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Article
Publication date: 8 June 2012

Henry A. Davis

The purpose of this paper is to provide of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in January…

Abstract

Purpose

The purpose of this paper is to provide of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in January, February, and March 2012.

Design/methodology/approach

The paper provides Regulatory Notice 12‐03, January 2012, Complex Products: Heightened Supervision of Complex Products; Regulatory Notice 12‐05, January 2012, Customer Account Protection: Verification of Emailed Instructions to Transmit or Withdraw Assets from Customer Accounts; Regulatory Notice 12‐13, March 2012, Best Execution, SEC Approves Consolidated FINRA Best Execution Rule. It summarizes ten disciplinary actions for recommending unsuitable sales of unit investment trusts (UITs) and floating rate loan funds; using misleading marketing materials in the sale of a non‐traded real estate investment trust (REIT); selling interests in private placement offerings without having a reasonable basis for recommending the securities; unsuitable sales of reverse convertible securities; violating Regulation SHO (Reg SHO) and failing to properly supervise short sales of securities and marking of sale orders; misrepresenting delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations (RMBS); permitting a registered representative to publish advertisements that failed to provide a sound basis for a reader to evaluate the products and services being offered, contained exaggerated, unwarranted and misleading statements, and failed to disclose the firm's name; failing to conduct reasonable due diligence regarding securities an entity issued; failing to disclose certain conflicts of interest in research reports and research analysts' public appearances; and failing to develop and enforce written procedures reasonably designed to achieve compliance with NASD Rule 3010(d)(2) regarding the review of electronic correspondence.

Findings

The paper reveals for Regulatory Notice 12‐03 that the decision to recommend complex products to retail investors is one that a firm should make only after the firm has implemented heightened supervisory and compliance procedures; firms also should monitor the sale of these products in a manner that is reasonably designed to ensure that each product is recommended only to a customer who understands the essential features of the product and for whom the product is suitable. For Notice 12‐05 it finds that, given the rise in incidents reported to FINRA involving fraud perpetrated through compromised customer e‐mail accounts, FINRA recommends that firms reassess their specific policies and procedures for accepting and verifying instructions to withdraw or transfer customer funds that are transmitted via email or other electronic means, as well as firms' overall policies and procedures in this area. For Notice 12‐13: FINRA Rule 5310 leaves in place the general requirements of best execution, which are for a member firm, in any transaction for or with a customer or a customer of another broker‐dealer, to use “reasonable diligence” to ascertain the best market for a security and to buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends.

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Article
Publication date: 6 July 2015

Matthew T. Wirig

– To summarize the Financial Industry Regulatory Authority, Inc. (“FINRA”) 2015 Regulatory and Examinations Priorities Letter.

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Abstract

Purpose

To summarize the Financial Industry Regulatory Authority, Inc. (“FINRA”) 2015 Regulatory and Examinations Priorities Letter.

Design/methodology/approach

Provides a brief summary of the general compliance and supervisory challenges described by FINRA. Highlights key sales practice concerns raised by FINRA. Briefly summarizes FINRA’s 2015 key financial and operational priorities. Summarizes FINRA market integrity focuses for 2015. Encourages firms to consider the FINRA 2015 regulatory and examination priorities alongside the Securities and Exchange Commission (the “SEC”) examination priorities for 2015 as they review their policies, procedures and business activities.

Findings

FINRA’s 2015 Regulatory and Examinations Priorities Letter focuses on: key areas FINRA has observed contributing to member firm compliance and supervisory deficiencies, its observation of an increase in firms failing to file timely responses to information requests in connection with examinations and investigations, key sales practice issues, financial and operational issues, and market integrity matters.

Practical implications

Firms should review these priorities alongside the SEC’s examination priorities for 2015. Where firms observe deficiencies in their own practices, adjustments should be made before they find themselves the subject of a FINRA or SEC investigation, examination or enforcement action.

Originality/value

Practical explanation by experienced financial services lawyer.

Details

Journal of Investment Compliance, vol. 16 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 16 March 2010

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in…

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101

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in September, October, and November 2009 and a sample of disciplinary actions during that period.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notice 09‐57, September 2009, Trade Reporting and Compliance Engine (TRACE); Regulatory Notice 09‐58, October 2009, Best Execution and Interpositioning; and Regulatory Notice 09‐66, November 2009, FINRA BrokerCheck. It also summarizes three disciplinary actions.

Findings

(09‐57) Effective March 1, 2010, firms must begin reporting transactions in Agency Debt Securities and primary market transactions and otherwise comply with all other requirements in the TRACE Rules, as amended, and amended FINRA Rule 7730. (09‐58) NASD Rule 2320(a) requires firms and their associated persons to use reasonable diligence to ascertain the best market for a security when handling transactions for or with a customer or a customer of another broker‐dealer. The amendments delete the requirement that, if a firm interposes a third party, the total costs and proceeds of the transaction must be better than the prevailing market and replace it with a specific obligation to apply the factors enumerated in Rule 2320(a) when a firm interjects a third party between the firm and the best available market. (09‐66) The primary purpose of BrokerCheck is to help investors make informed choices about the individuals and firms with which they do business.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff are aware of this summary but have neither reviewed nor edited it. For further details as well as other useful information, the reader should visit www.finra.org

Details

Journal of Investment Compliance, vol. 11 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 8 May 2018

Edward J. Johnsen and John H. Grady

To explain a new set of rules, detailed in FINRA Regulatory Notice 17-30, proposed by the Financial Industry Regulatory Authority (FINRA) and approved by the US Securities…

Abstract

Purpose

To explain a new set of rules, detailed in FINRA Regulatory Notice 17-30, proposed by the Financial Industry Regulatory Authority (FINRA) and approved by the US Securities and Exchange Commission (SEC), that revise and streamline the number and types of proficiency exams broker-dealer personnel must take in order to become registered, as well as the categories of registration.

Design/methodology/approach

Discusses the background, including FINRA’s consolidation of National Association of Securities Dealers (NASD) rules; the new registration regime; conditions for waivers; criteria for “permissive” registration; firms’ requirement to designate “Principal Financial Officers” and “Principal Operations Officers”; new categories of principal registration; FINRA’s elimination of certain registration categories; research analyst, research principal and supervisory analyst exam requirements; the ability of a registered representative to function as a principal for a limited period; the prohibition of unregistered persons to accept orders from customers; and the Securities Industry Essentials (SIE) Examination Content Outline.

Findings

The new structure is intended to bring greater consistency and uniformity to the qualification process. Among other changes, it eliminates several registration categories that either have become outdated or have limited utility, permits persons not yet associated with a broker-dealer or employed in the securities industry to take a preliminary registration exam prior to entering the securities industry, and makes other changes intended to modernize the registration and examination regime for broker-dealer personnel.

Originality/value

Practical guidance from lawyers with broad stock brokerage, investment management and related financial services experience.

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Article
Publication date: 14 September 2010

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April…

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April, May, and June 2010.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notice 10‐18, Master Accounts and Sub‐Accounts; 10‐22, Regulation D Offerings; 10‐23, Trade Reporting and Compliance Engine (TRACE); 10‐24, Trade Reporting; 10‐27, Customer Complaint Reporting; and 10‐30, Trading‐Pause Pilot Program; provides summaries of selected disciplinary actions.

Findings

(10‐18) If a firm has notice that the sub‐accounts of a master account have different beneficial ownership (but does not know the identities of the beneficial owners) or the firm is privy to facts and/or circumstances that would reasonably raise the issue as to whether the sub‐accounts, in fact, may have separate beneficial owners, then the firm must inquire further and satisfy itself as to the beneficial ownership of each such sub‐account. (10‐22) A broker‐dealer has a duty – enforceable under federal securities laws and FINRA rules – to conduct a reasonable investigation of securities that it recommends, including those sold in a Regulation D offering. (10‐23) On February 22, 2010, the SEC approved the second major proposed expansion of TRACE to include Asset‐backed Securities as TRACE‐Eligible Securities, to require the reporting of Asset‐backed Securities transactions and to establish reporting fees. (10‐27) Starting on July 1, 2010, the beginning of the third calendar quarter, firms must use revised and new product codes to report statistical information regarding written customer complaints relating to annuities and life settlement products. (10‐30) On June 10, 2010, FINRA began a pilot program in which it will halt trading otherwise than on an exchange with respect to securities included in the S&P 500® Index where the primary listing market has issued a trading pause due to extraordinary market volatility. Selected disciplinary actions: FINRA announced that it has settled charges with two additional firms relating to the sale of auction rate securities (ARS) that became illiquid when auctions froze in February 2008. FINRA announced that it has fined five broker‐dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org.

Details

Journal of Investment Compliance, vol. 11 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 28 June 2013

Henry A. Davis

The purpose of this paper is to provide selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in June, July, and August 2012.

Abstract

Purpose

The purpose of this paper is to provide selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in June, July, and August 2012.

Design/methodology/approach

The paper provides FINRA Regulatory Notice 12‐40, SEC Approves New FINRA Rule 5123 Regarding Private Placements of Securities; Regulatory Notice 12‐44, SEC Approves Amendments to FINRA Rule 4210 (Margin Requirements); Regulatory Notice 12‐55, Guidance on FINRA's Suitability Rule; and Regulatory Notice 13‐13, Trading and Quotation Halts in OTC Equity Securities; Trade Reporting Notice of April 17, 2013: Reduction of Reporting Times for Agency Pass‐Through Mortgage‐Backed Securities Traded TBA.

Findings

Notice 12‐40: FINRA Rule 5123 is part of a multi‐pronged approach to enhance oversight and investor protection in private placements; the rule will provide FINRA with more timely and complete information about the private placement activities of firms on behalf of other issuers. Notice 12‐44: The SEC approved amendments to FINRA Rule 4210 (Margin Requirements) related to option spread strategies, maintenance margin requirements for non‐margin eligible equity securities, free‐riding, “exempt accounts” and stress testing in portfolio margin accounts. Notice 12‐55: This Notice addresses two issues discussed in Regulatory Notice 12‐25: the scope of the terms “customer” and “investment strategy.” Notice 12‐25 provided guidance in a “frequently asked questions” format in FINRA Rule 2111 (Suitability). Notice 13‐13: The SEC approved amendments to FINRA Rule 6440, which provides authority for FINRA to initiate trading and quotation halts in OTC equity securities in circumstances where it is necessary to protect investors and the public; the rule provides authority to impose foreign regulatory halts, derivative halts and extraordinary event halts. Trade Reporting Notice of April 17, 2013: FINRA reminds firms of the coming reduction in reporting periods for the timely reporting of transactions in agency pass‐through mortgage‐backed securities traded TBA (to be announced) for good delivery and products not traded for good delivery.

Originality/value

These FINRA notices are selected to provide a useful indication of regulatory trends.

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Article
Publication date: 13 September 2011

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in March…

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in March, April, and May 2011.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notice 11‐15, Low‐Priced Equity Securities; 11‐19, Books and Records; 11‐21, Fidelity Bonds; 11‐24, Customer Order Protection; 11‐26, Financial Responsibility.

Findings

11‐15: Firms are reminded to consider the risks associated with low‐priced equity securities when extending credit in a strategy‐based or portfolio margin account. 11‐19: The new rules require member firms to make and preserve certain books and records to show compliance with applicable securities laws, rules and regulations; in general, the new rules streamline, strengthen and clarify existing requirements. 11‐21: FINRA Rule 4360 requires each member firm that is required to join the Securities Investor Protection Corporation (SIPC) to maintain blanket fidelity bond coverage with specified amounts of coverage based on the firm's net capital requirement, with certain exceptions. 11‐24: FINRA Rule 5320 generally provides that a member firm that accepts and holds an order in an equity security from its own customer or a customer of another broker‐dealer without immediately executing the order is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account. 11‐26: New FINRA Rules 4150, 4311, 4522 and 4523, in combination with the consolidated financial responsibility rules that the SEC approved in November 2009, enhance FINRA's authority to execute effectively its financial and operational surveillance and examination programs.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org

Details

Journal of Investment Compliance, vol. 12 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 12 September 2008

Henry A. Davis

The purpose of this paper is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices issued from April to June 2008 and a sample…

Abstract

Purpose

The purpose of this paper is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices issued from April to June 2008 and a sample of disciplinary actions during that period.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notice 08‐16, Third Party Research Reports; 08‐17, Customer Complaint Reporting; 08‐18, Unauthorized Proprietary Trading; 08‐21, Partial Redemption of Auction Rate Securities; 08‐22, Definition of Public Arbitrator; 08‐27, Midleading Communications about Expertise; 08‐30, Illiquid Investments; 08‐31, Trading Ahead of Customer Orders; and 08‐33, Minor Rule Violation Plan Amendment.

Findings

Useful information may be found in each of these notices.

Originality/value

The paper provides direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it.

Details

Journal of Investment Compliance, vol. 9 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 11 September 2009

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued from…

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued from April to June 2009 and a sample of disciplinary actions during that period.

Design/methodology/approach

The paper provides excerpts from Regulatory Notice 09‐22, Personal Securities Transactions; 09‐25, Suitability and “Know Your Customer”; 09‐27, Member Public Offerings; 09‐30, Credit Default Swaps; 09‐34, Investment Company Securities; 09‐35, Municipal Securities.

Findings

Notice 09‐22: Sound supervisory practices require that a member firm monitor personal securities transactions outside of the firm by or for its associated persons. Notice 09‐25: Suitability obligations and know‐your customer obligations are critical to protecting investors. Notice 09‐27: The offering of securities by a member firm or a control entity of the firm in a private placement raises conflicts of interest and has been an area of regulatory concern in recent years. Notice 09‐30: Regulatory authorities are adopting measures to address system risk arising from credit default swaps (CDS), including risks to the financial system arising from the lack of a central clearing counterparty to clear and settle CDS; the SEC has approved a rule establishing an interim pilot program on margin requirements for CDS transactions. Notice 09‐34: As part of the process to develop a new consolidated rulebook, FINRA is requesting comment on a proposed rule regarding the distribution and sale of investment company securities. Notice 09‐35: 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.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org

Details

Journal of Investment Compliance, vol. 10 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article
Publication date: 6 April 2012

Henry A. Davis

The purpose of this paper is to provide summaries of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in…

Abstract

Purpose

The purpose of this paper is to provide summaries of selected Financial Industry Regulatory Authority (FINRA) regulatory notices and disciplinary actions issued in October, November, and December 2011.

Design/methodology/approach

The paper provides Regulatory Notice 11‐49, October 2011, Advertising Regulation; Regulatory Notice 11‐52, November 2011, Senior Designations; Regulatory Notice 11‐54, November 2011, Branch Office Inspections; and the description of one disciplinary action in which a firm was sanctioned and an individual fined.

Findings

Notice 11‐49: to inform firms of recent developments regarding the application of rules governing communications with the public, FINRA is proving guidance to firms on communication with the public regarding exchange‐traded products, treasury inflation‐protected securities (TIPS), use of “FINRA” in firm trademarks, and identification of related prior filings when submitting new filings for review. Notice 11‐52: FINRA reminds firms of their supervisory obligations regarding the use of certifications and designations that imply expertise, certification, training or specialty in advising senior investors. Notice 11‐54: FINRA and the Securities and Exchange Commission's Office of Compliance Inspections and Examinations provide broker‐dealer firms with information on developing effective policies and procedures for branch office inspections and remind firms of supervisory requirements under FINRA's supervision rule and notes common deficiencies and strong compliance practices. Trade Reporting Notice on TRACE Reporting Issues: FINRA answers selected member firm detailed questions on reporting issues related to The Trade Reporting and Compliance Engine (TRACE), the vehicle developed by FINRA to facilitate the mandatory reporting of over the counter secondary market transactions in eligible fixed income securities. All broker/dealers who are FINRA member firms have an obligation to report transactions in corporate bonds to TRACE under an SEC approved set of rules.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends.

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