[Federal Register Volume 80, Number 91 (Tuesday, May 12, 2015)]
[Notices]
[Pages 27220-27222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11381]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74890; File No. SR-FINRA-2015-009]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rule 2272 To Govern Sales or Offers of Sales of Securities on the
Premises of Any Military Installation to Members of the U.S. Armed
Forces or Their Dependents
May 6, 2015.
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 April 23, 2015, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been substantially prepared by
FINRA. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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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 Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 2272, which would govern
sales or offers of sales of securities on the premises of any military
installation to members of the U.S. Armed Forces or their dependents.
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, set forth in sections A,
B,
[[Page 27221]]
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The proposed rule change would adopt FINRA Rule 2272, which would
govern sales or offers of sales of securities on the premises of any
military installation to members of the U.S. Armed Forces or their
dependents.
Statutory Requirement
The Military Personnel Financial Services Protection Act
(``Military Act'') was enacted to protect members of the U.S. Armed
Forces from unscrupulous practices regarding sales of insurance,
financial and investment products.\3\ Congress amended Section 15A(b)
of the Exchange Act with the enactment of the Military Act to require
FINRA, as a registered securities association, to adopt rules governing
the sales or offers of sales of securities on the premises of any
military installation to members of the U.S. Armed Forces or their
dependents.\4\ Such rules must require: (1) The broker-dealer
performing brokerage services to clearly and conspicuously disclose to
potential investors (a) that the securities offered are not being
offered or provided by the broker-dealer on behalf of the federal
government, and that its offer is not sanctioned, recommended, or
encouraged by the federal government and (b) the identity of the
registered broker-dealer offering the securities; (2) such broker-
dealer to perform an appropriate suitability determination, including
consideration of costs and knowledge about securities, prior to making
a recommendation of a security to a member of the U.S. Armed Forces or
a dependent thereof; and (3) that no person receive any referral fee or
incentive compensation in connection with a sale or offer of sale of
securities, unless such person is an associated person of a registered
broker-dealer and is qualified pursuant to the rules of a self-
regulatory organization.\5\
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\3\ Public Law 109-290, 120 Stat. 1317.
\4\ 15 U.S.C. 78o-3(b).
\5\ 15 U.S.C. 78o-3(b)(14).
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Proposal
FINRA, as a registered securities association, is proposing to
adopt Rule 2272 to comply with the statutory requirements of the
Military Act. Proposed Rule 2272 would require that any member engaging
in sales or offers of sales of securities on the premises of a military
installation to any member of the U.S. Armed Forces or a dependent
thereof shall clearly and conspicuously disclose in writing, which may
be electronic, to such potential investor prior to engaging in sales or
offers of sales of securities to such investor: (1) The identity of the
member offering the securities; and (2) that the securities offered are
not being offered or provided by the member on behalf of the federal
government, and that the offer of such securities is not sanctioned,
recommended or encouraged by the federal government.\6\ Electronic
delivery of the disclosures required by proposed Rule 2272 must be
consistent with SEC guidance on the use of electronic media to satisfy
delivery obligations which, among other things, requires affirmative
consent of the customer for delivery of certain documents.\7\
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\6\ See proposed Rule 2272(b).
\7\ See Securities Exchange Act Release No. 37182 (May 6, 1996);
61 FR 24644 (May 15, 1996). See also Securities Exchange Act Release
No. 42728 (April 28, 2000); 65 FR 25843 (May 4, 2000).
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Proposed Rule 2272 also would incorporate the suitability
obligations under FINRA Rule 2111. Specifically, the proposed rule
would explicitly provide that a member must satisfy the suitability
obligations imposed by Rule 2111 when making a recommendation on the
premises of a military installation to any member of the U.S. Armed
Forces or a dependent thereof.\8\ FINRA believes that the suitability
obligations imposed by Rule 2111 satisfy the statutory requirement that
FINRA adopt rules requiring its members to perform an appropriate
suitability determination, including consideration of costs and
knowledge about securities, prior to making a recommendation to a
member of the U.S. Armed Forces or a dependent thereof. FINRA has
previously stated that the cost associated with a recommendation is one
factor for a member or an associated person to consider when
determining whether a security or investment strategy is suitable for a
customer pursuant to Rule 2111.\9\ Further, Rule 2111 requires a member
or associated person to use reasonable diligence to obtain and
consider, among other things, the customer's investment experience.\10\
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\8\ See proposed Rule 2272(c).
\9\ See Regulatory Notice 12-25 (May 2012). FINRA stated that
the cost associated with a recommendation is one of many important
factors to consider when determining whether the subject security or
investment strategy involving a security or securities is suitable.
\10\ See Rule 2111(a) (requiring that a member or associated
person use reasonable diligence to obtain and consider a customer's
investment profile, which includes the customer's investment
experience). See also Regulatory Notice 12-25.
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Proposed Rule 2272 also would provide that no member shall cause a
person to receive a referral fee or incentive compensation in
connection with sales or offers of sales of securities on the premises
of a military installation with any member of the U.S. Armed Forces or
a dependent thereof, unless such person is an associated person of a
registered broker-dealer who is appropriately qualified consistent with
FINRA rules, and the payment complies with applicable federal
securities laws and FINRA rules.\11\
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\11\ See proposed Rule 2272(d).
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For purposes of the proposed rule change, FINRA proposes to define
``military installation'' to include ``any federally owned, leased or
operated base, reservation, post, camp, building or other facility to
which members of the U.S. Armed Forces are assigned for duty, including
barracks, transient housing and family quarters.'' \12\ FINRA will read
with interest comments as to whether proposed Rule 2272 should be
broadened to apply to sales or offers of sales of securities both on
and off the premises of a military installation to any member of the
U.S. Armed Forces or a dependent thereof. In this regard, FINRA reminds
members that any such sales or offers of sales of securities off the
premises of a military installation must comply with applicable FINRA
rules, including suitability requirements, and that any misleading
representation made to a member of the U.S. Armed Forces or a dependent
thereof off the premises of a military installation that the securities
are being offered or provided on behalf of, or sanctioned, recommended,
or encouraged by the federal government would be otherwise prohibited
by FINRA rules.\13\
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\12\ See proposed Rule 2272(a). The proposed definition is
consistent with the definition included in the Military Sales
Practices Model Regulation adopted by the National Association of
Insurance Commissioners. See http://www.naic.org/store/free/MDL-568.pdf.
\13\ See, e.g., Rules 2010, 2020, and 2210.
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FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 180 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions
[[Page 27222]]
of Section 15A(b)(6) of the Act,\14\ 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 the purposes of the Act by providing members of the U.S. Armed
Forces and their dependents on the premises of military installations
with clear disclosure that the securities offered are not being offered
or provided by the member on behalf of the federal government, and that
the offer of such securities is not sanctioned, recommended or
encouraged by the federal government. The proposed rule change also
would require persons receiving referral fees or other incentive
compensation in connection with such sales to be appropriately
qualified associated persons of a broker-dealer so as to mitigate
potentially abusive and unscrupulous sales practices.
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\14\ 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. Proposed Rule 2272 is intended
to benefit members of the U.S. Armed Forces and their dependents on the
premises of military installations by providing enhanced disclosure
about securities investments and limiting compensation for referrals.
According to the 2012 National Financial Capability Study's
Military Report,\15\ approximately half of the survey respondents hold
non-retirement investments and approximately 65% have self-directed
retirement plans. In addition, approximately two-thirds of respondents
indicated that they have consulted with a financial professional
outside the military over the past five years.
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\15\ The report and related materials can be found at: http://www.usfinancialcapability.org/resultsm.php. The report is based on a
survey of 1,000 members of the U.S. Armed Forces, including active
duty personnel, activated Reserve and National Guard personnel, and
Reserve and National Guard personnel not currently on active duty.
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The Department of Defense has separately imposed requirements for
personal commercial solicitations, including offers and sales of
securities, on the premises of military installations. Among other
things, the Department of Defense has required: (i) Registering persons
seeking to solicit on the premises of military installations with the
installation's commander prior to soliciting on the premises; (ii)
checking the person's license status and complaint history prior to
granting permission for soliciting on the premises; (iii) permitting
only previously scheduled meetings in a location designated by the
commander or in family quarters; and (iv) maintaining a list of persons
and companies who have had their commercial solicitation privileges
withdrawn.\16\ The Department of Defense's requirements have the
practical effect of limiting access to the premises of military
installations for the purpose of commercial solicitations.
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\16\ See Department of Defense Instruction No. 1344.07 (March
30, 2006).
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The proposed rule change would impose additional costs on members
that offer to sell securities on the premises of U.S. military
installations to members of the U.S. Armed Forces and their dependents.
Specifically, members would be required to provide additional
disclosure and to adopt supervisory policies and procedures reasonably
designed to ensure that the disclosure is provided where required.
FINRA anticipates that the disclosure required by proposed Rule 2272
would be provided with other materials and disclosures typically
provided to potential investors.
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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 Number SR-FINRA-2015-009 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2015-009. 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
10:00 a.m. and 3:00 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-2015-009 and should be
submitted on or before June 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11381 Filed 5-11-15; 8:45 am]
BILLING CODE 8011-01-P