May 2016 Board Update
FINRA Chairman and CEO Rick Ketchum and Lead Governor Jack Brennan review rulemaking and other issues discussed at FINRA's May Board of Governors meeting. In addition to the video, a summary of the board actions is also available.
May 6, 2016
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.
You can hear more about these rulemaking items and other actions by the Board in our video report.
Richard G. Ketchum
Chairman and CEO
Disruptive Quoting and Trading Activity
The Board authorized filing with the SEC proposed amendments to Rule 5210 (Publication of Transactions and Quotations) and the Rule 9800 Series (Temporary Cease and Desist Orders) to prohibit expressly two specific types of quoting and trading activity and to establish an expedited process for issuing cease and desist orders to prevent firms from engaging in the activity or providing access to a customer that engages in the activity. The amendments to Rule 5210, which are based off new BATS rules recently approved by the SEC, specifically define two types of quoting and trading activity that would be considered disruptive. The amendments to the Rule 9800 Series would allow FINRA to initiate an expedited process for issuing cease and desist orders to prevent firms from engaging in the activity or providing access to a customer that engages in the activity.
Gifts, Gratuities and Non-Cash Compensation
The Board authorized publication of a Regulatory Notice seeking comment on proposed amendments to FINRA Rule 3220 (Influencing or Rewarding Employees of Others), as well as the adoption of proposed FINRA Rule 3221 (Restrictions on Non-Cash Compensation) and proposed FINRA Rule 3222 (Business Entertainment). The amendments would: (1) consolidate the rules under a single rule series in the FINRA rulebook; (2) increase the gift limit based on inflation from $100 to $175 per person per year and include a de minimis threshold below which firms would not have to keep records of gifts given or received; and (3) amend the non-cash compensation rules to cover all securities products. The proposed amendments also would incorporate a principles-based standard for business entertainment that would require firms to adopt written policies and supervisory procedures for business entertainment. The proposed changes stem from the retrospective review process and are intended to better align the investor protection benefits and the economic impacts.
Broadening Chairperson Eligibility in Arbitration
The Board authorized filing with the SEC proposed amendments to Rules 12400 and 13400 (Neutral List Selection System and Arbitrator Rosters) to revise the arbitration forum chairperson eligibility requirements. Specifically, an attorney arbitrator would be eligible for the chairperson roster if he or she completes chairperson training and serves as an arbitrator through award on at least one arbitration, instead of two arbitrations, administered by a self-regulatory organization in which hearings were held.
Motions to Dismiss in Arbitration
The Board authorized filing with the SEC proposed amendments to Rules 12504 and 13504 (Motions to Dismiss) to provide that arbitrators in its forum may act upon a motion to dismiss prior to the conclusion of a party’s case in chief if the arbitrators determine that the non-moving party previously brought the same dispute against the same party, and the dispute was fully and finally adjudicated on the merits.
Panel Selection in Customer Cases with Three Arbitrators
The Board authorized filing with the SEC proposed amendments to Rule 12403 (Cases with Three Arbitrators) to increase the number of public arbitrators on the list that FINRA sends parties during the panel selection process in customer cases. Specifically, FINRA would increase the number of public arbitrators on the list from 10 to 15. FINRA would also increase the number of strikes to the public list from four to six, to keep the proportion of strikes the same under the amended rule as it is under the current rule.