08-54 INVESTMENT BANKING FIRMS
Guidance on Special Purpose Acquisition Companies
Special purpose acquisition companies (SPACs) are shell companies that raise capital in initial public offerings (IPOs) for the purpose of merging with or acquiring an operating company. The SPACs market has undergone rapid growth in recent years. SPAC IPOs differ significantly from traditional equity IPOs, with unique conflicts of interest and incentives for SPAC managers, underwriters and financial advisors. Firms and their customers who invest in SPACs should be aware of these differences before participating in a SPAC IPO.
08-55 RESEARCH FIRMS
Proposed Rules Regarding Research Registration and Conflict of Interest
As part of the process of developing a new, consolidated rulebook, FINRA published proposed research analyst conflict of interest rules in November. While the comment period for these proposed changes expired November 14, 2008, firms are encouraged to review the proposed changes and comment posted on FINRA’s website in preparation for the SEC comment period and publication of any revisions to the proposals.
08-56 ALL FIRMS
Consolidated Interpretations of SEC Rules Governing Financial Responsibility, Customer Protection and Books and Records
FINRA published a consolidated set of interpretations issued by SEC staff with respect to the following rules: SEA Rules 15c3-1, 15c3-2, 15c3-3, 15c3-4, 17a-3, 17a-4, 17a-5, 17a-11 and 17a-13. Historically, written and verbal SEC staff interpretations of these rules were published by the NYSE and/or NASD. Firms subject to these SEC rules were required to refer to both sets of interpretations and determine their applicability. Upon the consolidation of NASD and NYSE Regulation, FINRA staff reconciled the interpretations to create a single resource, now available on FINRA's Web site at www.finra.org/finops.
08-57 ALL FIRMS
SEC Approval and Effective Date for Certain New Consolidated Rules
Following the consolidation of NASD and NYSE Regulation into FINRA, FINRA established a process to develop a new consolidated rulebook (Consolidated FINRA Rulebook), which was discusses in Information Notice 10/6/08. FINRA has been proposing new consolidated rules in phases for approval by the SEC. The first phase of new consolidated FINRA Rules, approved by the SEC in August and September 2008, will take effect on December 15, 2008. Most of these changes involve changes in the numbering of Rules with limited substantive changes. Regulatory Compliance is reviewing all the changes and will incorporate such in the January 2009 update. A Rule number conversion chart for changes effective December 15 as well as any content changes will be included in the year-end WSP update.
08-58 ALL FIRMS
Guidance on Disclosure Concerning the U.S. Treasury Department's Temporary Guarantee Program for Money Market Mutual Funds
FINRA issued Notice 08-58 to provide guidance to firms regarding disclosure concerning the U.S. Treasury Department's temporary guarantee program for the U.S. money market mutual fund industry. This program was announced by the Treasury on September 19, 2008 and covers shares of participating money market mutual funds, owned by a beneficial shareholder, as of the close of business on September 19, 2008. The program will expire on December 18, 2008, unless extended by the Treasury.
FINRA expects firms to ensure that communications regarding the program comply with the standards set forth in applicable Rules. FINRA also expects a firm to provide adequate disclosure to a customer transferring an account from a participating money market fund that they could lose coverage under the program. Firms should also disclose to clients and customers transferring into these funds that new shares purchased in these funds after September 19 are not covered under this program. Firms should review the Treasury's Web page concerning the Program for more details.
08-59 ALL FIRMS
Deadline for Payment of 2009 renewal fees is December 12, 2009.
Payment of the total fees shown on each firm’s preliminary renewal statement must be received by FINRA in the firm’s Renewal Account by December 12, 2008. FINRA will automatically transfer funds from a firm’s Daily Account to cover its Renewal fees if sufficient funds are on deposit in the firm’s account. Firms who fail to pay their Renewal Fees in full on or before December 12 will be assessed a late payment fee.
08-60 ALL FIRMS
Temporary Margin Maintenance, Net Capital and Reserve Formula Requirements Related to Money Market Mutual Funds
Effective October 21, 2008, FINRA is implementing temporary margin maintenance, net capital and reserve formula requirements related to certain money market mutual funds that have frozen customer redemptions or whose net asset value has declined below $1.00 per share, pursuant to NASD Rule 2520(f)(8)(A), NYSE Rule 431(f)(8)(A) and SEA Rules 15c3-1 and 15c3-3.
The margin requirement is set at 1% of the market value or the applicable fund’s NAV.
Net capital considerations for firms include a 15% haircut for these money market funds on any balances held in the firm’s name. For net capital consideration relating to receivables from these funds, please refer to the Notice.
08-61 ALL FIRMS
Proposed Change to Examination Fees Effective January 2, 2009
FINRA has submitted a proposal to the SEC to amend the fees for a number of its qualification examinations effective January 2, 2009. Some changes for the more frequently taken examination are as follows:
Examination Old Fee Proposed Fee
Series 6 $ 75 $ 85
Series 7 $250 $265
Series 24 $ 95 $105
Series 26 $ 75 $ 85
Series 27 $ 95 $105
Series 28 $ 75 $ 85
Series 55 $ 85 $ 95
Series 86 $150 $160
Series 87 $105 $115
For a complete listing of the proposed changes, please see the chart included in the Notice.
08-63 ALL FIRMS
Firm Element Advisory Update
The Securities Industry/Regulatory Council on Continuing Education publishes its fourth-quarter 2008 Firm Element Advisory. This advisory identifies regulatory and sales practice topics that firms should consider in their Firm Element training plans.
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08-65 GENERAL SECURITIES FIRMS
FINRA Grants Additional, Temporary Relief from the Net Capital, Reserve Formula, Non-purpose Loan, and Maintenance Margin Requirements Applicable to Credit Extended on Auction Rate Securities to Broker-Dealers That Agree to Buy Back Auction Rate Securities;
Effective November 4, 2008, FINRA has granted additional, temporary relief from the net capital, reserve formula, non-purpose loan, and maintenance margin requirements applicable to credit extended on auction rate securities to broker/dealers who have agreed to implement buyback programs for auction rate securities. Firms who are participating in the buyback programs should review the Notice and attached September 28, 2008 letter from FINRA to the SEC for details and requirements for this relief.
8-67 ALL FIRMS
Electronic Filing Process For Qualification Examination Waiver Requests and Series 16 Experience Acceptability Requests
Effective January 16, 2009, member firms must submit all qualification examination waiver requests and Series 16 experience acceptability requests electronically through FINRA’s Firm Gateway.
To assist firm’s in preparing for this change, beginning December 1, 2008, member firms may begin submitting qualification examination waiver requests and Series 16 experience acceptability requests electronically via the Firm Gateway.
On or before December 1, 2008, each firm’s WebCRD Primary Account Administrators will automatically receive waiver submission entitlement privileges. Account Administrators may provide entitlement privileges to applicable staff through Entitlement Account Management Tool in WebCRD.
8-68 ALL FIRMS
Request for Comment on Proposed FINRA Rule Addressing the Circulation of Rumors
FINRA is requesting comment on a proposed FINRA Rule 2030 relating to the circulation of rumors. This new Rule combines elements of NYSE Rule 435(5) and current Rule 6140(e) and extends the prohibition to include all types of securities. Comments must be submitted by December 18, 2008.
8-69 ALL FIRMS
Alert to Member Firms About the Federal Trade Commission’s FACT Act Regulations and the Announcement of the FTC’s Decision to Delay Enforcement of the Red Flags Rule until May 1, 2009
FINRA is issuing this Notice to alert member firms about the Federal Trade Commission's (FTC's) Fair and Accurate Credit Transactions Act of 2003 (FACT Act) regulations and the FTC's decision to delay enforcement of the Red Flags Rule until May 1, 2009, to give member firms additional time to develop and implement their procedures to identify, detect and respond to patterns, practices or specific activities that could indicate identity theft.
8-70 ALL FIRMS
Guidance Regarding Credit for Extraordinary Cooperation
FINRA issued this Notice to let firms know about the circumstances where extraordinary cooperation by a firm or individual may directly influence the outcome of an investigation. Types of extraordinary cooperation by a firm or individual can be categorized as follows: (1) self-reporting before regulators are aware of the issue; (2) extraordinary steps to correct deficient procedures and systems; (3) extraordinary remediation to customers; and (4) providing substantial assistance to FINRA's investigation. These steps alone or taken together can be viewed in a particular case as extraordinary cooperation and, depending on the facts and circumstances, can have an impact on FINRA's enforcement decisions.
8-71 ALL FIRMS
Request for Comments on Proposed Consolidated FINRA Rule Governing Complaint Reporting Requirements
As part of the process of developing a new, consolidated rulebook, FINRA is requesting comment on a proposal relating to the FINRA complaint reporting requirements. Consolidated Rule 4530 is primarily based on current NASD Rule 3070 and incorporates components of NYSE Rule 351. It also includes the codification of staff guidance on areas surrounding such reporting. Comments must be submitted on or before December 29, 2008.
8-72 GENERAL SECURITIES FIRMS
Guidance Concerning the Types of Securities Transactions Subject to the Regulatory Transaction Fee
FINRA published this Notice to remind firms that the regulatory transaction fee, required under Section 3 of Schedule A to the FINRA By-Laws, generally applies to sales of equity securities that are required to be promptly reported to the OTC Reporting Facility (ORF) and to sales that are required to be reported to either the Alternative Display Facility (ADF) or a FINRA Trade Reporting Facility (TRF).
8-73 OPTIONS FIRMS
Amendments to NASD Rule 2220 to Update the Standards for Options Communications Were Approved by the SEC
Effective March 4, 2009, NASD Rule 2220 is amended to achieve greater consistency with FINRA’s general communications rule (NASD Rule 2210) and the options communications rules of other self-regulatory organizations (SROs). As amended, NASD Rule 2220, among other things: (1) uses, to the extent appropriate, the same terminology and definitions as in FINRA’s general rules on communications with the public; (2) makes the requirements for principal review of correspondence concerning options the same as for correspondence generally; and (3) updates the standards on the content of communications that precede the delivery of the options disclosure document (ODD). FINRA also provided guidance to firms regarding ODD delivery via hyperlink certain situations.
8-74 GENERAL SECURITIES FIRMS
Guidance on Amendments to FINRA Rules Relating to SEC Regulation M
This Notice provides additional information and guidance on the new FINRA Rules 5190, 6470 and 6275 governing notification requirements and marketplace-specific rules relating to Regulation M under the Securities Exchange Act of 1934. The Notice contains discussion of each new Rule as well chart relating to the reporting due under each.
8-75 GENERAL SECURITIES FIRMS
PRIVATE PLACEMENT FIRMS
Guaranteed Senior Unsecured Debt Is a TRACE-Eligible Security
Under a new Federal Deposit Insurance Corporation (FDIC) “Temporary Liquidity Guarantee Program,” certain senior unsecured debt securities that are issued by eligible financial institutions, such as insured U.S. depository institutions and U.S. bank holding companies, which comply with the applicable regulations and Debt Guarantee component of the Program, are fully and unconditionally guaranteed by the FDIC and referred to as FDIC–Guaranteed Senior Unsecured Debt.
FDIC–Guaranteed Senior Unsecured Debt is a TRACE-eligible security if it is registered under the Securities Act of 1933 or issued pursuant to Section 4(2) of the Securities Act and purchased or sold pursuant to Securities Act Rule 144A and otherwise complies with NASD Rule 6210(a). Firms must report transactions in such FDIC-Guaranteed Senior Unsecured Debt to TRACE, including transactions that were executed prior to this Notice.
8-76 CLEARING FIRMS OR FIRMS THAT
PROVIDE SUB-CLEARING SERVICES
Technology Changes for Reporting Clearing Methods and Arrangements
Effective December 15, 2008, member firms that carry accounts and/or clear transactions or act as an intermediary to facilitate the clearance of accounts through another firm must report their clearing method and clearing arrangements through the FINRA Firm Gateway. Firms that are members of both FINRA and the NYSE must report their clearing method and arrangements under Incorporated NYSE Rule 416A. FINRA-only member firms are requested to provide this information on a voluntary basis.
8-78 OPTIONS FIRMS
FUTURES FIRMS
New Consolidated FINRA Rules Relating to Warrants, Options and Security Futures; Effective Date: February 17, 2009
The following new FINRA Rules relating to option, warrants and future are effective February 17, 2009: These amendments are part of the ongoing Rulebook consolidation.
- 2300 Series – Special Products
- 2350 Series – Trading in Index Warrants, Currency Index Warrants and Currency Warrants
- 2360 - Option
- 2370 – Security Futures
Rules in the 2350 series replace NASD Rules 2840 through 2853; Rule 2360 replaces NASD Rule 2860; and Rule 2370 replaces NASD Rule 2865. In addition, to the new nomenclature associated with these Rules, minor changes to content have been incorporated in the new FINRA Rules.
8-80 GENERAL SECURITIES FIRMS
Requests Comment on Proposed FINRA Rule Addressing Best Execution
FINRA is requesting comment on proposals relating to FINRA's rule on best execution and interpositioning. There are four primary proposed amendments that are described in this Notice:
- the adoption of a new provision providing that a member firm has met its best execution obligations regarding orders for foreign securities with no U.S. market if certain conditions are met;
- the replacement of NASD Rule 2320(g) with Supplementary Material addressing a member firm's best execution obligations when handling orders for securities with limited quotation information;
- the codification of a member firm's obligation to regularly and rigorously review execution quality; and
- the adoption of Supplementary Material addressing a member firm's obligations when handling an order that the customer has instructed the firm to route to a particular market for execution.
The Comment Period on this Rule Proposal closes January 29, 2009.
8-81 GENERAL SECURITIES FIRMS
Firms are Reminded of Their Sales Practice Obligations with Regard to the Sale of Securities in a High Yield Environment
This Notice was issued to remind firms of their obligations in the sale of securities such as bonds, bond funds, structured products and non-conventional investments, in a high-yield environment. The yield on many of these instruments in late 2008 reached unusually high levels, which may increase their appeal to some investors. FINRA reiterates the guidance set forth in previous Notices and reminds firms that they are obligated to balance any discussion of yield with an appropriate discussion of the features of these instruments and the risks presented
8-82 ALL FIRMS
Firms are Reminded of Their Sales Practice Obligations with Regard to Cash Alternatives
The Notice was issued to remind firms of their obligations in the sale of investments as alternatives to cash holdings. This Notice provides guidance to firms concerning the requirements to:
- avoid overstating a product's similarities to a cash holding and provide balanced disclosure of the risks and returns associated with a particular product;
- conduct adequate due diligence to understand the features of a product;
- conduct appropriate suitability analyses;
- monitor market and economic conditions that may cause the description of an investment as a cash alternative to become inaccurate or misleading, and adopt procedures reasonably designed to ensure that the firm responds to those changing conditions; and
- train registered persons regarding the features, risks and suitability of these products.
8-83 GENERAL SECURITIES FIRMS
Requests Comment on Proposed FINRA Rule Addressing Front Running of Block Transactions
FINRA is requesting comment on proposals relating to FINRA’s Front Running Policy in NASD Interpretive Material (IM) 2110-3. The proposed amendments to the Front Running Policy include broadening the scope of the rule beyond certain options and security futures to other types of derivatives, financial instruments and financial contracts, as well as adopting Supplementary Material to the rule to codify exceptions to the prohibitions.
The Comment Period on this Rule Proposal closes February 6, 2009.
Information Notice – November 3, 2008 GENERAL SECURITIES FIRMS
The Section 31 rate applicable to the sales of specified securities transactions on the exchanges and in the over-the-counter markets will remain at the current rate of $5.60 per million until further notice.
Information Notice – December 8, 2008 ALL FIRMS
This Notice reminds member firms of their compliance obligations with respect to NASD and Incorporated NYSE Rules (together, referred to as the Transitional Rulebook) for so long as such rules are in effect, irrespective of whether the rules' requirements are changed or eliminated at a future date. Conduct that was subject to any rule in the Transitional Rulebook at the time such rule was in effect remains subject to that rule for the purpose of regulatory examinations and disciplinary/enforcement proceedings relating to that time period.
Information Notice – December 23, 2008 GENERAL SECURITIES FIRMS
This Notice included a listing of settlement and Reg T dates surrounding market and bank holidays in 2009.
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