[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40819-40821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17631]



[[Page 40819]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83825; File No. SR-FINRA-2018-028]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Security Futures Risk Disclosure 
Statement

August 10, 2018.
    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 August 9, 2018, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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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 Section 6.1 (Protections for Securities 
Accounts) of the 2002 security futures risk disclosure statement 
(``2002 Statement'' or ``Statement'') \4\ to reflect that the 
Securities Investor Protection Corporation's (``SIPC'') cash limit 
protection for customers is $250,000, and make one technical change. 
The proposed rule change is related to File No. SR-FINRA-2018-024, 
which sets forth additional updates to the 2002 Statement.
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    \4\ See Securities Exchange Act Release No. 46862 (November 20, 
2002), 67 FR 70993 (November 27, 2002) (Order Approving File No. SR-
NASD-2002-129). See also Securities Exchange Act Release No. 46613 
(October 7, 2002), 67 FR 64176 (October 17, 2002) (Notice of Filing 
and Effectiveness of File No. SR-NFA-2002-05).
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    The proposed updated Statement is attached as Exhibit 3a. The 
proposed supplement pertaining to changes to the specified paragraph 
under Section 6.1, the proposed technical change to Section 5.2, as 
well as changes to the paragraphs specified in File No. SR-FINRA-2018-
024, is attached as Exhibit 3b.\5\
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    \5\ The Commission notes that these exhibits are attached as 
exhibits to the filing.
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    The text of the proposed rule change is available on FINRA's 
website 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On June 7, 2018, FINRA filed with the SEC File No. SR-FINRA-2018-
024 to update the 2002 Statement to: (1) Incorporate prior supplements 
pertaining to Sections 5.2 (Settlement by Physical Delivery) and 8.1 
(Corporate Events); (2) make a technical change to Section 5.2 to 
reflect that the normal clearance and settlement cycle for securities 
transaction is now two business days; (3) amend Section 6.1 
(Protections for Securities Accounts) to reflect the current address 
for SIPC; and (4) make other non-substantive and technical changes.\6\ 
In addition to that recent set of updates to the 2002 Statement, FINRA 
is proposing to amend Section 6.1 to reflect the correct amount of SIPC 
coverage. The third paragraph under Section 6.1 currently reads:
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    \6\ See Securities Exchange Act Release No. 83407 (June 11, 
2018), 83 FR 28045 (June 15, 2018) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2018-024).

    SIPC coverage is limited to $500,000 per customer, including up 
to $100,000 for cash. For example, if a customer has 1,000 shares of 
XYZ stock valued at $200,000 and $10,000 cash in the account, both 
the security and the cash balance would be protected. However, if 
the customer has shares of stock valued at $500,000 and $100,000 in 
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cash, only a total of $500,000 of those assets will be protected.

    The Dodd-Frank Wall Street Reform and Consumer Protection Act \7\ 
amended the Securities Investor Protection Act of 1970 (``SIPA'') to 
raise the ``standard maximum cash advance amount'' available to satisfy 
customer cash claims in a SIPA liquidation proceeding from $100,000 to 
$250,000 per customer.\8\ To reflect the current limit of protection 
for cash claims under SIPA, FINRA is proposing to amend the third 
paragraph of Section 6.1 to read:
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    \7\ Public Law 111-203, 124 Stat. 1376 (2010).
    \8\ 15 U.S.C. 78fff-3. Effective January 1, 2017, and for the 
five years immediately thereafter, the Board of Directors of SIPC 
has determined that the maximum amount of the advance to satisfy a 
claim for cash will remain at the current level of $250,000 per 
customer. See Securities Exchange Commission, Release No. SIPA-174 
(February 22, 2016), 81 FR 9561 (February 25, 2016).

    SIPC coverage is limited to $500,000 per customer, including up 
to $250,000 for cash. For example, if a customer has 1,000 shares of 
XYZ stock valued at $200,000 and $10,000 cash in the account, both 
the security and the cash balance would be protected. However, if 
the customer has shares of stock valued at $500,000 and $250,000 in 
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cash, only a total of $500,000 of those assets will be protected.

    In addition, FINRA is proposing to incorporate one technical change 
into the proposed updated Statement.\9\
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    \9\ Specifically, the proposed rule change would remove the 
quotes around the acronym that defines the National Securities 
Clearing Corporation in Section 5.2.
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    Currently, the 2002 Statement, to which 2010 and 2014 supplements 
are appended, is posted on FINRA's website \10\ and the 2010 and 2014 
supplements are also posted on the website \11\ as separate documents 
to facilitate a member's compliance with Rule 2370(b)(11)(A).\12\ FINRA 
intends to replace the 2002 Statement currently posted on FINRA's 
website with an updated Statement that incorporates into the main body 
of the document the cumulative changes made to date, as well as the 
proposed amendment to the third paragraph of Section 6.1 and the one 
technical change described herein.\13\
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    \10\ See Security Futures Risk Disclosure Statement brochure, 
http://www.finra.org/sites/default/files/Security_Futures_Risk_Disclosure_Statement.pdf, posted in its 
current design in 2016.
    \11\ See FINRA's Security Futures Topic Page, http://www.finra.org/industry/security-futures (last visited August 9, 
2018).
    \12\ See Information Notice, September 7, 2010 (August 2010 
Supplement to the Security Futures Risk Disclosure Statement); see 
also Regulatory Notice 14-24 (May 2014) (stating, a member may 
separately distribute new supplements to a customer that enters into 
a securities futures transaction and that a member is not required 
to redistribute the entire Statement or the earlier supplement).
    \13\ The Statement, in its original language approved by the SEC 
in 2002, would remain accessible on FINRA's website for those 
members whose customers may still refer to the original version of 
the Statement. The Statement, however, would bear a notation that an 
updated version of the Statement, which incorporates the paragraphs 
specified in the proposed integrated supplement, is available.

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[[Page 40820]]

    FINRA is also in the process of creating a single, integrated 
supplement that aggregates the changes from File No. SR-FINRA-2018-024 
and the updates described in this proposed rule change (``2018 
supplement''). The 2018 supplement would appear on FINRA's website as a 
separate document to continue to afford members with the flexibility to 
comply with the requirements of Rule 2370(b)(11)(A) by separately 
distributing the new supplement to customers who have already received 
the 2002 Statement.\14\
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    \14\ The 2010 and 2014 supplements would remain accessible on 
FINRA's website with a notation that these paragraphs, as updated, 
appear in the 2018 supplement.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so that FINRA can implement the proposed rule 
change on September 5, 2018.\15\
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    \15\ FINRA intends to announce the September 5, 2018 
implementation date in an upcoming Regulatory Notice that will also 
establish September 5, 2018 as the implementation date for other 
changes to the Statement. See Securities Exchange Act Release No. 
83407 (June 11, 2018), 83 FR 28045 (June 15, 2018) (Notice of Filing 
and Immediate Effectiveness of File No. SR-FINRA-2018-024).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\16\ 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 updating the Statement to 
incorporate all supplements into the main body will help to accurately 
inform customers of the characteristics and risks of security futures. 
The proposed updated Statement would also reflect that SIPC's current 
cash limit protection for customers is $250,000, increased from 
$100,000 in 2010.
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    \16\ 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. While FINRA recognizes that 
there may be a burden associated with the distribution of the proposed 
updated Statement or 2018 supplement, FINRA believes that any such 
burden would be outweighed by the benefit to customers of accurately 
disclosing the characteristics and risks of security futures. FINRA 
also believes that any burden will be minimal because firms currently 
have an existing obligation to deliver each new (i.e., updated) 
Statement or supplement to customers, and may electronically transmit 
documents that they are required to furnish to customers under FINRA 
rules, including the proposed updated Statement or 2018 supplement, 
provided firms adhere to the standards contained in the Commission's 
May 1996 and October 1995 releases on electronic delivery,\17\ and as 
discussed in Notice to Members 98-3.\18\ Firms also may transmit the 
proposed updated Statement or 2018 supplement to customers through the 
use of a hyperlink, provided that customers have consented to 
electronic delivery.\19\
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    \17\ See Securities Act Release No. 7288 (May 9, 1996), 61 FR 
24644 (May 15, 1996) and Securities Act Release No. 7233 (October 6, 
1995), 60 FR 53458 (October 13, 1995). See also Securities Act 
Release No. 7856 (April 28, 2000), 65 FR 25843 (May 4, 2000) 
(affirming that the framework for electronic delivery established in 
the 1995 and 1996 releases continues to work well in today's 
technological environment).
    \18\ See Notice to Members 98-3 (January 1998).
    \19\ See Information Notice, September 7, 2010 (August 2010 
Supplement to the Security Futures Risk Disclosure Statement).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires FINRA to give the Commission written notice of FINRA's 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. FINRA 
has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposed 
changes can be implemented on September 5, 2018. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because it will allow 
the implementation date of the proposed changes to coincide with the 
implementation date of other changes that will be made to the 
Statement. Accordingly, the Commission hereby waives the 30-day 
operative delay requirement and designates the proposed rule change as 
operative upon filing.\24\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 [email protected]. Please include 
File Number SR-FINRA-2018-028 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2018-028. 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

[[Page 40821]]

only one method. The Commission will post all comments on the 
Commission's internet website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2018-028, and should be submitted 
on or before September 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17631 Filed 8-15-18; 8:45 am]
BILLING CODE 8011-01-P


