[Federal Register Volume 79, Number 43 (Wednesday, March 5, 2014)]
[Notices]
[Pages 12547-12550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04795]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71626; File No. SR-FINRA-2013-051]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend the
Uniform Branch Office Registration Form (Form BR)
February 27, 2014.
I. Introduction
On November 25, 2013, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change to amend the Uniform Branch
Office Registration Form (``Form BR'') pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on December 13, 2013.\3\ The Commission received
three comment letters on the proposed rule change.\4\ On January 21,
2013 FINRA responded to the comment letters.\5\ On January 23, 2014,
the Commission extended the time period within which the Commission
must approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 71027 (December 9,
2013), 78 FR 75954 (``Notice'').
\4\ See Letter from Jason Doss, President, Public Investors
Arbitration Bar Association to Elizabeth M. Murphy, Secretary,
Commission, dated January 2, 2014 (``PIABA Letter''); Letter from
Clifford Kirsch and Eric A. Arnold, Sutherland Asbill & Brennan LLP,
on behalf of the Committee of Annuity Insurers to Elizabeth M.
Murphy, Secretary, Commission, dated January 3, 2014 (``CAI
Letter''); Letter from David T. Bellaire, Esq., Executive Vice
President & General Counsel, Financial Services Institute to
Elizabeth M. Murphy, Secretary, Commission, dated January 3, 2014
(``FSI Letter'').
\5\ See Letter from Kosha Dalal, Associate Vice President and
Associate General Counsel, FINRA, to Elizabeth M. Murphy, Secretary,
Commission, dated January 21, 2014 (``FINRA Response Letter'').
\6\ See Securities Exchange Act Release No. 71373, 79 FR 4788
(January 29, 2014)
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II. Description
Proposed Amendments
Form BR is used by firms to register their branch offices with
FINRA, the New York Stock Exchange (``NYSE''), and participating states
via the Central Registration Depository (``CRD[supreg]''). Form BR
enables a firm: (1) To register a branch office, (2) amend a
registration, (3) close or terminate a registration, or (4) withdraw a
filing in the appropriate participating jurisdiction and self-
regulatory organization (``SRO'').
In concert with a committee of regulatory and industry
representatives, FINRA recently undertook a review of Form BR. As a
result of this review, FINRA is proposing to amend Form BR to: (1)
Eliminate Section 6 (NYSE Branch Information), which is currently
applicable only to NYSE-registered firms; (2) add questions relating to
space sharing arrangements and the location of books and records that
are currently only in Section 6 and make them applicable to all
members; (3) modify existing questions and instructions to provide more
detailed selections for describing the types of activities conducted at
the branch office; (4) add an optional question to identify a branch
office as an ``Office of Municipal Supervisory Jurisdiction,'' as
defined under the rules of the Municipal Securities Rulemaking Board
(MSRB); and (5) make other technical changes to adopt uniform
terminology and clarify questions and instructions (collectively, the
proposed amendments to Form BR are hereinafter referred to as the
``Updated Form BR'').
Delete Section 6 while Adding Questions on Space Sharing
Arrangements and Location of Books and Records. Currently only NYSE-
registered firms are required to complete and update Section 6 and are
the only firms that can view Section 6 on the CRD system. Section 6 of
Form BR allowed NYSE to administer a pre-approval process for
registration of certain branch offices that was in place at the time
Form BR was implemented.\7\ However, following the NASD/NYSE regulatory
consolidation, in an effort to eliminate disparate regulatory
standards, the NYSE amended NYSE Rule 342 to change its branch office
[[Page 12548]]
registration requirement from a pre-approval process to a notice-filing
requirement.\8\ Therefore, FINRA is proposing to delete this
section.\9\ However, FINRA is proposing to retain questions from
Section 6 relating to space sharing arrangements and the location of
books and records and add them to proposed Section 4 (Branch Office
Arrangements) of the Updated Form BR.
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\7\ In 2005 when Form BR was implemented, NYSE Rule 342
(Offices--Approval, Supervision and Control) required approval of
new branch office registrations, and NYSE Rule 343 (Offices--Sole
Tenancy, Hours, Display of Membership Certificates) required
approval of space sharing arrangements, before the branch office was
able to conduct business.
\8\ See Securities Exchange Act Release No. 56143 (July 26,
2007), 72 FR 42453 (August 2, 2007) (Notice of Filing and Immediate
Effectiveness of File No. SR-NYSE-2007-59).
\9\ The proposed revisions will also remove references to the
NYSE-specific terms from the form.
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Specifically, FINRA is proposing to add a question to Section 4 of
the Updated Form BR that will require members to disclose if the branch
office occupies, shares space with or jointly markets with any other
investment-related entity, and if the answer is yes, to provide the
name of the entity.\10\ In addition, FINRA is proposing to add a
question to Section 4 regarding whether the books and records
pertaining to the registered branch office are maintained at any
location other than that branch office, the main office or office of
supervisory jurisdiction (OSJ) (if applicable). If the answer is yes, a
member will need to provide the address of such location and the name
and telephone number of a contact person.
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\10\ The term ``investment-related'' is defined in Form BR as
``[p]ertains to securities, commodities, banking, insurance, or real
estate (including, but not limited to, acting as or being associated
with a Broker-Dealer, issuer, investment company, Investment
Adviser, futures sponsor, bank, or savings association).''
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Modify Existing Question on ``Types of Activities''. FINRA is
proposing to move questions relating to ``Types of Activities''
occurring at the branch office from Section 3 (Other Business/Names/Web
sites) to Section 2 (Registration/Notice Filing/Type of Office/
Activities) of the Updated Form BR and to expand the list of activity
types that may be selected to: (1) Include Retail and Institutional (as
types of Sales Activity), Public Finance, and Other; (2) add
``Trading'' to the existing Market Making activity; and (3) combine
Investment Banking and Underwriting, which are now listed separately.
In addition, FINRA is proposing to add ``Public Finance'' as an option
to enable members and regulators to identify via the Updated Form BR
office locations that require a Municipal Securities Principal (Series
53).
Modify Supervisor/Person-in-Charge Details. FINRA is proposing to
expand the supervisor and person-in-charge details provided by firms in
Section 2 of the Updated Form BR, to enable firms (at their option) to
provide the ``type of activity'' associated with each on-site
supervisor or person-in-charge listed.
Add Optional MSRB Branch Office of Municipal Supervisory
Jurisdiction Question. FINRA is proposing to add an optional question
to Section 2 to the Updated Form BR to provide FINRA members that are
also registered with the MSRB a means to track their OMSJs through a
standard CRD report that FINRA expects to develop following the
deployment of the Updated Form BR.\11\
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\11\ FINRA is proposing technical and clarifying changes to
General and Specific Instructions, Explanation of Terms and Sections
of the Updated Form BR. See Notice at 75956--75957.
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No Requirement to Submit Amended Forms BR by a Date Certain. FINRA
is proposing that members with existing registered branch offices not
be required to file an Updated Form BR for existing offices immediately
upon deployment of the amended form, but will be required to provide
the new information items on the Updated Form BR when the members are
otherwise required to amend the form to update existing information
items that have become inaccurate or incomplete. FINRA represents that
it expects to evaluate the number of registered branch offices of FINRA
members for which an Updated Form BR has not been filed one year after
it deploys the form. If a significant number of registered branch
offices has not filed the information through an amendment during that
year, FINRA may consider imposing a deadline for providing the proposed
new information.
III. Summary of Comment Letters and FINRA's Response
The Commission received three comment letters on the proposed rule
change.\12\ All three commenters expressed overall support for the
intent of proposed amendments to the Form BR.\13\ In particular, one
commenter noted that it supports the changes to Form BR because they
will make the branch office registration process more efficient and add
clarity to the questions currently asked on the form.\14\ Another
commenter similarly stated that it supports the increased efficiency of
the streamlined Updated Form BR.\15\ Two commenters, however, raised
concerns about specific aspects of the proposed rule change as
discussed below.
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\12\ See note 4, supra.
\13\ See PIABA Letter, CAI Letter, and FSI Letter.
\14\ See FSI Letter, at 1.
\15\ See PIABA Letter.
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A. Space Sharing Arrangements
The Updated Form BR proposes to add a question about space sharing
arrangements at the branch office. Specifically, the proposed space
sharing arrangements question in Section 4 of the Updated Form BR
(``Question 4A'') asks ``[d]oes this branch office occupy or share
space with or jointly market with any other investment-related
entity?'' If the answer is ``yes,'' a member firm must provide the CRD
number (if applicable) and name of the investment-related entity and
select the type of investment-related entity. The term ``investment-
related'' is defined in Section 1 (Explanation of Terms) of the Updated
Form BR to mean, ``pertains to securities, commodities, banking,
insurance, or real-estate (including, but not limited to, acting as or
being associated with a Broker-Dealer, issuer, investment company,
Investment Adviser, futures sponsor, bank or savings association).''
One commenter expressed support for the proposed space sharing
arrangements question and stated, ``[i]n addition to the increased
efficiency of the streamlined Updated Form BR, the inclusion of details
in the proposed form as to space sharing arrangements and locations of
office records provide additional important information to the
investing public.''Sec. \16\ Two commenters, however, expressed
concern regarding proposed Question 4A.\17\
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\16\ See PIABA Letter, at 1.
\17\ See FSI Letter and CAI Letter.
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One commenter specifically noted that if space sharing arrangements
exist at a branch office, then firms must provide the name, CRD number,
and type of entity.\18\ The commenter explained that for independent
firms, space sharing arrangements are not an uncommon practice and may
include several different ``doing business as'' (DBA) entities.\19\ The
commenter stated that because these different DBA businesses and
entities may change frequently, it could be difficult for firms to have
to monitor and update this information on Updated Form BR.\20\ The
commenter further noted that this information would not have been
particularly burdensome for the business model of NYSE-registered firms
under the current Form BR, but the proposed changes introduce
challenges for independent firms.\21\ The commenter stated that it does
not believe that the burden of providing this
[[Page 12549]]
information outweighs the benefit to investors or regulators.\22\
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\18\ See FSI Letter, at 2-3.
\19\ Id.
\20\ Id. at 3.
\21\ Id.
\22\ Id.
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Another commenter also expressed concern about the information
proposed to be collected under Updated Form BR Question 4A.\23\ The
commenter argued that FINRA has underestimated the challenges and
expenses that firms such as insurance-affiliated broker-dealers would
incur to disclose the insurance entities with which they have entered
into space-sharing and joint marketing arrangements.\24\ The commenter
explained that such information is not readily maintained by insurance-
affiliated and other types of member firms and collecting the
information could prove to be burdensome.\25\
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\23\ See CAI Letter.
\24\ See CAI Letter, at 2.
\25\ Id.
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The commenter also stated that the Updated Form BR was unclear with
regard to the scope of a broker-dealer's obligation to identify
insurance entities with which it ``jointly markets'' products.\26\ The
commenter states that it is unclear whether the Updated Form BR is
focusing solely on joint marketing and space sharing with insurance
intermediaries or also insurance product issuers.\27\ The commenter
explained that the Updated Form BR could be read to require a firm to
report ``every insurance product manufacturer that each branch office
is authorized to offer if this is viewed as `jointly marketing' the
insurance products with the issuing insurer.''Sec. \28\ The commenter
questioned how this detailed information would be useful to
regulators.\29\
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\26\ Id.
\27\ Id.
\28\ Id.
\29\ Id.
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In response to commenters' concerns regarding the information
proposed to be collected with regard to space sharing arrangements,
FINRA clarified that members that were not previously required to
complete Section 6 will be required to provide the name, CRD number and
type of investment-related entity with which a branch office occupies
space on the Updated Form BR.\30\ FINRA explained that the CRD system
will automatically complete the CRD number field (if applicable) when
the name of the investment-related entity is entered on the Updated
Form BR and vice versa, and that a member firm will not be required to
seek out the CRD number, if applicable, for each investment-related
entity with which the branch office shares space.\31\
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\30\ See FINRA Response Letter, at 3-4.
\31\ Id. at 3-4.
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FINRA also addressed that commenters' concerns regarding the burden
of collecting and monitoring information relating to space sharing
arrangements at each branch office, particularly for member firms in
the independent broker-dealer channel and stated that the concerns stem
from a misunderstanding regarding the scope of the proposed question on
space sharing arrangements.\32\ FINRA explained that Question 4A on the
Updated Form BR seeks to elicit information regarding investment-
related businesses that jointly occupy office space with the branch
office.\33\ FINRA also clarified that the term ``jointly markets,'' as
used in proposed Question 4A, does not require disclosure of each
insurance product manufacturer that each branch office is authorized to
offer, but instead seeks disclosure regarding other investment-related
businesses that operate or jointly market business services out of the
same physical space as the registered branch office.\34\ FINRA
explained that the question is meant to capture, for example, instances
where a registered representative at a registered branch office also
operates an insurance business out of that same physical location, a
registered branch office location jointly occupies the physical space
with an investment adviser, or the registered branch office jointly
markets the location with other investment-related entities as offering
services.\35\ Given the more limited scope of proposed Question 4A,
FINRA stated that it believes compliance burdens associated with the
proposed question are more limited in nature.\36\
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\32\ Id. at 4.
\33\ Id.
\34\ Id.
\35\ Id.
\36\ Id.
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FINRA also stated that the question about proposed space sharing
arrangements serves a valuable regulatory purpose in that it will
collect basic information on space sharing arrangements that will
enable regulators to conduct more focused, risk-based examinations
based on a more complete understanding of the activities occurring at
each branch office, and also should highlight for members the potential
issues, such as, conflicts of interest, customer confusion,
recordkeeping, and other concerns that may arise when one location is
used for multiple business purposes.\37\
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\37\ Id.
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In response to commenters' assertions that it had failed to take
into account the potential costs and burdens to member firms associated
with proposed Question 4A, FINRA noted that current Question 4A on Form
BR elicits information regarding space sharing arrangements with a
bank, saving bank, saving association, credit union, or other federally
insured depository institution and, therefore, member firms not
previously subject to Section 6 of Form BR are nonetheless currently
providing information relating to these more limited space sharing
arrangements.\38\ Further, FINRA noted that member firms already should
have information regarding outside business activities and space
sharing arrangements at each registered branch office available to
enable them to engage in effective supervision and inspections of
branch offices.\39\
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\38\ Id.
\39\ Id. FINRA also noted that the commenters, while expressing
concerns regarding potential burdens and costs associated with the
proposal, did not provide any specific estimates of compliance costs
in support of their claims. Id. at 4-5.
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B. Technical Comments
One commenter suggested two technical changes to proposed Section 4
of the Updated Form BR.\40\ First, the commenter recommended that FINRA
clarify that the CRD number requested in Section 4(a) is not the CRD
Branch Number but rather the CRD number of the investment-related
entity (if applicable).\41\ Second, the commenter recommended that
FINRA revise the column in Section 4(a) currently titled ``Name'' to
``Name of Investment Related Entity'' for additional clarity.\42\
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\40\ See CAI Letter, at 3.
\41\ Id.
\42\ Id. CAI also questioned whether the Form BR Working Group
included insurance affiliated broker-dealers and fully considered
how the Updated Form BR might affect such member firms' sale of
insurance products. See CAI Letter, at p. 3. In response, FINRA
explained that the Form BR Working Group consisted of
representatives from a diverse cross-section of the securities
industry and state regulators, including representatives from
independent broker-dealer member firms, many of which sell insurance
products. See FINRA Response Letter, at 5.
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In response to the commenter's first suggestion, FINRA advised that
Section 4A elicits the CRD number of the investment-related entity (if
applicable).\43\ With regard to the commenter's second comment, FINRA
stated that, by expressly using the term ``investment-related entity,''
in the Instructions to Section 4A, it believes that member firms should
not be confused regarding the entity about which they are being asked
to provide information.\44\ FINRA further stated that to the extent
member firms have
[[Page 12550]]
questions when completing this Section, FINRA staff will provide
guidance as necessary, including in the regulatory notice announcing
approval of the rule change.\45\
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\43\ See FINRA Response Letter, at 5.
\44\ Id.
\45\ Id.
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C. Implementation Timeline
One commenter expressed concern that the proposal does not impose
an affirmative duty for members to submit the Updated Form BR by a date
certain, and that the proposed implementation timeframe would require
members to complete the proposed new questions only when a member
firm's existing information on file has become inaccurate or
incomplete.\46\ The commenter believes that this vague standard would
invite unnecessary problems and urged the Commission to require that
all members submit completed Forms BR by a date certain.\47\
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\46\ The Commission notes that member firms have a continuing
obligation to promptly update Form BR whenever the information
becomes inaccurate or incomplete.
\47\ See PIABA Letter, at 1.
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Another commenter requested that FINRA provide member firms a
significant amount of time before the effective date of the proposed
requirements to allow them to prepare for the process of collecting the
newly required information.\48\
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\48\ See CAI Letter, at 2.
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In response to these comments, FINRA stated that it believes that
the proposed implementation timeline is reasonable and strikes the
correct balance, especially in light of the clarification provided
above regarding the scope of the proposed question on space sharing
arrangements.\49\ FINRA asserted that it proposed a flexible approach
to implementation to limit the burden on member firms.\50\ FINRA also
noted, however, that it will evaluate the number of registered branch
offices of FINRA member firms for which an Updated Form BR has not been
filed one year after deployment and may consider imposing a deadline
for providing the new information if a significant number of registered
branch offices has not filed the Updated Form BR in the ordinary
course.\51\
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\49\ See FINRA Response Letter, at 5.
\50\ Id.
\51\ Id. at 5-6.
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IV. Discussion and Commission Findings
After carefully considering the proposal, the comments submitted,
and FINRA's response to the comments, 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.\52\ In particular, the Commission finds that
the proposed rule change is consistent with Section 15A(b)(6) of the
Act,\53\ which requires, among other things, that FINRA rules 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 has
considered the commenters' views on the proposed rule change and
believes that FINRA responded appropriately to the concerns raised.
Indeed, the Commission shares FINRA's belief that the Updated Form BR
will provide a more comprehensive profile of each firm's registered
branch offices, which will allow regulators and firms to better
understand the activities occurring at each registered branch office as
well as enable firms to engage in effective supervision and inspections
of branch offices and regulators to conduct more focused and effective
examinations.
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\52\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\53\ 15 U.S.C. 78o-3(b)(6).
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Commenters raised concerns regarding the burden of collecting and
monitoring information relating to space sharing arrangements at each
branch office, particularly for member firms in the independent broker-
dealer channel,\54\ however, as FINRA explained in its response, those
concerns stem from a misunderstanding regarding the scope of the
proposed question on space sharing arrangements, and in fact, proposed
Question 4A is more narrow in scope and thus the compliance burdens
associated with the proposed question are more limited in nature.\55\
Although the Commission acknowledges the potential for firms covered by
these new reporting requirements to incur additional compliance burdens
and costs, the Commission shares FINRA's belief that any such burdens
are outweighed by the overall benefits of increased transparency of the
activities occurring at registered branch offices, which should enable
firms to provide enhanced supervision of branch offices and strengthen
their own compliance programs and regulators to conduct more focused
and effective examinations. Further, the Commission echoes FINRA's
belief that ``member firms should already have information regarding
outside business activities and space sharing arrangements at each
registered branch office available to them to engage in effective
supervision and inspections of branch offices.'' \56\
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\54\ See note 21 supra, and accompanying text.
\55\ See note 36 supra, and accompanying text.
\56\ See FINRA Response letter at 4.
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One commenter was concerned that the proposal does not impose an
affirmative duty for members to submit the Updated Form BR by a date
certain, and that this would invite unnecessary problems.\57\ The
commenter urged the Commission to require that all members submit
completed Forms BR by a date certain.\58\ The Commission believes that
FINRA adequately responded to this concern,\59\ but expects FINRA to
monitor the effect of this change and to consider imposing a deadline
for providing the new information if a significant number of registered
branch offices has not filed the Updated Form BR within a year of
approval of this filing.
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\57\ See note 47 supra, and accompanying text.
\58\ Id.
\59\ See notes 49 and 50 supra, and accompanying text.
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The Commission believes that the proposed amendments to Form BR
will make the branch office registration process more efficient by
eliminating duplicative provisions, eliciting additional information
from all filers regarding space sharing arrangements and the location
of office records, and clarifying existing questions so that regulators
and firms can better understand the activities occurring at each
registered branch office and focus on potential conflicts of interest,
customer confusion, and other issues that can arise when a location is
used for more than one business purpose.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-FINRA-2013-051), be, and hereby is,
approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04795 Filed 3-4-14; 8:45 am]
BILLING CODE 8011-01-P