[Federal Register Volume 79, Number 2 (Friday, January 3, 2014)]
[Notices]
[Pages 417-418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-31421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71196; File No. SR-FINRA-2013-048]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA 
Rule 8312 (FINRA BrokerCheck Disclosure) To Expand the Categories of 
Civil Judicial Disclosures Permanently Included in BrokerCheck

December 27, 2013.

I. Introduction

    On November 1, 2013, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend FINRA Rule 8312 (FINRA BrokerCheck 
Disclosure) to permanently make publicly available in BrokerCheck 
information about former associated persons of a member firm who have 
been the subject of an investment-related civil action brought by a 
state or foreign financial regulatory authority that has been dismissed 
pursuant to a settlement agreement. The proposal was published for 
comment in the Federal Register on November 20, 2013.\3\ The Commission 
received four comments on the proposal.\4\ This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70876 (November 14, 
2013), 78 FR 69728 (November 20, 2013) (``Notice'').
    \4\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from: Sneha Parmar and Jeffrey Peters, Student Interns, and Elissa 
Germaine, Supervising Attorney, Pace Investor Rights Clinic, Pace 
University School of Law, dated December 9, 2013 (``Pace letter''); 
Jason Doss, President, Public Investors Arbitration Bar Association, 
dated December 9, 2013 (``PIABA letter''); David T. Bellaire, 
Executive Vice President and General Counsel, Financial Services 
Institute, dated December 11, 2013 (``FSI letter''); and Andrea 
Seidt, North American Securities Administrators Association, Inc., 
President and Ohio Securities Commissioner, dated December 13, 2013 
(``NASAA letter'').
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II. Description of the Proposal

    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]''), which is 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 certain of 
this information publicly available, BrokerCheck, among other things, 
helps investors make informed choices about the individuals and firms 
with which they conduct business.
    Pursuant to Rule 8312(b)(1), FINRA releases to the public through 
BrokerCheck information on current or former members, current 
associated persons, and persons who were associated with a member 
within the preceding ten years. Under Rule 8312(c)(1), FINRA currently 
makes publicly available in BrokerCheck on a permanent basis 
information about former associated persons of a member who have not 
been associated with a member within the preceding ten years, and (A) 
were ever the subject of a final regulatory action, or (B) were 
registered on or after August 16, 1999 and were (i) convicted of or 
pled guilty or nolo contendere to a crime; (ii) the subject of a civil 
injunction in connection with investment-related activity or a civil 
court finding of involvement in a violation of any investment-related 
statute or regulation (``Civil Judicial Disclosures''); or (iii) named 
as a respondent or defendant in an investment-related arbitration or 
civil litigation which alleged that the person was involved in a sales 
practice violation and which resulted in an arbitration award or civil 
judgment against the person.
    The proposed rule change would amend Rule 8312(c)(1)(B)(ii) to 
expand the categories of Civil Judicial Disclosures that are 
permanently made publicly available in BrokerCheck to include 
information about former associated persons of a member who were 
registered on or after August 16, 1999 \5\ and who have been the 
subject of an investment-related civil action brought by a state or 
foreign financial regulatory authority that was dismissed pursuant to a 
settlement agreement, as reported to the CRD system via a uniform 
registration form.\6\ This information is currently available in 
BrokerCheck for ten years from the date an individual ceases to be 
associated with a member. FINRA believes that these settled civil 
actions should be available permanently in BrokerCheck because they may 
involve significant events or considerable undertakings on the part of 
the subject individual. For example, FINRA noted that one civil action 
involving excessive and undisclosed markups was settled for over 
$200,000. As such, FINRA stated that the proposed rule change would 
provide the public with access to such relevant and important 
information about formerly registered persons who, although no longer 
in the securities industry in a registered capacity, may work in other 
investment-related industries or may seek to attain other positions of 
trust with potential investors and about whom investors may wish to 
learn relevant information.\7\
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    \5\ The proposal will apply only to those individuals registered 
with FINRA on or after August 16, 1999. FINRA stated that filings 
for those individuals whose registrations terminated prior to August 
16, 1999 were not made electronically so BrokerCheck reports for 
such firms and individuals cannot be made in an automated fashion. 
Furthermore, FINRA stated that data limitations apply to the 
information available for some of those individuals. See Notice, 
supra note 3.
    \6\ This information is currently elicited by Question 14H(1)(c) 
on Form U4 (Uniform Application for Securities Industry Registration 
or Transfer).
    \7\ In January 2011, Commission staff released a Study and 
Recommendations on Improved Investor Access to Registration 
Information About Investment Advisers and Broker-Dealers 
(``Study''), in furtherance of Section 919B of the Dodd-Frank Act. 
The Study is available online at http://www.sec.gov/news/studies/2011/919bstudy.pdf. The Study contains four recommendations for 
improving investor access to registration information through 
BrokerCheck. FINRA stated that it implemented three of these 
recommendations in May 2012, which are to (i) unify search returns 
for BrokerCheck and the Investment Adviser Public Disclosure (IAPD) 
database, (ii) add the ability to search BrokerCheck by zip code, 
and (iii) increase the educational content on BrokerCheck. FINRA 
stated that it is currently working on the Study's fourth 
recommendation, which is to analyze the feasibility and advisability 
of expanding information available through BrokerCheck, as well as 
the method and format in which BrokerCheck information is displayed. 
FINRA stated that, in light of this recommendation, FINRA initiated 
a review of BrokerCheck and issued Regulatory Notice 12-10 
requesting comment on ways to facilitate and increase investor use 
of BrokerCheck. See Regulatory Notice 12-10 (February 2012) 
available online at http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p125621.pdf. In addition, FINRA 
stated that it engaged a market research consultant that conducted 
focus groups and surveyed investors throughout the country to obtain 
their opinions on the BrokerCheck program. FINRA stated that it 
filed this proposed rule change based on this evaluation, and that 
it continues to consider other comments regarding changes to 
BrokerCheck that were submitted in response to Regulatory Notice 12-
10. See Notice, supra note 3.

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[[Page 418]]

III. Summary of Comments

    The Commission received four comment letters on the proposed rule 
change.\8\ Three comments support the proposal.\9\ One of these 
commenters suggests FINRA should go further and include in BrokerCheck 
all information that is available on CRD reports absent a compelling 
reason to do otherwise.\10\ The commenter suggests, for example, that 
BrokerCheck should include information regarding an associated person's 
educational background, continuing education history, CRD filing 
history, and reasons for and comments related to a person's 
termination, among other things.\11\
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    \8\ See supra, note 4.
    \9\ See Pace, PIABA, and NASAA letters.
    \10\ See NASAA letter.
    \11\ Id. at 2.
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    One commenter states that it is concerned that the proposal may 
lead to individuals uninvolved in the alleged violations that were 
dismissed pursuant to a settlement agreement having a permanent record 
on BrokerCheck when no such violation actually occurred.\12\ For 
example, this commenter states that the proposed rule may capture 
individuals who were named in the regulatory action but did not have 
the opportunity to be dismissed from the litigation due to the 
settlement agreement.\13\ While the Commission appreciates this 
commenter's concerns, the Commission notes that the information that is 
the subject of this proposed rule change (i.e., an investment related 
civil action brought by a state or foreign financial regulatory 
authority that was dismissed pursuant to a settlement agreement) is 
already provided via BrokerCheck for current members as well as persons 
who have been associated with a member within the preceding ten years, 
and that this proposal simply expands the disclosure to make this 
information permanently available. Furthermore, to the extent a current 
or formerly associated person believes that the information disclosed 
through BrokerCheck relating to him is inaccurate or not accurately 
presented, he can initiate a dispute with FINRA to update, modify, or 
delete that information pursuant to FINRA Rule 8312(e).
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    \12\ See FSI Letter.
    \13\ Id.
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IV. Discussion and Commission Findings

    After carefully reviewing the proposed rule change and the comment 
letters, the Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.\14\ In particular, the 
Commission finds that the proposal is consistent with Section 15A(b)(6) 
of the Act,\15\ which requires, among other things, that FINRA's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78o-3(b)(6).
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    Specifically, the Commission believes that the proposal to 
permanently make publicly available in BrokerCheck information about 
persons formerly associated with a member who have been the subject of 
an investment-related civil action brought by a state or foreign 
financial regulatory authority that was dismissed pursuant to a 
settlement agreement may help deter fraudulent and manipulative conduct 
and enhance investor protection by expanding the time frame for 
disclosure of this important information to investors and other users 
of BrokerCheck. Such formerly registered persons, although no longer in 
the securities industry in a registered capacity, may work in other 
investment-related industries or may seek to attain other positions of 
trust with potential investors. The Commission believes that it is 
beneficial to investors and other users of BrokerCheck to have access 
to this information on a permanent basis. The Commission urges the 
public to utilize BrokerCheck as well as all other sources of 
information, particularly the databases of the state regulators, as 
well as legal search engines, and records searches, in conducting a 
thorough search of a firm or any associated person with whom they are 
considering doing business.
    The Commission believes that the proposed rule change is also 
consistent with the provisions of Section 15A(i)(1) of the Act,\16\ 
which require, among other things, FINRA to maintain a toll-free 
telephone listing and a readily accessible electronic or other process 
to receive and promptly respond to inquiries regarding registration 
information on members and their associated persons. The proposed rule 
change would allow FINRA, in response to inquiries via BrokerCheck, to 
make available certain information about persons formerly associated 
with members who were the subject of an investment-related civil action 
brought by a state or foreign financial regulatory authority that has 
been dismissed pursuant to a settlement agreement on a permanent basis, 
rather than for ten years from the date an individual ceases 
association with a member.
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    \16\ 15 U.S.C. 78o-3(i)(1).
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    Finally, as stated in the past, the Commission believes that FINRA 
should continuously strive to improve BrokerCheck, reviewing what 
additional information could be disclosed, such as the additional 
information that NASAA suggested in its comment letter, because 
BrokerCheck is a valuable tool for the public to use in deciding 
whether to work with a firm or an industry member.\17\ The Commission 
believes that this proposed rule change will enhance BrokerCheck by 
including information that should prove useful and beneficial to 
investors and the general public.
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    \17\ See, e.g., Securities Exchange Act Release Nos. 59916 (May 
13, 2009), 74 FR 23750 (May 20, 2009) and 62476 (July 8, 2010), 75 
FR 41254 (July 15, 2010).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-FINRA-2013-048), be, and 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2013-31421 Filed 1-2-14; 8:45 am]
BILLING CODE 8011-01-P