[Federal Register Volume 80, Number 190 (Thursday, October 1, 2015)]
[Notices]
[Pages 59215-59218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24885]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75988; File No. SR-FINRA-2015-032]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 8312 (FINRA BrokerCheck Disclosure) To Reduce the Waiting
Period for the Release of Information Reported on Form U5
September 25, 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 September 14, 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 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.
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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 amend FINRA Rule 8312 (FINRA BrokerCheck
Disclosure) to reduce the 15-day waiting period for the release of
information reported on Form U5 (Uniform Termination Notice for
Securities Industry Registration) through BrokerCheck[supreg].
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
[[Page 59216]]
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, 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
FINRA BrokerCheck provides the public with information on the
professional background, business practices and conduct of FINRA member
firms and their associated persons. The information that FINRA releases
to the public through BrokerCheck is derived from the Central
Registration Depository (``CRD[supreg]''), the securities industry
online registration and licensing database. FINRA member firms, their
associated persons and regulators report information to the CRD system
via the uniform registration forms.\3\ By making most of this
information publicly available, BrokerCheck, among other things, helps
investors make informed choices about the individuals and firms with
which they conduct business.
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\3\ FINRA discloses through BrokerCheck information that is
reported on the following uniform registration forms: Form U4
(Uniform Application for Securities Industry Registration or
Transfer), Form U5, Form U6 (Uniform Disciplinary Action Reporting
Form), Form BD (Uniform Application for Broker-Dealer Registration),
and Form BDW (Uniform Request for Broker-Dealer Withdrawal).
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Rule 8312 governs the information that FINRA releases to the public
through BrokerCheck. Pursuant to this rule, most of the information
that FINRA releases through BrokerCheck generally is made available the
day after it is filed with the CRD system.\4\ Rule 8312, however,
provides for a 15-day delay in the release of disclosure information
filed on Form U5, which is used by firms to terminate registrations
with self-regulatory organizations (``SROs'') and the states.\5\ The
15-day waiting period was established to give brokers on whose behalf
the Form U5 was submitted an opportunity to comment on the disclosure
event either through a Form U4, which is used by firms to register
brokers with SROs and the states, or by submitting a Broker Comment
directly to FINRA.\6\
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\4\ BrokerCheck is periodically ``refreshed'' based on
information filed with the CRD system on the uniform registration
forms. Information filed with the CRD system on Monday through
Thursday generally is released through BrokerCheck the following
day. Information filed with the CRD system on Friday or Saturday
generally is released through BrokerCheck on Sunday. The CRD system
is not available for filings on Sunday. Information filed with the
CRD system that contains details about a disclosure event may
require additional processing time. See, e.g., infra note 7.
\5\ Only disclosure information is subject to the 15-day waiting
period. Other Form U5 information, such as the date of termination
of a broker's registrations, is published in BrokerCheck in
accordance with the protocols described earlier (see supra note 4).
\6\ See Securities Exchange Act Release No. 55127 (January 18,
2007), 72 FR 3455 (January 25, 2007) (Order Approving File No. SR-
NASD-2003-168).
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FINRA is concerned that the length of the current waiting period
may provide, for an extended period of time, an incomplete picture of a
broker's disclosure history if an investor reviews a broker's
BrokerCheck report during the waiting period. Under those
circumstances, an investor, without knowing about a potentially
significant disclosure event that has been reported to the CRD system,
may determine to conduct business with a formerly registered person
who, although no longer in the securities industry in a registered
capacity, may work in another investment-related industry or may have
attained another position of trust with potential investors.
Moreover, FINRA's concerns regarding the length of the current
waiting period remain even if a broker moves to a new firm and files a
Form U4 to report the disclosure event that occurred when the broker
was registered at his or her prior firm. In such cases, the broker may
not be aware of all the facts and circumstances involving the
disclosure event and may therefore provide only limited details about
the event. In addition, some brokers may attempt to intentionally
reframe the circumstances surrounding the event to put it in a light
that is most favorable to the broker. In either case, investors have
access only to the details reported by the broker on the Form U4 if it
is processed by FINRA staff prior to the filing of the Form U5 or
during the current 15-day waiting period.
To address these concerns, FINRA is proposing to reduce the waiting
period for the release of disclosure information reported on Form U5
(other than internal review disclosure information) from 15 days to
three business days following the processing \7\ of such information by
FINRA.\8\ FINRA believes that a three-business-day waiting period is
more reasonable than a 15-day period because it allows investors to
more quickly access disclosure information reported on Form U5 while at
the same time still providing brokers with the opportunity to comment
on the reported disclosure event.
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\7\ For purposes of this rule, a Form U5 will be considered
processed once the Disclosure Reporting Page, which contains the
details about a disclosure event, has been reviewed by FINRA staff.
Most Forms U5 that contain disclosure information are processed
within two days of being filed with the CRD system.
\8\ For example, if disclosure information on Form U5 is
processed on Monday, FINRA would release that information via
BrokerCheck on Thursday.
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In addition to reducing the length of the waiting period to three
business days, FINRA is proposing that the waiting period potentially
be curtailed if a broker reports on Form U4 the disclosure event that
the broker's prior firm reported on Form U5 prior to the expiration of
the waiting period. For example, if FINRA processes a disclosure event
reported on Form U5 on Monday, and on Tuesday processes a Form U4 filed
by a broker reporting that event, the Form U5 information would be made
publicly available in BrokerCheck on Wednesday, which is the same day
that the Form U4 information would be released. In such circumstances,
the broker has had a chance to comment on the disclosure event that has
been reported by the firm on Form U5, so continuing to exclude the Form
U5 version of the event from BrokerCheck does not serve any purpose.\9\
Furthermore, releasing the Form U5 information at the same time as the
Form U4 information helps investors by reducing the uncertainty
regarding the reason for a broker's termination from a firm when the
broker remains in the industry after leaving his or her old firm.
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\9\ If a disclosure event is reported on Form U4 before the same
event is reported on Form U5, the waiting period will still apply
since the broker will not have had the opportunity to review and
comment on the information provided by the firm on Form U5.
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If the Commission approves the proposed rule change, FINRA will
announce the implementation date of the proposed rule change in a
Regulatory Notice to be published no later than 60 days following
Commission approval. The implementation date will be no later than 180
days following publication of the Regulatory Notice announcing
Commission approval.\10\
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\10\ The implementation of the proposed rule change will require
programming changes to the CRD system, including changing the
waiting period to business days from calendar days and allowing for
the potential curtailment of the waiting period.
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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,\11\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative
[[Page 59217]]
acts and practices, to promote just and equitable principles of trade,
and, in general, to protect investors and the public interest. The
proposed rule change to reduce the waiting period for the release of
Form U5 information through BrokerCheck will enhance investor
protection, because it will allow investors to more quickly access
disclosure information reported on Form U5 and also limit the time
period during which an incomplete picture of a broker's disclosure
history may be displayed in BrokerCheck. The proposed rule change will
help investors better determine whether to conduct business with
registered persons who have changed firms, as well as formerly
registered persons who, although no longer in the securities industry
in a registered capacity, may work in another investment-related
industry or may have attained another position of trust with potential
investors.
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\11\ 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.
Economic Impact Assessment
A. Need for the Rule
As discussed above, FINRA is concerned that the length of the
current waiting period for the release of disclosure information filed
on Form U5 may provide, for an extended period of time, an incomplete
picture of a broker's disclosure history if an investor reviews a
broker's BrokerCheck report during the waiting period. Moreover, if a
broker moves to a new firm and files a Form U4 to report the disclosure
event that the broker's prior firm reported on Form U5 prior to the
expiration of the waiting period, investors could have access only to
the details reported by the broker on the Form U4 which may be
potentially limited or misleading.
B. Regulatory Objective
The proposed reduction in the waiting period for the release of
disclosure information reported on Form U5 aims to allow investors to
access important information more quickly while still providing brokers
with the opportunity to comment on the reported disclosure event. In
addition, FINRA is proposing the simultaneous release of Form U5 and
Form U4 information in the case where FINRA processes a Form U4 that
reports a disclosure event that a broker's prior firm reported on Form
U5 prior to the expiration of the waiting period. The proposed
simultaneous release would prevent brokers from accidentally or
intentionally releasing incomplete information regarding a disclosure
event to the public.
C. Economic Baseline
The current regulatory environment serves as a baseline for the
proposed rule change. Specifically, Rule 8312 provides for a 15-day
delay in the release of Form U5 disclosure information to the public
through BrokerCheck. Investors reviewing a broker's BrokerCheck report
during the waiting period may not be able to obtain a complete picture
of the broker's disclosure history.
Brokers on whose behalf a Form U5 was submitted may comment on the
disclosure event either through a Form U4 or by submitting a Broker
Comment directly to FINRA. Form U4 is used by firms to register brokers
with SROs and the states, and thus brokers who remain in the securities
industry in a registered capacity have a Form U4 filing requirement. In
the cases where a Form U4 was filed prior to the filing of a Form U5 or
during the current 15-day waiting period, investors may have access
only to the details about the disclosure event reported by the broker
on the Form U4 for an extended period of time.
D. Economic Impacts
The proposed rule change to reduce the waiting period for the
release of Form U5 information through BrokerCheck will enhance
investor protection, because it will allow investors to more quickly
access disclosure information reported on Form U5 and also limit the
time period during which an incomplete picture of a broker's disclosure
history may be displayed in BrokerCheck. Therefore, the rule change
will benefit investors by allowing them to make better informed
decisions about the individuals with whom they conduct business and, in
turn, potentially to have greater trust in the markets.
FINRA does not anticipate that the proposed rule change will impose
any burden or additional economic costs on member firms. In this
regard, FINRA notes that the proposed rule change will not subject
member firms to any new or additional uniform registration form
reporting requirements. The Form U5 questions that elicit disclosure
information will remain the same as will the timing of filing
requirements; only the waiting period for the inclusion of the
disclosure information in BrokerCheck will change.
FINRA anticipates that the proposed rule change may impose only a
limited burden or additional economic costs on associated persons. As
previously mentioned, the proposed rule change will not result in any
new or additional uniform registration form reporting requirements. In
addition, associated persons will continue to have the opportunity to
comment on any disclosure event reported on Form U5. Under the FINRA
By-Laws, a firm must provide a terminated broker with a copy of a Form
U5 concurrently with the firm filing it with the CRD system.\12\
Furthermore, if a broker has moved to a new firm before their prior
firm has filed a Form U5, the broker's new firm receives notice of the
Form U5 filing when it is made with the CRD system. As a result, FINRA
believes that the proposed three-business-day waiting period generally
will provide brokers with sufficient time to comment on the reported
disclosure event. To the extent that some registered brokers may find
the proposed three-business-day waiting period insufficient to comment
fully on the disclosure event, they have the option to file a Form U4
amendment within three days of the Form U5 filing to indicate that
additional information regarding the facts and circumstances involving
the disclosure event will be reported in a forthcoming Form U4
amendment. The additional cost to the broker would include time and
effort to file the first U4 amendment and an additional disclosure
review fee of $110.
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\12\ See FINRA By-Laws Article V, Section 3(a).
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FINRA also anticipates that the proposed rule change may impose
only a limited burden on associated persons because FINRA believes that
the proposal will affect only a small percentage of those individuals
who have a disclosure event reported on Form U5. FINRA reviewed all
5,654 disclosure events that were reported on Form U5 in 2014 and found
that approximately 9.7 percent of Form U4 filings reporting such
disclosure events were made between 4 and 15 days after the Form U5 had
been filed and that no Broker Comments were submitted to FINRA during
that timeframe. Thus, in 2014 the proposed rule change would have
likely had no impact on those individuals for whom more than 90 percent
of the Forms U5 were filed that included a disclosure event.\13\
Furthermore, the percentage of individuals potentially impacted by the
proposed rule change may be even less
[[Page 59218]]
than the figure cited above because some individuals may have had the
ability to file a Form U4 within three days of the Form U5 being filed
but chose not to do so.\14\
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\13\ Such individuals include those who filed a Form U4 or
Broker Comment prior to or within three days of the filing of the
Form U5, more than 15 days after the Form U5 was filed, and never
filed a Form U4 or Broker Comment.
\14\ During its review, FINRA was unable to determine the reason
why individuals made their Form U4 filings between 4 and 15 days
after the filing of the Form U5 and therefore FINRA cannot reliably
estimate how many individuals may have had the ability to file a
Form U4 within three days of the Form U5 being filed. FINRA further
notes that the waiting period under the current rule is based on
calendar days following the filing of the Form U5 while the waiting
period under the proposed rule change is based on business days
after FINRA processes the Form U5.
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FINRA further notes that the proposed rule change will not impact
the number of options brokers have to address their concerns regarding
a disclosure event that has been reported on Form U5. As previously
mentioned, a broker can respond via a Form U4 or a Broker Comment.\15\
Moreover, a broker also may file a complaint with FINRA if they believe
that a firm has filed false or misleading information on Form U5.
Brokers now also have the ability to dispute the accuracy of (or
update) a reported disclosure event.\16\
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\15\ FINRA has improved the display of Broker Comments in the
last few years by placing the comment next to the corresponding
disclosure in BrokerCheck rather than at the top of the first page
of an individual's BrokerCheck report.
\16\ See Rule 8312(e).
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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 up to 90 days (i) as the
Commission may designate 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-2015-032 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2015-032. 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 the 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-2015-032 and should be
submitted on or before October 22, 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. 2015-24885 Filed 9-30-15; 8:45 am]
BILLING CODE 8011-01-P