Financial Industry Regulatory Authority
Amendments to FINRA Rule 2210 Approved
On July 11th, the Financial Industry Regulatory Authority (“FINRA”) advised that the SEC has approved amendments to FINRA Rule 2210 (Communications with the Public) that: (i) exclude from Rule 2210’s filing requirements research reports concerning only securities listed on a national securities exchange, other than research reports which must be filed pursuant to Section 24(b) of the Investment Company Act of 1940 and (ii) clarify that free writing prospectuses that are exempt from filing with the SEC are not subject to Rule 2210’s filing or content standards. The amendments are effective immediately. FINRA Regulatory Notice 14-30.
Reporting Cancellations of OTC Trades
On July 11th, FINRA reminded reporting firms of their obligation to report cancellations of over-the-counter trades reported to a FINRA facility in accordance with FINRA rules. This obligation applies to all trades reported for publication purposes that ultimately do not clear and settle, including, for example, trades that have been declined by the contra party. FINRA Trade Reporting Notice.
Revised Process for Candidates Whose Primary Language Is Not English
On July 10th, FINRA announced it is enhancing the process for candidates with limited English proficiency (“LEP”) to receive additional time to complete a qualification examination or Regulatory Element Continuing Education session (CE session). Effective September 8, 2014, firms must submit through the Central Registration Depository all requests for candidates with LEP to receive additional time to complete a qualification examination or CE session. FINRA Information Notice.
Changes Proposed for Quotation Requirements for Unlisted Equity Securities
On July 9th, the SEC provided notice of FINRA’s filing of a proposed rule change to: (i) adopt rules governing the treatment of quotations in OTC equity securities by member inter-dealer quotation systems, and addressing fair and non-discriminatory access to such systems; (ii) require member inter-dealer quotation systems to provide FINRA with a written description of quotation-related data products offered and related pricing information, including fees, rebates, discounts and cross-product pricing incentives; (iii) expand the reporting requirements related to quotation information in OTC equity securities; and (iv) delete the Rule 6500 Series and related rules and cease operation of the OTC Bulletin Board Service. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of July 14. SEC Release No. 34-72575.
FINRA Seeks Order Routing Information.
On July 8th, FINRA’s Trading Examinations Unit published a sample letter it is sending to unidentified broker dealers as part of FINRA’s review of member firms’ order routing processes and procedures. Among other things, the letter asks firms to provide a copy of the firm’s written supervisory procedures for FINRA Rule 5310; explain how the firm uses reasonable diligence to ascertain the best market for orders; explain how the firm’s exchange order-routing decisions are made for customer non-marketable limit orders; state whether the firm passes any and all exchange maker/taker fees on to its customers; and explain how the firm uses a smart order router.
FINRA Proposes Online Repository of Form 211 Information
On July 2nd, FINRA requested comment on a proposal that would make publicly available through FINRA’s website a repository of Form 211 information. Firms are required to complete FINRA’s Form 211 to demonstrate compliance with the specific information review requirements under Securities Exchange Act Rule 15c2-11 prior to initiating a quotation in a non-exchange-listed security. Comments should be submitted on or before September 2, 2014. FINRA Regulatory Notice 14-29.
Rule 144A Trade Data.
On June 30th, FINRA began publicly disseminating Rule 144A transaction data in corporate debt securities.FINRA Press Release.
FINRA Rule Concerning Self-Trades Approved
On June 30th, FINRA announced that the SEC has approved new supplementary material to FINRA Rule 5210 (Publication of Transactions and Quotations) to address transactions in a security resulting from the unintentional interaction of orders originating from the same firm that involve no change in the beneficial ownership of the security (self-trades). Effective August 25, 2014, firms must have policies and procedures in place that are reasonably designed to review trading activity for, and prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, or related algorithms or trading desks.FINRA Regulatory Notice 14-28.
Arbitration Procedure Amendments Approved
On June 30th, FINRA announced SEC approval of amendments to the Customer and Industry Codes of Arbitration Procedure to provide that any document that a party files with FINRA that contains an individual’s Social Security number, taxpayer identification number or financial account number must be redacted to include only the last four digits of any of these numbers. The amendments are effective July 28, 2014, for all documents filed with FINRA on or after the effective date. FINRA Regulatory Notice 14-27.
New Payments for Market Making Certification Requirement
On June 27th, FINRA reminded firms and associated persons of the FINRA Rule 5250 (Payments for Market Making) prohibition on accepting payments for market making, which includes payments for filing a Form 211 pursuant to FINRA Rule 6432 (Compliance with the Information Requirements of SEA Rule 15c2-11). FINRA also announced the July 7, 2014, effective date of a new requirement under Rule 6432 that firms certify that neither the firm nor its associated persons have accepted or will accept any payment or other consideration prohibited by Rule 5250. FINRA Regulatory Notice 14-26.
Amended Definitions of “Non-Public Arbitrator” and “Public Arbitrator” Proposed.
On June 27th, the SEC provided notice of FINRA’s filing of a proposal to amend the definitions of “non-public arbitrator” and “public arbitrator.” The amendments would, among other matters, provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators, and persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public arbitrators, but could become public arbitrators after a cooling-off period. The amendments would also reorganize the definitions to make it easier for arbitrator applicants and parties, among others, to determine the correct arbitrator classification. Comments should be submitted on or before July 24, 2014. SEC Release No. 34-72491.
Formalization of Liquidity Risk Management Framework Proposed
On July 8th, the SEC provided notice of ICE Clear Credit’s filing of a proposal that would formalize ICC’s Liquidity Risk Management Framework and clarify ICC’s authority to use, and to provide details as to how ICC would use, Guaranty Fund and House Initial Margin as an internal liquidity resource. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of July 14. SEC Release No. 34-72556.
Proposal Regarding Investment Losses and Non-Default Losses is Approved
On July 8th, the SEC approved ICE Clear Europe’s proposal that would update its Rules to address certain investment losses on margin and guaranty fund contributions provided by clearing members as well as other losses to the clearing house arising other than from a clearing member default, including losses from general business risk and operational risk. SEC Release No. 34-72551.
NASDAQ OMX BX
Market Maker Amendments Proposed
On July 1st, the SEC provided notice of NASDAQ OMX BX’s filing of a proposed rule change to amend the current BX Market Maker quoting obligations and adopt rules to permit BX Market Makers to act as Lead Market Makers, or LMMs, in one or more options classes, provided the LMM meets certain obligations and quoting requirements. The Exchange proposes to provide assigned LMMs with certain participation entitlements. Finally, the Exchange proposes to provide Public Customers with priority when the Price/Time execution algorithm is in effect. Comments should be submitted on or before July 29, 2014. SEC Release No. 34-72502.
National Futures Association
NFA Fee Assessment
On July 7th, the National Futures Association announced the reduction in its fee assessment to $.01 per side for futures and options contracts. The reduction is effective on October 1, 2014. NFA Notice to Members I-14-18.
Amendment to Enhanced Supervision Rule Proposed
On July 2nd, the SEC provided notice of the National Futures Association’s filing of a proposal that would amend NFA Compliance Rule 2-9(b) and its related Interpretive Notice entitled “NFA Compliance Rule 2-9: Enhanced Supervisory Requirements.” The amendment would revise the criterion for determining when a member firm’s principals qualify for relief from enhanced supervisory requirements. Comments should be submitted on or before July 30, 2014. SEC Release No. 34-72514.
NFA Guidance on SD and MSP CCO Departures
On July 1st, the National Futures Association provided guidance on the steps which swap dealers and major swap participants must take upon the departure of their chief compliance officer. NFA Notice to Members I-14-17.
Interpretive Notice Concerning Electronic Funds is Approved
On June 30th, the SEC approved the National Futures Association proposed Interpretive Notice to NFA Compliance Rules 2-4 and 2-36: Prohibition on the Use of Certain Electronic Funding Mechanisms, which prohibits NFA members from allowing customers to fund futures or forex accounts with a credit card or other electronic funding methods tied to a credit card. The proposed Interpretive Notice does not prohibit members from allowing customers to fund futures or forex accounts with electronic funding mechanisms that are tied to a customer’s bank account at a financial institution provided the funds deposited are drawn directly from the customer’s bank account. SEC Release No. 34-72498.
New York Stock Exchange
Expansion of Limit Order Modifier Proposed
On July 7th, the SEC provided notice of the New York Stock Exchange’s and NYSE MKT’s filing of separately proposed amendments to their respective rules to make the Add Liquidity Only modifier available for additional limit orders and make the day time-in-force condition available for Intermarket Sweep Orders. Comments should be submitted on or before August 1, 2014.
Principles-Based Approach to Insider Trading Approved
On July 3rd, the SEC approved the New York Stock Exchange’s and NYSE MKT’s separately proposed amendment of their respective rules to adopt a principles-based approach to prohibit the misuse of material nonpublic information.
Institutional Liquidity Pilot Proposal Withdrawn
On July 1st, the SEC provided notice of the New York Stock Exchange’s and NYSE MKT’s withdrawal of their separately proposed rule changes that would have established an institutional liquidity program on a one-year pilot basis. SEC Release No. 34-72512.