Rulemaking Items for Discussion at the December 2010 Meeting

The FINRA Board of Governors will consider the following rulemaking items at its December 2010 meeting. FINRA is publishing this information to provide additional transparency in the rulemaking process. After the December 8 meeting, FINRA will notify firms via email about the Board’s actions on these items and anticipated next steps, if any.

Third-Party Service Providers

The Board will consider a proposed new rule requiring controls and diligence around a member firms’ use of third-party service providers in connection with certain broker-dealer functions. The rule would also clarify that responsibility for those functions ultimately resides with the firm through the supervision of an associated person.

Private Placements

The Board will consider proposed amendments to expand FINRA Rule 5122 (Private Placements of Securities Issued by Members) to govern all private placements in which a member firm participates; the amendments are designed to ensure, among other things, greater transparency and diligence in these offerings.

Debt Research Conflicts of Interest 

The Board will consider a concept for a new debt research conflicts of interest rule, which presents a tiered approach to regulating debt research reports and research analysts, depending on whether the research reports are distributed to an audience that includes retail investors or to an institution-only audience.

Short Interest Reporting

The Board will consider amendments to FINRA Rule 4560 (Short Interest Reporting), which are designed to facilitate more consistent calculation of short interest positions for surveillance and market information purposes.

Minimum Quotation Sizes

The Board will consider amendments to FINRA Rule 6450 (Minimum Quotation Size Requirements for OTC Equity Securities) to ensure quotations in lower-priced securities represent a minimum aggregate dollar value commitment and to better align with the minimums in place for listed stocks.

Consolidated FINRA Registration Rules

The Board will review a summary of the comments received on Regulatory Notice 09-70, which proposed consolidated registration and qualification rules. FINRA received 22 comment letters in response to the Notice, which are available on FINRA’s website.

Replies to Responses to Motions

The Board will consider amendments to FINRA Codes of Arbitration Procedure that specify a five-day period to reply to a response to a motion (a procedural device that parties use to bring a contested issue before a panel). The proposal gives parties an opportunity to brief fully the issues in dispute, and ensures that arbitrators have all of the motion papers before issuing a final decision on the motion.

Panel Composition in Industry Disputes Involving Promissory Notes

The Board will consider amendments to the FINRA Code of Arbitration Procedure for Industry Disputes to appoint chair-qualified, public arbitrators to resolve expedited disputes involving solely promissory notes instead of arbitrators qualified to hear statutory-discrimination claims. The proposal ensures that FINRA has a sufficient number of qualified arbitrators readily available to resolve these matters.