SEC invites comments on NYSE Chicago’s plans related to fingerprint-based background checks

Maria Nikolova

The Exchange proposes a rule relating to fingerprint-based background checks of directors, officers, employees and others.

The United States Securities and Exchange Commission (SEC) is accepting comments on proposals by NYSE Chicago, Inc. for a rule relating to fingerprint-based background checks of directors, officers, employees and others.

The Exchange proposes a new Rule 3.11 stipulating the practice of conducting fingerprint-based background checks of prospective and current employees, temporary personnel, independent contractors, service providers and others.

NYSE Chicago notes that Section 17(f)(2) of the Securities Exchange Act of 1934, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, provides that every member of a national securities exchange, broker, dealer, registered transfer agent, registered clearing agency, registered securities information processors, national securities exchanges and national securities associations shall require each of its partners, directors, officers and employees of to be fingerprinted and submit those fingerprints to the Attorney General of the United States for identification.

Section 17(f)(2) directs the Attorney General to provide self-regulatory organizations designated by the Commission with access to criminal history record information. Also, SEC Rule 17f-2 authorizes SROs to store criminal record information received from the Federal Bureau of Investigation, which maintains on behalf of the Attorney General a database of fingerprint-based criminal history records.

In line with these requirements, proposed Rule 3.11 would require the Exchange to obtain fingerprints of prospective and current employees, temporary personnel, independent contractors and service providers of the Exchange and its principal subsidiaries; submit those fingerprints to the Attorney General or his or her designee for identification and processing; and receive criminal history record information from the Attorney General for evaluation and use, in accordance with applicable law, in enhancing the security of the facilities, systems, data, and/or records of the Exchange and its principal subsidiaries.

The Exchange says it plans to utilize a Live-Scan electronic system to capture and transmit fingerprints directly to the FBI. The capture and transmittal function, and corresponding receipt of criminal history information from the FBI, would be handled directly by Exchange personnel and/or an FBI-approved “Channel Partner” that would maintain and operate, on behalf of the Exchange, a Live-Scan and/or other electronic system(s) for the submission of fingerprints to the FBI; receive and maintain criminal history record information from the FBI; and disseminate such information, through secure systems, to a limited set of approved reviewing officials within the Exchange and its affiliates.

According to the Exchange, fingerprint-based background checks would enhance the ability to screen adequately employees and non-employees to determine better whether there are unacceptable risks associated with granting such persons access to facilities and records. Through access to state-of-the-art information systems administered and maintained by the FBI, the Exchange would receive centrally-maintained “criminal history record information,” which includes arrest-based data and derivative information, and may include personal descriptive data; FBI number; conviction status; sentencing, probation and parole information; and such other information as the FBI may make available.

The information obtained through fingerprint-based background checks is set to provide a more exhaustive and reliable profile of a candidate’s criminal record, and thereby better facilitate risk assessment, than a physical review of court records based on information provided by the candidate.

The Exchange believes that the proposed rule change would help prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest.

The proposed rule is substantially similar to the rules of the Exchange’s affiliates NYSE Arca, NYSE and NYSE American and the fingerprinting rules of other SROs.

The SEC accepts electronic comments via its Internet comment form; or via an e-mail to [email protected]. Please include File Number SR-NYSECHX-2019-06 on the subject line.

Paper comments are also accepted. These should be sent in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSECHX-2019-06.

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