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  • 2019

    • 19-05 FINRA Extends Effective Date of Margin Requirements for Covered Agency Transactions; New Effective Date: March 25, 2020

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      Covered Agency Transactions

      Regulatory Notice
      Notice Type

      Guidance
      Suggested Routing

      Compliance
      Legal
      Margin Department
      Operations
      Regulatory Reporting
      Risk Management
      Senior Management
      Key Topics

      Covered Agency Transactions
      Margin
      Referenced Rules & Notices

      FINRA Rule 4210
      Regulatory Notice 16-31
      Regulatory Notice 17-28
      Regulatory Notice 18-18

      Summary

      In June 2016, the SEC approved1 FINRA's rule change (referred to as the "rule change") amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions.2 FINRA is extending, to March 25, 2020, the effective date of the requirements pursuant to the rule change that otherwise would have become effective on March 25, 2019.3

      Questions regarding this Notice should be directed to:

      •    Kris Dailey, Vice President, Risk Oversight & Operational Regulation (ROOR), at (646) 315-8434 or Kris.Dailey@finra.org;
      •    Adam Rodriguez, Director, Credit Regulation, ROOR, at (646) 315-8572 or Adam.Rodriguez@finra.org; or
      •    Adam Arkel, Associate General Counsel, Office of General Counsel, at (202) 728-6961 or Adam.Arkel@finra.org.

      Background & Discussion

      In June 2016, the SEC approved4 FINRA's rule change amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions. FINRA issued Regulatory Notice 16-31 in August 2016 to announce the SEC's approval of the rule change and the effective dates of the new requirements. FINRA announced that the risk limit determination requirements as set forth in paragraphs (e)(2)(F), (e)(2)(G) and (e)(2)(H) of Rule 4210, and Supplementary Material .05 of Rule 4210, each as respectively amended or established by the rule change (collectively referred to as the "risk limit determination requirements") would become effective on December 15, 2016.

      In May 2018, FINRA issued Regulatory Notice 18-18 to announce the extension of the implementation date for all other requirements pursuant to the rule change—broadly, the substantive margin requirements for Covered Agency Transactions—to March 25, 2019.5

      In extending the implementation date of the margin requirements for Covered Agency Transactions, FINRA noted that FINRA is considering whether any revisions to the requirements are appropriate. FINRA's consideration of potential revisions is ongoing.

      FINRA is issuing this Notice to announce that FINRA is extending by an additional year, until March 25, 2020, the effective date of the margin requirements that otherwise would have become effective on March 25, 2019. Members should note that the risk limit determination requirements became effective on December 15, 2016, and are not affected by this Notice.


      1. See Securities Exchange Act Release No. 78081 (June 15, 2016), 81 FR 40364 (June 21, 2016) (Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval to a Proposed Rule Change To Amend FINRA Rule 4210 (Margin Requirements) To Establish Margin Requirements for the TBA Market, as Modified by Amendment Nos. 1, 2, and 3; File No. SR-FINRA-2015-036); see also Regulatory Notice 16-31 (August 2016) (announcing the SEC's approval of the rule change).

      2. Covered Agency Transactions include (1) To Be Announced (TBA) transactions, inclusive of adjustable rate mortgage (ARM) transactions, (2) Specified Pool Transactions and (3) transactions in Collateralized Mortgage Obligations (CMOs), issued in conformity with a program of an agency or Government-Sponsored Enterprise (GSE), with forward settlement dates, as defined more fully in paragraph (e)(2)(H)(i)c. of FINRA Rule 4210.

      3. See Securities Exchange Act Release No. 85083 (February 8, 2019) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Implementation Date of Certain Amendments to FINRA Rule 4210 Approved Pursuant to SR-FINRA-2015-036; File No. SR-FINRA-2019-005) (extending, until March 25, 2020, the implementation date of the amendments to FINRA Rule 4210 pursuant to SR-FINRA-2015-036, other than the amendments pursuant to SR-FINRA-2015-036 that were implemented on December 15, 2016).

      4. See note 1.

      5. See Securities Exchange Act Release No. 83155 (May 2, 2018), 83 FR 20889 (May 8, 2018) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Implementation Date of Certain Amendments to Rule 4210 Approved Pursuant to SR-FINRA-2015-036; File No. SR-FINRA-2018-017). FINRA previously extended the implementation date of the amendments, other than the amendments relating to the risk limit determination requirements, in September 2017. See Regulatory Notice 17-28.

    • 19-04 FINRA's 529 Plan Share Class Initiative Encourages Firms to Self-Report Potential Violations

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      529 Plans

      Regulatory Notice
      Notice Type

      Guidance
      Suggested Routing

      Compliance
      Legal
      Registered Representatives
      Senior Management
      Key Topics

      529 Plans
      Share Classes
      Suitability
      Supervision
      Referenced Rules & Notices

      MSRB Rule G-19
      MSRB Rule G-27

      Summary

      Over the past several years, FINRA has found that some firms have failed to reasonably supervise brokers' recommendations of multi-share class products.1 FINRA has raised concerns specifically regarding firms' supervision of share-class recommendations to customers of 529 savings plans ("529 plans").2

      FINRA is launching a 529 Plan Share Class Initiative to promote firms' compliance with the rules governing 529 plan recommendations, to promptly remedy potential supervisory and suitability violations related to recommendations that customers of 529 plans buy share classes that are inconsistent with the accounts' investment objectives, and to return money to harmed investors as quickly and efficiently as possible. As described in this Notice, to encourage voluntary reporting under this initiative, FINRA's Department of Enforcement (Enforcement) will recommend that FINRA accept favorable settlement terms for firms that self-report these potential violations and provide FINRA with a detailed remediation plan.3

      Questions concerning this Notice should be directed to:

      •    Christopher Kelly, Senior Vice President, Enforcement, at (732) 596-2082; or
      •    Christopher Burky, Senior Director, Enforcement, at (312) 899-4348.

      Background & Discussion

      529 plans are tax-advantaged municipal securities that are designed to encourage saving for the future educational expenses of a designated beneficiary. Because 529 plans are municipal securities, the sale of 529 plans are governed by the rules of the Municipal Securities Rulemaking Board (MSRB).4 MSRB Rule G-19 (Suitability of Recommendations and Transactions) requires, in part, that firms and brokers that sell municipal securities have a reasonable basis to believe that a recommended transaction is suitable in light of the customer's investment profile. MSRB Rule G-27 (Supervision) requires firms to establish and maintain a supervisory system that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable MSRB rules.5

      Shares of 529 plans are commonly sold in different classes with differing fee structures.6 Class A shares typically impose a front-end sales charge but charge lower annual fees compared to other classes.7 Class C shares typically impose no front-end sales charge but impose higher annual fees than Class A shares. These classes have a differing cost impact depending on the length of time the customer holds the securities. The MSRB has stated that information known about the designated beneficiary generally would be relevant in weighing the investment objectives of the customer, including information regarding the age of the beneficiary and the number of years until the funds will be needed to pay qualified education expenses of the beneficiary.8 Further, the MSRB has stated that information regarding the designated beneficiary should be treated as information relating to the customer's investment objective for purposes of Rule G-19. 9

      Similarly, in the mutual fund context, FINRA has repeatedly cautioned that firms must supervise recommendations to purchase higher-expense share classes, particularly when an investor is seeking a long-term investment.10 With regard to Class C share sales, for example, FINRA has cautioned that customers should be informed "of the potential long- term effect of the higher ongoing sales charges" associated with holding Class C shares, and that firms should "maintain written records of [such] discussions in their files."11

      Effective in January 2018, amendments to the Internal Revenue Code expanded the use of 529 plans for tuition for grades K-12, subject to certain limitations. While 529 plan distributions were tax-free when used to pay for qualified higher education expenses (i.e., expenses incurred at or around the time the beneficiary is college-aged, typically 18 years or older), now, in addition, up to $10,000 per year in 529 plan withdrawals would be tax-free if used for elementary or secondary educational expenses (e.g., expenses incurred when the beneficiary is as young as four or five years old). These additional considerations underscore the importance of recommending a share class that is tailored to the unique circumstances and needs of the customer, as well as the importance of supervising such recommendations.

      FINRA is concerned that because of the unique features of 529 plans, some member firms may not provide adequate supervision. For example, 529 plan transactional data, including account asset levels, may not be available in the systems that firms use to monitor other types of transactions. This initiative is intended to encourage firms to assess their supervisory systems and procedures governing 529 plan share-class recommendations, to identify and remediate any defects, and to compensate any investors harmed by supervisory failures.

      The 529 Plan Share Class Initiative

      Who should consider self-reporting?

      Firms are encouraged to review their supervisory systems and procedures governing 529 plan share-class recommendations and self-report to FINRA areas where their supervision may not have been reasonable.12 Potential areas of concern include the failure to:

      •   provide training regarding the costs and benefits of different 529 plan share classes;
      •   understand and assess the different costs of share classes for individual transactions;
      •   receive or review data reflecting 529 plan share classes sold; and
      •   review share-class information, including potential breakpoint discounts or sales charge waivers, when reviewing the suitability of 529 plan recommendations.

      Firms that identify and self-report issues with 529 plan share-class supervision should also assess and self-report the potential impact of such supervisory failures. Firms may choose to assess the potential impact by conducting a customer-specific analysis, reviewing each customer's investment objectives and investment horizon, and assessing whether the firm recommended a suitable share class for that customer given his or her facts and circumstances. Alternatively, firms may choose to assess the potential impact of supervisory failures using a statistical approach to identify categories of 529 plan customers invested in share classes that are not economically advantageous if held for the accounts' expected investment horizon. For example, in many plans that offer both A and C share classes, the aggregate costs of a C share tend to exceed the aggregate costs of an A share after approximately six to seven years. Therefore, when assets are expected to be invested for more than six to seven years (for example, in a 529 plan purchased for the future college expenses of a beneficiary younger than 12), an A share might be the more cost-effective choice. Thus, firms could consider identifying 529 plan customers who invested in Class C shares for the future college expenses of beneficiaries younger than 12.13 FINRA will work with firms that prefer to develop different statistical models as a more effective way to assess potential impact.

      When and what firms should self-report?14

      To be eligible for the 529 Plan Share Class Initiative, firms must self-report by providing written notification to FINRA Enforcement by 12:00 a.m. E.T. on April 1, 2019. Notification can be made by email to 529Initiative@finra.org or by mail to 529 Plan Initiative, FINRA, Department of Enforcement, Brookfield Place, 200 Liberty Street, New York, New York 10281. A firm that has timely self-reported must, by May 3, 2019,15 confirm its eligibility for the 529 Plan Share Class Initiative by submitting all of the following information for the period of January 2013 through June 2018 (the "disclosure period").

      i. A list of the 529 plans sold by the firm, including the 529 plan name and the dates the firm offered each 529 plan.
      ii. The total aggregate principal amount invested in each 529 plan sold by the firm during the disclosure period.
      iii. A description of the firm's supervisory systems and procedures relating to 529 plan sales during the disclosure period.
      iv. A description of the changes to the firm's supervisory systems and procedures that the firm has implemented or will implement in order to strengthen compliance with its supervisory obligations. To the extent the firm identifies changes that have not yet been implemented, the firm should identify the individual supervisor at the firm who is responsible for the implementation.
      v. The firm's assessment of potential impact on customers of supervision weaknesses, including a description of the firm's methodology for assessing impact on customers and a description of the firm's proposal to make restitution payments to harmed customers.
      vi. Any other information the firm believes would assist Enforcement in understanding the firm's assessment of an account's expected investment horizon, the suitability of the firm's recommendations, or the reasonableness of the firm's supervisory system regarding share class recommendations.

      Standardized Settlement Terms

      To the extent that a firm meets the requirements of the 529 Plan Share Class Initiative, and Enforcement decides to recommend a formal enforcement action based on the facts disclosed by the firm through the 529 Initiative and any other relevant information, Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on affected customers16 and a censure, but no fine.17 Recommended settlements also will include either an acknowledgement that the firm has voluntarily taken corrective actions or undertakings to do so. Enforcement anticipates that settlements entered into pursuant to this 529 Initiative will include charges under MSRB Rule G-27 (Supervision). Settlements under this rule would not result in a firm's "statutory disqualification" as that term is defined in Section 3(a)(39) of the Securities Exchange Act of 1934.

      No Assurances for Firms That Do Not Self-Report

      In 2019, FINRA's Member Supervision and Enforcement departments will continue to examine and investigate firms' supervision of share-class recommendations to customers of 529 plans. If a firm does not self-report under the 529 Initiative but FINRA later identifies supervisory failures by that firm, any resulting disciplinary action likely will result in the recommendation of sanctions beyond those described under the initiative.18

      No Assurances Offered With Respect to Individual Liability

      The 529 Plan Share Class Initiative covers only member firms. Enforcement provides no assurance that individuals associated with these firms will be offered similar terms if they sold 529 plans to customers in violation of MSRB rules, or violated any securities laws. Enforcement may recommend enforcement action against such individuals and may seek sanctions beyond those resulting from the initiative. Assessing whether to recommend enforcement action against an individual necessarily involves a case-by-case assessment of specific facts and circumstances.


      1 See 2017 Report on FINRA Examination Findings [http://www.finra.org/industry/2017-report-exam-findings], at 7 (Dec. 2017).

      2 FINRA's 2016 Regulatory and Examination Priorities Letter [http://www.finra.org/industry/2016-regulatory-and-examination-priorities-letter], at 7 (Jan. 2016). A 529 plan is structured as a trust. The trust is divided into investment options and those investment options then may invest in mutual funds. A customer purchases units in the trust. Most 529 plans offer different "unit" class pricing options similar to the share class pricing offered by open-end mutual funds. For purposes of this initiative, the terms "unit class" and "share class" are used interchangeably.

      3 FINRA settlements must be accepted by Enforcement prior to submission to the Office of Disciplinary Affairs (ODA) or the National Adjudicatory Council (NAC) Review Subcommittee. The NAC, or ODA on behalf of the NAC, must then approve the Letter of Acceptance Waiver and Consent (AWC) before it becomes final.

      4 FINRA is responsible for examining FINRA members that are municipal securities dealers or municipal advisors and for enforcing MSRB rules.

      5 In addition, MSRB Rule G-17 (Conduct of Municipal Securities and Municipal Advisory Activities) requires that firms and their associated persons deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice. See Interpretation on Customer Obligations Related to Marketing of 529 College Savings Plans (Aug. 7, 2006) ("[D]ealers must ensure that they do not engage in transactions primarily designed to increase commission revenues in a manner that is unfair to customers under Rule G-17.").

      6 Direct-sold 529 plans, versus broker-sold 529 plans, may have different share-class fee structures.

      7 Breakpoint discounts typically cause the front-end sales charge to decrease as the amount invested increases.

      8 See Interpretation on Customer Obligations Related to Marketing of 529 College Savings Plans (Aug. 7, 2006).

      9 Id.

      10 See Notices to Members 94-16 (March 1994) and 95-80 (Sept. 1995).

      11 NASD Regulatory & Compliance Alert (Summer 2000), at 15.

      12 Firms that already have been contacted by Enforcement as of the date of this announcement regarding potential violations related to 529 plan share class sales are not required to self-report under the initiative. Firms that are subject to pending examinations by FINRA are eligible to self- report under the initiative.

      13 Importantly, a recommendation that a customer purchase 529 plan Class C shares for an account with a beneficiary age 12 or younger is not per se unsuitable. There may be circumstances in which the recommendation of higher-expense Class C shares is suitable in light of the customer's facts and circumstances.

      14 Self-reporting under the initiative does not replace firms' obligations to determine whether to self- report under FINRA Rule 4530. However, a firm's reporting obligation under Rule 4530 is triggered only if the firm concludes that it violated any securities-, insurance-, commodities-, financial- or investment-related laws, rules, regulations or standards of conduct of any domestic or foreign regulatory body or self-regulatory organization. Further, for purposes of FINRA Rule 4530(b), only those violations that meet the reporting threshold under FINRA Rule 4530.01 are required to be reported. With respect to violations by a firm, FINRA Rule 4530.01 requires the firm to report only conduct that has widespread or potential widespread impact to the firm, its customers or the markets, or conduct that arises from a material failure of the firm's systems, policies or practices involving numerous customers, multiple errors or significant dollar amounts. If the firm concludes (or reasonably should have concluded) that such a violation has occurred, it is obligated to report pursuant to FINRA Rule 4530(b). However, under the 529 Plan Share Class Initiative, FINRA is asking member firms to self-report any areas of concern regarding the reasonableness of their supervisory policies and procedures.

      15 Enforcement may grant an extension of time to submit the required information. To obtain an extension, member firms must email requests to 529Initiative@finra.org at least two days before the deadline.

      16 Enforcement will confer with the firm on an acceptable methodology for calculating restitution. The relevant time periods under any settlement, including the period for calculating any restitution, may differ from the disclosure period.

      17 Alternatively, Enforcement may, based on the particular facts and circumstances presented, determine that formal action is not appropriate and instead resolve the matter informally or with no further action. FINRA also will consider whether widespread violations are best addressed through the issuance of additional regulatory guidance.

      18 Assessing whether to recommend enforcement action necessarily involves a case-by-case assessment of specific facts and circumstances.

    • 19-03 FINRA Reminds ATS Subscribers and ATSs of the April 13, 2019, Effective Date for Disaggregated Transaction Reporting

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      TRACE Reporting of U.S. Treasury Securities

      Regulatory Notice
      Notice Type

      Guidance
      Suggested Routing

      Compliance
      Fixed Income
      Legal
      Trading
      Key Topics

      TRACE-Eligible Securities
      Trade Reporting
      00U.S. Treasury Securities
      Referenced Rules

      FINRA Rule 6730

      Summary

      FINRA is reminding firms that, after April 12, 2019, member subscribers on an alternative trading system (ATS) and ATSs will be required to report to TRACE each transaction in U.S. Treasury securities executed in trading sessions on an ATS on a disaggregated basis.

      Questions regarding this Notice should be directed to:

      •  Joseph Schwetz, Senior Director, Market Regulation (MR), at (240) 386-6170 or by email at joseph.schwetz@finra.org;
      •  Russell Kemp, Associate Director, MR, at (240) 386-5081 or by email at russell.kemp@finra.org; or
      •  for legal and interpretive questions, Racquel Russell, Associate General Counsel, Office of General Counsel, at (202) 728-8363 or by email at racquel.russell@finra.org.

      Background and Discussion

      On July 10, 2017, members began reporting transactions in U.S. Treasury securities to TRACE.1 In advance of the July 10 implementation date, members expressed concerns regarding their ability to accurately report transactions in U.S. Treasury securities that were executed on an ATS in discrete trading sessions (sometimes referred to as "work-up sessions"). These concerns arose because trades executed in trading sessions may involve more than one market participant (on one or both sides of the market), and the ATS usually confirms resulting executions through an aggregated trade message sent by the ATS to its subscribers (e.g., a single message aggregating all orders executed for each subscriber in a security during the session). The ATS and member subscribers use these aggregated trade messages for TRACE trade reporting purposes.2 Because Rule 6730 requires members to report separately each individual trade that occurs in a trading session, members expressed a need for additional time to complete the systems changes necessary to disaggregate trade reporting by the July 10, 2017, effective date for reporting transactions in U.S. Treasury securities to TRACE.

      To assist members in their compliance efforts, on June 23, 2017, FINRA filed a proposal to, on a temporary basis, adopt Supplementary Material .06 to Rule 6730 (Temporary Exception for Aggregate Transaction Reporting of U.S. Treasury Securities Executed in ATS Trading Sessions) to permit members to report trades that occurred in U.S. Treasury securities executed within discrete ATS trading sessions on an aggregate, rather than individual, basis.3 The relief granted afforded members flexibility concerning the number of transactions reported and the price reported, as well as the time of execution reported to TRACE.4

      The relief provided by Rule 6730.06 originally was scheduled to expire on July 10, 2018. However, members requested additional time to complete necessary systems changes and testing to comply with Rule 6730. Therefore, on April 16, 2018, FINRA provided a onetime, nine-month extension to permit aggregated trade reporting to continue through April 12, 2019, while member ATSs performed the development work necessary to report individual execution information, including the development of an additional data feed to deliver execution-level information to subscribers and vendors.5 FINRA also understood that member subscribers required additional time to update their systems to consume the new execution information to be provided by the ATSs and to systematically incorporate this information in their TRACE reporting to FINRA. In the filing, FINRA stated that it expects that necessary testing of the new functionality will commence well in advance of the extended date of April 12, 2019, but at a minimum, no later than January 12, 2019.

      In its 2017 filing, FINRA also provided an example of how trade reporting for transactions executed in a work-up session will need to change for both subscribers and ATSs after the end of the exception.6 For ease of reference, the example is provided as Attachment A to this Notice and FINRA encourages firms to review the example as they update their systems.

      FINRA is reminding members — both ATS subscribers and ATSs — of these deadlines. After April 12, 2019, member ATSs and member ATS subscribers will be required to comply with Rule 6730 by separately reporting each individual trade that occurs during a trading session, as well as the actual time and price at which each individual trade is executed.


      1 See Securities Exchange Act Release No. 79116 (October 18, 2016), 81 FR 73167 (October 24, 2016) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of File No. SR-FINRA-2016-027). See also Regulatory Notice 16-39 (October 2016).

      2 For additional information on the types of trading sessions that may occur on ATSs and on the operation of the exception in varying trade reporting scenarios, see Securities Exchange Act Release No. 81018 (June 26, 2017), 82 FR 29956 (June 30, 2017) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2017-023).

      3 Id.

      4 Specifically, the exception provided that ATSs and member subscribers are permitted to report transactions in U.S. Treasury securities executed within discrete trading sessions by submitting a transaction report reflecting the aggregate amount of a U.S. Treasury security purchased (sold) to another party during a single trading session at the average price of such transactions, with the time of execution communicated by the ATS, irrespective of the number of trades in the trading session. Id.

      5 See Securities Exchange Act Release No. 83098 (April 24, 2018), 83 FR 18866 (April 30, 2018) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Temporary Exception That Permits Aggregate Reporting for Certain ATS Transactions in U.S. Treasury Securities).

      6 See supra note 2.


      Attachment A

      Example of required trade reporting by ATSs and subscribers of transactions executed in a work-up session after April 12, 2019

      Assume that the following events occur in an ATS trading session:

      Trade No.
      Time
      Subscriber
      Buy/Sell
      Amount (in millions)
      11:34:02.000 Subscriber A Sell $25
      1 11:34:03.155 Subscriber B Buy $10
      2 11:34:03.483 Subscriber C Buy $15
      11:34:04.003 Subscriber D Sell $10
      3 11:34:05.002 Subscriber E Buy $5
      4 11:34:05.877 Subscriber B Buy $5
      11:34:07.877
      Trading Session Closes

      At the end of the trading session, the ATS provides each subscriber with an aggregate trade message indicating the subscriber's aggregate activity during the trading session (including, for example, an aggregate size and average price). The trade messages contain a single time of execution (e.g., the time the trading session closed), rather than the actual time at which each respective trade was executed during the trading session. The temporary exception permits the subscriber and ATS to use the aggregate size and average price information contained in the trade message for purposes of TRACE reporting. The temporary exception also permits all parties to use the time of execution contained in the ATS's trade message, rather than the actual time the parties executed the individual transactions.

      After April 12, 2019, members must comply with existing TRACE reporting requirements in Rule 6730 and must submit trade reports for the following transactions executed in a trading session, including the actual price and time of execution for each trade:

      Trade No.
      TRACE Reports
      Quantity (in millions)
      Time of Execution
      1 Subscriber A sell to ATS
      ATS buy from Subscriber A
      ATS sell to Subscriber B
      Subscriber B buy from ATS
      $10
      $10
      $10
      $10
      11:34:03.155
      11:34:03.155
      11:34:03.155
      11:34:03.155
      2 Subscriber A sell to ATS
      ATS buy from Subscriber A
      ATS sell to Subscriber C
      Subscriber C buy from ATS
      $15
      $15
      $15
      $15
      11:34:03.483
      11:34:03.483
      11:34:03.483
      11:34:03.483
      3 Subscriber D sell to ATS
      ATS buy from Subscriber D
      ATS sell to Subscriber E
      Subscriber E buy from ATS
      $5
      $5
      $5
      $5
      11:34:05.002
      11:34:05.002
      11:34:05.002
      11:34:05.002
      4 Subscriber D sell to ATS
      ATS buy from Subscriber D
      ATS sell to Subscriber B
      Subscriber B buy from ATS
      $5
      $5
      $5
      $5
      11:34:05.877
      11:34:05.877
      11:34:05.877
      11:34:05.877

    • 19-02 FINRA Updates Supplemental Statement of Income; Implementation Date: The updated SSOI applies beginning with all SSOI filings that report on the period January 1 through March 31, 2019, and are due by April 26, 2019.

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      Supplemental FOCUS Information

      Regulatory Notice
      Notice Type

      Guidance
      Referenced Rules & Notices

      FINRA Rule 4524
      Regulatory Notice 12-11
      Regulatory Notice 18-38
      Suggested Routing

      Compliance
      Finance
      Legal
      Operations
      Regulatory Reporting
      Senior Management
      Key Topics

      FOCUS Reporting
      Supplemental Statement of Income

      Summary

      FINRA is updating the Supplemental Statement of Income (SSOI) to conform with amendments adopted by the SEC1 that simplify and update certain of the FOCUS reporting requirements for broker-dealers.2 Pursuant to Rule 4524, the SSOI must be filed by all FINRA members as a supplement to the FOCUS Report3 within 20 business days after the end of each calendar quarter.4 FINRA is making available the updated SSOI instructions and form, as well as a resource that illustrates the SSOI form updates.

      The updated SSOI applies beginning with all SSOI filings that report on the period January 1 through March 31, 2019, and are due by April 26, 2019.

      Questions concerning this Notice should be directed to:

      •   Yui Chan, Senior Director, Risk Oversight and Operational Regulation (ROOR), at (646) 315-8426 or Yui.Chan@finra.org;
      •   Ann Duguid, Senior Director, ROOR, at (646) 315-7260 or Ann.Duguid@finra.org; or
      •   Anthony Vinci, Director, ROOR, at (646) 315-8335 or Anthony.Vinci@finra.org.

      Background & Discussion

      On August 17, 2018, the SEC adopted amendments that simplify and update, among other rules and forms, certain of the FOCUS reporting requirements for brokers and dealers and make changes to the annual audit requirements.5 As previously announced in Regulatory Notice 18-38, FINRA has updated the eFOCUS forms to reflect the SEC's FOCUS Report amendments. Further, to assist members in their financial reporting obligations, FINRA is updating the SSOI instructions and form to conform with the SEC's amendments:

      The following resource illustrates the SSOI form updates:

      The updated eFOCUS forms are available on Firm Gateway. The updated SSOI form will be available on Firm Gateway beginning February 8, 2019. Requests for technical assistance with the eFOCUS and SSOI forms may be directed to the FINRA Gateway Call Center at (800) 321-6273.

      As noted above, the updated SSOI applies beginning with all SSOI filings that report on the period January 1 through March 31, 2019, and are due by April 26, 2019.


      1 See Exchange Act Release No. 83875 (August 17, 2018), 83 FR 50148 (October 4, 2018) (Final Rule: Disclosure Update and Simplification) (the SEC's Adopting Release). FINRA issued Regulatory Notice 18-38 to announce updates to the FINRA eFOCUS System designed to correspond with the new FOCUS requirements and to inform members of the effective date of the new requirements pursuant to specified relief granted by the staff of the SEC Division of Trading and Markets. See also letter from Michael A. Macchiaroli, Associate Director, Division of Trading and Markets, SEC, to Ann Duguid, Senior Director, FINRA, dated October 29, 2018.

      2 See Exchange Act Release No. 84855 (December 19, 2018), 83 FR 66828 (December 27, 2018) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Make Technical Revisions and One Minor Correction to the Supplemental Statement of Income Required to be Filed Pursuant to FINRA Rule 4524 (Supplemental FOCUS Information); File No. SR-FINRA-2018-041).

      3 Members must submit their FOCUS Reports and SSOIs electronically through the eFOCUS System via the FINRA Firm Gateway.

      4 FINRA Rule 4524 (Supplemental FOCUS Information) requires each member, as FINRA shall designate, to file such additional financial or operational schedules or reports as FINRA may deem necessary or appropriate for the protection of investors or in the public interest as a supplement to filing FOCUS reports. FINRA implemented the SSOI pursuant to Rule 4524 in 2012. See Regulatory Notice 12-11 (Supplemental FOCUS Information) (February 2012) (announcing the SEC's approval of Rule 4524 and the SSOI).

      5 See note 1. See also, for example, the SEC's Adopting Release at 83 FR 50179, 50182 and 50183.

    • 19-01 Final Statements for Broker-Dealers, Investment Adviser Firms, Agents and Investment Adviser Representatives, and Branches; Payment Deadline: January 21, 2019

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      BD and IA Renewals for 2019

      Regulatory Notice
      Notice Type

      Renewals


      Suggested Routing

      Compliance
      Legal
      Operations
      Registration
      Senior Management
      Key Topics

      IARD™
      Registration
      Renewals
      Web CRD®

      Summary

      FINRA is issuing this Notice to help firms review, reconcile and respond to their Final Statements in E-Bill as well as view the reports that are currently available in Web CRD/IARD for the annual registration renewal process. The payment deadline is January 21, 2019.

      Please direct questions concerning this Notice to the FINRA Call Center at (301) 869-6699.

      Background & Discussion

      Final Statements

      On January 2, 2019, Final Statements became available for viewing and printing in E-Bill. These statements reflect the final status of broker-dealer, registered representative, investment adviser firm, investment adviser representative, and branch registrations and/or notice filings as of December 31, 2018. Any adjustments in fees owed because of registration terminations, approvals, IA firm registrations, reporting status or notice filings subsequent to the Preliminary Statement are included in this final reconciled statement. Renewal reports are available in Web CRD/IARD for request, print and/or download.

      If the amount assessed on the Final Statement is greater than the amount assessed on the Preliminary Statement, the additional renewal fees are due by January 21, 2019. If the amount assessed on the Final Statement is less than the amount assessed on the Preliminary Statement, FINRA has issued a credit to the firm's Flex-Funding Account.

      The Final Statements include the following fees (if applicable):

      •   Web CRD/IARD system processing fees;
      •   FINRA branch office and branch processing fees;
      •   participating Self-Regulatory Organization (SRO) maintenance fees, if applicable;
      •   state broker-dealer firm, branch and agent (AG) renewal fees, if applicable;
      •   state investment adviser firm, branch and investment adviser representative (RA) renewal fees, if applicable; and
      •   FINRA annual statutory disqualification fees for registered individuals.

      Renewal Payment

      Web CRD/IARD issues a refund if a firm owes less for registrations at year-end than what was reflected on the Preliminary Statement. FINRA transferred overpayments to firms' Flex-Funding Accounts on January 2, 2019. Firms that have a credit balance in their FlexFunding Accounts may submit a refund request [http://www.finra.org/industry/e-bill-user-guide#Refunds] through E-Bill or leave the funds in their account to pay for other future fees.

      If the Final Statement reflects an amount due, FINRA must receive payment no later than January 21, 2019. Firms may pay electronically through E-Bill, send a wire transfer or mail a check; however, FINRA highly recommends that firms remit funds via E-Bill. Firms are encouraged to check their Renewal Statements to confirm FINRA has received payment and that the firm's Renewal Statement balance is paid in full.

      Electronic Payment via E-Bill

      Firms may submit electronic payments to fund their Renewal Accounts through E-Bill [http://www.finra.org/industry/finra-e-bill]. FINRA does not charge for using E-Bill; however, firms should verify if their banks charge additional fees. Firms must enroll to use E-Bill.

      Please Note: Firm users with the proper entitlement may transfer funds from their Flex-Funding Account to their Renewal Account or transfer funds between affiliated firms at any time by using E-Bill. For further details, please refer to the E-Bill User Guide [http://www.finra.org/industry/e-bill-user-guide].

      ACH/Wire Transfer and Check Payments

      Wire transfer and check payments are deposited into a firm's Flex-Funding Account. Beginning January 21, 2019, if sufficient funds are available, FINRA will systematically transfer funds from Flex-Funding Accounts to Renewal Accounts. A systematic transfer will only occur if the entire outstanding renewal amount is available in the firm's FlexFunding Account. Firms that intend to transfer funds to their Renewal Accounts using E-Bill should do so before January 21.

      ACH/Wire Transfer

      To initiate a wire or ACH transfer, instruct your firm's bank to contact Bank of America and provide your bank with the following information:

      Wire ABA Number: 026009593

      ACH ABA Number: 054001204

      Beneficiary: FINRA

      FINRA Account: 226005684771

      Reference Number: Firm CRD number

      Inform your bank to credit funds to the FINRA bank account and to only use your firm's CRD number as a reference. Record the confirmation number of the wire transfer provided by your bank.

      If you send your wire transfer by 2 p.m., ET, your firm may confirm receipt the next business day by reviewing your Flex-Funding Account online or calling the FINRA Gateway Call Center at (301) 869-6699. Wire payments received after 2 p.m., ET, should be available in two business days. Please note that while wire transfers are received by FINRA on the same day they are initiated, ACH bank transfers typically take several days longer to be received by FINRA.

      Checks

      Checks should be made payable to FINRA and your firm's CRD number should be written on the check memo line. Processing of check payments may take up to two business days. Please account for mail delivery and payment processing time when sending payment. Write the address on an envelope exactly as noted in this Notice:

      U.S. Mail Overnight or Express Delivery
      FINRA
      P.O. Box 418911
      Boston, MA 02241-8911

      Note: This box will not accept courier or
      overnight deliveries.
      Bank of America Lockbox Services
      FINRA 418911
      MA5-527-02-07
      2 Morrissey Blvd.
      Dorchester, MA 02125

      Provide the following phone number, if
      required: (800) 376-2703

      Renewal Reports

      Renewal reports include all individual registrations renewed for 2019; however, they do not include registrations that were "pending approval" or "deficient" at year-end. Firms should examine their reports carefully to ensure that all registration approvals are correct. FINRA also suggests that firms include these reports in firms' permanent records.

      •   Firm Renewal Report — lists individuals included in the Renewal Program and includes billing codes (if the firm provided them). See the new Firm Renewal Report Guide [http://www.finra.org/industry/firm-renewal-report-guide] for more information.
      •   Branches Renewal Report — lists each branch registered with FINRA and/or with any other regulator that renews branches through Web CRD/IARD and for which the firm is being assessed a fee.
      •   Approved AG Reg Without FINRA Approval Report — contains all individuals who are not registered with FINRA, but are registered with one or more jurisdictions. Firms should request this report as soon as possible to determine if they need to request any FINRA registrations or terminate jurisdiction registrations.

      Discrepancies

      If your firm believes there are discrepancies on your Final Statement, report them in writing directly to FINRA by January 21, 2019. Along with your letter describing the discrepancy, please include a copy of your Final Statement and any supporting documentation to:

      FINRA
      Registration & Disclosure — Regulatory Services & Operations
      9509 Key West Avenue
      Rockville, MD 20850

      If you have questions regarding renewal discrepancies, please call FINRA at (240) 386-4182.