[Federal Register Volume 76, Number 237 (Friday, December 9, 2011)]
[Notices]
[Pages 77034-77036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31632]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65890; File No. SR-FINRA-2011-070]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Order Granting Accelerated
Approval of Proposed Rule Change To Amend FINRA Rule 4512 (Customer
Account Information)
December 5, 2011.
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 December 2, 2011, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule as described in Items I and
II below, which Items have been prepared by FINRA. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and is approving the proposed rule change on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
FINRA proposes to amend FINRA Rule 4512 (Customer Account
Information) to except institutional accounts from the requirements of
FINRA Rule 4512(a)(1)(C).
The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA, and at
the Commission's Public Reference Room.
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, as set forth in sections
A, B and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On January 27, 2011, the SEC approved FINRA's proposal to adopt
rules governing books and records \3\ for the consolidated FINRA
rulebook.\4\ In April 2011, FINRA issued Regulatory Notice 11-19, which
announced SEC approval of the new rules and an implementation date of
December 5, 2011. Following SEC approval of the rules and publication
of the Regulatory Notice, several firms requested guidance regarding
the application of FINRA Rule 4512(a)(1)(C) to institutional accounts.
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\3\ See Securities Exchange Act Release No. 63784 (January 27,
2011), 76 FR 5850 (February 2, 2011) (Order Approving Proposed Rule
Change; File No. SR-FINRA-2010-052).
\4\ The current FINRA rulebook consists of (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules
are referred to as the ``Transitional Rulebook''). While the NASD
Rules generally apply to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that are also members of
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA
members, unless such rules have a more limited application by their
terms. For more information about the rulebook consolidation
process, see Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
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Servicing Institutional Accounts
FINRA Rule 4512 requires firms to maintain certain information
relating to customer accounts, and it is based on existing requirements
in NASD Rule 3110(c) (Customer Account Information) with several
changes, as described in Regulatory Notice 11-19. Among other changes,
FINRA Rule 4512(a)(1)(C) requires firms to maintain the name of the
associated person, if any, responsible for the account, rather than
requiring firms to maintain the signature of the registered
representative introducing the account.\5\ Where a member designates
multiple individuals as being responsible for an account, the firm is
required to maintain each of their names and a record indicating the
scope of their responsibilities with respect to the account.\6\ For
purposes of
[[Page 77035]]
the rule, it is the member's obligation to determine whether a
particular individual is responsible for the account based on the scope
of the individual's activities with respect to that account.
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\5\ See also SEA Rule 17a-3(a)(17).
\6\ This provision was added in response to a comment from the
Securities Industry and Financial Markets Association (``SIFMA'')
during the rulemaking process. See Securities Exchange Act Release
No. 63181 (October 26, 2010), 75 FR 67155 (November 1, 2010) (Notice
of Filing of Proposed Rule Change; File No. SR-FINRA-2010-052).
Specifically, SIFMA had commented that the original proposal in
Regulatory Notice 08-25 (May 2008) to maintain the name of a single
individual as responsible for an account is not practical in all
cases, such as an institutional account, where multiple individuals
cover the account.
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Following discussions with industry representatives, FINRA has
determined that the application of FINRA Rule 4512(a)(1)(C) to
institutional accounts \7\ raises significant operational issues in
light of the manner in which institutional business is conducted. FINRA
understands that numerous sales and trading associated persons often
interact with institutional accounts, depending on such factors as the
scope of the relationship with the institutional account and the
products involved, and that, for purposes of institutional accounts,
compliance with the recordkeeping requirements of FINRA Rule
4512(a)(1)(C) would cause significant operational challenges.
Accordingly, FINRA proposes to amend the rule to except institutional
accounts from the recordkeeping requirements of FINRA Rule
4512(a)(1)(C). Additionally, FINRA proposes to add Supplementary
Material .05 (Supervision of Accounts) to FINRA Rule 4512 to clarify
that nothing in paragraph (a)(1)(C) of the rule obviates a member's
obligation to supervise an account that it services, including
determining the associated persons responsible for the account and
ensuring that such persons are appropriately qualified and registered,
and to comply with the requirements of Rule 2090 (``Know Your
Customer'') (which becomes effective on July 9, 2012). Moreover, the
Supplementary Material states that, with respect to a member's
obligation to supervise an account, it is incumbent upon the member to
design appropriate mechanisms to determine the associated persons
responsible for the account, ensure that such persons are appropriately
qualified and registered, and have the ability to provide such
information to FINRA or SEC staff upon request.
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\7\ As defined in FINRA Rule 4512(c), the term ``institutional
account'' means the account of: (1) A bank, savings and loan
association, insurance company or registered investment company; (2)
an investment adviser registered either with the SEC under Section
203 of the Investment Advisers Act of 1940 or with a state
securities commission (or any agency or office performing like
functions); or (3) any other person (whether a natural person,
corporation, partnership, trust or otherwise) with total assets of
at least $50 million.
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FINRA has requested the Commission to find good cause pursuant to
Section 19(b)(2) of the Act \8\ for approving the proposed rule change
prior to the 30th day after its publication in the Federal Register so
that FINRA can implement the proposed rule change on December 5, 2011,
which coincides with the implementation date for the amendments to the
FINRA books and records rules.
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\8\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ 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 that the proposed rule change will
further these purposes by providing greater clarity to members
regarding the application of FINRA Rule 4512(a)(1)(C), which, in turn,
will assist them in their compliance efforts. The clarification
regarding FINRA Rule 4512(a)(1)(C) would except institutional accounts
from the recordkeeping requirements of the provision, while new
Supplementary Material .05 (Supervision of Accounts) emphasizes a
member's obligation to supervise all accounts that it services,
including determining the associated persons responsible for the
account and ensuring that such persons are appropriately qualified and
registered, and to comply with the requirements of Rule 2090 (which
becomes effective on July 9, 2012). The Supplementary Material also
states that, with respect to a member's obligation to supervise an
account, it is incumbent upon the member to design appropriate
mechanisms to determine the associated persons responsible for the
account, ensure that such persons are appropriately qualified and
registered, and have the ability to provide such information to FINRA
or SEC staff upon request.
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\9\ 15 U.S.C. 78o-3(b)(6).
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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.
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. 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 No. SR-FINRA-2011-070 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2011-070. 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 Web site (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 Web site 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2011-070 and
[[Page 77036]]
should be submitted on or before December 30, 2011.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
In its filing, FINRA requested that the Commission approve the
proposal on accelerated basis so that the proposed rule change is
approved in time to coincide with the implementation date for the
amendments to the FINRA books and records rules. After careful
consideration, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
association.\10\
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\10\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act,\11\ 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. The Commission believes that the
proposed rule change is consistent with Section 15A(b)(6) of the Act
because it will clarify to members that FINRA Rule 4512(a)(1)(C) does
not apply to institutional accounts, which, in turn, will assist them
in their compliance efforts. The proposal also includes new .05 of the
Supplementary Material to FINRA Rule 4512, which emphasizes a member's
obligation to supervise all accounts that it services, including
determining the associated persons responsible for the account and
ensuring that such persons are appropriately qualified and registered,
and that members servicing institutional accounts continue to have the
obligation to comply with the requirements of Rule 2090 when that rule
becomes effective on July 9, 2012. The new provision within the
Supplementary Material also states that, with respect to a member's
obligation to supervise an account, it is incumbent upon the member to
design appropriate mechanisms to determine the associated persons
responsible for the account, ensure that such persons are appropriately
qualified and registered, and have the ability to provide such
information to FINRA or SEC staff upon request. The Commission believes
that the provisions included in .05 of the Supplementary Material will
serve to prevent fraudulent and manipulative acts and practices
relating to institutional accounts and protect institutional investors
and the public interest by effectively reminding members of their
supervisory and Know Your Customer obligations for institutional
accounts.
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\11\ 15 U.S.C. 78o-3(b)(6).
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The Commission also finds good cause pursuant to Section 19(b)(2)
of the Act \12\ for approving the proposed rule change prior to the
30th day after its publication in the Federal Register. FINRA Rule
4512, which provides for member recordkeeping obligations relating to
customer account information, becomes effective on December 5, 2011.
The instant proposed rule change clarifies the inapplicability of FINRA
Rule 4512(a)(1)(C) to institutional accounts while advising firms of
other relevant obligations related to the supervision of institutional
accounts and the obligations related to complying with FINRA Rule 2090.
Accelerating approval of the instant proposed rule change will enable
FINRA to have the proposed rule change's effectiveness coincide with
the effectiveness of FINRA's revised books and records rules, including
FINRA Rule 4512, on December 5, 2011.
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\12\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-FINRA-2011-070) be, and
hereby is, approved.
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\13\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31632 Filed 12-8-11; 8:45 am]
BILLING CODE 8011-01-P