[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Notices]
[Pages 12311-12316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06180]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85413; File No. SR-FINRA-2019-006]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Capital Acquisition Broker (``CAB'') 
Rules Governing Qualification, Registration and Continuing Education of 
Associated Persons of CABs

March 26, 2019.
    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 March 12, 2019, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the Capital Acquisition Broker 
(``CAB'') Rules governing qualification, registration and continuing 
education of associated persons of CABs (CAB Rules 119-125) to reflect 
new consolidated FINRA qualification and registration rules and changes 
to its continuing education requirements which took effect on October 
1, 2018 (collectively, the ``Consolidated Rules''). Specifically, the 
proposed rule change would amend CAB Rules 119 (Foreign Members and 
Associates), 121 (Registration Requirements), 123 (Categories of 
Registration), 124 (Persons Exempt from Registration) and 125 
(Continuing Education Requirements) to cross-reference the new FINRA 
rules governing these areas, and would delete CAB Rule 122 
(Qualification Examinations) since this area is covered by other 
Consolidated Rules.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
A. Background
FINRA Capital Acquisition Broker Rules
    On August 18, 2016, the SEC approved \4\ a separate set of FINRA 
rules for firms that meet the definition of a ``capital acquisition 
broker'' and that elect to be governed under this rule set. CABs are 
member firms that engage in a limited range of activities, essentially 
advising companies and private equity funds on capital raising and 
corporate restructuring, and acting as placement agents for sales of 
unregistered securities to institutional investors under limited 
conditions. Member firms that elect to be governed under the CAB rule 
set are not permitted, among other things, to carry or maintain 
customer accounts, handle customers' funds or securities, accept 
customers' trading orders, or engage in proprietary trading or market-
making.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 78617 (August 18, 
2016), 81 FR 57948 (August 24, 2016) (Order Approving File No. SR-
FINRA-2015-054).
---------------------------------------------------------------------------

    The CAB Rules became effective on April 14, 2017.\5\ In order to 
provide new CAB applicants with lead time to apply for FINRA membership 
and obtain the necessary qualifications and registrations, CAB Rules 
101-125 became effective on January 3, 2017.\6\
---------------------------------------------------------------------------

    \5\ See Regulatory Notice 16-37 (October 2016).
    \6\ On September 29, 2017 the SEC approved CAB Rule 203 
(Engaging in Distribution and Solicitation Activities with 
Government Entities) and CAB Rule 458 (Books and Records 
Requirements for Government Distribution and Solicitation 
Activities), which applied established ``pay-to-play'' and related 
recordkeeping rules to the activities of CABs. See Securities 
Exchange Act Release No. 81781 (September 29, 2017), 82 FR 46559 
(October 5, 2017) (Order Approving File No. SR-FINRA-2017-027). CAB 
Rules 203 and 458 became effective on December 6, 2017. On September 
20, 2018 FINRA filed for immediate effectiveness changes to CAB Rule 
331 (Anti-Money Laundering Compliance Program) to reflect the 
Financial Crimes Enforcement Network's adoption of a final rule on 
Customer Due Diligence Requirements for Financial Institutions. See 
Securities Exchange Act Release No. 84363 (October 4, 2018), 83 FR 
51532 (October 11, 2018) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2018-035).
---------------------------------------------------------------------------

FINRA Qualification, Registration and Continuing Education Rules
    In July 2017 the SEC approved a proposed rule change to: (1) Adopt 
consolidated FINRA registration rules; (2) restructure the 
representative-level qualification examinations by creating an 
examination called the Securities Industry Essentials (SIE) to test 
knowledge regarding fundamental securities-related topics and 
transforming the representative-level examinations into specialized 
knowledge examinations; and (3) amend the Continuing Education (CE) 
requirements.\7\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007) (``Consolidated Rule Filing'').
---------------------------------------------------------------------------

    The proposed rule change consolidated the NASD and Incorporated 
NYSE registration rules as FINRA Rules, which streamlined and brought 
consistency and uniformity to FINRA's qualification and registration 
requirements. The Consolidated Rules, among other things, allow a 
member to permissively register, or maintain the registration(s) as a 
representative or principal of, any associated person of the firm, 
establish a waiver program for individuals working for a financial 
services industry affiliate of a member, and require firms to designate 
a Principal Financial Officer and a Principal Operations Officer. The 
rule change also establishes new registration categories. These new 
requirements are discussed in more detail below.
    In conjunction with these changes, FINRA also restructured the 
representative-level qualification examination program into a more 
efficient format whereby all representative-level applicants take the 
SIE examination, and a tailored, specialized knowledge examination (a 
revised representative-level qualification examination) for their 
particular registered role. Individuals who are not associated persons 
of firms,

[[Page 12312]]

such as members of the general public, are also eligible to take the 
SIE examination. The restructured program, among other things, 
eliminated duplicative testing of fundamental securities knowledge on 
representative-level examinations and eliminated several 
representative-level registration categories that had become outdated 
or had limited utility. In addition, FINRA made corresponding and 
clarifying changes to the CE requirements.
    In October 2017 FINRA published Regulatory Notice 17-30, which 
announced SEC approval of the consolidated FINRA registration rules, 
restructured representative-level qualification examinations, and 
changes to the continuing education requirements.\8\
---------------------------------------------------------------------------

    \8\ See Regulatory Notice 17-30 (October 2017).
---------------------------------------------------------------------------

B. CAB Qualification, Registration and Continuing Education Rules
    CAB Rules 119(b) and 121-125 govern the qualification, registration 
and continuing education of associated persons of CABs. Each of these 
rule provisions subjects CABs to a corresponding NASD or FINRA rule 
governing that area. For example, CABs are subject to NASD IM-1000-2 
with respect to their associated persons who are serving in the United 
States Armed Forces. Similarly, CABs are subject to NASD Rules 1021 and 
1031 with respect to the registration requirements for CABs' principals 
and representatives. Additionally, associated persons of CABs are 
subject to the continuing education requirements of FINRA Rule 1250.
    The purpose of these rules is to ensure that associated persons of 
CABs are subject to the same rules governing qualification, 
registration and continuing education as associated persons of member 
firms that have not elected CAB status. Thus, CAB principals and 
representatives must pass the same qualification examinations and are 
subject to the same registration requirements as principals and 
representatives that engage in the same activities through a non-CAB 
firm.
    Maintaining consistent qualification, registration and continuing 
education requirements for associated persons of both CAB and non-CAB 
firms is also important since some non-CAB firms elect CAB status after 
the date their associated persons' registrations becomes effective. 
Additionally, it is possible that associated persons of non-CAB firms 
may leave their firms and become associated with CABs, and that 
associated persons of CABs also may leave their firms and become 
associated with non-CAB firms. Thus FINRA believes, as a matter of 
investor protection and regulatory consistency, that its rules should 
impose substantially similar qualification, registration and continuing 
education requirements on associated persons of both CABs and non-CAB 
member firms.
    The current CAB qualification, registration and continuing 
education rules now cross-reference FINRA and NASD Rules that either 
have been eliminated, or have been moved and renumbered. Thus, to 
further the goals of maintaining regulatory consistency, as well as 
having rules that function as intended, FINRA must update its CAB 
qualification, registration and continuing education rules to correctly 
cite the appropriate Consolidated Rules.
C. Updating of Cross-References to FINRA Rules
    In order to maintain consistent qualification, registration and 
continuing education rules for both CAB and non-CAB firms, FINRA is 
proposing to update the cross-references to FINRA Rules in CAB Rules 
119-125. This section also discusses particular aspects of the 
Consolidated Rules that may impact CABs and their associated persons.
CAB Rule 119
    Currently CAB Rule 119 (Foreign Members and Associates) subjects 
CABs to NASD Rule 1090 (Foreign Members) and NASD Rule 1100 (Foreign 
Associates). The Consolidated Rule Filing deleted NASD Rule 1100 and 
eliminated the Foreign Associate registration category as of October 1, 
2018. Accordingly, FINRA is proposing to amend CAB 119 to delete the 
provisions subjecting CABs to NASD Rule 1100.\9\
---------------------------------------------------------------------------

    \9\ Because the Consolidated Rule Filing did not delete NASD 
Rule 1090 (Foreign Members), CAB Rule 119 will continue to subject 
CABs to that rule. However, the title of CAB Rule 119 will be 
shortened to ``Foreign Members.''
---------------------------------------------------------------------------

CAB Rule 121
    CAB Rule 121 (Registration Requirements) subjects CABs to NASD IM-
1000-2 (Status of Persons Serving in the Armed Forces of the United 
States), NASD IM-1000-3 (Failure to Register Personnel), NASD Rule 1021 
(Registration Requirements--Principals), and NASD Rule 1031 
(Registration Requirements--Representatives). The Consolidated Rule 
Filing deleted each of these NASD rules as of October 1, 2018. 
Accordingly, FINRA proposes to amend CAB Rule 121 by eliminating the 
references to NASD IMs 1000-2 and 1000-3 and NASD Rules 1021 and 1031, 
and providing that all CABs are subject to FINRA Rule 1210 
(Registration Requirements).
    As of October 1, 2018 FINRA Rule 1210.10 governs the status of 
persons serving in the U.S. Armed Forces. Rule 1210.10 is substantially 
similar to NASD IM-1000-2, except that it requires a member to notify 
FINRA promptly of such a person's return to employment with the member.
    FINRA did not adopt a new FINRA Rule to replace NASD IM-1000-3, 
which provided that the failure of any member to register an employee, 
who should be so registered, as a Registered Representative may be 
deemed to be conduct inconsistent with just and equitable principles of 
trade. FINRA noted that NASD IM-1000-3 was superfluous, since the 
failure to register a representative was in fact a violation of other 
FINRA Rules.\10\ Accordingly, FINRA likewise does not propose to adopt 
a new CAB Rule to replace NASD IM-1000-3.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 80371 (April 4, 
2017), 82 FR 17336, 17337 (April 10, 2017) (Notice of Filing of File 
No. SR-FINRA-2017-007).
---------------------------------------------------------------------------

    FINRA Rule 1210 (Registration Requirements) consolidated and 
streamlined NASD Rules 1021(a) and 1031(a) with regard to the 
registration requirements for principals and representatives, subject 
to a number of changes.
    FINRA Rule 1210 provides that each person engaged in the investment 
banking or securities business must register with FINRA as a 
representative or principal in each category of registration 
appropriate to his or her functions and responsibilities as specified 
in FINRA Rule 1220 (Registration Categories), unless exempt from 
registration pursuant to FINRA Rule 1230 (Associated Persons Exempt 
from Registration). Rule 1230 also provides that such a person is not 
qualified to function in any registered capacity other than that for 
which the person is registered. This latter provision consolidated 
similar provisions in the registration categories under the NASD 
rules.\11\
---------------------------------------------------------------------------

    \11\ See NASD Rules 1022(a)(6), (b)(3), (c)(4), (d)(2), (e)(3) 
and (f)(4), and NASD Rules 1032 (b)(2), (c)(2), (d)(3), (e)(2), 
(f)(3), (g)(2), (h)(3) and (i)(4).
---------------------------------------------------------------------------

    FINRA Rule 1210 also includes multiple Supplementary Materials that 
address many of the topics previously addressed in NASD qualification 
and registration rules, subject to changes intended to modernize and 
streamline these rules. These topics include:

[[Page 12313]]

     Minimum Number of Registered Persons; \12\
---------------------------------------------------------------------------

    \12\ See FINRA Rule 1210.01.
---------------------------------------------------------------------------

     Permissive Registrations; \13\
---------------------------------------------------------------------------

    \13\ See FINRA Rule 1210.02.
---------------------------------------------------------------------------

     Qualification Examinations and Waivers of Examinations; 
\14\
---------------------------------------------------------------------------

    \14\ See FINRA Rule 1210.03.
---------------------------------------------------------------------------

     Requirements for Registered Persons Functioning as 
Principals for a Limited Period; \15\
---------------------------------------------------------------------------

    \15\ See FINRA Rule 1210.04.
---------------------------------------------------------------------------

     Rules of Conduct for Taking Examinations and 
Confidentiality of Examinations; \16\
---------------------------------------------------------------------------

    \16\ See FINRA Rule 1210.05.
---------------------------------------------------------------------------

     Waiting Periods for Retaking a Failed Examination; \17\
---------------------------------------------------------------------------

    \17\ See FINRA Rule 1210.06.
---------------------------------------------------------------------------

     Satisfaction of the Regulatory Element of Continuing 
Education; \18\
---------------------------------------------------------------------------

    \18\ See FINRA Rule 1210.07.
---------------------------------------------------------------------------

     Lapse of Registration and Expiration of the Securities 
Industry Essentials Qualification Examination; \19\
---------------------------------------------------------------------------

    \19\ See FINRA Rule 1210.08.
---------------------------------------------------------------------------

     Waiver of Examinations for Individuals Working for a 
Financial Services Industry Affiliate of a Member; \20\
---------------------------------------------------------------------------

    \20\ See FINRA Rule 1210.09.
---------------------------------------------------------------------------

     Status of Persons Serving in the Armed Forces of the 
United States; \21\ and
---------------------------------------------------------------------------

    \21\ See FINRA Rule 1210.10.
---------------------------------------------------------------------------

     Impermissible Registrations.\22\
---------------------------------------------------------------------------

    \22\ See FINRA Rule 1210.11.
---------------------------------------------------------------------------

    A more detailed discussion of these provisions can be found in 
Regulatory Notice 17-30 (October 2017).\23\
---------------------------------------------------------------------------

    \23\ See also Securities Exchange Act Release No. 80371 (April 
4, 2017), 82 FR 17336 (April 10, 2017) (Notice of Filing of File No. 
SR-FINRA-2017-007), and Securities Exchange Act Release No. 81098 
(July 7, 2017), 82 FR 32419 (July 13, 2017) (Order Approving File 
No. SR-FINRA-2017-007).
---------------------------------------------------------------------------

CAB Rules 122 and 123
    CAB Rule 122 (Qualification Examinations) currently subjects CABs 
to NASD Rule 1070 (Qualification Examinations and Waiver of 
Requirements) and NASD Rule 1080 (Confidentiality of Examinations). CAB 
Rule 123 (Categories of Registration) subjects CABs to NASD Rule 1022 
(Categories of Principal Registration), NASD Rule 1032 (Categories of 
Representative Registration), and paragraph (b)(6) (Operations 
Professional) of FINRA Rule 1230 (Registration Categories). The 
Consolidated Rule Filing deleted NASD Rules 1022 and 1032 and paragraph 
(b)(6) of FINRA Rule 1230 as of October 1, 2018.
    As of October 1, 2018 FINRA Rule 1220 (Registration Categories) 
largely governs the substance of these rules, subject to a number of 
changes. Accordingly, FINRA proposes to eliminate the references to 
these NASD Rules and FINRA Rule 1230(b)(6) in CAB Rules 122 and 123, 
and to combine current CAB Rules 122 and 123 into a single CAB Rule 122 
(Registration Categories), which will provide that all CABs are subject 
to FINRA Rule 1220.
    FINRA Rule 1220 integrates the various registration categories 
under the NASD rules into a single rule, subject to a number of 
changes. Rule 1220 sets forth the definitions of ``principal'' and 
``representative,'' as well as the qualification and registration 
requirements for principals and representatives. The rule also 
addresses:
     Foreign Registrations; \24\
---------------------------------------------------------------------------

    \24\ See FINRA Rule 1220.01.
---------------------------------------------------------------------------

     Additional Qualification Requirements for Persons Engaged 
in Securities Futures Activities; \25\
---------------------------------------------------------------------------

    \25\ See FINRA Rule 1220.02.
---------------------------------------------------------------------------

     Members with One Registered Options Principal; \26\
---------------------------------------------------------------------------

    \26\ See FINRA Rule 1220.03.
---------------------------------------------------------------------------

     Scope of General Securities Sales Supervisor Registration 
Category; \27\
---------------------------------------------------------------------------

    \27\ See FINRA Rule 1220.04.
---------------------------------------------------------------------------

     Scope of Operations Professional Requirement; \28\ and
---------------------------------------------------------------------------

    \28\ See Supplementary Material 1220.05.
---------------------------------------------------------------------------

     Eliminated Registration Categories.\29\

    \29\ See Supplementary Material 1220.06.
---------------------------------------------------------------------------

A more detailed discussion of these provisions can be found in 
Regulatory Notice 17-30.\30\
---------------------------------------------------------------------------

    \30\ See also Securities Exchange Act Releases No. 80371 and 
81098, supra note 23.
---------------------------------------------------------------------------

    FINRA Rule 1220 includes grandfathering provisions that provide 
that, subject to the lapse of registration provisions in FINRA Rule 
1210.08, individuals who are registered with FINRA in specified 
registration categories on October 1, 2018 and individuals who had been 
registered in such categories in the past two years prior to October 1, 
2018 are qualified to register in the corresponding registration 
categories without having to take any additional examinations.\31\ 
These registration categories include many categories that associated 
persons of CABs may hold as of October 1, 2018 such as General 
Securities Principal (Series 24), General Securities Representative 
(Series 7), Operations Professional (Series 99), Investment Banking 
Representative (Series 79), Direct Participations Programs 
Representative (Series 22), and Private Securities Offerings 
Representative (Series 82).
---------------------------------------------------------------------------

    \31\ See FINRA Rules 1220 (a)(2), (a)(3), (a)(5), (a)(6), 
(a)(8), (a)(9), (a)(13), (b)(2), (b)(3), (b)(4), (b)(5), (b)(6), 
(b)(7), (b)(8), and (b)(9).
---------------------------------------------------------------------------

    FINRA Rule 1220 eliminated a number of registration categories, 
including the Corporate Securities Representative category (Series 62), 
which some CAB associated persons may possess. However, under FINRA 
Rule 1220.06, any person registered in one of these eliminated 
categories on October 1, 2018 and any person who was registered with 
FINRA in such categories within two years prior to October 1, 2018 is 
eligible to maintain such registrations with FINRA. If such a person 
subsequently terminates his or her registration with FINRA and the 
registration remains terminated for two or more years, he or she will 
not be eligible to re-register in such categories.
Principal Financial Officer and Principal Operations Officer Categories
    Among other changes, as of October 1, 2018 all firms are required 
to designate: (1) A Principal Financial Officer (``PFO'') with primary 
responsibility for financial filings and the related books and records; 
and (2) a Principal Operations Officer (``POO'') with primary 
responsibility for the day-to-day operations of the business.\32\ This 
requirement, among other things, replaced the requirement that FINRA 
members designate a Chief Financial Officer. The requirement to 
designate such individuals applies to all firms. Firms, such as CABs, 
that neither self-clear nor provide clearing services may designate the 
same person as the PFO, POO, FinOp or Introducing FinOp.
---------------------------------------------------------------------------

    \32\ See FINRA Rule 1220(a)(4)(B).
---------------------------------------------------------------------------

New Registration Categories
    FINRA Rule 1220 establishes three new principal registration 
categories: Compliance Officer, Investment Banking Principal and 
Private Securities Offering Principal. Of particular importance to CABs 
are the latter two principal registration categories, since they apply 
in part to the permissible activities of CABs.
Compliance Officer Requirement
    Beginning on October 1, 2018 and subject to an exception discussed 
below, each person designated as a Chief Compliance Officer (``CCO'') 
on Schedule A of Form BD is required to register with FINRA as a 
Compliance Officer. Individuals can qualify as Compliance Officers in 
several ways. An individual who is designated as CCO on Schedule A of 
Form BD of a member and who was registered with FINRA as an General 
Securities Representative (Series 7) and a General Securities Principal 
(Series 24) prior to October 1, 2018 and who continued to maintain

[[Page 12314]]

the CCO designation and Series 7 and Series 24 registrations on October 
1, 2018 was automatically granted a Compliance Officer registration on 
October 1, 2018.
    Further, other individuals who were registered with FINRA as a 
General Securities Representative and a General Securities Principal 
prior to October 1, 2018 and who continued to maintain those 
registrations on October 1, 2018 are qualified to register as 
Compliance Officers without having to take any additional examinations. 
Similarly, an individual who was registered as a Compliance Official 
(Series 14) in the CRD system prior to October 1, 2018 and who 
continued to maintain that registration on or after October 1, 2018 is 
qualified to register as a Compliance Officer without having to take 
any additional examinations.
    In addition, individuals whose registrations as a General 
Securities Representative and a General Securities Principal were 
terminated between October 1, 2016 and September 30, 2018 are qualified 
to register as Compliance Officers without having to take any 
additional examinations, provided they register as Compliance Officers 
within two years from the date of terminating those registrations. An 
individual designated as a CCO on Schedule A of Form BD of a member 
that is engaged in limited investment banking or securities business 
may be registered in a principal category under FINRA Rule 1220 that 
corresponds to the limited scope of the member's business, rather than 
registering as a Compliance Officer. All other individuals registering 
as Compliance Officers on or after October 1, 2018 are required to: (1) 
Satisfy the General Securities Representative prerequisite 
registration, including passing the SIE, and passing the General 
Securities Principal qualification examination; or (2) pass the 
Compliance Official qualification examination.
Investment Banking Principal
    Effective October 1, 2018 principals responsible for supervising 
specified investment banking activities are required to register as 
Investment Banking Principals.\33\ These activities include:
---------------------------------------------------------------------------

    \33\ See FINRA Rule 1220(a)(5).
---------------------------------------------------------------------------

    (i) Advising on or facilitating debt or equity securities offerings 
through a private placement or a public offering, including but not 
limited to origination, underwriting, marketing, structuring, 
syndication, and pricing of such securities and managing the allocation 
and stabilization activities of such offerings; or
    (ii) advising on or facilitating mergers and acquisitions, tender 
offers, financial restructurings, asset sales, divestitures or other 
corporate reorganizations or business combination transactions, 
including but not limited to rendering a fairness, solvency or similar 
opinion.\34\
---------------------------------------------------------------------------

    \34\ See FINRA Rule 1220(b)(5)(A).
---------------------------------------------------------------------------

    Because CABs may engage in many of these activities (subject to the 
conditions described in CAB Rule 016(c)), if approved, CAB Rule 122 
will require CABs that engage in these activities to have an Investment 
Banking Principal. Individuals who were registered with FINRA as an 
Investment Banking Representative (Series 79) and a General Securities 
Principal (Series 24) prior to October 1, 2018 and who continued to 
maintain those registrations on October 1, 2018 were automatically 
granted an Investment Banking Principal registration on October 1, 
2018.
    Further, an individual whose registrations as an Investment Banking 
Representative and a General Securities Principal were terminated 
between October 1, 2016 and September 30, 2018 is qualified to register 
as an Investment Banking Principal without having to take any 
additional examinations, provided he or she registers as an Investment 
Banking Principal within two years from the date of terminating those 
registrations. All other individuals registering as Investment Banking 
Principals on or after October 1, 2018 are required to satisfy the 
Investment Banking Representative prerequisite registration, including 
passing the SIE, and passing the General Securities Principal 
qualification examination.
Private Securities Offering Principal
    Also effective October 1, 2018 principals solely responsible for 
supervising specified activities related to private securities 
offerings may register as Private Securities Offerings Principals, 
instead of registering as a General Securities Principal.\35\ These 
activities are limited to effecting sales as part of a primary offering 
of securities not involving a public offering, pursuant to Sections 
3(b), (4)(2) or 4(6) of the Securities Act of 1933 and the Securities 
Act rules and regulations, provided that such person shall not effect 
sales of municipal or government securities, or equity interests in or 
the debt of direct participation programs.\36\
---------------------------------------------------------------------------

    \35\ See FINRA Rule 1220(a)(13) (Private Securities Offerings 
Principal).
    \36\ See FINRA Rule 1220(b)(9)(A).
---------------------------------------------------------------------------

    Individuals can qualify for registration as a Private Securities 
Offerings Principal in several ways. An individual who was registered 
as a Private Securities Offerings Representative (Series 82) and a 
General Securities Principal prior to October 1, 2018 and who continued 
to maintain those registrations on October 1, 2018 was automatically 
granted a Private Securities Offerings Principal registration on 
October 1, 2018.
    Further, an individual whose registrations as a Private Securities 
Offerings Representative and a General Securities Principal were 
terminated between October 1, 2016 and September 30, 2018 is qualified 
to register as a Private Securities Offerings Principal without having 
to take any additional examinations, provided he or she registers as a 
Private Securities Offerings Principal within two years from the date 
of terminating those registrations. All other individuals registering 
as Private Securities Offerings Principals on or after October 1, 2018 
are required to satisfy the Private Securities Offerings Representative 
prerequisite registration, including passing the SIE, and passing the 
General Securities Principal qualification examination.
    Because CABs may engage in these activities (subject to the 
conditions described in CAB Rule 016(c)), if approved, CAB Rule 122 may 
require CABs that engage in these activities to have a Private 
Securities Offerings Principal as described above.
CAB Rule 124
    CAB Rule 124 provides that all CABs are subject to NASD Rule 1060 
(Persons Exempt from Registration). As of October 1, 2018 the 
Consolidated Rule Filing deleted NASD Rule 1060, and adopted in its 
place FINRA Rule 1230 (Associated Persons Exempt from Registration). 
New FINRA Rule 1230 modified the provisions of NASD 1060 in certain 
respects. For example, NASD Rule 1060(a) exempted from registration 
those associated persons who are not actively engaged in the investment 
banking and securities business, and persons whose activities are 
related solely and exclusively to a member's need for corporate 
officers or for capital participation. FINRA believes that the 
determination of whether an associated person is required to register 
must be based on an analysis of the person's activities and functions 
in the context of the various registration categories. The exemptions 
for persons who are not ``actively engaged'' in the securities business 
or whose functions are related solely to the need for corporate 
officers, are not consistent with this analytical framework. Therefore, 
FINRA has deleted these exemptions.

[[Page 12315]]

    Accordingly, FINRA proposes to eliminate the reference to NASD Rule 
1060 and to provide that all CABs are subject to FINRA Rule 1230. In 
addition, because FINRA proposes to combine current CAB Rules 122 and 
123 as new CAB Rule 122, and because the rule subjects CABs to FINRA 
Rule 1230, FINRA proposes to renumber CAB Rule 124 as CAB Rule 123. 
FINRA also proposes to name CAB Rule 123 ``Associated Persons Exempt 
from Registration.''
CAB Rule 125
    CAB Rule 125 provides that all CABs are subject to FINRA Rule 1250 
(Continuing Education Requirements). The Consolidated Rule Filing made 
amendments to FINRA Rule 1250 and renumbered the revised rule as FINRA 
Rule 1240. Accordingly, FINRA proposes to amend CAB Rule 125 to provide 
that all CABs are subject to FINRA Rule 1240. Because the rule subjects 
CABs to FINRA Rule 1240, FINRA proposes to renumber CAB Rule 125 as CAB 
Rule 124.
D. Rulemaking Process
    FINRA undertook an extensive and comprehensive rulemaking process 
in eliminating the NASD Rules governing qualification and registration 
requirements and adopting new revised FINRA Rules governing these 
areas. As part of the process of developing the Consolidated Rules, 
FINRA published Regulatory Notice 09-70 (December 2009), seeking 
comment on a set of proposed consolidated registration rules. 
Commenters on this Notice were concerned with the complexity and 
operational and cost burden of the proposal, and FINRA staff engaged in 
discussions with SEC staff regarding the impact of the proposal.
    As a result, FINRA substantially revised the proposal as published 
in Regulatory Notice 09-70. In addition, in May 2015 FINRA published 
Regulatory Notice 15-20, seeking comment on a proposal to restructure 
the representative-level qualification examinations. FINRA filed a 
revised version of the proposal (SR-FINRA-2017-007) with the SEC in 
March 2017 which included the restructuring proposal. The SEC published 
the revised proposal for comment in April 2017 \37\ and received 18 
comment letters in response to the proposal. FINRA revised the proposal 
further in response to these comment letters, and the SEC approved the 
proposal in July 2017.\38\ Further, the Consolidated Rules apply to 
associated persons of all FINRA members and ensure that such 
individuals attain and maintain specified levels of competence and 
knowledge pertinent to their function. FINRA did not exclude any 
specific category of FINRA members, such as CABs, from the proposal.
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release No. 80371, supra note 
10.
    \38\ See Securities Exchange Act Release No. 81098, supra note 
7.
---------------------------------------------------------------------------

    Accordingly, FINRA believes that all members, including CABs, have 
had opportunities to comment on the Consolidated Rules. Additionally, 
as discussed above, FINRA believes that associated persons of CABs 
should be subject to the same qualification and registration 
requirements as associated persons of non-CAB members.
    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 filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\39\ 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, and section 15A(g)(3) of the Act,\40\ which authorizes 
FINRA to prescribe standards of training, experience and competence for 
persons associated with FINRA members.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78o-3(b)(6).
    \40\ 15 U.S.C. 78o-3(g)(3).
---------------------------------------------------------------------------

    As discussed above, the Consolidated Rule Filing either deleted, or 
revised and renumbered, the former FINRA qualification, registration, 
and continuing education rules. Thus, the current CAB qualification, 
registration and continuing education rules largely cross-reference 
former FINRA rules that no longer exist. In order to implement the 
current CAB rules' purpose, the references to former FINRA rules 
suggest that they are intended to now refer to the relevant 
Consolidated Rules, since any other interpretation would defeat the 
rules' purposes. FINRA believes that the proposal will confirm that the 
qualification, registration and continuing education rules that apply 
to CABs are the same as the rules that apply to firms that have not 
elected CAB status.

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. The proposed rule change will 
align the qualification, registration and continuing education rules 
that apply to CABs with the rules that apply industry-wide and to firms 
that have not elected CAB status. FINRA notes that CABs have unique 
features that could render certain provisions of the new registration 
rules more relevant to them than other provisions.\41\ For example, the 
Investment Banking Principal and Private Securities Offering Principal 
registration categories are relevant to the activities of CABs, and, as 
a result, economic impacts associated with these registration 
categories would be directly applicable to CABs.
---------------------------------------------------------------------------

    \41\ FINRA examined the registration history of individuals 
associated with both CABs and non-CAB firms during the period 
January-November 2018. Based on this analysis, FINRA determined that 
there were 839 registration series held by persons associated with 
CAB firms, versus 1,000,220 registration series held by persons 
associated with non-CAB firms. Thus, the number of series held by 
persons associated with CAB firms reflects less than 0.1% of those 
held by persons associated with non-CAB firms. However, compared to 
the non-CAB associated persons' registration series, there was an 
over representation of Series 79 registrations (10 times more for 
the CAB population), and an under representation of Series 6 
registrations (20 times less) held by CABs' associated persons. 
Moreover, CABs' associated persons, held no Series 11, 17, 37, 38, 
42, 57, and 72 registrations.
---------------------------------------------------------------------------

    When conducting the Economic Impact Assessment (EIA) for the 
Consolidated Rules,\42\ FINRA evaluated and discussed the economic 
impact to all firms, including CABs. Thus, FINRA believes that 
interested parties can look to the EIA as presented in the Consolidated 
Rule Filing as representing fairly the economic impact that CABs would 
experience under the proposed rule. While CABs have unique features and 
are subject to a separate rule set, CABs have been and will continue to 
be subject to registration, qualification and continuing education 
requirements that mirror those that apply to members that have not 
elected CAB status.
---------------------------------------------------------------------------

    \42\ See Securities Exchange Act Release No. 81098, supra note 
7. Although the Consolidated Rule Filing did not specifically 
reference CABs in its Economic Impact Assessment, the data used in 
the analysis encompassed both CABs and non-CAB firms.

---------------------------------------------------------------------------

[[Page 12316]]

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 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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \43\ and Rule 19b-
4(f)(6) thereunder.\44\
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78s(b)(3)(A).
    \44\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \9\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\10\ 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 proposal may 
become operative upon filing. FINRA states that such waiver will help 
align the qualification, registration, and continuing education rules 
that apply to CABs, with the rules that apply industry-wide, and to 
firms that have not elected CAB status. Additionally, by cross 
referencing rules that are currently in effect, rather than rules that 
have been eliminated, moved, or renumbered, FINRA states the proposed 
rule change will further the goal of maintaining regulatory consistency 
and having rules that function as intended. Because the proposed rule 
change corrects cross-references that became inaccurate, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest and, therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\45\
---------------------------------------------------------------------------

    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \45\ 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).
---------------------------------------------------------------------------

    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-2019-006 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-2019-006. 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 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 a.m. and 3 
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. 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-2019-006 and should be submitted on or before April 22, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06180 Filed 3-29-19; 8:45 am]
BILLING CODE 8011-01-P


