September 2011 Board Update
September 23, 2011
Dear Executive Representative:
The FINRA Board of Governors met this week to discuss a number of issues, including several rulemaking items. We have included a summary of the rule proposals, as approved by the Board, and next steps below.
As always, your thoughts and comments are welcome.
Sincerely,
Richard G. Ketchum
Chairman and CEO
Rulemaking Items Discussed at the September 2011 Meeting
Arbitration Procedures: Whistleblower Claims
The Board considered a proposed amendment to the Code of Arbitration Procedure for Industry Disputes to provide that a dispute that arises under a whistleblower statute that prohibits the use of predispute arbitration agreements is not required to be arbitrated. Under the proposal, such a dispute may be arbitrated only if the parties agree to arbitrate the dispute after it arises. The proposal also amends the required disclosures about arbitration procedures provided to associated persons signing or acknowledging a Form U4.
The Board authorized staff to file the proposed amendments with the Securities and Exchange Commission (SEC).
Publicly Disseminate Transactions in Agency Pass-Through Mortgage-Backed Securities Traded "To Be Announced" (TBA)
The Board considered amendments to the FINRA Rule 6700 Series (TRACE rules) to disseminate transactions in Agency Pass-Through Mortgage-Backed Securities traded "to be announced" (TBA transactions). In addition, the Board considered amendments to reduce the reporting period for TBA transactions in two phases: first to 45 minutes, then, after six months, to 15 minutes. In connection with the dissemination of TBA transactions, as part of dissemination protocols, FINRA would set a $50 million dissemination cap for TBA transactions, with the result that the disseminated size (volume) of a TBA transaction in excess of $50 million would be displayed as "$50M+."
The Board also considered amendments to FINRA Rule 7730 to reduce the TRACE reporting fee for TBA transactions to $1.50/transaction, and to create Asset-Backed Security (ABS) data sets in connection with TBA transaction data. The fees currently in effect for similar TRACE real-time disseminated data and TRACE historic data would extend to the ABS data sets.
The Board authorized staff to file the proposed amendments with the SEC.
Maintenance of Certain Records in a Central Location
The Board considered a proposed new rule requiring that every carrying or clearing member firm maintain and keep current certain records in a central location that would facilitate a more rapid and orderly transfer of customer accounts to another broker-dealer as well as a more orderly liquidation in the event of failure of the firm. The rule would require that the records be immediately available to and accessible by representatives or designees of FINRA, the SEC and SIPC.
The proposed rule provides that all carrying or clearing firms must enter into an agreement with any clearing agency, clearing bank or custodian with which the member firm does business, that requires, upon the commencement of a liquidation of the member firm, that any electronic systems provided to the firm by the clearing agency, clearing bank or custodian will be made available, on a read-only basis, to representatives or designees of FINRA, the SEC and SIPC. In addition, the rule would require that the member firm designate a contact person responsible for maintaining and keeping current the records required under the rule, and that all records maintained pursuant to the rule indicate the date such records were last updated.
The Board authorized staff to issue a Regulatory Notice requesting comment on the rule proposal.
Membership Application Forms
The Board considered (1) proposed revisions to the standardized electronic Form NMA (for new member applicants); (2) amendments to NASD Rules 1012 (General Provisions) and 1017 (Application for Approval of Change in Ownership, Control, or Business Operations) to require continuing member applicants to file a new standardized electronic Form CMA; and (3) the proposed new standardized electronic Form CMA. The proposed electronic forms are designed to align with the membership standards in NASD Rule 1014 against which they are evaluated and to improve the application process by, among other things, better leveraging information previously provided by applicants to FINRA.
The Board authorized staff to file the proposed forms and rule amendments with the SEC.
Migration of TRACE-Eligible Securities to the Multi Product Platform
The Board considered amendments to FINRA Rule 6730 (Transaction Reporting) for reporting transactions in TRACE-eligible securities, other than Asset-Backed Securities. The amendments would simplify reporting transactions executed on a non-business day, and size (volume), commission and settlement, and align such reporting requirements with provisions applicable to Asset-Backed Securities. The proposed amendments permit FINRA to migrate processing and transaction reporting of TRACE-eligible securities not currently processed on the Multi Product Platform (MPP) to the enhanced technology platform. Currently, only Asset-Backed Securities are processed on MPP. The consolidation would eliminate the need to maintain interfaces with two TRACE platforms and should reduce the complexity and cost of TRACE reporting.
The Board authorized staff to file the proposed amendments with the SEC.