[Federal Register Volume 80, Number 96 (Tuesday, May 19, 2015)]
[Notices]
[Pages 28740-28742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12030]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34- 74953; File No. SR-FINRA-2015-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Reporting Requirements of FINRA 
Rule 4530(a)(1)(H)

May 13, 2015.
    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 May 5, 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 and 
II 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 provide an exception from the requirements of 
paragraph (a)(1)(H) of the rule for dealings with a member or 
associated person subject to statutory disqualification, if that member 
or associated person has been approved (or is otherwise permitted 
pursuant to FINRA rules and the federal securities laws) to be a member 
or to be 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 Rule 4530 requires members to report to FINRA specified 
events, such as statutory disqualifications, and quarterly statistical 
and summary information regarding written customer complaints.\4\ FINRA 
uses the information for regulatory purposes to identify and initiate 
investigations of firms, offices and associated persons that may pose a 
risk.
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    \4\ The specified events and customer complaint information must 
be electronically reported to FINRA via an application on FINRA's 
Firm Gateway.
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    FINRA Rule 4530(a)(1)(H) requires a member to report whenever the 
member itself or an associated person of the member is subject to a 
``statutory disqualification'' as defined in the Act. The rule also 
requires a member to report whenever the member or an associated person 
of the member is involved in the sale of any financial instrument, the 
provision of any investment advice or the financing of any such 
activities with any person that is subject to a ``statutory 
disqualification'' as defined in the Act. The report must include the 
name of the person subject to the statutory disqualification and 
details concerning the disqualification. In addition, the report must 
be submitted to FINRA within 30 calendar days after the member knows or 
should have known of the event.
    The definition of ``statutory disqualification'' under the Act 
includes, among other events, findings by the SEC, Commodity Futures 
Trading Commission or a self-regulatory organization that a person: (1) 
Willfully violated the federal securities or commodities laws, or the 
Municipal Securities Rulemaking Board rules; (2) willfully aided, 
abetted, counseled, commanded, induced or procured such violations; or 
(3) failed to supervise another person who commits violations of such 
laws or rules.\5\ Thus, for instance, a member is currently required to 
report under FINRA Rule 4530(a)(1)(H) each time the member is involved 
in the sale of any financial instrument, such as participating in a 
selling syndicate or selling group, with a member that has been found 
to have willfully violated the federal securities laws. This would be 
true even if the member that is subject to the willful violation has 
been approved, or is otherwise permitted pursuant to FINRA rules and 
the federal securities laws, to continue in membership notwithstanding 
the disqualification.\6\
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    \5\ See 15 U.S.C. 78c(a)(39).
    \6\ In general, persons subject to a statutory disqualification 
would be required to obtain approval from FINRA to enter or remain 
in the securities industry. A firm seeking to continue in 
membership, notwithstanding the existence of such a 
disqualification, generally would be required to file an MC-400A 
application with FINRA. Similarly, a firm seeking to sponsor (i.e., 
employ or associate with) a disqualified person generally would be 
required to file an MC-400 application with FINRA. However, as 
described in Regulatory Notice 09-19 (April 2009), a firm would not 
be required to file an application for approval for specific 
disqualifying events. For instance, a firm that is subject to a 
statutory disqualification based on a willful violation of the 
federal securities laws would not be required to file an MC-400A 
application with FINRA if the sanction is no longer in effect. Such 
a firm would be permitted to continue in membership notwithstanding 
the disqualification and without having to file an application with 
FINRA for approval.
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    For the following reasons, FINRA believes that there is no 
regulatory value

[[Page 28741]]

in requiring a firm to report dealings with a disqualified member or 
associated person that has been approved or is otherwise permitted to 
be a member or associated with a member. First, FINRA is aware of the 
statutory disqualification status of such members and associated 
persons. Second, disqualified members and associated persons that have 
been approved to be members or associated with members typically are 
subject to special supervisory conditions, and FINRA periodically 
examines them to ensure compliance with the supervisory conditions and 
to monitor for other problems.
    Therefore, FINRA is proposing to amend Rule 4530(a)(1)(H) to 
exclude activities with a disqualified member or associated person that 
has been approved (or is otherwise permitted pursuant to FINRA rules 
and the federal securities laws) to be a member or associated with a 
member.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date of the proposed rule change will 
be 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,\7\ 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 reporting of 
information to FINRA and allowing FINRA to use its resources more 
efficiently. FINRA also believes that the proposed rule change will 
serve to reduce potential compliance burdens on firms without 
compromising the regulatory information available to FINRA.
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    \7\ 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 rule change would reduce potential compliance burdens 
on firms by eliminating the requirement under FINRA Rule 4530(a)(1)(H) 
to report to FINRA each instance where a firm or an associated person 
is involved in a financial activity with a disqualified member or 
associated person that has been approved or is otherwise permitted to 
be a member or associated with a member.

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of 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 fulfilled this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii)\11\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. FINRA 
requested the Commission to waive the 30-day operative delay so it can 
implement the proposed rule change immediately. FINRA stated that 
waiver of the operative delay would eliminate unnecessary reporting 
requirements relating to dealings with members or associated persons 
that are subject to a statutory disqualification where FINRA already 
has access to information regarding the status of such persons and they 
have either been approved or are otherwise permitted to be a member or 
associated with a member. The Commission believes the waiver of the 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposal operative upon filing.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 Number SR-FINRA-2015-011 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2015-011. 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 the filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received

[[Page 28742]]

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-2015-011 and should be submitted 
on or before June 9, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12030 Filed 5-18-15; 8:45 am]
 BILLING CODE 8011-01-P