[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

[[Page 5533]]

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