Long-Term Exchange Updates Bad Actor Bans Routine-ly
Published Date: 8/28/2026
Notice
Summary
No summary available.
Analyzed Economic Effects
7 provisions identified: 3 benefits, 2 costs, 2 mixed.
Definition narrowed for statutory disqualifications
For purposes of statutory disqualification (Section 3(a)(39) of the Exchange Act), LTSE changed its definition of “person associated with a Member” to refer to natural persons (registered or applying for registration) and specified natural-person roles (sole proprietor, partner, officer, director, branch manager, similar roles, or natural persons controlling/controlled by a Member). LTSE says this change conforms its definition to Cboe BZX and harmonizes LTSE outcomes with FINRA (so a firm that is both an LTSE Member and FINRA member with an affiliate under common control would not be required to file with LTSE in the scenario described).
Exchange gains discretion to bar members or associates
LTSE amended Rule 2.160(a) so that, instead of an absolute prohibition language (“No person may become a Member or continue as a Member…”), the rule now states the Exchange may determine not to permit a person to become or continue as a Member or person associated with a Member. The Exchange also added that it may prohibit persons associated with a Member from becoming or continuing in that association.
Relief via LTSE eligibility process instead of SEC order
LTSE amended Rule 2.160(a)(3) to permit relief from statutory disqualification pursuant to LTSE Rule Series 9.520 (the Exchange's eligibility proceeding rules) rather than only by a Commission order under Rules 19d-1, 19d-2, 19d-3 and 19h-1. The Exchange states this aligns with BZX practice.
Interim heightened supervision permitted during review
LTSE added Rule 9.522(e)(3) allowing submission of an interim plan of heightened supervision to permit continued association of a disqualified person or person seeking association while the application is under review. The plan must identify a registered principal responsible for implementation, remain in effect through the review until final resolution, comply with the Exchange's supervision rules (including Chapter 5), be reasonably tailored to supervisory concerns, and include a written representation that the disqualified person is currently subject to such heightened supervision.
Incomplete applications can be rejected and must be remedied within 10 business days
LTSE added Rule 9.522(e)(4)–(5) allowing the Exchange to reject an application for continued association if it is substantially incomplete (for example, missing the representation required by Rule 9.522(e)(3)(B) or an acceptable interim supervision plan). If rejected, Exchange staff will notify the sponsoring Member and the sponsoring Member has 10 business days to remedy the application (or another time prescribed by staff). If not remedied, Exchange staff will serve written notice of rejection and the sponsoring Member must promptly terminate association with the disqualified person.
Applicants may use FINRA Form MC-400A and filers may include FINRA
LTSE updated Rule 9.521(b) to state that FINRA's Form MC-400A is applicable to Member applicants (in addition to Members) and that an application may be filed with a designee, which may include FINRA (in addition to the Exchange’s Department of Registration and Disclosure). LTSE also defined “LTSE Regulation” to include certain Exchange employees and, as applicable, FINRA employees providing regulatory services under the regulatory services agreement.
Eligibility notices sent by email (not fax)
LTSE amended Rule 9.522(a)(4) so that notice of eligibility issues will be served by electronic mail rather than facsimile, and that service by electronic mail will be deemed complete upon sending (the rule continues to allow service pursuant to LTSE Rules 9.131 and 9.134).
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