[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5532-5535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01495]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68701; File No. SR-FINRA-2013-006]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to FINRA Rule 4530 (Reporting
Requirements)
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 14, 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. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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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 4530 (Reporting
Requirements) to: (1) Provide an exception from the rule for
information disclosed on the Form U4 (Uniform Application for
Securities Industry Registration or Transfer); (2) enable members to
file required documents with FINRA online; and (3) provide an exception
from the rule for findings and actions by FINRA.
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
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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 Rule 4530, which became effective on July 1, 2011,\4\
requires members to report to FINRA specified events (e.g., findings by
a regulatory body) and quarterly statistical and summary information
regarding written customer complaints.\5\
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\4\ FINRA Rule 4530 replaced NASD Rule 3070 (Reporting
Requirements) and the corresponding provisions in Incorporated NYSE
Rule 351 (Reporting Requirements). See Regulatory Notice 11-06
(February 2011).
\5\ The specified events and customer complaint information must
be electronically reported to FINRA via an application on FINRA's
Firm Gateway. See Regulatory Notice 11-10 (March 2011).
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Exception for Information Disclosed on the Form U4
FINRA Rule 4530(e) currently provides that a firm is not required
to report a specified event under the rule if it reports that event on
the Form U5 (Uniform Termination Notice for Securities Industry
Registration), consistent with the requirements of that form.\6\ This
provision is intended to eliminate duplicative reporting of information
disclosed on the Form U5. FINRA proposes to provide a similar exception
for certain specified events reported on the Form U4. The process
applicable under the proposed Form U4 exception will, however, be
slightly different, in part because of differences in the reporting
criteria between Form U4 and FINRA Rule 4530 events.\7\
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\6\ This exception does not extend to the reporting of quarterly
statistical and summary customer complaint information under the
rule.
\7\ For example, a registered person's Form U4 must be amended
to report pending arbitration claims initiated by a customer where
the registered person is the subject of such a claim, the customer
alleges sales practice violations, and the customer claims damages
in the amount of $5,000 or more. A member must report such a matter
promptly (in general, not later than 30 days after the member is
served with the customer claim) and before the claim has a final
disposition. In contrast, FINRA Rule 4530(a)(1)(G) requires the
reporting of such matters only when there has been a final
disposition that results in an award or a settlement for an amount
exceeding $15,000.
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Under the Form U4 exception process, a member will be required to
affirmatively request through functionality on the Central Registration
Depository (CRD[supreg] system) that the data reported on a Form U4
Disclosure Reporting Page (DRP) also be applied to satisfy its
corresponding FINRA Rule 4530 reporting obligation. Specifically, FINRA
proposes to enable filers to designate through the use of checkboxes in
the CRD system that the data reported on certain Form U4 DRPs also be
applied to satisfy the corresponding requirement under FINRA Rule
4530(a)(1).\8\ FINRA expects that this affirmative designation by the
member will facilitate the staff's review process by allowing the staff
to continue to identify, categorize and review Rule FINRA 4530
reportable events in a timely fashion and reduce the number of staff
inquiries to the member to confirm or clarify the firm's intention.
FINRA proposes to enable firms to designate that data on the following
Form U4 DRPs be applied to satisfy the applicable FINRA Rule 4530(a)(1)
events: (1) Criminal; (2) Regulatory Action; (3) Civil Judicial; and
(4) Customer Complaint/Arbitration/Civil Litigation.
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\8\ FINRA Rules 4530(a)(1)(A) through (H), which address the
reporting of regulatory, criminal and civil actions, in general,
correspond with information disclosed on the Form U4. There is no
corresponding provision on the Form U4 for matters reportable under
FINRA Rule 4530(a)(2) (disciplinary actions taken by a member
against an associated person) or FINRA Rule 4530(b) (a member's
internal conclusions of violations).
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The proposed rule change will be effected through functionality in
the CRD system; FINRA is not proposing changes to the Form U4.
Moreover, firms can continue to report an event via the FINRA Rule 4530
application on the Firm Gateway. Finally, similar to the Form U5
exception, the proposed Form U4 exception will not extend to the
reporting of quarterly statistical and summary customer complaint
information pursuant to FINRA Rule 4530(d).
Availability of Online Filings
FINRA Rule 4530(f) requires firms to promptly file with FINRA
copies of certain criminal actions, civil complaints and arbitration
claims.\9\ Firms have the option of filing the required documents
either electronically (as a scanned email attachment or scanned and
saved on a disk) or in paper form. Currently, firms do not have the
option of filing these documents with FINRA online. FINRA proposes to
amend FINRA Rule 4530 to give members the option of filing the required
documents online via FINRA's Firm Gateway.\10\ This will provide firms
an online platform to satisfy both their reporting and filing
obligations under FINRA Rule 4530. The documents will be automatically
uploaded in an existing centralized FINRA database. This change has the
potential to reduce the burden on those firms that prefer to file
documents electronically while also providing firms and FINRA with a
more efficient audit trail and saving FINRA staff time currently spent
uploading documents to the centralized database.
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\9\ FINRA Rule 4530 provides an exception for any arbitration
claim that is originally filed in the FINRA Dispute Resolution forum
and for those documents that have already been requested by FINRA's
Registration and Disclosure (RAD) staff, provided that the firm
produces those requested documents to RAD staff within 30 days after
receipt of such request.
\10\ See proposed FINRA Rule 4530(g).
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However, firms that choose to file their documents electronically
using the Firm Gateway will be required to provide limited summary
information regarding the documents,\11\ such as the name and telephone
number of the contact person and the name of the complainant or
plaintiff. The required summary information will also automatically
populate the centralized database. This will allow FINRA staff to
retrieve and analyze information contained in these submissions from a
consolidated source. Further, because the summary information will
automatically populate the centralized database, FINRA staff will not
have to separately enter such information into the database, which will
improve the efficiency of the review process.
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\11\ See supra note 10.
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In conjunction with the proposed rule change, FINRA proposes to
create a new form, which will be available through the Firm
Gateway.\12\ Members that choose to file their documents online will be
required to complete the mandatory fields on the new online form and
attach to the form a scanned copy of the required documents, in a
format such as Adobe PDF.
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\12\ A copy of the proposed online form, including explanations
of certain fields on the form, is attached as Exhibit 3. The
Commission notes that Exhibit 3 is attached to the filing, not to
this Notice.
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Firms will continue to have the option of filing the documents
required under FINRA Rule 4530(f) via mail or email. In addition, the
requirement to provide limited summary information regarding the
documents only applies to firms that choose to file the documents with
FINRA online using the new form; the requirement does not apply to
firms that use other permissible electronic means (e.g., email) to file
the documents with FINRA.\13\
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\13\ FINRA is not proposing to require firms that use other
permissible electronic means to file the documents with FINRA to
provide the summary information, because the functionality to
prepopulate the centralized database with such information is
limited to online filings.
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[[Page 5534]]
Exception for FINRA Findings and Actions
FINRA Rule 4530(a)(1)(A) requires a member to report external
findings regarding the member or an associated person. FINRA Rules
4530(a)(1)(C) and (D) require a member to report regulatory actions
against the member or an associated person. FINRA Rules 4530(a)(1)(A),
(C) and (D) do not expressly exclude findings and actions by FINRA.
However, since FINRA staff has access to such information through an
enterprise-wide solution, FINRA proposes to add Supplementary Material
.10 to FINRA Rule 4530 to provide that, for purposes of FINRA Rules
4530(a)(1)(A), (C) and (D) only, members are not required to report
findings and actions by FINRA. This exception is, in general,
consistent with the exception under FINRA Rule 4530(f) for arbitration
claims filed in the FINRA Dispute Resolution forum.
FINRA has filed the proposed rule change for immediate
effectiveness. FINRA will announce the implementation date of the
proposed rule change in a Regulatory Notice to be published no later
than 60 days following the date of filing. The implementation date will
be no later than 180 days after the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ 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 will
further these purposes by eliminating unnecessary duplicative reporting
of information to FINRA and providing firms with the option to file
documents required under FINRA Rule 4530 online. FINRA believes that
the proposed rule change will serve to reduce potential burdens imposed
by the rule without compromising the regulatory information available
to FINRA.
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\14\ 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.
The proposed amendment to FINRA Rule 4530(e) to provide an
exception for information disclosed on the Form U4 will eliminate the
burden on firms of having to report the same event twice. While firms
will be required to affirmatively request that the data reported on a
Form U4 be applied to satisfy a corresponding FINRA Rule 4530 reporting
obligation, FINRA believes any resulting burden will be less than the
current burden of separately reporting an event via the FINRA Rule 4530
application. In addition, as noted above, FINRA expects the affirmative
designation requirement to facilitate the staff's review process and
reduce the need for follow-up communications with firms.
The proposed change to FINRA Rule 4530(g) to provide firms the
option of filing required documents online will not impact or burden
firms that wish to continue filing the required documents via mail or
email. With respect to those firms that choose to file the required
documents online, FINRA believes that the burden on them will be
negligible for the following reasons. All members have an existing
obligation to have online access to FINRA, including a user ID and
password, for purposes of other regulatory filings.\15\ In addition,
with respect to the requirement to attach to the online form a scanned
copy of the required documents, FINRA believes that the requirement
does not create an unreasonable burden for members given the widespread
use of scanning technology, such as PDF. Further, the proposed rule
change will require that they provide limited summary information
regarding the documents. However, FINRA believes that any
administrative burden imposed upon such members by this requirement
would be outweighed by the benefit to FINRA's regulatory program in
allowing the staff to retrieve and analyze information contained in
these submissions from a consolidated source that is prepopulated by
the firms' submissions.
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\15\ See, e.g., FINRA Rule 1010 (Electronic Filing Requirements
for Uniform Forms).
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Moreover, FINRA does not believe that the proposed change to FINRA
Rule 4530(g) places members that cannot submit their documents
electronically because they lack scanning technology at a disadvantage
to those members that have the capability to do so. As noted above,
members that cannot submit their documents electronically can continue
to submit their documents via mail without any interruption to their
existing processes. In addition, while such members will not have the
benefit of tracking their submissions electronically, they can use non-
electronic means, such a return receipt, for tracking purposes.
Finally, the addition of Supplementary Material .10 to FINRA Rule
4530 eliminates the burden on firms of having to report findings and
actions by FINRA for purposes of FINRA Rules 4530(a)(1)(A), (C) and
(D). FINRA staff will continue to have access to such information
through an enterprise-wide solution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
FINRA has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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
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Number SR-FINRA-2013-006 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-2013-006. 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-2013-006 and should be
submitted on or before February 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01495 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P