FINRA Manual: Contents
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14-35 FINRA Requests Comment on a Revised Proposal to Adopt Consolidated FINRA Rule 2231 (Customer Account Statements); Comment Period Expires: October 31, 2014
Customer Account Statements
Request for Comment
Customer Account Statements
Referenced Rules & Notices
FINRA Rule 3150
FINRA Rule 4311
NASD Rule 2340
NASD Rule 3050
NYSE Rule 409 and its Interpretations
NYSE Rule 407
SEA Rule 10b-10
FINRA seeks comment on a revised proposal to transfer, largely unchanged, current NASD Rule 2340 (Customer Account Statements) and Incorporated NYSE Rule 409 (Statements of Accounts of Customers)1 into the consolidated FINRA rulebook as FINRA Rule 2231 (Customer Account Statements). The revised proposal includes changes made in response to comments on the prior proposal that was subsequently withdrawn. The key changes in the revised proposal from the prior proposal are to (1) maintain the quarterly delivery requirement in the current rule; and (2) allow customers to direct the transmission of customer account statements and other documents to third parties, provided the firm sends duplicates of such account statements and other documents directly to the customer.
The proposed rule is available as Attachment A at www.finra.org/ notices/14-35.
Questions regarding this Notice should be directed to:
FINRA encourages all interested parties to comment on the proposal. Comments must be received by October 31, 2014.
Member firms and other interested parties can submit their comments using the following methods:
Marcia E. Asquith
Office of the Corporate Secretary
1735 K Street, NW
Washington, DC 20006-1506
To help FINRA process comments more efficiently, persons should use only one method to comment on the proposal.
Important Notes: The only comments that FINRA will consider are those submitted pursuant to the methods described above. All comments received in response to this Notice will be made available to the public on the FINRA website. In general, FINRA will post comments as they are received.2
Before becoming effective, a proposed rule change must be authorized for filing with the Securities and Exchange Commission (SEC) by the FINRA Board of Governors, and then must be filed with the SEC pursuant to Section 19(b) of the Securities Exchange Act of 1934 (SEA).3
Background & Discussion
Current NASD Rule 2340 (Customer Account Statements) generally requires each general securities member (as that term is defined in the rule)4 and NYSE Rule 409 (Statements of Account of Customers) generally requires each member organization to send account statements to customers at least quarterly showing security and money positions during the preceding quarter.
In April 2009, FINRA filed with the SEC a proposed rule change to adopt consolidated FINRA Rule 2231 (Customer Account Statements) that would have transferred NASD Rule 2340 and NYSE Rule 409 with significant changes into the FINRA Rulebook (the initial filing).5 Among other changes, in the initial filing, FINRA proposed to replace the existing quarterly customer account statement delivery requirement with a requirement to send account statements at least once every calendar month to each customer whose account had activity during the period. The initial filing also proposed to incorporate existing supplementary material to NYSE Rule 409, including provisions allowing a firm to send customer account statements and other documents to third parties based on written instructions from the customer.
The SEC received 12 comment letters.6 All commenters objected to the proposed monthly delivery requirement, generally stating that current industry practice continued to be providing customer account statements on a quarterly basis. Among other concerns, the commenters noted that the proposed monthly delivery requirement would result in significant compliance costs for the industry without meaningful benefits for customers, and could create conflicts with firms' obligations under SEA Rule 10b-10 (Confirmation of Transactions), as well as quarterly reporting standards in the retirement plan industry. SEC staff also expressed concern regarding the proposed provision allowing firms to transmit customer account statements and other documents to third parties based on written instructions from the customer.
In response to the comments, FINRA filed Amendment No. 1 to the proposed rule change in July 2011.7 Among other changes, in Amendment No. 1, FINRA proposed to permit firms to send quarterly account statements in a range of circumstances.8 FINRA also revised the proposal regarding transmission of customer account statements to third parties to require firms to continue to deliver duplicate copies of customer account statements to customers even when directed by customers in writing to send the statements to third parties.
The SEC published Amendment No. 1 for comment in August 2011 and received eight comment letters.9 Commenters continued to raise concerns regarding the monthly delivery requirement, asserting that quarterly delivery of account statements should not be limited to select circumstances. In addition, commenters objected to the proposed requirement to deliver duplicate copies of account statements to customers even when directed by customers in writing to send the statements to third parties. Some commenters believed that there should be circumstances under which members should not be required to deliver duplicate statements to customers, particularly where there is a power of attorney or incapacity. In July 2012, FINRA withdrew the initial filing to further consider the comments.10
In light of the concerns with the initial filing, FINRA requests comment on a revised proposal that would largely transfer unchanged current NASD Rule 2340 (Customer Account Statements) and NYSE Rule 409 (Statements of Accounts of Customers) into the consolidated FINRA rulebook as FINRA Rule 2231 (Customer Account Statements).11 The revised proposal would require each general securities member firm to send account statements at least once each calendar quarter to each customer whose account had activity during the period since the last statement was sent to the customer. The key changes in the revised proposal from the initial filing are to (1) maintain the quarterly delivery requirement in the current rule; and (2) allow customers to direct the transmission of customer account statements and other documents to third parties, provided the firm sends duplicates of such account statements and other documents directly to the customer.
Proposed FINRA Rule 2231 would transfer, largely unchanged, the following requirements of NASD Rule 2340 and NYSE Rule 409:
Proposed Supplementary Material .02 would provide that, except as required to comply with NASD Rule 3050 (Transactions for or by Associated Persons) and NYSE Rule 407 (Transactions—Employees of Members, Member Organizations and the Exchange), a firm may not address or send account statements or other communications relating to a customer's account to other persons or entities or in care of a person holding power of attorney over the customer's account unless (a) the customer has provided written instructions to the firm to send such statements or other communications to such person or entity or in care of a person holding power of attorney over the customer's account; and (b) the firm sends duplicates of such statements or other communications in accordance with this rule directly to the customer either in paper format or electronically as provided in proposed Supplementary Material .03.
Proposed Supplementary Material .02 would limit the customer's ability to decline to receive customer account statements beyond what was permitted in NYSE Rule 409(b) or NASD Rule 2340. NYSE Rule 409(b) prohibits, without NYSE's consent, the delivery of statements, confirmations or other communications to customers (1) in care of a person holding power of attorney over the customer's account unless either (A) the customer has provided written instructions to the member to send such confirmations, statements or communications to such person, or (B) duplicate copies are sent to the customer at some other address designated in writing by the customer; or (2) at the address of any member or in care of a partner, stockholder who is actively engaged in the member's business or employee of the member. NASD Rule 2340 does not contain a similar provision.14
Proposed FINRA Rule 2231 would transfer with minor changes several related interpretations under NYSE Rule 409. As such, the requirements would become applicable to all FINRA member firms. Specifically, the revised proposal would include:
FINRA requests comment on all aspects of the revised proposal, including any potential costs and burdens that the revised proposal could impose on firms. FINRA particularly requests comment concerning the following areas:
1 For convenience, Incorporated NYSE Rules are referred to as NYSE Rules.
2 FINRA will not edit personal identifying information, such as names or email addresses, from submissions. Persons should submit only information that they wish to make publicly available. See Notice to Members 03-73 (November 2003) (Online Availability of Comments) for more information.
3 See SEA Section 19 and rules thereunder. After a proposed rule change is filed with the SEC, the proposed rule change generally is published for public comment in the Federal Register. Certain limited types of proposed rule changes, however, take effect upon filing with the SEC. See SEA Section 19(b)(3) and SEA Rule 19b-4.
4 The term "general securities member," is defined in NASD Rule 2340(d) to mean "any member that conducts a general securities business and is required to calculate its net capital pursuant to the provisions of SEA Rule 15c3-1(a). Notwithstanding the foregoing definition, a member that does not carry customer accounts and does not hold customer funds or securities is exempt from the provisions of this section."
5 See Securities Exchange Act Release No. 59921 (May 14, 2009), 74 FR 23912 (May 21, 2009) (Notice of Filing File No. SR-FINRA-2009-028).
6 See the SEC's website for a list of commenters to the initial filing.
7 See Securities Exchange Act Release No. 64969 (July 26, 2011), 76 FR 46340 (August 2, 2011) (Notice of Filing of Amendment No. 1 to File No. SR-FINRA-2009-028) (Amendment No. 1 to the initial filing).
8 For example, a firm could send quarterly statements to customers if the firm relies on an appropriate rule, regulation, release, interpretation, "no-action" position or exemption issued by the SEC or its staff that (1) specifically applies to the fact situation of the activity; (2) provides relief from the immediate transaction confirmation delivery requirements of SEA Rule 10b-10; and (3) permits quarterly delivery of customer account statements. Similarly, a firm could send quarterly statements to customers for various passive activities, such as the receipt of funds in accounts that are not directly from a purchase or sale transaction, including the receipt of interest and dividends. A firm otherwise eligible to send quarterly account statements by meeting such requirements would have been required to provide customers access to current information on their accounts via the Internet and by telephone.
9 See the SEC's website for a list of commenters to Amendment No. 1 to the initial filing.
10 See Securities Exchange Act Release No. 67588 (August 2, 2012), 77 FR 47470 (August 8, 2012) (Notice of Withdrawal of File No. SR-FINRA-2009-028).
11 In addition, the revised proposal would not include several supplementary materials from NYSE Rule 409. Specifically, the proposal would not adopt: (1) NYSE Rule Interpretation 409(a)/01 (Applicability), but would add Supplementary Material .01 (Compliance with FINRA Rule 4311 (Carrying Agreements)) to remind firms of their obligations under Rule 4311(c)(2); and (2) NYSE Rule Interpretation 409(b)/01 (Standards For Holding Mail For Foreign Customers), but would add Supplementary Material .04 (Compliance with FINRA Rule 3150 (Holding of Customer Mail)) to permit firms to hold customer account statements consistent with the requirements of Rule 3150.
12 See supra note 4.
13 See Securities Exchange Act Release No. 71545 (February 12, 2014), 79 FR 9535 (February 19, 2014) (Notice of Filing File No. SR-FINRA-2014-006). See Securities Exchange Act Release No. 72193 (May 20, 2014), 79 FR 30217 (May 27, 2014) (Order Instituting Proceeding to Determine Whether To Approve or Disapprove File No. SR-FINRA-2014-006). See also Amendment No. 1 to SR-FINRA-2014-006 and Response to Comments (July 11, 2014).
14 NYSE Rule 409(g) also provides that firms carrying margin accounts for customers should send duplicate copies of monthly statements of guaranteed accounts to the respective guarantors unless such guarantors have specifically provided in writing that they do not want such statements sent to them. FINRA recommends eliminating NYSE Rule 409(g) because its provisions advising members to send duplicate account statements to guarantors is better addressed by the general requirement described above to obtain written instructions from the customer to send customer statements to third parties.
15 The SEC approved FINRA's proposed rule change to adopt rules regarding supervision in the consolidated FINRA rulebook, including specifically FINRA Rule 3150 (Holding of Customer Mail). See Securities Exchange Act Release No. 71179 (December 23, 2013); 78 FR 79542 (December 30, 2013) (Order Granting Approval of a Proposed Rule Change to Adopt Rules Regarding Supervision in the Consolidated FINRA Rulebook, as Modified by Amendment No. 1) (File No. SR-FINRA-2013-025). The consolidated supervision rules become effective on December 1, 2014. See Regulatory Notice 14-10.
16 See Securities Exchange Act Release No. 31319 (October 14, 1992); (Order Approving Proposed Rule Change Relating to Periodic Account Statements) (File No. SR-NASD-92-29).
17 See supra note 4.
18 The proposal would retain the current provisions of NASD Rule 2340(b) that permit firms not to send quarterly customer account statements to DVP/RVP customers if certain conditions are satisfied.