[Federal Register Volume 80, Number 157 (Friday, August 14, 2015)]
[Notices]
[Pages 48941-48949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20006]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75655; File No. SR-FINRA-2015-029]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial 
Institutions) in the Consolidated FINRA Rulebook

August 10, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on July 31, 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, II, and III below, which Items have been substantially 
prepared by FINRA. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 3210 (Accounts at Other 
Broker-Dealers and Financial Institutions) in the Consolidated FINRA 
Rulebook, and to delete NASD Rule 3050, Incorporated NYSE Rules 407 and 
407A and Incorporated NYSE Rule Interpretations 407/01 and 407/02.
    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.

[[Page 48942]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt a 
new, consolidated rule addressing accounts opened or established by 
associated persons of members at firms other than the firm with which 
they are associated. FINRA proposes to adopt FINRA Rule 3210 (Accounts 
at Other Broker-Dealers and Financial Institutions) in the Consolidated 
FINRA Rulebook and to delete NASD Rule 3050, Incorporated NYSE Rules 
407 and 407A and Incorporated NYSE Rule Interpretations 407/01 and 407/
02.\4\
---------------------------------------------------------------------------

    \3\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ For convenience, the Incorporated NYSE Rules are referred to 
as the ``NYSE Rules.''
---------------------------------------------------------------------------

    Sound supervisory practices require that a member firm monitor 
personal accounts opened or established outside of the firm by its 
associated persons. Proposed FINRA Rule 3210 combines and streamlines 
longstanding provisions of the NASD and NYSE rules that address this 
area and would, in combination with FINRA's new FINRA Rule 3110(d) 
governing securities transactions review and investigation,\5\ help 
facilitate effective oversight of the specified trading activities of 
associated persons of member firms. FINRA sought comment on the 
proposal in a Regulatory Notice (the ``Notice'').\6\ FINRA has revised 
the proposed rule as published in the Notice in response to 
comments.\7\
---------------------------------------------------------------------------

    \5\ New FINRA Rule 3110(d) (Transaction Review and 
Investigation) sets forth requirements for supervisory procedures 
for members to comply with the Insider Trading and Securities Fraud 
Enforcement Act of 1988 (``ITSFEA'') (Pub. L. 100-704, 102 Stat. 
4677). The Commission has approved FINRA Rule 3110(d) as part of 
FINRA's new consolidated supervision rules, which became effective 
on December 1, 2014. See Securities Exchange Act Release No. 71179 
(December 23, 2013), 78 FR 79542 (December 30, 2013) (Order Granting 
Approval of Proposed Rule Change; File No. SR-FINRA-2013-025) 
(``Supervisory Rules Filing''); see also Regulatory Notice 14-10 
(March 2014) (Consolidated Supervision Rules). Paragraph (d)(1) of 
the rule requires that a member's supervisory procedures must 
include a process for the review of securities transactions that is 
reasonably designed to identify trades that may violate the 
provisions of the Act, its regulations, or FINRA rules prohibiting 
insider trading and manipulative and deceptive devices that are 
effected for the accounts specified under paragraphs (d)(1)(A) 
through (d)(1)(D) of the rule.
    \6\ See Regulatory Notice 09-22 (April 2009) (Personal 
Securities Transactions).
    \7\ Comments are discussed in Item II.C of this filing. As 
discussed further in Item II.C, commenters expressed concern that 
Rule 3210, as proposed in the Notice, would be burdensome or 
difficult to implement and that the rule should, informed by the 
approach of current NASD Rule 3050, be revised to permit firms 
flexibility to craft appropriate supervisory policies and procedures 
taking into account their business models and the risk profiles of 
their activities.
---------------------------------------------------------------------------

(A) Background: NASD Rule 3050 and NYSE Rules 407 and 407A
    NASD Rule 3050 and NYSE Rules 407 and 407A are longstanding rules 
that address specified accounts opened or established by associated 
persons of members at firms other than the firm with which they are 
associated.
    NASD Rule 3050 (designated in its original form as Section 28 of 
the Rules of Fair Practice) was adopted to address this issue by 
providing a means by which members would be informed of the extent and 
nature of transactions effected by their employees or other associated 
persons,\8\ so that members, in their own interest and in the interest 
of their customers, might weigh the effect, if any, of such 
transactions handled outside their firms.\9\ The rule imposes specified 
obligations on member firms and associated persons.\10\ In short:
---------------------------------------------------------------------------

    \8\ The terms ``person associated with a member'' and 
``associated person of a member'' include, among others, registered 
representatives. See paragraph (rr) of Article I of the FINRA By-
Laws.
    \9\ See Securities Exchange Act Release No. 4924 (August 21, 
1953).
    \10\ FINRA historically has noted that the purpose of the rule 
(originally designated Article III, Section 28 of the Rules of Fair 
Practice) is to ``help member firms discharge their supervisory 
responsibility over the securities activities conducted in their 
associated persons' personal securities accounts.'' Securities 
Exchange Act Release No. 23754 (October 28, 1986), 51 FR 40546 
(November 7, 1986) (Proposed Rule Change; File No. SR-NASD-86-29).
---------------------------------------------------------------------------

     Obligations of Member Firms: NASD Rule 3050(a) requires 
that a member (called an ``executing member'') who knowingly executes a 
transaction for the purchase or sale of a security for the account of a 
person associated with another member (called an ``employer member''), 
or for any account over which the associated person has discretionary 
authority, must use reasonable diligence to determine that the 
execution of the transaction will not adversely affect the interests of 
the employer member. NASD Rule 3050(b) requires that, where an 
executing member knows that a person associated with an employer member 
has or will have a financial interest in, or discretionary authority 
over, any existing or proposed account carried by the executing member, 
the executing member must:
    (1) Notify the employer member in writing, prior to the execution 
of a transaction for the account, of the executing member's intention 
to open or maintain that account;
    (2) Upon written request by the employer member, transmit duplicate 
copies of confirmations, statements, or other information with respect 
to the account; and
    (3) Notify the person associated with the employer member of the 
executing member's intention to provide the notice and information 
required by (1) and (2).
     Obligations of Associated Persons: NASD Rules 3050(c) and 
Rule 3050(d), in combination, address associated persons, whether they 
open securities accounts or place securities orders through a member 
firm other than their employer or whether they do so through other 
types of financial services firms that are not FINRA members.\11\ 
Specifically:
---------------------------------------------------------------------------

    \11\ NASD Rule 3050(e) provides that Rules 3050(c) and (d) apply 
only to accounts or orders in which an associated person has a 
financial interest or with respect to which the associated person 
has discretionary authority.
---------------------------------------------------------------------------

    (1) NASD Rule 3050(c) requires that a person associated with a 
member, prior to opening an account or placing an initial order for the 
purchase or sale of securities with another member, must notify both 
the employer member and the executing member, in writing, of his or her 
association with the other member. The rule provides that if the 
account was established prior to the person's association with the 
employer member, the person must notify both members in writing 
promptly after becoming associated;
    (2) NASD Rule 3050(d) provides that if the associated person opens 
a securities account or places an order for the purchase or sale of 
securities with a broker-dealer that is registered pursuant to SEA 
Section 15(b)(11) (a notice-registered broker-dealer), a domestic or 
foreign investment adviser, bank, or other financial institution (that 
is, firms that are not FINRA members), then he or she must: (i) Notify 
his or her employer member in writing, prior to the execution of any 
initial transactions, of the intention to open the account or place the 
order; and (ii) upon written request by the employer member, request in 
writing and assure that the notice-registered broker-dealer, investment 
adviser, bank, or other financial institution provides the

[[Page 48943]]

employer member with duplicate copies of confirmations, statements, or 
other information concerning the account or order. NASD Rule 3050(d) 
provides that if an account subject to Rule 3050(d) was established 
prior to the person's association with the member, the person must 
comply with the rule promptly after becoming associated;
    (3) NASD Rule 3050(f) provides that the requirements of Rule 3050 
do not apply to transactions in unit investment trusts and variable 
contracts or redeemable securities of companies registered under the 
Investment Company Act of 1940, or to accounts which are limited to 
transactions in such securities.
    NYSE Rule 407, similar in purpose to FINRA Rule 3050, addresses 
transactions by and for employees of member firms \12\ as follows:
---------------------------------------------------------------------------

    \12\ See note 10 supra. The NYSE noted that Rule 407 imposes 
obligations as to specified personal accounts of employees and 
associated persons and that one of the rule's purposes, among other 
things, is to help deter and detect violations of applicable federal 
securities laws and regulations. See NYSE Information Memo 09-50 
(October 30, 2009) (Supervision of Trading in Proprietary, Employee 
and Employee-Related Securities and Commodities Accounts).
---------------------------------------------------------------------------

     NYSE Rule 407(a) is similar to NASD Rule 3050(b), except 
that Rule 407(a) imposes a requirement to obtain the prior written 
consent of the employer member.\13\ Specifically, the rule requires 
that no member or member organization may, without the prior written 
consent of the employer, open a securities or commodities account or 
execute any transaction in which a member or employee associated with 
another member or member organization is directly or indirectly 
interested. The rule requires that duplicate confirmations and account 
statements be sent promptly to the employer.
---------------------------------------------------------------------------

    \13\ The term ``employer member'' is defined within the context 
of the NASD rule, not the NYSE rule. For purposes of discussing NYSE 
Rule 407, in this filing the term ``employer member'' is used 
interchangeably with ``employer'' for convenience.
---------------------------------------------------------------------------

     NYSE Rule 407(b) is similar to NASD Rules 3050(c) and (d), 
except that, like NYSE Rule 407(a), it also sets forth a prior written 
consent requirement. The rule requires that no member associated with a 
member or member organization may establish or maintain any securities 
or commodities account \14\ or enter into any securities transaction 
with respect to which such person has any financial interest or the 
power, directly or indirectly, to make investment decisions, at another 
member or member organization, or a domestic or foreign non-member 
broker-dealer, investment adviser, bank, other financial 
institution,\15\ or otherwise without the prior written consent of 
another person designated by the member or member organization to sign 
such consents and review such accounts. The rule requires that persons 
having accounts or effecting transactions as covered by the rule must 
arrange for duplicate confirmations and statements (or their 
equivalents) to be sent to a person designated by the member or member 
organization to review such accounts and transactions. The rule further 
requires that all such accounts and transactions must periodically be 
reviewed by the member or member organization employer.\16\
---------------------------------------------------------------------------

    \14\ NYSE Rule 407.11 states that the term ``securities or 
commodities accounts'' as used in Rule 407(b) includes, but is not 
limited to, limited or general partnership interests in investment 
partnerships.
    \15\ NYSE Rule 407.13 states that, for purposes of the rule, the 
term ``other financial institution'' includes, but is not limited 
to, insurance companies, trust companies, credit unions and 
investment companies.
    \16\ NYSE Rule 407.11 requires that members and member 
organizations must develop and maintain written procedures for 
reviewing such accounts and transactions and must assure that their 
associated persons are not improperly recommending or marketing such 
securities or products to others through members or member 
organizations.
---------------------------------------------------------------------------

     NYSE Rule 407.12 provides that the rule's requirement to 
send duplicate confirmations and statements does not apply to 
transactions in unit investment trusts and variable contracts or 
redeemable securities of companies registered under the Investment 
Company Act of 1940, or to accounts which are limited to transactions 
in such securities, or to Monthly Investment Plan type accounts, unless 
the employer member requests receipt of duplicate confirmations and 
statements of such accounts. As such, the provision is similar to the 
corresponding provisions under NASD Rule 3050(f), except that Rule 
3050(f) wholly excepts the specified transactions and accounts from the 
scope of Rule 3050.
    In addition, NYSE Rule 407A (Disclosure of All Member Accounts) 
requires members (i.e., natural persons approved by the New York Stock 
Exchange (the ``Exchange'') and designated by a member organization to 
effect transactions on the floor of the Exchange or any facility 
thereof) to promptly report to the Exchange any securities account, 
including an error account, in which the member has, directly or 
indirectly, any financial interest or the power to make investment 
decisions. Such accounts include any account at a member or non-member 
broker-dealer, investment adviser, bank or other financial institution. 
NYSE Rule 407A also requires a member having such an account to notify 
the financial institution that carries or services the account that it 
is a NYSE member. In addition, the rule requires that members report to 
the Exchange when any such securities account is closed.
    NYSE Rule 407A was adopted in 2001 as part of a series of 
initiatives designed to strengthen the regulation of activities of NYSE 
floor brokers.\17\ This rule expands the obligations placed upon 
members under Rule 407 by requiring disclosure to the Exchange. These 
reporting requirements were designed to provide the NYSE with current 
information about where floor members carry securities accounts and to 
enhance its ability to investigate quickly the trading of securities by 
such members.
---------------------------------------------------------------------------

    \17\ The Commission noted that these initiatives would aid the 
NYSE in fulfilling some of the undertakings included in the NYSE's 
1999 settlement with the SEC regarding failure to enforce compliance 
with SEA Section 11(a) and SEA Rule 11a-1 and NYSE Rules 90, 95 and 
111 with respect to activity of floor brokers. As noted by the 
Commission, broadly, those provisions were aimed at preventing NYSE 
floor broker members from exploiting their advantageous position on 
the NYSE floor for personal gain to the detriment of the investing 
public. See In the Matter of New York Stock Exchange, Inc., 
Securities Exchange Act Release No. 41574 (June 29, 1999), 
Administrative Proceeding File No. 3-9925; Securities Exchange Act 
Release No. 42381 (February 3, 2000), 65 FR 6673 (February 10, 2000) 
(Notice of Filing of Proposed Rule Change; File No. SR-NYSE-99-25); 
Securities Exchange Act Release No. 44769 (September 6, 2001), 66 FR 
47710 (September 13, 2001) (Order Granting Approval to Proposed Rule 
Change; File No. SR-NYSE-99-25).
---------------------------------------------------------------------------

    NYSE Rule Interpretation 407/01 addresses the process for 
determining whether the account of a spouse of an associated person 
should be subject to NYSE Rule 407.
    NYSE Rule Interpretation 407/02 provides that NYSE Rule 407(b) 
applies when an associated person is also a majority stockholder of a 
non-public corporation that wishes to open a discretionary margin 
account at another member.
(B) Proposed FINRA Rule 3210
    Proposed FINRA Rule 3210, consistent with the longstanding purposes 
of NASD Rule 3050 and NYSE Rule 407,\18\ is designed to enable members 
to monitor the personal accounts of their associated persons opened or 
established outside of the member firm. The new rule, in combination 
with new FINRA Rule 3110, takes the approach that a member is 
responsible for supervising its associated persons' trading 
activities.\19\

[[Page 48944]]

The rule begins by setting forth a requirement that an associated 
person must obtain the prior written consent of his or her employer 
when opening a specified account at another member or other financial 
institution. Specifically, proposed FINRA Rule 3210(a) provides that no 
person associated with a member (``employer member'') shall, without 
the prior written consent of the member, open or otherwise establish at 
a member other than the employer member (``executing member''), or at 
any other financial institution,\20\ any account in which securities 
transactions can be effected \21\ and in which the associated person 
has a beneficial interest.\22\ Proposed FINRA Rule 3210.02 provides 
that, for purposes of the rule, the associated person shall be deemed 
to have a beneficial interest in any account that is held by: (a) The 
spouse of the associated person; (b) a child of the associated person 
or of the associated person's spouse, provided that the child resides 
in the same household as or is financially dependent upon the 
associated person; (c) any other related individual over whose account 
the associated person has control; or (d) any other individual over 
whose account the associated person has control and to whose financial 
support the associated person materially contributes.\23\ The types of 
accounts specified pursuant to proposed FINRA Rule 3210.02 are designed 
to align with ``covered accounts'' as defined pursuant to new FINRA 
Rule 3110(d)(4)(A) for purposes of the transaction review and 
investigation provisions pursuant to Rule 3110(d)(1).\24\ Further, 
FINRA believes the proposed language is consistent with the broad 
approach of NASD Rule 3050 and NYSE Rule 407 as historically understood 
to facilitate the monitoring of associated persons' personal and 
related accounts.\25\ FINRA notes that the proposed new language 
eliminates the language in the current rules that references accounts 
or transactions where the associated person has ``the power, directly 
or indirectly, to make investment decisions,'' as set forth in NYSE 
Rule 407(b), and accounts where the associated person has 
``discretionary authority,'' as set forth in NASD Rule 3050(b).\26\
---------------------------------------------------------------------------

    \18\ See note 10 and note 12 supra.
    \19\ See Supervisory Rules Filing and note 5 supra. In this 
connection, as discussed further in Item II.A.1(C) below, FINRA is 
deleting the provision under NASD Rule 3050(a) as to the obligation 
of the executing member to use reasonable diligence with respect to 
the specified transactions.
    \20\ Based on NYSE Rule 407.13 and NASD Rule 3050(d), proposed 
FINRA Rule 3210.05 provides that, for the purposes of the rule, the 
terms ``other financial institution'' and ``financial institution 
other than a member'' include, but are not limited to, any broker-
dealer that is registered pursuant to SEA Section 15(b)(11), 
domestic or foreign non-member broker-dealer, investment adviser, 
bank, insurance company, trust company, credit union and investment 
company.
    \21\ In the interest of helping facilitate supervision of 
securities transactions under new FINRA Rule 3110(d)(1), FINRA is 
specifying ``any account in which securities transactions can be 
effected'' so as to be clear that the proposed rule's scope includes 
any account, regardless of type, where securities transactions can 
take place as specified under the rule.
    \22\ As proposed in the Notice, the rule would have specified 
accounts in which the associated person has a ``personal financial 
interest.'' Commenters suggested that this language was unclear. See 
Item II.C.2 of this filing. FINRA is proposing the term ``beneficial 
interest'' because that term is an established and well-understood 
standard. See, e.g., FINRA Rule 5130(i)(1), which defines 
``beneficial interest'' to mean, in part, any economic interest, 
such as the right to share in gains or losses. FINRA believes that 
the proposed term is consistent with the purpose of NYSE Rule 407, 
which in part addresses transactions in which the associated person 
is ``directly or indirectly interested'' (NYSE Rule 407(a)) or with 
respect to which the associated person ``has any financial 
interest'' (NYSE Rule 407(b)) and with NASD Rules 3050(b) through 
(d), which in part address accounts or transactions in which the 
associated person has a ``financial interest.'' Further, the 
proposed term would align the rule with ``beneficial interest'' as 
specified under new FINRA Rule 3110(d)(1)(B), which, for purposes of 
the transaction review and investigation provisions set forth under 
new FINRA Rule 3110(d)(1), specifies in part accounts ``in which a 
person associated with the member has a beneficial interest.'' See 
note 5 supra.
    \23\ Some commenters expressed concerns as to addressing spouse 
accounts in the proposed rule. FINRA notes that spouse accounts have 
long been addressed under NYSE Rule Interpretation 407/01. See Item 
II.C.2 of this filing.
    \24\ See note 5 supra.
    \25\ For example, with respect to the approach of the current 
rules, as noted earlier, NYSE Rule Interpretation 407/01 addresses 
spouse accounts. In the context of amendments to NASD Rule 3050 
(then designated Article III, Section 28 of the Rules of Fair 
Practice) adopted in 1983 that extended the rule to include accounts 
over which the associated person exercises discretion, FINRA noted 
its intent to enable the rule's scope to reach accounts of relatives 
of associated persons where the associated person places the orders. 
See Securities Exchange Act Release No. 19347 (December 16, 1982), 
47 FR 58416 (December 30, 1982) (Proposed Rule Change; File No. SR-
NASD-82-25); Securities Exchange Act Release No. 19550 (February 28, 
1983), 48 FR 9413 (March 4, 1983) (Order Approving Proposed Rule 
Change; File No. SR-NASD-82-25). FINRA believes that because the 
proposed rule specifies, in language that aligns with new FINRA Rule 
3110(d)(4)(A), the types of personal relationships that would be 
within the scope of ``beneficial interest,'' the rule's precise 
parameters should be more clear.
    \26\ FINRA believes that this will serve to more clearly 
demarcate the respective scope of the new rule vis-[agrave]-vis 
current NASD Rule 3040, which addresses the obligations of 
associated persons and members in connection with private securities 
transactions. NASD Rule 3040(e)(1) defines private securities 
transactions to include, in part, ``any securities transaction 
outside the regular course or scope of an associated person's 
employment with a member'' and excludes from the rule's specified 
notification requirements, among other things, transactions subject 
to the notification requirements of NASD Rule 3050. FINRA believes 
that, to the extent associated persons make investment decisions or 
have discretionary authority in contexts that involve private 
securities transactions within the scope of NASD Rule 3040, as 
opposed to accounts in which they have a beneficial interest as 
specified by the new rule, such transactions are properly addressed 
by the requirements set forth in Rule 3040 and other FINRA rules as 
applicable. FINRA believes that this approach is consistent, as 
noted earlier, with the historical approach of NASD Rule 3050 and 
NYSE Rule 407 that is intended to facilitate monitoring of 
associated persons' personal and related accounts.
---------------------------------------------------------------------------

    Similar to the current rules, the new rule places notification 
obligations on associated persons with respect to the executing member 
or other financial institution. Specifically, proposed FINRA Rule 
3210(b) is based in large part on NASD Rules 3050(c) and 3050(d) and 
provides that any associated person, prior to opening or otherwise 
establishing an account subject to the rule, must notify in writing the 
executing member, or other financial institution, of his or her 
association with the employer member.
    Also similar to the current rules, the new rule specifies 
obligations for executing members. Specifically, proposed FINRA Rule 
3210(c) is based in large part on NASD Rule 3050(b)(2) and provides 
that an executing member must, upon written request by the employer 
member, transmit duplicate copies of confirmations and statements, or 
the transactional data contained therein, with respect to an account 
subject to the rule.\27\
---------------------------------------------------------------------------

    \27\ As published in the Notice, the proposed rule would have 
required the employer member to instruct the associated person to 
have the executing member provide the specified duplicate account 
statements and confirmations to the employer member. As discussed 
further in Item II.C.1 of this filing, commenters expressed concern 
that the rule as proposed in the Notice would burden members with 
collecting the specified information without regard to whether such 
collection is warranted by the member's business model and risk 
profile. In response to commenter suggestion, FINRA has revised the 
proposed rule so that the specified information is provided upon 
written request by the employer member, which is consistent with the 
approach of current NASD Rule 3050 and which FINRA believes permits 
members flexibility to craft appropriate supervisory policies and 
procedures according to their business model and the risk profile of 
their activities.
---------------------------------------------------------------------------

    Similar to current provisions in NASD Rules 3050(c) and 3050(d), 
the proposed rule makes allowance for accounts opened by an associated 
person prior to his or her association with the employer member. 
Specifically, proposed FINRA Rule 3210.01 provides that, if the account 
was opened or otherwise established prior to the person's association 
with the employer member, the associated person, within 30 calendar 
days of becoming so associated, must obtain the written consent of the 
employer member to maintain the account and must notify in writing the 
executing member or other financial institution of his or her

[[Page 48945]]

association with the employer member.\28\
---------------------------------------------------------------------------

    \28\ As published in the Notice, the proposed rule would have 
specified 15 business days. In response to comment, the proposed 
rule as revised specifies 30 calendar days so as to reduce burdens 
on member firms and their associated persons. See Item II.C.3 of 
this filing.
---------------------------------------------------------------------------

    Similar to the current rules, the new rule makes allowance for 
specified information that executing members need not transmit to 
employer members. Specifically, proposed FINRA Rule 3210.03 is based in 
large part on NYSE Rule 407.12 and NASD Rule 3050(f) and provides that 
the requirement (pursuant to paragraph (c) of Rule 3210) that the 
executing member provide the employer member, upon the employer 
member's written request, with duplicate account confirmations and 
statements, or the transactional data contained therein, shall not be 
applicable to transactions in unit investment trusts, municipal fund 
securities as defined under MSRB Rule D-12,\29\ qualified tuition 
programs pursuant to Section 529 of the Internal Revenue Code and 
variable contracts or redeemable securities of companies registered 
under the Investment Company Act, as amended, or to accounts that are 
limited to transactions in such securities, or to Monthly Investment 
Plan type accounts.\30\
---------------------------------------------------------------------------

    \29\ MSRB Rule D-12 defines municipal fund security to mean ``a 
municipal security issued by an issuer that, but for the application 
of Section 2(b) of the Investment Company Act of 1940, would 
constitute an investment company within the meaning of Section 3 of 
the Investment Company Act of 1940.''
    \30\ The approach to the referenced types of transactions 
reflects a longstanding intention under the NASD and NYSE rule that 
members not be burdened with information collection for transactions 
that pose limited risk from the standpoint of the rule's supervisory 
purposes. See, e.g., Securities Exchange Act Release No. 19347 
(December 16, 1982), 47 FR 58416 (December 30, 1982) (Proposed Rule 
Change; File No. SR-NASD-82-25). As discussed further in Item II.C.5 
of this filing, the proposed requirement is largely as published in 
the Notice. In response to commenter suggestion, FINRA has added 
municipal fund securities as defined under MSRB Rule D-12 and 
Section 529 plans to the transactions set forth under the rule. 
FINRA is adding these transactions because FINRA believes these 
types of products are reasonably classed with the types of 
transactions specified under the current rule in posing limited risk 
from the standpoint of the rule's supervisory purposes.
---------------------------------------------------------------------------

    Proposed FINRA Rule 3210.04 is new and provides that, with respect 
to an account subject to the rule at a financial institution other than 
a member, the employer member must consider the extent to which it will 
be able to obtain, upon written request, duplicate copies of 
confirmations and statements, or the transactional data contained 
therein, directly from the non-member financial institution in 
determining whether to provide its written consent to an associated 
person to open or maintain such account.\31\ FINRA believes that the 
proposed requirement serves a valid regulatory purpose in view of the 
employer member's responsibility for supervising its associated 
persons' trading activities.
---------------------------------------------------------------------------

    \31\ As published in the Notice, the proposed rule would have 
required the associated person to provide an instruction to the non-
member financial institution to provide the specified information to 
the employer member. As discussed further in Item II.C.1 of this 
filing, FINRA believes that the requirement as revised permits 
members flexibility to craft appropriate supervisory policies and 
procedures in determining whether to provide written consent as to 
the specified accounts at non-member financial institutions.
---------------------------------------------------------------------------

(C) Deleted Requirements
    Proposed FINRA Rule 3210 deletes a number of requirements in NASD 
Rule 3050 and NYSE Rule 407 that are rendered outdated by the new rule 
or are otherwise addressed elsewhere by FINRA rules.
     The proposed rule eliminates NASD Rule 3050(a)'s 
requirement that the executing member use reasonable diligence to 
determine that the execution of the transaction will not ``adversely 
affect the interests of the employer member.'' FINRA proposes to delete 
this requirement because FINRA believes that it is appropriate for the 
new rule, in combination with new FINRA Rule 3110,\32\ to take the 
approach that the employer member is responsible for supervising its 
associated persons' trading activities.\33\
---------------------------------------------------------------------------

    \32\ See Supervisory Rules Filing.
    \33\ FINRA notes that, notwithstanding this approach, the rule 
retains the longstanding duty of the executing member to assist the 
employer member by providing the specified information upon request.
---------------------------------------------------------------------------

     FINRA proposes to delete the account review requirements 
set forth in NYSE Rule 407(b) and the requirements for written 
procedures set forth in NYSE Rule 407.11 because these issues are 
addressed by the proposed rule in combination with FINRA's new 
supervisory rules, in particular new FINRA Rule 3110(d), which sets 
forth the new supervisory framework for securities transactions review 
and investigation.\34\
---------------------------------------------------------------------------

    \34\ See note 5 supra and Supervisory Rules Filing.
---------------------------------------------------------------------------

     As noted earlier, NYSE Rule 407A was intended to address 
activities of NYSE floor brokers. FINRA proposes to delete NYSE Rule 
407A in its entirety from the Transitional Rulebook because proposed 
FINRA Rule 3210 requires disclosure at the member firm level of the 
same types of information that Rule 407A requires with respect to the 
NYSE as to floor brokers. FINRA believes it is more appropriate to 
require member firms to obtain the required information and to 
supervise the accounts of their associated persons for improper 
trading, rather than requiring that such information be sent directly 
to FINRA. Moreover, as noted above, these reporting requirements were 
designed to provide the NYSE with current information about where floor 
members carry securities accounts and to enhance its ability to 
investigate quickly the trading of securities by such members.
     FINRA proposes to delete NYSE Rule Interpretation 407/01 
because it would be superseded by proposed FINRA Rule 3210.02, which as 
noted earlier expressly provides, among other things, that an 
associated person is deemed to have a beneficial interest in any 
account that is held by the spouse of the associated person.
     FINRA proposes to delete NYSE Rule Interpretation 407/02 
because it is rendered redundant by new FINRA Rule 3210(a), the scope 
of which by its terms reaches accounts as specified by the rule in 
which the associated person has a beneficial interest.
     FINRA proposes to delete language referring to accounts or 
transactions where the associated person has ``the power, directly or 
indirectly, to make investment decisions,'' as set forth in NYSE Rule 
407(b), and accounts where the associated person has ``discretionary 
authority,'' as set forth in NASD Rule 3050(b). As discussed above, 
FINRA believes that, to the extent associated persons make investment 
decisions or have discretionary authority in contexts that involve 
private securities transactions within the scope of NASD Rule 3040, as 
opposed to accounts in which they have a beneficial interest, such 
transactions are properly addressed by the requirements set forth in 
Rule 3040 and other FINRA rules as applicable.\35\
---------------------------------------------------------------------------

    \35\ See note 26 supra.
---------------------------------------------------------------------------

    If the Commission approves the proposed rule change, FINRA will 
announce the implementation date of the proposed rule change in a 
Regulatory Notice to be published no later than 90 days following 
Commission approval. The implementation date will be no later than 365 
days following 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,\36\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and

[[Page 48946]]

equitable principles of trade, and, in general, to protect investors 
and the public interest. FINRA believes that the proposed rule change 
will further the purposes of the Act because, as part of the FINRA 
rulebook consolidation process, the proposed rule change will help to 
protect investors and the public interest by streamlining and 
reorganizing existing rules that promote effective oversight of 
accounts opened or established by associated persons of members at 
firms other than the firm with which they are associated. By setting 
forth the requirements pursuant to which associated persons will seek 
the prior written consent of the employer member to open or otherwise 
establish accounts as specified under the rule, and pursuant to which 
the specified information will be transmitted to the employer member 
upon the employer member's request, the proposed rule will facilitate 
the supervision of the trading activities of associated persons within 
the framework of FINRA's new supervisory rules as approved by the 
Commission. The proposed rule will also help members ensure that such 
activities, engaged in at executing members or other financial 
institutions, do not violate provisions of the Act, its regulations, or 
FINRA rules, thereby helping to ensure orderly markets.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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. Commenters expressed concern 
that the proposed rule change, as originally published in Regulatory 
Notice 09-22, would have been burdensome to implement and would have 
resulted in employer members being required to request information from 
executing members and non-member financial institutions bearing little 
or no relationship to the scope and nature of the employer member's 
activities. In response to commenter suggestion, FINRA revised the 
proposed rule so as to permit members discretion, consistent with their 
supervisory obligations under new FINRA Rule 3110(d), to request the 
specified information of executing members and non-member financial 
institutions, thereby permitting members reasonable flexibility to 
craft appropriate supervisory policies and procedures according to 
their business model and the risk profile of their activities. The 
proposed rule change as revised is thereby consistent with the approach 
of current NASD Rule 3050, which commenter suggestion supported. FINRA 
believes that because the proposed rule change, as revised, is 
consistent with current requirements and longstanding practice, it will 
not impose additional burdens on members.
    The proposed rule change permits members to implement supervisory 
procedures that align with their business models, without diminishing 
members' supervisory obligations with respect to the activities of 
their associated persons. FINRA believes that this proposed approach 
imposes less cost on members without reducing investor protections. In 
addition, the proposed rule change deletes a number of requirements in 
NASD Rule 3050 and NYSE Rule 407 that are rendered outdated by the 
proposed new rule or are otherwise addressed elsewhere by other FINRA 
rules, which further minimizes the potential compliance burden on 
members in light of the objectives of the proposed rule change. FINRA 
recognizes that providing such flexibility to members may require 
increased monitoring of members' compliance with this rule as part of 
FINRA's examination program.

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 in Regulatory 
Notice 09-22 (April 2009). A copy of the Notice is attached as Exhibit 
2a. Thirty-three commenters responded to the Notice, and a list of the 
commenters is attached as Exhibit 2b.\37\ Copies of the comment letters 
received in response to the Notice are attached as Exhibit 2c.
---------------------------------------------------------------------------

    \37\ All references to commenters under this Item are to the 
commenters as listed in Exhibit 2b.
---------------------------------------------------------------------------

1. Core Proposed Rule Requirements: Obligation To Provide Duplicate 
Account Statements and Confirmations
    As published in the Notice, proposed FINRA Rule 3210(a) in part 
would have required an employer member, as a condition to giving prior 
written consent for opening or establishing an account pursuant to the 
rule, to instruct the associated person to have the executing member 
provide duplicate account statements and confirmations to the employer 
member. Paragraph (b) set forth requirements pertaining to the 
associated person's obligation to notify the executing member or other 
financial institution in writing of his or her association with the 
employer member. Paragraph (c) of the rule would have provided in part 
that the executing member must promptly obtain and implement an 
instruction from the associated person directing that duplicate account 
statements and confirmations be provided to the employer member. (With 
respect to accounts opened at a financial institution other than a 
member, proposed FINRA Rule 3210.02 as published in the Notice would 
have required the associated person to provide the instruction to the 
financial institution.)
    Commenters generally expressed concern that, as published in the 
Notice, the requirements of proposed Rules 3210(a), (b) and (c) and 
3210.02, singly or in combination, are unnecessary for regulatory 
purposes, are burdensome or difficult for firms to implement, or the 
rule should be designed to permit members the discretion to determine 
whether, based on their business model and the risk profile of their 
activities, they need to require duplicate account statements and 
confirmations to carry out their supervisory responsibilities.\38\ Some 
of these commenters suggested that involving the associated person in 
the process of requesting the required data vis-[agrave]-vis the 
executing member creates supervisory risks.\39\ A number suggested that 
it is better practice and more efficient to have the employer member 
obtain the required data directly from the executing member or non-
member institution.\40\ A few of the commenters raised concerns about 
potential difficulties in obtaining the required information from non-
members (including foreign non-members).\41\ Many questioned the 
supervisory and regulatory value of requiring firms to collect data 
pertaining to associated person accounts and transactions bearing 
little or no relationship to the scope and nature of their firms' 
activities.\42\ Some suggested that current NASD Rule 3050 generally 
permits members to exercise such discretion and that retaining the 
approach of the NASD rule would be conducive to more efficient use of 
regulatory or supervisory resources.\43\
---------------------------------------------------------------------------

    \38\ ACLI, CAI, Channel Capital, Charles Schwab, Farmers 
Financial, FSI, GWFS, Hillard, IBSI, ICI, MWA, NAIBD, National 
Planning, NMIS, NSCP, PFSI, PSI, Quasar, SIFMA, State Farm, 
SunTrust, Sykes, UBS, WFA and Witthaut.
    \39\ National Planning, PSI, SIFMA and UBS.
    \40\ Charles Schwab, FSI, NMIS, SIFMA and UBS.
    \41\ Charles Schwab, SIFMA and UBS.
    \42\ ACLI, CAI, Farmers Financial, GWFS, Hillard, ICI, MWA, 
National Planning, Quasar, State Farm, SunTrust, Sykes and Witthaut.
    \43\ CAI, Charles Schwab, Farmers Financial, FSI, National 
Planning, PFSI and SunTrust.
---------------------------------------------------------------------------

    In response, FINRA agrees that the proposal as published in the 
Notice raises issues with respect to the efficient use and conservation 
of regulatory and

[[Page 48947]]

supervisory resources, as well as to implementation. FINRA has revised 
proposed FINRA Rule 3210, consistent with NASD Rule 3050, to provide 
that an executing member must, upon written request by an employer 
member, transmit the duplicate copies of confirmations and statements, 
or the transactional data contained therein.\44\ With respect to 
accounts at a financial institution other than a member, FINRA has 
revised the rule to provide that the employer member must consider the 
extent to which it will be able to obtain, upon written request, 
duplicate copies of confirmations and statements, or the transactional 
data contained therein, directly from the institution in determining 
whether to provide its written consent to an associated person to open 
or maintain an account subject to the rule.\45\ FINRA believes that 
this approach, based in large part on the longstanding approach of NASD 
Rule 3050, should provide members reasonable flexibility to craft 
appropriate supervisory policies and procedures according to their 
business model and the risk profile of their activities. FINRA reminds 
members that, in permitting such flexibility, the rule in no way 
lessens members' supervisory obligations under FINRA rules with respect 
to the activities of their associated persons.\46\
---------------------------------------------------------------------------

    \44\ See proposed FINRA Rule 3210(c).
    \45\ See proposed FINRA Rule 3210.04.
    \46\ See note 5 supra and Supervisory Rules Filing.
---------------------------------------------------------------------------

2. Personal Financial Interest of the Associated Person
    As published in the Notice, the accounts covered by proposed FINRA 
Rule 3210 would have reached in part those in which the associated 
person has a ``personal financial interest.'' The Notice stated that 
``personal financial interest'' would as a general matter extend to a 
spouse's account. Commenters expressed concern as to the scope and 
meaning of the term ``personal financial interest'' and requested that 
FINRA further define the term, limit its scope, or otherwise provide 
more specific guidance.\47\ Several commenters suggested generally that 
it would be more effective for the rule to speak to accounts with 
respect to which the associated person exercises control or authority, 
rather than having a ``personal financial interest.'' \48\
---------------------------------------------------------------------------

    \47\ CAI, Charles Schwab, Farmers Financial, IBSI, ICI, NAIBD, 
NMIS, NPB, NSCP and SIFMA.
    \48\ Charles Schwab, Farmers Financial, FSI, NMIS and SIFMA.
---------------------------------------------------------------------------

    In response, FINRA is proposing a standard that is consistent with 
the purpose of NASD Rule 3050 and NYSE Rule 407 \49\ while also 
aligning more clearly with new FINRA Rule 3110(d). Specifically, FINRA 
has revised the proposed rule to extend to specified accounts in which 
the associated person has a beneficial interest. As discussed earlier, 
FINRA believes the term ``beneficial interest'' is appropriate because 
that term is an established and well-understood standard \50\ and is 
consistent with the terms ``directly or indirectly interested,'' as 
used in NYSE Rule 407(a), ``has any financial interest,'' as used in 
NYSE Rule 407(b), and accounts or transactions in which the associated 
person has a ``financial interest,'' as applicable under NASD Rules 
3050(b) through (d). Further, the proposed term would align the rule 
with ``beneficial interest'' as specified under new FINRA Rule 
3110(d)(1)(B), which, for purposes of the transaction review and 
investigation provisions set forth under new FINRA Rule 3110(d)(1), 
specifies in part accounts ``in which a person associated with the 
member has a beneficial interest.'' \51\ In addition, FINRA is 
proposing, as Supplementary Material .02 to the rule, to provide that 
the associated person shall be deemed to have a beneficial interest in 
any account that is held by: (a) The spouse of the associated person; 
(b) a child of the associated person or of the associated person's 
spouse, provided that the child resides in the same household as or is 
financially dependent upon the associated person; (c) any other related 
individual over whose account the associated person has control; or (d) 
any other individual over whose account the associated person has 
control and to whose financial support the associated person materially 
contributes. As noted earlier, this proposed language is designed to 
align with ``covered accounts'' as defined pursuant to new FINRA Rule 
3110(d)(4)(A) for purposes of the transaction review and investigation 
provisions pursuant to Rule 3110(d)(1).\52\
---------------------------------------------------------------------------

    \49\ See note 10 and note 12 supra.
    \50\ FINRA Rule 5130(i)(1) defines ``beneficial interest'' to 
mean, in part, any economic interest, such as the right to share in 
gains or losses. See note 22 supra.
    \51\ See note 5 supra.
    \52\ See proposed FINRA Rule 3210.02. Some commenters questioned 
whether it is legally viable for the proposed rule to reach spouse 
accounts. See Charles Schwab and NPB. In response, FINRA notes that 
spouse accounts have long been addressed under NYSE Rule 
Interpretation 407/01. Further, FINRA notes that the rule addresses 
such accounts as a supervisory matter under FINRA rules for purposes 
of investor protection and market integrity. See also note 5 supra 
and new FINRA Rule 3110(d).
---------------------------------------------------------------------------

3. Accounts Opened Prior to Association With the Employer Member
    As published in the Notice, proposed FINRA Rule 3210.01 would have 
required that if the associated person's account was opened or 
otherwise established prior to his or her association with the employer 
member, the associated person would be required to obtain the employer 
member's written consent to maintain the account within 15 business 
days of becoming so associated. Commenters suggested that the 15-
business-day requirement is too short or restrictive and that the rule 
should require ``prompt'' notification by the associated person, as 
under current NASD Rule 3050, or permit a longer specified period.\53\ 
One commenter believed that the rule should not cover previously opened 
accounts at all.\54\
---------------------------------------------------------------------------

    \53\ ACLI, CAI, Charles Schwab, FSI, National Planning, NMIS, 
NSCP, SIFMA and WFA.
    \54\ Fischer.
---------------------------------------------------------------------------

    In response, FINRA notes that it serves a valid regulatory purpose 
that the proposed rule should extend to accounts opened prior to the 
associated person's association with the employer member, given that 
the associated person would have the ability to effect transactions in 
such accounts. FINRA believes that it is reasonable, from the 
standpoint of reducing burdens on member firms and their associated 
persons, to permit a longer amount of time for notification with 
respect to already-opened accounts and has accordingly revised the rule 
to permit 30 calendar days.\55\
---------------------------------------------------------------------------

    \55\ See proposed FINRA Rule 3210.01.
---------------------------------------------------------------------------

4. Revocation of Consent To Maintain the Account
    As published in the Notice, proposed FINRA Rule 3210.04 would have 
created a new requirement providing that if the employer member does 
not receive the associated person's duplicate statements and 
confirmations in a timely manner, the employer member would be required 
to revoke its consent to maintaining the account and would be required 
to so notify the executing member or other financial institution in 
writing. The rule would have required the employer member to promptly 
obtain records from the executing member that the account was closed.
    Commenters generally expressed concern that the proposed 
requirement is burdensome, poses various difficulties as to 
implementation, or that FINRA should provide guidance as to how 
accounts should be closed

[[Page 48948]]

pursuant to the rule.\56\ In response, FINRA has reconsidered the 
proposed requirement and agrees that it is not necessary, from the 
standpoint of the rule's regulatory purpose, to prescribe how employer 
members should respond to the delayed receipt, or non-receipt, of 
duplicate copies of confirmations, statements or the transactional data 
contained therein. First, FINRA believes that if an employer member 
determines, pursuant to the rule, to request such information and does 
not receive it in a timely fashion, then as a matter of sound 
supervisory practice the employer member should have in place policies 
and procedures to address the issue.\57\ Second, FINRA notes that the 
proposed rule as revised requires executing members, upon written 
request by an employer member, to transmit the duplicate copies of 
confirmations and statements, or the transactional data contained 
therein.\58\ Finally, FINRA takes note that many commenters requested 
that FINRA Rule 3210 be designed to permit firms flexibility based upon 
their business model and the risk profile of their activities.\59\ As 
such, FINRA believes it is appropriate that employer members determine 
for themselves what would constitute timely receipt of the information 
required pursuant to the rule, provided such determination is 
reasonable within the context of their overall supervisory obligations. 
Accordingly, FINRA has deleted the requirement from the proposed rule 
as revised.
---------------------------------------------------------------------------

    \56\ CAI, Charles Schwab, FSI, ICI, J.A. Glynn, National 
Planning, NSCP, Pagemill, SIFMA, UBS and WFA.
    \57\ FINRA notes that, with respect to accounts at non-member 
financial institutions, the proposed rule as revised provides that 
the employer must consider the extent to which it will be able to 
obtain, upon written request, duplicate copies of confirmations and 
statements, or the transactional data contained therein, directly 
from the non-member financial institution in determining whether to 
provide its written consent to an associated person to open or 
maintain such an account.
    \58\ See proposed FINRA Rule 3210(c).
    \59\ See, e.g., Item II.C.1 of this filing.
---------------------------------------------------------------------------

5. Transactions and Accounts Not Subject to Transmission Requirement
    As published in the Notice, proposed FINRA Rule 3210.03 would have 
provided that the requirement to provide to the employer member 
duplicate account statements and confirmations is not applicable to 
transactions in unit investment trusts and variable contracts or 
redeemable securities of companies registered under the Investment 
Company Act, as amended, or to accounts that are limited to 
transactions in such securities, or to Monthly Investment Plan type 
accounts, unless the employer member requests receipt of such duplicate 
account statements and confirmations.
    Commenters suggested that, because they believe the referenced 
types of transactions and accounts pose little in the way of 
supervisory risk, they should be exempted from the proposed rule's 
requirements altogether, similar to the provisions under current NASD 
Rule 3050(f), or that the proposed rule should expand and update types 
of transactions and accounts that would be exempted from the rule.\60\
---------------------------------------------------------------------------

    \60\ ACLI, CAI, Charles Schwab, FSI, Hillard, National Planning, 
NMIS, NPB, Pacific Select, SIFMA and UBS.
---------------------------------------------------------------------------

    FINRA appreciates members' concern that the new rule should adhere 
closely to the current NASD requirement. However, FINRA believes that 
the proposed approach, similar to that reflected in NYSE Rule 407.12, 
serves a valid regulatory and supervisory purpose, specifically, that 
the associated person must obtain the employer member's prior written 
consent with respect to the referenced transactions and accounts, in 
the manner and to the extent required by the proposed rule. 
Accordingly, FINRA is proposing FINRA Rule 3210.03 largely as published 
in the Notice. Some commenters made specific suggestions as to the 
types of transactions and accounts that should be excluded from the 
requirement that the executing member provide duplicate account 
confirmations and statements to the employer member upon the employer 
member's written request.\61\ In response, FINRA has added municipal 
fund securities as defined under MSRB Rule D-12 and qualified Section 
529 plans to the referenced types of transactions, as FINRA believes 
that, of the suggestions proffered, these are similar to the types of 
transactions specified under current NASD Rule 3050(f) and NYSE Rule 
407.12 in posing limited risk from the standpoint of the rule's 
supervisory purposes. Accordingly, proposed FINRA Rule 3210.03 as 
revised provides that the requirement (pursuant to paragraph (c) of the 
proposed rule) that the executing member provide the employer member, 
upon the employer member's written request, with duplicate account 
confirmations and statements, or the transactional data contained 
therein, shall not be applicable to transactions in unit investment 
trusts, municipal fund securities as defined under MSRB Rule D-12, 
qualified tuition programs pursuant to Section 529 of the Internal 
Revenue Code and variable contracts or redeemable securities of 
companies registered under the Investment Company Act, as amended, or 
to accounts that are limited to transactions in such securities, or to 
Monthly Investment Plan type accounts.
---------------------------------------------------------------------------

    \61\ Four commenters specifically suggested qualified Section 
529 plans under the Internal Revenue Code. See CAI, FSI, NMIS and 
SIFMA. One suggested all municipal fund securities. See FSI. One 
suggested in addition ETFs and registered insurance products. See 
CAI.
---------------------------------------------------------------------------

6. Information Gathering, Processes and Controls
    The Notice requested comment on the methodologies that members 
employ to obtain information pursuant to NASD Rule 3050 and NYSE Rule 
407 and the processes and controls that members implement upon receipt 
of the required information.
    Commenters suggested the rule should not impose requirements as to 
the methodologies that members must use (e.g., receiving the 
information electronically versus in hard copy) or otherwise limit 
flexibility as to receiving and handling the information.\62\ One 
commenter suggested FINRA should encourage firms to use a consistent 
electronic format in transmitting the information.\63\ One suggested 
the proposed rule should state that the information can be received in 
electronic format.\64\ One requested that FINRA specify in the rule a 
retention period for information received pursuant to the rule.\65\
---------------------------------------------------------------------------

    \62\ FSI, H & L Equities, ICI, Investors Security, NAIBD, NPB, 
NSCP, Pagemill, PSI and Taurus.
    \63\ Pacific Select.
    \64\ FSI.
    \65\ H & L Equities.
---------------------------------------------------------------------------

    In response to comments, FINRA has determined not to specify in the 
proposed rule any particular methodology. To this end, FINRA has 
revised proposed FINRA Rule 3210(c) to provide for transmission of 
``duplicate copies of confirmations and statements, or the 
transactional data contained therein.'' FINRA does not propose to 
specify in the rule a particular retention period because such concerns 
are adequately addressed elsewhere under SEA Rule 17a-4 and FINRA Rule 
4511 as appropriate.
7. Implementation Period
    Several commenters suggested that FINRA should permit an extended 
period for implementation of the proposed rule once approved.\66\ In 
response, in establishing an implementation date, FINRA will take into 
account that firms would need to modify their compliance systems to 
reflect the new rule's requirements. As stated earlier in this filing, 
FINRA will

[[Page 48949]]

announce such implementation date in a Regulatory Notice.
---------------------------------------------------------------------------

    \66\ ACLI, CAI, FSI and SIFMA.
---------------------------------------------------------------------------

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-2015-029 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2015-029. 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-2015-029 and should be 
submitted on or before September 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\67\
---------------------------------------------------------------------------

    \67\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20006 Filed 8-13-15; 8:45 am]
 BILLING CODE 8011-01-P