[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)]
[Notices]
[Pages 45328-45330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16478]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78237; File No. SR-FINRA-2016-021]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Clarify the Application of FINRA Rule 2210 
(``Communications With the Public'') to Debt Research Reports

July 7, 2016.
    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 June 24, 2016, 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 clarify the application of FINRA Rule 2210 
(``Communications with the Public'') to debt research reports as the 
result of approval of a new FINRA debt research conflict of interest 
rule.
    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,

[[Page 45329]]

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 is proposing to make several conforming changes to FINRA Rule 
2210 to expressly address its application to debt research reports in 
light of the Commission's approval of a dedicated debt research 
conflict of interest rule. On July 16, 2015, the SEC approved a 
proposed rule change to adopt FINRA Rule 2242 to address conflicts of 
interest relating to the publication and distribution of debt research 
reports.\4\ Rule 2242 will be implemented on July 16, 2016.\5\ Until 
that rule becomes effective, FINRA's research conflict of interest 
rules apply only to equity research as set forth in FINRA Rule 2241 
(``Research Analysts and Research Reports'').
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    \4\ See Securities Exchange Act Release No. 75472 (July 16, 
2015), 80 FR 43528 (July 22, 2015) (Order Approving File No. SR-
FINRA-2014-048). See also Regulatory Notice 15-31 (August 2015).
    \5\ See Securities Exchange Act Release No. 77158 (February 17, 
2016), 81 FR 9065 (February 23, 2016) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2016-008), see also 
Securities Exchange Act Release No. 77726 (April 27, 2016), 81 FR 
26593 (May 3, 2016) (Notice of Filing and Immediate Effectiveness of 
File No. SR-FINRA-2016-013).
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    First, Rule 2210(b)(1)(A) requires an appropriately qualified 
registered principal to approve each ``retail communication'' before 
the earlier of its use or filing with FINRA's Advertising Regulation 
Department. Both a debt and equity research report constitutes a 
``retail communication,'' unless it is distributed or made available 
only to ``institutional investors'' as defined in Rule 2210(a)(4), in 
which case it would be considered an ``institutional communication'' 
not subject to the pre-use approval requirement.
    Rule 2210(b)(1)(B) states that the pre-use approval requirement may 
be satisfied by a Supervisory Analyst approved pursuant to NYSE Rule 
344 with respect to: (i) Research reports on debt and equity 
securities; (ii) retail communications as described in Rule 
2241(a)(11)(A); and (iii) other research that does not meet the 
definition of ``research report'' under Rule 2241(a)(11), provided that 
the Supervisory Analyst has technical expertise in the particular 
product areas. For dual FINRA and New York Stock Exchange members, this 
provision therefore broadly allows a Series 16 qualified Supervisory 
Analyst to satisfy the pre-use approval requirement with respect to any 
research-related communication, including those expressly excepted by 
the definition of ``research report'' under Rule 2241(a)(11)(A) or not 
otherwise captured by that definition of ``research report'' under the 
equity research rule.
    The proposed rule change would clarify and streamline the scope of 
approval permitted by Supervisory Analysts to specifically reference 
the definitions of ``research report'' and ``debt research report'' in 
Rules 2241(a)(11) and 2242(a)(3), respectively. It also would add a 
specific reference to the exceptions under Rule 2242(a)(3)(A), thereby 
making express the references to debt research-related retail 
communications consistent with the references to equity research-
related retail communications. The proposal maintains the ability for a 
Supervisory Analyst to approve other research communications--e.g., 
research on options--provided that the Supervisory Analyst has 
technical expertise in the product area and any other required 
registrations for such product.
    Second, Rule 2210(b)(1)(D)(i) excepts from the pre-use approval 
requirement any retail communication that is excepted from the 
definition of ``research report'' under Rule 2241(a)(11)(A), unless the 
communication makes any financial or investment recommendation. Those 
communications still must be supervised and reviewed in the same manner 
as correspondence pursuant to FINRA's supervision rules.\6\ FINRA 
adopted this exception due to concerns that the pre-use approval 
requirements for these types of research communications in some 
circumstances may have inhibited the flow of information to traders and 
other investors who base their investment decisions on timely market 
analysis.\7\ The proposed change would make this exception from the 
pre-use approval requirements consistent for debt and equity research 
communications.
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    \6\ See FINRA Rules 3110(b) and 3110.06 through .09.
    \7\ See Regulatory Notice 09-10 (February 2009).
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    Third, Rule 2210(d)(7) requires specific applicable disclosures in 
retail communications that include a recommendation of securities; 
however, the requirements do not apply to communications that meet the 
definition of an equity research report under Rule 2241(a), as long as 
the research report includes all the required disclosures under that 
rule. Similarly, Rule 2210(f)(2) requires specific applicable 
disclosures where an associated person recommends a security in a 
public appearance, but Rule 2210(f)(5) excepts from those disclosure 
requirements public appearances by an equity ``research analyst'' as 
defined in Rule 2241(a)(8), provided the research analyst makes all of 
the disclosures required under that rule. The basis for these 
exceptions is that the equity research rule has more extensive required 
disclosures in both research reports and public appearances than Rule 
2210(d)(7) and (f)(2), respectively. New Rule 2242 requires similarly 
extensive corresponding disclosures in debt research reports and public 
appearances by debt research analysts. As such, FINRA believes it 
appropriate to similarly except debt research reports from the 
disclosure requirements of Rule 2210(d)(7) and except public 
appearances by debt research analysts from the disclosure requirements 
of Rule 2210(f)(2) for consistency purposes.
    Finally, the proposed rule change would also make technical changes 
to FINRA Rules 2210(d)(7) and (f)(5) to make the rule language more 
readable.\8\
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    \8\ FINRA notes that in 2014 the Commission approved a proposed 
rule change to exclude from the filing requirements in Rule 2210(c) 
equity research reports as defined in Rule 2241 that concern only 
securities that are listed on a national securities exchange, other 
than research reports required to be filed with the Commission 
pursuant to Section 24(b) of the Investment Company Act. See 
Securities Exchange Act Release No. 72480 (June 26, 2014), 79 FR 
37796 (July 2, 2014) (Order Approving File No. SR-FINRA-2014-012). 
In connection with that filing, FINRA indicated that it would 
consider a similar exclusion for debt research reports if and when a 
debt research rule was approved. FINRA has not yet made a 
determination whether to propose such an exclusion.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing. The implementation date for the proposed rule 
change will be July 16, 2016, to coincide with the effective date of 
FINRA Rule 2242.\9\
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    \9\ See supra notes 4 and 5 for additional detail.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\10\ 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 the proposed rule change will promote

[[Page 45330]]

consistent application of the communications with the public rules and 
provide greater clarity to members and the public regarding FINRA's 
rules.
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    \10\ 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 brings 
clarity and consistency to FINRA rules without adding any burden on 
firms.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\13\ normally does not become operative before 30 days from the date of 
the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the 
Commission may designate a shorter time if such action is consistent 
with the protection of investors and the public interest. FINRA has 
asked the Commission to waiver the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The proposed rule change is designed to clarify the application of 
FINRA Rule 2210 to debt research reports as the result of the 
Commission's approval of a new FINRA debt research conflict of interest 
rule (Rule 2242).\15\ A waiver of the 30-day operative delay will allow 
the proposed rule change to become operative on July 16, 2016, the same 
date on which Rule 2242 will be implemented.\16\ Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change to be operative on July 16, 2016.\17\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See note 4 supra.
    \16\ See note 5 supra.
    \17\ For purposes of waiving the operative delay for this 
proposal, the Commission has 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-2016-021 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-2016-021. 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 
a.m. and 3 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-2016-021 and should be 
submitted on or before August 3, 2016.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Brent J. Fields,
Secretary.
[FR Doc. 2016-16478 Filed 7-12-16; 8:45 am]
 BILLING CODE 8011-01-P