Happy Oh-10: Financial Responsibilty Rules and New CCO Exam Proposal

Was just reading some Notices and had a few comments:

1. Financial Responsibility Rules (see Notice 09-71): I'm a little confused about whether non-clearing/non-carrying firms with "k2i" accounts are or are not included in the category of clearing/carrying members for many of the new rules... footnotes in the Rules, the Notice and the Rule Filing all say: "Members Operating Pursuant to the Exemptive Provisions of SEA Rule 15c3-3(k)(2)(i). For purposes of this Rule, all requirements that apply to a member that clears or carries customer accounts shall also apply to any member that, operating pursuant to the exemptive provisions of SEA Rule 15c3-3(k)(2)(i), either clears customer transactions pursuant to such exemptive provisions or holds customer funds in a bank account established thereunder."

But the Rule Filing explains, in a Pg 36 footnote: “For clarification, introducing firms and firms with limited business models (for example, firms that engage exclusively in subscription-basis mutual fund transactions, direct participation programs, or mergers and acquisitions activities) are not deemed carrying or clearing members and therefore would not be subject to Proposed FINRA Rule 4110(a), or for that matter any of the other provisions of the proposed rules that would apply only to carrying or clearing members.”

But what if a mutual fund application-way firm has a k2i account established to receive customer funds? I sent an email to one of the Notice authors: I'll let you know what I hear. Or if you can shed light on this apparent contradiction, please write me and I'll enter your name into a drawing for a free Snuggie.

2. Proposed Changes in Registration/Qualification Requirements (see Notice 09-70): One of the changes creates a new category for Chief Compliance Officers--they'd have to pass a specific exam to hold that title. Those with a 24 and who are listed on Form BD prior to the rule taking effect would be grandfathered (no new exam nec.), but those assuming the role after that, even if they have their 24, would have to take the test. I was thinking that some of you principals might want to take advantage of the "multiple CCO" mechanism before they make this rule effective. That way, you will be on the Form BD as CCO in time, and won't have to take the exam. For instance, if you're a small shop with a just a few senior managers, and you originally flipped a coin to see who would serve as CCO, what happens if your existing CCO moves to Jamaica, leaving you with an obligation to pass a new test just to step into Mr. Sun-n-Surf's shoes? Or, perhaps you have a new employee who got his 24, but hasn't yet assumed the role of CCO that you're anxiously looking forward to handing over...you could appoint him co-CCO (dividing up responsibilities, of course, and outlining all this in your WSP) and therefore he won't have to pass the new test later.

Other reminders: Look at your final renewal statements and pay what you owe or request a refund (see excerpted FINRA help, below); do your FCS check by Jan. 27; and don't forget to do quarterly complaint filing by the 15th. And send thank-you notes to all those nice people who gave you xmas gifts!! Emails don't count!

Your compliance compadre,
Sharon

RENEWALS:
If your statement shows an ‘Amount Due’ (i.e., positive amount or debit balance), then your firm needs to pay the balance to FINRA by February 5, 2010.
 Print the statement. A copy of the statement’s first page should be included if your firm is paying with a check.
 See the "How to Submit Renewal Payment" section of this Bulletin or visit the Renewal Program Payment Options page on the FINRA Web site.

If your Final Renewal Statement displays ‘Paid In Full’:
 If your Final Renewal Statement’s ‘Paid In Full’ amount is equal to the amount owed for your Preliminary Renewal Statement then the balance is $0 and no additional payment is required.
 If your Final Renewal Statement’s ‘Paid In Full’ amount is less than the amount your firm paid for its Preliminary Renewal Statement then your overpayment has been systematically transferred to your firm’s Daily Account. Any refunds should be requested from that account. You may request a refund check from FINRA or leave the funds in your Daily Account for future registration-related fees.


To request a refund check, have an appropriate signatory sign the first page of the Final Renewal Statement and mail it to FINRA for receipt by February 5, 2010. Send your refund request to:

FINRA Registration Management-CRD Accounting
9509 Key West Avenue
Rockville, MD 20850

(301) 869-6699

The Rumor Was True!

That is, the one about FINRA revising its proposed rule on circulation of rumors. This is good! The new language is more focused and will allow industry professionals to discuss amongst themselves and with clients the nature of circulating rumors (without triggering a regulatory reporting obligation). That is, firms can talk about rumors: they just can't spread them with the intention of moving markets... that makes sense, right? If those folks on TV are all blabbing about a rumor, why shouldn't a broker be allowed to speak to the subject with his/her client? to help things, rather than hurt them?

Specifically, the amendments:

• Narrow the prohibition to apply to rumors that are 'likely to influence' the market price of a security;
• Retain the reporting obligation, but narrow it to report only those instances of origination/circulation when the offender did it 'for the purpose of improperly influencing' the market price of the security;
• Include supplementary material: defining 'rumor,' allowing certain exceptions (permissible communications), reminding firms that such rumor origination/circulation could violate lots of other rules, not just this new one, and requiring firms to have WSP's and training programs (the usual).

The revised rule is out for comment through July 16. Go to http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p118807.pdf to read the notice on this topic.

Pssst: It's okay if you pass this on--not a violation, I promise.