For any claims filed on or after May 3, 2010, amendments to the Arbitration Rules on fees assessed under postponement and hearing session fee rules will be in effect. The following amendments were written to clarify the rules.

Amendment to Fee Waiver Provision: Arbitration hearings can be postponed if the parties agree, or if the director or panel so decide. Hearings that are postponed will be assessed a postponement fee that one or more of the parties will be required to pay. If the parties agree to submit the matter to FINRA mediation, the postponement fee is waived. However, postponement requests that are submitted and granted within three days of the scheduled hearing are subject to a $100 per arbitrator fee due to late request, regardless of whether they choose to mediate through FINRA. The amendments restate the fees by clarifying that:

• FINRA will not assess a postponement fee if a hearing is postponed because the parties agree to submit the matter to mediation through FINRA, and
• The parties must pay additional fees described in the rules for late postponement requests.

Amendment to Hearing Session Fee for One Arbitrator in Unspecified Damages Claim: Hearing session fees are assessed based on the amount in the dispute. For claims that do not specify monetary damages, the director can determine the amount of the fee, not to exceed $1200. It is specified that hearing sessions for unspecified damages with three arbitrators will be $1000; however, it is not stated what the charge will be for a single arbitrator. It currently indicates N/A. The amendment specifies for single arbitrator hearings, parties will be charged $450. Also, the director has the ability to increase and decrease charges listed within the fee chart. Please see NTM 10-16 for complete chart.

Effective for claims filed on or after May 3, 2010, amendments to the Code of Arbitration Procedure for Customer and Industry Disputes expand the criteria for selecting a hearing location for arbitration will apply.

Customer Code: Currently, Rule 12213(a) of the Code of Arbitration Procedure for Customer Disputes states that the director of FINRA's Dispute Resolution will generally select the hearing location closest to the customer's residence at the time of the events giving rise to the dispute. The rule remains the same with one minor change, the director can now grant a customer's request for a different hearing location in the customer's state of residence, if the customer makes the request before arbitrator(s) are selected. Once the arbitration panel is selected, the customer must submit re-location requests to the panel.

Industry Code: For industry disputes, the director will continue to select the hearing location closest to where the associated person was employed at the time of the events giving rise to the dispute. However, if the associated person requests a different hearing location prior to the arbitrator(s) being selected, the director may change the location. Once the arbitration panel is selected, the request to change location must be submitted to the panel.

In this Notice, FINRA is reminding firms that maintain master/sub-account arrangements that, depending on the facts and circumstances of the arrangements, the firm may be required to recognize the sub-accounts as separate customer accounts for the purposes of applying FINRA rules, the federal securities laws, and other applicable federal laws.

There are some cases in which master/sub-account arrangements are acceptable, because the same beneficial owner maintains multiple sub-accounts. However, certain arrangements raise questions regarding whether the master account and all sub-accounts have the same beneficial owner and whether they can legitimately be viewed as one customer account for the purposes of FINRA rules, federal securities, and applicable federal laws.

In the case of an investment adviser or introducing firm, the firm knows the identity of each beneficial owner of the sub-accounts and must recognize such sub-accounts as separate customer accounts. In cases where an adviser sets up the accounts and has clearing arrangements through a broker-dealer, FINRA will generally permit a firm to rely upon the information provided by the investment adviser or broker-dealer as to whether to treat a master/sub-account as having a single beneficial owner.

Apart from a few typical scenarios like those above, if a firm knows that the sub-accounts of a master account have different beneficial ownership but does not know the identities of the beneficial owners, then the firm must inquire further to satisfy its requirement to know the identity of the beneficial owner of each sub-account. When a firm is aware of the identities of the beneficial owners, it is then required to recognize sub-accounts as separate customer accounts in order to apply appropriate FINRA rules and other federal regulation.

Many firms provide documents to their clients that consolidate their various financial holdings, and show clients a broad view of their investments. In this Notice, FINRA reminds firms that distribute these "consolidated reports" of their obligations and offers tips on sound practices for firms to consider. These practices include, but are not limited to:

• Ongoing audits and review- Some firms perform reviews of the consolidated reporting process as part of their testing and oversight programs.
• Centralize reporting systems- While some firms have multiple report-producing systems, others find it helpful to have one centralized system that is used firm-wide;
• Customer addresses- Some clients may require consolidated reports to be sent to a different address than the statements. In these cases, firms need to have documentation explaining why this is the case and indicating that the customer provided notice or acknowledges the differing addresses;
• Assets held away- Some firms verify information on assets held away and incorporate this in the consolidated report and others do not;
• Supporting documentation- Information on source of data and methods used to determine accuracy and asset valuation, which can be kept in the client file, are used by some firms;
• Source documents- It is important that firms stress to clients that they maintain the original source documents that are integrated into the consolidated report, for example, statements for individual accounts held away from the broker-dealer;
• Report design- It is important for firms to make sure that information is clearly communicated;
• Disclosures and attestations- In order for firms to guarantee that a customer understands the nature of the consolidated reports, some firms include disclosures for clients to sign, which should be updated periodically and kept on file.
  

The SEC has approved amendments to the reporting of over-the-counter (OTC) trades and cancellations. Under the amended requirements, trades must be reported within 30 seconds of execution during the hours that FINRA trade reporting facilities are open and trades that are canceled during normal market hours on the trade date must also be reported within the 30-second time frame. Date and time of execution are defined under the amendments.

Under these amendments, firms are required to report secondary market transactions in non-exchange-listed DPP securities to FINRA within 30 seconds, beginning from the time that all terms of the transaction are agreed upon. As a result, these DPPs will be subject to regulatory transaction fees.

The amendments will be effective in phases:

• Phase I- for all firms other than qualifying Manual Reporting Firms- November 1, 2010
• Phase II- for qualifying Manual Reporting firms- May 2, 2011

Firms must submit a notice to FINRA's market regulation department describing their current process by September 20, 2010 to report they are a manual reporting firm and qualify for Phase II, if applicable. If this is not submitted, firms are expected to comply with the amendments as of November 1, 2010.

Effective June 28, 2010, restricted equity securities transactions effected pursuant to SEC Rule 144A must now be reported to the OTC Reporting Facility ("ORF") by no later than 8 p.m. Eastern Time. These reporting requirements replace the trade reporting obligations for restricted equity securities in FINRA's PORTAL rules.

In addition, with this change in reporting, the term "OTC Equity Security" will be re-defined as any equity security that is not an "NMS stock" as defined by the SEC in Regulation NMS. The term "non-exchange-listed security" in Rule 6420 will also be eliminated effective the same date. These amendments align the term "OTC Equity Security" more closely with the SEC rule terminology and improve consistency across the FINRA rulebook while clarifying reporting requirements.

Lastly, FINRA amended the ORF to address transactions in OTC Equity Securities that are executed on an exchange. Rules 6622, 6420(k) and 6610 are amended effective June 28, 2010 to add an exception from the reporting requirements for transactions in OTC Equity Securities reported on or through an exchange.

Regulation T, pursuant to the Securities Exchange Act of 1934 (SEA), governs the extension of credit by broker-dealers to customers to pay for the purchase of securities. SEA Rule 15c3-3, requires broker-dealers to promptly obtain and maintain physical custody and possession or control of customer securities. This rule also designates periods of time within which broker-dealers must satisfy any deficiency by buying-in or obtaining possession or control of securities.

Clearing firms are required by NASD Rule 3160 to submit extension of time requests under Regulation T or SEA Rule 15c3-3(n) to FINRA. Effective August 23, 2010, FINRA will begin introduction of a new system (Regulatory Extension or REX) that will replace the current Reg T system used to correct all Reg T and SEA Rule 15c3-3 extension requests. The new REX system will offer the following enhancements:

• Firms will have the capability to amend or update previously submitted extension requests;
• The system will have a greater variety of search fields for submitted extension requests;
• Firms will be able to introduce text fields for their own internal identifiers for each extension request; and
  
• The system will give firms the flexibility of a daily report of submission for any extension requests that are submitted in a batch submission.

FINRA will be phasing the new system in two phases; the first will be effective August 23, 2010 and the second will be effected November 8, 2010.

Effective June 10, 2010, the SEC approved an amendment to FINRA Rule 6121 to permit FINRA to halt trading in individual securities where the primary listing market has issued a trading pause in that security due to a move of 10 percent or more from a sale in the preceding five-minute period. This rule change was made in an effort to address potentially destabilizing market volatility, for example, sudden price declines like those experienced on May 6, 2010.

Firms need to have policies and procedures in place that are designed to ensure that the firm promptly ceases effecting transactions during a halt, as required by FINRA Rule 5260. FINRA is implementing this rule on a pilot basis, which will enable it and the SEC to assess the effect of the new rule on the marketplace. At onset, the rule is in effect for securities included in the S&P 500 Index; however, FINRA anticipates expanding this during the pilot period.