2017 Examination Priorities for RIA’s and BD’s

The Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (“SEC”) continues another year of exam priorities for its Registered Investment Advisors (“RIA”) and Broker-Dealers. OCIE are the “eyes and ears” of the SEC, and its exams are used by the SEC to inform rule-making initiatives, identify and monitor risks, improve industry practices, and pursue misconduct. Read More…

FINRA Updates Private Placement Filer Form Pursuant to FINRA Rules 5122 and 5123

FINRA has updated the form that firms must use to file offering documents and information pursuant to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) (Filer Form). The updated Filer Form, which became available in the FINRA Firm Gateway in May of 2017, includes new and updated questions that will facilitate review of the filed material and eliminates other questions.  Read More…

Regulatory Notice 16-39: Trade Reporting and Compliance Engine (TRACE)

In 2001, the Securities and Exchange Commission approved the Trade Reporting and Compliance Engine (TRACE), a rule that requires all member firms to report secondary market transactions in eligible over-the-counter fixed income securities to FINRA. Unlike equities, over-the-counter securities trades are private transactions between counterparties and were not previously publicly reported. This lack of reporting provided very little to no price execution transparency to the marketplace.  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…

SEC Approves Rules Relating to Financial Exploitation of Senior Investors (Rule 2165 and Rule 4512)

FINRA has recently announced the SEC approval of new Rule 2165 and amendments to FINRA Rule 4512 to address a longstanding problem within the securities industry: the financial exploitation of senior investors. “These rules will provide firms with tools to respond more quickly and effectively to protect seniors from financial exploitation. This project included input and support from both investor groups and industry representatives and it demonstrates a shared commitment to an important, common goal – protecting senior investors,” said Robert W. Cook, FINRA President and CEO.  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…

Quotation System for OTC Equity Securities

FINRA is soliciting comment on a proposal to provide for a FINRA-sponsored inter-dealer quotation facility for all OTC equity securities.  Over the past several years, there have been instances in which market-wide trading halts for all OTC equity securities have been put into effect by FINRA out of concern regarding a substantial lack of transparency due to limited quotation information for these securities.

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Communications with the Public – Part II

[Continued from Communications with the Public – Part I]

Investment Analysis Tools

Pursuant to FINRA Rules 2210(c)(3)(C) and 2214(a), firms that intend to offer an investment analysis tool must file templates for written reports produced by, or retail communications concerning, the tool, within 10 business days of first use. Rule 2214 also requires firms to provide FINRA with access to the tool itself, and provide customers with specific disclosures when firms communicate about the tool, use the tool or provide written reports generated by the tool.

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Communications with the Public – Part I

In April 2014, FINRA began a review of its communications with the public rules to assess their effectiveness and efficiency. FINRA later published a report concluding that, while the rules have met their intended investor protection objectives, they could benefit from some updating to better align the investor protection benefits and the economic impacts. To this end, the SEC recently approved amendments to certain FINRA rules governing communications with the public effective January 9, 2017.  The amendments revise the filing requirements in FINRA Rule 2210 and FINRA Rule 2214 and the content and disclosure requirements in FINRA Rule 2213.  Below is a summary of some of these changes.

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Automatic Lock-In to ADF Disabled

Firms that use the Alternative Display Facility (ADF) to report over-the-counter trades in NMS stocks for broker-dealer compliance management purposes can choose to have their trades submitted by the ADF to the National Securities Clearing Corporation (NSCC) for clearance and settlement. Designated trades can be locked-in via agreement by both parties to the trade (the Uniform Services Agreement and/or the Qualified Special Representative Agreement). Alternatively, designated trades can be locked-in by the system in accordance with FINRA’s rules and regulations for broker-dealers. Lock-in of trades designated for clearing must occur in one of those two ways.

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