[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5542-5544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01494]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68700; File No. SR-FINRA-2013-002]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend
FINRA Rule 2267 (Investor Education and Protection)
January 18, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 7, 2013, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 2267 (Investor Education and
Protection) to require that members include a prominent description of
and link to FINRA BrokerCheck, as prescribed by FINRA, on their Web
sites, social media pages and any comparable Internet presence and on
Web sites, social media pages and any comparable Internet presence
relating to a member's investment banking or securities business
maintained by or on behalf of any person associated with a member.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA established BrokerCheck in 1988 (then known as the Public
Disclosure Program) to provide the public with information on the
professional background, business practices, and conduct of FINRA-
member firms and their associated persons. The information that FINRA
releases to the public through BrokerCheck is derived from the Central
Registration Depository (``CRD[supreg]''), the securities industry
online registration and licensing database. FINRA-member firms, their
associated persons and regulators report information to the CRD system
via the uniform registration forms. By making most of this information
publicly available, BrokerCheck, among other things, helps investors
make informed choices about the individuals and firms with which they
conduct business.
In January 2011, Commission staff released its Study and
Recommendations on Improved Investor Access to Registration Information
About Investment Advisers and Broker-Dealers (``Study''),\3\ in
furtherance of Section 919B of the Dodd-Frank Act. The Study contains
four recommendations for improving investor access to registration
information through BrokerCheck and the Commission's Investment Adviser
Public Disclosure (``IAPD'') database. In May 2012, FINRA implemented
the Study's three ``near-term'' recommendations.\4\ FINRA is currently
working on the Study's ``intermediate-term'' recommendation, which
involves analyzing the feasibility and advisability of expanding the
information available through BrokerCheck, as well as the method and
format that BrokerCheck information is displayed.
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\3\ The Study is available online at http://www.sec.gov/news/studies/2011/919bstudy.pdf.
\4\ These recommendations are to unify search returns for
BrokerCheck and IAPD, add the ability to search BrokerCheck by ZIP
code, and increase the educational content on BrokerCheck.
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In light of the Study's ``intermediate-term'' recommendation and
FINRA's belief that regular evaluation of its BrokerCheck program is an
important part of its statutory obligation to make information
available to the public,\5\ FINRA has initiated a thorough review of
BrokerCheck. As part of this review, FINRA issued Regulatory Notice 12-
10 requesting comment on ways to facilitate and increase investor use
of BrokerCheck information. In addition, FINRA engaged a market
research consultant that conducted focus groups and surveyed investors
throughout the country to obtain their opinions on the BrokerCheck
program.
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\5\ See Section 15A(i) of the Act. 15 U.S.C. 78o-3(i). Since
establishing BrokerCheck, FINRA has regularly assessed the scope and
utility of the information it provides to the public and, as a
result, has made numerous changes to improve the program.
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Participants in the focus groups were asked questions about a
variety of topics, including the financial markets, working with a
broker or investment adviser, and the BrokerCheck program. Many of the
participants stated that they had been unaware of the existence of
BrokerCheck prior to their participation in the focus groups.\6\ After
learning about BrokerCheck, the consensus among focus group
participants was that investors should use BrokerCheck when considering
whether to work with a new investment professional or firm and that it
therefore was important for BrokerCheck to be more widely known among
investors. Based on the focus group results and the comments received
in response to Regulatory
[[Page 5543]]
Notice 12-10, FINRA is proposing to amend Rule 2267.\7\
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\6\ This is consistent with a 2009 study that found that only 15
percent of respondents said that they had checked a financial
advisor's background with a state or federal regulator. See
Financial Capability in the United States (FINRA Investor Education
Foundation, Dec. 1, 2009), available at http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120536.pdf.
\7\ FINRA continues to consider other comments regarding changes
to BrokerCheck that were submitted in response to Regulatory Notice
12-10.
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Subject to limited exceptions, FINRA Rule 2267(a) currently
requires members to annually provide in writing to each of their
customers the BrokerCheck hotline number, the FINRA Web site address,
and a notification of the availability of an investor brochure that
includes information describing BrokerCheck.\8\ To further increase
investor awareness and use of BrokerCheck, the proposed rule change
would amend Rule 2267 to require all members to include a prominent
description of and link to BrokerCheck, as prescribed by FINRA, on
their Web sites, social media pages and any comparable Internet
presence, as well as on the Web sites, social media pages and any
comparable Internet presence relating to the firm's investment banking
or securities business maintained by or on behalf of any person
associated with a member.
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\8\ Any member whose contact with customers is limited to
introducing customer accounts to be held directly at an entity other
than a FINRA member and thereafter does not carry customer accounts
or hold customer funds and securities may furnish a customer with
such information at or prior to the time of the customer's initial
purchase, in lieu of once every calendar year. Any member that does
not have customers or is a party to a carrying agreement where the
carrying firm member furnishes a customer with such information is
exempt from the requirements of FINRA Rule 2267(a).
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To ensure consistency and help with the implementation of the
proposed rule change, FINRA would provide members with the text
description and web address format for the link to BrokerCheck. The web
address provided by FINRA, which would include a firm's or individual's
CRD number, would be specific to each member or associated person. The
link would take the user to BrokerCheck's search results screen for the
subject firm or individual, which displays basic information, such as
CRD number, SEC number (for firms), registration status, and employing
firm (for individuals). Once the investor completes the challenge-
response test (used to make it more difficult for an automated
application to collect BrokerCheck information) and agrees to
BrokerCheck's terms and conditions, the investor will be able to obtain
a detailed BrokerCheck report on the subject firm or individual.
FINRA believes that the proposed change will increase investor use
of BrokerCheck because the link provided on a firm's or individual's
Web site will take investors to that firm's or individual's specific
BrokerCheck search results screen rather than the BrokerCheck homepage.
Thus, investors will not be required to enter the name of the firm or
individual they are searching for or to select the correct broker or
firm from the search results.
To further help with implementation of the proposed rule change,
FINRA will provide in the Regulatory Notice announcing the effective
date of the proposed rule change guidance regarding the prominence and
placement of the BrokerCheck description and link.
FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 180 days
following publication of the Regulatory Notice announcing 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,\9\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change would
increase investor awareness and use of BrokerCheck, thereby helping
investors make informed choices about the individuals and firms with
which they conduct business. Specifically, FINRA believes that the
proposed description of BrokerCheck will alert investors to the
existence of the program and the link to the subject firm or individual
will make BrokerCheck even easier to use as a research tool.
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\9\ 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.
FINRA believes that the proposed rule change will enhance investor
protection by increasing the public's awareness and use of BrokerCheck.
FINRA expects that the inclusion of a prominent description of
BrokerCheck on a firm's or associated person's Web site will increase
the public's awareness of the program by alerting investors to the
existence of BrokerCheck while they are researching a firm or broker.
FINRA believes that the proposal will not result in a significant
burden on members or associated persons. In this regard, although FINRA
has not found any independent estimates relating to the cost of adding
a link to a Web site, FINRA anticipates that the costs to comply with
the proposed rule change to members and associated persons will be
limited, particularly for those firms that will make the changes with a
content management system,\10\ and will not significantly burden small
firms. In addition, FINRA will provide firms with the specific links
(in a user-friendly URL format) to be added to their Web sites, thereby
helping to contain the costs associated with the proposal.
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\10\ In general, a content management system is a software
application that is used to manage text, images, audio and video
content for a Web site. FINRA recognizes that some firms may not use
a content management system and therefore may incur additional
development costs depending on how their Web sites are configured.
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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 by FINRA in
Regulatory Notice 12-10 (February 2012). A copy of the Regulatory
Notice is attached as Exhibit 2a.\11\ The comment period expired on
April 27, 2012. FINRA received 71 comment letters in response to the
Regulatory Notice. A list of the comment letters received in response
to the Regulatory Notice is attached as Exhibit 2b.\12\ Eleven of the
71 comment letters received addressed proposed changes to Rule
2267.\13\ Of these 11 comment letters, 10 were in favor of an increase
in the communication by firms to their customers about the existence of
BrokerCheck and one was opposed.
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\11\ The Commission notes that Exhibit 2a is attached to the
filing, not to this Notice.
\12\ The Commission notes that Exhibit 2b is attached to the
filing, not to this Notice. All references to the commenters under
this Item are to the commenters as listed in Exhibit 2b.
\13\ ARM, CFA, CFP, Davis, Dickenson, Dorsey, Foresters, Kelly,
McCraken, PIRC, and Podolak.
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Several commenters expressed the view that firms should include a
link to BrokerCheck on their Web sites to help increase investor
awareness of the program.\14\ Some of these commenters also suggested
that firms be required to include the BrokerCheck Web site address in
various other locations such as public communications, new account
documents, and monthly statements.\15\
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\14\ CFA, CFP, Davis, Foresters, Kelly, McCracken, and PIRC.
\15\ ARM, CFA, CFP, PIRC, and Podolak.
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FINRA appreciates the commenters' suggestions on additional ways to
increase investor awareness of
[[Page 5544]]
BrokerCheck and will consider them in the future. When considering the
commenters' suggestions, FINRA will examine, among other things,
whether the inclusion of the BrokerCheck Web site address on materials
such as public communications, new account documents, and monthly
statements would materially increase investor awareness or use of
BrokerCheck, as well as the potential additional costs that the
suggested changes would impose on members and their associated persons.
One commenter suggested that no changes be made to Rule 2267.\16\
As previously mentioned, FINRA believes that the proposed rule change
will benefit investors by increasing the awareness and use of
BrokerCheck.
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\16\ Dorsey.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2013-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2013-002. 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-2013-002 and should be
submitted on or before February 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01494 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P