FINRA Rulemaking Process

General Overview

Sources of New Rule Proposals: New rule proposals are generated from a number of sources, including, but not limited to:

 

  • FINRA firms, investors or other interested parties
  • FINRA staff initiatives, based on, for example, proactive analysis of data and trends by FINRA’s Emerging Regulatory Issues group, internal FINRA departments, and industry input
  • Recommendations from the Securities and Exchange Commission (SEC) or other regulatory bodies
  • Recommendations from FINRA committees, Small Firm Advisory Board (SFAB), or the National Adjudicatory Council (NAC)
  • Responses to market developments

 

FINRA Internal Staff Review and Discussion: Once a possible rule proposal is identified, the FINRA subject matter experts research and develop the proposal and present it to FINRA management for review. 

 

Presentation to FINRA Committees: FINRA staff typically presents the rule proposal (or an idea for a rule proposal) to various FINRA Advisory and District Committees.  It may also present the proposal to the NAC for review and input.  The SFAB and the Compliance Advisory Committee review rule proposals before they are submitted to the FINRA Board for approval. 

 

Submission to FINRA Board:  FINRA staff prepares an “Action Item” for the FINRA Board that describes the rule proposal in detail, including FINRA Committees’ and the SFAB’s views on the proposal.  Depending on the facts and circumstances surrounding the rule proposal, the FINRA Board may authorize the publication of a Regulatory Notice soliciting comment on the proposal or the filing of the proposal with the SEC for notice and comment.
  
Regulatory Notice Process:  If FINRA determines to issue a Regulatory Notice soliciting comment on a proposal, the comment period typically is open for one to two months.  FINRA accepts comments by hard copy or electronically, and all comments become part of the “official record” of the rule proposal.  Since December 1, 2003, FINRA posts all comment letters on its website. 

 

Depending on the comments received in response to the Regulatory Notice and any changes made to the proposal, FINRA staff will either return to the FINRA Board with a revised proposal or will file the rule proposal with the SEC for notice and comment. 

 

Filing with the SEC:  Since November 2004, FINRA and other SRO rule filings are filed electronically with the SEC, rather than in paper form.  FINRA posts all of its rule filings on the FINRA website within two business days after filing with the SEC.  Once the proposal is filed with the SEC, SEC staff reviews the rule proposal to determine whether it is consistent with the requirements of the Securities Exchange Act of 1934 (Exchange Act).  The SEC staff may request changes or amendments to the rule proposal. 

 

SEC Notice of the Proposal in the Federal Register:  The SEC publishes the rule for comment in the Federal Register.  Generally, the comment period is open for 21 days following publication.  (Note: Most proposed rule changes are filed for a 21-day notice and comment period; however, the Exchange Act and the rules thereunder provide that in certain limited circumstances, a proposed rule change may be filed for immediate effectiveness, with the SEC having 60 days to consider whether to summarily temporarily suspend the rule change or allow it to remain in effect.  If the SEC suspends the rule change, it will institute proceedings to determine whether the rule change should be approved or disapproved.)

 

Response to Comments: Depending on the types of comments received, the SEC staff typically requests that FINRA respond to the comments received.  FINRA may decide to propose amendments to the rule proposal as a result of the comments.  (Note: If the comments prompt a substantial change to the original rule proposal, the staff will return to the FINRA Board for authorization to make the changes.  The staff also may discuss the changes with various Committees prior to returning to the FINRA Board.  Depending on the nature of the changes, the SEC also may choose to republish the revised rule proposal for comment in the Federal Register.)

 

SEC Approval of the Proposal:  If the SEC approves the final rule, it places an official announcement in the Federal Register.
 
Regulatory Notices: Following SEC approval, FINRA issues a Regulatory Notice announcing SEC approval of the rule change.  This notice summarizes the new rule or rule amendments, includes the text of the rule or amendments, and announces the effective date.  In many cases, the effective date will be a set number of days following publication of the Regulatory Notice, such as 30 days after publication.

 

For additional information on the SRO rulemaking process, please see Section 19 of the Exchange Act and the rules thereunder.  These provisions are available at:  http://www.sec.gov/rules/sro.shtml.