Supplementary 
Material .15 to IEX Rule 5.110 through the earlier of the effective 
date of the FINRA Pilot program, if approved, or December 31, 2023. IEX 
is not proposing to amend the other conditions of the temporary relief 
in Supplementary Material .15 of IEX Rule 5.110. The current conditions 
of Supplementary Material .15 of IEX Rule 5.110 for Members that elect 
to conduct remote inspections would remain unchanged: such firms must 
still amend or supplement their written supervisory procedures for 
remote inspections, use remote inspections as part of an effective 
supervisory system, and maintain the required documentation. The 
additional period of time would also allow IEX to further monitor the 
effectiveness of remote inspections and their impacts--positive or 
negative--on Members' overall supervisory systems in the evolving 
workplace.
    IEX continues to believe this temporary remote inspection option is 
a reasonable alternative to provide to Members to fulfill their IEX 
Rule 5.110 obligations during the ongoing pandemic, and is designed to 
achieve the investor protection objectives of the inspection 
requirements under these unique circumstances. Members should consider 
whether, under their particular operating conditions, reliance on 
remote inspections would be reasonable under the circumstances. For 
example, Members with offices that are open to the public or that are 
otherwise doing business as usual should consider whether some form of 
in-person inspections would be feasible and appropriately contribute to 
a supervisory system that is reasonably designed to achieve compliance 
with applicable securities laws and regulations, and with applicable 
IEX rules.
    IEX has filed the proposed rule change for immediate effectiveness 
and 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 IEX can implement the proposed rule change immediately.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \13\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \14\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
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. The Exchange's rule proposal is intended to harmonize 
IEX's supervision rules, specifically with respect to the requirements 
for inspections of Members' branch offices and other locations, with 
those of FINRA, on which they are based. Consequently, the proposed 
change will conform the Exchange's rules to changes made to 
corresponding FINRA rules, thus promoting application of consistent 
regulatory standards with respect to rules that FINRA enforces pursuant 
to its regulatory services agreement with the Exchange. The proposed 
rule change would also avoid a potential lapse in the temporary relief 
while challenges from COVID-19 persist, provide firms regulatory 
continuity in meeting their inspection obligations during the remaining 
Commission review period of the Pilot Proposal, and allow firms time to 
adapt to the pilot program, if approved, and prepare for conducting on-
site inspections, as applicable.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    In recognition of the impact of COVID-19 on performing on-site 
inspections, the proposed rule change is intended to provide firms a 
temporary regulatory option to conduct inspections of offices and 
locations remotely for calendar year 2023 inspections (or until the 
effective date of the FINRA pilot program). This proposed supplementary 
material does not relieve firms from meeting the core regulatory 
obligation to establish and maintain a system to supervise the 
activities of each associated person that is reasonably designed to 
achieve compliance with applicable securities laws and regulations, and 
with applicable IEX rules that directly serve investor protection. In a 
time when faced with unique challenges resulting from the COVID-19 
pandemic, IEX believes that the proposed rule change provides sensibly 
tailored relief that will afford firms the ability to observe the 
recommendations of public health officials to provide for the health 
and safety of their personnel, while continuing to serve and promote 
the protection of investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX 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. The proposed rule change is not 
designed to address any competitive issue but to align the Exchange's 
rules with those of FINRA, which will assist FINRA in its oversight 
work done pursuant to a regulatory services agreement with IEX. The 
proposed rule change will also provide for consistent application of 
the Exchange's supervision rules with those of FINRA, on which they are 
based. Consequently, the Exchange does not

[[Page 2142]]

believe that the proposed change implicates competition at all.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated this rule filing as non-controversial 
under section 19(b)(3)(A) \15\ of the Act and Rule 19b-4(f)(6) \16\ 
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder. In addition, the Exchange provided the Commission 
with 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to permit the 
Exchange to harmonize its rules with FINRA, as described herein, upon 
effectiveness of the proposed rule filing.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
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    IEX has indicated that extending the relief provided in SR-IEX-
2022-12 would provide assurances to its member firms that they can plan 
their 2023 inspection program and conduct remote inspections for any 
inspections to be conducted through the earlier of the effective date 
of the FINRA Pilot Program, if approved, or December 31, 2023. 
Importantly, extending the relief immediately upon filing and without a 
30-day operative delay would allow IEX's member firms to continue 
performing their supervisory obligations, while addressing the ongoing 
impacts of the COVID-19 pandemic. Moreover, like SR-IEX-2022-12, the 
proposed extension would provide only temporary relief during the 
period in which IEX's member firms' operations remain impacted by 
COVID-19. Thus, the amended rules will revert back to their original 
state at the conclusion of the temporary relief period and, if 
applicable, any extension thereof. For these reasons, the Commission 
believes that waiver of the 30-day operative delay for this proposed 
rule change is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\20\
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    \20\ 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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    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 under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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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-IEX-2022-14 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-IEX-2022-14. This file 
number should be included in 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 will also be available for inspection 
and copying at IEX's principal office and on its internet website at 
www.iextrading.com. 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-IEX-2022-14 
and should be submitted on or before February 2, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00424 Filed 1-11-23; 8:45 am]
BILLING CODE 8011-01-P


