I won't call it a reversal

...but it seems like one.

Oh, I'm talking about electronic storage rules again. When I die, will someone please make sure my tombstone says something about my dedication to this cause? ...says something...not necessarily flattering.

Okay, so in the last two days I've run into situations where it appeared that 3rd party electronic storage vendors would not provide the representation letters generally expected under 17a-4(f)(2)(i)--you know the letter--the one that says the media will do the things listed under (f)(2)(ii), as follows:

(A) Preserve the records exclusively in a non-rewriteable, non-erasable format;

(B) Verify automatically the quality and accuracy of the storage media recording process;

(C) Serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media; and

(D) Have the capacity to readily download indexes and records preserved on the electronic storage media to any medium acceptable under this paragraph (f) as required by the Commission or the self-regulatory organizations of which the member, broker, or dealer is a member.

Since way back, when this subject was just a shadow across compliance officers' desks, the expectation--and instructions from then-NASD, I might add--was that, if the firm used a 3rd party vendor to store its electronic records, it was the 3rd party vendor who was required to make those representations in writing, on their letterhead, to the regulators. The firm would engage the vendor to store information (such as e-mails), would request the letter, would get the letter, and would mail it to Susan DeMando's office. Later, firms had to submit it to FINRA online.

Firms storing their own records electronically would make the representations themselves, in writing to FINRA.

What I just learned from a helpful and trusted FINRA staff member is this: the format representations letter does NOT have to come from the 3rd party vendor. Quoting (f)(2)(i) of the Rule: "...the member, broker, or dealer must provide its own representation or one from the storage medium vendor or other third party with appropriate expertise that the selected storage media meets the conditions set forth in this paragraph (f)(2)." The staff member said that the BD would make the representations 'unless they don't have the knowledge' to make them.

My opinion is this: most firms are hiring out because they don't have that knowledge or anything close to it. But hey, I've been wrong--or at least misled--before.

Most 3rd party vendors, in my experience, give those letters to their clients for delivery to FINRA. I would expect it if I were you. If the vendor wants to charge you for the letter, save your money and write the letter yourself.

Here's the thing , though: make sure you, the BD, get solid, written clarity from your 3rd party vendor before writing and submitting your letter to FINRA. You have to be sure the media meets the criteria. You're hiring the vendor because you can't or don't want to store the records yourself... you'll need to rest assured that the records meet the regulator's expectations, right? Otherwise, why pay their prices??

Oh, and remember: you always have to submit an 'access letter' to FINRA-complying with 17a-4(f)(3)(vii)--and that letter has to come from an independent third party (any old third party will do--as long as they know what they're talking about and they're not an affiliate or relative). Your third party storage vendor will write that letter for you--if they don't, fire them.

Thanks to Davis for his inspiration... he knows that nothing gets me going like ESM.

>

Little more input on audit function under electronic r/k rule

Quick--I promise--update on the 'audit function' under 17a-4(f)(3)(v). This week a FINRA examiner provided verbal guidance in response to a firm's written request for such. The guidance was not specific; it was based only common sense, not formal guidance from SEC or FINRA higher-ups. It consisted of recommending a periodic review of stored records to confirm that they are intact.

Okay then.

Obviously more on this subject is necessary for firms to fully understand their responsibilities.

AND...I came across another outside vendor for e-mail archiving: Global Relay Communications. I haven't gotten permission to link to them--please google them and check out their broker-dealer services. They seem quite thorough in their comprehension of FINRA members' regulatory burdens. Their materials plainly address all requirements and describe how their systems meet them... nice to see. Here's an excerpt from their presentation on the audit function (okay, I didn't get permission to copy this--but I'm hopeful the G.R. folks will appreciate the plug):

"All messages stored in the Message Archiver are forwarded directly from the Member firm’s email server, with no User intervention. During the lifecycle of a message, all actions (viewing, replying, forwarding, downloading, flagging, notation, review) by any User, Reviewer, Super Reviewer, Administrator or the system itself associated with the message are logged. The Message Archiver’s detailed logs provide a full audit trail verifying the integrity of the message. These logs automatically appended to the messages and are viewable and made available to authorized administrative Users.

As detailed directly above, Message Archiver immediately provides a full audit trail accessible to any authorized administrative User. A side benefit of the system, is that a firm also builds an audit trail for the auditors actions in the archive during an online audit.

Global Relay’s Message Archiver employs retention schedules for all audit results. Audit results are retained for the lifecycle of the message. The SEC three and six year retention requirement for records set out in paragraph (a) and (b) of this Rule 17a-4 can be applied to the audits within Message Archiver."

Happy Summer!

Bill Singer, Put Your Holster Back On

"When I decide whether to ride out of town into the sunset or slap the iron back on and walk the streets, you'll know -- I'll post that decision here."

That is a quote from Bill Singer's blog entry of May 16. The good news is, he wrote a subsequent entry--"The Dead-Animal Man"--yesterday, on May 21. The bad news is, he didn't reveal his decision. I'm reluctant to assume he's back in the saddle again, since this latest, delightfully-dreary, entry did not address our favorite subject (the one that so wears on Mr. Singer that he is forced to consider retiring to the comforting chaos of his Pandora's box): securities regulation and its many splendid forms. Is Bill back? Or still in the barn? I, for one, am waiting with great hope that he'll darken FINRA's doorway again soon.

Bill's blog: http://www.rrbdlaw.com/brokeandbroker/index.php

Exam Priorities

FINRA just put out its annual notice on exam priorities. Below I've listed the areas they prioritize (many), along with summaries and few comments. Far below, I note some recent findings I've seen on exams. This isn't overly original or interesting, but I thought I'd throw it in my blog, since I've been way too busy lately to write anything else... :)

Senior Investors – hot topics include misleading advertising, shameless, fear-inducing sales pitches and of course, suitability. Advice: don’t let your reps claim to be qualified
‘senior investing’ specialists and make sure each transaction is well documented to establish suitability.
Deferred Variable Annuities – new Rule 2821 went into effect, sort of, on May 5. Reps have to document their reasonable basis for recommending a Def. V/A purchase or switch; principals in the future will also be required to ensure reasonableness. Training is in Def. V/A rules and products is required. Here is the link to the April Phone-In Workshop on the subject - phone-in workshop; also reference my notes on this in an earlier blog entry.
Anti-Money Laundering (AML) – final rule 312 of Patriot Act went into effect in Feb; most small firms are not effected since they don’t have foreign banking relationships. Examiners are looking for suspicious activity monitoring and SAR filings; also making sure firms are having independent testing as required. Remember, follow-up on testing recommendations and keep records of your follow-up action taken.
Protection of Customer Information – issues include online account hacking (not relevant for most small firms) and protecting information stored electronically (on hard drives, portable drives, laptops and PDA’s). Exam deficiencies include failure to provide privacy notices (and keep records of providing them), failure to have procedures addressing disposal of consumer report information, failure to obtain required confidentiality agreements from third parties; failure to insure that outsourcing entities maintained the confidentiality of customer information; and failure to include a required “opt out” clause in their privacy policies. While firm procedures may address safeguarding their information, it’s a good idea to have a separate “IT” type document detailing the administrative, technical and physical safeguards used to secure data.
Supervision and Supervisory Controls – I guess a lot of firms are still struggling with the difference between supervisory procedures under 3010 and control procedures under 3012/3013. Exams focus on separate control procedures, review of producing manager, heightened supervision of high-risk brokers, annual testing and verification and CEO certifications.
Sales of New or Non-Conventional Products – firms have to have procedures for approving of new products; examiners are also focusing on recommendations in new and non-conventional products, such as hedge funds, CMOs/CDOs, REITS, auction rate securities and other structured products. Guidance references MSRB notices for firms doing muni business.
Transaction Reporting – accuracy of reported transaction information is the firm’s responsibility, no matter how it’s reported. Trade Reporting Facility participants must transmit certain information regarding last sale reports of transactions in designated securities. Examiners are also finding firms to have incorrectly reported riskless principal transactions, incorrectly reported transactions with the long/short-sale indicator and not properly submitted OATS data with accurate order information, terms and conditions, and/or special handling codes.
Business Continuity Planning (BCP) – the exam priorities publication states that firms should periodically test their plan to ensure all of its components work as envisioned…but this is not required by the Rule itself or in FINRA’s 2006 NTM 06-74 on the subject. Firms should decide if periodic testing is necessary, given their size and customer services.
Data Integrity – exams will look at CRD filings, complaint reporting and clearing firm reporting to ensure accuracy and timeliness. Firms face steep fines for late filings.
Bank Sweep Programs – for broker-dealers sweeping customer credit balances into deposits at banks. All sorts of issues, here, including: protection of funds, net capital requirements, written agreements, reconciliations, books and records, SIPC/FDIC coverage, and account statements. Call district contact to discuss before setting up such a program.
Agency Lending Disclosure – for firms that operate an agency securities lending business. Exam findings show firms not performing principal counterparty credit risk monitoring or reconciliations and not resolving contract differences nor computing securities borrow deficit capital charges at the principal counterparty level. Ref: 05-45.
Inventory Valuations – firms should have controls to independently validate the pricing of inventory positions.
Outsourcing – outsourcing is not a substitute for internal controls and compliance monitoring; outsourcing should be monitored and overseen. Outsourcing to foreign entities may result in risks and should be closely monitored.
Order Audit Trail System (OATS) – as of February 4, 2008, OATS reporting requirements include OTC equity securities such as orders for OTC equity securities traded on the OTCBB, Pink Sheets or otherwise, as well as orders for certain foreign equity securities and other securities meeting the definition of OTC equity security in NASD Rule 6951. Best to visit the OATS web site (OATS) and FAQs to understand the complexities of OATS reporting.
Regulation NMS -- SEC Rules 610 (the Access Rule) and 611 (the Order Protection Rule) were fully implemented for all NMS stocks as of October 8, 2007. Initial FINRA exams show that some firms mistakenly may believe that Reg NMS does not apply to them, either because they make markets in a limited number of NMS stocks or because they infrequently execute orders internally. Note that Reg NMS does not include any exception to the definition of “trading center” based on de minimis activity. Firms are reminded that the requirements for ISOs apply to “any broker or dealer” that uses ISOs, and are not limited solely to broker-dealers that operate as trading centers. Refer to online resources for clarity on this: Spotlight On Regulation and Frequently Asked Questions on Rules 610 and 611.

Additional areas of exam findings:

Changes in Account Name or Designation – changes in account name or designation, including error accounts, must be approved by a designated principal and there must be records to show that s/he was personally made aware of the essential facts concerning the change. Approval must be noted on the order or another record.
Time and Price Discretion – when relying on a verbal, one-day time and price discretion exception to Rule 2510 (discretionary accounts), firms must note the reliance on tickets and must not extend the discretion beyond the close of business that day. (Doesn’t apply to institutional accounts in ‘good-til-cancelled’ transactions on a ‘not held’ basis.)
Net Capital – violations include inaccurate inventory valuations of prop. positions and mark-to-markets performed by traders; and improper treatment of ‘cash-like’ investments offered by banks (non-allowable).
Customer Protection – 15c3-3 violations include: inaccurate treatment of stock record allocation positions; non-bona fide reserve bank deposits; and creation of segregation deficits by deliveries, securities loaned and securities borrowed returns.
Back-Office Transaction Processing – inaccurate trade processing and reconciling. Conversions of processing systems often leads to a lot of trade breaks and unreconciled items, creating inaccuracies in books and records, charges against net capital and increased customer reserve requirements.

What I have seen lately in exam results:

Audit of Electronic Storage Input -- failure to have procedures for/comply with the ‘audit’ function under the SEC electronic books and records rule (17a-4(f)(3)(v). I have requested guidance from four FINRA staff members; three clients have directly requested guidance, verbally and/or in writing, from their examiners and/or liaisons, but NONE has been provided. At very least, perhaps firms should ‘check to see that the records are there’—paraphrased advice from one FINRA staff member.
Notify Outside Brokerage Firms of Employee Accounts – Rule 3050. If reps opened accounts prior to being associated persons of the firm, they will not have informed the outside brokerage firm of their status as RR. Firm should send letter to outside brokerage firm with request to provide duplicate statements/confirms.
Provide Copy of U5 to Term’d Rep – copies of U5’s must be provided to terminated reps within 30 days of termination; keep a record to show that the U5 was indeed provided.
Maintain Updated Contacts on FCS – be sure when updating contact information that you hit “save” or the changes will be lost. Changes of most CRD information should be made within 30 days of the change or of knowing of the change.
Provide BCP Disclosure Summary – required for all firms, including those with institutional customers. Provide at account opening and when the information changes (not an annual disclosure requirements, but a good idea to include in annual disclosures).
Register Personnel with Access to B/R – back office or administrative staff who have access to customer records or the firm’s financial b/r should be registered on CRD as “NRF” employees. Fingerprint cards and certain personal data are filed.
Obtain AML Information (CIP) -- new account forms or other such forms should include all required CIP information—name, physical address, TIN and DOB if individual. Verification must be in evidence and customers must be informed of firm’s CIP verification efforts—keep records of all compliance with this rule.

Deferred Variable Annuities--The New Rule

Hi. And Happy Earth Day. While you're in your backyard digging holes and planting things, perhaps include this information (-'er, I don't mean bury it--I mean, plant it in your mind so that it may bloom and grow).


Rule 2821 is effective May 5. But not the whole thing: paragraphs (c) and (d) have been put on hold indefinitely, pending SEC's response to FINRA's forthcoming amendments (that's some kinda vague, isn't it?). What this means is: your Reps have to perform and document a suitability analysis for def. v/a purchases and exchanges, but you as Principal don't have to follow the new approval rules--you don't have to make a suitability determination, too. At least not yet. You still have to approve the business like you've always done. The other part of the Rule that will be effective May 5 is the training part: you have to train your reps on the new Rule and on def. variable annuities in general, along with the specific products they offer. I have a feeling you're doing this already for C/E purposes. But be sure to train, by May 5, the reps on the specifics of their new obligations under the Rule; also train them on any new forms you've devised to help them document their suitability analysis. Lastly, interestingly, your firm has to comply with these effective parts of the Rule, but you don't have to have written procedures in place describing the compliance elements you're adopting. That paragraph (d) has been delayed. If you're in the process of updating your WSP manual, or will be soon, it wouldn't hurt to go ahead and include new procedures: you can revise them later, if necessary.


I listened in on the Def. V/A Phone-In Workshop last Friday. Here are the notes I typed up. My apologies for the tone of brevity. FYI: I didn't learn a lot on this phone call and found that the "cya" and "not our job" messages were loud and clear, as usual.


Notes on Rule 2821: Deferred Variable Annuities Phone-In Workshop
April 18, 2008

Presenters: Larry Kosciulek and Andy Favret

1400 participants signed up for call
Questions submitted in advance; no live questions from listeners
(cya introduction: FINRA doesn’t endorse any compliance practice)

Link to materials: http://www.finra.org/EducationPrograms/Materials/p038332

1. UPDATE:
Paragraphs (c) and (d) –effectiveness delayed indefinitely. See rule filing notice sent April 17 by Finra: http://www.finra.org/RulesRegulation/RuleFilings/2008RuleFilings/P038354

2. APPLICABLE TO:
Rule applies to stand-alone purchase of def. v/a and exchange of one for another. Includes purchases in IRA accounts, not transaction in employer-sponsored plans. Does not apply to re-allocation in sub-accounts or to subsequent investments in sub-accounts. Does not apply to recommendations to SELL v/a’s (but other, general rules such as Communications with the Public--Rule 2210--apply to these transactions). Rule would apply to specific recommendations made to individual plan members of an employer-sponsored plan.

Rule applies to recommended transactions (not all communications constitute recommendations)—but the text of Paragraph (c) (that may be amended and is not now effective) states that a principal must treat “all transactions as if they have
been recommended for purposes of this principal review” and must make a suitability determination… FINRA is considered truly making the Rule apply ONLY to recommendations.

3. SCOPE:
Rule pertains to:
Reps who recommend these transactions
Principal who approve them
WSP’s
Training

4. REPS:
When recommending purchase or exchange, must get info and review existing assets. Effective date: May 5

Q: What does “liquidity needs” mean? What info is required?
A: See 2821(b)(2). Liquidity needs is not defined, but age, income, net worth, dependents, short term cash needs for homes, education, etc. are factors to consider.
IRA funds are not liquid assets—because they require a penalty/fee to tap.

Information must be captured so it can be reviewed: no special form is required under the Rule.

Q: Document and sign determinations: what form to use? Is the intent: to provide rationale for transaction or to give disclosure to client?
A: Form should be firm’s choice as appropriate. This is not about disclosure to customer; it’s about suitability.

Remember, investment time horizon—these securities are long term investments. Access to funds before end of surrender or waiting period is costly.

Rep must determine suitability based on factors listed in rule. Must document and sign some record to show this.

Exchanges: primary purpose cannot be RR’s profit. Consider:
Triggers surrender charge?
Lose benefits, increase in fees/charges?
Compare fees/etc. of both
Does customer benefit?Has customer done exchange w/in last 36 months?

Q: The 36-month exchange reference—does it refer to the particular customer’s account?
A: No, in any account w/in 36 months.

Q: Does customer have to sign acknowledgement of disclosures?
A: No but firm may decide to require this.

Remember: ‘Intended use’—important to suitability consideration. Need for cash---not a good reason to buy v/a.

Q: Is an exchange within 36 mos. a call to action?
A: No, an exchange with a customer having done an exchange w/in the last 36 months may not necessarily be prohibited. This information is just part of the necessary background information used to make suitability determination. A yes answer may end up triggering more supervision or a closer look at the proposed transaction.

5. PRINCIPAL:

Paragraph (c) of Rule—Principal must review before sending to insurance co/vendor for processing. This paragraph is not in effect; delayed effective date.

Discussing it anyway….

Q: If customer sends $ directly to vendor how can Principal review transaction before sending for processing?
A: Doesn’t apply to non-recommended transactions or to reinvestments.

Rule is in state of flux for now. Par. (c) will be amended and FINRA will provide guidance.

A: What about in the interim? Bet. May 5 and ultimate effective date of (c) and (d)?

No interim requirement. Keep doing what you’re doing re: Principal review… firms can adopt new procedures now if they want.

Principal doesn’t need insurance license to approve this business. 26, 24 or 9-10 license is okay.

Rule now states that Principal must approve within 7 business days of the customer signing the application. The workshop presenters said it was 7 days from the date the OSJ received the completed application. Assumption: clarification is forthcoming with Rule change.

Application must be sent by next business day after Principal approval (noon on Day 8 at latest)

Firms can hold customer checks pending Principal review—relief from net capital reserve and n/c rules. “Promptly transmit” is waived if 2821 is met.:
Copy check, record date rec’d and date transmitted to vendor or returned to customer. (i.e., on checks rec’d forwarded blotter)
$ must be sent by noon next day after approval.

Possible Rule change about use of suspension a/c’s at ins. companies. This would allow funds to be send pending Principal approval.

6. WSP:

Although this part of the Rule has been delayed, it (paragraph (d)) will not change. Firm will be required to have written procedures.

Automated systems to review/approve v/a business is NOT permitted.

7. TRAINING:

Training program must be in effect by May 5.

Training required on more than just general characteristics--on specific products offered by firm.


Rely on 3rd parties, such as wholesalers, ins. co’s? Okay, but firm ultimately responsible.
Train all reps on 2821 by May 5.
Can put in c/e firm element, but some training should be provided by May 5.

Use webcasts and e-learning to provide training.

For wholesalers who promote v/a products to firms—training req. does not apply (no recs to customers)

8. MISC:

Q: Offshore V/A’s—included?
A: Rule focuses on whether it’s a registered product, not if it’s offshore (no explicit answer to question)

FINRA “Relies on firms to set their own parameters for suitability”—FINRA doesn’t set.

Q: What is reasonable for procedures/disclosures?
A: Firm decides. For instance, could require customer sign-off on purchase/exchange.

Q: Does FINRA have any plans for an online tool like the Mutual Fund expense analyzer to use with V/A analysis?
A: They are exploring this.

Q: Will FINRA be providing other tools, like disclosure forms? Replacement forms?
A: No, they’re not working on this.


Workshop time estimated: 75 minutes; actual time: 50 minutes.

If I Were a Golfer I'd Follow This Guy's Advice

Personally, I hate golf. But my relatives are pretty darned good at it--including a 2nd(?) cousin on my father's side named Tommy Weiskopf. Now that I've established credibility, read on...

For you compliance professionals who like the game of golf but hate the way it makes you want to throw your clubs in the nearest water hazard, I recommend this book: Peace and Par, Enjoying Golf in the Now. My most enlightened friend, Mike Shingleton, wrote it and he did the golfing world a favor by introducing ancient breathing techniques to this too-often stress-inducing game. Read this book, practice the technique, and you'll be: a) happier and b) a better golfer. Oh, and you'll laugh along the way: Mike is a very funny guy.

Maybe his next work will help compliance folks breath easier during routine exams. I'll keep you posted. (But seriously, Mike Shingleton, a former institutional bond broker, leads in-office stress management sessions that are remarkably effective in reducing workplace anxiety. Even if you don't golf, Mr. Shingleton may be able to help you and your company.)

Here is the link to Mike's website: http://www.thenowsound.net/
And here is how you buy his book: http://www.amazon.com/Peace-Par-Enjoying-Golf-Now/dp/1419681419/ref=sr_1_1?ie=UTF8&s=books&qid=1207058765&sr=8-1

“In like a lion…”: no kidding! I can’t wait for the lamb.

Plenty of action going on at FINRA these days. I count 24 announcements made in the first 20 business days of March. That’s 1.2 announcements per day! I’ve pulled out a few items to share, in case you haven’t been reading.

In FINRA’s March 24 exam priorities letter we heard about…
1. a change in examination protocol. Firms will no longer reply to their exit conference memo…from now on, they’ll wait to receive an “Examination Report” and they’ll have 30 days to respond. The final document from FINRA after an exam will now be called the “Examination Disposition Letter,” which will enumerate exceptions/deficiencies classified as: No Further Action, Cautionary Action, Compliance Conference, or Referral to Enforcement for Review and Final Disposition. Obviously, we’ll need new acronyms… goodbye, LOC.

2. a new name for your helpful FINRA contact person: “Coordinator.” They say that for most of you, the Coordinator is the same person you used to call “Liaison.” Of course this person could be different from your Core Examiner and Finance Coordinator. In any case, perhaps this new title will last longer than the last one did.

3. advance notice of examinations. The new timeframe is “up to 30 days”…but not necessarily 30 days… that will depend on the risk perceived. In some cases, firms will get up to 60 days, for instance those firms with lots of retail branches where beaucoup information requests will have to be met. Side note: for those of you who have not gotten Web IR entitlements, I suggest you do that now. That way, when you get your exam notice, you’ll be able to login to the Web Information Request site and get started—you’ll have more time to prepare for the exam, this way.

4. paying careful attention to senior customers. If only FINRA had beaten the sub-prime horse to death, as it does with this issue…maybe my portfolio would be in better shape (etc., etc., etc….it’s not all about me, I know that). Not that this issue isn’t important, but, well, if this is the first you’re hearing about your obligations to ensure suitability when dealing with senior citizens, I bet you’re dizzy right now from your recent space travel.

5. the new deferred variable annuities rule—2821. Partly effective May 5, 2008, so look it up. You may find that your firm is already complying because you generally adhere to a best practices ethic. A few parts of the rule that concern supervisory approval have been delayed until August at the earliest. Check out NtM 07-53 to know what’s in store for you—or listen to the phone-in workshop on April 18.

6. data protection and how important it is to have your IT staff/vendor set you up right. Protect customer records! OK, easier said than done. I mean really, hackers are better than most IT staff and vendors. But that’s no excuse to do nothing. CD’s, thumb drives, laptops, i-pods all have to be protected somehow.

7. new MSRB rules that parallel FINRA’s supervisory rules… if this applies to you, see MSRB Notices 2008-06, 2007-32 and 2007-16.

8. other things like new product sales, fee-based accounts, transaction reporting, information barriers, inventory valuations, and the ever-present OATS, among others. Please see the link below for FINRA’s emphasis on these topics.

I won’t copy all of FINRA’s links to references for these items; rather, here is the link to their exam priorities letter, which contains many helpful links. http://www.finra.org/web/groups/corp_comm/documents/home_page/p038169.pdf

Also in March:

In Notice 08-12 we learned about an exception to the principal approval requirements for certain filed sales material—in Rule 2210. This is good for you firms out there that use mutual fund or variable annuity sales literature produced by the sponsor…now your designated principal doesn’t have to re-approve this material if it has already been submitted to and granted approval by FINRA. As they say really, really fast on the radio, “Certain conditions apply.” So read the Notice before giving up your advertising review processes.

In a podcast released Mach 25 that followed an information notice published March 12, we were informed that the big rulebook consolidation process is in the works. Meaning, NASD Rules and NYSE Rules will be harmonized into one new “Consolidated” rulebook. Key points made:
·Eliminating duplicative NASD/NYSE rules;
·Looking at both sets of rules to determine if one set can ‘inform’ the
other—meaning, turn two bad rules into one good rule;
·Considering different approaches to the application of rules, such as a
principles-based or tiered approach according to firm size, business model and customer type (retail or institutional). (Did I just write this or am I dreaming? Let’s all keep our fingers crossed on this one!)
·The process will be lengthy (my word, not theirs): the SEC will have to approve all rule changes. Some changes will be put out for comment first (don’t be shy);others will go directly to the SEC. Importantly for small firms, the newly-elected Small Firms Advisory Board will have a say in the changes.

In a March 6 news release we heard about some State Farm RR’s being busted for not taking their firm element online training; rather, they had someone else do it for them. Read my entry below about the $5,000/hour C/E course for a Word to the Wise.

A March 10 podcast reminds us of an earlier announcement about not having to keep copies—paper or electronic—of certain CRD filings. Yahoo! Filings that don’t require a Rep’s signature will now be officially maintained on your behalf by CRD. This applies to U4 and U5 amendments (but not DRP’s or any such filing that requires the rep to sign it) and BR filings. See the information notice from February 21 to read all about it.

We learned on March 17 that certain webcasts had been converted to a new format: the “video tutorial.” The VT is more like an E-Learning Course; it has a mastery test so you can use it as a C/E firm element training tool that will test your reps’ comprehension. The bad news it, now these lessons cost money, whereas before they were free. There are still many free webcasts online, but I’m wondering if eventually they’ll all go the way of VT? I don’t have the scoop on this. (Anyway, at the bargain annual subscription rate of $45 for unlimited E-Learning and VT courses, who’s complaining?)

On March 24, FINRA put out a Q&A on electronic filing requirements under Rule 3170. I can’t say I learned anything, but maybe if you’ve never dealt with the system this info piece will be useful. I was hoping for a bright, shining light on ESM rules (see my numerous, proof-I’m-obsessed-with-this-issue entries, below)…for instance what does ‘audit system’ mean, anyway?...but no such luck.

Lastly, on March 28 FINRA announced changes to the New Membership Application process...again. Form NMA has been restructured to be more logical and to prompt more detailed input; fewer items are sent hardcopy; funding of the application fees is done right up front; and applications are no longer filed with the district office--now they go to FINRA's HQ ("the Department"). These changes are effective June 26, 2008. Before then, follow the old process. These changes seem good to me; see Notice 08-14 for the details.

I did not comment on all recent announcements; if you want to see the full list go to http://www.finra.org/Resources/RecentAnnouncements/index.htm .

One last thing, not from FINRA: Investment News wrote on March 24 about the SEC’s expected proposal (by summer) that would cap 12(b)-1 fees charged to investors in Class C mutual fund shares. Here is the link to their article: http://www.investmentnews.com/apps/pbcs.dll/article?AID=2008468162776.

Thanks for reading. Now let’s hope that lamb shows up.