An Update on FINRA Forward Rule Modernization

By Robert Colby, FINRA Chief Legal Officer

Old Rag Mountain is one of the roughest hikes around Washington, DC. The 9-mile circuit features a 2,300-foot elevation gain and an hours-long scramble over massive granite boulders. Hikers who reach the top, however, are rewarded with a spectacular, 360-degree view of the Blue Ridge Mountains and surrounding Virginia Piedmont. 

Finalizing our new Outside Activities rule feels like summiting Old Rag on a clear day. Like most strenuous climbs, the task demanded problem-solving and technical skill as we sought to replace two outdated rules with a single streamlined one. It also required several switchbacks to conquer the elevation—putting out a proposal for notice and comment, for example, and then refining it to reflect more than 200 comments from member firms, investors, and other interested parties. 

For my third progress update on our FINRA Forward rule modernization initiative, I am delighted to report that we have reached the summit on this challenging outside activities project and the reward was well worth the effort: a final rule that eases a significant compliance burden for our membership while preserving core investor protections. Broadly, our new rule, adopted Sept. 15, simplifies how member firms must track the outside activities of their associated persons by focusing on those investment-related activities that pose a greater risk to members and the public. By eliminating the reporting of non-investment related activities, both the firms’ compliance staff and FINRA’s regulatory team can better focus on addressing higher-risk activities.  

Likewise, the new intraday margin framework we ushered in over the summer replaced outdated requirements with new standards that give investors more freedom to participate in the markets while broadly reducing investor risk. Specifically, we eliminated the longstanding designation of “pattern day traders” and the accompanying $25,000 minimum equity requirement. In doing so, we removed the incentive for investors to make suboptimal trading decisions just to avoid the designation or stay below the required minimum equity. The new framework further enhances protections by encouraging member firms to monitor customers’ margin deficits throughout the day. 

In the long run, we believe this approach is simpler for investors to track and understand. Under this new rule, $2,000 remains the minimum equity required to engage in intraday leveraged trading (trading on margin). However, there is no longer any minimum equity requirement for day trading. 

To help our members implement the new standards, we have provided updated interpretations of our margin rule and held several workshops. But we want to educate investors as well and therefore have made available resources on the new requirements, intraday trading, and margin accounts. Similarly, we plan to provide additional guidance and resources to facilitate the transition to the new outside activities requirements.

Looking Ahead

With outside activities and intraday margin now complete, we have turned our attention to other “big climbs” underway. A major priority is strengthening our rules to better protect seniors, vulnerable adults, and other customers from suspected fraud and financial exploitation. To that end, we filed a rule proposal with the SEC in August to empower firms to intervene quickly while maintaining appropriate safeguards and respecting customer autonomy. The proposal would promote wider adoption of trusted contacts, permit extensions of temporary holds for seniors and vulnerable adults where appropriate, and introduce an optional “speed bump” hold to protect customers of any age from suspected fraud. We also plan to seek comment on approaches to address the growing threat of fraudulent customer account transfers, including potential changes to our rules governing the use of DTCC’s Automated Customer Account Transfer Service (ACATS).

Now that the SEC has proposed making e-delivery the default for investor communications, we hope to move forward under a single framework to avoid duplication and misalignment. FINRA strongly supports modernizing the delivery of investor communications, and our Board previously approved a proposal that would default to electronic delivery, while still giving customers a choice to receive paper documents if they prefer. Easing the electronic delivery of required information—while preserving investors’ ability to opt for paper delivery—will reduce the risk of physical mail theft targeting financial information and allow investors to receive more timely information. 

In addition, we plan to propose making the Remote Inspections Pilot Program permanent before it expires next year, to preserve the ability of member firms to conduct remote inspections of their offices. To safeguard investors, brokers with specified disciplinary issues will not be in scope for this rule.

Other projects underway include modernizing supervisory obligations, revising our continuing education programs, amending our rules for reviewing applications for new and continuing membership, updating our best execution guidance, and proposing a more risk-based standard for supervising retail communications. This last project aims to address several challenging interpretive issues related to social media and also accommodate the use of AI by member firms. 

Engagement with member firms continues to inform our work. We held recent roundtables on modernizing FINRA’s branch office and supervisory framework, and navigating supervision and compliance with GenAI. Previous sessions covered modern communications, cybersecurity, fraud prevention, and the research rules.

To track our progress, I invite you to view our Quarterly Regulatory Policy Agenda, which we just updated for the third quarter with our current priorities along with recently completed and active rule filings. I am also providing the following overview of our work since my last update in March.  

Completed Work (listed by date of rule change or publication of guidance)

The following rule changes and guidance are final:

• Collective Trust Funds. Rule change approved by the SEC in October to expand access to IPOs for collective trust funds.
• Outside Activities Requirements. Rule change approved by the SEC in September to simplify compliance requirements for the outside activities of member firms’ associated persons. The rule focuses coverage on outside investment-related activities that pose greater risk, providing exclusions for activities at affiliates, personal real estate, and personal investments in non-securities. It also removes supervisory and recordkeeping requirements for unaffiliated investment adviser activity while maintaining notice and assessment obligations.
• Order Allocation Procedures. Rule change approved by the SEC in September to eliminate the requirement that late allocations of bulk investment adviser orders be approved by a firm principal.
• Corporate Financing. Rule change approved by the SEC in July to further promote capital formation without lessening investor or issuer protection.
• TRACE Price Transparency. Rule change approved by the SEC in July to improve transparency in TRACE-eligible securities by expanding the scope of the non-member affiliate—principal transaction indicator to also include member affiliates.
• Extended Trade Reporting Hours. Rule change filed for immediate effectiveness in July to extend the operating hours of FINRA’s Trade Reporting Facilities to accommodate the shift to extended hours trading. This change will be implemented on Dec. 6.
• Waiting Periods for Qualification Exams. Rule change filed for immediate effectiveness in June to shorten the waiting periods for retaking failed FINRA qualification examinations. We will announce the implementation date in a regulatory notice.
• Compensation Guidance. New guidance issued in June clarifying how FINRA’s rules apply in relation to the SEC’s no-action letter permitting registered representatives to receive transaction-based compensation through personal services entities without requiring separate broker-dealer registration for those entities.
• Trade Reporting FAQ. FAQ published in May clarifying how members should report the price of a trade for a security against an asset that is not a fiat currency, such as when a non-security crypto asset is exchanged for a security.
• Electronic Delivery of Information Requests. Rule change filed for immediate effectiveness in April to specify that FINRA will deliver electronically our requests for information and testimony to member firms, rather than by mail.
• Intraday Margin. Rule change approved by the SEC in April that replaced the day trading margin provisions with updated intraday margin standards.
• Odd-Lot Quotation Data. Rule amendments filed for immediate effectiveness in March to align FINRA’s rules with industry-wide implementation of the new odd-lot quotation information requirements. 

Work in Progress (listed by date of filing)

We have filed the following rule amendments for approval with the SEC:

• Reconciliation Requirements. Filed with the SEC in August to simplify position statement and reconciliation requirements for certain alternative investments.
• Enhanced Investor Protection Tools. Filed with the SEC in August to modernize protections for senior and vulnerable investors and to make additional fraud prevention tools available for all customers.
• Replacement Arbitrators. Filed with the SEC in August to provide parties with greater input into replacing arbitrators.
• Performance Projections. Filed with the SEC in February to better align the regulatory requirements for broker-dealers and investment advisers for projections of performance and targeted returns in written communications to investors.

Hitting Our Stride 

We have advanced more than 20 SEC rule filings since launching our rule modernization initiative in April 2025. Yet there are still more ridges to climb. Some are big; some are small. But our path is much easier when you—our member firms, the investing public, and other fellow travelers—join us for the climb. Thank you for all the feedback, ideas, and insights you have provided so far. This engagement is critical for reaching our goal: balanced rules that protect investors, support compliance among our membership, and facilitate capital formation and wealth creation. So, please keep traveling with us.