July 2011 Board Update

July 15, 2011

Dear Executive Representative:
 
The FINRA Board of Governors met this week to discuss a number of issues, including a number of rulemaking items. We have included a summary of the rule proposals, as approved by the Board, and next steps below.
 
As always, your thoughts and comments are welcome.

Sincerely,

 
Richard G. Ketchum
Chairman and CEO

Rulemaking Items for Discussion at the July 2011 Meeting

The FINRA Board of Governors took action regarding the following rulemaking items at its July 2011 meeting. Below are the Board's actions and next steps. 

Arbitration Claims Involving Fair Labor Standards Act
The Board considered a proposed amendment to Rule 13204 of the Code of Arbitration Procedure for Industry Disputes to add collective action claims brought under the Fair Labor Standards Act or the Age Discrimination in Employment Act so that such claims may not be arbitrated under the Industry Code. While this had always been our interpretive position, the rule proposal responds to an adverse court decision.
   
The Board authorized staff to file the proposed amendments with the Securities and Exchange Commission (SEC).

DPP/REIT Account Values
The Board considered amendments to the customer account statement rule to revise the manner in which broker-dealers report estimated per share values of nontraded REITS and direct participation programs on their customer account statements. The proposed amendments would (1) require, if par value is shown, that it be netted by the up-front fees and expenses that are deducted from the offering proceeds, (2) permit broker-dealers to use par value only under the initial offering period, and not during a second offering period, and (3) clarify that if the broker-dealer has reason to believe that the estimated per share value in the annual report is inaccurate, then the broker-dealer must remove that value from its account statements.
   
The Board authorized staff to issue a Regulatory Notice requesting comment on the proposed amendments.

Identifying Information Barriers in OATS
The Board considered amendments to FINRA Rules to require member firms that rely on the "No-Knowledge Exception" in FINRA Rule 5320.02 to identify information barriers in place in their reports to the Order Audit Trail System (OATS). This additional information will allow us to avoid making numerous information requests, which, today, impose significant resource burdens on FINRA and member firms.
 
The Board authorized staff to file the rule proposal with the SEC.

Representing Customer Interest
The Board considered amendments to FINRA Rule 5210 that would require that a member firm have a customer order in hand before labeling a quotation or indication of interest (IOI) in any way that indicates the quotation or IOI represents interest the member is displaying as agent on behalf of a customer. Under the proposed amendment, a member could not continue to display such a quotation or IOI as representing a customer order once the customer order was executed or cancelled. The Board also considered changes to the rule to modernize the application of the rule, broaden the rule text to include IOIs, and conform the application of the rule text to the restrictions in the rule's Supplementary Material.
 
The Board authorized staff to issue a Regulatory Notice requesting comment on the proposed amendments.