09-24 FIXED INCOME FIRMS
SEC Approves Amendments Expanding the Definition of "TRACE-Eligible Security"; Effective Date: June 15, 2009
On April 14, 2009, the SEC approved the amendment that broadens the definition of “TRACE-eligible securities” by deleting the following two requirements:
- that TRACE-eligible securities be registered under the Securities Act of 1933
- with respect to securities that are resold in a Securities Act Rule 144A transaction, that such securities initially be offered and sold under the exemption from registration in Section 4 (2) of the Securities Act.
The amended rule extends price transparency to corporate bonds that are being purchased and sold by diverse market participants, including retail investors, and enhances the surveillance of the corporate bond market.
09-26 ALL FIRMS
Securities Industry/Regulatory Council on Continuing Education Issues Firm Element Advisory Update
This notice advises firms about regulatory and sales practice topics that firms should consider in their Firm Element training plans. Topics updated or added since the prior advisory are indicated in the document as such. The updated Firm Element Advisory is available at: www.cecouncil.com/publications/council_publications/FEA_Semi_Annual_Update.pdf
09-27 ALL FIRMS
SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
Effective June 17, 2009, new FINRA Rule 5122 will require FINRA member firms and associated persons that engage in a private placement of firm's securities or those of a control entity (member private offering or MPO) to comply with certain disclosure and filing requirements and limitations of the use of proceeds.
The new rule provides additional regulation of certain private placements, which are generally excluded from the scope of existing rules, including FINRA Rule 5110 (Corporate Financing Rule - Underwriting Terms and Arrangements) and NASD Rule 2720 (Distribution of Securities of Members and Affiliates - Conflicts of Interest), because these existing rules generally apply only to public offerings.
The rule will not apply retroactively to any offerings that have already commenced selling efforts as of the effective date, June 17, 2009.
09-28 GENERAL SECURITIES FIRMS
FINRA Reminds Firms of Their Obligation to Provide Accurate Information in Disseminating, or Using Services to Disseminate, Indications of Interest
FINRA is issuing this notice to remind firms of their obligation to communicate accurate information when disseminating, or using services to disseminate, indications of interest to the marketplace.
09-29 GENERAL SECURITIES FIRMS
FINRA Requests Comment on Proposed FINRA Rule Addressing the Origination and Circulation of Rumors
FINRA is proposing substantial changes to proposed FINRA Rule 2030. The proposed changes include amendments to the general prohibition in Rule 2030 and the proposed reporting requirement, as well as adopting Supplementary Material to Rule 2030 that will address exceptions for certain communications, the definition of the term "rumor," additional rules of which member firms should be aware, and a firm's obligation to adopt written policies and procedures concerning rumors. The comment period expired July 16, 2009.
09-30 GENERAL SECURITIES FIRMS
SEC Approves Rule Establishing an Interim Pilot Program on Margin Requirements for Transactions in Credit Default Swaps
The SEC approved new FINRA Rule 4240, which establishes an interim pilot program with respect to margin requirements for certain transactions in credit default swaps (CDS) and addresses related risk-monitoring procedures and guidelines. The requirements extend to any transactions in CDS executed by a member (regardless of the type of account in which the transaction is booked), including those in which the offsetting matching hedging transactions are effected by the member in CDS contracts that are cleared through the central counterparty clearing services of the Chicago Mercantile Exchange (CME). The interim pilot program expires on September 25, 2009.
09-31 GENERAL SECURITIES FIRMS
FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged and Inverse Exchange-Traded Fund
Exchange-traded funds (ETFs) that offer leverage or that are designed to perform inversely to the index or benchmark they track—or both—are growing in number and popularity. While such products may be useful in some sophisticated trading strategies, they are highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis. Due to the effects of compounding, their performance over longer periods of time can differ significantly from their stated daily objective. Therefore, inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.
This notice reminds firms of their sales practice obligations in connection with leveraged and inverse ETFs. In particular, recommendations to customers must be suitable and based on a full understanding of the terms and features of the product recommended, sales materials related to leveraged and inverse ETFs must be fair and accurate, and firms must have adequate supervisory procedures in place to ensure that these obligations are met.
09-32 VARIABLE PRODUCT FIRMS
SEC Approves Amendments to NASD Rule 2821 Governing Purchases and Exchanges of Deferred Variable Annuities; Effective Date: February 8, 2010
On April 15, 2009, the SEC approved amendments to NASD Rule 2821 governing purchases and exchanges of deferred variable annuities. Among other things, the amendments:
- limit the rule's application to recommended transactions;
- change the triggering event that begins the principal review period; and
- clarify various other issues through new supplementary material to the rule.
09-33 ALL FIRMS
SEC Approval and Effective Date for New Consolidated FINRA Rules; Effective Date: August 17, 2009
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. FINRA is proposing new consolidated rules in phases for approval by the SEC as part of the Consolidated FINRA Rulebook. In April and May 2009, the SEC approved eight new consolidated FINRA Rules, which will take effect on August 17, 2009.
09-35 MUNICIPAL FIRMS
FINRA Recommends Review of Municipal Securities Activities
FINRA recommends that firms engaged in municipal securities business review and, if necessary, modify their policies and procedures in light of changes to the Municipal Securities Rulemaking Board's (MSRB) Electronic Municipal Market Access system (EMMA) that take effect July 1, 2009, and changes to MSRB rules that went into effect June 1, 2009.
FINRA also encourages firms to review the overall adequacy and effectiveness of their current policies and procedures for municipal securities activities generally, particularly those relating to the disclosure of material information, the suitability of recommendations to retail customers and the general supervision of their municipal securities activities.
09-36 ALL FIRMS
SEC Approves an Amendment to the Tolling Provision in the Arbitration Codes for Customer and Industry Disputes; Effective Date: August 10, 2009
An amendment to the Arbitration Codes for Customer and Industry Disputes that clarifies that the rules toll (i.e., temporarily suspend) the applicable statutes of limitation when a person files an arbitration claim with FINRA becomes effective August 10, 2009, and will apply to claims filed on or after that date.
09-37 GENERAL SECURITIES FIRMS
Trading in Motors Liquidation Company (Formerly Known as General Motors Corporation)
On July 10, 2009, FINRA halted over-the-counter trading in Motors Liquidation Company (formerly known as General Motors Corporation) because it believed the trading volume in the security represented a potential widespread misunderstanding that this security may be related to interests in the new General Motors Company, as opposed to Motors Liquidation Company. Commencing July 15, 2009, trading in Motors Liquidation Company common stock resumed and the security began trading under the symbol MTLQQ. The former common stock symbol, GMGMQ, will be deleted and should only be used for the limited purpose of reporting as-of reports, corrections or cancellations of trades effected on or prior to July 10, 2009.
09-38 GENERAL SECURITIES FIRMS
Guidance on the Net Capital and Reserve Formula Treatment of Senior Unsecured Debt Securities Issued Under the Debt Guarantee Program Component of the FDIC's Temporary Liquidity Guarantee Program; Effective Date: July 15, 2009
FINRA is issuing this notice to advise firms of the Net Capital and Reserve Formula treatment of senior unsecured debt securities issued under the Debt Guarantee Program component of the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program. Terms of the guidance are detailed in a July 15, 2009 letter to the Securities and Exchange Commission (SEC), included as Attachment A to this notice.
09-39 GENERAL SECURITIES FIRMS
SEC Approves Changes to the FINRA Regulation Board Composition and Conforming Changes to the FINRA Regulation By-Laws; Effective Date: August 20, 2009
Effective August 20, 2009, the board composition of FINRA Regulation, Inc. (a subsidiary of FINRA) will more closely parallel the composition and governance structure of the FINRA Inc. Board of Governors (FINRA Board). The revisions to the FINRA Regulation, Inc. By-Laws (By-Laws) also reflect current business and legal practices concerning the administration of FINRA Regulation. In addition, the revisions make non-substantive or conforming changes to the by-laws, including updates to reflect the corporate name change. The revised by-laws are available at www.finra.org/finramanual/bylaws.
09-40 GENERAL SECURITIES FIRMS
SEC Approval and Effective Dates for New Consolidated FINRA Rules on Electronic Filing Requirements for Uniform Forms and Arbitration Disclosure
Effective Date (FINRA Rule 1010): July 27, 2009
Effective Date (FINRA Rule 2263): September 25, 2009
The SEC recently approved the adoption of NASD Rule 1140, subject to certain amendments, as new FINRA Rule 1010 (Electronic Filing Requirements for Uniform Forms). FINRA Rule 1010 supports the information reported by firms to Web CRD and, among other things, permits a firm to file amendments to Form U4 disclosure information without obtaining the associated person’s manual signature, subject to specified conditions (the mandatory signature exception). The effective date of FINRA Rule 1010 is July 27, 2009.
The SEC also approved the adoption of NASD Rule 3080, subject to minor amendments, as new FINRA Rule 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging FormU4). FINRA Rule 2263 requires firms to provide each associated person with arbitration disclosures whenever the firm asks an associated person, pursuant to FINRA Rule 1010, to manually sign a new or amended Form U4, or to otherwise provide written acknowledgment of an amendment to the FormU4. The effective date of FINRA Rule 2263 is September 25, 2009, to provide firms with additional time to make the necessary changes to forms and any related systems to reflect the slightly revised disclosure language.
09-41 INVESTMENT BANKING FIRMS
SEC Approves Rule Change Creating New Limited Representative – Investment Banker Registration Category and Series 79 Investment Banking Exam; Effective Date: November 2, 2009
Effective November 2, 2009, amendments to NASD Rules 1022 and 1032 require individuals whose activities are limited to investment banking and principals who supervise such activities to pass the new Limited Representative – Investment Banking Qualification Examination (Series 79 Exam). Individuals who are registered as a General Securities Representative (Series 7) and engage in the member firm’s investment banking business as described in NASD Rule 1032(i) may “opt in” to the new registration category by May 3, 2010 (within six months of the effective date).
09-42 VARIABLE PRODUCT FIRMS
FINRA Reminds Firms of Their Obligations with Variable Life Settlement Activities
Sales of existing life insurance policies to third parties—referred to as life settlements—have increased in recent years and the trend appears likely to continue. FINRA is concerned about variable life settlements because they involve materially different factors and raise materially different issues than more widely held securities such as stocks or bonds. Additionally, firms' marketing of variable life settlements is directed almost exclusively toward senior investors who, concerned about current economic conditions and retirement, may consider selling their variable life insurance policies without fully appreciating the risks and costs of variable life settlements.
FINRA reminds firms that:
- variable life settlements are securities transactions that are subject to the federal securities laws and all applicable FINRA rules;
- if they seek to enter the business of variable life settlements, they must file an application for approval of this material change in business under NASD Rule 1017;
- they must present balanced and fair information in their advertising and other communications with the public and customers about variable life settlements and related products, and otherwise comply with all aspects of NASD Rule 2210; and
- they must adhere to suitability obligations under NASD Rule 2310; fair and reasonable commissions under FINRA Rule 2010 (formerly NASD Rule 2110), NASD Rule 2440 and related guidance; and fair fees and the disclosure of fees under NASD Rule 2430.
09-43 GENERAL SECURITIES FIRMS
SEC Approves Amendments to the Panel Composition Rules of the Arbitration Code for Industry Disputes; Effective Date: August 31, 2009
Effective August 31, 2009, the criteria for determining the panel composition for an arbitration when the claim involves an associated person will change. The amendment to the Arbitration Code for Industry Disputes will apply to claims filed on or after the effective date.
09-44 GENERAL SECURITIES FIRMS
FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Fidelity Bonds; Comment Period Expires: September 14, 2009
As part of the process to develop a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a proposed consolidated FINRA rule governing fidelity bond requirements.
NASD Rule 3020 and NYSE Rule 319 require member firms to maintain minimum amounts of fidelity bond coverage for officers and employees, and that such coverage addresses losses incurred due to certain specified events.
FINRA proposes adopting NASD Rule 3020 as FINRA Rule 4360, taking into account requirements under NYSE Rule 319. The proposed rule updates the fidelity bond requirements to clarify the rule and reflect current industry standards.
Proposed Rule 4360 requires each firm that is required to join SIPC to maintain a blanket fidelity bond with specified amounts of coverage based on its net capital requirement. The proposed Rule 4363 increases the minimum required fidelity bond coverage for firms.
09-45 FIXED INCOME FIRMS
FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Sale of Securities in a Fixed Price Offering; Comment Period Expires: September 18, 2009
As part of the process to develop a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a proposed new rule governing fixed price offerings. Proposed FINRA Rule 5141 (Sale of Securities in a Fixed Price Offering) would be a new consolidated rule that simplifies the provisions of current NASD Rules 2730, 2740 and 2750 and their associated interpretive materials and eliminates outdated requirements.
09-46 ATS FIRMS
FINRA Reminds Alternative Trading Systems of Their Reporting Obligations
This notice reminds firms that are alternative trading systems or operate alternative trading systems that, in addition to filing all reports required by Regulation ATS with the Securities and Exchange Commission, they also must simultaneously file duplicate copies of most such reports with FINRA. Firms may submit these reports to FINRA either in hard copy via U.S. mail or electronically to atsfilings@finra.org.
09-47 OPTIONS FIRMS
New Large Options Positions Report (LOPR) Requirements Due to Implementation of Options Symbology Initiative
The Options Clearing Corporation and its participant exchanges have begun implementation of the Options Symbology Initiative, which will affect member firms' reporting of positions to the Large Options Positions Report (LOPR) system. This notice highlights changes to LOPR reporting as a result of the implementation.
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