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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organizations Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19b1 under the Act,4 and Rule 19b 4 thereunder,5 IEX is filing with the Commission a proposed rule change to amend IEX Rule 5.110 Supervision to provide temporary remote inspection relief to IEX Members for calendar year 2021.
The text of the proposed rule change is available at the Exchanges website at www.iextrading.com, at the principal office of the Exchange, and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations 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 Organizations Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
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1. Purpose In light of the operational challenges that IEX Members 6 are facing due to the outbreak of the coronavirus disease COVID19, the Exchange proposes to amend IEX Rule 5.110 Supervision to adopt Supplementary Material .15
Temporary Relief to Allow Remote Inspections for Calendar Year 2021 to provide member firms the option, subject to specified requirements under the proposed supplementary material, to complete remotely their calendar year 2021 inspection obligations under IEX
Rule 5.110c Internal Inspections, without an on-site visit to the office or location.7 The proposed rule change 4 15

U.S.C. 78sb1.
CFR 240.19b4.
6 See IEX Rule 1.160s.
7 SEC and Financial Industry Regulatory Authority, Inc. FINRA staff have stated in guidance that inspections must include a physical, on-site review component. See SEC National Examination Risk Alert, Volume I, Issue 2
November 30, 2011 and FINRA Regulatory Notice 1154 November 2011 joint SEC and FINRA
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would harmonize IEX Rule 5.110 with FINRA Rule 3110.17, which provides FINRA member firms with the option, subject to specified requirements under the supplementary material, to complete remotely their calendar year 2021
inspection obligations without an onsite visit to the office or location.8 The proposed rule change is necessitated by the compelling health and safety concerns and the operational challenges that Members are facing due to the sustained COVID19 pandemic.9
IEX Rule 5.110c, Internal Inspections, requires, inter alia, that 1
each Member shall conduct a review, at least annually on a calendar year basis, of the businesses in which it engages . . . . Subparagraph 1A of the rule requires, in relevant part, that each Member shall inspect annually on a calendar year basis every Office of Supervisory Jurisdiction or OSJ 10
and any branch office 11 that supervises one or more non-branch locations.
Subparagraph 1B of the rule requires, in relevant part, that each Member shall inspect at least every three years every branch office that does not supervise one or more non-branch locations . . . . Subparagraph 1B
further provides the criteria that a Member must consider when establishing the frequency of inspections for such branch locations.
On March 13, 2020 the United States declared a national emergency in response to the pandemic.12 Around guidance stating, a broker-dealer must conduct onsite inspections of each of its office locations; Office of Supervisory Jurisdictions OSJs and non-OSJ
branches that supervise non-branch locations at least annually, all non-supervising branch offices at least every three years; and non-branch offices periodically. footnote defining an OSJ omitted.
See also SEC Division of Market Regulation, Staff Legal Bulletin No. 17: Remote Office Supervision March 19, 2004 stating, in part, that brokerdealers that conduct business through geographically dispersed offices have not adequately discharged their supervisory obligations where there are no on-site routine or for cause inspections of those offices.
8 See Securities Exchange Act Release No. 90454
November 18, 2020, 85 FR 75097 November 24, 2020 SRFINRA2020040. FINRAs rule change also permitted FINRA members to complete their 2020 remote inspections remotely, but IEX is only seeking to permit temporary remote inspections for calendar year 2021 because the applicable deadlines to complete the 2020 inspections have elapsed.
9 The proposed rule change will automatically sunset on December 31, 2021. If IEX seeks to extend the duration of the temporary proposed rule beyond December 31, 2021, IEX will submit a separate rule filing to further renew the temporary relief.
10 See IEX Rule 5.110f1.
11 See IEX Rule 5.110f2.
12 See Centers for Disease Control and Prevention CDC, International Classification of Diseases, Tenth Revision, Clinical Modification, https
www.cdc.gov/nchs/data/icd/Announcement-NewICD-code-for-coronavirus-3-18-2020.pdf. See also
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this time, many states issued stay-athome orders and imposed restrictions on businesses, social activities, and travel to slow the spread of COVID19
and reduce the burden on the U.S.
health care system in accordance with the recommendations of public health experts.13 In response, like many employers across U.S., Members closed their offices to the public, transitioned their employees to telework arrangements to comply with stay-athome orders, and implemented other restrictive measures in an effort to slow the spread of COVID19 such as curtailing or eliminating non-essential business travel, and significantly limiting or canceling in-person activities.14
These pandemic-related operational changes have made it impracticable for Members to conduct on-site inspections of OSJs, branch offices, and non-branch locations because this compliance function requires employees of the Member to travel to geographically dispersed locations. Such travel not only has been restricted at times by government orders, but also puts the health and safety of employees at great risk of contracting and spreading COVID19.15 By mid-year 2020, with many restrictive measures still in place, and in some instances additional quarantine requirements imposed on interstate travel, on-site inspections of offices or locations scheduled for calendar year 2020 continued to remain in abeyance.16
WHO Director-General, Opening Remarks at the Media Briefing on COVID19 March 11, 2020, https www.who.int/director-general/speeches/
detail/who-director-general-s-opening-remarks-atthe-media-briefing-on-covid-19---11-march-2020.
13 See S.J. Lange et al., Potential Indirect Effects of the COVID19 Pandemic on Use of Emergency Departments for Acute Life-Threatening ConditionsUnited States, JanuaryMay 2020, Morbidity and Mortality Weekly Report June 26, 2020, https www.cdc.gov/mmwr/volumes/69/wr/
mm6925e2.htm.
14 See generally FINRA Regulatory Notice 2016
May 2020 describing practices implemented by FINRA member firms to transition to, and supervise in, a remote work environment during the COVID
19 pandemic.
15 See CDC, Travel During the COVID19
Pandemic stating in part, Travel increases your chance of getting and spreading COVID19. . . .
Delay travel and stay home to protect yourself and others from COVID19., https www.cdc.gov/
coronavirus/2019-ncov/travelers/travel-duringcovid19.html updated February 16, 2021.
16 See, e.g., Government of the District of Columbia, Phase Two June 22, 2020 announcing certain businesses to reopen and activities to resume under specified conditions and stating that anyone coming into Washington, DC from states specified as high-risk is required to self-quarantine for 14 days, https coronavirus.dc.gov/phasetwo last visited March 2, 2021; New York Department of Health, Interim Guidance for Quarantine Restrictions on Travelers Arriving in New York State Following Out of State Travel November 3,
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