
[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69728-69730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27756]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70876; File No. SR-FINRA-2013-048]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 8312 (FINRA BrokerCheck Disclosure) To Expand the Categories 
of Civil Judicial Disclosures Permanently Included in BrokerCheck

November 14, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 1, 2013, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 8312 (FINRA BrokerCheck 
Disclosure) to permanently make publicly available in BrokerCheck 
information about former associated persons of a member firm who have 
been the subject of an investment-related civil action brought by a 
state or foreign financial regulatory authority that has been dismissed 
pursuant to a settlement agreement.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA established BrokerCheck in 1988 (then known as the Public 
Disclosure Program) to provide the public with information on the 
professional background, business practices, and conduct of FINRA 
member firms and their associated persons. The information that FINRA 
releases to the public through BrokerCheck is derived from the Central 
Registration Depository (``CRD[supreg]''), the securities industry 
online registration and licensing database. FINRA member firms, their 
associated persons and regulators report information to the CRD system 
via the uniform registration forms. By making most of this information 
publicly available, BrokerCheck, among other things, helps investors 
make informed choices about the individuals and firms with which they 
conduct business.
    In January 2011, Commission staff released its Study and 
Recommendations on Improved Investor Access to Registration Information 
About Investment Advisers and Broker-Dealers (``Study''),\3\ in 
furtherance of Section 919B of the Dodd-Frank Act.\4\ The Study 
contains four recommendations for improving investor access to 
registration information through BrokerCheck and the Commission's 
Investment Adviser Public Disclosure (``IAPD'') database. In May 2012, 
FINRA implemented the Study's three ``near-term'' recommendations.\5\ 
FINRA is currently working on the Study's ``intermediate-term'' 
recommendation, which involves analyzing the feasibility and 
advisability of expanding the information available through 
BrokerCheck, as well as the method and format that BrokerCheck 
information is displayed.
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    \3\ The Study is available online at http://www.sec.gov/news/studies/2011/919bstudy.pdf.
    \4\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \5\ These recommendations are to unify search returns for 
BrokerCheck and IAPD, add the ability to search BrokerCheck by ZIP 
code, and increase the educational content on BrokerCheck.
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    In light of the Study's ``intermediate-term'' recommendation and 
FINRA's belief that regular evaluation of its BrokerCheck program is an 
important part of its statutory obligation to make information 
available to the public,\6\

[[Page 69729]]

FINRA has initiated a thorough review of BrokerCheck. As part of this 
review, FINRA issued Regulatory Notice 12-10 requesting comment on ways 
to facilitate and increase investor use of BrokerCheck information. In 
addition, FINRA engaged a market research consultant that conducted 
focus groups and surveyed investors throughout the country to obtain 
their opinions on the BrokerCheck program. Based on the evaluation that 
it has conducted to this point, FINRA is proposing to amend FINRA Rule 
8312 to permanently make available in BrokerCheck information about 
former associated persons of a member firm who have been the subject of 
an investment-related civil action brought by a state or foreign 
financial regulatory authority that has been dismissed pursuant to a 
settlement agreement.\7\
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    \6\ See Section 15A(i) of the Act. 15 U.S.C. 78o-3(i). Since 
establishing BrokerCheck, FINRA has regularly assessed the scope and 
utility of the information it provides to the public and, as a 
result, has made numerous changes to improve the program.
    \7\ FINRA continues to consider other comments regarding changes 
to BrokerCheck that were submitted in response to Regulatory Notice 
12-10.
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    Pursuant to Rule 8312(b)(1), FINRA releases to the public through 
BrokerCheck information on current or former members, current 
associated persons, and persons who were associated with a member 
within the preceding 10 years. Under current Rule 8312(c)(1), FINRA 
makes publicly available in BrokerCheck on a permanent basis 
information about former associated persons of a member who have not 
been associated with a member within the preceding ten years, and (A) 
were ever the subject of a final regulatory action, or (B) were 
registered on or after August 16, 1999 and were (i) convicted of or 
pled guilty or nolo contendere to a crime; (ii) the subject of a civil 
injunction in connection with investment-related activity or a civil 
court finding of involvement in a violation of any investment-related 
statute or regulation (``Civil Judicial Disclosures''); or (iii) named 
as a respondent or defendant in an investment-related arbitration or 
civil litigation which alleged that the person was involved in a sales 
practice violation and which resulted in an arbitration award or civil 
judgment against the person.
    The proposed rule change would amend Rule 8312(c)(1)(B)(ii) to 
expand the categories of Civil Judicial Disclosures that are 
permanently included in BrokerCheck. Specifically, the proposed rule 
change would permanently make publicly available in BrokerCheck 
information about former associated persons of a member who were 
registered on or after August 16, 1999 \8\ and who have been the 
subject of an investment-related civil action brought by a state or 
foreign financial regulatory authority that was dismissed pursuant to a 
settlement agreement, as reported to the CRD system via a uniform 
registration form.\9\ This information currently is available in 
BrokerCheck for ten years from the date an individual ceases 
association with a member. FINRA believes that these settled civil 
actions should be available permanently in BrokerCheck because they may 
involve significant events or considerable undertakings on the part of 
the subject individual. For example, one civil action involving 
excessive and undisclosed markups was settled for over $200,000. As 
such, the proposed change would provide the public with additional 
access to such relevant and important information about formerly 
registered persons who, although no longer in the securities industry 
in a registered capacity, may work in other investment-related 
industries or may seek to attain other positions of trust with 
potential investors and about whom investors may wish to learn relevant 
information.
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    \8\ The proposal will apply only to those individuals registered 
with FINRA on or after August 16, 1999. Filings for those 
individuals whose registrations terminated prior to August 16, 1999 
were not made electronically so BrokerCheck reports for such firms 
and individuals cannot be made in an automated fashion. Furthermore, 
data limitations apply to the information available for some of 
those individuals.
    \9\ This information is currently elicited by Question 14H(1)(c) 
on Form U4 (Uniform Application for Securities Industry Registration 
or Transfer).
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be no later than 180 days 
following publication of the Regulatory Notice announcing Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change to 
permanently make publicly available in BrokerCheck information about 
persons formerly associated with a member who have been the subject of 
an investment-related civil action brought by a state or foreign 
financial regulatory authority that was dismissed pursuant to a 
settlement agreement will enhance investor protection by expanding the 
time frame for disclosure of this important information to investors 
and other users of BrokerCheck. Such formerly registered persons, 
although no longer in the securities industry in a registered capacity, 
may work in other investment-related industries or may seek to attain 
other positions of trust with potential investors. FINRA believes that 
it is beneficial to investors to have access to this information on a 
permanent basis.
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    \10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    FINRA believes that making publicly available on a permanent basis 
in BrokerCheck information about former associated persons of a member 
firm who have been the subject of an investment-related civil action 
brought by a state or foreign financial regulatory authority that was 
dismissed pursuant to a settlement agreement will enhance investor 
protection. The proposed rule change would provide the public with 
additional access to such relevant and important information about 
formerly registered persons who, although no longer in the securities 
industry in a registered capacity, may work in other investment-related 
industries or may seek to attain other positions of trust with 
potential investors and about whom investors may wish to learn relevant 
information. FINRA does not anticipate that the proposed rule change 
will impose any burden or additional costs on member firms. In this 
regard, FINRA notes that the proposed rule change will not subject 
member firms or their associated persons to any new or additional 
uniform registration form reporting requirements. The Form U4 question 
that elicits information on the settled civil judicial actions at issue 
will remain the same; only the BrokerCheck disclosure period will 
change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment by FINRA in 
Regulatory Notice 12-10 (February 2012). A copy of the Regulatory 
Notice

[[Page 69730]]

is attached as Exhibit 2a.\11\ The comment period expired on April 27, 
2012. FINRA received 71 comment letters in response to the Regulatory 
Notice. A list of the comment letters received in response to the 
Regulatory Notice is attached as Exhibit 2b.\12\ Copies of the comment 
letters received in response to the Regulatory Notice are attached as 
Exhibit 2c.
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    \11\ The Commission notes that the Exhibits referenced herein 
are all attached to the filing itself and not to this notice.
    \12\ All references to the commenters under this Item are to the 
commenters as listed in Exhibit 2b.
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    Ten of the 71 comment letters received addressed the general 
expansion of the time frame for providing information through 
BrokerCheck.\13\ In general, these comment letters suggested that there 
should be no time limits on the inclusion of disclosure events in 
BrokerCheck (e.g., information about a bankruptcy is no longer 
disclosed through BrokerCheck after 10 years) \14\ and that all 
information about associated persons should be included in BrokerCheck 
on a permanent basis.\15\ FINRA is not prepared at this time to propose 
that all BrokerCheck information should be available on a permanent 
basis. FINRA is currently focused on expanding the categories of Civil 
Judicial Disclosures to be permanently included in BrokerCheck, 
specifically those investment-related civil actions brought by a state 
or foreign financial regulatory authority that were dismissed pursuant 
to a settlement agreement. FINRA believes that it is important to 
permanently include such settlements in BrokerCheck at this time, 
because they may involve significant events or considerable 
undertakings on the part of the subject individual. The permanent 
inclusion of such settlements in BrokerCheck will provide investors 
additional access to this important information. As previously 
mentioned, FINRA regularly assesses the BrokerCheck program and may 
consider the inclusion of additional information in BrokerCheck on a 
permanent basis at a later time.
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    \13\ Letter from Ryan K. Bakhtiari, Public Investors Arbitration 
Bar Association, to Marcia E. Asquith, Corporate Secretary, FINRA, 
dated March 29, 2012 (``PIABA''); letter from Jeffrey A. Feldman, to 
Marcia E. Asquith, Corporate Secretary, FINRA, dated April 1, 2012 
(``Feldman''); letter from Herb Pounds, to Marcia E. Asquith, 
Corporate Secretary, FINRA, dated April 2, 2012 (``Pounds''); letter 
from Terrence P. Cremins, Securities Arbitration Clinic of St. 
John's University School of Law, to Marcia E. Asquith, Corporate 
Secretary, FINRA, dated April 4, 2012 (``St. John's''); letter from 
Ross M. Langill, Regal Bay Investment Group LLC, to Marcia E. 
Asquith, Corporate Secretary, FINRA, dated April 5, 2012 (``Regal 
Bay''); letter from Philip M. Aidikoff, Aidikoff, Uhl & Bakhtiari, 
to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 20, 
2012 (``Aidikoff''); letter from Jonathan W. Evans, Jonathan W. 
Evans & Associates, to Marcia E. Asquith, Corporate Secretary, 
FINRA, dated April 25, 2012 (``Jonathan Evans''); letter from 
William A. Jacobson, Cornell University Law School, to Marcia E. 
Asquith, Corporate Secretary, FINRA, dated April 26, 2012 
(``Cornell''); letter from Jack E. Herstein, North American 
Securities Administrators Association, Inc., to Marcia E. Asquith, 
Corporate Secretary, FINRA, dated April 27, 2012 (``NASAA''); and 
letter from Robert C. Port, Esq., Cohen Goldstein Port & Gottlieb, 
LLP, to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 
12, 2012 (``Cohen'').
    \14\ See, e.g., NASAA.
    \15\ See, e.g., Cornell.
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    Four comment letters expressed the view that some types of customer 
complaints or ``technical compliance violations'' should be removed 
from BrokerCheck after a prescribed period of time.\16\ Although these 
comment letters addressed the time frame for disclosure of information 
through BrokerCheck, they are outside the scope of the current proposal 
because they do not pertain to the time frame for disclosure of the 
settled Civil Judicial Disclosures that are the subject of this filing.
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    \16\ Letter from Steve Klein, Farmers Financial Solutions, LLC, 
to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 3, 
2012 (``Farmers''); letter from Ira D. Hammerman, Securities 
Industry and Financial Markets Association, to Marcia E. Asquith, 
Corporate Secretary, FINRA, dated April 5, 2012 (``SIFMA''); letter 
from Howard Spindel, Integrated Management Solutions USA LLC, to 
Marcia E. Asquith, Corporate Secretary, FINRA, dated April 27, 2012 
(``IMS''); and letter from Cliff Kirsch, Sutherland Asbill & Brennan 
LLP, to Marcia E. Asquith, Corporate Secretary, FINRA, dated April 
27, 2012 (``Sutherland'').
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2013-048 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2013-048. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2013-048 and should be 
submitted on or before December 11, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27756 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P


