FINRA’s Change to Rules 5122 and 5123

FINRA’s Change to Rules 5122 and 5123

On July 15, 2021, FINRA released Regulatory Notice 21-26 announcing changes to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) effective October 1, 2021. The changes will require members to file retail communications that promote or recommend private placement offerings that are subject to those rules’ filing requirements.

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FINRA Highlights Changes To eFOCUS Reporting Requirements For SBS Dealers

FINRA Highlights Changes To eFOCUS Reporting Requirements For SBS Dealers

In 2019, the Securities and Exchange Commission (SEC) adopted amendments that revise certain of the Financial and Operational Combined Uniform Single (FOCUS) reporting and annual report requirements that apply to brokers and dealers pursuant to SEA Rule 17a-5 to take account of security-based swap (SBS) activity. Further, as a result of these changes, to avoid duplication with the SEC’s new requirements, FINRA has revised the Supplemental Inventory Schedule (SIS) so that members that file the new FOCUS Report Part II, pursuant to the SEC’s amendments, will no longer need to file the SIS. The SEC’s new FOCUS reporting requirements, and the revised SIS, will apply beginning with FOCUS reports and SIS filings that report on the period ending October 31, 2021 and are required to be filed in November 2021. Additionally, FINRA has redesigned its eFOCUS filing system to add certain enhancements and features to improve members’ filing experience. Members that are quarterly filers may access the new system on FINRA Gateway beginning June 24, 2021. The new system will be made available to monthly filers beginning in July 2021.

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Material Changes to Form ADV

Material Changes to Form ADV

An investment adviser must promptly update its brochure if the information contained in it becomes materially inaccurate. This updated brochure is referred to as an “interim amendment”. Upon updating the brochure to reflect material changes, the investment adviser should begin delivering the interim amendment to its prospective clients before or at the time it advisory contract with such clients. For some material changes, the investment adviser will be further obligated to promptly deliver the interim amendment to its existing clients.

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Electronic Storage for Investment Advisers

Electronic Storage for Investment Advisers

SEC Rule 204-2 require that firms make and keep required books and records for prescribed periods, and furnish copies of such records as necessary. Examples of such records include, but are not limited to electronic communication, advertisements, trade blotters, asset and liability ledgers, income ledgers, customer account ledgers, securities records, order tickets, trade confirmations, trial balances, and communications that relate to the firm’s business. Any records that are considered to be “original records” are required to be archived appropriately. Firms that elect to use electronic storage to maintain such records may only do so if they establish policies and procedures to:

  • Safeguard the records from loss, alteration, or destruction;
  • Limit access to the records to authorized personnel and regulators; and
  • Ensure that electronic copies of non-electronic originals are complete, true, and legible.

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Electronic Delivery for Investment Advisers

Electronic Delivery for Investment Advisers

For advisers to utilize electronic delivery for regulatory documents such as disclosures, prospectuses, shareholder reports, and proxy solicitation materials, there are a few requirements that must be met. The SEC’s guidance states that the electronic distribution of regulatory materials must satisfy the following three elements:

  • Notice
  • Access
  • Evidence of Delivery

The Release contains over fifty Q&A examples to illustrate the interplay of these three elements – twenty-two of which relate to mutual funds. See the additional resources file for a copy of the release.

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Rule 13(f)

Rule 13(f)

Institutional investment managers (“Managers”) must use Form 13F for reports to the Commission required by Section 13(f). Rule 13f-1(a) provides that every Manager which exercises investment discretion with respect to accounts holding Section 13(f) securities, as defined in rule 13f-1(c), having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100,000,000 shall file a report on Form 13F with the Commission within 45 days after the last day of such calendar year and within 45 days after the last day of each of the first three calendar quarters of the subsequent calendar year.

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