83 FR 51532 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend CAB Rule 331 (Anti-Money Laundering Compliance Program) To Conform to FinCEN's Final Rule on Customer Due Diligence Requirements for Financial Institutions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 197 (October 11, 2018)
Federal Register Volume 83, Issue 197 (October 11, 2018)
| Page Range | 51532-51535 | |
| FR Document | 2018-22047 |
[Federal Register Volume 83, Number 197 (Thursday, October 11, 2018)] [Notices] [Pages 51532-51535] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-22047] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84363; File No. SR-FINRA-2018-035] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend CAB Rule 331 (Anti-Money Laundering Compliance Program) To Conform to FinCEN's Final Rule on Customer Due Diligence Requirements for Financial Institutions October 4, 2018. 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 September 20, 2018, 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. 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend Capital Acquisition Broker (``CAB'') Rule 331 (Anti-Money Laundering Compliance Program) to reflect the Financial Crimes Enforcement Network's (``FinCEN'') adoption of a final rule on Customer Due Diligence Requirements for Financial Institutions (``CDD Rule''). Specifically, the proposed amendments would conform CAB Rule 331 to the CDD Rule's amendments to the minimum regulatory requirements for CABs' anti-money laundering (``AML'') compliance programs by requiring such programs to include risk-based procedures for conducting ongoing customer due diligence. This ongoing customer due diligence element for AML programs includes: (1) Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (2) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. The text of the proposed rule change is available at the Commission's Public Reference Room, on FINRA's website at http://www.finra.org, and at the principal office of FINRA. 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 a. Background FINRA Capital Acquisition Broker Rules On August 18, 2016, the SEC approved \4\ a separate set of FINRA rules for firms that meet the definition of a ``capital acquisition broker'' and that elect to be governed under this rule set. CABs are member firms that engage in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions. Member firms that elect to be governed under the CAB rule set are not permitted, among other things, to carry or maintain customer accounts, handle customers' funds or securities, accept customers' trading orders, or engage in proprietary trading or market making. --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 78617 (August 18, 2016), 81 FR 57948 (August 24, 2016) (SR-FINRA-2015-054) (Order Approving Rule Change as Modified by Amendment Nos. 1 and 2 To Adopt FINRA Capital Acquisition Broker Rules). --------------------------------------------------------------------------- The CAB Rules became effective on April 14, 2017. In order to provide new CAB applicants with lead time to apply for FINRA membership and obtain the necessary qualifications and registrations, CAB Rules 101-125 became effective on January 3, 2017.\5\ --------------------------------------------------------------------------- \5\ On September 29, 2017, the SEC approved CAB Rule 203 (Engaging in Distribution and Solicitation Activities with Government Entities) and CAB Rule 458 (Books and Records Requirements for Government Distribution and Solicitation Activities), which applied established ``pay-to-play'' and related recordkeeping rules to the activities of CABs. See Securities Exchange Act Release No. 81781 (September 29, 2017), 82 FR 46559 (October 5, 2017) (Order Approving File No. SR-FINRA-2017-027). CAB Rules 203 and 458 became effective on December 6, 2017. --------------------------------------------------------------------------- FinCEN Customer Due Diligence Rule The Bank Secrecy Act \6\ (``BSA''), among other things, requires financial institutions,\7\ including broker-dealers that have elected CAB status, to develop and implement AML programs that, at a minimum, meet the statutorily enumerated ``four pillars.'' \8\ These four pillars currently require broker-dealers to have written AML programs that include, at a minimum: --------------------------------------------------------------------------- \6\ 31 U.S.C. 5311 et seq. \7\ See 31 U.S.C. 5312(a)(2) (defining ``financial institution''). \8\ 31 U.S.C. 5318(h)(1). ---------------------------------------------------------------------------The establishment and implementation of policies, procedures and internal controls reasonably [[Page 51533]] designed to achieve compliance with the applicable provisions of the BSA and implementing regulations; independent testing for compliance by broker-dealer personnel or a qualified outside party; designation of an individual or individuals responsible for implementing and monitoring the operations and internal controls of the AML program; and ongoing training for appropriate persons.\9\ --------------------------------------------------------------------------- \9\ 31 CFR 1023.210(b). --------------------------------------------------------------------------- On May 11, 2016, FinCEN, the bureau of the Department of the Treasury responsible for administering the BSA and its implementing regulations, issued the CDD Rule \10\ to clarify and strengthen customer due diligence for covered financial institutions,\11\ including broker-dealers that have elected CAB status. In its CDD Rule, FinCEN identifies four components of customer due diligence: (1) Customer identification and verification; (2) beneficial ownership identification and verification; (3) understanding the nature and purpose of customer relationships; and (4) ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining and updating customer information.\12\ As the first component is already required to be part of a CAB's AML program under the BSA, the CDD Rule focuses on the other three components. --------------------------------------------------------------------------- \10\ FinCEN Customer Due Diligence Requirements for Financial Institutions; CDD Rule, 81 FR 29397 (May 11, 2016) (CDD Rule Release); 82 FR 45182 (September 28, 2017) (making technical correcting amendments to the final CDD Rule published on May 11, 2016). FinCEN is authorized to impose AML program requirements on financial institutions and to require financial institutions to maintain procedures to ensure compliance with the BSA and associated regulations. 31 U.S.C. 5318(h)(2) and (a)(2). The CDD Rule is the result of the rulemaking process FinCEN initiated in March 2012. See 77 FR 13046 (March 5, 2012) (Advance Notice of Proposed Rulemaking) and 79 FR 45151 (August 4, 2014) (Notice of Proposed Rulemaking). \11\ See 31 CFR 1010.230(f) (defining ``covered financial institution''). \12\ See CDD Rule Release at 29398. --------------------------------------------------------------------------- Specifically, the CDD Rule focuses particularly on the second component by adding a new requirement that covered financial institutions identify and verify the identity of the beneficial owners of all legal entity customers at the time a new account is opened, subject to certain exclusions and exemptions.\13\ The CDD Rule also addresses the third and fourth components, which FinCEN states ``are already implicitly required for covered financial institutions to comply with their suspicious activity reporting requirements,'' by amending the existing AML program rules for covered financial institutions to explicitly require these components to be included in AML programs as a new ``fifth pillar.'' As a result of the CDD Rule, CABs should ensure that their AML programs are updated, as necessary, to comply with the CDD Rule. --------------------------------------------------------------------------- \13\ See 31 CFR 1010.230(d) (defining ``beneficial owner'') and 31 CFR 1010.230(e) (defining ``legal entity customer''). --------------------------------------------------------------------------- Amendments to FINRA Rule 3310 On November 21, 2017, FINRA published Regulatory Notice 17-40 to provide guidance to non-CAB member firms regarding their obligations under FINRA Rule 3310 (Anti-Money Laundering Compliance Program) in light of the adoption of FinCEN's CDD Rule. In addition, the Notice summarized the CDD Rule's impact on non-CAB member firms, including the addition of the new fifth pillar required for such firms' AML programs. On April 20, 2018, FINRA filed for immediate effectiveness amendments to FINRA Rule 3310 to reflect FinCEN's adoption of the CDD Rule.\14\ On May 3, 2018, FINRA published Regulatory Notice 18-19, which announced its amendments to FINRA Rule 3310.\15\ --------------------------------------------------------------------------- \14\ See Securities Exchange Act Release No. 83154 (May 2, 2018), 83 FR 20906 (May 8, 2018) (SR-FINRA-2018-016) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to FINRA Rule 3310 to Conform FINRA Rule 3310 to FinCEN's Final Rule on Customer Due Diligence Requirements for Financial Institutions). \15\ See Regulatory Notice 18-19 (May 3, 2018). --------------------------------------------------------------------------- For the same reasons that FINRA amended FINRA Rule 3310 to reflect FinCEN's adoption of the CDD Rule, FINRA is filing for immediate effectiveness similar amendments to CAB Rule 331. b. CAB Rule 331 and Amendment to Minimum Requirements for CABs' AML Programs Section 352 of the USA PATRIOT Act of 2001 \16\ amended the BSA to require broker-dealers to develop and implement AML programs that include the four pillars mentioned above. Consistent with Section 352 of the PATRIOT Act, and incorporating the four pillars, CAB Rule 331 requires each CAB to develop and implement a written AML program reasonably designed to achieve and monitor the CAB's compliance with the BSA and implementing regulations. Among other requirements, CAB Rule 331 requires that each CAB, at a minimum: (1) Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions; (2) establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and implementing regulations; (3) provide for independent testing for compliance, no less frequently than every two years, to be conducted by CAB personnel or a qualified outside party; (4) designate and identify to FINRA an individual or individuals (i.e., AML compliance person(s)) who will be responsible for implementing and monitoring the day-to-day operations and internal controls of the AML program and provide prompt notification to FINRA of any changes to the designation; and (5) provide ongoing training for appropriate persons. --------------------------------------------------------------------------- \16\ Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, 115 Stat. 272 (2001). --------------------------------------------------------------------------- FinCEN's CDD Rule does not change the requirements of CAB Rule 331 and CABs must continue to comply with its requirements.\17\ However, FinCEN's CDD Rule amends the minimum regulatory requirements for CABs' AML programs by explicitly requiring such programs to include risk- based procedures for conducting ongoing customer due diligence.\18\ Accordingly, FINRA is proposing to amend CAB Rule 331 to incorporate into the Rule this ongoing customer due diligence element, or ``fifth pillar'' required for AML programs. Thus, proposed CAB Rule 331(f) would provide that the AML programs required by this Rule shall, at a minimum, include appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to: (1) Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (2) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. --------------------------------------------------------------------------- \17\ In fact, FinCEN notes that broker-dealers must continue to comply with FINRA Rules, notwithstanding differences between the CDD Rule and CAB Rule 331. See CDD Rule Release at 29421, n. 85. \18\ See CDD Rule Release at 29420; 31 CFR 1023.210. --------------------------------------------------------------------------- As stated in the CDD Rule, these provisions are not new and merely codify existing expectations for broker-dealers, including CABs, to adequately identify and report suspicious transactions as required under the BSA and encapsulate practices generally already undertaken by securities firms to know and understand their [[Page 51534]] customers.\19\ The proposed rule change simply incorporates into CAB Rule 331 the ongoing customer due diligence element, or ``fifth pillar,'' required for AML programs by the CDD Rule to aid CABs in complying with the CDD Rule's requirements. However, to the extent that these elements, which are briefly summarized below, are not already included in CABs' AML programs, the CDD Rule requires CABs to update their AML programs to explicitly incorporate them. --------------------------------------------------------------------------- \19\ See CDD Rule Release at 29419. --------------------------------------------------------------------------- c. Summary of Fifth Pillar's Requirements Understanding the Nature and Purpose of Customer Relationships FinCEN states in the CDD Rule that firms must necessarily have an understanding of the nature and purpose of the customer relationship in order to determine whether a transaction is potentially suspicious and, in turn, to fulfill their SAR obligations.\20\ To that end, the CDD Rule requires that firms understand the nature and purpose of the customer relationship in order to develop a customer risk profile. The customer risk profile refers to information gathered about a customer to form the baseline against which customer activity is assessed for suspicious transaction reporting.\21\ Information relevant to understanding the nature and purpose of the customer relationship may be self-evident and, depending on the facts and circumstances, may include such information as the type of customer, account or service offered, and the customer's income, net worth, domicile, or principal occupation or business, as well as, in the case of existing customers, the customer's history of activity.\22\ The CDD Rule also does not prescribe a particular form of the customer risk profile.\23\ Instead, the CDD Rule states that depending on the firm and the nature of its business, a customer risk profile may consist of individualized risk scoring, placement of customers into risk categories or another means of assessing customer risk that allows firms to understand the risk posed by the customer and to demonstrate that understanding.\24\ --------------------------------------------------------------------------- \20\ See id. at 29421. \21\ See id. at 29422. \22\ See id. \23\ See id. \24\ See id. --------------------------------------------------------------------------- The CDD Rule also addresses the interplay of understanding the nature and purpose of customer relationships with the ongoing monitoring obligation discussed below. The CDD Rule explains that firms are not necessarily required or expected to integrate customer information or the customer risk profile into existing transaction monitoring systems (for example, to serve as the baseline for identifying and assessing suspicious transactions on a contemporaneous basis).\25\ Rather, FinCEN expects firms to use the customer information and customer risk profile as appropriate during the course of complying with their obligations under the BSA in order to determine whether a particular flagged transaction is suspicious.\26\ --------------------------------------------------------------------------- \25\ See id. \26\ See id. --------------------------------------------------------------------------- Conducting Ongoing Monitoring As with the requirement to understand the nature and purpose of the customer relationship, the requirement to conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information, merely adopts existing supervisory and regulatory expectations as explicit minimum standards of customer due diligence required for firms' AML programs.\27\ If, in the course of its normal monitoring for suspicious activity, the CAB detects information that is relevant to assessing the customer's risk profile, the CAB must update the customer information, including the information regarding the beneficial owners of legal entity customers.\28\ However, there is no expectation that the CAB update customer information, including beneficial ownership information, on an ongoing or continuous basis.\29\ --------------------------------------------------------------------------- \27\ See id. at 29402. \28\ See id. at 29420-21. \29\ See id. --------------------------------------------------------------------------- FINRA has filed the proposed rule change for immediate effectiveness. The implementation date for the proposed changes will be no later than 30 days following publication of the Regulatory Notice announcing the proposed rule change. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\30\ 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. FINRA believes the proposed rule change will aid CABs in complying with the CDD Rule's requirement that CABs' AML programs include risk-based procedures for conducting ongoing customer due diligence by also incorporating the requirement into CAB Rule 331. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition FINRA 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 simply incorporates into CAB Rule 331 the ongoing customer due diligence element, or ``fifth pillar,'' required for AML programs by the CDD Rule. The CDD Rule required broker-dealers, including CABs, to update their AML programs to explicitly incorporate them by May 11, 2018. In addition, as stated in the CDD Rule, these elements are already implicitly required for covered financial institutions to comply with their suspicious activity reporting requirements. Accordingly, FINRA is not imposing any additional direct or indirect burdens on CABs or their clients through this proposal. 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 \31\ and Rule 19b- 4(f)(6) thereunder.\32\ --------------------------------------------------------------------------- \31\ 15 U.S.C. 78s(b)(3)(A). \32\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- 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. [[Page 51535]] 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-2018-035 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-2018-035. 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 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-2018-035 and should be submitted on or before November 1, 2018. --------------------------------------------------------------------------- \33\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\33\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-22047 Filed 10-10-18; 8:45 am] BILLING CODE 8011-01-P
![51532 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices
delegated authority,8 issued an order rule change under paragraph (f)(6) of A. Self-Regulatory Organization’s
disapproving the proposed rule change.9 Rule 19b–4 under the Act,3 which Statement of the Purpose of, and
On August 23, 2018, the Secretary of the renders the proposal effective upon Statutory Basis for, the Proposed Rule
Commission notified NYSEArca that, receipt of this filing by the Commission. Change
pursuant to Commission Rule of The Commission is publishing this 1. Purpose
Practice 431,10 the Commission would notice to solicit comments on the
review the Division’s action pursuant to proposed rule change from interested a. Background
delegated authority and that the persons. FINRA Capital Acquisition Broker Rules
Division’s action pursuant to delegated
authority had been automatically I. Self-Regulatory Organization’s On August 18, 2016, the SEC
stayed.11 Statement of the Terms of Substance of approved 4 a separate set of FINRA rules
Accordingly, it is ordered, pursuant to the Proposed Rule Change for firms that meet the definition of a
Commission Rule of Practice 431, that ‘‘capital acquisition broker’’ and that
by November 5, 2018, any party or other FINRA is proposing to amend Capital elect to be governed under this rule set.
person may file a statement in support Acquisition Broker (‘‘CAB’’) Rule 331 CABs are member firms that engage in
of, or in opposition to, the action made (Anti-Money Laundering Compliance a limited range of activities, essentially
pursuant to delegated authority. Program) to reflect the Financial Crimes advising companies and private equity
It is further ordered that the order Enforcement Network’s (‘‘FinCEN’’) funds on capital raising and corporate
disapproving proposed rule change SR– adoption of a final rule on Customer restructuring, and acting as placement
CboeBZX–2018–001 shall remain in agents for sales of unregistered
Due Diligence Requirements for
effect pending the Commission’s review. securities to institutional investors
Financial Institutions (‘‘CDD Rule’’).
under limited conditions. Member firms
By the Commission. Specifically, the proposed amendments that elect to be governed under the CAB
Eduardo A. Aleman, would conform CAB Rule 331 to the rule set are not permitted, among other
Assistant Secretary. CDD Rule’s amendments to the things, to carry or maintain customer
[FR Doc. 2018–22093 Filed 10–10–18; 8:45 am] minimum regulatory requirements for accounts, handle customers’ funds or
BILLING CODE 8011–01–P CABs’ anti-money laundering (‘‘AML’’) securities, accept customers’ trading
compliance programs by requiring such orders, or engage in proprietary trading
programs to include risk-based or market making.
SECURITIES AND EXCHANGE procedures for conducting ongoing The CAB Rules became effective on
COMMISSION customer due diligence. This ongoing April 14, 2017. In order to provide new
customer due diligence element for CAB applicants with lead time to apply
[Release No. 34–84363; File No. SR–FINRA–
2018–035] AML programs includes: (1) for FINRA membership and obtain the
Understanding the nature and purpose necessary qualifications and
Self-Regulatory Organizations; of customer relationships for the registrations, CAB Rules 101–125
Financial Industry Regulatory purpose of developing a customer risk became effective on January 3, 2017.5
Authority, Inc.; Notice of Filing and profile; and (2) conducting ongoing FinCEN Customer Due Diligence Rule
Immediate Effectiveness of a Proposed monitoring to identify and report
Rule Change To Amend CAB Rule 331 The Bank Secrecy Act 6 (‘‘BSA’’),
suspicious transactions and, on a risk among other things, requires financial
(Anti-Money Laundering Compliance basis, to maintain and update customer
Program) To Conform to FinCEN’s institutions,7 including broker-dealers
information. that have elected CAB status, to develop
Final Rule on Customer Due Diligence
Requirements for Financial Institutions The text of the proposed rule change and implement AML programs that, at
is available at the Commission’s Public a minimum, meet the statutorily
October 4, 2018. Reference Room, on FINRA’s website at enumerated ‘‘four pillars.’’ 8 These four
Pursuant to Section 19(b)(1) of the http://www.finra.org, and at the pillars currently require broker-dealers
Securities Exchange Act of 1934 principal office of FINRA. to have written AML programs that
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 include, at a minimum:
notice is hereby given that on II. Self-Regulatory Organization’s • The establishment and
September 20, 2018, Financial Industry Statement of the Purpose of, and implementation of policies, procedures
Regulatory Authority, Inc. (‘‘FINRA’’) Statutory Basis for, the Proposed Rule and internal controls reasonably
filed with the Securities and Exchange Change
4 See Securities Exchange Act Release No. 78617
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described In its filing with the Commission, (August 18, 2016), 81 FR 57948 (August 24, 2016)
FINRA included statements concerning (SR–FINRA–2015–054) (Order Approving Rule
in Items I, II, and III below, which Items Change as Modified by Amendment Nos. 1 and 2
have been prepared by FINRA. FINRA the purpose of and basis for the To Adopt FINRA Capital Acquisition Broker Rules).
has designated the proposed rule change proposed rule change and discussed any 5 On September 29, 2017, the SEC approved CAB
as constituting a ‘‘non-controversial’’ comments it received on the proposed Rule 203 (Engaging in Distribution and Solicitation
rule change. The text of these statements Activities with Government Entities) and CAB Rule
458 (Books and Records Requirements for
8 17 CFR 200.30–3(a)(12). may be examined at the places specified Government Distribution and Solicitation
9 See Securities Exchange Act Release No. 83913 in Item IV below. FINRA has prepared Activities), which applied established ‘‘pay-to-
(Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR– play’’ and related recordkeeping rules to the
summaries, set forth in sections A, B,
khammond on DSK30JT082PROD with NOTICES
CboeBZX–2018–001). activities of CABs. See Securities Exchange Act
10 See 17 CFR 201.431. and C below, of the most significant Release No. 81781 (September 29, 2017), 82 FR
11 See Letter from Secretary of the Commission to aspects of such statements. 46559 (October 5, 2017) (Order Approving File No.
Eugene Schlanger, Counsel, NYSE Group, Inc. (Aug. SR–FINRA–2017–027). CAB Rules 203 and 458
23, 2018), available at https://www.sec.gov/rules/ became effective on December 6, 2017.
sro/nysearca/2018/34-83912-letter-from- 6 31 U.S.C. 5311 et seq.
secretary.pdf. 7 See 31 U.S.C. 5312(a)(2) (defining ‘‘financial
1 15 U.S.C. 78s(b)(1). institution’’).
2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 8 31 U.S.C. 5318(h)(1).
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![Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 51535
IV. Solicitation of Comments For the Commission, by the Division of set forth in sections A, B, and C below,
Trading and Markets, pursuant to delegated of the most significant parts of such
Interested persons are invited to authority.33 statements.
submit written data, views and Eduardo A. Aleman,
arguments concerning the foregoing, Assistant Secretary.
A. Self-Regulatory Organization’s
including whether the proposed rule Statement of the Purpose of, and the
[FR Doc. 2018–22047 Filed 10–10–18; 8:45 am]
change is consistent with the Act. Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P
Comments may be submitted by any of Change
the following methods: 1. Purpose
SECURITIES AND EXCHANGE The purpose of this filing is to amend
Electronic Comments
COMMISSION certain rules related to FLEX Options, as
• Use the Commission’s internet [Release No. 34–84364; File No. SR– described below.
comment form (http://www.sec.gov/ NYSEAMER–2018–39] FLEX Options are customized equity
rules/sro.shtml); or or index contracts that allow investors
• Send an email to rule-comments@ Self-Regulatory Organizations; NYSE to tailor contract terms for exchange-
sec.gov. Please include File Number SR– American LLC; Notice of Filing of listed equity and index options.4 The
FINRA–2018–035 on the subject line.
Proposed Rule Change To Allow Exchange is proposing to modify rules
Flexible Exchange Equity Options to offer an alternative settlement for
Paper Comments Where the Underlying Security is an certain FLEX Equity Options.5 As
Exchange-Traded Fund That Is proposed, FLEX Equity Options where
• Send paper comments in triplicate Included in the Option Penny Pilot To the underlying security is an Exchange-
to Secretary, Securities and Exchange Be Settled in Cash Traded Fund (‘‘ETF’’) that is included in
Commission, 100 F Street NE, the Option Penny Pilot 6 (‘‘FLEX ETF
Washington, DC 20549–1090. October 4, 2018. Penny Option’’) would be settled by
Pursuant to Section 19(b)(1) 1 of the physical delivery of the underlying ETF
All submissions should refer to File Securities Exchange Act of 1934
Number SR–FINRA–2018–035. This file or by delivery in cash. Currently, all
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3 FLEX Equity Options are settled by
number should be included on the notice is hereby given that on
subject line if email is used. To help the physical delivery of the underlying
September 20, 2018, NYSE American security.7 All FLEX Index Options,
Commission process and review your LLC (‘‘NYSE American’’ or the however, are currently settled by
comments more efficiently, please use ‘‘Exchange’’) filed with the Securities delivery in cash.8
only one method. The Commission will and Exchange Commission To effectuate this change, the
post all comments on the Commission’s (‘‘Commission’’) the proposed rule Exchange proposes to adopt new Rule
internet website (http://www.sec.gov/ change as described in Items I, II, and 903G(c)(3)(ii) 9 which would provide
rules/sro.shtml). Copies of the III below, which Items have been that the exercise settlement for a FLEX
submission, all subsequent prepared by the Exchange. The ETF Penny Option shall be by physical
amendments, all written statements Commission is publishing this notice to delivery of the underlying security or by
with respect to the proposed rule solicit comments on the proposed rule delivery in cash.10 The proposed rule
change that are filed with the change from interested persons. also adopts a definition of the term
Commission, and all written FLEX ETF Penny Option for purpose of
communications relating to the I. Self-Regulatory Organization’s
Statement of the Terms of Substance of Rule 903G(3) to mean a FLEX Equity
proposed rule change between the Option whose underlying security is an
Commission and any person, other than the Proposed Rule Change
ETF that is included in the Option
those that may be withheld from the The Exchange proposes to amend Penny Pilot.11 The Exchange believes it
public in accordance with the certain rules related to Flexible is appropriate to introduce cash-
provisions of 5 U.S.C. 552, will be Exchange (‘‘FLEX’’) Options. The settlement as an alternative to this group
available for website viewing and proposed rule change is available on the of equity securities because ETFs
printing in the Commission’s Public Exchange’s website at www.nyse.com, at generally have increasingly become a
Reference Room, 100 F Street NE, the principal office of the Exchange, and major part of investors’ portfolio. The
Washington, DC 20549, on official at the Commission’s Public Reference vast proliferation of ETFs has greatly
business days between the hours of 10 Room.
a.m. and 3 p.m. Copies of such filing II. Self-Regulatory Organization’s
4 See generally Section 15, Flexible Exchange
also will be available for inspection and Options, Rules 900G–910G.
Statement of the Purpose of, and 5 The term ‘‘FLEX Equity Option’’ means an
copying at the principal office of Statutory Basis for, the Proposed Rule option on a specified underlying security that is
FINRA. All comments received will be Change subject to the rules in Section 15, Flexible Exchange
posted without change. Persons Options Rules. See Rule 900G(b)(10).
submitting comments are cautioned that In its filing with the Commission, the 6 See Securities and Exchange Act Release No.
we do not redact or edit personal self-regulatory organization included 55162 (January 24, 2007), 72 FR 4738 (February 1,
statements concerning the purpose of, 2007) (SR–Amex–2006–106). The Option Penny
identifying information from comment Pilot has been extended numerous times and
submissions. You should submit only and basis for, the proposed rule change remains operational through December 31, 2018.
information that you wish to make and discussed any comments it received See Securities Exchange Act Release No. 83507
khammond on DSK30JT082PROD with NOTICES
available publicly. on the proposed rule change. The text (June 25, 2018), 83 FR 30808 (June 29, 2018) (SR–
of those statements may be examined at NYSEAMER–2018–33).
All submissions should refer to File the places specified in Item IV below.
7 See Rule 903G(c)(3)(i).
8 See Rule 903G(b)(2) and (3).
Number SR–FINRA–2018–035 and The Exchange has prepared summaries, 9 The Exchange proposes a non-substantive
should be submitted on or before
amendment to Rule 903G to renumber current Rule
November 1, 2018. 1 15 U.S.C. 78s(b)(1). 903G(c)(3)(ii) as new Rule 903G(c)(3)(iii).
2 15 U.S.C. 78a. 10 See proposed Rule 903G(c)(3)(ii).
33 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4. 11 Id.
VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 E:\FR\FM\11OCN1.SGM 11OCN1](https://thefederalregister.org/doc/83_FR_51729/page/4.svg)
Document Created: 2018-10-11 15:34:12
Document Modified: 2018-10-11 15:34:12
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 51532 |
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