1. What specific FINRA rules should be a focus for modernization based on their economic costs and benefits; changes in markets, products, services, or technology; or otherwise? What groups of FINRA requirements should be a focus? Please include FINRA rules that may be mandated or derived from a statutory or other non-FINRA regulatory requirement applicable to FINRA or its members.
FINRA Rule 3210 should be a focal point for modernization, particularly as it pertains to restrictions on associated persons’ spouses (covered spouses) engaging in scalp trading in the futures market. The rule requires prior written consent from the employer member and notification to the executing member for any account in which an associated person has a beneficial interest, including spousal accounts. While designed to prevent conflicts of interest and ensure oversight, this requirement imposes significant economic costs—such as administrative burdens, lost trading opportunities, and compliance overhead—without clear evidence of proportional benefits in the context of futures markets, which are regulated primarily by the Commodity Futures Trading Commission (CFTC) rather than FINRA.
The rapid evolution of markets and technology, including the rise of automated, high-frequency trading platforms, has made scalp trading a common strategy in futures markets. These markets differ from securities markets in terms of products (e.g., futures contracts vs. equities) and regulatory oversight (CFTC vs. SEC/FINRA). Applying Rule 3210 uniformly to futures trading by covered spouses creates an outdated restriction that does not account for these distinctions. Modernization could involve carving out exceptions for futures trading, reducing economic costs for firms and individuals while maintaining adequate safeguards. This rule, though FINRA-specific, interacts with broader statutory requirements under the Securities Exchange Act of 1934, which mandates oversight of associated persons, making it a candidate for targeted reform.
2. What areas of FINRA interpretations or guidance regarding existing rules should be a focus for modernization?
FINRA’s interpretations of Rule 3210, particularly around the definition of “beneficial interest” and the scope of spousal accounts, warrant modernization. Current guidance presumes that an associated person has a beneficial interest in a spouse’s account unless proven otherwise, which triggers burdensome notification and consent processes. This presumption is overly broad in the context of scalp trading futures, where the spouse may be an independent trader with no reliance on the associated person’s firm information or resources. Guidance could be updated to clarify that scalp trading in futures by a covered spouse, absent evidence of insider information or firm involvement, does not inherently pose a conflict requiring oversight under Rule 3210. This would align the rule’s application with modern market realities, where retail access to futures trading platforms is widespread and independent of securities firm affiliations.
3. What changes to FINRA’s rules or other requirements applicable to FINRA members would facilitate innovation and the development and deployment of new technologies and services that enable them to better serve markets and investors?
Amending Rule 3210 to exempt or streamline oversight of covered spouses’ scalp trading in futures markets would facilitate innovation by reducing regulatory friction. Modern trading technologies—such as algorithmic platforms and real-time data feeds—enable retail investors, including spouses, to engage in sophisticated strategies like scalping independently. The current rule’s restrictive framework discourages such activity by imposing unnecessary compliance hurdles, potentially stifling the adoption of innovative trading tools by households linked to associated persons. A revised rule could introduce a risk-based approach, allowing firms to focus oversight on activities with demonstrable ties to securities markets or firm operations, thereby freeing resources to develop technology-driven services that enhance investor access and market efficiency.
4. Are there gaps, risks or other challenges created by changes in markets, products, services or technology where additional guidance or standards would better enable member firms to serve investors, consistent with investor protection and market integrity?
A key gap exists in Rule 3210’s failure to differentiate between securities and futures markets, particularly as technological advancements have blurred traditional boundaries. Scalp trading in futures by covered spouses poses minimal risk to securities market integrity, given the CFTC’s robust oversight of futures exchanges and the lack of direct overlap with FINRA-regulated activities. However, without updated guidance, firms face uncertainty about compliance obligations, potentially leading to over-restriction of legitimate trading activity. New standards could address this by establishing clear criteria—e.g., no use of firm resources or material nonpublic information—for exempting futures trading from Rule 3210’s scope. This would mitigate risks of regulatory overreach while ensuring investor protection and market integrity are upheld in relevant contexts.
5. Where does FINRA’s oversight of its member firms interact with other non-FINRA regulatory requirements in a manner that should be a focus for modernization, based on unnecessary or duplicative burdens, insufficiently tailored requirements, member firm or investor confusion, or otherwise? For example, what differences between FINRA’s requirements for broker-dealers and the requirements that apply for investment advisers engaging in similar activities should be a focus for modernization?
Rule 3210’s application to futures trading by covered spouses overlaps with CFTC regulations, creating duplicative burdens. The CFTC already imposes registration, disclosure, and surveillance requirements on futures market participants, rendering FINRA’s additional layer of oversight redundant for activities outside its securities-focused jurisdiction. This overlap causes confusion for member firms, which must navigate conflicting or parallel requirements, and for investors (e.g., spouses) unclear about permissible trading. In contrast, investment advisers under SEC oversight face no equivalent restriction on spousal futures trading unless it involves client assets or conflicts, highlighting an inconsistency in regulatory treatment. Modernization could harmonize FINRA’s approach with CFTC and SEC frameworks, tailoring Rule 3210 to securities-specific risks and reducing unnecessary burdens on futures-related activities.
6. What areas of reporting or data production related to existing rules should be a focus for modernization?
The reporting requirements under Rule 3210—such as duplicate account statements and confirmations sent to employer members for spousal accounts—should be modernized to exclude futures trading unless tied to securities violations. Current data production demands are ill-suited to the high-frequency nature of scalp trading, generating voluminous, often irrelevant records that strain firm resources without enhancing oversight. A modernized approach could leverage technology to implement targeted monitoring (e.g., automated flags for suspicious activity) rather than blanket reporting, aligning data collection with actual risks. This would reduce compliance costs and improve efficiency, allowing firms to focus on protecting investors in areas where FINRA’s authority is most relevant.
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Chris Comment On Regulatory Notice 25-04
1. What specific FINRA rules should be a focus for modernization based on their economic costs and benefits; changes in markets, products, services, or technology; or otherwise? What groups of FINRA requirements should be a focus? Please include FINRA rules that may be mandated or derived from a statutory or other non-FINRA regulatory requirement applicable to FINRA or its members.
FINRA Rule 3210 should be a focal point for modernization, particularly as it pertains to restrictions on associated persons’ spouses (covered spouses) engaging in scalp trading in the futures market. The rule requires prior written consent from the employer member and notification to the executing member for any account in which an associated person has a beneficial interest, including spousal accounts. While designed to prevent conflicts of interest and ensure oversight, this requirement imposes significant economic costs—such as administrative burdens, lost trading opportunities, and compliance overhead—without clear evidence of proportional benefits in the context of futures markets, which are regulated primarily by the Commodity Futures Trading Commission (CFTC) rather than FINRA.
The rapid evolution of markets and technology, including the rise of automated, high-frequency trading platforms, has made scalp trading a common strategy in futures markets. These markets differ from securities markets in terms of products (e.g., futures contracts vs. equities) and regulatory oversight (CFTC vs. SEC/FINRA). Applying Rule 3210 uniformly to futures trading by covered spouses creates an outdated restriction that does not account for these distinctions. Modernization could involve carving out exceptions for futures trading, reducing economic costs for firms and individuals while maintaining adequate safeguards. This rule, though FINRA-specific, interacts with broader statutory requirements under the Securities Exchange Act of 1934, which mandates oversight of associated persons, making it a candidate for targeted reform.
2. What areas of FINRA interpretations or guidance regarding existing rules should be a focus for modernization?
FINRA’s interpretations of Rule 3210, particularly around the definition of “beneficial interest” and the scope of spousal accounts, warrant modernization. Current guidance presumes that an associated person has a beneficial interest in a spouse’s account unless proven otherwise, which triggers burdensome notification and consent processes. This presumption is overly broad in the context of scalp trading futures, where the spouse may be an independent trader with no reliance on the associated person’s firm information or resources. Guidance could be updated to clarify that scalp trading in futures by a covered spouse, absent evidence of insider information or firm involvement, does not inherently pose a conflict requiring oversight under Rule 3210. This would align the rule’s application with modern market realities, where retail access to futures trading platforms is widespread and independent of securities firm affiliations.
3. What changes to FINRA’s rules or other requirements applicable to FINRA members would facilitate innovation and the development and deployment of new technologies and services that enable them to better serve markets and investors?
Amending Rule 3210 to exempt or streamline oversight of covered spouses’ scalp trading in futures markets would facilitate innovation by reducing regulatory friction. Modern trading technologies—such as algorithmic platforms and real-time data feeds—enable retail investors, including spouses, to engage in sophisticated strategies like scalping independently. The current rule’s restrictive framework discourages such activity by imposing unnecessary compliance hurdles, potentially stifling the adoption of innovative trading tools by households linked to associated persons. A revised rule could introduce a risk-based approach, allowing firms to focus oversight on activities with demonstrable ties to securities markets or firm operations, thereby freeing resources to develop technology-driven services that enhance investor access and market efficiency.
4. Are there gaps, risks or other challenges created by changes in markets, products, services or technology where additional guidance or standards would better enable member firms to serve investors, consistent with investor protection and market integrity?
A key gap exists in Rule 3210’s failure to differentiate between securities and futures markets, particularly as technological advancements have blurred traditional boundaries. Scalp trading in futures by covered spouses poses minimal risk to securities market integrity, given the CFTC’s robust oversight of futures exchanges and the lack of direct overlap with FINRA-regulated activities. However, without updated guidance, firms face uncertainty about compliance obligations, potentially leading to over-restriction of legitimate trading activity. New standards could address this by establishing clear criteria—e.g., no use of firm resources or material nonpublic information—for exempting futures trading from Rule 3210’s scope. This would mitigate risks of regulatory overreach while ensuring investor protection and market integrity are upheld in relevant contexts.
5. Where does FINRA’s oversight of its member firms interact with other non-FINRA regulatory requirements in a manner that should be a focus for modernization, based on unnecessary or duplicative burdens, insufficiently tailored requirements, member firm or investor confusion, or otherwise? For example, what differences between FINRA’s requirements for broker-dealers and the requirements that apply for investment advisers engaging in similar activities should be a focus for modernization?
Rule 3210’s application to futures trading by covered spouses overlaps with CFTC regulations, creating duplicative burdens. The CFTC already imposes registration, disclosure, and surveillance requirements on futures market participants, rendering FINRA’s additional layer of oversight redundant for activities outside its securities-focused jurisdiction. This overlap causes confusion for member firms, which must navigate conflicting or parallel requirements, and for investors (e.g., spouses) unclear about permissible trading. In contrast, investment advisers under SEC oversight face no equivalent restriction on spousal futures trading unless it involves client assets or conflicts, highlighting an inconsistency in regulatory treatment. Modernization could harmonize FINRA’s approach with CFTC and SEC frameworks, tailoring Rule 3210 to securities-specific risks and reducing unnecessary burdens on futures-related activities.
6. What areas of reporting or data production related to existing rules should be a focus for modernization?
The reporting requirements under Rule 3210—such as duplicate account statements and confirmations sent to employer members for spousal accounts—should be modernized to exclude futures trading unless tied to securities violations. Current data production demands are ill-suited to the high-frequency nature of scalp trading, generating voluminous, often irrelevant records that strain firm resources without enhancing oversight. A modernized approach could leverage technology to implement targeted monitoring (e.g., automated flags for suspicious activity) rather than blanket reporting, aligning data collection with actual risks. This would reduce compliance costs and improve efficiency, allowing firms to focus on protecting investors in areas where FINRA’s authority is most relevant.