Skip to main content

December 2012 Board Update

December 7, 2012

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, are included below.

As always, your thoughts and comments are welcome.


Richard Ketchum Signature

Richard G. Ketchum
Chairman and CEO

Rulemaking Items Discussed at the December 2012 Board Meeting

Conflicts of Interest Relating to Recruitment Compensation Practices

The Board authorized FINRA to seek comment in a Regulatory Notice on a proposed rule that would require a member firm that provides, or has agreed to provide, to a registered person enhanced compensation in connection with the transfer of employment (or association) of the registered person from another financial services firm (previous firm), to disclose the details of the enhanced compensation to any former customer of the registered person at the previous firm who is contacted about moving or moves their account to the new firm. The proposal would require such disclosure for one year following the date the registered person associates with the new firm. The proposed rule would not apply to enhanced compensation of less than $50,000 or to customers that meet the definition of an institutional account pursuant to FINRA Rule 4512(c), except any natural person or a natural person advised by a registered investment adviser.

Equity Trade Reporting Requirements

The Board authorized FINRA to file with the SEC proposed amendments to the FINRA trade reporting rules. The amendments would require member firms to report OTC transactions in NMS stocks and OTC equity securities to FINRA as soon as practicable, but no later than 10 seconds, following execution. All reportable transactions not reported within 10 seconds would be marked late.

Expungement for Unnamed Persons in Arbitration Claims

The Board authorized FINRA to file a proposal with the SEC that establishes three different procedures that would permit registered persons who are identified for alleged sales practice violations in an arbitration claim, but are not named as parties in that claim (unnamed persons), to seek expungement relief. The unnamed person could seek relief under Rule 12805 by asking a party to the customer-initiated arbitration in writing to seek expungement on his or her behalf. Alternatively, the registered person could initiate In re proceedings under new Rule 13807 at the conclusion of the underlying customer-initiated arbitration case. Finally, the unnamed person could seek expungement relief at the conclusion of the customer’s case by asking the panel for an expungement based on the record compiled in the underlying case. The proposal incorporates many of the comments and suggestions received on Regulatory Notice 12-18, as well as feedback from several FINRA committees. FINRA believes that these proposals provide unnamed persons with a remedy to seek redress concerning allegations that could impact their livelihoods, yet maintains the protections of FINRA’s expungement rules to ensure the integrity of the CRD records.

FOCUS Report Supplementary Schedule

The Board authorized FINRA to seek comment in a Regulatory Notice on a proposed supplementary schedule for inventory positions. FINRA is proposing the supplementary schedule, issued pursuant to FINRA Rule 4524 (Supplemental FOCUS Information), to obtain detail of a firm’s long and short inventory positions. The supplementary schedule would provide FINRA with greater transparency into the market risk associated with firms’ inventory positions and the related impact on firms’ liquidity and funding needs. The supplementary schedule is identical to the Aggregate Securities and OTC Derivative Positions schedule from the FOCUS Report Part II CSE.

Interim Form for Funding Portals Under the JOBS Act

The Board authorized FINRA to issue an interim form to seek essential information from prospective funding portals intending to apply for membership with FINRA pursuant to the JOBS Act. Prospective funding portals would file the interim form with FINRA voluntarily until final SEC and FINRA rules governing funding portals are in place. FINRA will file the interim form with the SEC.

Wash Sales

The Board authorized FINRA to file with the SEC proposed amendments to FINRA Rule 5210 concerning wash sale transactions (i.e., transactions in a security that involve no change in the beneficial ownership of the security). For purposes of Rule 5210, wash sale transactions generally are non-bona fide transactions. The proposed amendments would adopt new supplementary material to Rule 5210 to require member firms to have policies and procedures in place that are reasonably designed to review the firm’s transactions for, and prevent, certain wash sale transactions. Wash sale transactions that originated from unrelated algorithms or separate or distinct trading strategies, trading desks or aggregation units would not be considered non-bona fide wash sale transactions for purposes of the rule.