Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change to Adopt FINRA Rule 4524 (Supplemental FOCUS Information) and Proposed Supplementary Schedule to the Statement of Income (Loss) Page of FOCUS Reports, 70523-70527 [2011-29254]

Download as PDF Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices 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 the Exchange. 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–Phlx– 2011–143 and should be submitted on or before December 5, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–29300 Filed 11–10–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65700; File No. SR–FINRA– 2011–064] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change to Adopt FINRA Rule 4524 (Supplemental FOCUS Information) and Proposed Supplementary Schedule to the Statement of Income (Loss) Page of FOCUS Reports mstockstill on DSK4VPTVN1PROD with NOTICES 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 November 1, 2011, 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. Purpose Pursuant to SEA Rule 17a–5, members are required to file with FINRA reports concerning their financial and operational status using SEC Form X– 17A–5, Financial and Operational Combined Uniform Single (FOCUS) Report.3 SEA Rule 17a-5 generally requires members that clear transactions or carry customer accounts to file a FOCUS Report Part II, and requires certain other members to file a FOCUS Report Part IIA. Members that use Appendix E to SEA Rule 15c3–1 to calculate net capital file a FOCUS Report Part II CSE 4 that is similar to the FOCUS Report Part II (collectively, the 3 17 CFR 240.17a–5. broker-dealer that calculates its net capital under Appendix E of SEA Rule 15c3–1 is referred to as Alternative Net Capital (‘‘ANC’’) firm. 20 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 19:40 Nov 10, 2011 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 November 7, 2011. VerDate Mar<15>2010 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt FINRA Rule 4524 (Supplemental FOCUS Information) to require each member, as FINRA shall designate, to file such additional financial or operational schedules or reports as FINRA may deem necessary as a supplement to the FOCUS report. The content of such supplemental schedules or reports would be specified in a Regulatory Notice (or similar communication), which FINRA would file with the SEC pursuant to proposed FINRA Rule 4524. As part of the proposed rule change, FINRA is filing one such proposed schedule, a supplement to the Statement of Income (Loss) page of the FOCUS Report. 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 and at the Commission’s Public Reference Room. 4A Jkt 226001 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 70523 FOCUS Reports Part II, Part IIA, and Part II CSE are referred to hereinafter as ‘‘FOCUS Reports’’). FINRA is proposing to adopt FINRA Rule 4524, a rule that would provide the mechanism by which FINRA can obtain from members more detailed financial information to augment the FOCUS reports required to be filed pursuant to SEA Rule 17a–5. Proposed FINRA Rule 4524 would require members to file such additional financial or operational schedules or reports to supplement FOCUS reports as FINRA may deem necessary or appropriate for the protection of investors or in the public interest.5 Thus, the rule would provide FINRA the framework to request more specific information regarding, among other things, the assets and liabilities of a member, the generation of revenues and allocation of expenses by business segment or product lines, the sources of trading gains and losses, the types and amounts of fees earned, and the nature and extent of participation in securities offerings. Depending on the nature of the proposed supplemental schedule or report, FINRA may require that all members or any specified subset of members submit the schedule or report to FINRA. FOCUS Reports provide FINRA with valuable information regarding a member’s business; however, FINRA believes that it can better discharge its regulatory obligations with the benefit of additional information that gives FINRA a more complete and detailed view of a member’s business operations. Accordingly, proposed FINRA Rule 4524 would provide FINRA a means and process to obtain greater transparency into a member’s business activities and to better illuminate industry trends, allowing for more focused and effective examinations. FINRA would effectuate proposed FINRA Rule 4524 by way of a Regulatory Notice or similar communication, the content of which would be filed with the Commission. To that end, as an initial report required pursuant to proposed FINRA Rule 4524, FINRA is also proposing a Supplemental Statement of Income (‘‘SSOI’’) to magnify the data from the Statement of Income (Loss) page of the FOCUS Reports.6 The proposed SSOI is intended to capture more granular detail of a firm’s revenue and expense information. The lack of more specific revenue and expense categories for certain business 5 Nothing in proposed FINRA Rule 4524 should be construed as altering in any manner a member’s obligations under SEA Rule 17a–5(a)(2)(iv). 6 See Exhibit 3. E:\FR\FM\14NON1.SGM 14NON1 mstockstill on DSK4VPTVN1PROD with NOTICES 70524 Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices activities on the Statement of Income (Loss) page of the FOCUS Reports has led many firms to report much of their revenue and expenses as ‘‘other’’ (miscellaneous), a very general categorization that provides FINRA limited visibility into revenue and expense trends. The proposed SSOI is divided into sections containing line items that seek additional detail to permit FINRA to better understand revenue sources and expense composition on an ongoing basis. This additional detail would allow FINRA to better assess risk at a firm, and as a result, better allocate examination resources. Each member would be required to file with FINRA the proposed SSOI within 17 business days of the end of each calendar quarter. The proposed SSOI contains a de minimis exception for providing details of revenue and expenses for certain designated sections. If a member’s total dollar amount for a designated section is $5,000 or less for the reporting period, the member would only be required to enter the total dollar amount to complete the section. Additionally, not every line item would apply to every member, especially those with limited product offerings, thus limiting the burden of completing the form. The proposed SSOI includes a new Operational Page that would collect additional information from certain members with respect to participation in unregistered offerings during the reporting period. Members whose revenue from unregistered offerings exceeds 10% of total revenue for the reporting period would be required to complete the Operational Page by providing specific information about each unregistered offering. FINRA believes that such information would provide it with greater transparency and a stronger understanding regarding the types of unregistered offerings that generate significant revenue for members. The proposed rule change will be effective upon Commission approval. FINRA will announce the implementation dates of both proposed FINRA Rule 4524 and the proposed schedule (i.e., the proposed SSOI) in a Regulatory Notice to be published no later than 60 days following Commission approval of the proposed rule change. The implementation date of the proposed schedule will be no sooner than 180 days, and no later than 365 days, following Commission approval of the proposed rule change. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions VerDate Mar<15>2010 19:40 Nov 10, 2011 Jkt 226001 of Section 15A(b)(6) of the Act,7 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. FINRA believes that the proposed rule change is consistent with the provisions of the Act noted above in that supplemental FOCUS information will further strengthen FINRA’s ability to protect investors through a more informed understanding of the drivers of members’ business that can be used for more targeted examinations. 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 The proposed rule change and the proposed SSOI were published for comment in Regulatory Notice 10–33 (July 2010) (the ‘‘Notice’’). FINRA received 28 comment letters in response to the Notice.8 A copy of the Notice is 7 15 U.S.C. 78o–3(b)(6). Letter from Ivy League Financial Services, Inc., dated July 21, 2010 (‘‘Ivy’’); letter from M.S. Howells & Co., dated July 23, 2010 (‘‘M.S. Howells’’); letter from Hunter, Keith, Marshall & Co., Inc, dated July 27, 2010 (‘‘HKM’’); letter from Balanced Financial Securities, dated July 31, 2010 (‘‘BFS’’); letter from Foresters Equity Services, Inc., dated August 5, 2010 (‘‘FES’’); letter from Hodges Capital Management-First Dallas Securities, dated August 5, 2010 (‘‘HCM’’); letter from Farragut Capital LLC, dated August 12, 2010 (‘‘Farragut’’); letter from Integrity Investments, Inc., dated August 12, 2010 (‘‘Integrity’’); letter from Stephen Kinkade CPA, dated August 15, 2010 (‘‘Kinkade’’); letter from Wachtel & Co., Inc., dated August 16, 2010 (‘‘Wachtel’’); letter from First Asset Financial Inc., dated August 17, 2010 (‘‘FAF’’); letter from Aileen Gallagher, dated August 17, 2010 (‘‘Gallagher’’); letter from National Association of Independent Broker-Dealers, Inc., dated August 17, 2010 (‘‘NAIBD’’); letter from Securities Industry and Financial Markets Association, dated August 17, 2010 (‘‘SIFMA’’); letter from Wilson-Davis & Co., Inc., dated August 17, 2010 (‘‘WDC’’); letter from Allegheny Investments, LTD, dated August 18, 2010 (‘‘Allegheny’’); letter from Berkshire Bridge Capital, LLC, dated August 18, 2010 (‘‘Berkshire’’); letter from IBG Trading Inc., dated August 18, 2010 (‘‘IBG’’); letter from Integrated Management Solutions, dated August 18, 2010 (‘‘IMS’’); letter from Probitas Partners, dated August 18, 2010 (‘‘Probitas’’); letter from Real Estate Investment Securities Association, dated August 18, 2010 (‘‘REISA’’); letter from Regional Bond Dealers Association, dated August 18, 2010 (‘‘RBDA’’); letter from Sutherland Asbill & Brennan LLP, dated August 18, 2010 (‘‘Sutherland’’); letter from Southlake Capital Advisors, Inc., dated August 18, 2010 (‘‘SCA’’); letter from Trust Advisory Group, Ltd., dated August 18, 2010 (‘‘TAG’’); letter from 8 See PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 attached as Exhibit 2a.9 A list of the comment letters received in response to the Notice is attached as Exhibit 2b. Copies of the comment letters received in response to the Notice are attached as Exhibit 2c.10 Below is a summary of the comments and FINRA’s responses. A. Schedule Not Needed or Justified A number of commenters argued that the proposed SSOI is not needed or justified.11 Some commenters stated that FINRA or the SEC can already request the information required by the proposed SSOI.12 One commenter believed that the current reports provide sufficient detail for FINRA to understand a member’s business.13 Two commenters believed that routine exams already give a detailed view of a member’s business operations.14 Several other commenters did not see how the requested information protected investors.15 Finally, one commenter argued that FINRA has not justified why the proposed SSOI is the best means of achieving FINRA’s regulatory objectives without undue burden on members.16 FINRA disagrees with the contentions that the information sought is unnecessary or superfluous. As stated in the Notice, FINRA believes that it can better discharge its regulatory obligations with the benefit of additional information that gives FINRA a more complete and detailed view of a member’s business operations. Moreover, FINRA believes the proposed SSOI is the most effective and timely way to obtain the additional detail of the generation of revenues and allocation of expenses by business segment or product lines, the sources of trading gains and losses, the types and Wedbush Securities Inc., dated August 18, 2010 (‘‘Wedbush’’); letter from Bank of America Merrill Lynch, dated August 19, 2010 (‘‘B of A’’); and letter from Citigroup Global Markets, Inc., dated August 20, 2010 (‘‘Citi’’). 9 The Commission notes that while provided in Exhibit 2a to FINRA’s filing with the Commission, the Notice is not attached hereto. The Notice can be accessed online at https://www.finra.org/web/ groups/industry/@ip/@reg/@notice/documents/ notices/p121742.pdf. 10 The Commission notes that while provided in Exhibit 2c to the filing, the list of the commenters and comment letters received by FINRA are not attached hereto. Those comment letters can be accessed online at https://www.finra.org/Industry/ Regulation/Notices/2010/P121743. As stated previously, all references to ‘‘commenters’’ are to the commenters to the Notice, which are listed in Exhibit 2b. 11 Allegheny, FAF, Farragut, Integrity, Ivy, Kinkade, Probitas, REISA, Sutherland and WDC. 12 Allegheny, Sutherland, Farragut, Integrity and Kinkade. 13 Ivy. 14 REISA and WDC. 15 Farragut, Kinkade, Probitas and WDC. 16 RBDA. E:\FR\FM\14NON1.SGM 14NON1 Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices amounts of fees earned, and the nature and extent of participation in securities offerings. B. Small Firm Concerns Several commenters stated that the proposed SSOI will be costly and time consuming for small firms.17 Some of these commenters argued that FINRA should provide an exemption from the rule for smaller firms.18 Several commenters asserted that the Operational Page creates an unfair bias against smaller firms.19 FINRA believes that the required information is important to identify regulatory risk and trends, irrespective of firm size. Therefore, FINRA does not believe a small firm exemption is appropriate. However, as mentioned above, the proposed SSOI contains a de minimis exception that will make the form less time consuming for many smaller firms. Additionally, FINRA points out that many of the line items will not apply to smaller firms with limited product offerings. mstockstill on DSK4VPTVN1PROD with NOTICES C. Clarifications and Recommended Changes Certain commenters requested clarification of the information required on the proposed SSOI.20 Several commenters suggested that FINRA should include instructions and definitions for the proposed SSOI.21 One commenter had concerns that the ‘‘numbers reported on the FOCUS Report and the Proposed Schedule will not automatically ‘match.’ ’’ 22 Further, several commenters recommended changes to specific line items on the proposed SSOI.23 In response to these comments, FINRA has developed instructions for the proposed SSOI, which are included in the attached Exhibit 3. The instructions include guidance, clarifications and definitions with respect to certain line items that FINRA believes should ameliorate the commenters’ concerns. Additionally, in response to recommended changes to specific line items, FINRA has amended the proposed SSOI by making the requested tax information less burdensome, allowing flexibility regarding the reporting of dividends and interest for principal trades and 17 Allegheny, BFS, FAF, Farragut, FES, Gallagher, HCM, HKM, IMS, Integrity, Kinkade, M.S. Howells, Probitas, RBDA, REISA, TAG, Wachtel and WDC. 18 BFS, HKM, Wachtel and WDC. 19 HKM, Kinkade, NAIBD and REISA. 20 Allegheny, B of A, Citi, FAF, IMS, Kinkade, NAIBD, RBDA, Sutherland and WDC. 21 Citi, IMS, Kinkade, NAIBD, RBDA and Sutherland. 22 Sutherland. 23 B of A, IMS and Kinkade. VerDate Mar<15>2010 19:40 Nov 10, 2011 Jkt 226001 allowing revenue from unit investment trusts that are open-end companies to be included with revenue from investment company shares. D. Data Capture Several commenters suggested that the profit and loss information required by the proposed SSOI should be based on established units within a firm rather than by product.24 In response, FINRA believes that requiring information by product is the best way to understand revenue sources and expense composition. However, FINRA is allowing firms, in certain instances, a choice as to which section and/or line item on the proposed SSOI to reflect revenue or expense. Firms must document the methodology chosen and apply it consistently across reporting periods. Additionally, the methodology must be made available to FINRA staff upon request. E. Confidentiality One commenter expressed competitive concerns with providing FINRA detailed departmental data.25 Another commenter was concerned that the proposed SSOI could compromise otherwise confidential deal making.26 The commenter stated that members ‘‘specializing in restructuring/distressed situations are frequently bound to confidentiality by U.S. bankruptcy laws that would preclude the release of certain information.’’ 27 FINRA does not believe these concerns are valid as the proposed SSOI would be treated with the same confidentiality as the FOCUS Report to which it relates.28 In regard to the commenter’s concern about being bound to confidentiality by U.S. bankruptcy laws, FINRA notes that the commenter did not provide any specific examples of such U.S. bankruptcy laws or discussion of the manner in which such laws would preclude a member from complying with the proposed rulemaking. F. Use of the Proposed SSOI Several commenters were concerned that the proposed SSOI would be used as the basis for the calculation of various assessments, fees and dues on members.29 As previously mentioned, the proposed SSOI is intended to provide information about a member’s revenue and expenses in greater detail. The proposed SSOI supplements the 24 B of A, Citi, IMS, Kinkade, M.S. Howells and SIFMA. 25 M.S. Howells. 26 NAIBD. 27 NAIBD. 28 See SEA Rule 17a–5(a)(3). 29 B of A, BBC, SIFMA and Wedbush. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 70525 FOCUS report and would not be used as the basis for any assessments, fees or dues; however, total revenue on the proposed SSOI should equal total revenue on the FOCUS report. G. Reporting Period Several commenters recommended that reporting of the proposed SSOI be on a quarterly basis.30 These commenters stated that ‘‘[m]any firms as a matter of course have more detailed reporting requirements—both internal and external—on a quarterly basis, which would facilitate this additional FINRA reporting while limiting the need for additional resources.’’ 31 FINRA agrees with the commenters and has proposed quarterly basis reporting for the proposed SSOI. H. Filing Time Frame Two commenters suggested that the proposed SSOI should be filed within the time frames for current supplemental reporting and not on the FOCUS filing date.32 They believed that filing within such time frames would address resource constraints and would be consistent with other reporting time frames. FINRA disagrees with the commenters and instead has proposed to require the proposed SSOI to be filed within 17 business days after the end of the calendar quarter, consistent with the time frame allowed for the filing of the FOCUS Reports. FINRA believes that this time frame strikes the proper balance of ensuring FINRA receives timely information while giving firms’ sufficient time to file the proposed SSOI. I. Operational Page of the Proposed SSOI Several commenters believed that FINRA is unfairly targeting Regulation D offerings.33 One commenter suggested that the Operational Page only apply to all offerings that exceed a fixed dollar amount, rather than offerings in excess of 10% of total revenue.34 Another commenter stated that the information requested by the Operational Page for firm underwriting and selling group arrangements is identical to the information requested following a blue sheet transaction.35 The commenter urged that if the proposed SSOI is incorporated as represented, FINRA cease routinely requiring firms to provide identical information for firm underwriting and selling group 30 B of A and SIFMA. of A and SIFMA. 32 B of A and SIFMA. 33 Farragut and REISA. 34 Kinkade. 35 NAIBD. 31 B E:\FR\FM\14NON1.SGM 14NON1 70526 Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices arrangements following a blue-sheet transaction.36 Finally, one commenter stated that Operational Page reporting should be disassociated with financial reporting for any member filing FOCUS Report Part IIA (not filing FOCUS Report Part II) by having its own format, frequency and deadline schedule.37 FINRA believes the Operational Page of the proposed SSOI would provide greater transparency and valuable information regarding unregistered offerings. A fixed dollar amount threshold would be inappropriate as FINRA needs to capture revenue that is significant to the member. Members that exceed the 10% of total revenue threshold are considered to be obtaining significant revenue from unregistered offerings. Additionally, the information requested from the Operational Page is not identical to the information requested in a blue sheet transaction.38 Finally, the Operational Page is part of the proposed SSOI, and therefore would be subject to the same frequency and deadline schedule of the proposed SSOI. J. Implementation Several commenters requested that FINRA provide sufficient lead time for members to prepare for the new rule.39 A number of commenters stated system changes would be needed to capture the requested information.40 One commenter suggested that the implementation of the proposed SSOI be staged as a series of pilots, beginning with clearing firms, then gradually covering the membership by firm size.41 FINRA is sensitive to the operational and systems changes that may be necessary for members to complete the proposed SSOI, and as a result, is proposing to implement the SSOI no sooner than 180 days, and no later than 365 days, following Commission approval of the proposed rule change. mstockstill on DSK4VPTVN1PROD with NOTICES K. Alternatives to Schedule A number of commenters offered alternatives to the proposed SSOI.42 Several commenters suggested that more detailed information should not be required unless the particular line item represents a specified percentage of a firm’s business or at least a dollar amount threshold.43 One commenter suggested that FINRA consider requiring 36 NAIBD. 37 Kinkade. SEA Rule 17a–25. RBDA and SIFMA. 40 Citi, FAF, HCM, M.S. Howells, NAIBD, RBDA and SIFMA. 41 NAIBD. 42 Allegheny, NAIBD, Sutherland and Wachtel. 43 NAIBD, Sutherland and Wachtel. that the information requested by the proposed SSOI be submitted annually with the audit report.44 Another commenter believed that instead of adopting the proposed SSOI, FINRA should meet with members to discuss whether a new regulatory report is needed; what format works best with the FOCUS Report; and consider the costs of implementing a system.45 FINRA has considered these alternatives and believes that obtaining information regarding the detail of revenues earned or expenses incurred by product or other more specific categories is best achieved through the proposed SSOI. FINRA notes that it consulted with its advisory committees in connection with the development of the proposed SSOI. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action L. New Financial and Operational Reports or Schedules 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: Several commenters suggested that any new financial or operational report or schedule required by FINRA be submitted to the SEC as a proposed rule change to allow members an opportunity to provide FINRA with feedback.46 One commenter suggested that such submission is necessary due to possible conflicts that FINRA schedules and reports may have with other laws and rules.47 Another commenter argued that the opportunity for member comment is needed because specific line items may be missing or irrelevant over time.48 As stated above, pursuant to proposed FINRA Rule 4524, FINRA will file with the SEC the content of any Regulatory Notice (or similar communication) issued pursuant to the proposed rule. Further, if such content contains material substantive changes, FINRA will file the content for comment with the SEC. Commenters will have an opportunity to express their concerns and provide feedback at that time. M. Comment Period One commenter expressed disappointment that the comment period ended the same day FINRA sent the Notice.49 The commenter believed that FINRA did not give the public ample opportunity to study the matter. FINRA believes the commenter is mistaken as the Notice was issued on July 19, 2010, requesting comment until August 18, 2010. 38 See 39 Citi, VerDate Mar<15>2010 19:40 Nov 10, 2011 Jkt 226001 44 Allegheny. 45 Sutherland. 46 IMS, NAIBD, RBDA and Sutherland. 47 Sutherland. 48 NAIBD. 49 SCA. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 Within 45 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 or disapprove 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 email to rulecomments@sec.gov. Please include File Number SR–FINRA–2011–064 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–2011–064. This file number should be included on the subject line if email 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, 100 F Street NE., Washington, DC 20549, on official E:\FR\FM\14NON1.SGM 14NON1 Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices 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–2011–064 and should be submitted on or before December 5, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.50 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–29254 Filed 11–10–11; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Reporting and Recordkeeping Requirements Under OMB Review Small Business Administration. Notice of Reporting Requirements Submitted for OMB Review. AGENCY: ACTION: Under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35), agencies are required to submit proposed reporting and recordkeeping requirements to OMB for review and approval, and to publish a notice in the Federal Register notifying the public that the agency has made such a submission. DATES: Submit comments on or before December 14, 2011. If you intend to comment but cannot prepare comments promptly, please advise the OMB Reviewer and the Agency Clearance Officer before the deadline. Copies: Request for clearance (OMB 83–1), supporting statement, and other documents submitted to OMB for review may be obtained from the Agency Clearance Officer. ADDRESSES: Address all comments concerning this notice to: Agency Clearance Officer, Jacqueline White, Small Business Administration, 409 3rd Street SW., 5th Floor, Washington, DC 20416; and OMB Reviewer, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Washington, DC 20503. FOR FURTHER INFORMATION CONTACT: Jacqueline White, Agency Clearance Officer, (202) 205–7044. mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: SUPPLEMENTARY INFORMATION: SMALL BUSINESS ADMINISTRATION Title: ‘‘25–Model Corp.Resol.or GP Certif.33–Model Letter to Selling Agent. 34–Bank ID, 1065–Appl.Lic.Assure of Compliance. Form No’s: 23, 33, 34, 1065. Frequency: On Occasion. Description of Respondents: Application for SBA-guaranteed leverages. Responses: 48. Annual Burden: 42. Title: ‘‘U.S. Small Business Advisory Committee Membership Information’’. Form No: 898. Frequency: On Occasion. Description of Respondents: To collect information for Candidates for Advisory Council. Responses: 100. Annual Burden: 100. Title: ‘‘Financial Statement of Debtor’’. Form No: 770. Frequency: On Occasion. Description of Respondents: SBA Borrowers or guarantor’s who request compromise. Responses: 5,000. Annual Burden: 2,500. Title: ‘‘Lender’s Transcript of Account’’. Form No: 1149. Frequency: On Occasion. Description of Respondents: SBA Borrowers to complete loan authorization. Responses: 3,600. Annual Burden: 3,600. Title: ‘‘New Markets Venture Capital Program Application Funding and Reporting’’. Form No’s: 2216, 2185, 2219, 2210, 468.1, 480 Frequency: On Occasion. Description of Respondents: Programs Application and participants, SSBIC receiving grants under the NMVC program. Responses: 1,151. Annual Burden: 14,012. Title: ‘‘Settlement Sheet’’. Form No: 1050. Frequency: On Occasion. Description of Respondents: Lenders requesting SBA to provide the Agency with breakdown of payments. Responses: 19,800. Annual Burden: 4,950. Jacqueline White, Chief, Administrative Information Branch. [FR Doc. 2011–29209 Filed 11–10–11; 8:45 am] 50 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 19:40 Nov 10, 2011 BILLING CODE P Jkt 226001 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 70527 [Disaster Declaration #12820 and #12821] Pennsylvania Disaster Number PA– 00042 U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: This is an amendment of the Presidential declaration of a major disaster for the State of Pennsylvania (FEMA–4025–DR), dated 09/12/2011 . Incident: Hurricane Irene. Incident Period: 08/26/2011 through 08/30/2011. DATES: Effective Date: 11/04/2011. Physical Loan Application Deadline Date: 12/14/2011. Eidl Loan Application Deadline Date: 06/12/2012. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for the State of Pennsylvania, dated 09/12/2011 is hereby amended to extend the deadline for filing applications for physical damages as a result of this disaster to 12/14/2011. All other information in the original declaration remains unchanged. SUMMARY: (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) James E. Rivera Associate, Administrator for Disaster Assistance. [FR Doc. 2011–29215 Filed 11–10–11; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #12874 and #12875] Maryland Disaster Number MD–00018 U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Maryland (FEMA–4038– DR), dated 10/05/2011. Incident: Remnants of Tropical Storm Lee. Incident Period: 09/06/2011 through 09/09/2011. SUMMARY: E:\FR\FM\14NON1.SGM 14NON1

Agencies

[Federal Register Volume 76, Number 219 (Monday, November 14, 2011)]
[Notices]
[Pages 70523-70527]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29254]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65700; File No. SR-FINRA-2011-064]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change to Adopt 
FINRA Rule 4524 (Supplemental FOCUS Information) and Proposed 
Supplementary Schedule to the Statement of Income (Loss) Page of FOCUS 
Reports

November 7, 2011.
    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 November 1, 2011, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 4524 (Supplemental FOCUS 
Information) to require each member, as FINRA shall designate, to file 
such additional financial or operational schedules or reports as FINRA 
may deem necessary as a supplement to the FOCUS report. The content of 
such supplemental schedules or reports would be specified in a 
Regulatory Notice (or similar communication), which FINRA would file 
with the SEC pursuant to proposed FINRA Rule 4524. As part of the 
proposed rule change, FINRA is filing one such proposed schedule, a 
supplement to the Statement of Income (Loss) page of the FOCUS Report.
    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 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
    Pursuant to SEA Rule 17a-5, members are required to file with FINRA 
reports concerning their financial and operational status using SEC 
Form X-17A-5, Financial and Operational Combined Uniform Single (FOCUS) 
Report.\3\ SEA Rule 17a-5 generally requires members that clear 
transactions or carry customer accounts to file a FOCUS Report Part II, 
and requires certain other members to file a FOCUS Report Part IIA. 
Members that use Appendix E to SEA Rule 15c3-1 to calculate net capital 
file a FOCUS Report Part II CSE \4\ that is similar to the FOCUS Report 
Part II (collectively, the FOCUS Reports Part II, Part IIA, and Part II 
CSE are referred to hereinafter as ``FOCUS Reports'').
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    \3\ 17 CFR 240.17a-5.
    \4\ A broker-dealer that calculates its net capital under 
Appendix E of SEA Rule 15c3-1 is referred to as Alternative Net 
Capital (``ANC'') firm.
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    FINRA is proposing to adopt FINRA Rule 4524, a rule that would 
provide the mechanism by which FINRA can obtain from members more 
detailed financial information to augment the FOCUS reports required to 
be filed pursuant to SEA Rule 17a-5. Proposed FINRA Rule 4524 would 
require members to file such additional financial or operational 
schedules or reports to supplement FOCUS reports as FINRA may deem 
necessary or appropriate for the protection of investors or in the 
public interest.\5\ Thus, the rule would provide FINRA the framework to 
request more specific information regarding, among other things, the 
assets and liabilities of a member, the generation of revenues and 
allocation of expenses by business segment or product lines, the 
sources of trading gains and losses, the types and amounts of fees 
earned, and the nature and extent of participation in securities 
offerings. Depending on the nature of the proposed supplemental 
schedule or report, FINRA may require that all members or any specified 
subset of members submit the schedule or report to FINRA.
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    \5\ Nothing in proposed FINRA Rule 4524 should be construed as 
altering in any manner a member's obligations under SEA Rule 17a-
5(a)(2)(iv).
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    FOCUS Reports provide FINRA with valuable information regarding a 
member's business; however, FINRA believes that it can better discharge 
its regulatory obligations with the benefit of additional information 
that gives FINRA a more complete and detailed view of a member's 
business operations. Accordingly, proposed FINRA Rule 4524 would 
provide FINRA a means and process to obtain greater transparency into a 
member's business activities and to better illuminate industry trends, 
allowing for more focused and effective examinations.
    FINRA would effectuate proposed FINRA Rule 4524 by way of a 
Regulatory Notice or similar communication, the content of which would 
be filed with the Commission. To that end, as an initial report 
required pursuant to proposed FINRA Rule 4524, FINRA is also proposing 
a Supplemental Statement of Income (``SSOI'') to magnify the data from 
the Statement of Income (Loss) page of the FOCUS Reports.\6\
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    \6\ See Exhibit 3.
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    The proposed SSOI is intended to capture more granular detail of a 
firm's revenue and expense information. The lack of more specific 
revenue and expense categories for certain business

[[Page 70524]]

activities on the Statement of Income (Loss) page of the FOCUS Reports 
has led many firms to report much of their revenue and expenses as 
``other'' (miscellaneous), a very general categorization that provides 
FINRA limited visibility into revenue and expense trends. The proposed 
SSOI is divided into sections containing line items that seek 
additional detail to permit FINRA to better understand revenue sources 
and expense composition on an ongoing basis. This additional detail 
would allow FINRA to better assess risk at a firm, and as a result, 
better allocate examination resources. Each member would be required to 
file with FINRA the proposed SSOI within 17 business days of the end of 
each calendar quarter.
    The proposed SSOI contains a de minimis exception for providing 
details of revenue and expenses for certain designated sections. If a 
member's total dollar amount for a designated section is $5,000 or less 
for the reporting period, the member would only be required to enter 
the total dollar amount to complete the section. Additionally, not 
every line item would apply to every member, especially those with 
limited product offerings, thus limiting the burden of completing the 
form.
    The proposed SSOI includes a new Operational Page that would 
collect additional information from certain members with respect to 
participation in unregistered offerings during the reporting period. 
Members whose revenue from unregistered offerings exceeds 10% of total 
revenue for the reporting period would be required to complete the 
Operational Page by providing specific information about each 
unregistered offering. FINRA believes that such information would 
provide it with greater transparency and a stronger understanding 
regarding the types of unregistered offerings that generate significant 
revenue for members.
    The proposed rule change will be effective upon Commission 
approval. FINRA will announce the implementation dates of both proposed 
FINRA Rule 4524 and the proposed schedule (i.e., the proposed SSOI) in 
a Regulatory Notice to be published no later than 60 days following 
Commission approval of the proposed rule change. The implementation 
date of the proposed schedule will be no sooner than 180 days, and no 
later than 365 days, following Commission approval of the proposed rule 
change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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. FINRA believes that the proposed rule change is 
consistent with the provisions of the Act noted above in that 
supplemental FOCUS information will further strengthen FINRA's ability 
to protect investors through a more informed understanding of the 
drivers of members' business that can be used for more targeted 
examinations.
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    \7\ 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

    The proposed rule change and the proposed SSOI were published for 
comment in Regulatory Notice 10-33 (July 2010) (the ``Notice''). FINRA 
received 28 comment letters in response to the Notice.\8\ A copy of the 
Notice is attached as Exhibit 2a.\9\ A list of the comment letters 
received in response to the Notice is attached as Exhibit 2b. Copies of 
the comment letters received in response to the Notice are attached as 
Exhibit 2c.\10\ Below is a summary of the comments and FINRA's 
responses.
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    \8\ See Letter from Ivy League Financial Services, Inc., dated 
July 21, 2010 (``Ivy''); letter from M.S. Howells & Co., dated July 
23, 2010 (``M.S. Howells''); letter from Hunter, Keith, Marshall & 
Co., Inc, dated July 27, 2010 (``HKM''); letter from Balanced 
Financial Securities, dated July 31, 2010 (``BFS''); letter from 
Foresters Equity Services, Inc., dated August 5, 2010 (``FES''); 
letter from Hodges Capital Management-First Dallas Securities, dated 
August 5, 2010 (``HCM''); letter from Farragut Capital LLC, dated 
August 12, 2010 (``Farragut''); letter from Integrity Investments, 
Inc., dated August 12, 2010 (``Integrity''); letter from Stephen 
Kinkade CPA, dated August 15, 2010 (``Kinkade''); letter from 
Wachtel & Co., Inc., dated August 16, 2010 (``Wachtel''); letter 
from First Asset Financial Inc., dated August 17, 2010 (``FAF''); 
letter from Aileen Gallagher, dated August 17, 2010 (``Gallagher''); 
letter from National Association of Independent Broker-Dealers, 
Inc., dated August 17, 2010 (``NAIBD''); letter from Securities 
Industry and Financial Markets Association, dated August 17, 2010 
(``SIFMA''); letter from Wilson-Davis & Co., Inc., dated August 17, 
2010 (``WDC''); letter from Allegheny Investments, LTD, dated August 
18, 2010 (``Allegheny''); letter from Berkshire Bridge Capital, LLC, 
dated August 18, 2010 (``Berkshire''); letter from IBG Trading Inc., 
dated August 18, 2010 (``IBG''); letter from Integrated Management 
Solutions, dated August 18, 2010 (``IMS''); letter from Probitas 
Partners, dated August 18, 2010 (``Probitas''); letter from Real 
Estate Investment Securities Association, dated August 18, 2010 
(``REISA''); letter from Regional Bond Dealers Association, dated 
August 18, 2010 (``RBDA''); letter from Sutherland Asbill & Brennan 
LLP, dated August 18, 2010 (``Sutherland''); letter from Southlake 
Capital Advisors, Inc., dated August 18, 2010 (``SCA''); letter from 
Trust Advisory Group, Ltd., dated August 18, 2010 (``TAG''); letter 
from Wedbush Securities Inc., dated August 18, 2010 (``Wedbush''); 
letter from Bank of America Merrill Lynch, dated August 19, 2010 
(``B of A''); and letter from Citigroup Global Markets, Inc., dated 
August 20, 2010 (``Citi'').
    \9\ The Commission notes that while provided in Exhibit 2a to 
FINRA's filing with the Commission, the Notice is not attached 
hereto. The Notice can be accessed online at https://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p121742.pdf.
    \10\ The Commission notes that while provided in Exhibit 2c to 
the filing, the list of the commenters and comment letters received 
by FINRA are not attached hereto. Those comment letters can be 
accessed online at https://www.finra.org/Industry/Regulation/Notices/2010/P121743. As stated previously, all references to ``commenters'' 
are to the commenters to the Notice, which are listed in Exhibit 2b.
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A. Schedule Not Needed or Justified

    A number of commenters argued that the proposed SSOI is not needed 
or justified.\11\ Some commenters stated that FINRA or the SEC can 
already request the information required by the proposed SSOI.\12\ One 
commenter believed that the current reports provide sufficient detail 
for FINRA to understand a member's business.\13\ Two commenters 
believed that routine exams already give a detailed view of a member's 
business operations.\14\ Several other commenters did not see how the 
requested information protected investors.\15\ Finally, one commenter 
argued that FINRA has not justified why the proposed SSOI is the best 
means of achieving FINRA's regulatory objectives without undue burden 
on members.\16\ FINRA disagrees with the contentions that the 
information sought is unnecessary or superfluous. As stated in the 
Notice, FINRA believes that it can better discharge its regulatory 
obligations with the benefit of additional information that gives FINRA 
a more complete and detailed view of a member's business operations. 
Moreover, FINRA believes the proposed SSOI is the most effective and 
timely way to obtain the additional detail of the generation of 
revenues and allocation of expenses by business segment or product 
lines, the sources of trading gains and losses, the types and

[[Page 70525]]

amounts of fees earned, and the nature and extent of participation in 
securities offerings.
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    \11\ Allegheny, FAF, Farragut, Integrity, Ivy, Kinkade, 
Probitas, REISA, Sutherland and WDC.
    \12\ Allegheny, Sutherland, Farragut, Integrity and Kinkade.
    \13\ Ivy.
    \14\ REISA and WDC.
    \15\ Farragut, Kinkade, Probitas and WDC.
    \16\ RBDA.
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B. Small Firm Concerns

    Several commenters stated that the proposed SSOI will be costly and 
time consuming for small firms.\17\ Some of these commenters argued 
that FINRA should provide an exemption from the rule for smaller 
firms.\18\ Several commenters asserted that the Operational Page 
creates an unfair bias against smaller firms.\19\ FINRA believes that 
the required information is important to identify regulatory risk and 
trends, irrespective of firm size. Therefore, FINRA does not believe a 
small firm exemption is appropriate. However, as mentioned above, the 
proposed SSOI contains a de minimis exception that will make the form 
less time consuming for many smaller firms. Additionally, FINRA points 
out that many of the line items will not apply to smaller firms with 
limited product offerings.
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    \17\ Allegheny, BFS, FAF, Farragut, FES, Gallagher, HCM, HKM, 
IMS, Integrity, Kinkade, M.S. Howells, Probitas, RBDA, REISA, TAG, 
Wachtel and WDC.
    \18\ BFS, HKM, Wachtel and WDC.
    \19\ HKM, Kinkade, NAIBD and REISA.
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C. Clarifications and Recommended Changes

    Certain commenters requested clarification of the information 
required on the proposed SSOI.\20\ Several commenters suggested that 
FINRA should include instructions and definitions for the proposed 
SSOI.\21\ One commenter had concerns that the ``numbers reported on the 
FOCUS Report and the Proposed Schedule will not automatically `match.' 
'' \22\ Further, several commenters recommended changes to specific 
line items on the proposed SSOI.\23\ In response to these comments, 
FINRA has developed instructions for the proposed SSOI, which are 
included in the attached Exhibit 3. The instructions include guidance, 
clarifications and definitions with respect to certain line items that 
FINRA believes should ameliorate the commenters' concerns. 
Additionally, in response to recommended changes to specific line 
items, FINRA has amended the proposed SSOI by making the requested tax 
information less burdensome, allowing flexibility regarding the 
reporting of dividends and interest for principal trades and allowing 
revenue from unit investment trusts that are open-end companies to be 
included with revenue from investment company shares.
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    \20\ Allegheny, B of A, Citi, FAF, IMS, Kinkade, NAIBD, RBDA, 
Sutherland and WDC.
    \21\ Citi, IMS, Kinkade, NAIBD, RBDA and Sutherland.
    \22\ Sutherland.
    \23\ B of A, IMS and Kinkade.
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D. Data Capture

    Several commenters suggested that the profit and loss information 
required by the proposed SSOI should be based on established units 
within a firm rather than by product.\24\ In response, FINRA believes 
that requiring information by product is the best way to understand 
revenue sources and expense composition. However, FINRA is allowing 
firms, in certain instances, a choice as to which section and/or line 
item on the proposed SSOI to reflect revenue or expense. Firms must 
document the methodology chosen and apply it consistently across 
reporting periods. Additionally, the methodology must be made available 
to FINRA staff upon request.
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    \24\ B of A, Citi, IMS, Kinkade, M.S. Howells and SIFMA.
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E. Confidentiality

    One commenter expressed competitive concerns with providing FINRA 
detailed departmental data.\25\ Another commenter was concerned that 
the proposed SSOI could compromise otherwise confidential deal 
making.\26\ The commenter stated that members ``specializing in 
restructuring/distressed situations are frequently bound to 
confidentiality by U.S. bankruptcy laws that would preclude the release 
of certain information.'' \27\ FINRA does not believe these concerns 
are valid as the proposed SSOI would be treated with the same 
confidentiality as the FOCUS Report to which it relates.\28\ In regard 
to the commenter's concern about being bound to confidentiality by U.S. 
bankruptcy laws, FINRA notes that the commenter did not provide any 
specific examples of such U.S. bankruptcy laws or discussion of the 
manner in which such laws would preclude a member from complying with 
the proposed rulemaking.
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    \25\ M.S. Howells.
    \26\ NAIBD.
    \27\ NAIBD.
    \28\ See SEA Rule 17a-5(a)(3).
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F. Use of the Proposed SSOI

    Several commenters were concerned that the proposed SSOI would be 
used as the basis for the calculation of various assessments, fees and 
dues on members.\29\ As previously mentioned, the proposed SSOI is 
intended to provide information about a member's revenue and expenses 
in greater detail. The proposed SSOI supplements the FOCUS report and 
would not be used as the basis for any assessments, fees or dues; 
however, total revenue on the proposed SSOI should equal total revenue 
on the FOCUS report.
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    \29\ B of A, BBC, SIFMA and Wedbush.
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G. Reporting Period

    Several commenters recommended that reporting of the proposed SSOI 
be on a quarterly basis.\30\ These commenters stated that ``[m]any 
firms as a matter of course have more detailed reporting requirements--
both internal and external--on a quarterly basis, which would 
facilitate this additional FINRA reporting while limiting the need for 
additional resources.'' \31\ FINRA agrees with the commenters and has 
proposed quarterly basis reporting for the proposed SSOI.
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    \30\ B of A and SIFMA.
    \31\ B of A and SIFMA.
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H. Filing Time Frame

    Two commenters suggested that the proposed SSOI should be filed 
within the time frames for current supplemental reporting and not on 
the FOCUS filing date.\32\ They believed that filing within such time 
frames would address resource constraints and would be consistent with 
other reporting time frames. FINRA disagrees with the commenters and 
instead has proposed to require the proposed SSOI to be filed within 17 
business days after the end of the calendar quarter, consistent with 
the time frame allowed for the filing of the FOCUS Reports. FINRA 
believes that this time frame strikes the proper balance of ensuring 
FINRA receives timely information while giving firms' sufficient time 
to file the proposed SSOI.
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    \32\ B of A and SIFMA.
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I. Operational Page of the Proposed SSOI

    Several commenters believed that FINRA is unfairly targeting 
Regulation D offerings.\33\ One commenter suggested that the 
Operational Page only apply to all offerings that exceed a fixed dollar 
amount, rather than offerings in excess of 10% of total revenue.\34\ 
Another commenter stated that the information requested by the 
Operational Page for firm underwriting and selling group arrangements 
is identical to the information requested following a blue sheet 
transaction.\35\ The commenter urged that if the proposed SSOI is 
incorporated as represented, FINRA cease routinely requiring firms to 
provide identical information for firm underwriting and selling group

[[Page 70526]]

arrangements following a blue-sheet transaction.\36\ Finally, one 
commenter stated that Operational Page reporting should be 
disassociated with financial reporting for any member filing FOCUS 
Report Part IIA (not filing FOCUS Report Part II) by having its own 
format, frequency and deadline schedule.\37\
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    \33\ Farragut and REISA.
    \34\ Kinkade.
    \35\ NAIBD.
    \36\ NAIBD.
    \37\ Kinkade.
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    FINRA believes the Operational Page of the proposed SSOI would 
provide greater transparency and valuable information regarding 
unregistered offerings. A fixed dollar amount threshold would be 
inappropriate as FINRA needs to capture revenue that is significant to 
the member. Members that exceed the 10% of total revenue threshold are 
considered to be obtaining significant revenue from unregistered 
offerings. Additionally, the information requested from the Operational 
Page is not identical to the information requested in a blue sheet 
transaction.\38\ Finally, the Operational Page is part of the proposed 
SSOI, and therefore would be subject to the same frequency and deadline 
schedule of the proposed SSOI.
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    \38\ See SEA Rule 17a-25.
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J. Implementation

    Several commenters requested that FINRA provide sufficient lead 
time for members to prepare for the new rule.\39\ A number of 
commenters stated system changes would be needed to capture the 
requested information.\40\ One commenter suggested that the 
implementation of the proposed SSOI be staged as a series of pilots, 
beginning with clearing firms, then gradually covering the membership 
by firm size.\41\ FINRA is sensitive to the operational and systems 
changes that may be necessary for members to complete the proposed 
SSOI, and as a result, is proposing to implement the SSOI no sooner 
than 180 days, and no later than 365 days, following Commission 
approval of the proposed rule change.
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    \39\ Citi, RBDA and SIFMA.
    \40\ Citi, FAF, HCM, M.S. Howells, NAIBD, RBDA and SIFMA.
    \41\ NAIBD.
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K. Alternatives to Schedule

    A number of commenters offered alternatives to the proposed 
SSOI.\42\ Several commenters suggested that more detailed information 
should not be required unless the particular line item represents a 
specified percentage of a firm's business or at least a dollar amount 
threshold.\43\ One commenter suggested that FINRA consider requiring 
that the information requested by the proposed SSOI be submitted 
annually with the audit report.\44\ Another commenter believed that 
instead of adopting the proposed SSOI, FINRA should meet with members 
to discuss whether a new regulatory report is needed; what format works 
best with the FOCUS Report; and consider the costs of implementing a 
system.\45\ FINRA has considered these alternatives and believes that 
obtaining information regarding the detail of revenues earned or 
expenses incurred by product or other more specific categories is best 
achieved through the proposed SSOI. FINRA notes that it consulted with 
its advisory committees in connection with the development of the 
proposed SSOI.
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    \42\ Allegheny, NAIBD, Sutherland and Wachtel.
    \43\ NAIBD, Sutherland and Wachtel.
    \44\ Allegheny.
    \45\ Sutherland.
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L. New Financial and Operational Reports or Schedules

    Several commenters suggested that any new financial or operational 
report or schedule required by FINRA be submitted to the SEC as a 
proposed rule change to allow members an opportunity to provide FINRA 
with feedback.\46\ One commenter suggested that such submission is 
necessary due to possible conflicts that FINRA schedules and reports 
may have with other laws and rules.\47\ Another commenter argued that 
the opportunity for member comment is needed because specific line 
items may be missing or irrelevant over time.\48\
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    \46\ IMS, NAIBD, RBDA and Sutherland.
    \47\ Sutherland.
    \48\ NAIBD.
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    As stated above, pursuant to proposed FINRA Rule 4524, FINRA will 
file with the SEC the content of any Regulatory Notice (or similar 
communication) issued pursuant to the proposed rule. Further, if such 
content contains material substantive changes, FINRA will file the 
content for comment with the SEC. Commenters will have an opportunity 
to express their concerns and provide feedback at that time.

M. Comment Period

    One commenter expressed disappointment that the comment period 
ended the same day FINRA sent the Notice.\49\ The commenter believed 
that FINRA did not give the public ample opportunity to study the 
matter. FINRA believes the commenter is mistaken as the Notice was 
issued on July 19, 2010, requesting comment until August 18, 2010.
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    \49\ SCA.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-064 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-2011-064. This 
file number should be included on the subject line if email 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, 100 F Street NE., 
Washington, DC 20549, on official

[[Page 70527]]

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-2011-064 and should be submitted on or before December 5, 
2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29254 Filed 11-10-11; 8:45 am]
BILLING CODE 8011-01-P
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