[Federal Register Volume 87, Number 109 (Tuesday, June 7, 2022)]
[Notices]
[Pages 34728-34736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12169]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95018; File No. SR-FINRA-2021-02]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA 
Rule 2231 (Customer Account Statements), as Modified by Amendment No. 1

June 1, 2022.

I. Introduction

    On September 29, 2021, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FINRA-2021-024 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 \2\ thereunder to amend FINRA Rule 2231 
(Customer Account Statements) to add new supplementary materials, 
incorporate specified provisions from dual FINRA-NYSE temporary rules, 
and delete those temporary rules.\3\ The proposed rule change was 
published for public comment in the Federal Register on September 30, 
2021.\4\ On November 9, 2021, FINRA consented to an extension of the 
time period to January 4, 2022, 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.\5\ On January 4, 2022, FINRA responded to the 
comment letters received in response to the Notice and filed an 
amendment to modify the proposed rule change (``Amendment No. 1'').\6\ 
On January 4, 2022, the Commission published notice of Amendment No. 1 
and instituted proceedings pursuant to Section 19(b)(2)(B) of the Act 
\7\ to determine whether to approve or disapprove the proposed rule 
change.\8\ This order approves the proposed rule change, as modified by 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 93215 (September 30, 2021), 86 FR 
55641 (October 6, 2021) (File No. SR-FINRA-2021-024) (``Notice'').
    \4\ Id.
    \5\ See letter from Sarah Kwak, Associate General Counsel, 
Office of General Counsel, FINRA, to Daniel Fisher, Branch Chief, 
Office of Chief Counsel, Division of Trading and Markets, 
Commission, dated November 9, 2021.
    \6\ See letter from Sarah Kwak, Associate General Counsel, 
Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, 
Commission, dated January 4, 2022 (``FINRA Response Letter''); see 
also Exchange Act Release No. 93897, 87 FR 1201 (January 10, 2022) 
(``OIP and Amendment No. 1'').
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See OIP and Amendment No. 1.
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II. Description of the Proposed Rule Change

A. Background

    As discussed in the Notice, Rule 2231 and NYSE Rule 409T govern the 
obligation of FINRA members and member organizations to deliver 
customer account statements to customers. Specifically, Rule 2231 and 
NYSE Rule 409T generally require a general securities member \9\ to, at 
least once each calendar quarter, send account statements to customers 
containing a description of any securities positions, money balances or 
account activity in the accounts since the prior account statements 
were sent, except if carried on a Delivery Versus Payment/Receive 
Versus Payment basis.\10\ Rule 2231 does not currently contain any 
supplementary materials.
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    \9\ FINRA Rule 2231(d)(2) defines a ``general securities 
member'' as any FINRA member ``that conducts a general securities 
business and is required to calculate its net capital pursuant to 
the provisions of [Exchange Act] Rule 15c3-1(a)'' except members 
that do not carry customer accounts or hold customer funds or 
securities.
    \10\ See Notice, 86 FR at 55649.
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    FINRA stated that at the time it adopted Rule 2231, along with NYSE 
Rule 409T and NYSE Rule Interpretation 409T (together, ``NYSE 
Provisions''), into the consolidated FINRA rulebook, it would continue 
to review the substance of such rules and expected to propose 
substantive changes to some or all of the rules as part of future 
rulemakings.\11\ As a result of that review, FINRA proposed amending 
Rule 2231 to incorporate several existing provisions from the NYSE 
Provisions into the FINRA rulebook and proposed deleting the NYSE 
Provisions in their entirety.\12\
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    \11\ As part of the process of completing a consolidated FINRA 
rulebook, FINRA adopted, without substantive changes, the remaining 
legacy NASD rules as FINRA rules in the consolidated FINRA rulebook 
and the NYSE Rules and NYSE Rule Interpretations in the consolidated 
FINRA rulebook as a separate Temporary Dual FINRA-NYSE Member Rules 
Series. These NYSE rules and their corresponding interpretations now 
bear a ``T'' modifier after the rule and interpretation number to 
denote their placement in the Temporary Dual FINRA-NYSE Member Rules 
Series. The Temporary Dual FINRA-NYSE Member Rules Series apply only 
to FINRA members that are also members of the NYSE. The FINRA rules 
apply to all FINRA members, unless such rules have a more limited 
application by their terms. Among the remaining NASD rules was NASD 
Rule 2340 (Customer Account Statements), which was adopted, without 
substantive changes, as FINRA Rule 2231. NYSE Rule 409 (Statements 
of Accounts to Customers) and Incorporated NYSE Rule Interpretation 
409 (Statements of Accounts to Customers) were adopted, without 
substantive changes, under the Temporary Dual FINRA-NYSE Rules 
Series as Rule 409T and Interpretation 409T, respectively. See 
Exchange Act Release No. 85589 (April 10, 2019), 84 FR 15646 (April 
16, 2019) (Notice of Filing and Immediate Effectiveness of File No. 
SR-FINRA-2019-009). For convenience, the rules and interpretations 
under the Temporary Dual FINRA-NYSE Member Rules Series are referred 
to as ``NYSE Rule'' and ``NYSE Rule Interpretation,'' as 
appropriate. See Notice, 86 FR at note 3.
    \12\ See Notice, 86 FR at 55646.
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    Specifically, FINRA's proposed rule change would: (1) amend Rule 
2231 to (a) add new Supplementary Materials .01 (Compliance with Rule 
4311 (Carrying Agreements)), .02 (Transmission of Customer Account 
Statements to Other Persons or Entities), .03 (Use of Electronic Media 
to Satisfy Delivery Obligations), and .04 (Compliance with Rule 3150 
(Holding of Customer Mail)) and (b) incorporate provisions derived from 
NYSE Rule Interpretation 409T, without substantive changes, as 
Supplementary Materials .05 (Information to be Disclosed on Statement), 
.06 (Assets Externally Held), .07 (Use of Logos, Trademarks, etc.), and 
.08 (Use of Summary Statements); (2) delete Temporary Dual FINRA-NYSE 
Rule 409T (Statements of Accounts to Customers) and Temporary Dual 
FINRA-NYSE Rule Interpretation 409T; and (3) make other non-substantive 
and technical changes in Rule 2231 and to other FINRA rules due to this 
proposed rule change. As a result of these changes, FINRA members that 
are not NYSE members would be required to comply with provisions that 
previously only applied to NYSE members. In addition to the specific 
points below, as a general matter, FINRA stated that harmonizing the 
NYSE provisions into Rule 2231 would provide greater clarity and 
regulatory efficiency to all FINRA member firms.\13\ Further, FINRA 
stated that with respect to proposed Supplementary Materials .01 and 
.03 through .08, the proposed rule change would not impose additional 
material burdens on firms as it is substantially

[[Page 34729]]

similar to existing rules or otherwise consistent with current 
guidance.\14\
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    \13\ See Notice, 86 FR at 55643.
    \14\ See Notice, 86 FR at 55648.
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B. Proposed Supplementary Materials as Modified by Amendment No. 1

1. New Supplementary Material .01 (Compliance With Rule 4311)
    FINRA's proposed rule change would amend Rule 2231 by adding new 
Supplementary Material .01, which would remind firms of their 
obligations under FINRA Rule 4311 (Carrying Agreements), including 
specifically the rights and obligations of carrying firms under Rule 
4311(c)(2).\15\ Rule 4311 generally governs the requirements applicable 
to FINRA members when entering into agreements for the carrying of any 
customer accounts in which securities transactions can be effected. In 
general, Rule 4311(c) requires each carrying agreement pursuant to 
which accounts are to be carried on a fully disclosed basis to specify 
the responsibilities of each party to the agreement, including at a 
minimum the allocation of the responsibilities set forth in paragraphs 
4311(c)(1)(A) through (I) and (c)(2). Among those responsibilities, 
Rule 4311(c)(2) requires each carrying agreement pursuant to which 
accounts are to be carried on a fully disclosed basis to expressly 
allocate to the carrying firm responsibility for safeguarding funds and 
securities under Exchange Act Rule 15c3-3 (Customer protection--
reserves and custody of securities) \16\ and for preparing and 
transmitting account statements to customers.
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    \15\ See Proposed Supplementary Material .01.
    \16\ 17 CFR 240.15c3-3.
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    FINRA stated that reminding firms of their obligations under Rule 
4311 in proposed Supplementary Material .01 would emphasize the 
importance of ensuring the accuracy and integrity of customer account 
statements.\17\
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    \17\ See Notice, 86 FR at 55643.
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2. New Supplementary Material .02 (Transmission of Customer Account 
Statements to Other Persons or Entities)
    Rule 2231 does not currently address the transmission of customer 
account statements to third parties. In contrast, NYSE Rule 409T(b) 
prohibits, without NYSE's consent, the delivery of confirmations, 
statements, or other communications to a nonmember customer: (1) in 
care of a person holding power of attorney (``POA'') over the 
customer's account unless either (a) the customer has provided written 
instructions to the member organization to send such confirmations, 
statements, or other communications in care of such person, or (b) 
duplicate copies are sent to the customer at some other address 
designated in writing by the customer; or (2) at the address of any 
member, member organization, or in care of a partner, stockholder who 
is actively engaged in the member corporation's business, or employee 
of any member organization.\18\
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    \18\ See NYSE Rule 409T(b); see also Notice, 86 FR at 55643.
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    Proposed Supplementary Material .02 would address the transmission 
of customer account statements to third parties in a manner similar, 
but not identical to, NYSE Rule 409T.\19\ Specifically, proposed 
Supplementary Material .02 to Rule 2231 would prohibit member firms 
from sending customer account statements to third parties unless: (1) 
the customer provided written instructions to the member to send 
statements to such third parties; and (2) the member sends duplicate 
account statements directly to the customer either in paper format or 
electronically.\20\ Proposed Supplementary Material .02 would add that 
a FINRA member may cease sending duplicate account statements to a 
customer where a court of competent jurisdiction has appointed a 
guardian, conservator, trustee, personal representative or other person 
with legal authority to act on a customer's behalf, and such court-
appointed fiduciary provides written instructions to the member and 
furnishes to the member an official copy of the court appointment that 
establishes authority over the customer's accounts.\21\ Under proposed 
Supplementary Material .02, a member would continue to be able to 
provide duplicate customer account statement(s) to third parties as 
required for compliance with FINRA Rules 2070 (Transactions Involving 
FINRA Employees) and 3210 (Accounts at Other Broker-Dealers and 
Financial Institutions) or other similar applicable federal securities 
laws, rules and regulations.\22\
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    \19\ See Notice, 86 FR at 55643.
    \20\ See Proposed Supplementary Material .02(a).
    \21\ See Proposed Supplementary Material .02(b).
    \22\ See Proposed Supplementary Material .02(c).
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    FINRA stated it believes proposed Supplementary Material .02 
achieves the appropriate balance between ensuring customers receive 
their account statements so that they may monitor their account 
activity and recognizing there are special circumstances where firms 
may stop delivery of account statements to customers.\23\
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    \23\ See Notice, 86 FR at 55644.
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3. New Supplementary Material .03 (Use of Electronic Media To Satisfy 
Delivery Obligations)
    FINRA's proposed rule change would add new Supplementary Material 
.03 to FINRA Rule 2231, which would allow FINRA members to satisfy 
their Rule 2231 delivery obligations using electronic media, subject to 
compliance with standards established by the Commission on the use of 
electronic media for delivery purposes.\24\ FINRA stated this provision 
would be consistent with prior FINRA guidance on the use of electronic 
media to satisfy delivery obligations.\25\
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    \24\ See Proposed Supplementary Material .03; see also Notice, 
86 FR at 55644 (citing Securities Act Release No. 7233 (October 6, 
1995); 60 FR 53458 (October 13, 1995); Securities Act Release No. 
7288 (May 9, 1996); 61 FR 24644 (May 15, 1996); Securities Act 
Release No. 7856 (April 28, 2000); 65 FR 25843, 25854 (May 4, 
2000)).
    \25\ See Notice, 86 FR at 55644 (citing Notice to Members 98-3 
(January 1998)).
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4. New Supplementary Material .04 (Compliance With Rule 3150)
    FINRA's proposed rule change would add new Supplementary Material 
.04 to Rule 2231, which would permit FINRA members to hold customer 
mail, including customer account statements or other communications 
relating to a customer's account, subject to the requirements of FINRA 
Rule 3150 (Holding of Customer Mail).\26\ In general, Rule 3150 allows 
FINRA members to hold customer mail for a specific time period in 
accordance with the customer's written instructions if the member meets 
specified conditions.\27\
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    \26\ See Proposed Supplementary Material .04.
    \27\ See Notice, 86 FR at 55644.
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5. New Supplementary Material .05 (Information To Be Disclosed on 
Statement)
    NYSE Rule Interpretation 409T(a)/02 requires the front of a 
customer account statement to disclose: (1) the identity of introducing 
and carrying organizations, and their respective phone numbers for 
service; (2) that the carrying organization is a member of the 
Securities Investor Protection Corporation (``SIPC''); \28\ and (3) the 
opening and closing account balances.\29\ Note 1 to NYSE Rule 
Interpretation 409T(a)/02 provides that the Commission ``has stated 
that under the

[[Page 34730]]

[Exchange Act] Rule 15c3-1(a)(2)(iv),\30\ certain carrying firms must 
issue customer account statements, and the account statements must 
contain the name and telephone number of a person at the carrying firm 
who the customer can contact with inquiries regarding the account. The 
phone number of the carrying organization may appear on the back of the 
statement. If it does, it must be in `bold' or `highlighted' letters.'' 
\31\
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    \28\ Subject to limitations, SIPC protects against the loss of 
cash and securities--such as stocks and bonds--held by a customer at 
a financially-troubled SIPC-member brokerage firm. See SIPC's 
website, available at https://www.sipc.org/for-investors/what-sipc-protects.
    \29\ See NYSE Rule Interpretation 409T(a)/02.
    \30\ 17 CFR 240.15c3-1(a)(2)(iv).
    \31\ See NYSE Rule Interpretation 409T(a)/02 at note 1 (citing 
Exchange Act Release No. 31511 (November 24, 1992)).
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    FINRA's proposed rule change would incorporate NYSE Rule 
Interpretation 409T(a)/02, including note 1, without substantive 
changes, as Supplementary Material .05 to FINRA Rule 2231. Proposed 
Supplementary Material .05 would require the following information to 
be clearly and prominently disclosed on the front of customer account 
statements: (1) the identity of the introducing firm and carrying firm, 
if different, and their respective contact information for customer 
service; however, the identity of the carrying firm and its contact 
information for customer service may appear on the back of the 
statement provided such information is in ``bold'' or ``highlighted'' 
letters; (2) that the carrying firm is a SIPC member; and (3) the 
opening and closing balances for the account.\32\
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    \32\ See Proposed Supplementary Material .05.
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    FINRA stated that proposed Supplementary Material .05 would 
incorporate NYSE Rule Interpretation 409T(a)/02 without substantive 
changes. FINRA also stated that proposed Supplementary Material .05 
would give member firms adequate guidance and flexibility in providing 
the specified information while also ensuring that SIPC status of the 
clearing firm is disclosed on the front of the statement.\33\
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    \33\ See Notice, 86 FR at 55644 and 55655.
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6. New Supplementary Material .06 (Assets Externally Held)
    Rule 2231 does not currently address how FINRA members should 
disclose assets they do not carry on behalf of customers and that are 
not included on the firms' books and records. In contrast, NYSE Rule 
Interpretation 409T(a)/04 provides that where a statement of account 
includes assets as to which a member organization does not have 
fiduciary responsibility, does not have access to, and which are not 
included on the member organization's books and records, such assets 
must be clearly and distinguishably separated on the statement.\34\ In 
addition, the statement must clearly indicate that: (1) such externally 
held assets are included on the statement solely as a courtesy to the 
customer; (2) that information (including valuation) is derived from 
the customer or other external source for which the member organization 
is not responsible; and (3) such externally held assets are not covered 
by SIPC.\35\
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    \34\ See NYSE Rule Interpretation 409T(a)/04.
    \35\ Id.
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    FINRA's proposed rule change would incorporate the requirements of 
NYSE Rule Interpretation 409T(a)/04, without substantive changes, as 
Supplementary Material .06 to Rule 2231. Proposed Supplementary 
Material .06 would require that where a customer account statement 
includes assets that the member firm does not carry on behalf of the 
customer and that are not included on the member firm's books and 
records, such assets must be clearly and distinguishably separated on 
the statement.\36\ In such cases, proposed Supplementary Material .06 
would require FINRA members to: (1) clearly indicate that such 
externally held assets are included on the statement solely as a 
courtesy to the customer; (2) disclose that information, including 
valuation, for such externally held assets included on the statement is 
derived from the customer or other external source for which the member 
is not responsible; and (3) identify that such externally held assets 
may not be covered by SIPC.\37\
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    \36\ See Proposed Supplementary Material .06.
    \37\ See Proposed Supplementary Material .06(a)-(c).
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7. New Supplementary Material .07 (Use of Logos, Trademarks, etc.)
    Rule 2231 does not currently address how logos, trademarks, or the 
identification of persons other than introducing or carrying firms 
should appear on customer account statements. In contrast, NYSE Rule 
Interpretation 409T(a)/05 requires that where a logo, trademark, or 
other identification of a person other than the introducing firm or 
carrying firm appears on an account statement, the identity of such 
person and the relationship to the introducing, carrying, or other 
organization included on the statement must be provided and may not be 
misleading or confusing to customers.\38\
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    \38\ See NYSE Rule Interpretation 409T(a)/05.
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    FINRA's proposed rule change would incorporate, without substantive 
changes, NYSE Rule Interpretation 409T(a)/05 as proposed Supplementary 
Material .07 to Rule 2231.\39\ Proposed Supplementary Material .07 
would require that where the logo, trademark or other similar 
identification of a person (other than the introducing firm or carrying 
firm) appears on a customer account statement, the identity of such 
person(s) and the relationship to the introducing, carrying or other 
firm included on the statement must be provided and may not be used in 
a manner that is misleading or causes customer confusion. FINRA stated 
that proposed Supplementary Material .07 would be consistent with the 
general requirements of FINRA Rule 2210 (Communications with the 
Public), which, among other things, prohibits FINRA members from 
publishing, circulating, or distributing communications that they know 
or have reason to know contain any untrue statement of material fact or 
are otherwise false or misleading.\40\
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    \39\ See Proposed Supplementary Material .07; see also Notice, 
86 FR at 55645.
    \40\ Id.; see also FINRA Rule 2210(d)(1)(B).
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8. New Supplementary Material .08 (Use of Summary Statements)
    Rule 2231 does not currently address FINRA member obligations where 
the member holds a customer's account and another person, who 
separately offers related financial products or services to the same 
customer, jointly provide their respective customer account statements 
together with a statement summarizing or combining assets held in 
different accounts (``summary statements'').\41\ In contrast, NYSE Rule 
Interpretation 409T(a)/06 states that where a member organization 
carrying a customer's account and another person(s) who separately 
offers financial related products/services to the same customer seek to 
jointly formulate and/or distribute their respective customer account 
statements together with a summary statement, the summary statement 
must: (1) indicate that it is provided for informational purposes and 
includes assets held at different entities; (2) identify each entity 
from which information is provided or assets are being held are 
included, their relationship to each other, and their respective 
functions (e.g., introducing or carrying brokerage firms, fund 
distributor, banking or insurance product providers, etc.); (3) clearly 
distinguish between assets held by each entity by use of columns, 
coloring or

[[Page 34731]]

other distinct form of demarcation; (4) identify the customer's account 
number at each entity; (5) provide a telephone number for customer 
service at each entity; (6) disclose which entity carries each of the 
different assets or categories of assets included on the summary 
statement; and (7) identify each entity that is a SIPC member.\42\
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    \41\ See Notice, 86 FR at 55645. FINRA stated that, in general, 
a summary statement reflects information from entities that are part 
of a financial services ``group'' or ``family'' or where a firm 
carries accounts for another broker-dealer that is part of such 
group or family. FINRA stated that a summary statement provides an 
overview of a customer's accounts at separate entities and is 
supported by and derived from the detail on the separate underlying 
respective account statements. Id.
    \42\ See NYSE Rule Interpretation 409T(a)/06.
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    FINRA's proposed rule change would incorporate the requirements of 
NYSE Rule Interpretation 409T(a)/06, with some revisions, as proposed 
Supplementary Material .08 to Rule 2231.\43\ Proposed Supplementary 
Material .08 would state that where a member holds a customer's account 
and another person(s) who separately offers financial related products 
or services to the same customer (e.g., mutual fund sales and custodial 
services, banking products and services, insurance products and 
services, securities products and services, etc.) seek to jointly 
provide their respective customer account statements together with a 
summary statement the member is required to: (1) indicate that the 
summary statement is provided for the customer's convenience and 
includes assets that may not be held by the broker-dealer; (2) indicate 
that the summary statement does not replace any other statement(s) the 
customer may receive from other financial institutions that hold the 
customer's assets; (3) identify each entity from which information is 
provided or assets being held are included, their relationship with 
each other (e.g., parent, subsidiary, or affiliated organization), and 
their respective functions (introducing firm, carrying firm, fund 
distributor, banking or insurance product provider, etc.); (4) clearly 
distinguish between assets held or categories of assets held by each 
entity included in the summary; (5) identify the customer's account 
number at each entity and provide contact information for customer 
service at each entity (if the customer's account number and customer 
service contact information at each entity are included on their 
respective account statements, then such information need not be 
included on the summary statement); and (6) identify each entity that 
is a SIPC member.\44\ Proposed Supplementary Material .08 would also 
require FINRA members to: (1) ensure that when summary statements 
aggregate the values of the accounts summarized or portions thereof, 
such aggregation is recognizable as having been arithmetically derived 
from the separately stated totals or their components; \45\ (2) 
distinguish the beginning and end of each separate statement by color, 
pagination or other distinct form of demarcation; \46\ (3) ensure that 
there is a written agreement between the clearing firm and each other 
person jointly providing its respective customer account statements 
attesting that each such person has developed procedures and controls 
for reviewing and testing the accuracy of the information included on 
its respective statements; \47\ and (4) ensure the summary statement 
complies with Rule 2231.\48\
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    \43\ See Notice, 86 FR at 55645.
    \44\ See Proposed Supplementary Material .08(a)(1)-(6).
    \45\ See Proposed Supplementary Material .08(b).
    \46\ See Proposed Supplementary Material .08(c).
    \47\ See Proposed Supplementary Material .08(d).
    \48\ See Proposed Supplementary Material .08(e).
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    FINRA stated these requirements would help ensure customer account 
statements clearly identify the respective entities involved in a 
summary statement and distinguish brokerage assets from non-brokerage 
assets on such statements.\49\
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    \49\ See Notice, 86 FR at 55645.
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C. NYSE Provisions To Be Deleted and Not Harmonized With Rule 2231

    The proposed rule change would delete NYSE Rule 409T and NYSE Rule 
Interpretation 409T in their entirety on the basis that the underlying 
concepts in these provisions will have been included in Rule 2231, are 
duplicative of other rules, or are outdated.\50\ The following 
describes portions of the NYSE Provisions that would not be 
incorporated into Rule 2231.
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    \50\ See Notice, 86 FR at 55646.
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1. NYSE Rule 409T(b) (Confirmations or Other Communications)
    As stated above, NYSE Rule 409T(b) currently allows a customer to 
instruct a firm to direct account statements, confirmations or other 
communications to a third party holding a POA over the account where 
the customer either provided the firm written instructions or the firm 
continued to send the customer duplicate copies of the statements, 
confirmations or other communications.\51\ Proposed Supplementary 
Material .02 would address the transmission of customer account 
statements to third parties in a manner similar, but not identical, to 
NYSE Rule 409T.\52\ FINRA stated that the scope of proposed 
Supplementary Material .02 would be limited to customer account 
statements, and would not apply to confirmations or other 
communications.\53\ FINRA stated that the delivery requirements of 
confirmations are already governed by Exchange Act Rule 10b-10 
(Confirmation of transactions) \54\ and FINRA Rule 2232 (Customer 
Confirmations).\55\ Further, FINRA stated that including the term 
``other communications'' would inappropriately capture unintended 
operational communications with third parties (e.g., custodians, 
transfer agents, and counterparties) where firms need to send 
``communications'' about a customer's account in order to provide a 
service requested for the customer.\56\
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    \51\ See NYSE Rule 409T(b); see also Notice, 86 FR at 55653.
    \52\ See Notice, 86 FR at 55643.
    \53\ See Notice, 86 FR at 55646.
    \54\ 17 CFR 240.10b-10.
    \55\ See Notice, 86 FR at 55646.
    \56\ See Notice, 86 FR at 55651.
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2. Supplementary Material .10(1)-(6) to NYSE Rule 409T (Exceptions to 
NYSE Rule 409T(b))
    Supplementary Material .10 to NYSE Rule 409T establishes exceptions 
to NYSE Rule 409T(b). Specifically, Supplementary Material .10 to NYSE 
Rule 409T states that notwithstanding NYSE Rule 409T(b), a NYSE member 
organization may address confirmations, statements or other 
communications to certain nonmember customers (e.g., trust accounts, 
when a partner, stockholder or employee of a member organization is a 
trustee and has been duly authorized by all other trustees to receive 
communications covering the account).\57\ In light of the proposed 
elimination of NYSE Rule 409T, the proposed rule change would also 
eliminate the exceptions found in Supplementary Material .10(1)-(6) of 
NYSE Rule 409T.
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    \57\ See Supplementary Material .10 to NYSE Rule 409T.
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3. NYSE Rule 409T(e)(1) (Legend on Account Statements Pertaining to 
Firm's Financial Statements)
    NYSE Rule 409T(e)(1) currently requires the inclusion of a legend 
on all account statements that: (1) notifies customers that a financial 
statement of the organization is available for inspection at its 
offices or a copy can be mailed upon request; (2) advises customers (a) 
to report promptly any inaccuracy or discrepancy in that person's 
account to their brokerage firm and (b) if a customer's account is 
subject to a clearing agreement pursuant to Exchange Rule 382, that 
such notification be sent to both the introducing firm and the clearing 
firm; and (3) advises the customer that any oral communications with 
either the introducing firm or the clearing firm should be reconfirmed 
in writing in

[[Page 34732]]

order to further protect the customer's rights under the Securities 
Investor Protection Act (SIPA).\58\ FINRA stated the proposed rule 
change would eliminate this requirement in light of existing 
requirements under: (1) Exchange Act Rule 17a-5(c) (Reports to be Made 
by Certain Brokers and Dealers),\59\ which generally requires broker-
dealers that carry customer accounts to provide statements of the 
broker-dealer's financial condition to their customers; (2) FINRA Rule 
2261 (Disclosure of Financial Condition), which requires a member to 
make information relative to a FINRA member's financial condition 
available for inspection by customers, upon request; \60\ and (3) Rule 
2231(a), which requires a general securities member to include in the 
account statement a statement advising a customer to report promptly 
any inaccuracy or discrepancy in that person's account to the member 
firm, and that any oral communication to the member firm should be 
reconfirmed in writing to further protect the customer's rights, 
including rights under SIPA.\61\
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    \58\ See NYSE Rule 409T(e).
    \59\ See 17 CFR 240.17a-5(c) (Customer Statements).
    \60\ See Notice, 86 FR at 55646.
    \61\ See Notice, 86 FR at 55649.
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4. NYSE Rule 409T(g) (Duplicate Copies of Monthly Statements to 
Guarantors)
    NYSE Rule 409T(g) provides that member organizations carrying 
margin accounts for customers should send duplicate copies of monthly 
statements of guaranteed accounts to the respective guarantors unless 
the guarantors have specifically provided in writing that they do not 
want such statements sent to them. FINRA stated the substance of NYSE 
Rule 409T(g) is consistent with the general requirement in proposed 
Supplementary Material .02 to obtain written instructions from 
customers to send account statements to third parties.\62\ Accordingly, 
the proposed rule change would eliminate NYSE Rule 409T(g).
---------------------------------------------------------------------------

    \62\ See Notice, 86 FR at 55646.
---------------------------------------------------------------------------

5. Supplementary Material .10(7) to NYSE Rule 409T (Holding Customer 
Mail)
    Supplementary Material .10(7) to NYSE Rule 409T states that under 
certain circumstances, a member organization may hold mail for 
customers who will not be at their usual address for the period of 
their absence.\63\ FINRA stated the proposed rule change would 
eliminate the concept of holding customer mail set forth in 
Supplementary Material .10(7) to NYSE Rule 409T. FINRA also stated that 
FINRA members' obligations concerning this activity are addressed in 
FINRA Rule 3150 (Holding of Customer Mail), and that proposed 
Supplementary Material .04 to Rule 2231 would expressly permit members 
to hold customer mail consistent with Rule 3150.\64\
---------------------------------------------------------------------------

    \63\ See Supplementary Material .10(7) to NYSE Rule 409T.
    \64\ See Notice, 86 FR at 55646.
---------------------------------------------------------------------------

6. NYSE Rule Interpretation 409T(a)/03 (Use of Third Party Agents)
    NYSE Rule Interpretation 409T(a)/03 states that prior to utilizing 
a third party agent to prepare and/or transmit statements of accounts 
to customers, an NYSE member organization must represent/undertake in 
writing to NYSE that: (1) the third party is acting as an agent for the 
member organization; (2) the member organization retains responsibility 
for compliance with NYSE Rule 409T(a); (3) the member organization has 
developed procedures/controls for reviewing and testing the accuracy of 
account statements prepared and/or transmitted by the third party 
agent; and (4) the member organization will retain copies of all such 
account statements in accordance with applicable books and records 
requirements.\65\ In addition, NYSE Rule Interpretation 409T(a)/03 
states that the allocation of responsibilities for the preparation and/
or transmission of statements to any person other than a carrying 
organization pursuant to an agreement approved by the NYSE in 
accordance with Exchange Rule 382 (Carrying Agreements) is deemed to be 
utilization of a third party agent; and provides that an introducing 
organization that is a provider of services included in a member 
organization's statements of accounts may not function as a third party 
agent and may not itself prepare and/or transmit such statements.\66\ 
FINRA stated the proposed rule change would eliminate NYSE Rule 
Interpretation 409T(a)/03 because such arrangements are addressed in 
FINRA Rule 4311 (Carrying Agreements) and other relevant guidance.\67\
---------------------------------------------------------------------------

    \65\ See NYSE Rule Interpretation 409T(a)/03.
    \66\ Id.
    \67\ See Notice, 86 FR at note 29 (citing Notice to Members 05-
48 (July 2005) (describing a member's responsibilities when 
outsourcing activities to third party service providers)), and 
accompanying text.
---------------------------------------------------------------------------

7. NYSE Rule Interpretation 409T(b)/01 (Standards for Holding Mail for 
Foreign Customers--NYSE Rule 409T(b)(2) Waivers)
    NYSE Rule Interpretation 409T(b)/01 currently provides detailed 
requirements for a member organization requesting that NYSE agree to 
let it hold a foreign customer's confirmations, statements, and broker-
dealer financial statements.\68\ FINRA stated the proposed rule change 
would eliminate this interpretation because FINRA member obligations 
with respect to holding customer mail are already addressed by FINRA 
Rule 3150 (Holding of Customer Mail), which is referenced in proposed 
Supplementary Material .04 to Rule 2231.\69\
---------------------------------------------------------------------------

    \68\ See NYSE Rule Interpretation 409T(b)/01.
    \69\ See Notice, 86 FR at 55646.
---------------------------------------------------------------------------

D. Technical Changes and Amendment No. 1

    Interpretative Material (``IM'')-1013-1 (Membership Waive-In 
Process for Certain New York Stock Exchange Member Organizations) and 
IM-1013-2 (Membership Waive-In Process for Certain NYSE American LLC 
Member Organizations) describe a waive-in membership application 
process for some member organizations of the NYSE and NYSE American 
LLC.\70\ FINRA stated that, subject to specified terms set forth in 
these interpretative materials, firms admitted to FINRA membership 
through either of these provisions (i.e., ``waived-in firms'') are not 
subject to the remaining FINRA rules that have yet to be harmonized 
with their corresponding NYSE rules or interpretations under the 
Temporary Dual FINRA-NYSE Member Rule Series.\71\ Currently, these 
rules are Rule 2231 and the NYSE Provisions. The proposed rule change 
would amend IM-1013-1 and IM-1013-2 to remove the reference to Rule 
2231 as all waived-in firms will become subject to Rule 2231, as 
amended herein.\72\
---------------------------------------------------------------------------

    \70\ See Notice, 86 FR at 55646-7.
    \71\ See Notice, 86 FR at 55647.
    \72\ Id.
---------------------------------------------------------------------------

    FINRA also proposed Amendment No. 1 to make technical changes to 
the proposed rule change by changing the term ``clearing firm'' to 
``carrying firm'' in the following places: (1) proposed Rule 2231(a); 
(2) proposed Supplementary Material .05(a)-(b) to Rule 2231; (3) 
proposed Supplementary Material .07 to Rule 2231; and (4) proposed 
Supplementary Material .08(d) to Rule 2231.\73\ FINRA stated that 
changing the term ``clearing firm'' to ``carrying firm'' would maintain

[[Page 34733]]

consistency given the proposed supplementary materials are derived 
largely from their corresponding NYSE provisions, which use the term 
``carrying organization.'' \74\
---------------------------------------------------------------------------

    \73\ See OIP and Amendment No. 1, 87 FR at 1202.
    \74\ Id.
---------------------------------------------------------------------------

E. Effective Date

    If the Commission approves the proposed rule change, FINRA will 
announce the effective date of the proposed rule change in a regulatory 
notice to be published no later than 365 days following Commission 
approval.\75\ FINRA also stated that the proposed rule change would 
apply prospectively.\76\ For example, FINRA stated that a member firm 
with a customer having a preexisting arrangement to deliver account 
statements to a third party that was established before the effective 
date of the proposed rule change would not be subject to the 
requirements of proposed Supplementary Material .02 to Rule 2231 solely 
with respect to such account until that pre-existing third party 
delivery arrangement is modified in any manner; further, where any 
existing or new customer of the firm seeks to establish a third party 
delivery arrangement on or after the effective date of the proposed 
rule change, the firm would be subject to the terms of the new 
rule.\77\
---------------------------------------------------------------------------

    \75\ See Notice, 86 FR at 55647.
    \76\ See Notice, 86 FR at 55654.
    \77\ See Notice, 86 FR at note 73 (stating that the proposed 
rule change is not intended to impact preexisting agreements that 
use third party agents if they comport with applicable FINRA rules 
and guidance).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review of the proposed rule change, the comment 
letters,\78\ and FINRA's response to the comments, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Exchange Act and the rules and regulations thereunder that are 
applicable to national securities associations.\79\ Specifically, the 
Commission finds the proposed rule change is consistent with Section 
15A(b)(6) of the Exchange Act, which requires, among other things, that 
FINRA rules be designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, and protect 
investors and the public interest.\80\
---------------------------------------------------------------------------

    \78\ See letters from Bernard V. Canepa, Vice President and 
Assistant General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA'') to Vanessa A. Countryman, Secretary, 
Commission, dated October 27, 2021 (``SIFMA Letter'') (stating that 
``SIFMA understands and fully supports FINRA in its effort to 
protect sensitive customer information from unauthorized persons''); 
Clifford Kirsch and Eric Arnold, Eversheds Sutherland LLP, on behalf 
of Committee of Annuity Insurers (``CAI'') to Secretary, Commission, 
dated October 27, 2021 (``CAI Letter'') (stating that CAI is 
``generally supportive of the proposed changes''); and letter from 
Emily Micale, Director, Federal Regulatory Affairs, Insured 
Retirement Institute, Inc. (``IRI'') to Vanessa A. Countryman, 
Secretary, Commission, dated October 27, 2021 (``IRI Letter'') 
(stating that it ``supports SIFMA's comments with respect to its 
requests and recommendations regarding FINRA's Customer Account 
Statement Proposal''); see also letter from Anonymous, dated October 
28, 2021. Anonymous stated that FINRA should also consider amending 
FINRA Rule 3210 (Accounts at Other Broker-Dealers and Financial 
Institutions) to consider whether the Commission's Consolidated 
Audit Trail could be leveraged to eliminate the operational burden 
associated with complying with Rule 3210. In response, FINRA stated 
that while it appreciates Anonymous' comments, it considers them to 
be outside the scope of the proposed rule change. See FINRA Response 
Letter, at 5.
    \79\ In approving this rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \80\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

A. Proposed Supplementary Materials .01 (Compliance With Rule 4311)

    As stated above, proposed Supplementary Material .01 would remind 
firms of their obligations under Rule 4311, which governs the 
requirements applicable to member firms when entering into agreements 
for the carrying of any customer accounts in which securities 
transactions can be effected. FINRA stated that proposed Supplementary 
Material .01 would emphasize the importance of ensuring the accuracy 
and integrity of customer account statements.\81\ We received no 
comments on this provision.
---------------------------------------------------------------------------

    \81\ See Notice, 86 FR at 55643.
---------------------------------------------------------------------------

    Reminding firms of their obligations under Rule 4311 in 
Supplementary Material .01 to Rule 2231 would help firms comply with 
their regulatory obligations under Rule 4311, which were designed to 
protect their customers. Accordingly, the Commission finds that 
proposed Supplementary Material .01 to Rule 2231 is designed to protect 
investors and is in the public interest.

B. Proposed Supplementary Material .02 (Transmission of Customer 
Account Statements to Other Persons or Entities)

    As stated above, proposed Supplementary Material .02 would prohibit 
FINRA members from sending customer account statements to third parties 
unless the customer provides a member written instructions to do so, 
and the member sends duplicate account statements directly to the 
customer either in paper format or electronically. Proposed 
Supplementary Material .02 would allow FINRA members to cease sending 
duplicate account statements to the customer when a court appoints a 
guardian, conservator, trustee, personal representative or other person 
with legal authority to act on a customer's behalf, and such court-
appointed fiduciary provides the member written instructions to cease 
sending duplicate statements to the customer and an official copy of 
the court appointment that establishes authority over the customer's 
accounts.
    Multiple commenters stated that the proposed Supplementary Material 
.02 would improperly balance investor protection against investor 
preferences.\82\ In particular, commenters stated the requirement to 
send duplicate account statements to customers even when customers 
request otherwise through an agent or attorney-in-fact appointed under 
a valid POA would undermine the customer's intent for naming the 
POA.\83\ Commenters stated also that having the proposed exception only 
available to court-appointed fiduciaries and the proposed electronic 
delivery option are insufficient.\84\ The commenters, therefore, 
recommended that the proposed exception to the continuous delivery 
requirement should be expanded to include agents or attorneys-in-fact 
appointed under a valid durable or springing POA who provide written 
instructions to cease sending statements to customers.\85\
---------------------------------------------------------------------------

    \82\ See SIFMA Letter, at 1 (``Of greatest concern to SIFMA is 
Supplemental Material .02's proposed requirement to continue to send 
duplicate account statements to customers in contravention to their 
express wishes''); see SIFMA Letter, at 2-3 (``the inability to stop 
delivery of account statements to incapacitated or vulnerable 
customers, particularly those living in assisted-living facilities, 
nursing homes, or at home where non-family, paid caregivers 
regularly have access to sensitive customer information and are as 
likely [to] perpetuate fraud against the customer should be just as 
concerning''); see also IRI Letter, at 1 (``IRI expresses its 
support for SIFMA's specific comments presenting recommendations, 
clarifications, and proposals as detailed in [SIFMA's] comment 
letter'').
    \83\ See SIFMA Letter and IRI Letter.
    \84\ See SIFMA Letter and IRI Letter (both stating that 
requiring the delivery of duplicate account statements to vulnerable 
customers is just as likely to result in fraud as allowing POA 
holders to cease delivery because those living in assisted-living 
facilities, nursing homes, or at home, where non-family, paid 
caregivers regularly have access to sensitive customer information 
are just as likely perpetuate fraud as POA holders. Moreover, these 
commenters stated customers often cannot provide the consent 
required to establish electronic delivery of account statements 
because their agents or attorneys-in-fact do not contact the member 
firm until the customer becomes incapacitated.).
    \85\ See SIFMA Letter and IRI Letter (both stating that POAs are 
an integral part of modern estate plans and provide the benefit of 
not having to go to court to have a fiduciary appointed, which can 
be costly, time-consuming, and public).

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

[[Page 34734]]

    In response, FINRA stated that it appreciated the concerns 
commenters raised about customers for whom their agent or attorney-in-
fact may have a protective reason to instruct a firm to stop the 
delivery of account statements, particularly for customers who still 
receive account statements in paper format.\86\ Nonetheless, FINRA 
stated also that the ability to review account statements, in paper 
format or electronically, is a way that customers may discover 
inaccuracies or discrepancies in their accounts, and, potentially, 
unauthorized transactions or financially exploitative activities that 
have occurred in their accounts. FINRA stated that this ability must be 
preserved in all but compelling circumstances.\87\ FINRA also stated 
that fraud or financially exploitative or abusive activity may manifest 
in a variety of ways, including misuse of a POA.\88\ Further, FINRA 
stated that courts appoint fiduciaries based on their objective review 
of the facts and circumstances of a case. Thus, limiting the exception 
to where a court-appointed fiduciary seeks the cessation of the 
delivery of account statements to a customer would appropriately 
balance the investor protection functions of ensuring customers' 
ability to monitor and verify transactions occurring in their accounts, 
by limiting a firm's ability to cease delivery of unwanted duplicate 
account statements only in the kinds of exigent circumstances requiring 
a court-appointed fiduciary.\89\ For these reasons, FINRA declined to 
amend the proposed rule change in response to the commenters' 
concerns.\90\
---------------------------------------------------------------------------

    \86\ See FINRA Response Letter, at 3. FINRA also stated that the 
proposed rule change would establish other protections such as 
proposed Supplementary Material .03, which would allow a customer 
that is concerned about the delivery of account statements in paper 
format to elect to receive such statements electronically. See 
Notice, 86 FR at 55648.
    \87\ See FINRA Response Letter, at 3
    \88\ Id.
    \89\ Id.
    \90\ See FINRA Response Letter, at 9.
---------------------------------------------------------------------------

    Rule 2231's statement delivery requirement provides customers with 
the ability to monitor and verify the transactions occurring in their 
accounts. The ability to review information regarding one's own 
securities account is a critical tool for customers to identify 
inaccuracies, and to detect and report potential fraud and financial 
exploitation involving their accounts on a timely basis. In some 
instances, however, the risk of receiving an account statement, 
particularly in physical form, may be higher than the risks associated 
with being unable to review them. Accordingly, while we acknowledge the 
general importance of customers receiving their account statements, 
there is also a potential risk, in certain cases, of having them 
delivered.
    Permitting a court-appointed fiduciary to request the suppression 
of duplicate account statement delivery to a customer whom the 
fiduciary serves is a reasonable exception to Rule 2231's general 
requirements.\91\ This exception to the requirement to continuously 
provide a customer account statement strikes a reasonable balance 
between the investor protection goals served by a customer's receipt of 
the statement on a continuous basis and the ability to suppress 
delivery in exigent circumstances where a court-appointed fiduciary 
requests the customer's broker-dealer to cease delivery. Further, 
proposed Supplementary Material .02 would not change the ability of 
firms to send account statements to customers electronically, 
consistent with prior Commission guidance.\92\
---------------------------------------------------------------------------

    \91\ The Commission reminds broker-dealers that nothing in Rule 
2231 affects a broker-dealer's obligations with respect to delivery 
of trade confirmations, which remain governed by Exchange Act Rule 
10b-10 and FINRA Rule 2232.
    \92\ See supra note 24 and accompanying text.
---------------------------------------------------------------------------

    Accordingly, for the reasons set forth above, the Commission finds 
that proposed Supplementary Material .02 to Rule 2231 is designed to 
protect investors and is in the public interest.

C. Proposed Supplementary Material .03 (Use of Electronic Media To 
Satisfy Delivery Obligations)

    As stated above, proposed Supplementary Material .03 would allow 
member firms to satisfy their delivery obligations under Rule 2231 by 
using electronic media subject to compliance with standards established 
by the Commission on the use of electronic media for delivery 
purposes.\93\ FINRA stated that this proposed supplementary material 
would be consistent with prior guidance FINRA has issued on the use of 
electronic media to satisfy delivery obligations.\94\ FINRA also stated 
that proposed Supplementary Material .03 would not impose any new 
delivery obligations beyond existing requirements.\95\ We received no 
comments on this provision.
---------------------------------------------------------------------------

    \93\ Id.
    \94\ See supra note 25.
    \95\ See Notice, 86 FR at 55655.
---------------------------------------------------------------------------

    Allowing member firms to satisfy their delivery obligations under 
Rule 2231 by using electronic media subject to compliance with 
standards established by the Commission on the use of electronic media 
for delivery purposes would help firms comply with Rule 2231 by 
providing an alternative to mail for delivering customer account 
statements. In addition, proposed Supplementary Material would help 
ensure that customers continue to receive their account statements 
using their expressed desired delivery method. Accordingly, the 
Commission finds that proposed Supplementary Material .03 to Rule 2231 
is designed to protect investors and is in the public interest.

D. Proposed Supplementary Material .04 (Compliance With Rule 3150)

    As stated above, proposed Supplementary Material .04 would 
emphasize that member firms are permitted to hold customer mail, 
including customer account statements or other communications relating 
to a customer's account, subject to the requirements of Rule 3150, 
which sets forth the requirements applicable to member firms when they 
agree to hold a customer's mail. FINRA stated that proposed 
Supplementary Material .04 reminds firms of existing obligations and 
would not impose any additional burden.\96\ We received no comments on 
this provision.
---------------------------------------------------------------------------

    \96\ See Notice, 86 FR at 55648.
---------------------------------------------------------------------------

    Reminding firms of their obligations under Rule 3150 when they 
agree to hold a customer's mail would help firms comply with their 
regulatory obligations under Rule 3150. Accordingly, for the reasons 
set forth above, the Commission finds that proposed Supplementary 
Material .04 to Rule 2231 is designed to protect investors and is in 
the public interest.

E. Proposed Supplementary Material .05 (Information To Be Disclosed on 
Statement)

    As stated above, proposed Supplementary Material .05 would specify 
the information that must be clearly and prominently disclosed on the 
front of a customer account statement, such as, the identity of the 
introducing and carrying organizations, that the carrying organization 
is a member of SIPC, and the opening and closing account balances for 
the customer's account. FINRA stated that proposed Supplementary 
Material .05 would incorporate without substantive changes NYSE Rule 
Interpretation 409T(a)/02.\97\ Deleting the NYSE rule in favor of a 
global FINRA rule would expand the coverage of these requirements to 
all FINRA members rather than just NYSE members. Proposed Supplementary 
Material .05

[[Page 34735]]

would provide customers with important information about their 
financial professionals and investments to help them evaluate their 
customer account statements. Accordingly, for the reasons set forth 
above, the Commission finds that proposed Supplementary Material .05 to 
Rule 2231 is designed to protect investors and is in the public 
interest.
---------------------------------------------------------------------------

    \97\ Id.
---------------------------------------------------------------------------

F. Proposed Supplementary Material .06 (Assets Externally Held)

    As stated above, proposed Supplementary Material .06 to Rule 2231 
would incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/04, which provides that where a customer account statement 
includes assets the member organization does not have access to and 
which are not included on the member organization's books and records, 
such assets must be clearly and distinguishably separated on the 
account statement. Proposed Supplementary Material .06 would also 
require customer account statements to: (1) clearly indicate that 
externally held assets are included on the statement solely as a 
courtesy to the customer; (2) disclose that information (including 
valuation) for externally held assets included on a statement is 
derived from the customer or other external sources for which the FINRA 
member is not responsible; and (3) identify that such externally held 
assets may not be covered by SIPC.
    One commenter requested that FINRA clarify whether variable annuity 
or other registered annuity contracts would be deemed ``externally 
held'' under proposed Supplementary Material .06 when such contracts 
are held by the issuing insurance company.\98\ The commenter stated 
that it would be most appropriate for these contracts to be deemed 
``externally held'' and subject to proposed Supplementary Material 
.06.\99\
---------------------------------------------------------------------------

    \98\ See CAI Letter.
    \99\ Id.
---------------------------------------------------------------------------

    In response, FINRA stated proposed Supplementary Material .06 is 
not intended to alter the substantive terms or existing guidance 
pertaining to the NYSE's current interpretation for the required 
disclosures on account statements for externally held assets as 
promulgated in NYSE Rule Interpretation 409T(a). Accordingly, proposed 
Supplementary Material .06 should not impact how firms currently treat 
variable annuity or other registered annuity contracts when such 
contracts are held by the issuing insurance company for purposes of 
interpreting ``externally held.'' \100\ Nevertheless, FINRA stated that 
it would address scenarios regarding the application of the new 
supplementary materials, including new Supplementary Material .06, 
through its interpretive process on a case-by-case basis or through 
future rulemaking, as appropriate.\101\ Accordingly, FINRA declined to 
amend the proposed rule change in response to the comment.\102\
---------------------------------------------------------------------------

    \100\ See FINRA Response Letter, at 5-6.
    \101\ See FINRA Response Letter, at 5.
    \102\ See FINRA Response Letter, at 9.
---------------------------------------------------------------------------

    Requiring all FINRA members' (and not just NYSE members') customer 
account statements to disclose how information, including valuation, 
for externally held assets is derived and identifying that such assets 
may not be covered by SIPC would provide useful information to a firm's 
customers when reviewing their investments. Supplementary Material .06 
is reasonably designed to distinguish, on the customer account 
statement, assets the member firm does not carry on behalf of a 
customer, and are not included on the member's books and records, from 
those that are. Accordingly, for the foregoing reasons, the Commission 
finds that proposed Supplementary Material .06 to Rule 2231 is designed 
to protect investors and is in the public interest. The Commission also 
acknowledges FINRA's commitment to provide interpretations about the 
applicability of the rule, including about its applicability to 
specific products, as appropriate.

G. Proposed Supplementary Material .07 (Use of Logos, Trademarks, etc.)

    As stated above, proposed Supplementary Material .07 would address 
a firm's use of logos, trademarks and other similar identification of a 
person on a customer account statement.
    FINRA stated that proposed Supplementary Material .07 would 
incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/05.\103\ FINRA also stated that the proposed Supplementary 
Material .07 would be consistent with the general requirements of Rule 
2210 (Communications with the Public).\104\ We received no comments on 
this provision.
---------------------------------------------------------------------------

    \103\ See Notice, 86 FR at 55645.
    \104\ Id.
---------------------------------------------------------------------------

    Proposed Supplementary Material .07 is substantively similar to 
rules the statutory basis for which the Commission has already 
considered,\105\ and is consistent with FINRA Rule 2210. Further, 
proposed Supplementary Material .07 would provide greater clarity and 
regulatory efficiency to all FINRA member firms. Accordingly, for the 
reasons set forth above, the Commission finds that proposed 
Supplementary Material .07 to Rule 2231 is designed to protect 
investors and is in the public interest.
---------------------------------------------------------------------------

    \105\ See supra note 11.
---------------------------------------------------------------------------

H. Proposed Supplementary Material .08 (Use of Summary Statements)

    As stated above, proposed Supplementary Material .08 to Rule 2231 
would incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/06, establishing obligations where a FINRA member holding a 
customer's account and another person who separately offers related 
financial products or services to the same customer jointly provide 
their respective account statements together with a statement 
summarizing or combining assets held in different accounts.
    Commenters stated that FINRA's description of proposed 
Supplementary Material .08(d) in the Notice differs from the text of 
proposed Supplementary Material .08 and expressed concern that this 
wording difference between the proposed rule text and FINRA's 
description would create confusion for firms determining with whom to 
enter an agreement when preparing a joint statement and requested 
clarification.\106\
---------------------------------------------------------------------------

    \106\ See SIFMA Letter and IRI Letter. Specifically, commenters 
stated that proposed Supplementary Material .08 states that where a 
member firm holds a customer's account and another person(s) who 
separately offers financial related products or services to the same 
customer seek to jointly provide their respective customer account 
statements together with a summary statement, the firm must, among 
other things ``ensure that there is a written agreement between the 
clearing firm and each other person jointly providing its respective 
customer account statements attesting that each such person has 
developed procedures and controls for reviewing and testing the 
accuracy of the information included on its respective statements'' 
(emphasis added). In the Notice, however, FINRA describes proposed 
Supplementary Material .08 as requiring ``a written agreement 
between the parties jointly formulating or distributing combined 
statements with the summary attesting that each entity has developed 
procedures and controls for testing the accuracy of its own 
information included on the statements'' (emphasis added). Id.

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

[[Page 34736]]

    FINRA stated that proposed Supplementary Material .08 is not 
intended to alter the substantive terms or existing guidance pertaining 
to the current NYSE requirements governing the use of summary 
statements.\107\ Accordingly, proposed Supplementary Material .08 would 
not impact how firms currently comply with the supplemental 
obligations.\108\ FINRA also stated that its description of proposed 
Supplementary Material .08 in the Notice does not change the proposed 
requirements of that supplementary material.\109\ Accordingly, FINRA 
stated that similar to NYSE Rule Interpretation 409T(a)/06, under 
proposed Supplementary Material .08, a ``clearing firm'' must be a 
party to a written agreement with each other person jointly providing 
its respective customer account statements.\110\
---------------------------------------------------------------------------

    \107\ See FINRA Response Letter, at 6.
    \108\ Id.; see also Paragraph 4 of NYSE Rule Interpretation 
409T(a)/06.
    \109\ See FINRA Response Letter, at 7.
    \110\ Id.
---------------------------------------------------------------------------

    Proposed Supplementary Material .08 would establish summary 
statement disclosure requirements for all FINRA members (rather than 
just NYSE members). These summary statement disclosure requirements 
(e.g., that the summary statement is provided for the customer's 
convenience, does not replace other statements, identifies where assets 
are held, and which entities are SIPC members) would protect investors 
by clarifying key information about the investors' assets to help them 
evaluate their investments. Accordingly, for the reasons set forth 
above, the Commission finds that proposed Supplementary Material .08 is 
designed to protect investors and is in the public interest.

I. Proposed Deletion of NYSE Rule 409T and NYSE Rule Interpretation 
409T

    FINRA stated that the proposed rule change would delete the NYSE 
Provisions in their entirety on the basis that they are duplicative of 
other existing rules,\111\ are outdated,\112\ or the underlying 
concepts in these provisions will have been included in the proposed 
Supplementary Materials to Rule 2231.\113\ As discussed more fully 
above, the Commission finds that maintaining two versions of 
substantially similar rules could cause confusion and undermine firm 
compliance with their obligations regarding providing account 
statements to their customers, which could erode investor protections. 
For the reasons set forth above, the Commission finds that the proposed 
deletion of the NYSE Provisions is designed to protect investors and is 
in the public interest.
---------------------------------------------------------------------------

    \111\ For example, NYSE Rule 409T(b) and Supplementary Material 
.10 to NYSE Rule 409T allow for the suppression of trade 
confirmations, and NYSE Rule 409T(g) provides that members 
organizations carrying margin accounts for customers should send 
duplicate copies of monthly statements of guaranteed accounts to the 
respective guarantors unless the guarantors have specifically 
declared in writing that they do not want such statements sent to 
them. Because the delivery requirements of confirmations are 
governed by Exchange Act Rule 10b-10 (Confirmation of Transactions) 
and FINRA Rule 2232 (Customer Confirmations), and the general 
requirements of proposed Supplementary Material .02 cover duplicate 
delivery issues, FINRA is not incorporating these provisions into 
Supplementary Material .02. Moreover, NYSE Rule 409T(e)(1) requires 
a legend on account statements notifying customers that this member 
organization's financial statements are available for inspection 
upon request. Because Exchange Act Rule 17a-5(c) (Reports to be Made 
by Certain Brokers and Dealers) and FINRA Rule 2261 (Disclosure of 
Financial Condition) contain similar provisions, FINRA is not 
incorporating these provisions. Additionally, Supplementary Material 
.01(7) to NYSE Rule 409T states that upon the written instructions 
of a customer and with the written approval of a member or 
supervisor of a member organization, a member organization may, 
under certain circumstances, hold mail for a customer who will not 
be at his usual address for the period of his absence, and NYSE Rule 
Interpretation 409T(b)/01 provides guidelines for holding 
confirmations, statements, and broker-dealer financial statements 
for foreign customers. FINRA members' obligations concerning these 
activities are addressed in FINRA Rule 3150 (Holding of Customer 
Mail) and, thus, FINRA would not incorporate these provisions. NYSE 
Rule Interpretation 409T(a)/03 addresses the allocation of 
responsibilities when using third parties to prepare and transmit 
account to customers statements. These arrangements are addressed in 
FINRA Rule 4311 (Carrying Agreements) and other FINRA guidance, and, 
thus, would also not be incorporated. See Notice, 86 FR at 55646.
    \112\ For example, NYSE Rule 409T.10(1) through (6) provide 
exceptions to the requirements of NYSE Rule 409T(b) for persons 
having powers of attorney. As described above, proposed 
Supplementary Material .02 would provide a narrower exception for 
court-appointed fiduciaries. FINRA is therefore not incorporating 
these NYSE terms into Supplementary Material .02. See Notice, 86 FR 
at 55646.
    \113\ See Notice, 86 FR at 55646.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \114\ that the proposed rule change (SR-FINRA-2021-024), 
as modified by Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \114\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\115\
---------------------------------------------------------------------------

    \115\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12169 Filed 6-6-22; 8:45 am]
BILLING CODE 8011-01-P


