Change to Definition of Qualified Client

The Securities and Exchange Commission (“SEC”) recently announced an upcoming change to the definition of “qualified client” as defined in Rule 205-3 under the Investment Advisers Act of 1940 (“Advisers Act”) that will become effective August 15, 2016. This applies to any Registered Investment Adviser (“RIA” or “Investment Adviser”) that earns performance based fees.

To provide some background, Section 205(a)(1) of the Advisers Act generally prohibits an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for performance Read More…

Pay-to-Play: Capital Acquisition Brokers

Earlier this year, FINRA began accepting applications for firms wishing to register as Capital Acquisition Brokers.  A Capital Acquisition Broker (“CAB”) is a firm that engages in a limited range of activities.  Such activities include advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions.  CABs cannot carry or maintain customer accounts, handle customers’ funds or securities, accept Read More…

FINRA Rule 4530, Customer Complaints in the Social Media Era

As technology continues to advance, the Financial Industry Regulatory Authority “FINRA”) must address how certain regulations will be interpreted as it relates to social media platforms.  FINRA Rule 4530 requires firms to promptly report to FINRA, no later than 30 calendar days, after it knows or should have known that the firm or an associated person of the firm is the subject of any written customer complaint involving allegations of theft or misappropriation of funds, securities, or of forgery. Under the rule, a customer is defined as any person, other than a Read More…

The Importance of a Chinese Wall in Multi-Service Securities Firms

Multi-service securities firms have a high risk of insider trading as information can seep through to other departments.  The antifraud provisions of the federal securities laws restricts all persons from trading based on material non-public information.  Therefore, multi-service securities firms such as those that offer investment banking, corporate counseling, and retail broker-dealer services must take the necessary steps to prevent the interdepartmental flows of material non-public information about corporate clients.  To prevent such occurrences, it is required that firms build an internal Chinese Wall. Read More…

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…