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July 2013 Board Update

FINRA Chairman and CEO Rick Ketchum is joined by lead governor Jack Brennan to discuss rulemaking actions and other issues discussed at FINRA's July 11 Board of Governors meeting. In addition to the video, a summary of the board actions is also available.

July 11, 2013

Dear Executive Representative:

The FINRA Board of Governors met this week to discuss a number of issues, including several rulemaking items. As usual, we've included a list of those items below.

You can also get an update on the July Board meeting by watching this brief video report. In the video, lead Governor Jack Brennan and I provide an overview of certain items discussed at the meeting, and offer context to help explain the thinking behind certain Board actions.

In addition to these issues, FINRA's new chief economist, Jonathan Sokobin, briefed the Board on a new framework for economic analysis in support of FINRA's rulemaking. We will be using this framework to evaluate new rule proposals and if our existing rules continue to make sense. You'll hear more about this new process in the coming months.

We look forward to your comments and thoughts.


Richard Ketchum Signature

Richard G. Ketchum
Chairman and CEO

Rulemaking Items Discussed at the July 2013 Board Meeting

ATS Reporting and Transparency
The Board authorized FINRA to file with the SEC proposed rules to require alternative trading systems (ATS) to report volume information to FINRA and to use unique market participant identifiers (MPID). Specifically, the rules would require ATS to report aggregate volume information, by security, to FINRA on a weekly basis, and FINRA will disseminate the reported information on its website. The Board also authorized FINRA to file with the SEC a proposed rule to require each ATS to use a unique MPID when reporting order or trade information to FINRA.

The Board authorized FINRA to file with the SEC proposed amendments to FINRA Rule 8312 (FINRA BrokerCheck Disclosure) to meet a statutory requirement by disclosing through BrokerCheck information about firms and individuals registered with a national securities exchange that are not registered with FINRA. Specifically, the amendments would include in BrokerCheck member firms and their associated persons of any registered national securities exchange that uses the Central Registration Depository for the registration of its members and their associated persons.

Debt Research
The Board authorized FINRA to file with the SEC a proposal to address debt research conflicts of interest. The proposal employs a tiered approach that would afford debt research all of the significant protections given to equity research, while providing broad exemptions for research distributed to sophisticated institutional investors that elect the exemption. 

The proposal would require firms to obtain consent from institutional clients before those clients could receive institutional debt research. Firms could use negative consent for Qualified Institutional Buyers that also satisfy the institutional suitability requirements under FINRA Rule 2111 with respect to debt transactions, or affirmative consent from any institutional account as defined in FINRA Rule 4512(c) other than an account of natural persons. To avoid a disruption in the receipt of institutional research, the proposal would allow firms to send institutional debt research to any Rule 4512(c) account, other than individuals or registered investment advisers advising only individuals, for a period of up to one year after SEC approval while they obtain the necessary consents.

Dissemination of Additional Asset-Backed Securities Transactions
The Board authorized staff to file with the SEC proposed amendments to the FINRA Rule 6700 Series, FINRA Rule 7730 and the Trade Reporting and Compliance Engine (TRACE) dissemination protocols to disseminate transactions in additional types of asset-backed securities, such as those backed by credit card receivables, automobile and student loans, and a variety of other credits, including Rule 144A transactions in the asset-backed securities, subject to a $10 million dissemination cap. The proposal does not extend to collateralized mortgage obligations. The proposed amendments also will:

  • reduce the reporting period for  asset-backed securities transactions in two phases—from the close of business on the date of trade to 45 minutes from time of execution, then, after approximately six months, from 45 minutes to 15 minutes from time of execution;
  • provide that qualifying transactions in asset-backed securities  be reported as a "List or Fixed Offering Price Transaction" or a "Takedown Transaction" (both as defined in FINRA Rule 6710);
  • modify the dissemination protocols so that information regarding the contra party and buy/sell indicators will not be disseminated for such transactions; and
  • clarify in Rule 7730 that the asset-backed securities  transaction data will be included in the applicable real-time and historic data sets with no change to the fees currently in effect for the data sets.

Funding Portal Rules
The Board authorized FINRA to publish a Regulatory Notice to solicit comment on proposed rules and related forms governing funding portals pursuant to Title III of the JOBS Act. The proposed rules address among other things the membership application process for funding portals, fraud and manipulation, just and equitable principles of trade, communications with the public, supervision and anti-money laundering. FINRA expects to publish the Notice when the SEC releases its proposed rules pursuant to Title III of the JOBS Act for comment. 

Uniform Branch Office Registration Form (Form BR)

The Board authorized FINRA to file with the SEC proposed amendments to Form BR to:

  • eliminate Section 6 (NYSE Branch Information), which is currently applicable only to NYSE-registered firms;
  • add questions relating to space sharing arrangements and the location of books and records that are currently only in Section 6 and make them applicable to all firms;
  • modify existing questions and instructions to provide more detailed selections for describing the types of activities conducted at the branch office;
  • add an optional question to identify a branch office as an "Office of Municipal Supervisory Jurisdiction," as defined under the rules of the Municipal Securities Rulemaking Board (MSRB); and
  • make other technical changes to adopt uniform terminology and clarify questions and instructions.