[Federal Register Volume 85, Number 122 (Wednesday, June 24, 2020)]
[Notices]
[Pages 37970-37974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13539]



[[Page 37970]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89091; File No. SR-FINRA-2020-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, to FINRA's Suitability, Non-Cash Compensation and 
Capital Acquisition Broker (CAB) Rules in Response to Regulation Best 
Interest

June 18, 2020.

I. Introduction

    On March 12, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend FINRA Rules 2111 
(Suitability), 2310 (Direct Participation Programs), 2320 (Variable 
Contracts of an Insurance Company), 2341 (Investment Company 
Securities), and 5110 (Corporate Financing Rule--Underwriting Terms and 
Arrangements) and Capital Acquisition Broker (CAB) Rule 211 
(Suitability). The proposed rule change would: (1) Amend the FINRA and 
CAB suitability rules to state that the rules do not apply to 
recommendations subject to Regulation Best Interest (``Reg BI''),\3\ 
and to remove the element of control from the quantitative suitability 
obligation; and (2) conform the rules governing non-cash compensation 
to Reg BI's limitations on sales contests, sales quotas, bonuses and 
non-cash compensation.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.15l-1.
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    The proposed rule change was published for comment in the Federal 
Register on March 25, 2020.\4\ The public comment period closed on 
April 15, 2020.\5\ On April 28, 2020, FINRA consented to an extension 
of the time period in which the Commission must approve the proposed 
rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change to June 23, 2020.\6\
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    \4\ See Exchange Act Release No. 88422 (Mar. 19, 2020), 85 FR 
16974 (Mar. 25, 2020) (File No. SR-FINRA-2020-007 (``Notice'')).
    \5\ All comment letters received on the proposed rule change are 
available on the Commission's website at https://www.sec.gov.
    \6\ See Letter from Joseph Savage, Vice President and Counsel, 
Office of General Counsel, FINRA, to Daniel Fisher, Branch Chief, 
Division of Trading and Markets, U.S. Securities and Exchange 
Commission, dated April 28, 2020.
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    On May 14, 2020, FINRA responded to the comment letters received in 
response to the Notice and filed an amendment to the proposed rule 
change (``Amendment No. 1'').\7\ The Commission is publishing this 
notice to solicit comments on Amendment No. 1 from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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    \7\ See Letter from Joseph Savage, Vice President and Counsel, 
Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, 
U.S. Securities and Exchange Commission, dated May 13, 2020 (``FINRA 
Letter''). The FINRA Letter and the text of Amendment No. 1 are 
available at the Commission's website at https://www.sec.gov/comments/sr-finra-2020-007/srfinra2020007.htm.
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II. Description of the Proposed Rule Change

Background

    On June 5, 2019, the Commission adopted Reg BI, a new rule under 
the Exchange Act, which establishes a standard of conduct for broker-
dealers and natural persons who are associated persons of a broker-
dealer (unless otherwise indicated, together referred to as ``broker-
dealer'') when they make a recommendation of any securities transaction 
or investment strategy involving securities to a retail customer.\8\
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    \8\ See Securities Exchange Act Release No. 86031 (Jun. 5, 
2019), 84 FR 33318 (Jul. 12, 2019) (``Reg BI Release'').
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    As stated in the Reg BI Release, Reg BI enhances the broker-dealer 
standard of conduct beyond existing suitability obligations, and aligns 
the standard of conduct with retail customers' reasonable expectations 
by requiring broker-dealers, among other things, to: Act in the best 
interest of the retail customer at the time the recommendation is made, 
without placing the financial or other interest of the broker-dealer 
ahead of the interests of the retail customer; and address conflicts of 
interest by establishing, maintaining, and enforcing policies and 
procedures reasonably designed to identify and fully and fairly 
disclose material facts about conflicts of interest, and in instances 
where we have determined that disclosure is insufficient to reasonably 
address the conflict, to mitigate or, in certain instances, eliminate 
the conflict.\9\ The date by which broker-dealers must comply with Reg 
BI is June 30, 2020.\10\ FINRA proposed to amend its suitability and 
non-cash compensation rules to address inconsistencies between the 
FINRA rules and Reg BI, and to make clear how these rules will 
intersect. The effective date of FINRA's proposed rule change will be 
the compliance date of Reg BI.
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    \9\ See Reg BI Release at 33318.
    \10\ Id.
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Original Proposal

Suitability
    As FINRA stated in its Notice, FINRA Rule 2111 requires that a 
broker-dealer ``have a reasonable basis to believe that a recommended 
transaction or investment strategy involving a security or securities 
is suitable for the customer, based on the information obtained through 
the reasonable diligence of the member or associated person to 
ascertain the customer's investment profile.'' \11\ Rule 2111 further 
explains that a ``customer's investment profile includes, but is not 
limited to, the customer's age, other investments, financial situation 
and needs, tax status, investment objectives, investment experience, 
investment time horizon, liquidity needs, risk tolerance, and any other 
information the customer may disclose to the member or associated 
person in connection with such recommendation.'' \12\
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    \11\ See Notice at 16975.
    \12\ See id.
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    Rule 2111 imposes three main suitability obligations: Reasonable 
basis suitability, customer-specific suitability and quantitative 
suitability.\13\ Reasonable basis suitability requires a member or 
associated person to have a reasonable basis to believe, based on 
reasonable diligence, that the recommendation is suitable for at least 
some investors.\14\ Customer-specific suitability requires that a 
member or associated person have a reasonable basis to believe that the 
recommendation is suitable for a particular customer based on that 
customer's investment profile.\15\ Quantitative suitability requires a 
member or associated person who has actual or de facto control over a 
customer account to have a reasonable basis for believing that a series 
of recommended transactions, even if suitable when viewed in isolation, 
are not excessive and unsuitable for the customer when taken together 
in light of the customer's investment profile.\16\
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    \13\ See id.
    \14\ See id.
    \15\ See id.
    \16\ Id.

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    Rule 2111(b) provides an exemption to customer-specific suitability 
for recommendations to institutional customers under specified 
circumstances. FINRA rule 2111 sets forth three criteria that must be 
satisfied in order for this exemption to apply. First, the account must 
meet the definition of institutional account as defined in FINRA Rule 
4512(c).\17\ Second, the broker-dealer must have a reasonable basis to 
believe that the institutional customer is capable of evaluating 
investment risks independently, both in general and with regard to 
particular transactions and investment strategies involving a security 
or securities.\18\ Third, the institutional customer must affirmatively 
indicate that it is exercising independent judgment in evaluating the 
member's or associated person's recommendations. Where an institutional 
customer has delegated decision making authority to an agent, such as 
an investment adviser or a bank trust department, these factors are 
applied to the agent.\19\
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    \17\ Id.
    \18\ Id.
    \19\ See id.
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    Reg BI requires firms to satisfy four component obligations: 
Disclosure, Care, Conflict of Interest, and Compliance.\20\ Consistent 
with the Commission's statements, FINRA stated that Reg BI's Care 
Obligation incorporates and enhances principles that are also found in 
Rule 2111.\21\ FINRA stated that two key enhancements are that Reg BI 
explicitly imposes a best interest standard and requires a 
consideration of costs. In addition, FINRA stated in its Notice that as 
compared to suitability, Reg BI: (i) Places greater emphasis than the 
suitability rule on consideration of reasonably available alternatives; 
\22\ (ii) explicitly applies to recommendations of types of accounts 
(e.g., broker-dealer or investment adviser, or among broker-dealer 
accounts, including recommendations of IRA rollovers); and (iii) 
eliminates the ``control'' element of the quantitative suitability 
obligation.\23\
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    \20\ See id. See also Reg BI Release.
    \21\ See Notice at 16975.
    \22\ See id. See also Reg BI Release at 33381.
    \23\ See Notice at 16975.
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    FINRA stated that in light of these enhancements included in Reg BI 
and to provide clarity on the intersection between Reg BI and the FINRA 
rules, it proposed to amend its suitability rule to provide that it 
will not apply to recommendations subject to Reg BI.\24\ FINRA stated 
that it did not propose to eliminate the suitability rule because it 
applies broadly to all recommendations to customers whereas Reg BI 
applies only to recommendations to ``retail customers,'' which Reg BI 
defines as a natural person, or the legal representative of such 
natural person, who receives a recommendation of any securities 
transaction or investment strategy involving securities from a broker-
dealer and uses the recommendation primarily for personal, family, or 
household purposes.\25\ Thus, FINRA believed its suitability rule is 
still needed for entities and institutions (e.g., pension funds), and 
natural persons who will not use recommendations primarily for 
personal, family, or household purposes (e.g., small business owners 
and charitable trusts).\26\
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    \24\ See proposed FINRA Rule 2111.08.
    \25\ See 17 CFR 240.15l-1(b)(1).
    \26\ See Notice at 16975.
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    In addition, the proposed rule change modified the quantitative 
suitability obligation under FINRA Rule 2111.05(c) to remove the 
element of control that currently must be proved to demonstrate a 
violation of that rule.\27\ FINRA stated that this change is consistent 
with Reg BI, which eliminates the control element from the third 
component of its Care Obligation.
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    \27\ See proposed FINRA Rule 2111.05(c).
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    Finally, the proposed rule change amended CAB Rule 211 to state 
that it will not apply to recommendations subject to Reg BI.\28\
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    \28\ See proposed CAB Rule 211.03.
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Non-Cash Compensation
    FINRA Rules 2310 (Direct Participation Programs), 2320 (Variable 
Contracts of an Insurance Company), 2341 (Investment Company 
Securities), and 5110 (Corporate Financing Rule--Underwriting Terms and 
Arrangements) each include provisions restricting the payment and 
receipt of non-cash compensation in connection with the sale and 
distribution of securities governed by those rules.\29\ FINRA stated 
that, as a general matter, these rules limit non-cash compensation 
arrangements to:
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    \29\ See Notice at 16975.
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     Gifts that do not exceed $100 in value and that are not 
preconditioned on the achievement of a sales target;
     An occasional meal, a ticket to a sporting event or the 
theater, or other comparable entertainment that does not raise any 
question of propriety and is not preconditioned on the achievement of a 
sales target;
     Payment or receipt by ``offerors'' (generally product 
sponsors and their affiliates) in connection with training or education 
meetings, subject to specified conditions, including that the payment 
of such compensation is not conditioned on achieving a sales target; 
and
     Internal non-cash compensation arrangements between a 
member and its associated persons, subject to specified conditions. If 
the internal non-cash compensation arrangement is in the form of a 
sales contest, the contest must be based on the total production of 
associated persons with respect to all securities within the rule's 
product category, and credit for those sales must be equally 
weighted.\30\
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    \30\ See FINRA Rules 2310(c), 2320(g), 2341(l)(5), and 5110(h).
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    Reg BI's Conflict of Interest Obligation requires, among other 
things, that broker-dealers establish, maintain, and enforce written 
policies and procedures reasonably designed to identify and eliminate 
any sales contests, sales quotas, bonuses, and non-cash compensation 
that are based on the sales of specific securities or specific types of 
securities within a limited time period.\31\ FINRA stated that its 
current non-cash compensation rules permit internal firm sales contests 
that may not meet this standard, since they permit contests based on 
sales of specific types of securities (such as mutual funds or variable 
annuities).\32\
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    \31\ See 17 CFR 240.15l-1(a)(2)(iii)(D).
    \32\ See Notice at 16976.
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    FINRA proposed to modify its rules governing non-cash compensation 
arrangements to specify that any non-cash compensation arrangement 
permitted by those rules must be consistent with the requirements of 
Reg BI. FINRA also proposed to eliminate provisions in Rules 2320, 
2341, and 5110 that require internal non-cash compensation arrangements 
to be based on total production and equal weighting of securities 
sales.\33\ FINRA stated that firms generally would no longer have been 
permitted to sponsor or maintain internal sales contests based on sales 
of securities within a product category within a limited time, even if 
they were based on total production and equal weighting and that this 
requirement also would have applied to the non-cash compensation 
provisions governing gifts, business entertainment and training or 
education meetings.\34\ Further, FINRA stated that these forms of non-
cash compensation may not be preconditioned on achievement of a sales 
target.\35\ Nevertheless, FINRA

[[Page 37972]]

believed that it must make clear that these provisions do not permit 
arrangements that conflict with Reg BI.
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    \33\ See proposed amendments to FINRA Rules 2310(c), 2320(g), 
2341(l)(5), and 5110(h).
    \34\ See Notice at 16976.
    \35\ Id.
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Proposed Rule Change as Modified by Amendment No. 1

    In response to comments \36\ (discussed below), FINRA is modifying 
its proposed rule change by not deleting rule text in FINRA Rules 
2320(g)(4)(D) and 2341(l)(5)(D) that require non-cash compensation 
arrangements between a member and its associated persons, or between a 
non-member company and its sales personnel who are associated persons 
of an affiliated member, for the sale of variable insurance products 
(under Rule 2320) or investment company securities (under Rule 2341) to 
be based on the total production and equal weighting of sales of those 
products.\37\ FINRA also is not deleting rule text in FINRA Rules 
2310(c)(2)(C), 2320(g)(4)(C), 2341(l)(5)(C) and 5110(h)(2)(C) that 
reference Rules 2310(c)(2)(D), 2320(g)(4)(D), 2341(l)(5)(D), and 
5110(h)(2)(D), respectively.\38\ In its Amendment No. 1, FINRA also 
cautions members not to conclude that any sales contest that awards 
non-cash compensation for sales of securities within particular product 
categories is per se permissible under Reg BI.\39\ FINRA's Proposed 
Amendment No. 1 does not alter the proposed suitability changes to 
FINRA Rule 2111 and CAB Rule 211.
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    \36\ See letter from Clifford Kirsch and Eric Arnolds, Eversheds 
Sutherland (US) LLP, for the Committee of Annuity Insurers, dated 
April 15, 2020 (``CAI Letter'') and letter from Robin M. Traxler, 
Financial Services Institute, April 15, 2020 (``FSI Letter'').
    \37\ See FINRA Letter.
    \38\ Id.
    \39\ Id.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by 
Amendment No. 1, the comment letters, and FINRA's response to the 
comments, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with the requirements of the 
Exchange Act and the rules and regulations thereunder that are 
applicable to a national securities association.\40\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 15A(b)(6) of the Exchange Act,\41\ which requires, among other 
things, that FINRA rules 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.
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    \40\ In approving the proposed rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \41\ 15 U.S.C. 78o-3(b)(6).
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Proposed Suitability Rule Changes

    Most commenters supported the changes to FINRA Rule 2111 
(Suitability) and CAB Rule 211 (Suitability),\42\ and none 
objected.\43\ For example, one commenter commended FINRA for the 
proposed changes and encouraged the SEC to approve the proposed rule 
change because ``it brings important clarity and consistency to the 
standards governing broker-dealers' relationships with retail 
customers.'' \44\ However, one commenter that supported the proposed 
rule change stated that ``Reg BI should have gone further.'' \45\ No 
commenters suggested amendments to the proposed rule text amending Rule 
2111 and CAB Rule 211.
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    \42\ See letter from Christopher A. Iacovella, American 
Securities Association, dated April 20, 2020 (``ASA Letter''); 
letter from Kristen Malinconico, Center for Capital Markets 
Competitiveness, U.S. Chamber of Commerce, dated April 15, 2020 
(``CCMC Letter''); letter from Emily Micale, Insured Retirement 
Institute, dated April 15, 2020 (``IRI Letter''); letter from Samuel 
B. Edwards, Public Investors Advocate Bar Association, dated April 
15, 2020 (``PIABA Letter''); and FSI Letter.
    \43\ One commenter did not address the proposed changes to the 
Suitability Rules. See CAI Letter.
    \44\ See CCMC Letter.
    \45\ See PIABA Letter.
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    Taking into consideration the comments, the Commission believes 
that the proposed suitability rule changes are consistent with the 
Exchange Act. As the Commission stated in the Reg BI Release, the Care 
Obligation of Reg BI incorporates and enhances existing suitability 
requirements.\46\ In light of the overlap, the Commission believes that 
it would be redundant and unnecessary for FINRA's suitability rule to 
apply to recommendations that are subject to Reg BI.
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    \46\ Reg BI Release at 33327.
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    As stated by FINRA, without these changes, a broker-dealer would be 
required to comply with both Reg BI and FINRA's suitability rules when 
making recommendations to retail customers, and in such circumstances, 
compliance with Reg BI would result in compliance with FINRA's 
suitability rules.\47\ The Commission agrees with FINRA and believes 
that the proposed rule change will help protect investors and the 
public interest by avoiding potential confusion surrounding whether Reg 
BI or FINRA's suitability obligations apply, which in turn will 
facilitate compliance with applicable regulations. In addition, the 
changes will provide continued protections of FINRA's suitability rules 
for customers that are not retail customers for purposes of Reg BI.
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    \47\ See Notice at 16974.
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    The Commission further believes that the removal of the element of 
control from the quantitative suitability obligation will align FINRA's 
suitability rule with the Care Obligation of Reg BI, which the 
Commission believes will enhance investor protection for customers that 
are not retail customers for purposes of Reg BI by requiring a broker-
dealer to always form a reasonable basis as to the recommended 
frequency of trading in a retail customer's account--irrespective of 
whether the broker-dealer ``controls'' or exercises ``de facto 
control'' over the retail customer's account.\48\
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    \48\ See Reg BI Release at 33374.
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    For these reasons, the Commission finds that the proposed rule 
change to the suitability rules is appropriate and designed to protect 
investors and the public interest, consistent with Section 15A(b)(6) of 
the Exchange Act and the rules and regulations thereunder.

Proposed Changes to Non-Cash Compensation Rules

    Most commenters supported the changes to the non-cash compensation 
provisions in FINRA Rules 2310, 2320, 2341, and 5110.\49\ These 
commenters generally supported FINRA's goal of aligning its non-cash 
compensation rules consistent with Reg BI.\50\
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    \49\ See PIABA Letter, CCMC Letter, ASA Letter, and IRI Letter.
    \50\ See id.
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    However, a few commenters expressed concerns with FINRA's 
statements suggesting that contests based on sales of securities within 
particular product categories, such as mutual funds or variable 
annuities, would no longer be permitted under Reg BI.\51\ One commenter 
stated ``what seems more consistent with what the SEC had in mind with 
respect to variable contracts and mutual funds would be to apply the 
limited period sales contest prohibition to specific types of variable 
annuities or funds within those general product categories.'' \52\ The 
commenter also said that ``FINRA has effectively converted the language 
restricting limited period sales contests for `specific types of 
securities' under Reg BI to a restriction on limited period sales 
contests that are for a `product category''' and that FINRA's 
conclusion that variable contracts be viewed as constituting a specific 
type of security under Reg BI is

[[Page 37973]]

``fundamentally inconsistent with how the SEC describes and interprets 
that phrase under the Reg BI Adopting Release.'' \53\ The other 
commenter expressed similar concerns and suggested that FINRA clarify 
that its non-cash compensation rules are meant to align with Reg BI in 
all respects, including what constitutes sales of specific types of 
securities.\54\
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    \51\ See FSI Letter and CAI Letter.
    \52\ See CAI Letter.
    \53\ See id.
    \54\ See FSI Letter.
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    In response, FINRA stated it was not its intent to propose changes 
to its non-cash compensation rules that would prohibit sales contests, 
sales quotas, bonuses or non-cash compensation that are permissible 
under Reg BI.\55\ Accordingly, as noted above, FINRA modified its 
proposed rule change by not deleting rule text in FINRA Rules 2320 and 
2341 that require non-cash compensation arrangements between a member 
and its associated persons, or between a non-member company and its 
sales personnel who are associated persons of an affiliated member, for 
the sale of variable insurance products or investment company 
securities to be based on the total production and equal weighting of 
sales of those products.\56\ FINRA also modified its proposed rule 
change by not deleting rule text in FINRA Rules 2310, 2320, 2341, and 
5110.\57\ Finally, FINRA cautioned members not to conclude that any 
sales contest that awards non-cash compensation for sales of securities 
within particular product categories is per se permissible under Reg 
BI.\58\
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    \55\ See FINRA Letter.
    \56\ See id.
    \57\ See id.
    \58\ See id.
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    Taking into consideration the comments, the FINRA Letter, and 
Amendment No. 1, the Commission believes that the proposed rule change 
to FINRA's non-cash compensation rules, as amended, is consistent with 
the Exchange Act. The Commission recognizes that some commenters raised 
concerns about the proposed changes to the non-cash compensation rules 
on the basis that FINRA suggested that contests based on sales of 
securities within particular product categories would no longer be 
permitted under Reg BI.\59\ The Commission further recognizes FINRA's 
response and Amendment No. 1, and believes that the Amendment No. 1 
appropriately addresses commenters' concerns by clarifying that the 
proposed changes to its non-cash compensation rules are to be read 
consistent with Reg BI.\60\
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    \59\ See FSI Letter and IRI Letter.
    \60\ See FINRA Letter.
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    The Commission believes that FINRA's proposed rule change, as 
amended by Amendment No. 1, facilitates consistency between FINRA's 
non-cash compensation rules and Reg BI. In particular, the relevant 
FINRA rules as amended will be consistent with the applicable 
requirements under Reg BI. As described above, commenters raised 
concerns that FINRA's proposed rule change would prohibit certain sales 
contests that may be permitted under Reg BI. In response, FINRA amended 
its proposal to be consistent with Reg BI, but cautioned members not to 
conclude that any sales contest that awards non-cash compensation for 
sales of securities within particular product categories is per se 
permissible under Reg BI.\61\ Similarly, the Commission reiterates 
that, while certain practices will not be per se prohibited by Reg BI, 
such practices are not per se consistent with Reg BI or other 
obligations under the federal securities laws.\62\
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    \61\ See FINRA Letter.
    \62\ See Reg BI Release at footnote 148.
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    The Commission believes that the approach proposed by FINRA with 
respect to its non-cash compensation rules is appropriate and designed 
to protect investors and the public interest, consistent with Section 
15A(b)(6) of the Exchange Act. In particular, the Commission believes 
that the proposed rule change, as amended by Amendment No.1, will help 
protect investors and the public interest by clarifying that the 
incentives broker-dealers may offer pursuant to non-cash compensation 
arrangements under the relevant FINRA rules as amended are consistent 
with the applicable requirements under Reg BI. For these reasons, the 
Commission finds that the proposed rule change to the non-cash 
compensation rules is consistent with the Exchange Act and the rules 
and regulations thereunder.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1, is consistent with the 
Exchange 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-2020-007 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-2020-007. 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 
20549-1090, on official business days between the hours of 10:00 a.m. 
and 3:00 p.m. Copies of such filing will also 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-2020-007 and should be 
submitted on or before July 15, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the amended proposal in the 
Federal Register.
    As discussed above, the revisions made to the proposed rule change 
in Amendment No. 1 clarify that it was not FINRA's intent to propose 
changes to its non-cash compensation rules that would prohibit sales 
contests, sales quotas, bonuses or non-cash compensation that are 
permissible under Reg BI.\63\ Specifically, FINRA modified its proposal 
by not deleting rule text in FINRA Rules 2320 and 2341 that requires 
non-cash compensation

[[Page 37974]]

arrangements between a member and its associated persons, or between a 
non-member company and its sales personnel who are associated persons 
of an affiliated member, for the sale of variable insurance products or 
investment company securities to be based on the total production and 
equal weighting of sales of those products.\64\ FINRA also modified its 
proposal by not deleting rule text in FINRA Rules 2310, 2320, 2341, and 
5110.\65\
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    \63\ See FINRA Letter.
    \64\ See id.
    \65\ See id.
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    The Commission believes that this modification responds to the 
primary concerns raised by commenters on the proposal and clarifies 
that the proposal was intended to be read consistent with Reg BI.\66\ 
As stated earlier, the Commission believes that the proposed rule 
change, as amended by Amendment No. 1, will help protect investors and 
the public interest by clarifying that the incentives broker-dealers 
may offer pursuant to non-cash compensation arrangements under the 
relevant FINRA rules are consistent with the applicable requirements 
under Reg BI, thereby ensuring a consistent approach with respect to 
conflicts of interest. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Exchange Act,\67\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \66\ See CAI Letter and FSI Letter. See also FINRA Letter.
    \67\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \68\ that the proposed rule change (SR-FINRA-2020-007), as 
modified by Amendment No. 1, be and hereby is approved.
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    \68\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13539 Filed 6-23-20; 8:45 am]
BILLING CODE 8011-01-P


