The Securities Industry/Regulatory Council on Continuing Education (Council) recently released its Firm Element Needs Analysis Quarterly Highlights (formerly known as Firm Element Advisory) to assist industry participants with the identification of potential topics to include in Firm Element training plans. The Council has identified the topics from a review of the industry, regulatory and self-regulatory organization (SRO) announcements, and publications of significant events.
The Council suggests that firms use the FE Training Ideas Firm Element Needs Analysis Quarterly Highlights as an aid in evaluating and prioritizing their Firm Element needs and developing written training plans. However, firms are reminded to not rely on the report as a comprehensive list of all areas they should consider. This article summarizes the Council’s complete guide and strictly focuses on the “New” material that was listed in the recent Firm Element Advisory (FEA).
SALES AND TRADING: PRODUCTS
(New) Enhancement to ACATS “Receiver Delete” Functionality for Alternative Investments
The NSCC administers ACATS, a system that automates and imposes specified duties and performance timeframes to facilitate the transfer of accounts, in whole or in part, from one firm to another. The NSCC recently announced a change to ACATS that will allow a receiving member (the firm slated to receive the customer’s account) to use the “receiver delete” function to remove alternative investments from an ACATS transfer. This Notice reminds members of their obligations under FINRA Rule 11870.
SALES AND TRADING: MUNICIPAL SECURITIES
(New) MSRB to End Regulatory Relief that Extended Certain Professional Qualification Requirements due to COVID-19
The Municipal Securities Rulemaking Board (MSRB) has announced August 29, 2022, as the expiration date of professional qualifications pandemic-related regulatory relief. Individuals associated with a dealer will have 120 calendar days from August 29, 2022, until December 27, 2022, to satisfy the professional qualification requirements under MSRB Rule G-3(b)(ii) (municipal securities principal); Rule G-3 (b)(iv)(B) (municipal fund securities limited principal); and Rule G-3(c)(ii) (municipal securities sales principal), as applicable. Likewise, registered persons of dealers will have 120 calendar days from August 29, 2022, until December 27, 2022, to complete the requirement under Rule G 3(i)(i)(A) to complete the Regulatory Element portion of continuing education.
(New) MSRB Applies Regulation Best Interest to Bank-Dealers and Amends the Quantitative Suitability Standard for Institutional SMMPs
The Municipal Securities Rulemaking Board (MSRB) received approval from the SEC on June 23, 2022, for amendments to MSRB Rule G 19, on the suitability of recommendations and transactions, and MSRB Rule G-48, on transactions with sophisticated municipal market professionals (SMMPs). The amendments align Rule G-19 to the Commission’s Rule 15l-1 under the Exchange Act (“Regulation Best Interest”) for certain municipal securities activities of bank dealers (the “Bank Dealer Amendment”). The approved amendments to Rule G-48 modify the quantitative suitability obligation of brokers, dealers, and municipal securities dealers (collectively, “dealers”) for certain institutional SMMP customers (the “Quantitative Suitability Amendment”). The compliance date for the Quantitative Suitability Amendment was August 1, 2022. The compliance date for the Bank Dealer Amendment is August 1, 2023.
MARKET INTEGRITY: CAT
(New) CAT Full CAIS Certification and Compliance Deadlines Extended
The Participants have determined to delay the full Customer Account Information System (“CAIS”) compliance deadline from July 11, 2022, to December 12, 2022. This extension of the compliance deadline will assist in addressing reporting challenges and delays in error feedback and processing and will allow time for such issues to be remediated. While the compliance deadline for full CAIS reporting is moving to December 12, 2022, Industry Members are expected to continue testing and now will be required to certify for production system access by July 25, 2022. There are interim reporting requirements between August 15, 2022, and December 5, 2022, to ensure Industry Members can comply with CAIS reporting requirements by December 12, 2022.
MARKET INTEGRITY: PROHIBITED PRACTICES
(New) Digital Signatures
FINRA has received an increasing number of reports regarding registered representatives and associated persons (representatives) forging or falsifying customer signatures, and in some cases signatures of colleagues or supervisors, through third-party digital signature platforms. Firms have, for example, identified signature issues involving a wide range of forms, including account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions, and internal firm documents related to the review of customer transactions. These types of incidents underscore the need for member firms that allow digital signatures to have adequate controls to detect possible instances of signature forgery or falsification. To help firms address the risks these signature forgeries and falsifications present, FINRA is sharing information in this Notice about:
• relevant regulatory obligations;
• forgery and falsification scenarios firms have reported to FINRA; and
• methods firms have used to identify those scenarios.
MARKET INTEGRITY: TRADE PRACTICES
(New) FINRA Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend FINRA Rule 6120 (Trading Halts)
FINRA is proposing to amend FINRA Rule 6120 (Trading Halts) to conform to recent amendments to the NMS plans governing the collection, consolidation, and dissemination of quotation and transaction information for NMS stocks and to make technical and clarifying changes to the rule.
(New) Order Granting Approval of a Proposed Rule Change to Amend the Provisions of NYSE Rule 7.35B
The Exchange approves to modify NYSE Rule 7.35B(f)(2), which sets forth rules pertaining to the cancellation of MOC, LOC, and Closing IO Orders before the Closing Auction Imbalance Freeze, and to making conforming changes to NYSE Rule 7.35B(j)(2)(B).
MARKET INTEGRITY: TRADE REPORTING
(New) Exemption From Trade Reporting Obligation for Certain Transactions on Alternative Trading Systems
FINRA has adopted amendments to Rule 6732 (Exemption from Trade Reporting Obligation for Certain Transactions on an Alternative Trading System) to expand the scope of the exemption to include eligible ATS transactions that involve only one member (other than the ATS). As amended, a member ATS may apply for the exemption for transactions between a member subscriber and a non-member entity (e.g., a bank). The amendments to Rule 6732 become effective on October 3, 2022.
(New) FINRA Adopts Amendments to TRACE Reporting Rule to Require Identification of Portfolio Trades
FINRA has adopted amendments to Rule 6730 (Transaction Reporting) to require members to append a modifier to a corporate bond trade that is part of a portfolio trade when reporting to FINRA’s Trade Reporting and Compliance Engine (TRACE). The amendments to Rule 6730 become effective on May 15, 2023.
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