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December 2013 Board Update

FINRA Chairman and CEO Rick Ketchum is joined by lead governor Jack Brennan and Finance Committee Chair Jim Weddle to discuss rulemaking and other issues addressed at FINRA's December 5 Board of Governors meeting. In addition to the video, a summary of the board actions is also available.

December 6, 2013

Dear Executive Representative:

The FINRA Board of Governors met this week to discuss a number of issues, including several rulemaking items. A summary of the rule proposals, as approved by the Board, is included below.

In addition to these rulemaking items, the Board approved a discretionary rebate to be allocated to all active member firms in good standing. You can learn more about the rebate and other issues discussed by the board in our short video report.

As usual, your comments are welcome.


Richard Ketchum Signature
Richard G. Ketchum
Chairman and CEO

Rulemaking Items Discussed at the December 2013 Board Meeting

Arbitration Fees to Increase Arbitrator Honoraria
The Board authorized FINRA to file with the SEC amendments to the Customer and Industry Codes of Arbitration Procedures to increase some arbitration fees for the sole purpose of increasing arbitrator honoraria for the first time since 1999. For example, under this proposal, FINRA would pay arbitrators $600 for each hearing day ($300 per hearing session) instead of the current $400 rate, and the chairperson of the panel would receive an extra $125 per day instead of the current $75 rate. To cover these honoraria increases, FINRA would increase the member firm surcharges and case processing fees for claims larger than $250,000. The proposal would also increase filing fees for investors, associated persons, or firms bringing claims of more than $500,000. The proposal would also raise hearing session fees for claims of more than $500,000; arbitrators may allocate responsibility for the hearing session fees in their award. FINRA believes that the proposed honoraria increases are needed to recruit and retain a roster of high-quality arbitrators.

Personal Confidential Information Documents Parties File with Dispute Resolution
The Board authorized FINRA to file with the SEC amendments to the Customer and Industry Codes of Arbitration Procedure to require parties to redact specified personal confidential information from pleadings and other documents they file with FINRA Dispute Resolution. Specifically, FINRA would amend Rules 12300 and 13300 (Filing and Serving Documents) to provide that, in an electronic or paper filing with FINRA, parties filing documents may include only the last four digits of an individual's Social Security number, taxpayer identification number or financial account number. The proposed amendments would apply only to documents filed with FINRA. They would not apply to documents that parties exchange with each other or submit to the arbitrators at a hearing on the merits. In addition, the amendments would not apply to cases administered under the Simplified Arbitration Rules.

Funding Portal Fees
The Board authorized FINRA to file with the SEC amendments to Schedule A to FINRA's By-Laws to establish fees for funding portals that become FINRA members. The proposed fees take into consideration the limited nature of funding portal activities and FINRA's oversight of these entities.   

Limited Corporate Financing Brokers Rule Set
The Board authorized FINRA to publish a Regulatory Notice seeking comment on a set of modified FINRA rules governing "limited corporate financing brokers," defined as firms engaged solely in activities such as advising an issuer about its securities offering or advising a company about its corporate restructuring or merger. The term would not include any broker or dealer that carries customer accounts, handles customer funds or securities, accepts orders to purchase or sell securities, possesses investment discretion, or engages in proprietary trading or market-making.

OTC Reporting Facility Fees
The Board authorized FINRA to file with the SEC amendments to FINRA Rule 7710 (OTC Reporting Facility) to revise system fees because of the migration of the OTC Reporting Facility (ORF) to FINRA's multi-product platform. The amendments would (1) introduce a fee for Web browser access for trade management and reporting functions associated with the ORF; (2) introduce a fee to report trades to the ORF via computer-to-computer interface (CTCI), a Financial Information eXchange (FIX) line or indirectly via third-party intermediaries; and (3) introduce fee schedules for access to ORF historical trade journals through FINRA's Automated Data Delivery Service (ADDS).

Quotation Activities in Unlisted Securities
The Board authorized FINRA to file with the SEC amendments to (1) FINRA Rule 6431 (Recording of Quotation Information) to expand the reporting requirements related to quotation information in OTC equity securities and adopt additional rules governing system access and treatment of quotations in OTC equity securities by member inter-dealer quotation systems; and (2) delete the Rule 6500 Series and related rules.

Rate Reimbursement Provisions for Proxy and Other Issuer-Related Materials
The Board authorized FINRA to file with the SEC amendments to FINRA Rule 2251 (Forwarding of Proxy and Other Issuer-Related Materials). The proposed amendments will revise the rate reimbursement provisions to align with new provisions recently adopted by the New York Stock Exchange, including an updated reimbursement schedule and a specified success fee that member firms would be permitted to charge issuers in connection with the development of qualified Internet platforms for proxy voting purposes.

TBA Market Margin Requirements
The Board authorized FINRA to publish a Regulatory Notice soliciting comment on proposed amendments to FINRA Rule 4210 (Margin Requirements) to establish margin requirements for To Be Announced (TBA) transactions, Specified Pool Transactions, and transactions in Collateralized Mortgage Obligations (CMOs), with extended settlement dates (referred to broadly as the TBA market). The proposal, designed to replace current interpretive materials under Rule 4210 that have become outdated by the growth of the TBA market, is informed by the set of best practices adopted by the Treasury Market Practices Group of the Federal Reserve Bank of New York. Among other things, the proposal addresses maintenance and variation margin requirements, risk limit determinations, concentrated exposures, and exemptions for specified de minimis transfer amounts and for transactions cleared through registered clearing agencies. Exempt accounts (e.g., FINRA member firms and non-member registered broker-dealers, banks, savings associations, insurance companies, investment companies, states or subdivisions, pension plans, and persons meeting specified net worth requirements and other conditions) would not need to post maintenance margin. The proposal would permit member firms to treat mortgage bankers as exempt accounts under specified conditions.