1. The Red Flags Rule will not be enforced until year-end 2010. If I provided you with an “Identity Theft Protection Program,” you don’t have to worry about documenting your compliance until then.
2. Reminder: all initial U4 filings (not amendments) require ‘wet’ signatures from both the rep and the firm signatory. Make sure you have original, signed U4’s in your files.
3. If you are holding a Variable Annuity application/customer check for up to seven days after the application was complete (as allowed under Rule 2330), the following must be true:
a. It was a recommended purchase or exchange (non-recommended trans. still must happen w/in one day)See Notice 10-05 for details.
b. Staff made reasonable efforts to safeguard the check and deliver the completed application to the supervisor for review
c. The reason for holding the check is to review the application for approval
d. You have procedures in place for this (yes, you do)
e. You keep a record of the date when the principal (OSJ) receives a complete and correct copy of the application package
f. A principal reviews the application as required under the rule
g. You don’t hold the check/application longer than 7 business days
h. You keep a copy of the check and a record of the date it was received from the customer and the date it was transmitted to the ins. co or returned to the customer
4. I’ve already reminded you a lot about RR’s use of Social Networking Sites. Remember that you have to deal with compliance on this issue if your personnel discuss their services on sites like Facebook.
See Notice 10-06 for details.
5. FINOP’s should review the details of the following Notices:
a. 10-12 on changes to line-item reporting on FOCUS (guidance on FAS 167)6. If you provide consolidated financial reports (that contain information on various holdings, even those away from the firm) to customers, you have to have a review/approval process in place. Sources of information included on the statements should be verified and documented, unless pre-approved exceptions are made. You’ll have to make certain disclosures to customers about the statements; you may want to get a signed acknowledgment form from customers.
b. 10-15 on new requirements for subordinated loans to BD’s, including new standard forms that can be used (*remember that changes to the terms—even maturity—of outstanding sub loans will be subject to the new rule requirements)
c. 10-21 on consolidated rule 2261: When the Company is party to an open transaction with another FINRA member, or has on deposit cash or securities of another member firm, it has to, if requested by the other firm, deliver the Company’s most recent balance sheet (FOCUS) in either paper or electronic form. (This is not required for non-member customers unless the firm holds customer funds/securities)
See Notice 10-19 for details.
7. Consolidated FINRA Rule 3240 concerns borrowing money from or lending money to customers. In certain instances, such as where the customer is also a member of a Rep’s immediate family, or is in the business of lending money/providing credit/etc., your firm does not have to require notification and pre-approval. Other lending arrangements always require pre-approval. If your procedures aren’t specific on this topic, or prohibit all lending arrangements with customers, you may end up getting in trouble for breaking the rule without understanding why. It’s worth understanding the requirements, since this is a very common FINRA disciplinary action.
8. FINRA has provided specific guidance on due diligence requirements for Reg. D offerings. You already know about these, but it’s worth reviewing revised procedures. Remember that if you contribute to PPM’s, you’ll be held to compliance with the advertising rules. You are also required to fill gaps in due diligence performed by others, if you perceive of them. You’ll want to document everything, including your vetting of outside sources of due diligence. Some of this guidance may apply to hedge fund offerings. Think about creating a stand-alone “Due Diligence Checklist” based on FINRA’s guidance. You may want to use it as a means of ensuring proper documentation.
See Notice 10-22 for details.
9. As of February 14, 2011, asset-backed securities are reportable to TRACE. Mortgage pool numbers may be used as identifiers.
See Notice 10-23 for details.
10. Effective November 1, 2010, OTC equity trades must be reported within 30 seconds of execution. The new reporting time frame also applies to trade cancellations that currently are subject to 90-second reporting, as well as stop stock and prior reference price trades. Firms are also required to report secondary market transactions in non-exchange-listed DPP securities within 30 seconds of execution.
See Notice 10-24 for details.
11. There is a new ODD supplement. You can find it here.
12. FINRA will phase in the REX system, which replaces its existing Reg. T system to collect Reg. T extension of time requests. The first effective date is August 23, 2010. There is a REX tutorial for those who are interested: REX Tutorial.
13. As of June 10, FINRA put into place a temporary program that permits it to halt trading otherwise than on an exchange—the ‘trading pause pilot.” It expires December 10, 2010. Under this pilot, FINRA may 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 a preceding five-minute period. Halts apply to all trading, including otherwise than on an exchange.
See Notice 10-30 for details.
14. SEC Rule 15c2-12 regarding material event notices (Muni securities) was amended and the changes are effective as of 12-1-10. The information that must be reported by issuers to MSRB now include new categories, and not all events are characterized as ‘material.’ Also, demand securities (like VRDO’s) are no longer exempt from event notice reporting. Because you have to inform muni customers of events listed on the EMMA portal, revise your procedures to show the new event categories. You may also want to add a list of voluntary event-based disclosures.
See MSRB Notice 10-20 for details.
15. I revised the annual Rep Questionnaire to include the topics of social networking and protection of information on personal devices such as cell phones and computers. You will see that revised form during the Annual Meeting process.
16. As of February 1, 2010, MSRB revised Rule G-37 (and G-38) by adding contributions to bond ballot initiatives/campaigns to the existing list of reportable contributions. The rule parallels the requirements of existing disclosure rules (de minimis exceptions for annual amounts $250 or less), except that there is no ban on municipal securities business as a result of contributions to bond ballot campaigns. Form G-37 was revised and should be used to report contributions when required.
See MSRB Notice 10-01 for details.
17. As of November 10, 2010, Rule 201 of Reg. SHO will be in effect. This is the new Circuit Breaker/Alternative Uptick Rule approved by SEC this year. Firms may not display any short sale order, absent an exception, at a price that is equal to or below the national best bid if the price of that security decreases by 10% or more from the security’s closing price as determined by the listing market for the covered security as of the end of regular trading hours on the prior day “circuit breaker”); likewise, in such circumstances, for the remainder of the day and the following day, short selling is permitted only at a price above the current national best bid. There are exceptions and trades meeting them must be marked ‘short exempt.’ As such, OATS will reinstate its “SX” value in the buy/sell code field.
The rule is found here.
For the Notices cited, go to FINRA Notices or MSRB Notices for specific links.
Work hard! Relax harder!
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