Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions) in the Consolidated FINRA Rulebook, 48941-48949 [2015-20006]

Download as PDF Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices In order to motivate data recipients to comply with the display statement requirements, including the requisite declarations and screen submissions, the Amendment establishes a noncompliance fee for each month of noncompliance. For each of Network A and Network B, the monthly fee is $3,000. A datafeed recipient must submit the required screen prints upon the Amendment’s implementation date 8 or within thirty days of the effective date of its Vendor Agreement. It must submit those screen prints (including previously provided, new, or changed screen prints) annually by the 31st day of January. The non-compliance charges will be assessed against a data redistributor for each month in which it fails to provide the declaration or a copy of a Consolidated Volume screen print with the required display statement in a timely manner. The charge will also be assessed against a data redistributor each month for non-compliance by persons in the redistribution chain starting with the data redistributor where such persons have not entered into an applicable agreement with CTA. The Approving Participants expect the non-compliance charges to provide incentives for data redistributors to comply with the consolidated volume requirements; they do not view the noncompliance fee as establishing a new revenue source. Rather, they hope it encourages all data redistributors to submit their declarations and screen prints (where applicable) in a timely fashion. They hope that the fee will motivate non-compliant redistributors to adopt the same practices that the majority of redistributors follow. The Approving Participants included delayed displays of consolidated volume in the Amendment to make it clear that if a data redistributor accompanies displays of real-time unconsolidated prices and quotes with delayed consolidated volume, it is subject to the new requirement. asabaliauskas on DSK5VPTVN1PROD with NOTICES III. Discussion After careful review, the Commission finds that the proposed Amendment to the Plan is consistent with the requirements of the Act and the rules and regulations thereunder,9 and, in particular, Section 11A(a)(1) of the 8 The Approving Participants indicated that they will give notice of the compliance fee to all data redistributors no less than 120 days prior to its implementation. See August 6 Letter. 9 The Commission has considered the proposed amendment’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 Act 10 and Rule 608 thereunder 11 in that it is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system. The proposal is consistent with Section 11A(a)(1)(C)(iii) of the Act,12 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities. These goals are furthered by the proposed changes to establish a fee that will be charged to a vendor or other data redistributor that fails to comply with the CTA Plan participants’ Consolidated Volume display statement, and related requirements. Consolidated data continues to provide a great deal of value for investors in assessing the current market for trades and the quality of the execution they receive for their trades. The Commission believes it is important for market participants to know when Consolidated Volume is displayed alongside unconsolidated prices and quotes by data redistributors. The Consolidated Volume display policy should provide greater transparency on the source of the data for users of displays that contain both consolidated and proprietary data from redistributors. Additionally, the noncompliance charge should provide incentives for data redistributors to comply with the Consolidated Volume requirement. IV. Conclusion It is therefore ordered, pursuant to Section 11A of the Act,13 and the rules thereunder, that the proposed Amendment to the CTA Plan (File No. SR–CTA–2015–02) is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–20147 Filed 8–13–15; 8:45 am] BILLING CODE 8011–01–P 10 15 U.S.C. 78k–1(a)(1). CFR 240.608. 12 15 U.S.C. 78k–1(a)(1)(C)(iii). 13 15 U.S.C. 78k–1. 14 17 CFR 200.30–3(a)(27). 11 17 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 48941 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–75655; File No. SR–FINRA– 2015–029] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions) in the Consolidated FINRA Rulebook August 10, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘SEA’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 31, 2015, 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 substantially prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt FINRA Rule 3210 (Accounts at Other BrokerDealers and Financial Institutions) in the Consolidated FINRA Rulebook, and to delete NASD Rule 3050, Incorporated NYSE Rules 407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02. The text of the proposed rule change is available on FINRA’s Web site at http://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. 1 15 2 17 E:\FR\FM\14AUN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 14AUN1 48942 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change asabaliauskas on DSK5VPTVN1PROD with NOTICES 1. Purpose As part of the process of developing a new consolidated rulebook (‘‘Consolidated FINRA Rulebook’’),3 FINRA is proposing to adopt a new, consolidated rule addressing accounts opened or established by associated persons of members at firms other than the firm with which they are associated. FINRA proposes to adopt FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial Institutions) in the Consolidated FINRA Rulebook and to delete NASD Rule 3050, Incorporated NYSE Rules 407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02.4 Sound supervisory practices require that a member firm monitor personal accounts opened or established outside of the firm by its associated persons. Proposed FINRA Rule 3210 combines and streamlines longstanding provisions of the NASD and NYSE rules that address this area and would, in combination with FINRA’s new FINRA Rule 3110(d) governing securities transactions review and investigation,5 help facilitate effective oversight of the specified trading activities of associated 3 The current FINRA rulebook consists of: (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the ‘‘Transitional Rulebook’’). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (‘‘Dual Members’’). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see Information Notice, March 12, 2008 (Rulebook Consolidation Process). 4 For convenience, the Incorporated NYSE Rules are referred to as the ‘‘NYSE Rules.’’ 5 New FINRA Rule 3110(d) (Transaction Review and Investigation) sets forth requirements for supervisory procedures for members to comply with the Insider Trading and Securities Fraud Enforcement Act of 1988 (‘‘ITSFEA’’) (Pub. L. 100– 704, 102 Stat. 4677). The Commission has approved FINRA Rule 3110(d) as part of FINRA’s new consolidated supervision rules, which became effective on December 1, 2014. See Securities Exchange Act Release No. 71179 (December 23, 2013), 78 FR 79542 (December 30, 2013) (Order Granting Approval of Proposed Rule Change; File No. SR–FINRA–2013–025) (‘‘Supervisory Rules Filing’’); see also Regulatory Notice 14–10 (March 2014) (Consolidated Supervision Rules). Paragraph (d)(1) of the rule requires that a member’s supervisory procedures must include a process for the review of securities transactions that is reasonably designed to identify trades that may violate the provisions of the Act, its regulations, or FINRA rules prohibiting insider trading and manipulative and deceptive devices that are effected for the accounts specified under paragraphs (d)(1)(A) through (d)(1)(D) of the rule. VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 persons of member firms. FINRA sought comment on the proposal in a Regulatory Notice (the ‘‘Notice’’).6 FINRA has revised the proposed rule as published in the Notice in response to comments.7 (A) Background: NASD Rule 3050 and NYSE Rules 407 and 407A NASD Rule 3050 and NYSE Rules 407 and 407A are longstanding rules that address specified accounts opened or established by associated persons of members at firms other than the firm with which they are associated. NASD Rule 3050 (designated in its original form as Section 28 of the Rules of Fair Practice) was adopted to address this issue by providing a means by which members would be informed of the extent and nature of transactions effected by their employees or other associated persons,8 so that members, in their own interest and in the interest of their customers, might weigh the effect, if any, of such transactions handled outside their firms.9 The rule imposes specified obligations on member firms and associated persons.10 In short: • Obligations of Member Firms: NASD Rule 3050(a) requires that a member (called an ‘‘executing member’’) who knowingly executes a transaction for the purchase or sale of a security for the account of a person associated with another member (called an ‘‘employer member’’), or for any account over which the associated person has discretionary authority, must use reasonable diligence to determine that the execution of the transaction will not adversely affect the interests of the employer member. NASD Rule 3050(b) requires that, where an executing member knows that a person associated with an employer member has or will 6 See Regulatory Notice 09–22 (April 2009) (Personal Securities Transactions). 7 Comments are discussed in Item II.C of this filing. As discussed further in Item II.C, commenters expressed concern that Rule 3210, as proposed in the Notice, would be burdensome or difficult to implement and that the rule should, informed by the approach of current NASD Rule 3050, be revised to permit firms flexibility to craft appropriate supervisory policies and procedures taking into account their business models and the risk profiles of their activities. 8 The terms ‘‘person associated with a member’’ and ‘‘associated person of a member’’ include, among others, registered representatives. See paragraph (rr) of Article I of the FINRA By-Laws. 9 See Securities Exchange Act Release No. 4924 (August 21, 1953). 10 FINRA historically has noted that the purpose of the rule (originally designated Article III, Section 28 of the Rules of Fair Practice) is to ‘‘help member firms discharge their supervisory responsibility over the securities activities conducted in their associated persons’ personal securities accounts.’’ Securities Exchange Act Release No. 23754 (October 28, 1986), 51 FR 40546 (November 7, 1986) (Proposed Rule Change; File No. SR–NASD–86–29). PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 have a financial interest in, or discretionary authority over, any existing or proposed account carried by the executing member, the executing member must: (1) Notify the employer member in writing, prior to the execution of a transaction for the account, of the executing member’s intention to open or maintain that account; (2) Upon written request by the employer member, transmit duplicate copies of confirmations, statements, or other information with respect to the account; and (3) Notify the person associated with the employer member of the executing member’s intention to provide the notice and information required by (1) and (2). • Obligations of Associated Persons: NASD Rules 3050(c) and Rule 3050(d), in combination, address associated persons, whether they open securities accounts or place securities orders through a member firm other than their employer or whether they do so through other types of financial services firms that are not FINRA members.11 Specifically: (1) NASD Rule 3050(c) requires that a person associated with a member, prior to opening an account or placing an initial order for the purchase or sale of securities with another member, must notify both the employer member and the executing member, in writing, of his or her association with the other member. The rule provides that if the account was established prior to the person’s association with the employer member, the person must notify both members in writing promptly after becoming associated; (2) NASD Rule 3050(d) provides that if the associated person opens a securities account or places an order for the purchase or sale of securities with a broker-dealer that is registered pursuant to SEA Section 15(b)(11) (a notice-registered broker-dealer), a domestic or foreign investment adviser, bank, or other financial institution (that is, firms that are not FINRA members), then he or she must: (i) Notify his or her employer member in writing, prior to the execution of any initial transactions, of the intention to open the account or place the order; and (ii) upon written request by the employer member, request in writing and assure that the notice-registered broker-dealer, investment adviser, bank, or other financial institution provides the 11 NASD Rule 3050(e) provides that Rules 3050(c) and (d) apply only to accounts or orders in which an associated person has a financial interest or with respect to which the associated person has discretionary authority. E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES employer member with duplicate copies of confirmations, statements, or other information concerning the account or order. NASD Rule 3050(d) provides that if an account subject to Rule 3050(d) was established prior to the person’s association with the member, the person must comply with the rule promptly after becoming associated; (3) NASD Rule 3050(f) provides that the requirements of Rule 3050 do not apply to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, or to accounts which are limited to transactions in such securities. NYSE Rule 407, similar in purpose to FINRA Rule 3050, addresses transactions by and for employees of member firms 12 as follows: • NYSE Rule 407(a) is similar to NASD Rule 3050(b), except that Rule 407(a) imposes a requirement to obtain the prior written consent of the employer member.13 Specifically, the rule requires that no member or member organization may, without the prior written consent of the employer, open a securities or commodities account or execute any transaction in which a member or employee associated with another member or member organization is directly or indirectly interested. The rule requires that duplicate confirmations and account statements be sent promptly to the employer. • NYSE Rule 407(b) is similar to NASD Rules 3050(c) and (d), except that, like NYSE Rule 407(a), it also sets forth a prior written consent requirement. The rule requires that no member associated with a member or member organization may establish or maintain any securities or commodities account 14 or enter into any securities transaction with respect to which such person has any financial interest or the power, directly or indirectly, to make 12 See note 10 supra. The NYSE noted that Rule 407 imposes obligations as to specified personal accounts of employees and associated persons and that one of the rule’s purposes, among other things, is to help deter and detect violations of applicable federal securities laws and regulations. See NYSE Information Memo 09–50 (October 30, 2009) (Supervision of Trading in Proprietary, Employee and Employee-Related Securities and Commodities Accounts). 13 The term ‘‘employer member’’ is defined within the context of the NASD rule, not the NYSE rule. For purposes of discussing NYSE Rule 407, in this filing the term ‘‘employer member’’ is used interchangeably with ‘‘employer’’ for convenience. 14 NYSE Rule 407.11 states that the term ‘‘securities or commodities accounts’’ as used in Rule 407(b) includes, but is not limited to, limited or general partnership interests in investment partnerships. VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 investment decisions, at another member or member organization, or a domestic or foreign non-member brokerdealer, investment adviser, bank, other financial institution,15 or otherwise without the prior written consent of another person designated by the member or member organization to sign such consents and review such accounts. The rule requires that persons having accounts or effecting transactions as covered by the rule must arrange for duplicate confirmations and statements (or their equivalents) to be sent to a person designated by the member or member organization to review such accounts and transactions. The rule further requires that all such accounts and transactions must periodically be reviewed by the member or member organization employer.16 • NYSE Rule 407.12 provides that the rule’s requirement to send duplicate confirmations and statements does not apply to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, or to accounts which are limited to transactions in such securities, or to Monthly Investment Plan type accounts, unless the employer member requests receipt of duplicate confirmations and statements of such accounts. As such, the provision is similar to the corresponding provisions under NASD Rule 3050(f), except that Rule 3050(f) wholly excepts the specified transactions and accounts from the scope of Rule 3050. In addition, NYSE Rule 407A (Disclosure of All Member Accounts) requires members (i.e., natural persons approved by the New York Stock Exchange (the ‘‘Exchange’’) and designated by a member organization to effect transactions on the floor of the Exchange or any facility thereof) to promptly report to the Exchange any securities account, including an error account, in which the member has, directly or indirectly, any financial interest or the power to make investment decisions. Such accounts include any account at a member or non-member broker-dealer, investment adviser, bank or other financial 15 NYSE Rule 407.13 states that, for purposes of the rule, the term ‘‘other financial institution’’ includes, but is not limited to, insurance companies, trust companies, credit unions and investment companies. 16 NYSE Rule 407.11 requires that members and member organizations must develop and maintain written procedures for reviewing such accounts and transactions and must assure that their associated persons are not improperly recommending or marketing such securities or products to others through members or member organizations. PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 48943 institution. NYSE Rule 407A also requires a member having such an account to notify the financial institution that carries or services the account that it is a NYSE member. In addition, the rule requires that members report to the Exchange when any such securities account is closed. NYSE Rule 407A was adopted in 2001 as part of a series of initiatives designed to strengthen the regulation of activities of NYSE floor brokers.17 This rule expands the obligations placed upon members under Rule 407 by requiring disclosure to the Exchange. These reporting requirements were designed to provide the NYSE with current information about where floor members carry securities accounts and to enhance its ability to investigate quickly the trading of securities by such members. NYSE Rule Interpretation 407/01 addresses the process for determining whether the account of a spouse of an associated person should be subject to NYSE Rule 407. NYSE Rule Interpretation 407/02 provides that NYSE Rule 407(b) applies when an associated person is also a majority stockholder of a non-public corporation that wishes to open a discretionary margin account at another member. (B) Proposed FINRA Rule 3210 Proposed FINRA Rule 3210, consistent with the longstanding purposes of NASD Rule 3050 and NYSE Rule 407,18 is designed to enable members to monitor the personal accounts of their associated persons opened or established outside of the member firm. The new rule, in combination with new FINRA Rule 3110, takes the approach that a member is responsible for supervising its associated persons’ trading activities.19 17 The Commission noted that these initiatives would aid the NYSE in fulfilling some of the undertakings included in the NYSE’s 1999 settlement with the SEC regarding failure to enforce compliance with SEA Section 11(a) and SEA Rule 11a–1 and NYSE Rules 90, 95 and 111 with respect to activity of floor brokers. As noted by the Commission, broadly, those provisions were aimed at preventing NYSE floor broker members from exploiting their advantageous position on the NYSE floor for personal gain to the detriment of the investing public. See In the Matter of New York Stock Exchange, Inc., Securities Exchange Act Release No. 41574 (June 29, 1999), Administrative Proceeding File No. 3–9925; Securities Exchange Act Release No. 42381 (February 3, 2000), 65 FR 6673 (February 10, 2000) (Notice of Filing of Proposed Rule Change; File No. SR–NYSE–99–25); Securities Exchange Act Release No. 44769 (September 6, 2001), 66 FR 47710 (September 13, 2001) (Order Granting Approval to Proposed Rule Change; File No. SR–NYSE–99–25). 18 See note 10 and note 12 supra. 19 See Supervisory Rules Filing and note 5 supra. In this connection, as discussed further in Item E:\FR\FM\14AUN1.SGM Continued 14AUN1 48944 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES The rule begins by setting forth a requirement that an associated person must obtain the prior written consent of his or her employer when opening a specified account at another member or other financial institution. Specifically, proposed FINRA Rule 3210(a) provides that no person associated with a member (‘‘employer member’’) shall, without the prior written consent of the member, open or otherwise establish at a member other than the employer member (‘‘executing member’’), or at any other financial institution,20 any account in which securities transactions can be effected 21 and in which the associated person has a beneficial interest.22 Proposed FINRA Rule 3210.02 provides that, for purposes of the rule, the associated person shall be deemed to have a beneficial interest in any account that is held by: (a) The spouse of the associated person; (b) a child of the associated person or of the associated person’s spouse, provided that the child resides in the same household as or is financially dependent upon the associated person; II.A.1(C) below, FINRA is deleting the provision under NASD Rule 3050(a) as to the obligation of the executing member to use reasonable diligence with respect to the specified transactions. 20 Based on NYSE Rule 407.13 and NASD Rule 3050(d), proposed FINRA Rule 3210.05 provides that, for the purposes of the rule, the terms ‘‘other financial institution’’ and ‘‘financial institution other than a member’’ include, but are not limited to, any broker-dealer that is registered pursuant to SEA Section 15(b)(11), domestic or foreign nonmember broker-dealer, investment adviser, bank, insurance company, trust company, credit union and investment company. 21 In the interest of helping facilitate supervision of securities transactions under new FINRA Rule 3110(d)(1), FINRA is specifying ‘‘any account in which securities transactions can be effected’’ so as to be clear that the proposed rule’s scope includes any account, regardless of type, where securities transactions can take place as specified under the rule. 22 As proposed in the Notice, the rule would have specified accounts in which the associated person has a ‘‘personal financial interest.’’ Commenters suggested that this language was unclear. See Item II.C.2 of this filing. FINRA is proposing the term ‘‘beneficial interest’’ because that term is an established and well-understood standard. See, e.g., FINRA Rule 5130(i)(1), which defines ‘‘beneficial interest’’ to mean, in part, any economic interest, such as the right to share in gains or losses. FINRA believes that the proposed term is consistent with the purpose of NYSE Rule 407, which in part addresses transactions in which the associated person is ‘‘directly or indirectly interested’’ (NYSE Rule 407(a)) or with respect to which the associated person ‘‘has any financial interest’’ (NYSE Rule 407(b)) and with NASD Rules 3050(b) through (d), which in part address accounts or transactions in which the associated person has a ‘‘financial interest.’’ Further, the proposed term would align the rule with ‘‘beneficial interest’’ as specified under new FINRA Rule 3110(d)(1)(B), which, for purposes of the transaction review and investigation provisions set forth under new FINRA Rule 3110(d)(1), specifies in part accounts ‘‘in which a person associated with the member has a beneficial interest.’’ See note 5 supra. VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 (c) any other related individual over whose account the associated person has control; or (d) any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes.23 The types of accounts specified pursuant to proposed FINRA Rule 3210.02 are designed to align with ‘‘covered accounts’’ as defined pursuant to new FINRA Rule 3110(d)(4)(A) for purposes of the transaction review and investigation provisions pursuant to Rule 3110(d)(1).24 Further, FINRA believes the proposed language is consistent with the broad approach of NASD Rule 3050 and NYSE Rule 407 as historically understood to facilitate the monitoring of associated persons’ personal and related accounts.25 FINRA notes that the proposed new language eliminates the language in the current rules that references accounts or transactions where the associated person has ‘‘the power, directly or indirectly, to make investment decisions,’’ as set forth in NYSE Rule 407(b), and accounts where the associated person has ‘‘discretionary authority,’’ as set forth in NASD Rule 3050(b).26 23 Some commenters expressed concerns as to addressing spouse accounts in the proposed rule. FINRA notes that spouse accounts have long been addressed under NYSE Rule Interpretation 407/01. See Item II.C.2 of this filing. 24 See note 5 supra. 25 For example, with respect to the approach of the current rules, as noted earlier, NYSE Rule Interpretation 407/01 addresses spouse accounts. In the context of amendments to NASD Rule 3050 (then designated Article III, Section 28 of the Rules of Fair Practice) adopted in 1983 that extended the rule to include accounts over which the associated person exercises discretion, FINRA noted its intent to enable the rule’s scope to reach accounts of relatives of associated persons where the associated person places the orders. See Securities Exchange Act Release No. 19347 (December 16, 1982), 47 FR 58416 (December 30, 1982) (Proposed Rule Change; File No. SR–NASD–82–25); Securities Exchange Act Release No. 19550 (February 28, 1983), 48 FR 9413 (March 4, 1983) (Order Approving Proposed Rule Change; File No. SR–NASD–82–25). FINRA believes that because the proposed rule specifies, in language that aligns with new FINRA Rule 3110(d)(4)(A), the types of personal relationships that would be within the scope of ‘‘beneficial interest,’’ the rule’s precise parameters should be more clear. 26 FINRA believes that this will serve to more clearly demarcate the respective scope of the new ` rule vis-a-vis current NASD Rule 3040, which addresses the obligations of associated persons and members in connection with private securities transactions. NASD Rule 3040(e)(1) defines private securities transactions to include, in part, ‘‘any securities transaction outside the regular course or scope of an associated person’s employment with a member’’ and excludes from the rule’s specified notification requirements, among other things, transactions subject to the notification requirements of NASD Rule 3050. FINRA believes that, to the extent associated persons make investment decisions or have discretionary authority in contexts that involve private securities transactions PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 Similar to the current rules, the new rule places notification obligations on associated persons with respect to the executing member or other financial institution. Specifically, proposed FINRA Rule 3210(b) is based in large part on NASD Rules 3050(c) and 3050(d) and provides that any associated person, prior to opening or otherwise establishing an account subject to the rule, must notify in writing the executing member, or other financial institution, of his or her association with the employer member. Also similar to the current rules, the new rule specifies obligations for executing members. Specifically, proposed FINRA Rule 3210(c) is based in large part on NASD Rule 3050(b)(2) and provides that an executing member must, upon written request by the employer member, transmit duplicate copies of confirmations and statements, or the transactional data contained therein, with respect to an account subject to the rule.27 Similar to current provisions in NASD Rules 3050(c) and 3050(d), the proposed rule makes allowance for accounts opened by an associated person prior to his or her association with the employer member. Specifically, proposed FINRA Rule 3210.01 provides that, if the account was opened or otherwise established prior to the person’s association with the employer member, the associated person, within 30 calendar days of becoming so associated, must obtain the written consent of the employer member to maintain the account and must notify in writing the executing member or other financial institution of his or her within the scope of NASD Rule 3040, as opposed to accounts in which they have a beneficial interest as specified by the new rule, such transactions are properly addressed by the requirements set forth in Rule 3040 and other FINRA rules as applicable. FINRA believes that this approach is consistent, as noted earlier, with the historical approach of NASD Rule 3050 and NYSE Rule 407 that is intended to facilitate monitoring of associated persons’ personal and related accounts. 27 As published in the Notice, the proposed rule would have required the employer member to instruct the associated person to have the executing member provide the specified duplicate account statements and confirmations to the employer member. As discussed further in Item II.C.1 of this filing, commenters expressed concern that the rule as proposed in the Notice would burden members with collecting the specified information without regard to whether such collection is warranted by the member’s business model and risk profile. In response to commenter suggestion, FINRA has revised the proposed rule so that the specified information is provided upon written request by the employer member, which is consistent with the approach of current NASD Rule 3050 and which FINRA believes permits members flexibility to craft appropriate supervisory policies and procedures according to their business model and the risk profile of their activities. E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES association with the employer member.28 Similar to the current rules, the new rule makes allowance for specified information that executing members need not transmit to employer members. Specifically, proposed FINRA Rule 3210.03 is based in large part on NYSE Rule 407.12 and NASD Rule 3050(f) and provides that the requirement (pursuant to paragraph (c) of Rule 3210) that the executing member provide the employer member, upon the employer member’s written request, with duplicate account confirmations and statements, or the transactional data contained therein, shall not be applicable to transactions in unit investment trusts, municipal fund securities as defined under MSRB Rule D–12,29 qualified tuition programs pursuant to Section 529 of the Internal Revenue Code and variable contracts or redeemable securities of companies registered under the Investment Company Act, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts.30 Proposed FINRA Rule 3210.04 is new and provides that, with respect to an account subject to the rule at a financial institution other than a member, the employer member must consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements, or the transactional data contained therein, directly from the non-member financial institution in determining whether to provide its written consent to an 28 As published in the Notice, the proposed rule would have specified 15 business days. In response to comment, the proposed rule as revised specifies 30 calendar days so as to reduce burdens on member firms and their associated persons. See Item II.C.3 of this filing. 29 MSRB Rule D–12 defines municipal fund security to mean ‘‘a municipal security issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, would constitute an investment company within the meaning of Section 3 of the Investment Company Act of 1940.’’ 30 The approach to the referenced types of transactions reflects a longstanding intention under the NASD and NYSE rule that members not be burdened with information collection for transactions that pose limited risk from the standpoint of the rule’s supervisory purposes. See, e.g., Securities Exchange Act Release No. 19347 (December 16, 1982), 47 FR 58416 (December 30, 1982) (Proposed Rule Change; File No. SR–NASD– 82–25). As discussed further in Item II.C.5 of this filing, the proposed requirement is largely as published in the Notice. In response to commenter suggestion, FINRA has added municipal fund securities as defined under MSRB Rule D–12 and Section 529 plans to the transactions set forth under the rule. FINRA is adding these transactions because FINRA believes these types of products are reasonably classed with the types of transactions specified under the current rule in posing limited risk from the standpoint of the rule’s supervisory purposes. VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 associated person to open or maintain such account.31 FINRA believes that the proposed requirement serves a valid regulatory purpose in view of the employer member’s responsibility for supervising its associated persons’ trading activities. (C) Deleted Requirements Proposed FINRA Rule 3210 deletes a number of requirements in NASD Rule 3050 and NYSE Rule 407 that are rendered outdated by the new rule or are otherwise addressed elsewhere by FINRA rules. • The proposed rule eliminates NASD Rule 3050(a)’s requirement that the executing member use reasonable diligence to determine that the execution of the transaction will not ‘‘adversely affect the interests of the employer member.’’ FINRA proposes to delete this requirement because FINRA believes that it is appropriate for the new rule, in combination with new FINRA Rule 3110,32 to take the approach that the employer member is responsible for supervising its associated persons’ trading activities.33 • FINRA proposes to delete the account review requirements set forth in NYSE Rule 407(b) and the requirements for written procedures set forth in NYSE Rule 407.11 because these issues are addressed by the proposed rule in combination with FINRA’s new supervisory rules, in particular new FINRA Rule 3110(d), which sets forth the new supervisory framework for securities transactions review and investigation.34 • As noted earlier, NYSE Rule 407A was intended to address activities of NYSE floor brokers. FINRA proposes to delete NYSE Rule 407A in its entirety from the Transitional Rulebook because proposed FINRA Rule 3210 requires disclosure at the member firm level of the same types of information that Rule 407A requires with respect to the NYSE as to floor brokers. FINRA believes it is more appropriate to require member firms to obtain the required information 31 As published in the Notice, the proposed rule would have required the associated person to provide an instruction to the non-member financial institution to provide the specified information to the employer member. As discussed further in Item II.C.1 of this filing, FINRA believes that the requirement as revised permits members flexibility to craft appropriate supervisory policies and procedures in determining whether to provide written consent as to the specified accounts at nonmember financial institutions. 32 See Supervisory Rules Filing. 33 FINRA notes that, notwithstanding this approach, the rule retains the longstanding duty of the executing member to assist the employer member by providing the specified information upon request. 34 See note 5 supra and Supervisory Rules Filing. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 48945 and to supervise the accounts of their associated persons for improper trading, rather than requiring that such information be sent directly to FINRA. Moreover, as noted above, these reporting requirements were designed to provide the NYSE with current information about where floor members carry securities accounts and to enhance its ability to investigate quickly the trading of securities by such members. • FINRA proposes to delete NYSE Rule Interpretation 407/01 because it would be superseded by proposed FINRA Rule 3210.02, which as noted earlier expressly provides, among other things, that an associated person is deemed to have a beneficial interest in any account that is held by the spouse of the associated person. • FINRA proposes to delete NYSE Rule Interpretation 407/02 because it is rendered redundant by new FINRA Rule 3210(a), the scope of which by its terms reaches accounts as specified by the rule in which the associated person has a beneficial interest. • FINRA proposes to delete language referring to accounts or transactions where the associated person has ‘‘the power, directly or indirectly, to make investment decisions,’’ as set forth in NYSE Rule 407(b), and accounts where the associated person has ‘‘discretionary authority,’’ as set forth in NASD Rule 3050(b). As discussed above, FINRA believes that, to the extent associated persons make investment decisions or have discretionary authority in contexts that involve private securities transactions within the scope of NASD Rule 3040, as opposed to accounts in which they have a beneficial interest, such transactions are properly addressed by the requirements set forth in Rule 3040 and other FINRA rules as applicable.35 If the Commission approves the proposed rule change, FINRA will announce the implementation date of the proposed rule change in a Regulatory Notice to be published no later than 90 days following Commission approval. The implementation date will be no later than 365 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,36 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and 35 See 36 15 E:\FR\FM\14AUN1.SGM note 26 supra. U.S.C. 78o–3(b)(6). 14AUN1 48946 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes that the proposed rule change will further the purposes of the Act because, as part of the FINRA rulebook consolidation process, the proposed rule change will help to protect investors and the public interest by streamlining and reorganizing existing rules that promote effective oversight of accounts opened or established by associated persons of members at firms other than the firm with which they are associated. By setting forth the requirements pursuant to which associated persons will seek the prior written consent of the employer member to open or otherwise establish accounts as specified under the rule, and pursuant to which the specified information will be transmitted to the employer member upon the employer member’s request, the proposed rule will facilitate the supervision of the trading activities of associated persons within the framework of FINRA’s new supervisory rules as approved by the Commission. The proposed rule will also help members ensure that such activities, engaged in at executing members or other financial institutions, do not violate provisions of the Act, its regulations, or FINRA rules, thereby helping to ensure orderly markets. 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. Commenters expressed concern that the proposed rule change, as originally published in Regulatory Notice 09–22, would have been burdensome to implement and would have resulted in employer members being required to request information from executing members and non-member financial institutions bearing little or no relationship to the scope and nature of the employer member’s activities. In response to commenter suggestion, FINRA revised the proposed rule so as to permit members discretion, consistent with their supervisory obligations under new FINRA Rule 3110(d), to request the specified information of executing members and non-member financial institutions, thereby permitting members reasonable flexibility to craft appropriate supervisory policies and procedures according to their business model and the risk profile of their activities. The proposed rule change as revised is thereby consistent with the approach of current NASD Rule 3050, VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 which commenter suggestion supported. FINRA believes that because the proposed rule change, as revised, is consistent with current requirements and longstanding practice, it will not impose additional burdens on members. The proposed rule change permits members to implement supervisory procedures that align with their business models, without diminishing members’ supervisory obligations with respect to the activities of their associated persons. FINRA believes that this proposed approach imposes less cost on members without reducing investor protections. In addition, the proposed rule change deletes a number of requirements in NASD Rule 3050 and NYSE Rule 407 that are rendered outdated by the proposed new rule or are otherwise addressed elsewhere by other FINRA rules, which further minimizes the potential compliance burden on members in light of the objectives of the proposed rule change. FINRA recognizes that providing such flexibility to members may require increased monitoring of members’ compliance with this rule as part of FINRA’s examination program. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The proposed rule change was published for comment in Regulatory Notice 09–22 (April 2009). A copy of the Notice is attached as Exhibit 2a. Thirtythree commenters responded to the Notice, and a list of the commenters is attached as Exhibit 2b.37 Copies of the comment letters received in response to the Notice are attached as Exhibit 2c. 1. Core Proposed Rule Requirements: Obligation To Provide Duplicate Account Statements and Confirmations As published in the Notice, proposed FINRA Rule 3210(a) in part would have required an employer member, as a condition to giving prior written consent for opening or establishing an account pursuant to the rule, to instruct the associated person to have the executing member provide duplicate account statements and confirmations to the employer member. Paragraph (b) set forth requirements pertaining to the associated person’s obligation to notify the executing member or other financial institution in writing of his or her association with the employer member. Paragraph (c) of the rule would have provided in part that the executing member must promptly obtain and 37 All references to commenters under this Item are to the commenters as listed in Exhibit 2b. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 implement an instruction from the associated person directing that duplicate account statements and confirmations be provided to the employer member. (With respect to accounts opened at a financial institution other than a member, proposed FINRA Rule 3210.02 as published in the Notice would have required the associated person to provide the instruction to the financial institution.) Commenters generally expressed concern that, as published in the Notice, the requirements of proposed Rules 3210(a), (b) and (c) and 3210.02, singly or in combination, are unnecessary for regulatory purposes, are burdensome or difficult for firms to implement, or the rule should be designed to permit members the discretion to determine whether, based on their business model and the risk profile of their activities, they need to require duplicate account statements and confirmations to carry out their supervisory responsibilities.38 Some of these commenters suggested that involving the associated person in the process of requesting the required ` data vis-a-vis the executing member creates supervisory risks.39 A number suggested that it is better practice and more efficient to have the employer member obtain the required data directly from the executing member or non-member institution.40 A few of the commenters raised concerns about potential difficulties in obtaining the required information from non-members (including foreign non-members).41 Many questioned the supervisory and regulatory value of requiring firms to collect data pertaining to associated person accounts and transactions bearing little or no relationship to the scope and nature of their firms’ activities.42 Some suggested that current NASD Rule 3050 generally permits members to exercise such discretion and that retaining the approach of the NASD rule would be conducive to more efficient use of regulatory or supervisory resources.43 In response, FINRA agrees that the proposal as published in the Notice raises issues with respect to the efficient use and conservation of regulatory and 38 ACLI, CAI, Channel Capital, Charles Schwab, Farmers Financial, FSI, GWFS, Hillard, IBSI, ICI, MWA, NAIBD, National Planning, NMIS, NSCP, PFSI, PSI, Quasar, SIFMA, State Farm, SunTrust, Sykes, UBS, WFA and Witthaut. 39 National Planning, PSI, SIFMA and UBS. 40 Charles Schwab, FSI, NMIS, SIFMA and UBS. 41 Charles Schwab, SIFMA and UBS. 42 ACLI, CAI, Farmers Financial, GWFS, Hillard, ICI, MWA, National Planning, Quasar, State Farm, SunTrust, Sykes and Witthaut. 43 CAI, Charles Schwab, Farmers Financial, FSI, National Planning, PFSI and SunTrust. E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices supervisory resources, as well as to implementation. FINRA has revised proposed FINRA Rule 3210, consistent with NASD Rule 3050, to provide that an executing member must, upon written request by an employer member, transmit the duplicate copies of confirmations and statements, or the transactional data contained therein.44 With respect to accounts at a financial institution other than a member, FINRA has revised the rule to provide that the employer member must consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements, or the transactional data contained therein, directly from the institution in determining whether to provide its written consent to an associated person to open or maintain an account subject to the rule.45 FINRA believes that this approach, based in large part on the longstanding approach of NASD Rule 3050, should provide members reasonable flexibility to craft appropriate supervisory policies and procedures according to their business model and the risk profile of their activities. FINRA reminds members that, in permitting such flexibility, the rule in no way lessens members’ supervisory obligations under FINRA rules with respect to the activities of their associated persons.46 asabaliauskas on DSK5VPTVN1PROD with NOTICES 2. Personal Financial Interest of the Associated Person As published in the Notice, the accounts covered by proposed FINRA Rule 3210 would have reached in part those in which the associated person has a ‘‘personal financial interest.’’ The Notice stated that ‘‘personal financial interest’’ would as a general matter extend to a spouse’s account. Commenters expressed concern as to the scope and meaning of the term ‘‘personal financial interest’’ and requested that FINRA further define the term, limit its scope, or otherwise provide more specific guidance.47 Several commenters suggested generally that it would be more effective for the rule to speak to accounts with respect to which the associated person exercises control or authority, rather than having a ‘‘personal financial interest.’’ 48 In response, FINRA is proposing a standard that is consistent with the purpose of NASD Rule 3050 and NYSE 44 See proposed FINRA Rule 3210(c). proposed FINRA Rule 3210.04. 46 See note 5 supra and Supervisory Rules Filing. 47 CAI, Charles Schwab, Farmers Financial, IBSI, ICI, NAIBD, NMIS, NPB, NSCP and SIFMA. 48 Charles Schwab, Farmers Financial, FSI, NMIS and SIFMA. 45 See VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 Rule 407 49 while also aligning more clearly with new FINRA Rule 3110(d). Specifically, FINRA has revised the proposed rule to extend to specified accounts in which the associated person has a beneficial interest. As discussed earlier, FINRA believes the term ‘‘beneficial interest’’ is appropriate because that term is an established and well-understood standard 50 and is consistent with the terms ‘‘directly or indirectly interested,’’ as used in NYSE Rule 407(a), ‘‘has any financial interest,’’ as used in NYSE Rule 407(b), and accounts or transactions in which the associated person has a ‘‘financial interest,’’ as applicable under NASD Rules 3050(b) through (d). Further, the proposed term would align the rule with ‘‘beneficial interest’’ as specified under new FINRA Rule 3110(d)(1)(B), which, for purposes of the transaction review and investigation provisions set forth under new FINRA Rule 3110(d)(1), specifies in part accounts ‘‘in which a person associated with the member has a beneficial interest.’’ 51 In addition, FINRA is proposing, as Supplementary Material .02 to the rule, to provide that the associated person shall be deemed to have a beneficial interest in any account that is held by: (a) The spouse of the associated person; (b) a child of the associated person or of the associated person’s spouse, provided that the child resides in the same household as or is financially dependent upon the associated person; (c) any other related individual over whose account the associated person has control; or (d) any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes. As noted earlier, this proposed language is designed to align with ‘‘covered accounts’’ as defined pursuant to new FINRA Rule 3110(d)(4)(A) for purposes of the transaction review and investigation provisions pursuant to Rule 3110(d)(1).52 49 See note 10 and note 12 supra. Rule 5130(i)(1) defines ‘‘beneficial interest’’ to mean, in part, any economic interest, such as the right to share in gains or losses. See note 22 supra. 51 See note 5 supra. 52 See proposed FINRA Rule 3210.02. Some commenters questioned whether it is legally viable for the proposed rule to reach spouse accounts. See Charles Schwab and NPB. In response, FINRA notes that spouse accounts have long been addressed under NYSE Rule Interpretation 407/01. Further, FINRA notes that the rule addresses such accounts as a supervisory matter under FINRA rules for purposes of investor protection and market integrity. See also note 5 supra and new FINRA Rule 3110(d). 50 FINRA PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 48947 3. Accounts Opened Prior to Association With the Employer Member As published in the Notice, proposed FINRA Rule 3210.01 would have required that if the associated person’s account was opened or otherwise established prior to his or her association with the employer member, the associated person would be required to obtain the employer member’s written consent to maintain the account within 15 business days of becoming so associated. Commenters suggested that the 15-business-day requirement is too short or restrictive and that the rule should require ‘‘prompt’’ notification by the associated person, as under current NASD Rule 3050, or permit a longer specified period.53 One commenter believed that the rule should not cover previously opened accounts at all.54 In response, FINRA notes that it serves a valid regulatory purpose that the proposed rule should extend to accounts opened prior to the associated person’s association with the employer member, given that the associated person would have the ability to effect transactions in such accounts. FINRA believes that it is reasonable, from the standpoint of reducing burdens on member firms and their associated persons, to permit a longer amount of time for notification with respect to already-opened accounts and has accordingly revised the rule to permit 30 calendar days.55 4. Revocation of Consent To Maintain the Account As published in the Notice, proposed FINRA Rule 3210.04 would have created a new requirement providing that if the employer member does not receive the associated person’s duplicate statements and confirmations in a timely manner, the employer member would be required to revoke its consent to maintaining the account and would be required to so notify the executing member or other financial institution in writing. The rule would have required the employer member to promptly obtain records from the executing member that the account was closed. Commenters generally expressed concern that the proposed requirement is burdensome, poses various difficulties as to implementation, or that FINRA should provide guidance as to how accounts should be closed 53 ACLI, CAI, Charles Schwab, FSI, National Planning, NMIS, NSCP, SIFMA and WFA. 54 Fischer. 55 See proposed FINRA Rule 3210.01. E:\FR\FM\14AUN1.SGM 14AUN1 48948 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices pursuant to the rule.56 In response, FINRA has reconsidered the proposed requirement and agrees that it is not necessary, from the standpoint of the rule’s regulatory purpose, to prescribe how employer members should respond to the delayed receipt, or non-receipt, of duplicate copies of confirmations, statements or the transactional data contained therein. First, FINRA believes that if an employer member determines, pursuant to the rule, to request such information and does not receive it in a timely fashion, then as a matter of sound supervisory practice the employer member should have in place policies and procedures to address the issue.57 Second, FINRA notes that the proposed rule as revised requires executing members, upon written request by an employer member, to transmit the duplicate copies of confirmations and statements, or the transactional data contained therein.58 Finally, FINRA takes note that many commenters requested that FINRA Rule 3210 be designed to permit firms flexibility based upon their business model and the risk profile of their activities.59 As such, FINRA believes it is appropriate that employer members determine for themselves what would constitute timely receipt of the information required pursuant to the rule, provided such determination is reasonable within the context of their overall supervisory obligations. Accordingly, FINRA has deleted the requirement from the proposed rule as revised. asabaliauskas on DSK5VPTVN1PROD with NOTICES 5. Transactions and Accounts Not Subject to Transmission Requirement As published in the Notice, proposed FINRA Rule 3210.03 would have provided that the requirement to provide to the employer member duplicate account statements and confirmations is not applicable to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act, as amended, or to accounts that are limited to transactions in such securities, or to 56 CAI, Charles Schwab, FSI, ICI, J.A. Glynn, National Planning, NSCP, Pagemill, SIFMA, UBS and WFA. 57 FINRA notes that, with respect to accounts at non-member financial institutions, the proposed rule as revised provides that the employer must consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements, or the transactional data contained therein, directly from the nonmember financial institution in determining whether to provide its written consent to an associated person to open or maintain such an account. 58 See proposed FINRA Rule 3210(c). 59 See, e.g., Item II.C.1 of this filing. VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 Monthly Investment Plan type accounts, unless the employer member requests receipt of such duplicate account statements and confirmations. Commenters suggested that, because they believe the referenced types of transactions and accounts pose little in the way of supervisory risk, they should be exempted from the proposed rule’s requirements altogether, similar to the provisions under current NASD Rule 3050(f), or that the proposed rule should expand and update types of transactions and accounts that would be exempted from the rule.60 FINRA appreciates members’ concern that the new rule should adhere closely to the current NASD requirement. However, FINRA believes that the proposed approach, similar to that reflected in NYSE Rule 407.12, serves a valid regulatory and supervisory purpose, specifically, that the associated person must obtain the employer member’s prior written consent with respect to the referenced transactions and accounts, in the manner and to the extent required by the proposed rule. Accordingly, FINRA is proposing FINRA Rule 3210.03 largely as published in the Notice. Some commenters made specific suggestions as to the types of transactions and accounts that should be excluded from the requirement that the executing member provide duplicate account confirmations and statements to the employer member upon the employer member’s written request.61 In response, FINRA has added municipal fund securities as defined under MSRB Rule D–12 and qualified Section 529 plans to the referenced types of transactions, as FINRA believes that, of the suggestions proffered, these are similar to the types of transactions specified under current NASD Rule 3050(f) and NYSE Rule 407.12 in posing limited risk from the standpoint of the rule’s supervisory purposes. Accordingly, proposed FINRA Rule 3210.03 as revised provides that the requirement (pursuant to paragraph (c) of the proposed rule) that the executing member provide the employer member, upon the employer member’s written request, with duplicate account confirmations and statements, or the transactional data contained therein, shall not be applicable to transactions in unit investment trusts, municipal fund 60 ACLI, CAI, Charles Schwab, FSI, Hillard, National Planning, NMIS, NPB, Pacific Select, SIFMA and UBS. 61 Four commenters specifically suggested qualified Section 529 plans under the Internal Revenue Code. See CAI, FSI, NMIS and SIFMA. One suggested all municipal fund securities. See FSI. One suggested in addition ETFs and registered insurance products. See CAI. PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 securities as defined under MSRB Rule D–12, qualified tuition programs pursuant to Section 529 of the Internal Revenue Code and variable contracts or redeemable securities of companies registered under the Investment Company Act, as amended, or to accounts that are limited to transactions in such securities, or to Monthly Investment Plan type accounts. 6. Information Gathering, Processes and Controls The Notice requested comment on the methodologies that members employ to obtain information pursuant to NASD Rule 3050 and NYSE Rule 407 and the processes and controls that members implement upon receipt of the required information. Commenters suggested the rule should not impose requirements as to the methodologies that members must use (e.g., receiving the information electronically versus in hard copy) or otherwise limit flexibility as to receiving and handling the information.62 One commenter suggested FINRA should encourage firms to use a consistent electronic format in transmitting the information.63 One suggested the proposed rule should state that the information can be received in electronic format.64 One requested that FINRA specify in the rule a retention period for information received pursuant to the rule.65 In response to comments, FINRA has determined not to specify in the proposed rule any particular methodology. To this end, FINRA has revised proposed FINRA Rule 3210(c) to provide for transmission of ‘‘duplicate copies of confirmations and statements, or the transactional data contained therein.’’ FINRA does not propose to specify in the rule a particular retention period because such concerns are adequately addressed elsewhere under SEA Rule 17a–4 and FINRA Rule 4511 as appropriate. 7. Implementation Period Several commenters suggested that FINRA should permit an extended period for implementation of the proposed rule once approved.66 In response, in establishing an implementation date, FINRA will take into account that firms would need to modify their compliance systems to reflect the new rule’s requirements. As stated earlier in this filing, FINRA will 62 FSI, H & L Equities, ICI, Investors Security, NAIBD, NPB, NSCP, Pagemill, PSI and Taurus. 63 Pacific Select. 64 FSI. 65 H & L Equities. 66 ACLI, CAI, FSI and SIFMA. E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 80, No. 157 / Friday, August 14, 2015 / Notices announce such implementation date in a Regulatory Notice. 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: asabaliauskas on DSK5VPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2015–029 on the subject line. Paper Comments • Send paper comments in triplicate to Robert W. Errett, Deputy Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2015–029. 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 (http://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., VerDate Sep<11>2014 18:50 Aug 13, 2015 Jkt 235001 Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 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– 2015–029 and should be submitted on or before September 4, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.67 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–20006 Filed 8–13–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: U.S. Securities and Exchange Commission, Office of FOIA Services, Washington, DC 20549–2736. Extension: Rules 3a68–2 and 3a68–4(c); SEC File No. 270–641, OMB Control No. 3235–0685. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘SEC’’) is soliciting comments on the existing collection of information provided for Rules 3a68–2 and 3a68–4(c). The SEC plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 3a68–2 creates a process for interested persons to request a joint interpretation by the SEC and the Commodity Futures Trading Commission (‘‘CFTC’’) (together with the SEC, the ‘‘Commissions’’) regarding whether a particular instrument (or class of instruments) is a swap, a security-based swap, or both (i.e., a mixed swap). Under Rule 3a68–2, a person provides to the Commissions a copy of all material information regarding the terms of, and a statement of the economic characteristics and purpose of, each relevant agreement, contract, or transaction (or class thereof), along with that person’s determination as to whether each such 67 17 PO 00000 CFR 200.30–3(a)(12). Frm 00146 Fmt 4703 Sfmt 4703 48949 agreement, contract, or transaction (or class thereof) should be characterized as a swap, security-based swap, or both (i.e., a mixed swap). The Commissions also may request the submitting person to provide additional information. The SEC expects 25 requests pursuant to Rule 3a68–2 per year. The SEC estimates the total paperwork burden associated with preparing and submitting each request would be 20 hours to retrieve, review, and submit the information associated with the submission. This 20 hour burden is divided between the SEC and the CFTC, with 10 hours per response regarding reporting to the SEC and 10 hours of response regarding third party disclosure to the CFTC.1 The SEC estimates this would result in an aggregate annual burden of 500 hours (25 requests × 20 hours/request). The SEC estimates that the total costs resulting from a submission under Rule 3a68–2 would be approximately $12,000 for outside attorneys to retrieve, review, and submit the information associated with the submission. The SEC estimates this would result in aggregate costs each year of $300,000 (25 requests × 30 hours/request × $400). Rule 3a68–4(c) establishes a process for persons to request that the Commissions issue a joint order permitting such persons (and any other person or persons that subsequently lists, trades, or clears that class of mixed swap) to comply, as to parallel provisions only, with specified parallel provisions of either the Commodity Exchange Act (‘‘CEA’’) or the Securities Exchange Act of 1934 (‘‘Exchange Act’’), and related rules and regulations (collectively ‘‘specified parallel provisions’’), instead of being required to comply with parallel provisions of both the CEA and the Exchange Act. The SEC expects ten requests pursuant to Rule 3a68–4(c) per year. The SEC estimates that nine of these requests will have also been made in a request for a joint interpretation pursuant to Rule 3a68–2, and one will not have been. The SEC estimates the total burden for the one request for which the joint interpretation pursuant to 3a68–2 was not requested would be 30 hours, and the total burden associated with the other nine requests would be 20 hours per request because some of the information required to be submitted pursuant to Rule 3a68–4(c) would have already been submitted pursuant to Rule 3a68–2. The burden in both cases is evenly divided between the SEC and the CFTC. 1 The burdens imposed by the CFTC are included in this collection of information. E:\FR\FM\14AUN1.SGM 14AUN1

Agencies

[Federal Register Volume 80, Number 157 (Friday, August 14, 2015)]
[Notices]
[Pages 48941-48949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20006]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75655; File No. SR-FINRA-2015-029]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial 
Institutions) in the Consolidated FINRA Rulebook

August 10, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on July 31, 2015, 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 substantially 
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 3210 (Accounts at Other 
Broker-Dealers and Financial Institutions) in the Consolidated FINRA 
Rulebook, and to delete NASD Rule 3050, Incorporated NYSE Rules 407 and 
407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02.
    The text of the proposed rule change is available on FINRA's Web 
site at http://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.

[[Page 48942]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt a 
new, consolidated rule addressing accounts opened or established by 
associated persons of members at firms other than the firm with which 
they are associated. FINRA proposes to adopt FINRA Rule 3210 (Accounts 
at Other Broker-Dealers and Financial Institutions) in the Consolidated 
FINRA Rulebook and to delete NASD Rule 3050, Incorporated NYSE Rules 
407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/
02.\4\
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    \3\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ For convenience, the Incorporated NYSE Rules are referred to 
as the ``NYSE Rules.''
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    Sound supervisory practices require that a member firm monitor 
personal accounts opened or established outside of the firm by its 
associated persons. Proposed FINRA Rule 3210 combines and streamlines 
longstanding provisions of the NASD and NYSE rules that address this 
area and would, in combination with FINRA's new FINRA Rule 3110(d) 
governing securities transactions review and investigation,\5\ help 
facilitate effective oversight of the specified trading activities of 
associated persons of member firms. FINRA sought comment on the 
proposal in a Regulatory Notice (the ``Notice'').\6\ FINRA has revised 
the proposed rule as published in the Notice in response to 
comments.\7\
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    \5\ New FINRA Rule 3110(d) (Transaction Review and 
Investigation) sets forth requirements for supervisory procedures 
for members to comply with the Insider Trading and Securities Fraud 
Enforcement Act of 1988 (``ITSFEA'') (Pub. L. 100-704, 102 Stat. 
4677). The Commission has approved FINRA Rule 3110(d) as part of 
FINRA's new consolidated supervision rules, which became effective 
on December 1, 2014. See Securities Exchange Act Release No. 71179 
(December 23, 2013), 78 FR 79542 (December 30, 2013) (Order Granting 
Approval of Proposed Rule Change; File No. SR-FINRA-2013-025) 
(``Supervisory Rules Filing''); see also Regulatory Notice 14-10 
(March 2014) (Consolidated Supervision Rules). Paragraph (d)(1) of 
the rule requires that a member's supervisory procedures must 
include a process for the review of securities transactions that is 
reasonably designed to identify trades that may violate the 
provisions of the Act, its regulations, or FINRA rules prohibiting 
insider trading and manipulative and deceptive devices that are 
effected for the accounts specified under paragraphs (d)(1)(A) 
through (d)(1)(D) of the rule.
    \6\ See Regulatory Notice 09-22 (April 2009) (Personal 
Securities Transactions).
    \7\ Comments are discussed in Item II.C of this filing. As 
discussed further in Item II.C, commenters expressed concern that 
Rule 3210, as proposed in the Notice, would be burdensome or 
difficult to implement and that the rule should, informed by the 
approach of current NASD Rule 3050, be revised to permit firms 
flexibility to craft appropriate supervisory policies and procedures 
taking into account their business models and the risk profiles of 
their activities.
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(A) Background: NASD Rule 3050 and NYSE Rules 407 and 407A
    NASD Rule 3050 and NYSE Rules 407 and 407A are longstanding rules 
that address specified accounts opened or established by associated 
persons of members at firms other than the firm with which they are 
associated.
    NASD Rule 3050 (designated in its original form as Section 28 of 
the Rules of Fair Practice) was adopted to address this issue by 
providing a means by which members would be informed of the extent and 
nature of transactions effected by their employees or other associated 
persons,\8\ so that members, in their own interest and in the interest 
of their customers, might weigh the effect, if any, of such 
transactions handled outside their firms.\9\ The rule imposes specified 
obligations on member firms and associated persons.\10\ In short:
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    \8\ The terms ``person associated with a member'' and 
``associated person of a member'' include, among others, registered 
representatives. See paragraph (rr) of Article I of the FINRA By-
Laws.
    \9\ See Securities Exchange Act Release No. 4924 (August 21, 
1953).
    \10\ FINRA historically has noted that the purpose of the rule 
(originally designated Article III, Section 28 of the Rules of Fair 
Practice) is to ``help member firms discharge their supervisory 
responsibility over the securities activities conducted in their 
associated persons' personal securities accounts.'' Securities 
Exchange Act Release No. 23754 (October 28, 1986), 51 FR 40546 
(November 7, 1986) (Proposed Rule Change; File No. SR-NASD-86-29).
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     Obligations of Member Firms: NASD Rule 3050(a) requires 
that a member (called an ``executing member'') who knowingly executes a 
transaction for the purchase or sale of a security for the account of a 
person associated with another member (called an ``employer member''), 
or for any account over which the associated person has discretionary 
authority, must use reasonable diligence to determine that the 
execution of the transaction will not adversely affect the interests of 
the employer member. NASD Rule 3050(b) requires that, where an 
executing member knows that a person associated with an employer member 
has or will have a financial interest in, or discretionary authority 
over, any existing or proposed account carried by the executing member, 
the executing member must:
    (1) Notify the employer member in writing, prior to the execution 
of a transaction for the account, of the executing member's intention 
to open or maintain that account;
    (2) Upon written request by the employer member, transmit duplicate 
copies of confirmations, statements, or other information with respect 
to the account; and
    (3) Notify the person associated with the employer member of the 
executing member's intention to provide the notice and information 
required by (1) and (2).
     Obligations of Associated Persons: NASD Rules 3050(c) and 
Rule 3050(d), in combination, address associated persons, whether they 
open securities accounts or place securities orders through a member 
firm other than their employer or whether they do so through other 
types of financial services firms that are not FINRA members.\11\ 
Specifically:
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    \11\ NASD Rule 3050(e) provides that Rules 3050(c) and (d) apply 
only to accounts or orders in which an associated person has a 
financial interest or with respect to which the associated person 
has discretionary authority.
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    (1) NASD Rule 3050(c) requires that a person associated with a 
member, prior to opening an account or placing an initial order for the 
purchase or sale of securities with another member, must notify both 
the employer member and the executing member, in writing, of his or her 
association with the other member. The rule provides that if the 
account was established prior to the person's association with the 
employer member, the person must notify both members in writing 
promptly after becoming associated;
    (2) NASD Rule 3050(d) provides that if the associated person opens 
a securities account or places an order for the purchase or sale of 
securities with a broker-dealer that is registered pursuant to SEA 
Section 15(b)(11) (a notice-registered broker-dealer), a domestic or 
foreign investment adviser, bank, or other financial institution (that 
is, firms that are not FINRA members), then he or she must: (i) Notify 
his or her employer member in writing, prior to the execution of any 
initial transactions, of the intention to open the account or place the 
order; and (ii) upon written request by the employer member, request in 
writing and assure that the notice-registered broker-dealer, investment 
adviser, bank, or other financial institution provides the

[[Page 48943]]

employer member with duplicate copies of confirmations, statements, or 
other information concerning the account or order. NASD Rule 3050(d) 
provides that if an account subject to Rule 3050(d) was established 
prior to the person's association with the member, the person must 
comply with the rule promptly after becoming associated;
    (3) NASD Rule 3050(f) provides that the requirements of Rule 3050 
do not apply to transactions in unit investment trusts and variable 
contracts or redeemable securities of companies registered under the 
Investment Company Act of 1940, or to accounts which are limited to 
transactions in such securities.
    NYSE Rule 407, similar in purpose to FINRA Rule 3050, addresses 
transactions by and for employees of member firms \12\ as follows:
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    \12\ See note 10 supra. The NYSE noted that Rule 407 imposes 
obligations as to specified personal accounts of employees and 
associated persons and that one of the rule's purposes, among other 
things, is to help deter and detect violations of applicable federal 
securities laws and regulations. See NYSE Information Memo 09-50 
(October 30, 2009) (Supervision of Trading in Proprietary, Employee 
and Employee-Related Securities and Commodities Accounts).
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     NYSE Rule 407(a) is similar to NASD Rule 3050(b), except 
that Rule 407(a) imposes a requirement to obtain the prior written 
consent of the employer member.\13\ Specifically, the rule requires 
that no member or member organization may, without the prior written 
consent of the employer, open a securities or commodities account or 
execute any transaction in which a member or employee associated with 
another member or member organization is directly or indirectly 
interested. The rule requires that duplicate confirmations and account 
statements be sent promptly to the employer.
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    \13\ The term ``employer member'' is defined within the context 
of the NASD rule, not the NYSE rule. For purposes of discussing NYSE 
Rule 407, in this filing the term ``employer member'' is used 
interchangeably with ``employer'' for convenience.
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     NYSE Rule 407(b) is similar to NASD Rules 3050(c) and (d), 
except that, like NYSE Rule 407(a), it also sets forth a prior written 
consent requirement. The rule requires that no member associated with a 
member or member organization may establish or maintain any securities 
or commodities account \14\ or enter into any securities transaction 
with respect to which such person has any financial interest or the 
power, directly or indirectly, to make investment decisions, at another 
member or member organization, or a domestic or foreign non-member 
broker-dealer, investment adviser, bank, other financial 
institution,\15\ or otherwise without the prior written consent of 
another person designated by the member or member organization to sign 
such consents and review such accounts. The rule requires that persons 
having accounts or effecting transactions as covered by the rule must 
arrange for duplicate confirmations and statements (or their 
equivalents) to be sent to a person designated by the member or member 
organization to review such accounts and transactions. The rule further 
requires that all such accounts and transactions must periodically be 
reviewed by the member or member organization employer.\16\
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    \14\ NYSE Rule 407.11 states that the term ``securities or 
commodities accounts'' as used in Rule 407(b) includes, but is not 
limited to, limited or general partnership interests in investment 
partnerships.
    \15\ NYSE Rule 407.13 states that, for purposes of the rule, the 
term ``other financial institution'' includes, but is not limited 
to, insurance companies, trust companies, credit unions and 
investment companies.
    \16\ NYSE Rule 407.11 requires that members and member 
organizations must develop and maintain written procedures for 
reviewing such accounts and transactions and must assure that their 
associated persons are not improperly recommending or marketing such 
securities or products to others through members or member 
organizations.
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     NYSE Rule 407.12 provides that the rule's requirement to 
send duplicate confirmations and statements does not apply to 
transactions in unit investment trusts and variable contracts or 
redeemable securities of companies registered under the Investment 
Company Act of 1940, or to accounts which are limited to transactions 
in such securities, or to Monthly Investment Plan type accounts, unless 
the employer member requests receipt of duplicate confirmations and 
statements of such accounts. As such, the provision is similar to the 
corresponding provisions under NASD Rule 3050(f), except that Rule 
3050(f) wholly excepts the specified transactions and accounts from the 
scope of Rule 3050.
    In addition, NYSE Rule 407A (Disclosure of All Member Accounts) 
requires members (i.e., natural persons approved by the New York Stock 
Exchange (the ``Exchange'') and designated by a member organization to 
effect transactions on the floor of the Exchange or any facility 
thereof) to promptly report to the Exchange any securities account, 
including an error account, in which the member has, directly or 
indirectly, any financial interest or the power to make investment 
decisions. Such accounts include any account at a member or non-member 
broker-dealer, investment adviser, bank or other financial institution. 
NYSE Rule 407A also requires a member having such an account to notify 
the financial institution that carries or services the account that it 
is a NYSE member. In addition, the rule requires that members report to 
the Exchange when any such securities account is closed.
    NYSE Rule 407A was adopted in 2001 as part of a series of 
initiatives designed to strengthen the regulation of activities of NYSE 
floor brokers.\17\ This rule expands the obligations placed upon 
members under Rule 407 by requiring disclosure to the Exchange. These 
reporting requirements were designed to provide the NYSE with current 
information about where floor members carry securities accounts and to 
enhance its ability to investigate quickly the trading of securities by 
such members.
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    \17\ The Commission noted that these initiatives would aid the 
NYSE in fulfilling some of the undertakings included in the NYSE's 
1999 settlement with the SEC regarding failure to enforce compliance 
with SEA Section 11(a) and SEA Rule 11a-1 and NYSE Rules 90, 95 and 
111 with respect to activity of floor brokers. As noted by the 
Commission, broadly, those provisions were aimed at preventing NYSE 
floor broker members from exploiting their advantageous position on 
the NYSE floor for personal gain to the detriment of the investing 
public. See In the Matter of New York Stock Exchange, Inc., 
Securities Exchange Act Release No. 41574 (June 29, 1999), 
Administrative Proceeding File No. 3-9925; Securities Exchange Act 
Release No. 42381 (February 3, 2000), 65 FR 6673 (February 10, 2000) 
(Notice of Filing of Proposed Rule Change; File No. SR-NYSE-99-25); 
Securities Exchange Act Release No. 44769 (September 6, 2001), 66 FR 
47710 (September 13, 2001) (Order Granting Approval to Proposed Rule 
Change; File No. SR-NYSE-99-25).
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    NYSE Rule Interpretation 407/01 addresses the process for 
determining whether the account of a spouse of an associated person 
should be subject to NYSE Rule 407.
    NYSE Rule Interpretation 407/02 provides that NYSE Rule 407(b) 
applies when an associated person is also a majority stockholder of a 
non-public corporation that wishes to open a discretionary margin 
account at another member.
(B) Proposed FINRA Rule 3210
    Proposed FINRA Rule 3210, consistent with the longstanding purposes 
of NASD Rule 3050 and NYSE Rule 407,\18\ is designed to enable members 
to monitor the personal accounts of their associated persons opened or 
established outside of the member firm. The new rule, in combination 
with new FINRA Rule 3110, takes the approach that a member is 
responsible for supervising its associated persons' trading 
activities.\19\

[[Page 48944]]

The rule begins by setting forth a requirement that an associated 
person must obtain the prior written consent of his or her employer 
when opening a specified account at another member or other financial 
institution. Specifically, proposed FINRA Rule 3210(a) provides that no 
person associated with a member (``employer member'') shall, without 
the prior written consent of the member, open or otherwise establish at 
a member other than the employer member (``executing member''), or at 
any other financial institution,\20\ any account in which securities 
transactions can be effected \21\ and in which the associated person 
has a beneficial interest.\22\ Proposed FINRA Rule 3210.02 provides 
that, for purposes of the rule, the associated person shall be deemed 
to have a beneficial interest in any account that is held by: (a) The 
spouse of the associated person; (b) a child of the associated person 
or of the associated person's spouse, provided that the child resides 
in the same household as or is financially dependent upon the 
associated person; (c) any other related individual over whose account 
the associated person has control; or (d) any other individual over 
whose account the associated person has control and to whose financial 
support the associated person materially contributes.\23\ The types of 
accounts specified pursuant to proposed FINRA Rule 3210.02 are designed 
to align with ``covered accounts'' as defined pursuant to new FINRA 
Rule 3110(d)(4)(A) for purposes of the transaction review and 
investigation provisions pursuant to Rule 3110(d)(1).\24\ Further, 
FINRA believes the proposed language is consistent with the broad 
approach of NASD Rule 3050 and NYSE Rule 407 as historically understood 
to facilitate the monitoring of associated persons' personal and 
related accounts.\25\ FINRA notes that the proposed new language 
eliminates the language in the current rules that references accounts 
or transactions where the associated person has ``the power, directly 
or indirectly, to make investment decisions,'' as set forth in NYSE 
Rule 407(b), and accounts where the associated person has 
``discretionary authority,'' as set forth in NASD Rule 3050(b).\26\
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    \18\ See note 10 and note 12 supra.
    \19\ See Supervisory Rules Filing and note 5 supra. In this 
connection, as discussed further in Item II.A.1(C) below, FINRA is 
deleting the provision under NASD Rule 3050(a) as to the obligation 
of the executing member to use reasonable diligence with respect to 
the specified transactions.
    \20\ Based on NYSE Rule 407.13 and NASD Rule 3050(d), proposed 
FINRA Rule 3210.05 provides that, for the purposes of the rule, the 
terms ``other financial institution'' and ``financial institution 
other than a member'' include, but are not limited to, any broker-
dealer that is registered pursuant to SEA Section 15(b)(11), 
domestic or foreign non-member broker-dealer, investment adviser, 
bank, insurance company, trust company, credit union and investment 
company.
    \21\ In the interest of helping facilitate supervision of 
securities transactions under new FINRA Rule 3110(d)(1), FINRA is 
specifying ``any account in which securities transactions can be 
effected'' so as to be clear that the proposed rule's scope includes 
any account, regardless of type, where securities transactions can 
take place as specified under the rule.
    \22\ As proposed in the Notice, the rule would have specified 
accounts in which the associated person has a ``personal financial 
interest.'' Commenters suggested that this language was unclear. See 
Item II.C.2 of this filing. FINRA is proposing the term ``beneficial 
interest'' because that term is an established and well-understood 
standard. See, e.g., FINRA Rule 5130(i)(1), which defines 
``beneficial interest'' to mean, in part, any economic interest, 
such as the right to share in gains or losses. FINRA believes that 
the proposed term is consistent with the purpose of NYSE Rule 407, 
which in part addresses transactions in which the associated person 
is ``directly or indirectly interested'' (NYSE Rule 407(a)) or with 
respect to which the associated person ``has any financial 
interest'' (NYSE Rule 407(b)) and with NASD Rules 3050(b) through 
(d), which in part address accounts or transactions in which the 
associated person has a ``financial interest.'' Further, the 
proposed term would align the rule with ``beneficial interest'' as 
specified under new FINRA Rule 3110(d)(1)(B), which, for purposes of 
the transaction review and investigation provisions set forth under 
new FINRA Rule 3110(d)(1), specifies in part accounts ``in which a 
person associated with the member has a beneficial interest.'' See 
note 5 supra.
    \23\ Some commenters expressed concerns as to addressing spouse 
accounts in the proposed rule. FINRA notes that spouse accounts have 
long been addressed under NYSE Rule Interpretation 407/01. See Item 
II.C.2 of this filing.
    \24\ See note 5 supra.
    \25\ For example, with respect to the approach of the current 
rules, as noted earlier, NYSE Rule Interpretation 407/01 addresses 
spouse accounts. In the context of amendments to NASD Rule 3050 
(then designated Article III, Section 28 of the Rules of Fair 
Practice) adopted in 1983 that extended the rule to include accounts 
over which the associated person exercises discretion, FINRA noted 
its intent to enable the rule's scope to reach accounts of relatives 
of associated persons where the associated person places the orders. 
See Securities Exchange Act Release No. 19347 (December 16, 1982), 
47 FR 58416 (December 30, 1982) (Proposed Rule Change; File No. SR-
NASD-82-25); Securities Exchange Act Release No. 19550 (February 28, 
1983), 48 FR 9413 (March 4, 1983) (Order Approving Proposed Rule 
Change; File No. SR-NASD-82-25). FINRA believes that because the 
proposed rule specifies, in language that aligns with new FINRA Rule 
3110(d)(4)(A), the types of personal relationships that would be 
within the scope of ``beneficial interest,'' the rule's precise 
parameters should be more clear.
    \26\ FINRA believes that this will serve to more clearly 
demarcate the respective scope of the new rule vis-[agrave]-vis 
current NASD Rule 3040, which addresses the obligations of 
associated persons and members in connection with private securities 
transactions. NASD Rule 3040(e)(1) defines private securities 
transactions to include, in part, ``any securities transaction 
outside the regular course or scope of an associated person's 
employment with a member'' and excludes from the rule's specified 
notification requirements, among other things, transactions subject 
to the notification requirements of NASD Rule 3050. FINRA believes 
that, to the extent associated persons make investment decisions or 
have discretionary authority in contexts that involve private 
securities transactions within the scope of NASD Rule 3040, as 
opposed to accounts in which they have a beneficial interest as 
specified by the new rule, such transactions are properly addressed 
by the requirements set forth in Rule 3040 and other FINRA rules as 
applicable. FINRA believes that this approach is consistent, as 
noted earlier, with the historical approach of NASD Rule 3050 and 
NYSE Rule 407 that is intended to facilitate monitoring of 
associated persons' personal and related accounts.
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    Similar to the current rules, the new rule places notification 
obligations on associated persons with respect to the executing member 
or other financial institution. Specifically, proposed FINRA Rule 
3210(b) is based in large part on NASD Rules 3050(c) and 3050(d) and 
provides that any associated person, prior to opening or otherwise 
establishing an account subject to the rule, must notify in writing the 
executing member, or other financial institution, of his or her 
association with the employer member.
    Also similar to the current rules, the new rule specifies 
obligations for executing members. Specifically, proposed FINRA Rule 
3210(c) is based in large part on NASD Rule 3050(b)(2) and provides 
that an executing member must, upon written request by the employer 
member, transmit duplicate copies of confirmations and statements, or 
the transactional data contained therein, with respect to an account 
subject to the rule.\27\
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    \27\ As published in the Notice, the proposed rule would have 
required the employer member to instruct the associated person to 
have the executing member provide the specified duplicate account 
statements and confirmations to the employer member. As discussed 
further in Item II.C.1 of this filing, commenters expressed concern 
that the rule as proposed in the Notice would burden members with 
collecting the specified information without regard to whether such 
collection is warranted by the member's business model and risk 
profile. In response to commenter suggestion, FINRA has revised the 
proposed rule so that the specified information is provided upon 
written request by the employer member, which is consistent with the 
approach of current NASD Rule 3050 and which FINRA believes permits 
members flexibility to craft appropriate supervisory policies and 
procedures according to their business model and the risk profile of 
their activities.
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    Similar to current provisions in NASD Rules 3050(c) and 3050(d), 
the proposed rule makes allowance for accounts opened by an associated 
person prior to his or her association with the employer member. 
Specifically, proposed FINRA Rule 3210.01 provides that, if the account 
was opened or otherwise established prior to the person's association 
with the employer member, the associated person, within 30 calendar 
days of becoming so associated, must obtain the written consent of the 
employer member to maintain the account and must notify in writing the 
executing member or other financial institution of his or her

[[Page 48945]]

association with the employer member.\28\
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    \28\ As published in the Notice, the proposed rule would have 
specified 15 business days. In response to comment, the proposed 
rule as revised specifies 30 calendar days so as to reduce burdens 
on member firms and their associated persons. See Item II.C.3 of 
this filing.
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    Similar to the current rules, the new rule makes allowance for 
specified information that executing members need not transmit to 
employer members. Specifically, proposed FINRA Rule 3210.03 is based in 
large part on NYSE Rule 407.12 and NASD Rule 3050(f) and provides that 
the requirement (pursuant to paragraph (c) of Rule 3210) that the 
executing member provide the employer member, upon the employer 
member's written request, with duplicate account confirmations and 
statements, or the transactional data contained therein, shall not be 
applicable to transactions in unit investment trusts, municipal fund 
securities as defined under MSRB Rule D-12,\29\ qualified tuition 
programs pursuant to Section 529 of the Internal Revenue Code and 
variable contracts or redeemable securities of companies registered 
under the Investment Company Act, as amended, or to accounts that are 
limited to transactions in such securities, or to Monthly Investment 
Plan type accounts.\30\
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    \29\ MSRB Rule D-12 defines municipal fund security to mean ``a 
municipal security issued by an issuer that, but for the application 
of Section 2(b) of the Investment Company Act of 1940, would 
constitute an investment company within the meaning of Section 3 of 
the Investment Company Act of 1940.''
    \30\ The approach to the referenced types of transactions 
reflects a longstanding intention under the NASD and NYSE rule that 
members not be burdened with information collection for transactions 
that pose limited risk from the standpoint of the rule's supervisory 
purposes. See, e.g., Securities Exchange Act Release No. 19347 
(December 16, 1982), 47 FR 58416 (December 30, 1982) (Proposed Rule 
Change; File No. SR-NASD-82-25). As discussed further in Item II.C.5 
of this filing, the proposed requirement is largely as published in 
the Notice. In response to commenter suggestion, FINRA has added 
municipal fund securities as defined under MSRB Rule D-12 and 
Section 529 plans to the transactions set forth under the rule. 
FINRA is adding these transactions because FINRA believes these 
types of products are reasonably classed with the types of 
transactions specified under the current rule in posing limited risk 
from the standpoint of the rule's supervisory purposes.
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    Proposed FINRA Rule 3210.04 is new and provides that, with respect 
to an account subject to the rule at a financial institution other than 
a member, the employer member must consider the extent to which it will 
be able to obtain, upon written request, duplicate copies of 
confirmations and statements, or the transactional data contained 
therein, directly from the non-member financial institution in 
determining whether to provide its written consent to an associated 
person to open or maintain such account.\31\ FINRA believes that the 
proposed requirement serves a valid regulatory purpose in view of the 
employer member's responsibility for supervising its associated 
persons' trading activities.
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    \31\ As published in the Notice, the proposed rule would have 
required the associated person to provide an instruction to the non-
member financial institution to provide the specified information to 
the employer member. As discussed further in Item II.C.1 of this 
filing, FINRA believes that the requirement as revised permits 
members flexibility to craft appropriate supervisory policies and 
procedures in determining whether to provide written consent as to 
the specified accounts at non-member financial institutions.
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(C) Deleted Requirements
    Proposed FINRA Rule 3210 deletes a number of requirements in NASD 
Rule 3050 and NYSE Rule 407 that are rendered outdated by the new rule 
or are otherwise addressed elsewhere by FINRA rules.
     The proposed rule eliminates NASD Rule 3050(a)'s 
requirement that the executing member use reasonable diligence to 
determine that the execution of the transaction will not ``adversely 
affect the interests of the employer member.'' FINRA proposes to delete 
this requirement because FINRA believes that it is appropriate for the 
new rule, in combination with new FINRA Rule 3110,\32\ to take the 
approach that the employer member is responsible for supervising its 
associated persons' trading activities.\33\
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    \32\ See Supervisory Rules Filing.
    \33\ FINRA notes that, notwithstanding this approach, the rule 
retains the longstanding duty of the executing member to assist the 
employer member by providing the specified information upon request.
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     FINRA proposes to delete the account review requirements 
set forth in NYSE Rule 407(b) and the requirements for written 
procedures set forth in NYSE Rule 407.11 because these issues are 
addressed by the proposed rule in combination with FINRA's new 
supervisory rules, in particular new FINRA Rule 3110(d), which sets 
forth the new supervisory framework for securities transactions review 
and investigation.\34\
---------------------------------------------------------------------------

    \34\ See note 5 supra and Supervisory Rules Filing.
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     As noted earlier, NYSE Rule 407A was intended to address 
activities of NYSE floor brokers. FINRA proposes to delete NYSE Rule 
407A in its entirety from the Transitional Rulebook because proposed 
FINRA Rule 3210 requires disclosure at the member firm level of the 
same types of information that Rule 407A requires with respect to the 
NYSE as to floor brokers. FINRA believes it is more appropriate to 
require member firms to obtain the required information and to 
supervise the accounts of their associated persons for improper 
trading, rather than requiring that such information be sent directly 
to FINRA. Moreover, as noted above, these reporting requirements were 
designed to provide the NYSE with current information about where floor 
members carry securities accounts and to enhance its ability to 
investigate quickly the trading of securities by such members.
     FINRA proposes to delete NYSE Rule Interpretation 407/01 
because it would be superseded by proposed FINRA Rule 3210.02, which as 
noted earlier expressly provides, among other things, that an 
associated person is deemed to have a beneficial interest in any 
account that is held by the spouse of the associated person.
     FINRA proposes to delete NYSE Rule Interpretation 407/02 
because it is rendered redundant by new FINRA Rule 3210(a), the scope 
of which by its terms reaches accounts as specified by the rule in 
which the associated person has a beneficial interest.
     FINRA proposes to delete language referring to accounts or 
transactions where the associated person has ``the power, directly or 
indirectly, to make investment decisions,'' as set forth in NYSE Rule 
407(b), and accounts where the associated person has ``discretionary 
authority,'' as set forth in NASD Rule 3050(b). As discussed above, 
FINRA believes that, to the extent associated persons make investment 
decisions or have discretionary authority in contexts that involve 
private securities transactions within the scope of NASD Rule 3040, as 
opposed to accounts in which they have a beneficial interest, such 
transactions are properly addressed by the requirements set forth in 
Rule 3040 and other FINRA rules as applicable.\35\
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    \35\ See note 26 supra.
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    If the Commission approves the proposed rule change, FINRA will 
announce the implementation date of the proposed rule change in a 
Regulatory Notice to be published no later than 90 days following 
Commission approval. The implementation date will be no later than 365 
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,\36\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and

[[Page 48946]]

equitable principles of trade, and, in general, to protect investors 
and the public interest. FINRA believes that the proposed rule change 
will further the purposes of the Act because, as part of the FINRA 
rulebook consolidation process, the proposed rule change will help to 
protect investors and the public interest by streamlining and 
reorganizing existing rules that promote effective oversight of 
accounts opened or established by associated persons of members at 
firms other than the firm with which they are associated. By setting 
forth the requirements pursuant to which associated persons will seek 
the prior written consent of the employer member to open or otherwise 
establish accounts as specified under the rule, and pursuant to which 
the specified information will be transmitted to the employer member 
upon the employer member's request, the proposed rule will facilitate 
the supervision of the trading activities of associated persons within 
the framework of FINRA's new supervisory rules as approved by the 
Commission. The proposed rule will also help members ensure that such 
activities, engaged in at executing members or other financial 
institutions, do not violate provisions of the Act, its regulations, or 
FINRA rules, thereby helping to ensure orderly markets.
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    \36\ 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. Commenters expressed concern 
that the proposed rule change, as originally published in Regulatory 
Notice 09-22, would have been burdensome to implement and would have 
resulted in employer members being required to request information from 
executing members and non-member financial institutions bearing little 
or no relationship to the scope and nature of the employer member's 
activities. In response to commenter suggestion, FINRA revised the 
proposed rule so as to permit members discretion, consistent with their 
supervisory obligations under new FINRA Rule 3110(d), to request the 
specified information of executing members and non-member financial 
institutions, thereby permitting members reasonable flexibility to 
craft appropriate supervisory policies and procedures according to 
their business model and the risk profile of their activities. The 
proposed rule change as revised is thereby consistent with the approach 
of current NASD Rule 3050, which commenter suggestion supported. FINRA 
believes that because the proposed rule change, as revised, is 
consistent with current requirements and longstanding practice, it will 
not impose additional burdens on members.
    The proposed rule change permits members to implement supervisory 
procedures that align with their business models, without diminishing 
members' supervisory obligations with respect to the activities of 
their associated persons. FINRA believes that this proposed approach 
imposes less cost on members without reducing investor protections. In 
addition, the proposed rule change deletes a number of requirements in 
NASD Rule 3050 and NYSE Rule 407 that are rendered outdated by the 
proposed new rule or are otherwise addressed elsewhere by other FINRA 
rules, which further minimizes the potential compliance burden on 
members in light of the objectives of the proposed rule change. FINRA 
recognizes that providing such flexibility to members may require 
increased monitoring of members' compliance with this rule as part of 
FINRA's examination program.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in Regulatory 
Notice 09-22 (April 2009). A copy of the Notice is attached as Exhibit 
2a. Thirty-three commenters responded to the Notice, and a list of the 
commenters is attached as Exhibit 2b.\37\ Copies of the comment letters 
received in response to the Notice are attached as Exhibit 2c.
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    \37\ All references to commenters under this Item are to the 
commenters as listed in Exhibit 2b.
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1. Core Proposed Rule Requirements: Obligation To Provide Duplicate 
Account Statements and Confirmations
    As published in the Notice, proposed FINRA Rule 3210(a) in part 
would have required an employer member, as a condition to giving prior 
written consent for opening or establishing an account pursuant to the 
rule, to instruct the associated person to have the executing member 
provide duplicate account statements and confirmations to the employer 
member. Paragraph (b) set forth requirements pertaining to the 
associated person's obligation to notify the executing member or other 
financial institution in writing of his or her association with the 
employer member. Paragraph (c) of the rule would have provided in part 
that the executing member must promptly obtain and implement an 
instruction from the associated person directing that duplicate account 
statements and confirmations be provided to the employer member. (With 
respect to accounts opened at a financial institution other than a 
member, proposed FINRA Rule 3210.02 as published in the Notice would 
have required the associated person to provide the instruction to the 
financial institution.)
    Commenters generally expressed concern that, as published in the 
Notice, the requirements of proposed Rules 3210(a), (b) and (c) and 
3210.02, singly or in combination, are unnecessary for regulatory 
purposes, are burdensome or difficult for firms to implement, or the 
rule should be designed to permit members the discretion to determine 
whether, based on their business model and the risk profile of their 
activities, they need to require duplicate account statements and 
confirmations to carry out their supervisory responsibilities.\38\ Some 
of these commenters suggested that involving the associated person in 
the process of requesting the required data vis-[agrave]-vis the 
executing member creates supervisory risks.\39\ A number suggested that 
it is better practice and more efficient to have the employer member 
obtain the required data directly from the executing member or non-
member institution.\40\ A few of the commenters raised concerns about 
potential difficulties in obtaining the required information from non-
members (including foreign non-members).\41\ Many questioned the 
supervisory and regulatory value of requiring firms to collect data 
pertaining to associated person accounts and transactions bearing 
little or no relationship to the scope and nature of their firms' 
activities.\42\ Some suggested that current NASD Rule 3050 generally 
permits members to exercise such discretion and that retaining the 
approach of the NASD rule would be conducive to more efficient use of 
regulatory or supervisory resources.\43\
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    \38\ ACLI, CAI, Channel Capital, Charles Schwab, Farmers 
Financial, FSI, GWFS, Hillard, IBSI, ICI, MWA, NAIBD, National 
Planning, NMIS, NSCP, PFSI, PSI, Quasar, SIFMA, State Farm, 
SunTrust, Sykes, UBS, WFA and Witthaut.
    \39\ National Planning, PSI, SIFMA and UBS.
    \40\ Charles Schwab, FSI, NMIS, SIFMA and UBS.
    \41\ Charles Schwab, SIFMA and UBS.
    \42\ ACLI, CAI, Farmers Financial, GWFS, Hillard, ICI, MWA, 
National Planning, Quasar, State Farm, SunTrust, Sykes and Witthaut.
    \43\ CAI, Charles Schwab, Farmers Financial, FSI, National 
Planning, PFSI and SunTrust.
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    In response, FINRA agrees that the proposal as published in the 
Notice raises issues with respect to the efficient use and conservation 
of regulatory and

[[Page 48947]]

supervisory resources, as well as to implementation. FINRA has revised 
proposed FINRA Rule 3210, consistent with NASD Rule 3050, to provide 
that an executing member must, upon written request by an employer 
member, transmit the duplicate copies of confirmations and statements, 
or the transactional data contained therein.\44\ With respect to 
accounts at a financial institution other than a member, FINRA has 
revised the rule to provide that the employer member must consider the 
extent to which it will be able to obtain, upon written request, 
duplicate copies of confirmations and statements, or the transactional 
data contained therein, directly from the institution in determining 
whether to provide its written consent to an associated person to open 
or maintain an account subject to the rule.\45\ FINRA believes that 
this approach, based in large part on the longstanding approach of NASD 
Rule 3050, should provide members reasonable flexibility to craft 
appropriate supervisory policies and procedures according to their 
business model and the risk profile of their activities. FINRA reminds 
members that, in permitting such flexibility, the rule in no way 
lessens members' supervisory obligations under FINRA rules with respect 
to the activities of their associated persons.\46\
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    \44\ See proposed FINRA Rule 3210(c).
    \45\ See proposed FINRA Rule 3210.04.
    \46\ See note 5 supra and Supervisory Rules Filing.
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2. Personal Financial Interest of the Associated Person
    As published in the Notice, the accounts covered by proposed FINRA 
Rule 3210 would have reached in part those in which the associated 
person has a ``personal financial interest.'' The Notice stated that 
``personal financial interest'' would as a general matter extend to a 
spouse's account. Commenters expressed concern as to the scope and 
meaning of the term ``personal financial interest'' and requested that 
FINRA further define the term, limit its scope, or otherwise provide 
more specific guidance.\47\ Several commenters suggested generally that 
it would be more effective for the rule to speak to accounts with 
respect to which the associated person exercises control or authority, 
rather than having a ``personal financial interest.'' \48\
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    \47\ CAI, Charles Schwab, Farmers Financial, IBSI, ICI, NAIBD, 
NMIS, NPB, NSCP and SIFMA.
    \48\ Charles Schwab, Farmers Financial, FSI, NMIS and SIFMA.
---------------------------------------------------------------------------

    In response, FINRA is proposing a standard that is consistent with 
the purpose of NASD Rule 3050 and NYSE Rule 407 \49\ while also 
aligning more clearly with new FINRA Rule 3110(d). Specifically, FINRA 
has revised the proposed rule to extend to specified accounts in which 
the associated person has a beneficial interest. As discussed earlier, 
FINRA believes the term ``beneficial interest'' is appropriate because 
that term is an established and well-understood standard \50\ and is 
consistent with the terms ``directly or indirectly interested,'' as 
used in NYSE Rule 407(a), ``has any financial interest,'' as used in 
NYSE Rule 407(b), and accounts or transactions in which the associated 
person has a ``financial interest,'' as applicable under NASD Rules 
3050(b) through (d). Further, the proposed term would align the rule 
with ``beneficial interest'' as specified under new FINRA Rule 
3110(d)(1)(B), which, for purposes of the transaction review and 
investigation provisions set forth under new FINRA Rule 3110(d)(1), 
specifies in part accounts ``in which a person associated with the 
member has a beneficial interest.'' \51\ In addition, FINRA is 
proposing, as Supplementary Material .02 to the rule, to provide that 
the associated person shall be deemed to have a beneficial interest in 
any account that is held by: (a) The spouse of the associated person; 
(b) a child of the associated person or of the associated person's 
spouse, provided that the child resides in the same household as or is 
financially dependent upon the associated person; (c) any other related 
individual over whose account the associated person has control; or (d) 
any other individual over whose account the associated person has 
control and to whose financial support the associated person materially 
contributes. As noted earlier, this proposed language is designed to 
align with ``covered accounts'' as defined pursuant to new FINRA Rule 
3110(d)(4)(A) for purposes of the transaction review and investigation 
provisions pursuant to Rule 3110(d)(1).\52\
---------------------------------------------------------------------------

    \49\ See note 10 and note 12 supra.
    \50\ FINRA Rule 5130(i)(1) defines ``beneficial interest'' to 
mean, in part, any economic interest, such as the right to share in 
gains or losses. See note 22 supra.
    \51\ See note 5 supra.
    \52\ See proposed FINRA Rule 3210.02. Some commenters questioned 
whether it is legally viable for the proposed rule to reach spouse 
accounts. See Charles Schwab and NPB. In response, FINRA notes that 
spouse accounts have long been addressed under NYSE Rule 
Interpretation 407/01. Further, FINRA notes that the rule addresses 
such accounts as a supervisory matter under FINRA rules for purposes 
of investor protection and market integrity. See also note 5 supra 
and new FINRA Rule 3110(d).
---------------------------------------------------------------------------

3. Accounts Opened Prior to Association With the Employer Member
    As published in the Notice, proposed FINRA Rule 3210.01 would have 
required that if the associated person's account was opened or 
otherwise established prior to his or her association with the employer 
member, the associated person would be required to obtain the employer 
member's written consent to maintain the account within 15 business 
days of becoming so associated. Commenters suggested that the 15-
business-day requirement is too short or restrictive and that the rule 
should require ``prompt'' notification by the associated person, as 
under current NASD Rule 3050, or permit a longer specified period.\53\ 
One commenter believed that the rule should not cover previously opened 
accounts at all.\54\
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    \53\ ACLI, CAI, Charles Schwab, FSI, National Planning, NMIS, 
NSCP, SIFMA and WFA.
    \54\ Fischer.
---------------------------------------------------------------------------

    In response, FINRA notes that it serves a valid regulatory purpose 
that the proposed rule should extend to accounts opened prior to the 
associated person's association with the employer member, given that 
the associated person would have the ability to effect transactions in 
such accounts. FINRA believes that it is reasonable, from the 
standpoint of reducing burdens on member firms and their associated 
persons, to permit a longer amount of time for notification with 
respect to already-opened accounts and has accordingly revised the rule 
to permit 30 calendar days.\55\
---------------------------------------------------------------------------

    \55\ See proposed FINRA Rule 3210.01.
---------------------------------------------------------------------------

4. Revocation of Consent To Maintain the Account
    As published in the Notice, proposed FINRA Rule 3210.04 would have 
created a new requirement providing that if the employer member does 
not receive the associated person's duplicate statements and 
confirmations in a timely manner, the employer member would be required 
to revoke its consent to maintaining the account and would be required 
to so notify the executing member or other financial institution in 
writing. The rule would have required the employer member to promptly 
obtain records from the executing member that the account was closed.
    Commenters generally expressed concern that the proposed 
requirement is burdensome, poses various difficulties as to 
implementation, or that FINRA should provide guidance as to how 
accounts should be closed

[[Page 48948]]

pursuant to the rule.\56\ In response, FINRA has reconsidered the 
proposed requirement and agrees that it is not necessary, from the 
standpoint of the rule's regulatory purpose, to prescribe how employer 
members should respond to the delayed receipt, or non-receipt, of 
duplicate copies of confirmations, statements or the transactional data 
contained therein. First, FINRA believes that if an employer member 
determines, pursuant to the rule, to request such information and does 
not receive it in a timely fashion, then as a matter of sound 
supervisory practice the employer member should have in place policies 
and procedures to address the issue.\57\ Second, FINRA notes that the 
proposed rule as revised requires executing members, upon written 
request by an employer member, to transmit the duplicate copies of 
confirmations and statements, or the transactional data contained 
therein.\58\ Finally, FINRA takes note that many commenters requested 
that FINRA Rule 3210 be designed to permit firms flexibility based upon 
their business model and the risk profile of their activities.\59\ As 
such, FINRA believes it is appropriate that employer members determine 
for themselves what would constitute timely receipt of the information 
required pursuant to the rule, provided such determination is 
reasonable within the context of their overall supervisory obligations. 
Accordingly, FINRA has deleted the requirement from the proposed rule 
as revised.
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    \56\ CAI, Charles Schwab, FSI, ICI, J.A. Glynn, National 
Planning, NSCP, Pagemill, SIFMA, UBS and WFA.
    \57\ FINRA notes that, with respect to accounts at non-member 
financial institutions, the proposed rule as revised provides that 
the employer must consider the extent to which it will be able to 
obtain, upon written request, duplicate copies of confirmations and 
statements, or the transactional data contained therein, directly 
from the non-member financial institution in determining whether to 
provide its written consent to an associated person to open or 
maintain such an account.
    \58\ See proposed FINRA Rule 3210(c).
    \59\ See, e.g., Item II.C.1 of this filing.
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5. Transactions and Accounts Not Subject to Transmission Requirement
    As published in the Notice, proposed FINRA Rule 3210.03 would have 
provided that the requirement to provide to the employer member 
duplicate account statements and confirmations is not applicable to 
transactions in unit investment trusts and variable contracts or 
redeemable securities of companies registered under the Investment 
Company Act, as amended, or to accounts that are limited to 
transactions in such securities, or to Monthly Investment Plan type 
accounts, unless the employer member requests receipt of such duplicate 
account statements and confirmations.
    Commenters suggested that, because they believe the referenced 
types of transactions and accounts pose little in the way of 
supervisory risk, they should be exempted from the proposed rule's 
requirements altogether, similar to the provisions under current NASD 
Rule 3050(f), or that the proposed rule should expand and update types 
of transactions and accounts that would be exempted from the rule.\60\
---------------------------------------------------------------------------

    \60\ ACLI, CAI, Charles Schwab, FSI, Hillard, National Planning, 
NMIS, NPB, Pacific Select, SIFMA and UBS.
---------------------------------------------------------------------------

    FINRA appreciates members' concern that the new rule should adhere 
closely to the current NASD requirement. However, FINRA believes that 
the proposed approach, similar to that reflected in NYSE Rule 407.12, 
serves a valid regulatory and supervisory purpose, specifically, that 
the associated person must obtain the employer member's prior written 
consent with respect to the referenced transactions and accounts, in 
the manner and to the extent required by the proposed rule. 
Accordingly, FINRA is proposing FINRA Rule 3210.03 largely as published 
in the Notice. Some commenters made specific suggestions as to the 
types of transactions and accounts that should be excluded from the 
requirement that the executing member provide duplicate account 
confirmations and statements to the employer member upon the employer 
member's written request.\61\ In response, FINRA has added municipal 
fund securities as defined under MSRB Rule D-12 and qualified Section 
529 plans to the referenced types of transactions, as FINRA believes 
that, of the suggestions proffered, these are similar to the types of 
transactions specified under current NASD Rule 3050(f) and NYSE Rule 
407.12 in posing limited risk from the standpoint of the rule's 
supervisory purposes. Accordingly, proposed FINRA Rule 3210.03 as 
revised provides that the requirement (pursuant to paragraph (c) of the 
proposed rule) that the executing member provide the employer member, 
upon the employer member's written request, with duplicate account 
confirmations and statements, or the transactional data contained 
therein, shall not be applicable to transactions in unit investment 
trusts, municipal fund securities as defined under MSRB Rule D-12, 
qualified tuition programs pursuant to Section 529 of the Internal 
Revenue Code and variable contracts or redeemable securities of 
companies registered under the Investment Company Act, as amended, or 
to accounts that are limited to transactions in such securities, or to 
Monthly Investment Plan type accounts.
---------------------------------------------------------------------------

    \61\ Four commenters specifically suggested qualified Section 
529 plans under the Internal Revenue Code. See CAI, FSI, NMIS and 
SIFMA. One suggested all municipal fund securities. See FSI. One 
suggested in addition ETFs and registered insurance products. See 
CAI.
---------------------------------------------------------------------------

6. Information Gathering, Processes and Controls
    The Notice requested comment on the methodologies that members 
employ to obtain information pursuant to NASD Rule 3050 and NYSE Rule 
407 and the processes and controls that members implement upon receipt 
of the required information.
    Commenters suggested the rule should not impose requirements as to 
the methodologies that members must use (e.g., receiving the 
information electronically versus in hard copy) or otherwise limit 
flexibility as to receiving and handling the information.\62\ One 
commenter suggested FINRA should encourage firms to use a consistent 
electronic format in transmitting the information.\63\ One suggested 
the proposed rule should state that the information can be received in 
electronic format.\64\ One requested that FINRA specify in the rule a 
retention period for information received pursuant to the rule.\65\
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    \62\ FSI, H & L Equities, ICI, Investors Security, NAIBD, NPB, 
NSCP, Pagemill, PSI and Taurus.
    \63\ Pacific Select.
    \64\ FSI.
    \65\ H & L Equities.
---------------------------------------------------------------------------

    In response to comments, FINRA has determined not to specify in the 
proposed rule any particular methodology. To this end, FINRA has 
revised proposed FINRA Rule 3210(c) to provide for transmission of 
``duplicate copies of confirmations and statements, or the 
transactional data contained therein.'' FINRA does not propose to 
specify in the rule a particular retention period because such concerns 
are adequately addressed elsewhere under SEA Rule 17a-4 and FINRA Rule 
4511 as appropriate.
7. Implementation Period
    Several commenters suggested that FINRA should permit an extended 
period for implementation of the proposed rule once approved.\66\ In 
response, in establishing an implementation date, FINRA will take into 
account that firms would need to modify their compliance systems to 
reflect the new rule's requirements. As stated earlier in this filing, 
FINRA will

[[Page 48949]]

announce such implementation date in a Regulatory Notice.
---------------------------------------------------------------------------

    \66\ ACLI, CAI, FSI and SIFMA.
---------------------------------------------------------------------------

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-029 on the subject line.

Paper Comments

     Send paper comments in triplicate to Robert W. Errett, 
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-029. 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 (http://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 business days between the hours of 
10:00 a.m. and 3:00 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-2015-029 and should be 
submitted on or before September 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\67\
---------------------------------------------------------------------------

    \67\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20006 Filed 8-13-15; 8:45 am]
 BILLING CODE 8011-01-P