SEC Approval and Effective Date for New Consolidated FINRA Rules on the Transfer of Customer Accounts, Recommendations to Customers in OTC Equity Securities and Anti-Intimidation/Coordination
SEC Approves New Consolidated FINRA Rules
Regulatory Notice | |
Notice Type Rule Approvals Consolidated Rulebook |
Referenced Rules & Notices FINRA Rule 2100 Series FINRA Rule 2110 Series FINRA Rule 2114 FINRA Rule 2140 FINRA Rule 5000 Series FINRA Rule 5200 Series FINRA Rule 5240 FINRA Rule 6420 Information Notice 03/12/08 Information Notice 10/06/08 Regulatory Notice 08-57 |
Suggested Routing Compliance Legal Senior Management Trading |
Key Topic(s) Anti-Intimidation/Coordination Customer Account Transfers Effective Dates of Consolidated Rules FINRA Manual OTC Equity Securities Recommendations to Customers Rulebook Consolidation |
Executive Summary
Following the consolidation of NASD and the member regulation, enforcement and arbitration functions of NYSE Regulation into FINRA, FINRA established a process to develop a new consolidated rulebook (Consolidated FINRA Rulebook), which FINRA has discussed in previous Information Notices.1 FINRA is proposing new consolidated rules in phases for approval by the SEC as part of the Consolidated FINRA Rulebook.2 In February and March 2009, the SEC approved three new consolidated FINRA Rules on the transfer of customer accounts in the context of employment disputes, recommendations to customers in OTC Equity Securities and anti-intimidation/coordination, which will take effect on June 15, 2009.
Questions regarding this Notice should be directed to:
Discussion
In February and March 2009, the SEC approved three FINRA Rules as part of the Consolidated FINRA Rulebook:
The attachment to this Notice sets forth additional information regarding these new consolidated rules and includes a hyperlink to each related rule filing. The filings provide, among other things, FINRA's statement of the purpose of the rule changes and an exhibit showing the changes between the new rule text and the text of the NASD rule as it exists in the Transitional Rulebook. Also, the text of each new FINRA Rule is available in the online FINRA Manual at www.finra.org/finramanual.6
Rule Conversion Chart
As discussed in additional detail in Information Notice 10/06/08 and Regulatory Notice 08-57, FINRA has posted a Rule Conversion Chart on its Web site to help firms become familiar with the new rules and show how the new rules relate to the NASD and/or Incorporated NYSE Rules in the Transitional Rulebook that they will replace.
Firms should be aware that the chart is intended as a reference aid only. FINRA reminds firms that the chart does not in any way serve as a substitute for diligent review of the relevant new rule language. The Rule Conversion Chart is located at www.finra.org/ruleconversionchart.
1See Information Notice 10/06/08 (Rulebook Consolidation Process: Effective Dates of New Consolidated Rules; Introduction of Rule Conversion Chart); see also Information Notice 03/12/08 (Rulebook Consolidation Process).
2 The current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (Incorporated NYSE Rules) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the Transitional Rulebook). While the NASD Rules generally apply to all FINRA member firms, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (Dual Members). The new FINRA Rules apply to all member firms, unless such rules have a more limited application by their terms. As the Consolidated FINRA Rulebook expands with the SEC's approval and with the new FINRA Rules taking effect, the rules in the Transitional Rulebook that address the same subject matter of regulation will be eliminated. When the Consolidated FINRA Rulebook is completed, the Transitional Rulebook will have been eliminated in its entirety.
3See Exchange Act Release No. 59495 (March 3, 2009), 74 FR 10632 (March 11, 2009) (Order Approving Proposed Rule Change; File No. SR-FINRA-2008-052); see also Exchange Act Release No. 59495A (March 18, 2009), 74 FR 12417 (March 24, 2009) (Order Correcting Exchange Act Release No. 59495).
4See Exchange Act Release No. 59605 (March 19, 2009), 74 FR 13283 (March 26, 2009) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change; File No. SR-FINRA-2008-055).
5See Exchange Act Release No. 59335 (February 2, 2009), 74 FR 6335 (February 6, 2009) (Order Approving Proposed Rule Change; File No. SR-FINRA-2008-061).
6 FINRA updates the rule text on its online Manual within two business days of SEC approval of changes to the rule text.
Attachment A
List of Approved FINRA Rules (and Related Rule Filings)
The SEC approved the following new FINRA Rules in February and March 2009. The effective date of these rules is June 15, 2009.
FINRA Rule Filing SR-FINRA-2008-052
www.finra.org/rulefilings/2008-052
The rule change adopts, with certain modifications, NASD Interpretive Material (IM) 2110-7 (Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes) as FINRA Rule 2140.
NASD IM-2110-7 states that it is inconsistent with just and equitable principles of trade for a member firm or person associated with a member firm to interfere with a customer's request to transfer his or her account in connection with the change in employment of the customer's registered representative, provided that the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. IM-2110-7 further states that nothing in the Interpretation affects the operation of NASD Rule 11870 (Customer Account Transfer Contracts).
The rule change transfers NASD IM-2110-7, with conforming revisions, into the Consolidated FINRA Rulebook as stand-alone FINRA Rule 2140 rather than as interpretive material to NASD Rule 2110 (Standards of Commercial Honor and Principles of Trade).1
RULE/SERIES NO. | RULE TITLE |
Rule 2100 Series | TRANSACTIONS WITH CUSTOMERS |
Rule 2140 | Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes |
FINRA Rule Filing SR-FINRA-2008-055
www.finra.org/rulefilings/2008-055
The rule change adopts, with certain modifications, NASD Rule 2315 (Recommendations to Customers in OTC Equity Securities) as FINRA Rule 2114.
NASD Rule 2315 addresses potential fraud and abuse in transactions involving securities not listed on an exchange and certain other higher-risk securities. The rule, which supplements existing FINRA rules and the federal securities laws, requires a member to conduct a due diligence review of an issuer's current financial statements and current material business information before recommending the purchase or short sale of a security that is published in a "quotation medium" and is either (1) not listed on NASDAQ or a national securities exchange or (2) listed on a regional securities exchange and does not qualify for dissemination of transaction reports via the Consolidated Tape.
The rule change transfers NASD Rule 2315 into the Consolidated FINRA Rulebook as FINRA Rule 2114 and amends NASD Rule 2315 in four respects.
RULE/SERIES NO. | RULE TITLE |
Rule 2100 Series | TRANSACTIONS WITH CUSTOMERS |
Rule 2110 Series | Recommendations |
Rule 2114 | Recommendations to Customers in OTC Equity Securities |
FINRA Rule Filing SR-FINRA-2008-061
www.finra.org/rulefilings/2008-061
The rule change adopts, with certain modifications, NASD Interpretive Material (IM) 2110-5 (Anti-Intimidation/Coordination) as FINRA Rule 5240.
NASD IM-2110-5 identifies three general types of conduct that are inconsistent with just and equitable principles of trade:
The rule change transfers IM-2110-5, with conforming revisions, into the Consolidated FINRA Rulebook as stand-alone FINRA Rule 5240 rather than as interpretive material to NASD Rule 2110.2 The rule change also adds the phrase "or other person" to two paragraphs of the rule to clarify that coordination with or intimidation of a non-FINRA member firm is also prohibited.
RULE/SERIES NO. | RULE TITLE |
Rule 5000 Series | SECURITIES OFFERING AND TRADING STANDARDS AND PRACTICES |
Rule 5200 Series | QUOTATION AND TRADING OBLIGATIONS AND PRACTICES |
Rule 5240 | Anti-Intimidation/Coordination |
1 FINRA has transferred NASD Rule 2110 to the Consolidated FINRA Rulebook without change as FINRA Rule 2010. See Exchange Act Release No. 58643 (September 25, 2008), 73 FR 57174 (October 1, 2008) (Order Approving Proposed Rule Change; File No. SR-FINRA-2008-028).
2See id.