Regulatory Notice 19-17

FINRA Requests Comment on Proposed New Rule 4111 (Restricted Firm Obligations) Imposing Additional Obligations on Firms with a Significant History of Misconduct

Comment Period Expires: July 1, 2019
Listen to FINRA CEO Robert Cook discuss proposed new Rule 4111 at the 2019 FINRA Annual Conference.

As part of FINRA’s ongoing initiatives to protect investors from misconduct, FINRA is requesting comment on proposed new Rule 4111 (Restricted Firm Obligations) that would impose tailored obligations, including possible financial requirements, on designated member firms that cross specified numeric disclosure-event thresholds. These thresholds were developed through a thorough analysis and are based on the number of events at similarly sized peers. The member firms that could be subject to these obligations, while small in number, present heightened risk of harm to investors and their activities may undermine confidence in the securities markets as a whole. The proposal would further promote investor protection and market integrity and give FINRA another tool to incentivize member firms to comply with regulatory requirements and to pay arbitration awards.

FINRA is requesting comment on:

  1. proposed new Rule 4111 (Restricted Firm Obligations), which would authorize FINRA to require “Restricted Firms,” identified by a multi-step process involving threshold calculations, to make deposits of cash or qualified securities that could not be withdrawn without FINRA’s prior written consent, adhere to other conditions or restrictions on the member’s operations that are necessary or appropriate for the protection of investors and in the public interest, or be subject to some combination of those obligations; and
  2. proposed new Rule 9559 (Procedures for Regulating Activities Under Rule 4111) (new Rule 9559) and amendments to existing Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) to be renumbered as Rule 9560 (Rule 9560 or the Hearing Procedures Rule) to create an expedited proceeding that allows a prompt review of the determinations under the Restricted Firm Obligations Rule and grants a member a right to challenge any obligations imposed.

The proposed rule text is available in Attachment A. A flow chart describing proposed Rule 4111 is available in Attachment B. A chart presenting examples of restricted deposit requirements is available as Attachment C. The attachments referenced in the Economic Impact Assessment are available in Attachment D (Attachments D-1, D-2 and D-3).

Questions concerning this Notice should be directed to:

  • Kosha Dalal, Associate Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-6903; or
  • Michael Garawski, Associate General Counsel, OGC, at (202) 728-8835.

Questions concerning the Economic Impact Assessment in this Notice should be directed to:

  • Jonathan Sokobin, Senior Vice President and Chief Economist, Office of the Chief Economist (OCE), at (202) 728-8248; or
  • Hammad Qureshi, Senior Economist, OCE, at (202) 728-8150.

Related Documents: 

DateTitleFormat - Size
5/2/2019Attachment APDF - 356.26 KB
5/2/2019Attachment BPDF - 24.74 KB
5/2/2019Attachment CPDF - 39.89 KB
5/2/2019Attachment DPDF - 267.37 KB
The views, expressions, findings and opinions expressed in the comments on this Web page are solely those of the author(s) and FINRA accepts no responsibility for the content of the comments: 
DateCommenterFormat - Size
5/3/2019Whitehall-Parker Securities, Inc.PDF - 44.05 KB
5/3/2019Les KernPDF - 31.47 KB
6/6/2019IBN Financial Services, Inc.PDF - 91.36 KB
6/11/2019Four Points Capital Partners LLCPDF - 50.72 KB
6/12/2019Brooklight Place Securities, Inc.PDF - 167.77 KB
6/27/2019EFS AdvisorsPDF - 70.04 KB
6/27/2019McNally Financial Services CorporationPDF - 35.11 KB
6/27/2019Network 1 Financial Services, Inc.PDF - 5.1 MB
6/28/2019AdvisorLaw, LLCPDF - 126.2 KB
6/28/2019Sichenzia Ross Ference LLPPDF - 419.28 KB
6/28/2019The Commonwealth of MassachusettsPDF - 2.27 MB
6/28/2019Joseph Stone Capital, LCCPDF - 56.54 KB
6/28/2019Moss & Gilmore LLPPDF - 157.86 KB
6/30/2019Worden Capital Management, LLCPDF - 139.9 KB
6/30/2019Luxor Financial Group, Inc.PDF - 432.97 KB
7/1/2019PIABAPDF - 250.54 KB
7/1/2019St. John’s University School of LawPDF - 487.1 KB
7/1/2019WestPark Capital, Inc.PDF - 266.6 KB
7/1/2019John Jay Legal Services, Inc.PDF - 33.15 KB
7/1/2019HLBS LawPDF - 631.48 KB
7/1/2019Financial Services InstitutePDF - 121.06 KB
7/1/2019SIFMAPDF - 184.48 KB
7/1/2019Better MarketsPDF - 551.9 KB
7/1/2019NASAAPDF - 182.03 KB
7/1/2019Cambridge Investment Research, Inc.PDF - 126.39 KB
7/1/2019Dempsey Lord Smith, LLCPDF - 89.88 KB
7/1/2019Cetera Financial GroupPDF - 560.38 KB
7/1/2019University of Miami School of LawPDF - 247.87 KB
7/1/2019Colorado Financial Service Corporation PDF - 235.52 KB
7/1/2019Eversheds Sutherland (US) LLPPDF - 5.07 MB
7/1/2019Rockfleet Financial Services, Inc. PDF - 208.2 KB