Order Audit Trail System (OATS)

Established by FINRA, the Order Audit Trail System (OATS),  is an integrated audit trail of order, quote and trade information for all NMS (National Market System) stocks and OTC equity securities. As part of FINRA’s surveillance activities, Rules 7400 through 7470 (OATS Rules) and Rule 4554, OATS requires electronic auditing and reporting capabilities on all stock and equity orders, quotes, trades and cancellations. According to Rule 7430 (updated from NASD Rule 6953), all computer clocks and timestamping devices must be synchronized to be regarding a time source as designated by FINRA. This data can be collected during the day and transmitted to OATS in one or more files at a convenient time; however, reports for events that occur during particular OATS Business Days must be reported by 5am EST the following calendar day.  Read More…

FINRA RULE 3130 (ANNUAL CERTIFICATION OF COMPLIANCE AND SUPERVISORY PROCESSES)

FINRA Rule 3130 (formerly known as NASD Rule 3013) requires the CEO to CERTIFY that the firm has a PROCESS to adopt adequate Supervisory Policies and Procedures. The goal of the Rule is to “promote regular and meaningful interaction between senior management and compliance personnel to ensure that compliance is given the highest priority by a member’s senior executive officers.”   Read More…

FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions)

FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions), which replaces the previously used NASD Rule 3050, Incorporated NYSE Rules 407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02, was approved by the SEC in April of 2016, and became effective in April 2017. This is a consolidated rule governing accounts opened or established by associated persons at firms other than the firm at which they are employed, ensuring that member companies, brokers, and advisors maintain ethical standards.  Read More…

FINRA Provides Reminders Concerning the Use of Social Networking Websites and Business Communications

In today’s ever-changing technological environment, overseeing new forms of communication has become an increasingly challenging task. To assist broker-dealers with meeting regulatory demands, FINRA has released a series of Regulatory Notices focused on communications with the public through social media sites and the use of personal devices for business communications.  Most recently, FINRA published Regulatory Notice 17-18  which outlines guidance regarding use of social networking websites and business communications.  Read More…

Broker-Dealers: Mergers, Acquisitions, & Successions

In today’s ever morphing environment, business restructures are quite common.  Broker-dealers often undergo mergers, acquisitions, or successions.  And, the restructuring of broker-dealers aren’t simple tasks.  Once a FINRA member firm decides it may want to restructure, there a number of things that should be considered.  FINRA addresses the regulatory considerations a firm should account form related to restructuring in NASD Rule 1017.  Rule 1017 establishes that a FINRA member firm must receive FINRA approval to undergo organizational changes such as mergers, acquisitions, asset transfers, and material changes in business.  A principal from your firm should Read More…

Nontraditional Exchange-Traded Funds: Suitability Guidelines

On June 8, 2016, FINRA published a News Release to announce that it had fined Oppenheimer & Co. Inc. (“Oppenheimer”) $2.25 million for failing to reasonably supervise transactions in nontraditional exchange-traded funds (“ETFs”). Through this disciplinary action, FINRA has made its expectations abundantly clear: A broker-dealer offering nontraditional ETFs must establish, maintain, and enforce an effective system for supervising transactions in these complex products. In this blog post, we identify what Oppenheimer did wrong so that your firm does not make the same mistakes. We then describe how your firm can use “suitability guidelines” to mitigate the risk of unsuitable recommendations involving nontraditional ETFs.

What Are Nontraditional ETFs?

The term “nontraditional” is commonly used to describe ETFs that are leveraged, inverse, or use other complex strategies to gain access to an index or underlying asset class. Nontraditional Read More…

Financial Exploitation of Specified Adults

FINRA recently filed proposed new regulations regarding broker-dealer compliance with the SEC to: (1) amend FINRA Rule 4512 (Customer Account Information) to require member firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account; and (2) adopt new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit FINRA registered broker-dealers to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.

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FINRA Membership Interview – Part II

[Continued from FINRA Membership Interview – Part I]

What happens during the FINRA Membership Interview?

During the FINRA Membership Interview, the participants will discuss substantially all of the aspects of the firm’s proposed business. Emphasis will be placed on the FINRA, SEC, or MSRB rules applicable to the firm’s intended business, as well as the firm’s supervisory structure, the background and experience of the firm’s principals and representatives, and plans for future direction and expansion. Questions about how the firm will process transactions and how it will supervise activities to maintain FINRA compliance, among other things, must be answered by the individual(s) who will be responsible for those functions.

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FINRA Membership Interview – Part I

So, you’ve decided to start or own a broker-dealer. You have completed Form NMA, submitted it to FINRA Gateway via the New Membership Application process with all of your supporting documents, and have gone through a round or 2 of information requests with the FINRA Membership Application Program Group (the “MAP Group”).  Now, you have just received a request to sit down with FINRA for the Membership Interview.

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