Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure), 21064-21069 [2010-9282]
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Federal Register / Vol. 75, No. 77 / Thursday, April 22, 2010 / Notices
with municipal securities brokers and
municipal securities dealers meet
minimum qualifications to perform their
jobs. Given this purpose, these
examinations seek to measure
accurately and reliably the degree to
which each candidate possesses the
knowledge, skills and abilities necessary
to perform his or her job. Currently, the
Series 51 examination is 11⁄2 hours and
consists of 60 multiple-choice
questions, and the Series 52 and Series
53 examinations are each 3 hours and
each consists of 200 multiple-choice
questions.
FINRA proposes to amend Section
4(c) of Schedule A to the FINRA ByLaws to add a reference to the fees
assessed by FINRA for administering the
Series 51, Series 52 and Series 53
examinations as follows: $85 for the
Series 51 examination, $95 for the
Series 52 examination, and $95 for the
Series 53 examination. The proposed
rule change does not change the amount
of the administration fee for the Series
51, Series 52 or Series 53 examination.6
FINRA has filed the proposed rule
change for immediate effectiveness.
FINRA proposes to implement the
proposed rule change on the date of
filing of the proposed rule change.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A of the Act,7 in general,
and with Section 15A(b)(5) of the Act,8
in particular, in that it provides for the
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using any
facility or system which FINRA operates
or controls. In light of FINRA’s role in
administering the Series 51, Series 52
and Series 53 examinations on behalf of
the MSRB pursuant to Exchange Act
Section 15B(c)(7)(A), FINRA believes it
is appropriate to reflect the fees charged
in connection with those examinations
in the fee table in Schedule A to the
FINRA By-Laws.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
6 As noted above, the MSRB develops, maintains
and owns the Series 51, Series 52 and Series 53
examinations. The MSRB currently charges a $60
fee for the development of each of these
examinations. See Securities Exchange Act Release
No. 61023 (Nov. 18, 2009), 74 FR 61402 (Nov. 24,
2009) (Notice of Filing and Immediate Effectiveness
of New Rule A–16, on Examination Fees, SR–
MSRB–2009–16). As a result, the total fee currently
assessed for the Series 51, Series 52 and Series 53
examination is $145, $155 and $155, respectively.
7 15 U.S.C. 78o–3.
8 15 U.S.C. 78o–3(b)(5).
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burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section
19(b)(3)(A)(ii) of the Act 9 and paragraph
(f)(2) of Rule 19b–4 thereunder.10 At any
time within 60 days of the filing of the
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2010–016 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2010–016. This file
number should be included on the
subject line if e-mail 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
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 on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
the principal 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 available publicly. All
submissions should refer to File
Number SR–FINRA–2010–016 and
should be submitted on or before May
13, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–9271 Filed 4–21–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61927; File No. SR–FINRA–
2010–012]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Amend
FINRA Rule 8312 (FINRA BrokerCheck
Disclosure)
April 16, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 30,
2010, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
11 17
9 15
U.S.C. 78s(b)(3)(A)(ii).
10 17 CFR 240.19b–4(f)(x) [sic].
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 75, No. 77 / Thursday, April 22, 2010 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 8312 (FINRA BrokerCheck
Disclosure) to (1) expand the
information released through
BrokerCheck, both in terms of scope and
time disclosed; and (2) establish a
process to dispute the accuracy of (or
update) information disclosed through
BrokerCheck.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA, on the Commission’s
Web site at https://www.sec.gov, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The proposed rule change amends
FINRA Rule 8312, which pertains to
FINRA’s BrokerCheck program. As
described in more detail below, the
proposed rule change would (1) expand
the information released through
BrokerCheck, both in terms of scope and
time disclosed; and (2) establish a
process to dispute the accuracy of (or
update) information disclosed through
BrokerCheck.
I. Expansion of Information Released
through BrokerCheck
FINRA established BrokerCheck (then
known as the Public Disclosure
Program) in 1988 to provide the public
with information on the professional
background, business practices, and
conduct of FINRA members and their
associated persons. In 1990, with
FINRA’s support, Congress passed
legislation requiring FINRA to establish
and maintain a toll-free telephone
number to respond to inquiries about
members and associated persons. In
1998, FINRA began providing certain
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administrative information, such as
registration and employment history,
online via FINRA’s Web site. FINRA
again amended its rules pertaining to
BrokerCheck in 2000 to establish a twoyear period for disclosure of information
about persons formerly registered with a
FINRA member, increase the amount of
information disclosed to investors
through BrokerCheck, and refine the
report delivery process. In 2007, FINRA
expanded the types of information made
available through BrokerCheck, made
BrokerCheck more user friendly,
introduced an educational component
of the BrokerCheck report and Web site,
and provided a compilation of selected
data of FINRA members. Last year,
FINRA expanded BrokerCheck to
permanently make publicly available in
BrokerCheck certain information about
former associated persons of a member
who were the subject of a final
regulatory action.
As the above discussion
demonstrates, FINRA has regularly
assessed the scope and utility of the
information provided to the public
through BrokerCheck and, as a result,
has made numerous changes to improve
the program. Last year, in addressing the
public comment letters submitted to the
Commission in connection with its most
recent BrokerCheck expansion proposal,
FINRA noted that it would continue to
evaluate all aspects of the BrokerCheck
program and consider whether greater
disclosure of information through
BrokerCheck should be made in the
future.3 FINRA believes that such
regular evaluation of the program is
important due to FINRA’s statutory
obligation to make information available
to the public, as well as the prominence
that BrokerCheck has attained as an
investor protection service.4
Late last year, FINRA evaluated the
BrokerCheck program, including the
3 See Letter to Elizabeth M. Murphy, Secretary,
Commission, from Richard E. Pullano, Associate
Vice President and Chief Counsel, Registration and
Disclosure, FINRA, dated October 15, 2009, in
response to comments received regarding Securities
Exchange Act Release No. 60462 (August 7, 2009),
74 FR 41470 (August 17, 2009) (Notice of Filing File
No. SR–FINRA–2009–050). See also discussion of
comments in Securities Exchange Act Release No.
61002 (November 13, 2009), 74 FR 61193
(November 23, 2009) (Order Approving File No.
SR–FINRA–2009–050).
4 Approximately 18.5 million records were
viewed last year on BrokerCheck, and the program
is routinely mentioned in news articles and investor
education materials as a premier tool for
researching investment professionals. The
Commission has also recognized BrokerCheck as a
valuable tool for the public in deciding, among
other things, whether to do business with an
industry member. See Securities Exchange Act
Release No. 61002 (November 13, 2009), 74 FR
61193 (November 23, 2009) (Order Approving File
No. SR–FINRA–2009–050).
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fundamental policies governing the
disclosure of information through the
program, as well as the types, the length
of availability, and the value to the
public of the information that is
disclosed via BrokerCheck.
Additionally, FINRA considered the
role that BrokerCheck plays as an
investor protection service and the
significant shift in the financial services
landscape that has occurred during the
past few years and continues to this day.
Based on the results of its evaluation,
FINRA has determined that further
expansion of the BrokerCheck program
is warranted. As such, FINRA is
proposing to amend FINRA Rule 8312 to
(1) expand the BrokerCheck disclosure
period for former associated persons of
a member to ten years from two years;
(2) permanently make publicly available
in BrokerCheck certain information
about former associated persons of a
member if any of the following applies,
as reported to the Central Registration
Depository (‘‘CRD’’ or ‘‘Web CRD’’) on a
uniform registration form: (i) The person
was convicted of or pled guilty or nolo
contendere to a crime; (ii) the person
was the subject of a civil injunction in
connection with investment-related
activity or a civil court finding of
involvement in a violation of any
investment-related statute or regulation;
or (iii) the person was named as a
respondent or defendant in an
investment-related, consumer-initiated
arbitration or civil litigation which
alleged that the person was involved in
a sales practice violation and which
resulted in an arbitration award or civil
judgment against the person; and (3)
make publicly available in BrokerCheck
all historic customer complaints that
were archived after the implementation
of Web CRD. FINRA has concluded that
these proposals, as described in more
detail below, are a logical extension of
the BrokerCheck program that will help
protect investors and other users of
BrokerCheck, and make BrokerCheck a
more effective tool in combating fraud
across the financial services sector.
Expansion of the BrokerCheck
Disclosure Period for Former Registered
Persons
Currently, as described in FINRA Rule
8312, BrokerCheck provides certain
information regarding current associated
persons and persons who were
associated with a member within the
preceding two years (i.e., a two year
‘‘post-registration disclosure period’’).5
5 BrokerCheck also provides public access to
certain information about formerly associated
persons, regardless of when they were associated
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Federal Register / Vol. 75, No. 77 / Thursday, April 22, 2010 / Notices
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This information is derived from the
uniform registration forms.6
When FINRA proposed implementing
the two year post-registration disclosure
period over a decade ago, it noted that
such a disclosure period was
appropriate because it generally
coincides with the period in which an
individual can return to the industry
without being required to requalify by
examination and the initial period in
which an individual remains subject to
FINRA’s jurisdiction.7 Since that time,
the purpose of BrokerCheck has
broadened from helping investors make
informed choices about the individuals
and firms with which they may wish to
do business to also include providing
the public with access to information
about formerly registered persons who,
although no longer in the securities
industry in a registered capacity, may
work in other investment-related
industries or may seek to attain other
positions of trust with potential
investors and about whom investors
may wish to learn relevant information.
Consequently, FINRA believes that the
reasons initially set forth for the two
year post-registration disclosure period
are no longer as compelling as when the
disclosure period was initially
established.
Therefore, FINRA is proposing to
expand the post-registration disclosure
period to ten years from two years.
FINRA believes that a ten year postregistration disclosure period is now
more reasonable since it may take
individuals some time after leaving the
securities industry to establish
themselves in another investmentrelated industry or to attain other
positions of trust with potential
investors. A ten year post-registration
disclosure period will provide investors
and other users of BrokerCheck with a
longer period of time to consider
relevant and important information
about such formerly registered
individuals. FINRA believes that a ten
with a member, if they were the subject of a final
regulatory action as defined in Form U4 that has
been reported to CRD via a uniform registration
form. As discussed below, FINRA also is proposing
to broaden the scope of information made
permanently available to the public via
BrokerCheck.
6 The uniform registration forms are Form BD
(Uniform Application for Broker-Dealer
Registration), Form BDW (Uniform Request for
Broker-Dealer Withdrawal), Form BR (Uniform
Branch Office Registration Form), Form U4
(Uniform Application for Securities Industry
Registration or Transfer), Form U5 (Uniform
Termination Notice for Securities Industry
Registration), and Form U6 (Uniform Disciplinary
Action Reporting Form).
7 See Securities Exchange Act Release No. 42402
(February 7, 2000), 65 FR 7582 (February 15, 2000)
(Order Approving File No. SR–NASD–99–45).
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year post-registration disclosure period
will accomplish this goal without
unduly burdening or infringing on the
reputational or privacy interests of those
individuals whose FINRA registrations
have terminated.
Expansion of BrokerCheck To
Permanently Include Additional
Information
As previously mentioned, currently
under FINRA Rule 8312, BrokerCheck
generally provides information about
individuals who are registered with
FINRA or who were associated with a
member within the preceding two years.
Last year, BrokerCheck was expanded to
permanently make publicly available in
BrokerCheck certain information about
former associated persons of a member
who were the subject of a final
regulatory action as defined in Form U4
that has been reported to CRD via a
uniform registration form.8 This change
was designed to allow the public to
access information about formerly
registered persons who may work in
other investment-related industries or
may otherwise seek to attain positions
of trust with potential investors.
As a result of its evaluation of the
BrokerCheck program, FINRA now
believes that BrokerCheck should
permanently make publicly available
additional information about certain
former associated persons of a member.
FINRA is proposing to permanently
make publicly available in BrokerCheck
certain information about former
associated persons of a member 9 if any
of the following applies, as reported to
CRD on a uniform registration form: (1)
The person was convicted of or pled
guilty or nolo contendere to a crime; 10
(2) the person was the subject of a civil
injunction in connection with
investment-related activity or a civil
8 See Securities Exchange Act Release No. 61002
(November 13, 2009), 74 FR 61193 (November 23,
2009) (Order Approving File No. SR–FINRA–2009–
050).
9 The proposal will apply only to those
individuals registered with FINRA on or after
August 16, 1999, which is the date that Web CRD
was implemented. Since FINRA launched the Web
CRD system, it has used the information in the Web
CRD database to generate BrokerCheck reports.
Such information is available in a Web-based
format and therefore can be easily used to generate
BrokerCheck reports. Although the Web CRD
database contains information regarding all persons
that have been registered with FINRA since the
implementation of the Legacy CRD system (the
predecessor to Web CRD) in 1981, certain data
limitations apply to the information available for
some individuals who were no longer registered at
the time Web CRD was established. Therefore, the
proposal will not apply to those individuals whose
FINRA registration terminated prior to August 16,
1999.
10 This information is currently elicited by
Questions 14A(1)(a) and 14B(1)(a) on Form U4 and
Questions 7C(1) and 7C(3) on Form U5.
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court finding of involvement in a
violation of any investment-related
statute or regulation; 11 or (3) the person
was named as a respondent or
defendant in an investment-related,
consumer-initiated arbitration or civil
litigation which alleged that the person
was involved in a sales practice
violation and which resulted in an
arbitration award or civil judgment
against the person.12 FINRA is
proposing to provide through
BrokerCheck information concerning
any such disclosure event(s),13 as well
as certain administrative information
(e.g., employment and registration
history) and information as to
qualification examinations passed by
these formerly registered individuals.
FINRA is also proposing to make
available the most recently submitted
comment, if any, provided by the
person, presuming the comment is in
the form and in accordance with the
procedures established by FINRA and
relates to the information provided
through BrokerCheck.14 Other
disclosure matters that may be disclosed
pursuant to FINRA Rule 8312 for
associated persons and during the postregistration period (e.g., reportable
customer complaints or Historic
Complaints, criminal charges,
terminations, bankruptcies, liens) would
continue not to be disclosed after the
post-registration period expires.
FINRA believes that this proposal will
allow the public access to relevant and
important information about formerly
registered persons who, although no
longer in the securities industry in a
registered capacity, may work in other
investment-related industries or may
seek to attain other positions of trust
with potential investors and about
whom investors may wish to learn
relevant information. FINRA believes
that this information should be included
on a permanent basis, rather than for
only ten years following the termination
of an individual’s FINRA registration,
11 This information is currently elicited by
Questions 14H(1)(a) and 14H(1)(b) on Form U4.
12 This information is currently elicited by
Question 14I(1)(b) on Form U4 and Question
7E(1)(b) on Form U5.
13 Under the proposed rule change, FINRA will
provide information regarding any of the
enumerated disclosure events that is reported on
Form U6 even if the event has not been reported
by an individual on Form U4 or Form U5, as
referenced above, because, for example, the
individual was not registered at the time the event
was reported.
14 The proposed information to be disclosed
permanently (i.e., administrative information,
examination information and the most recently
submitted comment) mirrors the information
currently disclosed permanently with respect to any
formerly registered person who is the subject of a
final regulatory action.
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Federal Register / Vol. 75, No. 77 / Thursday, April 22, 2010 / Notices
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because, like final regulatory actions
(which are included permanently in
BrokerCheck), each of the disclosure
events that is proposed to be
permanently included in BrokerCheck
constitutes a final disposition. In
addition, in most circumstances, these
disclosure events allow the subject
person an opportunity to present
arguments to an impartial fact-finder
about the allegations prior to such final
disposition. Furthermore, much of the
information that would be subject to
release pursuant to the proposal may be
available through other public sources.
For example, information regarding
arbitration awards is available on
FINRA’s Arbitration Awards Online
database,15 and information regarding
civil and criminal proceedings is
provided to the public via numerous
state Web sites.
Disclosure of Historic Complaints
Pursuant to FINRA Rule 8312,
Historic Complaints are customer
complaints that were reported on a
uniform registration form that are more
than two years old and that have not
been settled or adjudicated and
customer complaints, arbitrations, or
litigations that have been settled for an
amount less than the specified dollar
amount (identified on the customer
complaint question) and are therefore
no longer reportable on a uniform
registration form. Currently, FINRA
Rule 8312 provides that Historic
Complaints be displayed in
BrokerCheck only after the following
conditions have been met: (1) A matter
became a Historic Complaint on or after
March 19, 2007; (2) the most recent
Historic Complaint or currently reported
customer complaint, arbitration or
litigation is less than ten years old; and
(3) the person has a total of three or
more currently disclosable regulatory
actions, currently reported customer
complaints, arbitrations or litigations, or
Historic Complaints (subject to the
limitation that they became Historic
Complaints on or after March 19, 2007),
or any combination thereof. Unless all
three conditions are met, a person’s
Historic Complaints are not disclosed
through BrokerCheck.16
FINRA established the ‘‘three or more’’
standard for the release of Historic
Complaints so as to allow public
investors ‘‘to determine for themselves
whether a particular associated person
has demonstrated a pattern of conduct
15 See
https://finraawardsonline.finra.org/.
addition, even if a person meets the criteria
established for disclosing Historic Complaints, only
those Historic Complaints that became Historic
Complaints after March 19, 2007, will be displayed
through BrokerCheck.
16 In
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over the years and the significance, if
any, they should attach to the Historic
Complaint information.’’ 17 Following its
recent evaluation of the BrokerCheck
program, however, FINRA no longer
believes that such a standard is prudent.
In this regard, FINRA is concerned that
the standard may discourage public
investors from making a qualitative
assessment of a current or former
associated person based on all of the
potentially relevant information
available regarding that individual.
FINRA believes that, rather than
allowing public investors to determine
for themselves whether an individual
has demonstrated a pattern of conduct,
the standard may actually suggest to
investors that any individual who meets
the standard has in fact demonstrated a
pattern of (mis)conduct (i.e., three
events constitutes a pattern of conduct,
otherwise the rule would not have
established such a threshold). FINRA is
also concerned that the standard, along
with the current date limitation for
Historic Complaints that are eligible for
display, may limit the ability of public
investors to place Historic Complaints
in the appropriate context or to
otherwise accurately evaluate a current
or former associated person’s entire
record.
Therefore, FINRA is proposing to
amend FINRA Rule 8312 to eliminate
the conditions set forth in the rule that
must be met before Historic Complaints
will be displayed in BrokerCheck.
Eliminating these conditions will result
in the disclosure of all Historic
Complaints via BrokerCheck that
became non-reportable after the
implementation of Web CRD on August
16, 1999.18
This proposed change will allow
investors and other users of
BrokerCheck to determine for
themselves the significance, if any, they
should attach to the Historic Complaints
on an individual’s record based on all
available customer complaint
information and to put such complaints
in the appropriate context based on the
entire BrokerCheck record for the
17 See Securities Exchange Act Release No. 51915
(June 23, 2005), 70 FR 37880, 37884 (June 30, 2005)
(Notice of Filing File No. SR–NASD–2003–168).
18 FINRA is proposing to limit the Historic
Complaints eligible for display in BrokerCheck to
those that became non-reportable after the
implementation of Web CRD in 1999, because the
Web CRD system (unlike Legacy CRD) contains the
specific reason that a matter was archived.
Therefore, FINRA will be able to determine whether
a matter was archived because it was no longer
reportable on a uniform registration form (and
therefore qualifies as a Historic Complaint) or
whether it was archived for a different reason (e.g.,
the matter was filed in error).
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21067
individual.19 Additionally, FINRA
believes that the proposed change will
allow investors seeking to do business
with investment professionals—whether
associated persons of securities firms or
advisers—to have similar information
available to them.20
II. BrokerCheck Dispute Process
The proposed changes described
above will result in BrokerCheck
disclosing additional information about
current and former associated persons.
This underscores the need for a
formalized process for disputing the
accuracy of (or updating) information
displayed through BrokerCheck. FINRA
recognizes, for example, that there may
be an increased possibility that
information disclosed through
BrokerCheck for former associated
persons may have become inaccurate
(i.e., a disposition reported previously
may have changed). Additionally,
Congress amended Section 15A(i) of the
Exchange Act with the enactment of the
Military Personnel Financial Services
Protection Act to require FINRA, as a
registered securities association, to
adopt rules establishing an
administrative process for disputing the
accuracy of information provided
through BrokerCheck in response to
inquiries regarding ‘‘registration
information’’ 21 on its members and their
associated persons. Therefore, FINRA is
proposing to codify its current process
for disputing the accuracy of (or
19 In conjunction with the implementation of the
proposed rule change, FINRA will revise the
educational component of BrokerCheck with
respect to Historic Complaints to help readers view
these disclosures in the appropriate context and
give them the appropriate weight when evaluating
an associated person.
20 The Investment Adviser Public DisclosureIndividual (‘‘IAPD–I’’) database (currently scheduled
to be deployed in June 2010) will provide to the
public registration and licensing information on
natural persons who are registered as investment
advisers with the states. IAPD–I will disclose all
Historic Complaints that became non-reportable
after the individual first became registered through
the Investment Adviser Registration Depository
(‘‘IARD’’) system. Accordingly, IAPD–I will include
Historic Complaints that became Historic
Complaints on or after March 18, 2002, which is the
date IARD was established for investment adviser
representative registration. As a result, when IAPD–
I is deployed, BrokerCheck and IAPD–I may
disclose slightly different information regarding
Historic Complaints of those financial services
professionals that are dually registered as brokers
and investment advisers.
21 For purposes of Section 15A(i), ‘‘registration
information’’ is defined to mean ‘‘the information
reported in connection with the registration or
licensing of brokers and dealers and their associated
persons, including disciplinary actions, regulatory,
judicial, and arbitration proceedings, and other
information required by law, or exchange or
association rule, and the source and status of such
information.’’
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updating) information disclosed through
BrokerCheck.22
Under FINRA’s current dispute
process, FINRA staff occasionally
receives telephonic and written
inquiries from persons subject to
BrokerCheck who believe that
information disclosed about them
through BrokerCheck is inaccurate.
Upon the receipt of such an inquiry,
FINRA staff typically reviews the
alleged inaccuracy and, if appropriate,
contacts the entity that reported the
information to determine whether the
information is accurate. Once it has
obtained all of the available pertinent
information, FINRA staff determines
whether the information is still accurate
or whether the information should be
modified or removed from BrokerCheck.
FINRA is proposing to enhance and
codify this process, which will allow
individuals and firms to dispute the
accuracy of information being displayed
through BrokerCheck. The dispute
process will be available both for
challenges alleging the information was
incorrect when filed and challenges
asserting that the information has
become incorrect due to events
subsequent to filing.
FINRA is proposing to establish a
dispute process under which only an
‘‘eligible party’’ would be able to dispute
the accuracy of information disclosed in
that party’s BrokerCheck report. An
eligible party would consist of any
current member, any former member
(subject to a condition discussed below),
and any associated person of a member
or person formerly associated with a
member for whom a BrokerCheck report
is available. Regarding former members,
the proposal would require that a
dispute be submitted by a natural
person who served as the former
member’s Chief Executive Officer, Chief
Financial Officer, Chief Operating
Officer, Chief Legal Officer or Chief
Compliance Officer, or individual with
similar status or function, as identified
on Schedule A of Form BD at the time
the former member ceased being
registered with FINRA. This
requirement on the submission of
disputes by former member firms is
intended to ensure that only authorized
representatives of former firms are able
to submit disputes.
To dispute the accuracy of
BrokerCheck information, an eligible
party would be required to submit a
22 While the dispute process will be available to
currently, as well as formerly, registered
individuals, FINRA anticipates that most disputes
will be brought by the latter because a mechanism
already exists for currently registered individuals to
update information (i.e., through the filing of an
amended Form U4).
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18:25 Apr 21, 2010
Jkt 220001
written notice to FINRA, in such
manner and format that FINRA may
require, identifying the information that
the party alleges is inaccurate and
providing an explanation as to the
reason the information is believed to be
inaccurate. Additionally, the eligible
party would be required to submit with
the written notice all available
supporting documentation (if any
exists).
After receiving the written notice,
FINRA would determine whether the
dispute is eligible for investigation. To
be eligible for investigation, the dispute
would need to pertain only to factual
information and not to information that
is subjective in nature or a matter of
interpretation. For example, a dispute
involving allegations made in a
customer complaint or a firm’s
determination that a customer
complaint is required to be reported
would not be eligible for investigation.
FINRA would presume that a dispute
involving factual information is eligible
for investigation. Nevertheless, the
proposed rule change would specifically
identify in Supplementary Material to
FINRA Rule 8312 the following nonexhaustive list of situations as ineligible
for investigation, even if they may
involve factual information:
(a) A dispute that involves
information that was previously
disputed under this process and that
does not contain any new or additional
evidence;
(b) a dispute that is brought by an
individual or entity that is not an
eligible party;
(c) a dispute that does not challenge
the accuracy of information contained
in a BrokerCheck report but only
provides an explanation of such
information;
(d) a dispute that constitutes a
collateral attack on or otherwise
challenges the allegations underlying a
previously reported matter such as a
regulatory action, customer complaint,
arbitration, civil litigation or
termination;
(e) a dispute that consists of a general
statement contesting information in a
BrokerCheck report with no
accompanying explanation; and
(f) a dispute that involves information
contained in CRD that is not disclosed
through BrokerCheck.
If FINRA determines that a dispute is
eligible for investigation, FINRA would
add a general notation to the eligible
party’s BrokerCheck report stating that
the eligible party has disputed certain
information included in the report.23
23 In those circumstances where a dispute
involves a court order to expunge information from
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Fmt 4703
Sfmt 4703
The notation would be removed from
the eligible party’s BrokerCheck report
upon resolution of the dispute by
FINRA. If FINRA determines that a
request is not eligible for investigation,
it would notify the eligible party of this
determination in writing, including a
brief description of the reason for the
determination. A determination by
FINRA that a dispute is not eligible for
investigation would not be subject to
appeal.
If a dispute is deemed eligible for
investigation, FINRA would evaluate
the written notice and supporting
documentation submitted by the eligible
party. If FINRA determines that the
written notice and documentation
submitted is sufficient to update,
modify or remove the information that
is the subject of the request, FINRA
would make the appropriate change. For
example, if an eligible party disputed a
criminal conviction being displayed
through BrokerCheck and submitted a
valid court order expunging the matter,
FINRA would remove any information
referencing the criminal conviction from
BrokerCheck. If, however, the written
notice and supporting documentation
do not include sufficient information
upon which FINRA can make a
determination, FINRA would, under
most circumstances, contact the entity
that reported the information to CRD
(i.e., a firm, other regulator, or FINRA
department, defined in the proposed
rule change as a ‘‘reporting entity’’) and
request that this reporting entity verify
that the information is accurate.24
Where a reporting entity other than
FINRA is involved, FINRA would defer
to that reporting entity regarding the
accuracy of the information provided to
FINRA and disclosed through
BrokerCheck.25 If the reporting entity
acknowledges that the information is
not accurate, FINRA would update,
modify or remove the information, as
appropriate, based on the information
BrokerCheck, FINRA would, as it does today,
prevent the disputed information from being
displayed via BrokerCheck while FINRA evaluates
the matter.
24 FINRA would not contact the reporting entity
if the entity is unlikely to have information
regarding the disputed information. For example, if
the previously mentioned eligible party disputing a
criminal conviction failed to provide a valid court
order, FINRA would not contact the securities firm
that reported the conviction since the firm is
unlikely to have the court order in its possession.
25 If the reporting entity obtained its information
from a third party (e.g., a firm reported to CRD that
an associated individual had declared bankruptcy
based on information from a consumer reporting
agency), FINRA would not contact the third party
(in this example, the consumer reporting agency) to
try to verify the accuracy of the information. The
reporting entity would have the responsibility of
verifying the accuracy of the information it received
from the third party.
E:\FR\FM\22APN1.SGM
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Federal Register / Vol. 75, No. 77 / Thursday, April 22, 2010 / Notices
provided by the reporting entity. If the
reporting entity verifies the accuracy of
the information or the reporting entity
no longer exists or is unable to verify
the accuracy of the information, FINRA
would not change the information.26
Upon making its determination,
FINRA would notify the disputing
eligible party in writing that the
investigation resulted in a
determination that (1) the information is
inaccurate or not accurately presented
and has been updated, modified or
deleted; (2) the information is accurate
in content and presentation and no
changes have been made; or (3) the
accuracy of the information or its
presentation could not be verified and
no changes have been made. A
determination by FINRA regarding a
dispute, including a determination to
leave unchanged or to update, modify or
delete disputed information, would not
be subject to appeal.27
As noted above, FINRA will announce
the effective date of the proposed rule
change in a Regulatory Notice to be
published no later than 60 days
following Commission approval. FINRA
will implement the proposal in phases,
with full implementation occurring no
later than 180 days following
Commission approval.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
2. Statutory Basis
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
srobinson on DSKHWCL6B1PROD with NOTICES
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,28 which
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. The proposed rule
change, among other things, would
enhance investor protection by
expanding the information disclosed to
investors and other users of
BrokerCheck.
26 The principle guiding FINRA’s proposed
approach is that because information in
BrokerCheck is derived from the information filed
on the uniform registration forms, it is presumed
accurate as filed. FINRA expects that the dispute
process will be used principally to address genuine
filing errors, which FINRA expects to be rare, or
those instances where an event displayed through
BrokerCheck has a changed disposition subsequent
to it being filed on a uniform registration form.
27 Although FINRA determinations under the
proposed dispute process would not be subject to
appeal, individuals and firms would continue to
have the ability to challenge BrokerCheck
information they believe to be inaccurate through
other processes that are available today (e.g., an
arbitration or court proceeding).
28 15 U.S.C. 78o–3(b)(6).
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18:25 Apr 21, 2010
Jkt 220001
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml; or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2010–012 on the
subject line.
21069
submission,29 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 a.m. and 3 p.m. Copies of the filing
also will be available for inspection and
copying at the principal 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 available publicly. All
submissions should refer to File
Number SR–FINRA–2010–012 and
should be submitted on or before
May 13, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–9282 Filed 4–21–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61926; File No. SR–
NASDAQ–2010–049]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Modify Fees
for Members Using the NASDAQ
Market Center
April 16, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
• Send paper comments in triplicate
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
to Elizabeth M. Murphy, Secretary,
notice is hereby given that on April 13,
Securities and Exchange Commission,
2010, The NASDAQ Stock Market LLC
100 F Street, NE., Washington, DC
(‘‘NASDAQ’’) filed with the Securities
20549–1090.
and Exchange Commission
(‘‘Commission’’) the proposed rule
All submissions should refer to File
Number SR–FINRA–2010–012. This file change as described in Items I, II, and
III below, which Items have been
number should be included on the
subject line if e-mail is used. To help the prepared by NASDAQ. Pursuant to
Commission process and review your
29 The text of the proposed rule change is
comments more efficiently, please use
only one method. The Commission will available on the Commission’s Web site at https://
www.sec.gov/rules/sro.shtml.
post all comments on the Commission’s
30 17 CFR 200.30–3(a)(12).
Internet Web site (https://www.sec.gov/
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
rules/sro.shtml). Copies of the
Paper Comments
PO 00000
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22APN1
]]>Agencies
[Federal Register Volume 75, Number 77 (Thursday, April 22, 2010)]
[Notices]
[Pages 21064-21069]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-9282]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61927; File No. SR-FINRA-2010-012]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend
FINRA Rule 8312 (FINRA BrokerCheck Disclosure)
April 16, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 30, 2010, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 21065]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 8312 (FINRA BrokerCheck
Disclosure) to (1) expand the information released through BrokerCheck,
both in terms of scope and time disclosed; and (2) establish a process
to dispute the accuracy of (or update) information disclosed through
BrokerCheck.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA, on the
Commission's Web site at https://www.sec.gov, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change amends FINRA Rule 8312, which pertains to
FINRA's BrokerCheck program. As described in more detail below, the
proposed rule change would (1) expand the information released through
BrokerCheck, both in terms of scope and time disclosed; and (2)
establish a process to dispute the accuracy of (or update) information
disclosed through BrokerCheck.
I. Expansion of Information Released through BrokerCheck
FINRA established BrokerCheck (then known as the Public Disclosure
Program) in 1988 to provide the public with information on the
professional background, business practices, and conduct of FINRA
members and their associated persons. In 1990, with FINRA's support,
Congress passed legislation requiring FINRA to establish and maintain a
toll-free telephone number to respond to inquiries about members and
associated persons. In 1998, FINRA began providing certain
administrative information, such as registration and employment
history, online via FINRA's Web site. FINRA again amended its rules
pertaining to BrokerCheck in 2000 to establish a two-year period for
disclosure of information about persons formerly registered with a
FINRA member, increase the amount of information disclosed to investors
through BrokerCheck, and refine the report delivery process. In 2007,
FINRA expanded the types of information made available through
BrokerCheck, made BrokerCheck more user friendly, introduced an
educational component of the BrokerCheck report and Web site, and
provided a compilation of selected data of FINRA members. Last year,
FINRA expanded BrokerCheck to permanently make publicly available in
BrokerCheck certain information about former associated persons of a
member who were the subject of a final regulatory action.
As the above discussion demonstrates, FINRA has regularly assessed
the scope and utility of the information provided to the public through
BrokerCheck and, as a result, has made numerous changes to improve the
program. Last year, in addressing the public comment letters submitted
to the Commission in connection with its most recent BrokerCheck
expansion proposal, FINRA noted that it would continue to evaluate all
aspects of the BrokerCheck program and consider whether greater
disclosure of information through BrokerCheck should be made in the
future.\3\ FINRA believes that such regular evaluation of the program
is important due to FINRA's statutory obligation to make information
available to the public, as well as the prominence that BrokerCheck has
attained as an investor protection service.\4\
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\3\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Richard E. Pullano, Associate Vice President and Chief Counsel,
Registration and Disclosure, FINRA, dated October 15, 2009, in
response to comments received regarding Securities Exchange Act
Release No. 60462 (August 7, 2009), 74 FR 41470 (August 17, 2009)
(Notice of Filing File No. SR-FINRA-2009-050). See also discussion
of comments in Securities Exchange Act Release No. 61002 (November
13, 2009), 74 FR 61193 (November 23, 2009) (Order Approving File No.
SR-FINRA-2009-050).
\4\ Approximately 18.5 million records were viewed last year on
BrokerCheck, and the program is routinely mentioned in news articles
and investor education materials as a premier tool for researching
investment professionals. The Commission has also recognized
BrokerCheck as a valuable tool for the public in deciding, among
other things, whether to do business with an industry member. See
Securities Exchange Act Release No. 61002 (November 13, 2009), 74 FR
61193 (November 23, 2009) (Order Approving File No. SR-FINRA-2009-
050).
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Late last year, FINRA evaluated the BrokerCheck program, including
the fundamental policies governing the disclosure of information
through the program, as well as the types, the length of availability,
and the value to the public of the information that is disclosed via
BrokerCheck. Additionally, FINRA considered the role that BrokerCheck
plays as an investor protection service and the significant shift in
the financial services landscape that has occurred during the past few
years and continues to this day.
Based on the results of its evaluation, FINRA has determined that
further expansion of the BrokerCheck program is warranted. As such,
FINRA is proposing to amend FINRA Rule 8312 to (1) expand the
BrokerCheck disclosure period for former associated persons of a member
to ten years from two years; (2) permanently make publicly available in
BrokerCheck certain information about former associated persons of a
member if any of the following applies, as reported to the Central
Registration Depository (``CRD'' or ``Web CRD'') on a uniform
registration form: (i) The person was convicted of or pled guilty or
nolo contendere to a crime; (ii) the person was the subject of a civil
injunction in connection with investment-related activity or a civil
court finding of involvement in a violation of any investment-related
statute or regulation; or (iii) the person was named as a respondent or
defendant in an investment-related, consumer-initiated arbitration or
civil litigation which alleged that the person was involved in a sales
practice violation and which resulted in an arbitration award or civil
judgment against the person; and (3) make publicly available in
BrokerCheck all historic customer complaints that were archived after
the implementation of Web CRD. FINRA has concluded that these
proposals, as described in more detail below, are a logical extension
of the BrokerCheck program that will help protect investors and other
users of BrokerCheck, and make BrokerCheck a more effective tool in
combating fraud across the financial services sector.
Expansion of the BrokerCheck Disclosure Period for Former Registered
Persons
Currently, as described in FINRA Rule 8312, BrokerCheck provides
certain information regarding current associated persons and persons
who were associated with a member within the preceding two years (i.e.,
a two year ``post-registration disclosure period'').\5\
[[Page 21066]]
This information is derived from the uniform registration forms.\6\
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\5\ BrokerCheck also provides public access to certain
information about formerly associated persons, regardless of when
they were associated with a member, if they were the subject of a
final regulatory action as defined in Form U4 that has been reported
to CRD via a uniform registration form. As discussed below, FINRA
also is proposing to broaden the scope of information made
permanently available to the public via BrokerCheck.
\6\ The uniform registration forms are Form BD (Uniform
Application for Broker-Dealer Registration), Form BDW (Uniform
Request for Broker-Dealer Withdrawal), Form BR (Uniform Branch
Office Registration Form), Form U4 (Uniform Application for
Securities Industry Registration or Transfer), Form U5 (Uniform
Termination Notice for Securities Industry Registration), and Form
U6 (Uniform Disciplinary Action Reporting Form).
---------------------------------------------------------------------------
When FINRA proposed implementing the two year post-registration
disclosure period over a decade ago, it noted that such a disclosure
period was appropriate because it generally coincides with the period
in which an individual can return to the industry without being
required to requalify by examination and the initial period in which an
individual remains subject to FINRA's jurisdiction.\7\ Since that time,
the purpose of BrokerCheck has broadened from helping investors make
informed choices about the individuals and firms with which they may
wish to do business to also include providing the public with access to
information about formerly registered persons who, although no longer
in the securities industry in a registered capacity, may work in other
investment-related industries or may seek to attain other positions of
trust with potential investors and about whom investors may wish to
learn relevant information. Consequently, FINRA believes that the
reasons initially set forth for the two year post-registration
disclosure period are no longer as compelling as when the disclosure
period was initially established.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 42402 (February 7,
2000), 65 FR 7582 (February 15, 2000) (Order Approving File No. SR-
NASD-99-45).
---------------------------------------------------------------------------
Therefore, FINRA is proposing to expand the post-registration
disclosure period to ten years from two years. FINRA believes that a
ten year post-registration disclosure period is now more reasonable
since it may take individuals some time after leaving the securities
industry to establish themselves in another investment-related industry
or to attain other positions of trust with potential investors. A ten
year post-registration disclosure period will provide investors and
other users of BrokerCheck with a longer period of time to consider
relevant and important information about such formerly registered
individuals. FINRA believes that a ten year post-registration
disclosure period will accomplish this goal without unduly burdening or
infringing on the reputational or privacy interests of those
individuals whose FINRA registrations have terminated.
Expansion of BrokerCheck To Permanently Include Additional Information
As previously mentioned, currently under FINRA Rule 8312,
BrokerCheck generally provides information about individuals who are
registered with FINRA or who were associated with a member within the
preceding two years. Last year, BrokerCheck was expanded to permanently
make publicly available in BrokerCheck certain information about former
associated persons of a member who were the subject of a final
regulatory action as defined in Form U4 that has been reported to CRD
via a uniform registration form.\8\ This change was designed to allow
the public to access information about formerly registered persons who
may work in other investment-related industries or may otherwise seek
to attain positions of trust with potential investors.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 61002 (November 13,
2009), 74 FR 61193 (November 23, 2009) (Order Approving File No. SR-
FINRA-2009-050).
---------------------------------------------------------------------------
As a result of its evaluation of the BrokerCheck program, FINRA now
believes that BrokerCheck should permanently make publicly available
additional information about certain former associated persons of a
member. FINRA is proposing to permanently make publicly available in
BrokerCheck certain information about former associated persons of a
member \9\ if any of the following applies, as reported to CRD on a
uniform registration form: (1) The person was convicted of or pled
guilty or nolo contendere to a crime; \10\ (2) the person was the
subject of a civil injunction in connection with investment-related
activity or a civil court finding of involvement in a violation of any
investment-related statute or regulation; \11\ or (3) the person was
named as a respondent or defendant in an investment-related, consumer-
initiated arbitration or civil litigation which alleged that the person
was involved in a sales practice violation and which resulted in an
arbitration award or civil judgment against the person.\12\ FINRA is
proposing to provide through BrokerCheck information concerning any
such disclosure event(s),\13\ as well as certain administrative
information (e.g., employment and registration history) and information
as to qualification examinations passed by these formerly registered
individuals. FINRA is also proposing to make available the most
recently submitted comment, if any, provided by the person, presuming
the comment is in the form and in accordance with the procedures
established by FINRA and relates to the information provided through
BrokerCheck.\14\ Other disclosure matters that may be disclosed
pursuant to FINRA Rule 8312 for associated persons and during the post-
registration period (e.g., reportable customer complaints or Historic
Complaints, criminal charges, terminations, bankruptcies, liens) would
continue not to be disclosed after the post-registration period
expires.
---------------------------------------------------------------------------
\9\ The proposal will apply only to those individuals registered
with FINRA on or after August 16, 1999, which is the date that Web
CRD was implemented. Since FINRA launched the Web CRD system, it has
used the information in the Web CRD database to generate BrokerCheck
reports. Such information is available in a Web-based format and
therefore can be easily used to generate BrokerCheck reports.
Although the Web CRD database contains information regarding all
persons that have been registered with FINRA since the
implementation of the Legacy CRD system (the predecessor to Web CRD)
in 1981, certain data limitations apply to the information available
for some individuals who were no longer registered at the time Web
CRD was established. Therefore, the proposal will not apply to those
individuals whose FINRA registration terminated prior to August 16,
1999.
\10\ This information is currently elicited by Questions
14A(1)(a) and 14B(1)(a) on Form U4 and Questions 7C(1) and 7C(3) on
Form U5.
\11\ This information is currently elicited by Questions
14H(1)(a) and 14H(1)(b) on Form U4.
\12\ This information is currently elicited by Question
14I(1)(b) on Form U4 and Question 7E(1)(b) on Form U5.
\13\ Under the proposed rule change, FINRA will provide
information regarding any of the enumerated disclosure events that
is reported on Form U6 even if the event has not been reported by an
individual on Form U4 or Form U5, as referenced above, because, for
example, the individual was not registered at the time the event was
reported.
\14\ The proposed information to be disclosed permanently (i.e.,
administrative information, examination information and the most
recently submitted comment) mirrors the information currently
disclosed permanently with respect to any formerly registered person
who is the subject of a final regulatory action.
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FINRA believes that this proposal will allow the public access to
relevant and important information about formerly registered persons
who, although no longer in the securities industry in a registered
capacity, may work in other investment-related industries or may seek
to attain other positions of trust with potential investors and about
whom investors may wish to learn relevant information. FINRA believes
that this information should be included on a permanent basis, rather
than for only ten years following the termination of an individual's
FINRA registration,
[[Page 21067]]
because, like final regulatory actions (which are included permanently
in BrokerCheck), each of the disclosure events that is proposed to be
permanently included in BrokerCheck constitutes a final disposition. In
addition, in most circumstances, these disclosure events allow the
subject person an opportunity to present arguments to an impartial
fact-finder about the allegations prior to such final disposition.
Furthermore, much of the information that would be subject to release
pursuant to the proposal may be available through other public sources.
For example, information regarding arbitration awards is available on
FINRA's Arbitration Awards Online database,\15\ and information
regarding civil and criminal proceedings is provided to the public via
numerous state Web sites.
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\15\ See https://finraawardsonline.finra.org/.
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Disclosure of Historic Complaints
Pursuant to FINRA Rule 8312, Historic Complaints are customer
complaints that were reported on a uniform registration form that are
more than two years old and that have not been settled or adjudicated
and customer complaints, arbitrations, or litigations that have been
settled for an amount less than the specified dollar amount (identified
on the customer complaint question) and are therefore no longer
reportable on a uniform registration form. Currently, FINRA Rule 8312
provides that Historic Complaints be displayed in BrokerCheck only
after the following conditions have been met: (1) A matter became a
Historic Complaint on or after March 19, 2007; (2) the most recent
Historic Complaint or currently reported customer complaint,
arbitration or litigation is less than ten years old; and (3) the
person has a total of three or more currently disclosable regulatory
actions, currently reported customer complaints, arbitrations or
litigations, or Historic Complaints (subject to the limitation that
they became Historic Complaints on or after March 19, 2007), or any
combination thereof. Unless all three conditions are met, a person's
Historic Complaints are not disclosed through BrokerCheck.\16\
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\16\ In addition, even if a person meets the criteria
established for disclosing Historic Complaints, only those Historic
Complaints that became Historic Complaints after March 19, 2007,
will be displayed through BrokerCheck.
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FINRA established the ``three or more'' standard for the release of
Historic Complaints so as to allow public investors ``to determine for
themselves whether a particular associated person has demonstrated a
pattern of conduct over the years and the significance, if any, they
should attach to the Historic Complaint information.'' \17\ Following
its recent evaluation of the BrokerCheck program, however, FINRA no
longer believes that such a standard is prudent. In this regard, FINRA
is concerned that the standard may discourage public investors from
making a qualitative assessment of a current or former associated
person based on all of the potentially relevant information available
regarding that individual. FINRA believes that, rather than allowing
public investors to determine for themselves whether an individual has
demonstrated a pattern of conduct, the standard may actually suggest to
investors that any individual who meets the standard has in fact
demonstrated a pattern of (mis)conduct (i.e., three events constitutes
a pattern of conduct, otherwise the rule would not have established
such a threshold). FINRA is also concerned that the standard, along
with the current date limitation for Historic Complaints that are
eligible for display, may limit the ability of public investors to
place Historic Complaints in the appropriate context or to otherwise
accurately evaluate a current or former associated person's entire
record.
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\17\ See Securities Exchange Act Release No. 51915 (June 23,
2005), 70 FR 37880, 37884 (June 30, 2005) (Notice of Filing File No.
SR-NASD-2003-168).
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Therefore, FINRA is proposing to amend FINRA Rule 8312 to eliminate
the conditions set forth in the rule that must be met before Historic
Complaints will be displayed in BrokerCheck. Eliminating these
conditions will result in the disclosure of all Historic Complaints via
BrokerCheck that became non-reportable after the implementation of Web
CRD on August 16, 1999.\18\
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\18\ FINRA is proposing to limit the Historic Complaints
eligible for display in BrokerCheck to those that became non-
reportable after the implementation of Web CRD in 1999, because the
Web CRD system (unlike Legacy CRD) contains the specific reason that
a matter was archived. Therefore, FINRA will be able to determine
whether a matter was archived because it was no longer reportable on
a uniform registration form (and therefore qualifies as a Historic
Complaint) or whether it was archived for a different reason (e.g.,
the matter was filed in error).
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This proposed change will allow investors and other users of
BrokerCheck to determine for themselves the significance, if any, they
should attach to the Historic Complaints on an individual's record
based on all available customer complaint information and to put such
complaints in the appropriate context based on the entire BrokerCheck
record for the individual.\19\ Additionally, FINRA believes that the
proposed change will allow investors seeking to do business with
investment professionals--whether associated persons of securities
firms or advisers--to have similar information available to them.\20\
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\19\ In conjunction with the implementation of the proposed rule
change, FINRA will revise the educational component of BrokerCheck
with respect to Historic Complaints to help readers view these
disclosures in the appropriate context and give them the appropriate
weight when evaluating an associated person.
\20\ The Investment Adviser Public Disclosure-Individual
(``IAPD-I'') database (currently scheduled to be deployed in June
2010) will provide to the public registration and licensing
information on natural persons who are registered as investment
advisers with the states. IAPD-I will disclose all Historic
Complaints that became non-reportable after the individual first
became registered through the Investment Adviser Registration
Depository (``IARD'') system. Accordingly, IAPD-I will include
Historic Complaints that became Historic Complaints on or after
March 18, 2002, which is the date IARD was established for
investment adviser representative registration. As a result, when
IAPD-I is deployed, BrokerCheck and IAPD-I may disclose slightly
different information regarding Historic Complaints of those
financial services professionals that are dually registered as
brokers and investment advisers.
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II. BrokerCheck Dispute Process
The proposed changes described above will result in BrokerCheck
disclosing additional information about current and former associated
persons. This underscores the need for a formalized process for
disputing the accuracy of (or updating) information displayed through
BrokerCheck. FINRA recognizes, for example, that there may be an
increased possibility that information disclosed through BrokerCheck
for former associated persons may have become inaccurate (i.e., a
disposition reported previously may have changed). Additionally,
Congress amended Section 15A(i) of the Exchange Act with the enactment
of the Military Personnel Financial Services Protection Act to require
FINRA, as a registered securities association, to adopt rules
establishing an administrative process for disputing the accuracy of
information provided through BrokerCheck in response to inquiries
regarding ``registration information'' \21\ on its members and their
associated persons. Therefore, FINRA is proposing to codify its current
process for disputing the accuracy of (or
[[Page 21068]]
updating) information disclosed through BrokerCheck.\22\
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\21\ For purposes of Section 15A(i), ``registration
information'' is defined to mean ``the information reported in
connection with the registration or licensing of brokers and dealers
and their associated persons, including disciplinary actions,
regulatory, judicial, and arbitration proceedings, and other
information required by law, or exchange or association rule, and
the source and status of such information.''
\22\ While the dispute process will be available to currently,
as well as formerly, registered individuals, FINRA anticipates that
most disputes will be brought by the latter because a mechanism
already exists for currently registered individuals to update
information (i.e., through the filing of an amended Form U4).
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Under FINRA's current dispute process, FINRA staff occasionally
receives telephonic and written inquiries from persons subject to
BrokerCheck who believe that information disclosed about them through
BrokerCheck is inaccurate. Upon the receipt of such an inquiry, FINRA
staff typically reviews the alleged inaccuracy and, if appropriate,
contacts the entity that reported the information to determine whether
the information is accurate. Once it has obtained all of the available
pertinent information, FINRA staff determines whether the information
is still accurate or whether the information should be modified or
removed from BrokerCheck. FINRA is proposing to enhance and codify this
process, which will allow individuals and firms to dispute the accuracy
of information being displayed through BrokerCheck. The dispute process
will be available both for challenges alleging the information was
incorrect when filed and challenges asserting that the information has
become incorrect due to events subsequent to filing.
FINRA is proposing to establish a dispute process under which only
an ``eligible party'' would be able to dispute the accuracy of
information disclosed in that party's BrokerCheck report. An eligible
party would consist of any current member, any former member (subject
to a condition discussed below), and any associated person of a member
or person formerly associated with a member for whom a BrokerCheck
report is available. Regarding former members, the proposal would
require that a dispute be submitted by a natural person who served as
the former member's Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, Chief Legal Officer or Chief Compliance
Officer, or individual with similar status or function, as identified
on Schedule A of Form BD at the time the former member ceased being
registered with FINRA. This requirement on the submission of disputes
by former member firms is intended to ensure that only authorized
representatives of former firms are able to submit disputes.
To dispute the accuracy of BrokerCheck information, an eligible
party would be required to submit a written notice to FINRA, in such
manner and format that FINRA may require, identifying the information
that the party alleges is inaccurate and providing an explanation as to
the reason the information is believed to be inaccurate. Additionally,
the eligible party would be required to submit with the written notice
all available supporting documentation (if any exists).
After receiving the written notice, FINRA would determine whether
the dispute is eligible for investigation. To be eligible for
investigation, the dispute would need to pertain only to factual
information and not to information that is subjective in nature or a
matter of interpretation. For example, a dispute involving allegations
made in a customer complaint or a firm's determination that a customer
complaint is required to be reported would not be eligible for
investigation.
FINRA would presume that a dispute involving factual information is
eligible for investigation. Nevertheless, the proposed rule change
would specifically identify in Supplementary Material to FINRA Rule
8312 the following non-exhaustive list of situations as ineligible for
investigation, even if they may involve factual information:
(a) A dispute that involves information that was previously
disputed under this process and that does not contain any new or
additional evidence;
(b) a dispute that is brought by an individual or entity that is
not an eligible party;
(c) a dispute that does not challenge the accuracy of information
contained in a BrokerCheck report but only provides an explanation of
such information;
(d) a dispute that constitutes a collateral attack on or otherwise
challenges the allegations underlying a previously reported matter such
as a regulatory action, customer complaint, arbitration, civil
litigation or termination;
(e) a dispute that consists of a general statement contesting
information in a BrokerCheck report with no accompanying explanation;
and
(f) a dispute that involves information contained in CRD that is
not disclosed through BrokerCheck.
If FINRA determines that a dispute is eligible for investigation,
FINRA would add a general notation to the eligible party's BrokerCheck
report stating that the eligible party has disputed certain information
included in the report.\23\ The notation would be removed from the
eligible party's BrokerCheck report upon resolution of the dispute by
FINRA. If FINRA determines that a request is not eligible for
investigation, it would notify the eligible party of this determination
in writing, including a brief description of the reason for the
determination. A determination by FINRA that a dispute is not eligible
for investigation would not be subject to appeal.
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\23\ In those circumstances where a dispute involves a court
order to expunge information from BrokerCheck, FINRA would, as it
does today, prevent the disputed information from being displayed
via BrokerCheck while FINRA evaluates the matter.
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If a dispute is deemed eligible for investigation, FINRA would
evaluate the written notice and supporting documentation submitted by
the eligible party. If FINRA determines that the written notice and
documentation submitted is sufficient to update, modify or remove the
information that is the subject of the request, FINRA would make the
appropriate change. For example, if an eligible party disputed a
criminal conviction being displayed through BrokerCheck and submitted a
valid court order expunging the matter, FINRA would remove any
information referencing the criminal conviction from BrokerCheck. If,
however, the written notice and supporting documentation do not include
sufficient information upon which FINRA can make a determination, FINRA
would, under most circumstances, contact the entity that reported the
information to CRD (i.e., a firm, other regulator, or FINRA department,
defined in the proposed rule change as a ``reporting entity'') and
request that this reporting entity verify that the information is
accurate.\24\ Where a reporting entity other than FINRA is involved,
FINRA would defer to that reporting entity regarding the accuracy of
the information provided to FINRA and disclosed through
BrokerCheck.\25\ If the reporting entity acknowledges that the
information is not accurate, FINRA would update, modify or remove the
information, as appropriate, based on the information
[[Page 21069]]
provided by the reporting entity. If the reporting entity verifies the
accuracy of the information or the reporting entity no longer exists or
is unable to verify the accuracy of the information, FINRA would not
change the information.\26\
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\24\ FINRA would not contact the reporting entity if the entity
is unlikely to have information regarding the disputed information.
For example, if the previously mentioned eligible party disputing a
criminal conviction failed to provide a valid court order, FINRA
would not contact the securities firm that reported the conviction
since the firm is unlikely to have the court order in its
possession.
\25\ If the reporting entity obtained its information from a
third party (e.g., a firm reported to CRD that an associated
individual had declared bankruptcy based on information from a
consumer reporting agency), FINRA would not contact the third party
(in this example, the consumer reporting agency) to try to verify
the accuracy of the information. The reporting entity would have the
responsibility of verifying the accuracy of the information it
received from the third party.
\26\ The principle guiding FINRA's proposed approach is that
because information in BrokerCheck is derived from the information
filed on the uniform registration forms, it is presumed accurate as
filed. FINRA expects that the dispute process will be used
principally to address genuine filing errors, which FINRA expects to
be rare, or those instances where an event displayed through
BrokerCheck has a changed disposition subsequent to it being filed
on a uniform registration form.
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Upon making its determination, FINRA would notify the disputing
eligible party in writing that the investigation resulted in a
determination that (1) the information is inaccurate or not accurately
presented and has been updated, modified or deleted; (2) the
information is accurate in content and presentation and no changes have
been made; or (3) the accuracy of the information or its presentation
could not be verified and no changes have been made. A determination by
FINRA regarding a dispute, including a determination to leave unchanged
or to update, modify or delete disputed information, would not be
subject to appeal.\27\
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\27\ Although FINRA determinations under the proposed dispute
process would not be subject to appeal, individuals and firms would
continue to have the ability to challenge BrokerCheck information
they believe to be inaccurate through other processes that are
available today (e.g., an arbitration or court proceeding).
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As noted above, FINRA will announce the effective date of the
proposed rule change in a Regulatory Notice to be published no later
than 60 days following Commission approval. FINRA will implement the
proposal in phases, with full implementation occurring no later than
180 days following Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\28\ which 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. The proposed rule change, among other things, would
enhance investor protection by expanding the information disclosed to
investors and other users of BrokerCheck.
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\28\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml; or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2010-012 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-012. This
file number should be included on the subject line if e-mail 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission,\29\ 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 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal 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 available publicly. All submissions should refer to File Number
SR-FINRA-2010-012 and should be submitted on or before May 13, 2010.
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\29\ The text of the proposed rule change is available on the
Commission's Web site at https://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9282 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P
