Cboe BZX aligns statutory disqualification procedures with FINRA rules
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Cboe BZX is changing how it handles exchange members and associated people who are barred or restricted under securities law. The rule brings BZX’s process closer to FINRA’s eligibility procedures and to the approach already used by other exchanges, so firms that belong to both FINRA and BZX face fewer conflicting application and notice requirements. Broker-dealers, exchange members, and compliance teams should review the new Rule 2.13 and the related statutory disqualification circular. In practice, some past or resolved disqualifications may no longer require a full application, while firms still need to act quickly when an application or written relief request is required.
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Key Changes
- Creates a new Rule 2.13 setting out eligibility procedures for members and associated persons subject to statutory disqualification
- Aligns BZX procedures more closely with FINRA rules and industry practice, including use of a statutory disqualification circular
- Allows certain matters to be approved without a full application or with a streamlined process when conditions are met
Obligations
What this law requires
A BZX Member or sponsoring Member must file an eligibility application when the Member or an associated person is subject to a statutory disqualification and the SD Circular requires an application based on the type and date of disqualification and whether admission, readmission, association, or continued membership is sought.
A Member seeking to continue association with a disqualified person must promptly terminate that association if Exchange staff rejects the application after determining that the application is substantially incomplete and the deficiency is not remedied in time.
A disqualified Member, sponsoring Member, or disqualified person that consents to an Exchange staff supervisory plan must execute a consent letter and waive the right to appeal if the plan is accepted, as well as waive claims of bias, prejudgment, or prohibited ex parte communications covered by the rule.
During the application process for a disqualified person, the sponsoring Member must implement any interim plan of heightened supervision required under proposed Rule 2.13(b)(6).
Once an appeal of an eligibility determination is initiated, parties must avoid prohibited ex parte communications under proposed Rule 2.13(b)(4).