[Federal Register Volume 80, Number 222 (Wednesday, November 18, 2015)]
[Notices]
[Pages 72118-72124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29394]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76430; File No. SR-FINRA-2015-029]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove Proposed Rule Change To Adopt FINRA Rule 3210
(Accounts at Other Broker-Dealers and Financial Institutions), as
Modified by Partial Amendment No. 1, in the Consolidated FINRA Rulebook
November 12, 2015.
I. Introduction
On July 31, 2015, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt a new, consolidated rule
addressing accounts opened or established by associated persons of
members at firms other than the firm with which they are associated.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on August 14, 2015.\3\ On September 22, 2015, FINRA extended
the time period in which the Commission must approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change
to November 12, 2015. The Commission received four comment letters in
response to the proposed rule change.\4\
[[Page 72119]]
On November 10, 2015, FINRA responded to the comments and filed Partial
Amendment No. 1 to the proposal.\5\ The Commission is publishing this
order to solicit comments on Partial Amendment No. 1 from interested
persons and to institute proceedings pursuant to Exchange Act Section
19(b)(2)(B) \6\ to determine whether to approve or disapprove the
proposed rule change, as modified by Partial Amendment No. 1.
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\3\ See Exchange Act Rel. No. 75655 (Aug. 10, 2015), 80 FR 48941
(Aug. 14, 2015) (File No. SR-FINRA-2015-029) (``Notice'').
\4\ See Letters from Eric Arnold and Clifford Kirsch, Sutherland
Asbill & Brennan LLP (for the Committee of Annuity Insurers), dated
September 4, 2015 (``Sutherland Letter''); Michael J. Hogan,
President and Chief Executive Officer, FOLIOfn Investments, Inc.,
dated September 4, 2015 (``FOLIOfn Letter''); Joseph C. Peiffer,
President, Public Investors Arbitration Bar Association (``PIABA''),
dated September 3, 2015 (``PIABA Letter''); and Kevin Zambrowicz,
Associate General Counsel & Managing Director, and Stephen Vogt,
Assistant Vice President & Assistant General Counsel, Securities
Industry and Financial Markets Association, dated September 3, 2015
(``SIFMA Letter'').
\5\ See Letter from Patrice Gliniecki, Senior Vice President and
Deputy General Counsel, FINRA, to the Commission, dated November 10,
2015 (``FINRA Response Letter''). The FINRA Response Letter and the
text of Partial Amendment No. 1 are 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.
\6\ 15 U.S.C. 78s(b)(2)(B).
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Institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to the proposed rule change,
nor does it mean that the Commission will ultimately disapprove the
proposed rule change. Rather, as discussed below, the Commission seeks
additional input on the proposed rule change, as modified by Partial
Amendment No. 1, and issues presented by the proposal.
II. Description of the Proposed Rule Change \7\
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\7\ The proposed rule change, as described in this Item II, is
excerpted, in part, from the Notice, which was substantially
prepared by FINRA. See supra note 3.
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As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\8\ FINRA is proposing to adopt new
FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial
Institutions) in the Consolidated FINRA Rulebook, and to delete NASD
Rule 3050, Incorporated New York Stock Exchange (``NYSE'') Rules 407
and 407A, and Incorporated NYSE Rule Interpretations 407/01 and 407/
02.\9\
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\8\ The current FINRA rulebook consists of: (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules''). See supra note 3.
\9\ For convenience, the Incorporated NYSE Rules are referred to
as the ``NYSE Rules.''
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A. Current NASD Rule 3050
Current NASD Rule 3050 provides a means to inform member firms
about transactions effected by their associated persons in accounts
established outside the firm. This information gives members an
opportunity to weigh the effect these accounts may have on the firm and
its customers.\10\ The rule imposes specified obligations on member
firms and associated persons, including:
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\10\ See Exchange Act Release No. 4924 (Aug. 21, 1953); see also
supra note 3.
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Obligations of Member Firms: NASD Rule 3050(a) requires
that a member (called an ``executing member'') that knowingly executes
a transaction for the purchase or sale of a security for the account of
a person associated with another member (called an ``employer
member''), or for any account over which the associated person has
discretionary authority, must use reasonable diligence to determine
that the execution of the transaction will not adversely affect the
interests of the employer member. NASD Rule 3050(b) requires that, when
an executing member knows that a person associated with an employer
member has or will have a financial interest in, or discretionary
authority over, any existing or proposed account carried by the
executing member, the executing member must:
(1) Notify the employer member in writing, prior to the execution
of a transaction for the account, of the executing member's intention
to open or maintain that account;
(2) upon written request by the employer member, transmit duplicate
copies of confirmations, statements, or other information with respect
to the account; and
(3) notify the person associated with the employer member of the
executing member's intention to provide the notice and information
required by (1) and (2), above.
Obligations of Associated Persons: Associated persons who:
(1) Open securities accounts or place securities orders through (a) a
member firm other than their employer, or (b) other financial
institution that is not a FINRA member, and (2) have a financial
interest in, or discretionary authority over, such accounts or orders
\11\ must comply with the following:
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\11\ See NASD Rule 3050(e).
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(1) NASD Rule 3050(c) requires that a person associated with a
member, prior to opening an account or placing an initial order for the
purchase or sale of securities with another member, must notify both
the employer member and the executing member, in writing, of his or her
association with the other member. The rule also provides that if the
account was established prior to the person's association with the
employer member, the person must notify both members in writing
promptly after becoming associated; and
(2) NASD Rule 3050(d) provides that if the associated person opens
a securities account or places an order for the purchase or sale of
securities with a broker-dealer that is registered pursuant to Exchange
Act Section 15(b)(11) (a notice-registered broker-dealer), a domestic
or foreign investment adviser, bank, or other financial institution
(i.e., firms that are not FINRA members), then he or she must: (i)
Notify his or her employer member in writing, prior to the execution of
any initial transactions, of the intention to open the account or place
the order; and (ii) upon written request by the employer member,
request in writing and assure that the notice-registered broker-dealer,
investment adviser, bank, or other financial institution provides the
employer member with duplicate copies of confirmations, statements, or
other information concerning the account or order. NASD Rule 3050(d)
also provides that if an account subject to Rule 3050(d) was
established prior to the person's association with the member, the
person must comply with the rule promptly after becoming associated.
In addition, NASD Rule 3050(f) provides that the requirements of
Rule 3050 do not apply to transactions in unit investment trusts and
variable contracts or redeemable securities of companies registered
under the Investment Company Act of 1940 (``Investment Company Act''),
or to accounts which are limited to transactions in such securities.
B. Current NYSE Rules 407 and 407A
The purpose of NYSE Rule 407 is similar to the purpose of FINRA
Rule 3050--to provide member firms information about transactions
effected by their associated persons in accounts established outside
their firm. According to FINRA, the NYSE and NASD rules are similar
with some variations, including:
NYSE Rule 407(a) is similar to NASD Rule 3050(b), except
that Rule 407(a) requires that an executing member receive an employer
member's prior written consent before: (1) Opening a securities or
commodities account, or (2) executing any transaction in which a member
or employee associated with another member or member organization is
directly or indirectly interested. The rule also requires that
duplicate confirmations and account statements be sent promptly to the
employer.
NYSE Rule 407(b) is similar to NASD Rules 3050(c) and (d),
except that Rule 407(b) generally requires that associated persons who:
(1) Establish or maintain a securities or commodities account, or enter
into a securities transaction at (a) another member firm, or (b) a
domestic or foreign non-member
[[Page 72120]]
broker-dealer, investment adviser, bank, or other financial
institution,\12\ and (2) have a financial interest in, or discretionary
authority over, such accounts or transactions must obtain the employer
firm's prior written consent. The rule also requires that persons
having accounts or effecting transactions as covered by the rule must
arrange for duplicate confirmations and statements (or their
equivalents) to be sent to the employer firm. The rule further requires
that all such accounts and transactions must periodically be reviewed
by the employer member.
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\12\ NYSE Rule 407.13 states that, for purposes of the rule, the
term ``other financial institution'' includes, but is not limited
to, insurance companies, trust companies, credit unions, and
investment companies.
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NYSE Rule 407.12 is similar to NASD Rule 3050(f), except
that Rule 407.12 excepts the specified transactions and accounts (i.e.,
transactions in unit investment trusts and variable contracts or
redeemable securities of companies registered under the Investment
Company Act, or to accounts which are limited to transactions in such
securities, or to monthly investment plan type accounts) only from the
obligation to send duplicate confirmations and statements unless
requested by the employer.
In addition, NYSE Rule 407A (Disclosure of All Member Accounts)
requires members to promptly report to the NYSE any securities account
(including accounts at a member or non-member broker-dealer, investment
adviser, bank or other financial institution), in which the member has
a financial interest or the power to make investment decisions. NYSE
Rule 407A also requires a member having such an account to notify the
financial institution that carries or services the account that it is a
member of the NYSE. In addition, the rule requires that members report
to the NYSE when any such securities account is closed. FINRA states
that ``[t]hese reporting requirements were designed to provide the NYSE
with current information about where floor members carry securities
accounts.'' \13\
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\13\ See supra note 3.
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NYSE Rule Interpretation 407/01 addresses the process for
determining whether the account of a spouse of an associated person
should be subject to NYSE Rule 407.
NYSE Rule Interpretation 407/02 provides that NYSE Rule 407(b)
applies when an associated person is also a majority stockholder of a
non-public corporation that wishes to open a discretionary margin
account at another member.
C. Proposed New FINRA Rule 3210 \14\
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\14\ The description in this section describes the proposed
rules change prior to the proposed amendments, which are described
below.
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Proposed FINRA Rule 3210(a) would require an associated person to
obtain his or her employer firm's prior written consent before opening
or otherwise establishing an account in which securities transactions
can be effected and in which the associated person has a beneficial
interest at a member other than the employer member (i.e., executing
member), or at any other financial institution.\15\ Proposed FINRA Rule
3210.02 would deem the associated person to have a beneficial interest
in any account that is held by: (a) The spouse of the associated
person; (b) a child of the associated person or of the associated
person's spouse, provided that the child resides in the same household
as or is financially dependent upon the associated person; (c) any
other related individual over whose account the associated person has
control; or (d) any other individual over whose account the associated
person has control and to whose financial support the associated person
materially contributes. Notably, the proposal would ``[eliminate] the
language in the current rules that references accounts or transactions
where the associated person has `the power, directly or indirectly, to
make investment decisions,' as set forth in NYSE Rule 407(b), and
accounts where the associated person has `discretionary authority,' as
set forth in NASD Rule 3050(b).'' \16\
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\15\ Based on NYSE Rule 407.13 and NASD Rule 3050(d), proposed
FINRA Rule 3210.05 provides that the terms ``other financial
institution'' and ``financial institution other than a member''
include, but are not limited to, any broker-dealer that is
registered pursuant to Exchange Act Section 15(b)(11), domestic or
foreign non-member broker-dealer, investment adviser, bank,
insurance company, trust company, credit union, and investment
company.
\16\ See supra note 3.
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Proposed FINRA Rule 3210(b) would require an associated person to
provide written notice to the executing member, or other financial
institution, of his or her association with the employer member prior
to opening or otherwise establishing an account subject to the rule.
Proposed FINRA Rule 3210(c) would require an executing member, upon
written request by the employer member, to transmit duplicate copies of
confirmations and statements, or the transactional data contained
therein, with respect to an account subject to the rule.
Proposed FINRA Rule 3210.01 would require an associated person to
obtain the written consent of the employer member, within 30 calendar
days of becoming so associated, to maintain an account that was opened
or otherwise established prior to the person's association with the
employer member. The proposed rule also would require the associated
person to notify in writing the executing member or other financial
institution of his or her association with the employer member.
Proposed FINRA Rule 3210.03 states that proposed FINRA Rule 3210(c)
(discussed above) would not apply to transactions in unit investment
trusts, municipal fund securities as defined under MSRB Rule D-12,
qualified tuition programs pursuant to Section 529 of the Internal
Revenue Code, and variable contracts or redeemable securities of
companies registered under the Investment Company Act, as amended, or
to accounts that are limited to transactions in such securities, or to
monthly investment plan type accounts.
Proposed FINRA Rule 3210.04 would require an employer member to
consider the extent to which it will be able to obtain, upon written
request, duplicate copies of confirmations and statements, or the
transactional data contained therein, directly from the non-member
financial institution in determining whether to provide its written
consent to an associated person to open or maintain an account subject
to the rule at a financial institution other than a member.
D. Partial Amendment No. 1
In its amendment, FINRA is proposing to amend proposed FINRA Rule
3210.03 to exclude from the requirements of FINRA Rule 3210
transactions in unit investment trusts, municipal fund securities as
defined under MSRB Rule D-12, qualified tuition programs pursuant to
Section 529 of the Internal Revenue Code, and variable contracts or
redeemable securities of companies registered under the Investment
Company Act, as amended, or to accounts that are limited to
transactions in such securities, or to monthly investment plan type
accounts.
This proposed amendment would establish a rebuttable presumption
that an associated person has a beneficial interest in an account held
by an individual listed in proposed Rule 3210.02(a)-(d). Specifically,
the proposal would state that for purposes of Rule 3210, an associated
person would be presumed (not deemed) to have a beneficial interest in
any account that is held by an individual listed in Rule 3210.02(a)-
(d). Further, the amendment to proposed Rule 3210.02(a) would require
that in order for an
[[Page 72121]]
associated person to be presumed to have a beneficial interest in an
account held by his or her spouse, the spouse must ``[reside] in the
same household as the associated person.'' Moreover, amendment to
proposed FINRA Rule 3210.02 would state that an associated person could
overcome the presumption of beneficial interest in an account by
``[demonstrating], to the satisfaction of the employer member, that the
associated person derives no economic benefit from the account.''
The text of the proposed rule change, as amended, is available, at
the principal office of FINRA, on FINRA's Web site at http://www.finra.org, and at the Commission's Public Reference Room. In
addition, you may also find a more detailed description of the original
proposed rule change in the Notice.\17\
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\17\ See supra note 3.
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III. Summary of Comments
As noted above, the Commission received four comment letters on the
proposed rule change. Two commenters generally expressed support for
FINRA's proposal.\18\ The other two commenters did not support the
proposed rule.\19\ All four commenters recommended amendments to the
proposal. FINRA also responded to the comments.
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\18\ See SIFMA Letter and FOLIOfn Letter.
\19\ See PIABA Letter and Sutherland Letter.
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A. Receipt of Duplicate Confirmations and Account Statements
One commenter stated that despite specifying that an employing firm
is ``responsible for supervising its broker's trading activities,'' the
proposal only requires an executing member to provide duplicate account
documents (with respect to an account subject to the rule) upon written
request by the employer member.\20\ This commenter recommended that
FINRA amend the proposal to require the employing firm to obtain these
confirmations and statements from the executing firm so that the
employing firm has sufficient information available for its supervisory
personnel to monitor associated persons' outside trading activity.\21\
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\20\ See PIABA Letter.
\21\ Id.
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Similarly, this commenter stated its view that the proposed
requirement for an employing firm to consider the extent to which it
would be able to obtain duplicate account documents in determining
whether to consent to an associated person opening or maintaining an
account with a non-member financial institution would be
ineffective.\22\ This commenter recommended that FINRA amend the rule
to require that duplicate copies of monthly statements and
confirmations or the equivalent be available for the employing firm's
review as a precondition to the opening of outside accounts.\23\
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\22\ Id.
\23\ Id.
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In its response, FINRA stated that the proposed requirement to
transmit duplicate account documents ``upon written request'' by the
employer member is intended to provide employer members reasonable
flexibility to craft appropriate supervisory policies and procedures
according to their business model and the risk profile of their
activities.\24\ Similarly, FINRA stated that with respect to accounts
at non-member institutions the approach reflected in the proposal rule
should permit employer members the flexibility they need to carry out
their supervisory responsibilities under FINRA rules.\25\ FINRA
believes that specifying preconditions for such accounts would negate
the flexibility the rule aims to achieve.\26\
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\24\ See FINRA Response Letter.
\25\ Id.
\26\ Id.
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Accordingly, FINRA declined to make the suggested changes.
B. Non-Member Accounts
One commenter stated its view that in trying to provide FINRA
members greater flexibility in determining whether to consent to an
associated person opening or maintaining an account at non-member
financial institutions, the proposal focuses too much on only one
element of the analysis (i.e., duplicate statements).\27\ This
commenter believes that the proposal would be made easier to implement
from a supervisory and operational standpoint if FINRA uses
``principles based'' language in Proposed FINRA Rule 3210.04.\28\
Accordingly, the commenter recommended that FINRA amend the proposal to
provide that if a firm decides to permit accounts of its associated
persons to be opened and maintained at an outside institution, the firm
must, at a minimum, determine that the account activity can be properly
monitored pursuant to the requirements of Rule 3110(d).\29\
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\27\ See SIFMA Letter.
\28\ Id.
\29\ Id.
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In its response, FINRA stated that the proposal is sufficient to
imply, in light of the supervisory obligations that apply to all
members, that members will consider whether activity in the account can
be properly monitored when determining whether to provide their written
consent to an associated person to open or maintain an account at a
non-member financial institution.\30\ In addition, FINRA reminded its
members that the rule in no way lessens the breadth and scope of
members' supervisory obligations.\31\ Accordingly, FINRA declined to
make the suggested changes.
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\30\ See FINRA Response Letter.
\31\ Id.
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C. Discretionary Accounts
One commenter recommended that FINRA maintain the requirement that
brokers obtain prior written consent from their employing firm before
opening discretionary accounts for customers at other firms.\32\ The
commenter believes that knowledge of the opening of these types of
accounts allows employing members to take appropriate steps to
supervise outside trading activity.\33\
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\32\ See PIABA Letter.
\33\ Id.
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In its response, FINRA stated that the proposal is designed to
demarcate more clearly the respective scope of FINRA Rule 3210, which
is meant to address monitoring of personal and related accounts, versus
FINRA Rule 3280, which addresses private securities transactions.\34\
Specifically, FINRA stated that to the extent associated persons make
investment decisions or have discretionary authority in contexts that
involve private securities transactions within the scope of FINRA Rule
3280, then such transactions are subject to that rule's provisions.\35\
Accordingly, FINRA declined to make the suggested change.
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\34\ See FINRA Response Letter.
\35\ Id.
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D. Accessing Transactional Data
Two commenters expressed concern that the proposed rule change
would limit the methods that an employer firm could use to receive and,
consequently, access transactional data.\36\ One commenter stated its
view that by requiring transactional data to be ``transmitted'' to the
employer firm, FINRA unintentionally restricts the various ways by
which employer firms can have access to the transactional data.\37\
Accordingly, this commenter recommended that FINRA amend the proposal
to leave it up to the executing firm to decide, in considering its
business model and technical sophistication, how to best make
[[Page 72122]]
available the information.\38\ Similarly, the other commenter
recommended that FINRA amend the proposal to state that an employing
member may satisfy its obligations under the proposal by receiving
transactional data through automated means, such as electronic data
feeds, in lieu of receiving hardcopy or imaged confirmations and
statements.\39\
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\36\ See FOLIOfn Letter and SIFMA Letter.
\37\ See FOLIOfn Letter.
\38\ Id.
\39\ See SIFMA Letter.
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In its response, FINRA stated that it did not intend to specify any
particular methodology as to transmission of the specified
information.\40\ FINRA also stated that it believes that the proposed
rule change is sufficiently broad by its terms to permit members all
reasonable flexibility as to the manner of obtaining and reviewing the
specified information, whether by hard copy or electronic means.\41\
Accordingly, FINRA declined to make the suggested changes.
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\40\ See FINRA Response Letter.
\41\ Id.
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E. Definition of ``Beneficial Interest''
Two commenters recommended that FINRA amend proposed Rule 3210.02
to revise the proposed definition of ``beneficial interest.'' \42\ One
commenter stated its view that presuming beneficial interest in any
account held by the spouse of an associated person (and other familial
relationships) is overly broad.\43\ Instead, the commenter recommended
that FINRA amend the proposed definition to apply only when and if an
associated person has control over an account.\44\
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\42\ See FOLIOfn Letter and SIFMA Letter.
\43\ See FOLIOfn Letter.
\44\ Id.
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Similarly, the other commenter stated its view that including all
spousal accounts in the list of accounts in which an associated person
is deemed to have a beneficial interest is overly broad and costly.\45\
In particular, the commenter stated that it is not uncommon for spouses
to maintain completely separate financial lives.\46\ Accordingly, the
commenter suggested that FINRA amend the definition of beneficial
interest to apply to the spouse of the associated person, provided that
the spouse resides in the same household as the associated person and
that the associated person has control over such account.\47\
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\45\ See SIFMA Letter.
\46\ Id.
\47\ Id.
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In its response, FINRA stated that it is aware of the potential
difficulties that could arise with respect to spouse accounts as
proposed in the original filing.\48\ Accordingly, FINRA proposes in
Partial Amendment No. 1 to amend to proposed Rule 3210.02 to: (1) State
that for purposes of Rule 3210, an associated person would be presumed
(not deemed) to have a beneficial interest in any account that is held
by an individual listed in Rule 3210.02(a)-(d); (2) require that in
order for an associated person to be presumed to have a beneficial
interest in an account held by his or her spouse, the spouse must
``[reside] in the same household as the associated person;'' and (3)
state that an associated person could overcome the presumption of
beneficial interest in an account by ``[demonstrating], to the
satisfaction of the employer member, that the associated person derives
no economic benefit from the account.'' FINRA believes that these
changes would address commenters' concerns regarding the potential
issues that could be posed by different family circumstances.\49\ In
addition, FINRA believes that where a spouse resides with the
associated person, it serves a legitimate purpose that there should be
a presumption that the spouse's accounts are subject to the rule,
regardless of whether the associated person exercises control.\50\
However, FINRA also believes that the proposed rebuttable presumption
would afford adequate flexibility for employer members to exclude
accounts that pose little or no supervisory risk.\51\
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\48\ See FINRA Response Letter.
\49\ Id.
\50\ Id.
\51\ Id.
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F. Application of the Proposed Rule
1. Prospective Application
One commenter argued that proposed Rules 3210(a) (the consent
requirement) and 3210(b) (the notice requirement) should not apply to
accounts already opened by associated persons with executing members
before the proposed rule's compliance date.\52\ The commenter requested
that FINRA confirm that these requirements would only apply to
associated persons who open accounts after the compliance date.\53\
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\52\ See Sutherland Letter.
\53\ Id.
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In response, FINRA clarified in Partial Amendment No. 1 that
proposed Rules 3210(a) and 3210(b) would apply to accounts that an
associated person opens or otherwise establishes on or after the
proposed new rule's implementation date.\54\ FINRA also stated,
however, that if the associated person has an existing account prior to
his or her association with an employer member, proposed FINRA Rule
3210.01 would apply, without regard to when the account was opened,
whenever the associated person enters into a new association with a
member.\55\
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\54\ See FINRA Response Letter.
\55\ Id.
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2. 30-Day Notice for Existing Accounts
One commenter argued that requiring an employing firm to consent to
accounts established by an associated person prior to his or her
association with the firm within 30-day (pursuant to proposed FINRA
Rule 3210.01) might raise operational, supervisory, and related
challenges.\56\ Accordingly, the commenter recommended that FINRA amend
the rule to require that within 30 calendar days of becoming so
associated, the associated person shall notify in writing the executing
member or other financial institution of his or her association with
the employer member and seek written consent of the employer member to
maintain the account.\57\
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\56\ See SIFMA Letter.
\57\ Id.
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In its response, FINRA disagreed with the commenter and stated that
it believes that employer members should be able to make a
determination within the 30-day period.\58\ Accordingly, FINRA declined
to make the suggested change.
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\58\ See FINRA Response Letter.
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G. Exemptions for Certain Account Transactions
1. Exemption From Providing Transaction Data
One commenter recommended that FINRA amend proposed Rule 3210.03 to
exempt transactions in all insurance contracts that are securities from
the requirement that an executing member must provide the employing
member with duplicate account confirmations and statements. The
commenter argued that all insurance contracts that are securities are
substantially similar to ``variable contracts'' that would be exempted
under proposed Rule 3210.03, and therefore also pose limited risk with
respect to the need to oversee associated persons accounts.\59\
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\59\ See Sutherland Letter.
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In its response, FINRA stated that the original proposal added to
the exemption products that are clearly identifiable and bear
similarity to and are consistent with the rationale underlying the
other products set forth in the rule.\60\ FINRA also stated, however,
that it is not prepared at this time to broadly except insurance
[[Page 72123]]
products from the rule's requirements, but will consider whether
further exceptions are appropriate based on the attributes of specific
insurance products.\61\ Accordingly, FINRA declined to make the
suggested change.
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\60\ See FINRA Response Letter.
\61\ Id.
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2. Exemption From the Notice and Consent Requirements
Two commenters recommended that FINRA also exempt certain
transactions (i.e., transactions in unit investment trusts, municipal
fund securities, 529 Plans, variable contracts, or mutual fund shares)
from the requirement that an associated person must notify the
executing member and obtain the prior written consent of the employer
member before opening an account.\62\ One of these commenters noted
that current NASD Rule 3050 provides a complete exemption from all
provisions of the rule for the exempted transactions and believes that
adoption of the structure under NASD Rule 3050 would more closely track
the policy determinations articulated under the proposed rule change
and creates less regulatory burden on firms.\63\ Similarly, the other
commenter reasoned that: (1) Employees have no ability to engage in
insider trading or other manipulative practices through these accounts
or types of products; (2) firms will incur significant operational and
supervisory costs associated with this new requirement without any
appreciable investor protection benefits; and (3) not excluding these
types of transactions and accounts from the entire rule will have a
negative impact on firms' ability to design, implement, and maintain a
reasonably designed, risk-based compliance system because firms will be
required to direct limited compliance resources to processing notice
requests for accounts and transactions that represent little, if any,
risk of insider trading or other violative conduct.\64\
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\62\ See Sutherland Letter and SIFMA Letter.
\63\ See Sutherland Letter.
\64\ See SIFMA Letter.
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In its response, FINRA stated its goal that members not be burdened
with information collection where the specified transactions and
account types pose limited risk from the standpoint of the rule's
supervisory purposes.\65\ Accordingly, FINRA proposes in Partial
Amendment No. 1 to amend Supplementary Material .03 to provide that the
specified transactions and accounts shall not be subject to the
requirements of proposed FINRA Rule 3210.\66\
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\65\ See FINRA Response Letter.
\66\ Id.
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H. Consistency With MSRB Rule G-28
One commenter recommended that, since both FINRA and the Municipal
Securities Rulemaking Board (``MSRB'') have rules governing employee
transactions, FINRA and the MSRB should work together to develop a
uniform standard for the industry.\67\
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\67\ See SIFMA Letter.
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In its response letter, FINRA stated that it believes that the
comment is outside the scope of the proposed rule change.\68\
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\68\ See FINRA Response Letter.
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IV. Proceedings to Determine Whether to Approve or Disapprove SR-FINRA-
2015-029 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Exchange Act
Section 19(b)(2)(B) to determine whether the proposed rule change
should be approved or disapproved.\69\ Institution of proceedings
appears appropriate at this time in view of the legal and policy issues
raised by the proposal. As noted above, institution of proceedings does
not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the issues presented by the
proposed rule change and provide the Commission with arguments to
support the Commission's analysis as to whether to approve or
disapprove the proposal.
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\69\ 15 U.S.C. 78s(b)(2). Exchange Act Section 19(b)(2)(B)
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
The time for conclusion of the proceedings may be extended for up to
an additional 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding or if the self-
regulatory organization consents to the extension.
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Pursuant to Exchange Act Section 19(b)(2)(B),\70\ the Commission is
providing notice of the grounds for disapproval under consideration. In
particular, Exchange Act Section 15A(b)(6) \71\ 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.
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\70\ 15 U.S.C. 78s(b)(2)(B).
\71\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes FINRA's proposed rule change raises
questions as to whether it is consistent with the requirements of
Exchange Act Sections 15A(b)(6).
V. Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues raised by the proposed rule change, as modified by Partial
Amendment No. 1. In particular, the Commission invites the written
views of interested persons on whether the proposed rule change, as
modified by Partial Amendment No. 1, is inconsistent with Section
15A(b)(6), or any other provision, of the Exchange Act, or the rules
and regulations thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\72\
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\72\ Exchange Act Section 19(b)(2), as amended by the Securities
Acts Amendments of 1975, Pub. L. 94-29, 89 Stat. 97 (1975), grants
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking, Housing and Urban Affairs
to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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Interested persons are invited to submit written data, views, and
arguments by December 9, 2015 concerning whether the proposed rule
change should be approved or disapproved. Any person who wishes to file
a rebuttal to any other person's submission must file that rebuttal by
January 4, 2016. 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-2015-029 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-2015-029. 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
[[Page 72124]]
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 principle 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 publicly available. All submissions
should refer to File Number SR-FINRA-2015-029 and should be submitted
on or before December 9, 2015. If comments are received, any rebuttal
comments should be submitted by January 4, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
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\73\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29394 Filed 11-17-15; 8:45 am]
BILLING CODE 8011-01-P