[Federal Register Volume 76, Number 53 (Friday, March 18, 2011)]
[Notices]
[Pages 15012-15025]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6315]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64080; File No. SR-FINRA-2011-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Establish
a Registration Category, Qualification Examination and Continuing
Education Requirements for Certain Operations Personnel, and Adopt
FINRA Rule 1250 (Continuing Education Requirements) in the Consolidated
FINRA Rulebook
March 14, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 4, 2011, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 1230(b)(6) to establish a
registration category and qualification examination requirement for
certain operations personnel. The proposed rule change also would adopt
continuing education requirements for such operations personnel and
adopt NASD Rule 1120 (Continuing Education Requirements) as FINRA Rule
1250 (Continuing Education Requirements) in the consolidated FINRA
rulebook with minor changes.
The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
Given the growing complexity of the financial services industry and
the importance of services provided by personnel in operations
departments, FINRA is concerned about the potential for regulatory gaps
in the area of registration and education requirements for individuals
performing and overseeing member operations functions. Historically,
federal and state law and self-regulatory organization
[[Page 15013]]
(``SRO'') rules, including NASD Rules 1021 and 1031, have required that
individuals engaged in or supervising the securities or investment
banking business of a member firm be qualified and registered persons.
These requirements generally have applied to, among others, individuals
with customer contact providing advice (sales persons and investment
bankers) or effecting securities transactions (traders) and their
supervisors. However, unregistered individuals who perform and oversee
member operations functions also play an integral role in the business
of the firm, and their activities often have a meaningful connection to
client funds, accounts and transactions. FINRA believes registration
and education requirements for certain operations personnel are needed
to help ensure that investor protection mechanisms are in place in all
areas of a member's business that could harm the member, a customer,
the integrity of the marketplace, or the public.
Proposal
As described in detail below, FINRA is proposing to expand its
registration provisions to require registration of certain individuals
(``covered persons'') who are engaged in, responsible for or
supervising certain member operations functions (``covered functions'')
to enhance the regulatory structure surrounding these areas. The
proposed rule change would amend proposed FINRA Rule 1230 (Registration
Categories) to adopt a new representative registration category and
qualification examination for such individuals (``Operations
Professionals'') \3\ and would expand FINRA's continuing education
requirements to require that Operations Professionals be subject to
Regulatory Element and Firm Element training.
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\3\ See Regulatory Notice 09-70 (December 2009) (FINRA Requests
Comment on Proposed Consolidated FINRA Rules Governing Registration
and Qualification Requirements). The proposed amendments discussed
in this Notice would be included in proposed FINRA Rule 1230
(Registration Categories).
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Generally, covered persons would be those persons who are directly
responsible for overseeing that tasks within the covered functions are
performed correctly in accordance with industry rules, firm protocols,
policies and procedures, and who are charged with protecting the
functional and control integrity of the covered functions for a member.
Only persons who are both ``covered persons'' (i.e., meet the depth of
personnel criteria as discussed in Section A. below) and conduct
activities or functions in one or more of the ``covered functions''
(discussed in Section B. below) would be subject to the new Operations
Professional registration category.
A. Covered Persons for Inclusion in the New Registration Category
The proposed rule change would require the following covered
persons to register with FINRA as an Operations Professional:
(1) Senior management with responsibility over the covered
functions;
(2) Supervisors, managers or other persons responsible for
approving or authorizing work, including work of other persons, in
direct furtherance of the covered functions; and
(3) Persons with the authority or discretion materially to commit a
member's capital in direct furtherance of the covered functions or to
commit a member to any material contract or agreement (written or oral)
in direct furtherance of the covered functions.
Persons who perform a covered function, but whose responsibilities
are below these specified levels, would not be required to register as
Operations Professionals. Members must determine, based on a person's
activities and responsibilities, whether such person would be
considered a covered person and subject to the proposed requirements
for Operations Professionals. A person's job title may not be clearly
indicative of his or her obligation to register as an Operations
Professional.
For the purpose of the proposed third category of covered persons,
any person who has the authority or discretion materially to commit
firm capital in direct furtherance of the covered functions or commit a
firm to a material contract or agreement in direct furtherance of the
covered functions would be required to register as an Operations
Professional. As proposed in supplementary material .06 (Scope of
Operations Professional Requirement), the determination as to what
constitutes ``materially'' or ``material'' would be based on a member's
pre-established spending guidelines and risk management policies.
Generally, persons who do not have the authority or discretion to
commit a member's capital, or to commit a member to a contract or
agreement, above such pre-established spending guidelines and risk
management policies would not be subject to registration as an
Operations Professional under this provision.
Additionally, proposed supplementary material .06 would provide
that any person whose activities are limited to performing a function
ancillary to a covered function, or whose function is to serve a role
that can be viewed as supportive of or advisory to the performance of a
covered function, or who engages solely in clerical or ministerial
activities in a covered function would not be required to register as
an Operations Professional pursuant to paragraph (b)(6)(A) of the
proposed rule. For example, internal audit, legal or compliance
personnel who review but do not have primary responsibility for any
covered function would not be required to register as an Operations
Professional.
Consistent with FINRA guidance, persons subject to the new
Operations Professional registration category would be considered
associated persons of a member irrespective of their employing entity,
and would be subject to all FINRA rules applicable to associated
persons and/or registered persons.\4\ Moreover, any person who meets
the depth of personnel criteria described above in Section A. and is
engaged in one or more covered functions would be required to register
as an Operations Professional. The proposed rule change does not alter
the status of covered persons as associated persons of a member insofar
as they are performing regulated broker-dealer functions on behalf of
the member. Rather, the proposed rule change explicitly imposes
registration, qualification examination and continuing education
requirements on such persons.
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\4\ See Notice to Members 05-48 (July 2005) (Members'
Responsibilities When Outsourcing Activities to Third-Party Service
Providers). The Notice reminds members that ``in the absence of
specific NASD [or FINRA] rules, MSRB rules, or federal securities
laws or regulations that contemplate an arrangement between members
and other registered broker-dealers with respect to such activities
or functions (e.g., clearing agreements executed pursuant to NASD
Rule 3230), any third-party service providers conducting activities
or functions that require registration and qualification under NASD
[or FINRA] rules will generally be considered associated persons of
the member and be required to have all necessary registrations and
qualifications.''
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B. Covered Functions for Inclusion in the New Registration Category
Any person who meets the threshold in one of the three categories
of covered persons identified above in Section A. who conducts
activities or functions for a member in one or more of the following
covered functions would be required to register as an Operations
Professional:
(1) Client on-boarding (customer account data and document
maintenance);
[[Page 15014]]
(2) Collection, maintenance, re-investment (i.e., sweeps) and
disbursement of funds;
(3) Receipt and delivery of securities and funds, account
transfers;
(4) Bank, custody, depository and firm account management and
reconciliation;
(5) Settlement, fail control, buy ins, segregation, possession and
control;
(6) Trade confirmation and account statements;
(7) Margin;
(8) Stock loan/securities lending;
(9) Prime brokerage (services to other broker-dealers and financial
institutions);
(10) Approval of pricing models used for valuations;
(11) Financial control, including general ledger and treasury;
(12) Contributing to the process of preparing and filing financial
regulatory reports;
(13) Defining and approving business requirements for sales and
trading systems and any other systems related to the covered functions,
and validation that these systems meet such business requirements;
(14) Defining and approving business security requirements and
policies for information technology, including, but not limited to,
systems and data, in connection with the covered functions;
(15) Defining and approving information entitlement policies in
connection with the covered functions; and
(16) Posting entries to a member's books and records in connection
with the covered functions to ensure integrity and compliance with the
federal securities laws and regulations and FINRA rules.
The proposed rule change would include persons engaged in or
supervising stock loan/securities lending activities that meet the
depth of personnel as a covered person in Section A. above. FINRA also
is proposing separate registration categories for a ``Securities
Lending Representative'' and a ``Securities Lending Supervisor.'' \5\
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\5\ In Regulatory Notice 09-70, FINRA generally proposes to
adopt the NYSE registration requirements for Securities Lending
Representatives and Securities Lending Supervisors, requiring an
associated person who has discretion to commit a member to any
contract or agreement (written or oral) involving securities lending
or borrowing activities with any other person, and the direct
supervisor of the associated person to register as a Securities
Lending Representative and Securities Lending Supervisor,
respectively. These individuals would be required to register as
such for tracking and oversight purposes, regardless of whether they
are registered in other categories. However, solely for purposes of
registering as a Securities Lending Representative or Securities
Lending Supervisor, an individual will not be subject to a
qualification examination at this time.
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C. Operations Professional Qualification Examination
The proposed rule change would establish a new qualification
examination for Operations Professionals that would provide reasonable
assurance that such individuals understand their professional
responsibilities, including key regulatory and control themes, as well
as the importance of identifying and escalating red flags that may harm
a member, a customer, the integrity of the marketplace, or the
public.\6\ So that applicants understand that they are functioning in a
heavily regulated industry, the proposed Operations Professional
qualification examination would test applicants on general securities
industry knowledge and its associated regulations and rules. Subject to
the proposed exception in Section D. below, any person required to
register as an Operations Professional would be required to pass the
Operations Professional qualification examination before such
registration may become effective.
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\6\ Any individual whose activities go beyond those proposed for
the Operations Professional registration category would be required
to separately qualify and register in the appropriate category or
categories of registration attendant to such activities.
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In general, given the diversity of functions performed by covered
persons, the proposed Operations Professional qualification examination
would be a principles-based qualification examination with a regulatory
focus to test for a broad understanding of a broker-dealer's business
at a basic level, a basic understanding of the operations functions
that support a broker-dealer's business and the regulations designed to
achieve investor protection and market integrity that drive the
operations processes and procedures conducted at a broker-dealer. As
further detailed in Section E. below, the continuing education
components associated with the Operations Professional registration
category would provide competency training specific to the covered
functions, as applicable.
The breadth and depth of coverage of the qualification examination
would be determined through the use of testing industry standards used
to develop examinations, and would include input and advice from
covered persons active in the securities industry. The following are
the proposed key content themes of the new Operations Professional
qualification examination:
Professional Conduct and Ethical Considerations: This
section of the examination would assess a candidate's core knowledge
addressed on other FINRA examinations that are appropriate for an
Operations Professional. The questions would assess knowledge of what
are considered serious violations of securities industry rules. This
section would include ethics-based questions that address issues such
as data integrity, escalation of regulatory red flags and separation of
duties.
Essential Product and Market Knowledge for an Operations
Professional: This section of the examination would assess a
candidate's basic product and market knowledge, including definitions
and characteristics of major product categories (i.e., equities, debt,
packaged securities, options and markets). An Operations Professional
would not be expected to know the same level of detail about the
products and markets as a product specialist or a representative
selling products to customers.
Knowledge Associated with Operations Activities: This
section of the examination would assess a candidate's broad-based
knowledge regarding the covered functions outlined above that support a
broker-dealer's business and the underlying rules that drive the
processes associated with these activities (i.e., customer account set-
up and transfers, recordkeeping requirements, rules associated with the
protection of customer assets and transaction processing, uniform
practices associated with making good delivery of securities, making
payments for securities and meeting settlement requirements, and credit
and margin rules). This section of the examination also would include
ethics-based questions in the context of operations activities.
D. Exception to Operations Professional Examination Requirement
The proposed rule change would include an exception to the
Operations Professional qualification examination requirement for
persons who currently hold certain registrations (each an ``eligible
registration'') or have held one during the two years immediately prior
to registering as an Operations Professional. The proposed exception
also would apply to persons who do not hold an eligible registration,
but prefer an alternative to taking the Operations Professional
examination. Such persons would be permitted to register in an eligible
registration category (subject to passing the corresponding
qualification examination or obtaining a waiver) and use such
registration to qualify for Operations Professional registration.
[[Page 15015]]
A person who wishes to obtain Operations Professional registration
under the proposed exception would not be automatically waived-in, but
would have to opt-in by requesting Operations Professional registration
via Form U4 (the Uniform Application for Securities Industry
Registration or Transfer) in the Central Registration Depository
(``CRD[supreg]'').\7\ If there are no other deficiencies (e.g.,
fingerprints), the Operations Professional registration would be
approved automatically at the time such request is made. Information
regarding the proposed implementation period is discussed in detail in
Section F. below. FINRA would not assess a separate registration fee
for persons relying on the proposed exception to register as Operations
Professionals.
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\7\ A person who qualifies for the proposed exception based on
their having held an eligible registration within the two years
immediately prior to registering as an Operations Professional would
be required to first re-activate such eligible registration prior to
requesting Operations Professional registration.
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FINRA conducted a review of the content outlines for each
qualification examination it recognizes and identified examinations
with broad content coverage that would be eligible for an exception to
the Operations Professional examination requirement. Accordingly,
persons who hold the following representative-level registration
categories, or who have held such registration categories within the
two years immediately prior to registering as an Operations
Professional, would be qualified to register as an Operations
Professional without passing the Operations Professional qualification
examination:
Investment Company Products/Variable Contracts
Representative (Series 6)
General Securities Representative (Series 7)
United Kingdom Securities Representative (Series 17) or
Canada Securities Representative (Series 37 or 38)
Additionally, persons who hold (or have held) certain principal-
level registration categories would be qualified to register as an
Operations Professional without passing the Operations Professional
examination. Most principal-level qualification examinations have a
prerequisite examination requirement that is satisfied with one of the
representative qualification examinations listed above; however, FINRA
also proposes to include principal-level qualification examinations
that do not have a prerequisite, or have a prerequisite that can be met
with a qualification examination not on the above list (e.g., Series
62), because it is likely such principals are familiar with the content
to be covered in the Operations Professional qualification examination
as a result of the requirements of their positions. Specifically,
persons who hold the following principal-level registration categories,
or who have held such registration categories within the two years
immediately prior to registering as an Operations Professional, would
be qualified to register as an Operations Professional without passing
the Operations Professional qualification examination:
Registered Options Principal (Series 4)
General Securities Sales Supervisor (Series 9/10)
Compliance Officer (Series 14)
Supervisory Analyst (Series 16)
General Securities Principal (Series 24)
Investment Company Products/Variable Products Principal
(Series 26)
Financial and Operations Principal (Series 27)
Introducing Broker-Dealer Financial and Operations
Principal (Series 28)
Municipal Fund Securities Limited Principal (Series 51)
Municipal Securities Principal (Series 53)
The proposed exception would not apply to persons whose eligible
registrations are revoked pursuant to FINRA Rules 8310 (Sanctions for
Violation of the Rules) or 8320 (Payment of Fines, Other Monetary
Sanctions, or Costs; Summary Action for Failure to Pay), suspended or
otherwise deemed inactive.\8\
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\8\ If a person's registration in an eligible registration
category was revoked within the prior two years, but such person re-
qualifies and re-registers in such eligible registration category,
he or she may rely on this eligible registration to qualify for the
exception to the Operations Professional qualification examination
requirement. Further, a suspended registration may not be relied
upon as an eligible registration during the suspension period.
Similarly, a registration deemed inactive for any reason (e.g.,
failure to complete continuing education requirements) may not be
relied upon as an eligible registration during such inactive period.
See also FINRA Rule 8311 (Effect of a Suspension, Revocation,
Cancellation, or Bar).
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FINRA notes that covered persons are generally acting in a
supervisory position, so many persons will already hold one of the
eligible registrations that would qualify for the exception to the
Operations Professional examination requirement. As noted in Section A.
above, entry-level operations personnel would not typically be subject
to the proposed requirements for Operations Professionals.
E. Continuing Education Requirements for Operations Professionals
The proposed rule change would require that individuals registered
as Operations Professionals be subject to FINRA's Regulatory Element
and Firm Element continuing education requirements as set forth in
proposed FINRA Rule 1250 (Continuing Education Requirements).\9\ The
continuing education elements for this registration category would
provide more specific learning materials appropriate for an Operations
Professional, given the breadth of functions that are covered by this
registration requirement.
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\9\ See Section G. for further discussion of the adoption of
NASD Rule 1120 (Continuing Education Requirements) as FINRA Rule
1250.
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The Regulatory Element program for Operations Professionals would
provide instruction for Operations Professionals to: (1) Maintain and
improve understanding of the regulatory and ethical aspects associated
with the covered functions; (2) identify suspicious activities and/or
red flags that could harm a customer, a firm, issuers of securities or
the integrity of the marketplace; (3) maintain and improve knowledge
and understanding of the covered functions; and (4) assist the
Operations Professionals in keeping up with changes in the industry and
regulations that impact their work.
Operations Professionals would be required to complete scenario-
based modules based on the key content themes of the Operations
Professional qualification examination, as described in Section C.
above. The breadth and depth of coverage of the modules would be
determined through the use of existing industry standards currently
used to develop continuing education content and would include input
and advice from operations professionals active in the securities
industry. Individuals would be expected to complete the Regulatory
Element continuing education requirement two years after passing the
qualification examination and then every three years thereafter.
Individuals who avail themselves of the proposed exception to the
Operations Professional qualification examination requirement with an
eligible registration described above would be subject to the
Regulatory Element program appropriate for such other registration
category. For example, a person who registers as an Operations
Professional by holding a General Securities Representative
registration (Series 7) under the exception would be subject to the
S101 continuing
[[Page 15016]]
education program in lieu of the Operations Professional Regulatory
Element training, and a person who registers by holding a General
Securities Principal registration (Series 24) would be subject to the
S201 continuing education program in lieu of the Operations
Professional Regulatory Element training.
Operations Professionals also would be subject to Firm Element
training. To implement this change, as further discussed in Section G.
below, the proposed rule change would include Operations Professionals
in the definition of ``covered registered persons'' in proposed FINRA
Rule 1250, and would require that firms deliver Firm Element training
to Operations Professionals subject to the new registration and
qualification requirements.\10\
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\10\ NASD Rule 1120(b) (Continuing Education Requirements) is
currently limited to registered persons who have direct contact with
customers in the conduct of the firm's securities sales, trading and
investment banking activities, any person registered as a research
analyst pursuant to NASD Rule 1050, and to the immediate supervisors
of such persons. The proposed amendments are reflected in the new
FINRA rule governing continuing education, FINRA Rule 1250, which is
being proposed as part of this rule change. See Section G. below.
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F. Implementation of the Proposed Rule Change
As noted above, any person who meets the depth of personnel
criteria described in Section A. and is engaged in one or more covered
functions described in Section B. would be required to register with
FINRA as an Operations Professional. Such persons would be required to
register by doing one of the following, as applicable: (1) Requesting
Operations Professional registration via Form U4 in CRD and passing the
Operations Professional qualification examination; (2) requesting
Operations Professional registration via Form U4 in CRD and opting in
to such registration based on their holding, or having held within the
past two years, an eligible registration; \11\ or (3) requesting
Operations Professional registration via Form U4 in CRD, registering
with FINRA in an eligible registration category and opting in to
Operations Professional registration based on such eligible
registration.\12\
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\11\ Persons with an active eligible registration who request
Operations Professional registration will be automatically granted
Operations Professional registration once they submit such request
via Form U4 in CRD, regardless of when such persons apply for
Operations Professional registration (provided there are no existing
deficiencies). See also supra note 7.
\12\ If a person elects to register with FINRA as an Operations
Professional by newly qualifying in an eligible registration (i.e.,
does not have an active eligible registration when he or she
requests Operations Professional registration via Form U4 in CRD),
such person must contact FINRA upon passing the alternative
examination to request that the eligible registration be applied to
the request for Operations Professional registration. This would
include, for example, a person who requests both the Operations
Professional and General Securities Representative registrations via
Form U4 in CRD and passes the Series 7 examination. Such person
would be required to contact FINRA to alert FINRA staff that the
General Securities Representative registration will be used as an
eligible registration to qualify as an Operations Professional.
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Members must identify persons required to register as an Operations
Professional as of the effective date of the proposed rule change
(``Day-One Professionals'') (i.e., persons who meet the depth of
personnel criteria and are engaged in one or more covered functions as
of the effective date of the proposed rule change). FINRA is proposing
a 60-day identification period beginning on the effective date of the
proposed rule change during which Day-One Professionals must request
registration as an Operations Professional via Form U4 in CRD. During
this 60-day period, a Day-One Professional may function in the capacity
of an Operations Professional. Day-One Professionals who are identified
during the 60-day period and must pass the Operations Professional
examination (or an eligible qualification examination) to qualify
(i.e., persons who do not hold, and have not within the past two years
held, an eligible registration) would be granted 12 months beginning on
the effective date of the proposed rule change to pass such qualifying
examination, during which time such persons may function as an
Operations Professional.\13\ To be eligible to function as an
Operations Professional for the 12-month transition period, Day-One
Professionals subject to an examination requirement must request
Operations Professional registration via Form U4 in CRD during the 60-
day identification period and pass the Operations Professional
examination (or an eligible qualification examination) before the
expiration of 12 months from the effective date of the proposed rule
change.\14\ If a Day-One Professional does not pass an acceptable
examination by the expiration of the 12-month transition period, such
person must cease functioning as an Operations Professional.
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\13\ When a person requests Operations Professional registration
via Form U4 in CRD during the 60-day identification period, an
examination window for the Operations Professional qualification
examination will open in CRD that expires 12 months from the
effective date of the proposed rule change. After the 60-day
identification period, the examination window for the Operations
Professional qualification examination will open for the standard
120 days.
\14\ Members should note that the standard examination window in
CRD applicable to a particular registration category will apply
notwithstanding the 12-month examination window established for
purposes of the transition period. The 12-month examination window
is only for the Operations Professional qualification examination.
Thus, a person who elects to qualify, for example, by passing the
Series 7 examination would have only 120 days to take and pass the
Series 7 examination once the window for such examination is opened
in CRD. Members should plan accordingly so that associated persons
are prepared to take the requisite examination within the prescribed
window for that registration category, and that any requisite
examination is passed before the expiration of the 12-month
transition period for Day-One Professionals.
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The 12-month transition period to pass a qualification examination
would only apply to Day-One Professionals. Any person who is not
subject to the registration requirements for Operations Professionals
as of the effective date of the proposed rule change (i.e., a person
who does not meet the depth of personnel criteria and/or is not engaged
in one or more covered functions as of the effective date, or persons
hired after the effective date of the proposed rule change who will be
placed in such roles) (``non-Day-One Professionals'') would be required
to register as an Operations Professional and, if applicable, pass the
Operations Professional qualification examination (or an eligible
qualification examination), prior to engaging in any activities that
would require such registration. The 60-day identification period and
the 12-month transition period do not affect the obligations of non-
Day-One Professionals to register as an Operations Professional prior
to engaging in functions that would require such registration. However,
any non-Day-One Professional associated with a non-clearing member who
must pass the Operations Professional qualification examination (or an
eligible qualification examination) to obtain registration would be
granted a grace period of 120 days beginning on the date such person
requests Operations Professional registration via Form U4 in CRD to
pass such qualifying examination, during which time such person may
function as an Operations Professional. FINRA believes that allowing a
person associated with a non-clearing member to function as an
Operations Professional for a 120-day period will enable these firms to
manage their more limited staffs to comply with the proposed
registration requirements without disrupting those firms' obligations
to customers. Non-Day-One Professionals associated with a self-clearing
or clearing member would not have the benefit of the 120-day grace
period and would be required to register
[[Page 15017]]
as an Operations Professional prior to engaging in activities that
would require such registration.
Members would be responsible for tracking and monitoring their
associated persons to ensure that such persons are registered, and
conducting their activities, in compliance with the time frames
described above.
G. FINRA Continuing Education Rule
The proposed rule change would adopt NASD Rule 1120 (Continuing
Education Requirements) as new FINRA Rule 1250 (Continuing Education
Requirements). In addition to the proposed change noted in Section E.,
which would expand the scope of ``covered registered persons'' subject
to the Firm Element to include persons registered as Operations
Professionals, the proposed rule change would make additional minor
changes to NASD Rule 1120 to update cross-references and reflect the
conventions of the consolidated FINRA Rulebook.
NASD Rule 1120 and Incorporated NYSE Rule 345A were adopted in 1995
in response to the recommendation of a task force, which subsequently
became the Securities Industry Regulatory Council on Continuing
Education (the ``Council''),\15\ to create uniform continuing education
requirements in the securities industry. As advised by the Council, the
continuing education requirements include a Regulatory Element and a
Firm Element. The NASD and Incorporated NYSE rules are nearly identical
in keeping with the goals of the Council to create uniform continuing
education requirements.\16\
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\15\ The Council is comprised of up to 16 industry members from
broker-dealers, representing a broad cross section of industry
firms, and representatives from SROs as well as liaisons from the
SEC and the North American Securities Administrators Association
(``NASAA'').
\16\ The proposed rule change would not delete Incorporated NYSE
Rule 345A (and its Interpretation). Rather, FINRA expects to address
Incorporated NYSE Rule 345A (and its Interpretation) and propose
additional changes to proposed FINRA Rule 1250 as part of the
consolidated registration and qualification rules. See Regulatory
Notice 09-70 (December 2009).
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The Regulatory Element consists of periodic computer-based training
on regulatory, compliance, ethical, supervisory subjects and sales
practice standards. A registered person is required to participate and
complete a designated Regulatory Element within a 120-day period that
commences with the second anniversary of such person's initial
securities registration, and reoccurs every three years thereafter for
as long as such person remains in the securities business. Failure to
complete the Regulatory Element will result in a registered person's
registration becoming inactive and such person cannot conduct a
securities business on behalf of the member until the requirement is
met.\17\
The Firm Element requirements currently apply to any person
registered with a member who has direct contact with customers in the
conduct of the member's securities sales, trading and investment
banking activities, any person registered as a research analyst
pursuant to NASD Rule 1050, and to the immediate supervisors of such
persons (collectively, ``covered registered persons''). However, as
noted above, the proposed rule change would expand the scope of
``covered registered persons'' subject to the Firm Element to include
persons registered as Operations Professionals. The Firm Element
consists of annual, member-developed and administered training programs
designed to keep covered registered persons current regarding
securities products, services and strategies offered by the member. The
Firm Element requires members to annually evaluate and prioritize their
training needs (i.e., conduct a Needs Analysis and develop a written
plan). In planning, developing and implementing the Firm Element
training, each member must take into consideration its size,
organizational structure, scope of business, types of products and
services it offers, as well as regulatory developments and the
performance of its covered registered persons in the Regulatory
Element. FINRA may require a member to provide specific training to a
member's covered registered persons as FINRA deems appropriate. Each
member must administer its Firm Element Continuing Education Program in
accordance with its annual Needs Analysis and written plan, and must
maintain records documenting the content of the program and completion
of the program by covered registered persons.
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\17\ A registered person will be required to retake the
Regulatory Element in the event such person is: (1) Subject to a
statutory disqualification as defined by Section 3(a)(39) of the
Exchange Act; (2) subject to a suspension or imposition of a fine of
$5,000 or more by an SRO or other securities governmental agency; or
(3) ordered to do so as a sanction in a disciplinary action by an
SRO or other securities governmental agency.
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FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 90 days
following Commission approval. The implementation date will be no later
than 240 days following Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\18\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes the proposed rule change to expand
FINRA's registration and continuing education requirements to
Operations Professionals will help ensure that investor protection
mechanisms are in place in all areas of a member's business that could
harm the member, a customer, the integrity of the marketplace, or the
public.
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\18\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The proposed rule change was published for comment in Regulatory
Notice 10-25 (May 2010) (the ``Notice''). Forty-nine comment letters
were received in response to the Notice.\19\ A copy of the Notice is
attached as Exhibit 2a. A list of the comment letters received in
response to the Notice is attached as Exhibit 2b. Copies of the comment
letters received in response to the Notice are attached as Exhibit 2c.
Below is a summary of the comments and FINRA's responses.
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\19\ All references to the commenters under this Item are to the
commenters as listed in Exhibit 2b.
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General Concerns Regarding the Scope of the New Registration Category
Certain commenters generally opposed the proposed rule change
stating that it is overly broad and ambiguous, poorly defined, imposes
requirements that are unnecessary to meet FINRA's stated objectives and
may have unintended consequences.\20\ Other commenters argued that
licensing requirements do not make people honest or increase their
efficiency or proficiency\21\ and that no amount of
[[Page 15018]]
licensing will change failures of human character.\22\ Two commenters
noted that frauds are almost always committed on the frontlines by
individuals who are already licensed.\23\ Additionally, certain
commenters opposed registration requirements for covered persons
because their work is already supervised and approved by a firm
principal\24\ and holding principals accountable for failures in these
areas would be more cost effective.\25\ Numerous commenters proposed an
alternative approach under which firms would delegate each of the
covered functions to existing registered principals of the firm and
reflect such assignments in the firm's written supervisory procedures
(``WSPs'').\26\ Other commenters noted the proposed rule change is
unnecessary because people who handle customer funds go through
background checks and fingerprinting.\27\
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\20\ ACLI, AIC, Bank of America, Crowell, ESI, Horace Mann, IPA,
IRI, Modern Woodmen, Navidar, NSCP, PSD, Quasar, UPFS, Scottrade,
SIFMA, Sutherland, TIAA, Wellington and Wells Fargo.
\21\ Mutual Trust.
\22\ AIC and Wells Fargo.
\23\ AIC and PSD.
\24\ Crowell, IRI, M. Griffith, PSD and RiverStone.
\25\ Crowell and Wellington.
\26\ IRI, Nationwide, PSD and Sutherland.
\27\ PSD, RiverStone and Wells Fargo.
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In response, FINRA notes that covered persons are performing
regulated broker-dealer functions on behalf of a member, and believes
such persons should be subject to registration, examination and
continuing education requirements to ensure that they attain and
maintain specified levels of competence and knowledge to properly carry
out their responsibilities to the member and its customers. FINRA does
not agree that principal approval or background checks and
fingerprinting are sufficient safeguards to ensure members' operations
departments are functioning in a manner that will promote investor
protection to the highest level possible. The proposed rule change is
intended, among other things, to increase covered persons' awareness
and knowledge that they are operating in a regulated environment
designed to protect investors' interests and the integrity of the
operations of a broker-dealer. In addition, the proposed rule will help
to ensure that any fraudulent activity that may start in the front
office of a firm cannot be processed without passing through a properly
registered and trained Operations Professional. Requiring registration,
testing and training for Operations Professionals should further
strengthen members' compliance with securities laws, rules and
regulations.
Certain commenters expressed concern that requiring registration of
covered persons will dramatically limit the pool of candidates that may
be considered for hiring when personnel changes occur in operations
departments.\28\ As an initial matter, FINRA notes that it is always
correct to state that conduct once regulated becomes constrained by
that regulation, but that observation by itself is not a credible
reason not to engage in the regulation. The proper test is whether that
regulation is appropriately tailored and needed in furtherance of the
interests of investors and the securities markets. The immediate prior
paragraph restates those interests, and the depth of personnel as set
forth in Section A. of the Purpose section demonstrates the appropriate
tailoring of the proposed regulation. Finally, Section D. of the
Purpose section indicates that many candidates for positions that would
require registration may possess an eligible registration and qualify
for an exception from the requirement to take the Operations
Professional qualification examination.
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\28\ NPB and RiverStone.
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Two commenters suggested FINRA reduce the obligations for
Operations Professionals and specify that not all of the rules
applicable to associated persons apply to such persons since they are
generally not customer-facing personnel.\29\ Certain other commenters
sought clarification that the proposed rule change does not eliminate
or limit the ability of a securities issuer and its associated persons
to rely on the issuer exemption under Exchange Act Rule 3a4-1 \30\ to
avoid broker-dealer registration requirements.\31\ Another commenter
requested that FINRA provide guidance on the impact of the proposed
rule change on FINRA Rule 2310 (Direct Participation Programs) and
clearly state that the salaries of Operations Professionals be
categorized as ``non-transaction-based-compensation'' and that there is
a blanket exception from ``underwriting compensation'' for Operations
Professionals.\32\
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\29\ TIAA and Wells Fargo.
\30\ 17 CFR 240.3a4-1.
\31\ PSD, Sutherland and TIAA.
\32\ IPA.
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FINRA does not agree that Operations Professionals should be
subject to a limited set of rules. Covered persons are not only
associated persons of a member but their activities are crucial enough
to the business of a member to require registration with FINRA. The
proposed rule change does not alter a person's status as an associated
person under Exchange Act Rule 3a4-1 or otherwise, nor does it address
the definitions of certain types of compensation under FINRA rules.
However, FINRA recognizes that additional guidance may be needed
following the adoption of the proposed rule change and will address
interpretive questions as needed, similar to FINRA's approach to other
regulatory initiatives with wide-ranging and novel impacts.
Covered Persons for Inclusion in the New Registration Category
Certain commenters requested clarification with respect to proposed
FINRA Rule 1230(b)(6)(A)(i) regarding scope of the term senior
management and whether this provision applies beyond senior managers
with primary or direct responsibility over the covered functions.\33\
Two commenters advocated limiting the depth of personnel for the
proposed rule change to a single category for senior management with
responsibility over the covered functions, and requiring firms to
maintain policies and procedures reasonably designed to ensure that
operations personnel have an awareness of investor protection
mechanisms in place at a firm.\34\
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\33\ IRI, Nationwide, NSCP and TIAA.
\34\ Wellington and Wells Fargo.
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FINRA believes this provision is clear as originally proposed and,
while FINRA understands titles may differ between firms, members should
be able to identify operations personnel that would be subject to
proposed Rule 1230(b)(6)(A)(i) based on their functions and
responsibilities as senior managers overseeing the covered functions.
FINRA would consider any senior manager in the chain of command
responsible for a covered function to be subject to the proposed rule,
up to and including the Principal Operations Officer.\35\ FINRA does
not agree that ``covered persons'' should be limited to senior
management with responsibility over the covered functions because the
proposed registration category is intended to include other individuals
who exercise supervisory and discretionary authority in direct
furtherance of the covered functions. Accordingly, FINRA has not
proposed changes to proposed FINRA Rule 1230(b)(6)(A)(i).
---------------------------------------------------------------------------
\35\ See Regulatory Notice 09-70 (December 2009) for a
discussion of the Principal Operations Officer registration
category. See also infra note 61 and accompanying text.
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Proposed FINRA Rule 1230(b)(6)(A)(ii) would include as covered
persons supervisors, managers or other persons responsible for
approving or authorizing work, including work of other persons, in
direct furtherance of the covered functions. One commenter suggested
the proposed rule explicitly state that
[[Page 15019]]
covered persons are limited to those persons with decision-making and/
or oversight authority.\36\ Certain commenters requested that FINRA
clarify what is meant by the phrase ``approve or authorize work.'' \37\
Other commenters stated that this provision is written too broadly;
\38\ creates potential for misinterpretation in determining how far up
or down the reporting chain this registration requirement would apply;
\39\ could sweep in affiliate employees, mid or low level
employees,\40\ third-party vendors \41\ and margin clerks; \42\ and
that it should be limited to supervisors, managers or other persons
responsible for primary oversight of covered functions, including
managers for dual hat employees.\43\ One commenter suggested that FINRA
revise this provision to clarify that supervisors and managers be
senior members of their respective departments or units.\44\ Numerous
commenters recommended deleting the phrase ``work of other persons''
because it is unclear.\45\
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\36\ Morgan Stanley.
\37\ ESI, NFP, TIAA and UPFS.
\38\ ACLI, NSCP, Quasar and Wells Fargo.
\39\ ACLI.
\40\ Morgan Stanley.
\41\ Schwab.
\42\ Scottrade.
\43\ ARM, TIAA and Wells Fargo.
\44\ Bank of America.
\45\ Bank of America, IPA, SIFMA and Wells Fargo.
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FINRA believes proposed FINRA Rule 1230(b)(6)(A)(ii) is clear as
proposed and notes that it consulted with industry representatives in
developing the proposed rule change, including the definition and
appropriate depth of personnel to be subject to the Operations
Professional registration category. As noted above, FINRA believes
members will be able to identify supervisors, managers or other persons
responsible for approving or authorizing work in direct furtherance of
the covered functions based on their functions and responsibilities.
The phrases ``approve or authorize work'' and ``work of other persons''
are not legal terms of art but, rather, comport with commercially
understood operating terms and do not require clarification.
Accordingly, FINRA has not revised this provision as suggested by the
commenters; however, FINRA proposes a minor modification to the
original proposal by re-locating the phrase ``including the work of
other persons'' to streamline the provision, as reflected in Section A.
of the Purpose section.
As originally proposed in the Notice, FINRA Rule 1230(b)(6)(A)(iii)
required registration as an Operations Professional for persons with
the authority or discretion to commit the member's capital in direct
furtherance of the covered functions or to commit the member to any
contract or agreement (written or oral) in direct furtherance of the
covered functions. Certain commenters stated this provision is unclear
and too far-reaching \46\ and noted it would capture persons who
perform routine, daily activities, or enter into agreements consistent
with firm policies that have no material impact on firm operations
(including margin clerks, who often have flexibility to obligate firm
capital up to certain limits).\47\ Two commenters noted that the
provision should only be triggered if the contracts are sufficiently
material to the firm.\48\ One commenter noted that it may be so broad
as to require registration of junior associates if they sign or approve
contracts, retain vendors or make clerical postings to the books of a
member.\49\ Another commenter noted that this provision is inconsistent
with the first two categories of covered persons, which focus on senior
managers, supervisors and those who approve work in the covered
functions.\50\ Another commenter requested clarification with respect
to the term ``firm capital'' because it could sweep in persons who
approve the payment of vendor invoices for services related to some
aspect of a covered function.\51\ Two commenters noted it is unclear
what individuals, other than those engaged in or supervising securities
lending activities, the proposed third category of covered persons
intends to cover and suggested certain amendments to clarify the
proposal with respect to such persons.\52\
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\46\ Bank of America, TIAA and NSCP.
\47\ T. Rowe Price and Wells Fargo.
\48\ Bank of America and TIAA.
\49\ Bank of America.
\50\ SIFMA.
\51\ Scottrade.
\52\ Morgan Stanley and SIFMA.
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Based on the comments, FINRA has revised the third category of
covered persons from the original proposal in the Notice, as discussed
in Section A of the Purpose section. Under the revised proposal, FINRA
Rule 1230(b)(6)(A)(iii) would require persons with the authority or
discretion materially to commit a member's capital in direct
furtherance of the covered functions or to commit a member to any
material contract or agreement (written or oral) in direct furtherance
of the covered functions to register as an Operations Professional.
FINRA purposefully did not limit the third category of covered persons
to supervisors and managers because the capacity to make material
discretionary decisions above a member's pre-established spending
guidelines and risk management policies under this provision is not
confined to senior or supervisory personnel.
Numerous commenters suggested that FINRA add language to the
proposed rule to clarify, as stated in the Notice, that the proposed
rule does not apply to persons who perform functions ancillary to a
covered function or whose function is to serve a role that can be
viewed as supportive of, or advisory to, the performance of a covered
function, such as internal audit, legal or compliance personnel.\53\
One commenter further urged FINRA to add rule language to note that
individuals performing quality assurance and quality control functions
in direct furtherance of a covered function are similarly excluded.\54\
One commenter noted that registering clerical personnel only increases
costs unnecessarily and creates hiring barriers for new applicants.\55\
One commenter requested that FINRA provide specific examples of
activities it deems ministerial or clerical in nature, especially when
such activities require Financial and Operations Principal review and
control procedures.\56\
---------------------------------------------------------------------------
\53\ Bank of America, FSI, NSCP, Scottrade, SIFMA and TIAA.
\54\ TIAA.
\55\ Martin Nelson.
\56\ Quasar.
---------------------------------------------------------------------------
Based on the comments, and as noted in Section A. of the Purpose
section of this rule filing, FINRA is proposing supplementary material
.06 to the proposed rule to clarify that any person whose activities
are limited to performing a function ancillary to a covered function,
or whose function is to serve a role that can be viewed as supportive
of or advisory to the performance of a covered function (e.g., internal
audit, legal or compliance personnel who review but do not have primary
responsibility for any covered function), or who engages solely in
clerical or ministerial activities in a covered function would not be
required to register as an Operations Professional. FINRA declines to
provide examples of clerical and ministerial activities at this time,
believing the term to be well understood in the industry;\57\ however,
as noted above, FINRA will consider issuing additional guidance as
needed regarding the categories of persons subject to the Operations
Professional registration category.
---------------------------------------------------------------------------
\57\ See, e.g., NASD Rule 1060 (Persons Exempt from
Registration).
---------------------------------------------------------------------------
One commenter encouraged FINRA to clarify whether an Operations
[[Page 15020]]
Professional must be supervised by a qualified supervisory
principal.\58\ Another commenter requested clarification regarding
whether a firm must assign or designate an Operations Professional and
whether a person who is already a registered principal must register as
an Operations Professional.\59\
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\58\ Pershing.
\59\ Crowell.
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As noted above, as registered persons, Operations Professionals
will be subject to all FINRA rules applicable to associated persons
and/or registered persons. Accordingly, pursuant to NASD Rule
3010(a)(5), each Operations Professional must be assigned to an
appropriately registered representative(s) and/or principal(s) who
shall be responsible for supervising that person's activities.
Additionally, FINRA expects that each member would have at least one
registered Operations Professional, who often may be the member's
Financial and Operations Principal and/or the Principal Operations
Officer. In this regard, neither principal registration, nor
representative registration in another category, obviates the
requirement for a covered person to register as an Operations
Professional. As noted in Section D. of the Purpose section, there are
numerous eligible registrations that would except such registered
persons from the requirement to pass the Operations Professional
qualification examination.
Certain commenters inquired as to the proposed rule change's
relationship to, and consistency with, the proposals set forth in
Regulatory Notice 09-70 \60\ and two commenters requested clarification
regarding how the proposed requirement under Regulatory Notice 09-70
that firms appoint a distinct Principal Operations Officer and a
distinct Principal Financial Officer intersects with the proposed
Operations Professional designation.\61\
---------------------------------------------------------------------------
\60\ PSD, Sutherland and Wells Fargo.
\61\ IRI and TIAA.
---------------------------------------------------------------------------
The proposed rule change does not conflict with the proposals set
forth in Regulatory Notice 09-70. The proposed rule change should be
read as a separate registration requirement that will be added to the
consolidated FINRA registration rules. To note, the proposed rule
change would include persons engaged in or supervising stock loan/
securities lending activities that meet the depth of personnel as a
covered person in Section A. above. FINRA also is proposing separate
registration requirements for a ``Securities Lending Representative''
and a ``Securities Lending Supervisor'' in Regulatory Notice 09-70;
consequently, firms should be aware of both sets of proposed
requirements.\62\ With respect to the proposed requirements in
Regulatory Notice 09-70 for Principal Operations Officers and Principal
Financial Officers, such persons likely would be required to register
as an Operations Professional, depending on whether they meet the
criteria of a covered person as described in Section A. of the Purpose
section. The requirement for a covered person to register as an
Operations Professional applies regardless of any other, separate
registration requirements; however, such other registration may be used
as an eligible registration to qualify a covered person for an
exception from the requirement to take the Operations Professional
qualification examination.
---------------------------------------------------------------------------
\62\ See supra note 5.
---------------------------------------------------------------------------
One commenter noted the proposed rule change could have costly and
burdensome implications regarding state registration and licensing so
FINRA should be as clear as possible in defining who is covered under
the proposed rule change.\63\ As noted above, FINRA believes the
definitions of covered persons are sufficiently clear and will provide
additional guidance as needed regarding the scope of persons subject to
the new requirements.
---------------------------------------------------------------------------
\63\ NSCP.
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Covered Functions for Inclusion in the New Registration Category
Numerous commenters stated that the covered functions as proposed
in the Notice are too broad, unclear and inconsistent, and will incur
unnecessary costs for firms.\64\ The commenters requested more precise
descriptions of the covered functions.\65\ One commenter requested that
FINRA clarify that the covered functions apply only to activities
performed by or on behalf of a firm's securities and investment banking
business.\66\ Two commenters urged FINRA to group dependent technology-
related covered functions into a single entry.\67\ Another commenter
suggested that certain functions be deleted because they are roles that
support other covered functions and are not stand-alone functions.\68\
---------------------------------------------------------------------------
\64\ Commonwealth, Crowell, ESI, FSI, IPA, IRI, Modern Woodmen,
Morgan Stanley, NFP, Northwestern Mutual, NSCP, PSD, TIAA, SIFMA,
Sutherland, UPFS and WSFG.
\65\ Commonwealth, Crowell, ESI, FSI, IPA, IRI, Modern Woodmen,
Morgan Stanley, NFP, Northwestern Mutual, NSCP, PSD, TIAA, SIFMA,
Sutherland, UPFS and WSFG.
\66\ TIAA.
\67\ Morgan Stanley and NSCP.
\68\ Schwab.
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Based on the comments, FINRA has made certain changes to the
covered functions as originally proposed in the Notice to clarify and
streamline the proposed rule. As a general matter, FINRA has revised
the list of covered functions, as reflected in Section B. of the
Purpose section, to group related functions together. Substantive
revisions to the covered functions are described in detail below.
To clarify the proposed rule change, FINRA has revised Rule
1230(b)(6)(B)(i) (as originally proposed in the Notice) by limiting
this covered function to the ``[a]pproval of pricing models used for
valuations,'' instead of the ``[d]evelopment and approval of pricing
models used for valuations.'' FINRA also moved this provision to
proposed Rule 1230(b)(6)(B)(x).
Two commenters requested a definition for the term ``client on-
boarding'' in proposed FINRA Rule 1230(b)(6)(B)(v) (as originally
proposed in the Notice).\69\ FINRA notes from its consultation with
industry representatives in the rule development process that this is a
term commonly used for this covered function and believes the proposed
rule text provides sufficient clarity (i.e., ``[c]lient on-boarding
(customer account data and document maintenance)'').
---------------------------------------------------------------------------
\69\ PSD and Sutherland.
---------------------------------------------------------------------------
Numerous commenters requested clarification with respect to the
scope of proposed FINRA Rule 1230(b)(6)(B)(vi) (as originally proposed
in the Notice), the covered function addressing the ``[c]apturing of
business requirements for sales and trading systems and any other
systems related to the covered functions, and validation that these
systems meet such business requirements.'' \70\ One commenter noted
that this provision should apply only to individuals who ``define and
approve'' business requirements, rather than individuals who
``capture'' such requirements.\71\ Similarly, to reduce the likelihood
of inadvertently capturing personnel who merely prepare initial drafts
of business requirements documents and who perform routine quality
assurance or quality control testing, two commenters suggested
incorporating the concepts of ``accepting'' and ``approving'' in lieu
of ``capturing'' and ``defining'' for the covered functions that
include these terms.\72\
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\70\ ESI, FSI, Horace Mann, Modern Woodmen, NFP, Scottrade, TIAA
and UPFS.
\71\ Northwestern Mutual.
\72\ Bank of America and SIFMA.
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Based on the comments, FINRA has revised the original proposal to
[[Page 15021]]
eliminate the concept of ``capturing'' in proposed FINRA Rule
1230(b)(6)(B)(vi). The proposed rule change renumbers this provision as
proposed FINRA Rule 1230(b)(6)(B)(xiii) and includes as a covered
function, ``[d]efining and approving business requirements for sales
and trading systems and any other systems related to the covered
functions, and validation that these systems meet such business
requirements.'' FINRA has not eliminated the concept of ``defining''
from the covered functions because it believes covered persons who are
responsible for defining and approving business system requirements are
professional level staff that should be subject to registration with
FINRA. The covered functions generally would not include a person who
engages in administrative responsibilities, such as an initial drafter
or a code developer. However, a person who supervises or approves such
activities generally would be required to register as an Operations
Professional.
Additionally, certain commenters requested clarification with
respect to proposed Rule 1230(b)(6)(B)(vii) (as originally proposed in
the Notice), which includes as a covered function, ``[w]ith respect to
the covered functions, defining and approving business security
requirements and policies for information technology (including, but
not limited to, systems and data).'' \73\ One commenter noted that this
function should only require persons who ``approve'' business
requirements for systems and information technology to register so that
the final approvals for technology requirements are performed by
licensed Operations Professionals.\74\
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\73\ ESI, FSI, Horace Mann, Modern Woodmen, NFP, Scottrade and
UPFS.
\74\ Morgan Stanley.
---------------------------------------------------------------------------
FINRA has made minor changes to the original proposal with respect
to Rule 1230(b)(6)(B)(vii). The proposed rule change renumbers this
provision as proposed FINRA Rule 1230(b)(6)(B)(xiv) and includes as a
covered function, ``[d]efining and approving business security
requirements and policies for information technology, including, but
not limited to, systems and data, in connection with the covered
functions.'' As noted above, FINRA believes that covered persons
engaged in defining and approving business security requirements and
policies for information technology should be registered as Operations
Professionals.
One commenter requested clarification with respect to proposed Rule
1230(b)(6)(B)(viii) (as originally proposed in the Notice), which
includes as a covered function, ``[d]efining information entitlement
policy in connection with the covered functions.'' \75\
---------------------------------------------------------------------------
\75\ Scottrade.
---------------------------------------------------------------------------
Based on the comments and in line with the changes noted above,
FINRA has revised Rule 1230(b)(6)(B)(viii). The proposed rule change
renumbers this provision as proposed FINRA Rule 1230(b)(6)(B)(xv) and
includes as a covered function, ``[d]efining and approving information
entitlement policies in connection with the covered functions.''
One commenter recommended that FINRA combine paragraphs
(b)(6)(B)(vii) and (viii) (as originally proposed in the Notice) since
both sections cover overlapping sets of supervisors in the Information
Management area.\76\ Another commenter noted that proposed FINRA Rules
1230(b)(6)(B)(vi), (vii), (viii) and (xv) are not separate functions
but are ancillary to other covered functions and may require managers
from both the actual covered functions and these ancillary areas to
register.\77\ One commenter requested clarification that FINRA Rules
1230(b)(6)(B)(vi), (vii) and (viii) (as originally proposed in the
Notice) are limited to only those individuals directly employed by the
FINRA member.\78\ Another commenter suggested limiting these provisions
to individuals responsible for ensuring that systems related to sales
and trading and to covered functions meet business and regulatory
requirements and ``information security'' (firewalls, data access, and
system entitlements in connection with the covered functions).\79\
---------------------------------------------------------------------------
\76\ Bank of America.
\77\ NSCP.
\78\ IPA.
\79\ SIFMA.
---------------------------------------------------------------------------
FINRA believes that the proposed revisions to these provisions
noted above clarify the proposed rule and is not proposing further
changes at this time. FINRA notes that these covered functions should
remain as separate items since they address different activities (e.g.,
defining, approving and validating business requirements for sales and
trading systems or other systems relating to the covered functions vs.
defining and approving entitlement policies in connection with the
covered functions) and firms may have different internal reporting
structures so that these activities are not part of the same area or
subject to the same supervisory scheme.
Certain commenters suggested deleting proposed Rule
1230(b)(6)(B)(xv) (as originally proposed in the Notice), which
includes as a covered function, ``[p]osting entries to the books and
records of a member in connection with the covered functions,'' because
it is ambiguous, too broad \80\ and may sweep in clerical staff.\81\
Another commenter requested clarification regarding the term ``books
and records'' and requested that FINRA add a reference to Exchange Act
Rule 17a-3 \82\ or MSRB Rule G-8.\83\ Two commenters recommended that
FINRA revise this provision to tailor it to separate regulatory issues
such as customer protection or financial responsibility concerns.\84\
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\80\ Bank of America and SIFMA.
\81\ Crowell and SIFMA.
\82\ 17 CFR 240.17a-3.
\83\ Rockfleet.
\84\ Morgan Stanley and SIFMA.
---------------------------------------------------------------------------
FINRA has revised Rule 1230(b)(6)(B)(xv) to clarify this covered
function. The proposed rule change renumbers this provision as FINRA
Rule 1230(b)(6)(B)(xvi) and includes as a covered function, ``[p]osting
to a member's books and records in connection with the covered
functions to ensure integrity and compliance with the federal
securities laws and regulations and FINRA rules.''
One commenter noted that some of the covered functions may cause
confusion with respect to other registration categories, including
proposed FINRA Rules 1230(b)(6)(B)(ix) and (xiv) (as originally
proposed in the Notice), the covered functions for ``[f]inancial
controller (including general ledger)'' and ``[f]inancial regulatory
reporting,'' respectively, and the functions supervised by the
financial and operations principal, and may overlap with the proposed
designation of the Principal Operations Officer under Regulatory Notice
09-70.\85\ Based on the comment, FINRA has revised these items. The
proposed rule change renumbers these items as proposed FINRA Rules
1230(b)(6)(B)(xi) and (xii), respectively, and includes as covered
functions, ``[f]inancial control, including general ledger and
treasury'' and ``[c]ontributing to the process of preparing and filing
financial regulatory reports.'' FINRA does not agree that the proposed
rule change causes confusion with respect to other registration
requirements. Members must determine whether the proposed registration
requirements for Operations Professionals would apply to an associated
person based on his or her functions and responsibilities
[[Page 15022]]
notwithstanding any other, separate registration requirements.
---------------------------------------------------------------------------
\85\ IRI.
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One commenter noted that the title of the proposed registration
category is too narrow and not reflective of the covered functions.
Alternatively, the commenter suggested that the registration category
should be titled ``Operations, Support or Securities Lending
Professionals.'' \86\ FINRA believes that the proposed title for the
new registration category, Operations Professionals, is appropriate and
succinctly captures the individuals to which the proposed requirements
would apply given the breadth of activities covered under the proposed
rule change.
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\86\ SIFMA.
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Certain commenters requested clarification that ongoing insurance
company functions relating to variable annuity contracts as well as
other functions performed by insurance company staff are not included
in the covered functions.\87\ FINRA does not intend to make any
categorical exclusions from the covered functions. The proposed
requirements will apply if a person meets the depth of personnel
criteria and engages in one or more covered function on behalf of a
member regardless of where they are employed.
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\87\ IRI, PSD and Sutherland.
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Operations Professional Qualification Examination
One commenter noted that elements of the qualification examination
and continuing education requirements have no relevance to the products
and operations of limited purpose broker-dealers that comprise more
than 50% of FINRA's membership.\88\ Other commenters noted that the two
areas of proposed examination coverage, ``essential product and market
knowledge for an Operations Professional'' and ``knowledge associated
with operations activities,'' should be eliminated from the examination
curriculum because they undercut FINRA's premise that it will not be a
``competency'' examination and render the test extremely challenging
for many operations personnel since they lack the background and
experience to pass the examination and have little testing
experience.\89\ Another commenter similarly noted that the proposed
examination requirement could result in well-qualified employees losing
their jobs and firms' operations departments could have compromised
functionality, and supervision (i.e., a ``brain drain'') of qualified
operations personnel, thus undermining the goals of the proposal.\90\
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\88\ ACLI.
\89\ NSCP and ACLI.
\90\ NSCP.
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Numerous commenters stated that an examination is unnecessary
because training and education for operations personnel should be
addressed in a member's WSPs \91\ and registered principals are
responsible for training operations personnel.\92\ To reduce cost
burdens on firms, certain commenters recommended ongoing training
requirements as an alternative to registration and testing of
operations personnel.\93\ Certain other commenters noted that FINRA can
address operations personnel through registration and continuing
education \94\ and an examination not based on competency serves no
essential function.\95\ One commenter stated that the Series 27 and 28
examinations already test for the covered functions, so a new exam is a
poor use of member firm fees and will unnecessarily delay
implementation of the proposal.\96\
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\91\ FSI, M. Griffith, Navidar and PSD.
\92\ Modern Woodmen and Martin Nelson.
\93\ Harrison, NSCP, RMOA and Wells Fargo.
\94\ Commonwealth, ESI, FSI, Horace Mann, NFP, UFPS and WSFG.
\95\ Horace Mann, JRCO, Modern Woodmen, NSCP, RMOA, Rockfleet,
UPFS and WSFG.
\96\ Rockfleet.
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One commenter noted that based on the definition of a covered
person, the Operations Professional qualification examination should be
a principal-level examination with corresponding continuing education
requirements.\97\ One commenter requested that FINRA publish a study
outline for notice and comment prior to making the test effective.\98\
Another commenter recommended that FINRA offer the proposed examination
as an optional test for people who want to learn about back-office, but
not as a mandatory examination for Operations Professional
registration.\99\
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\97\ Rockfleet.
\98\ NSCP.
\99\ M. Griffith.
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FINRA believes the qualification examination requirement is
appropriate as proposed. The proposed examination is being tailored to
test for basic securities industry knowledge and ethics. Although the
examination will not test for proficiency with respect to the specific
covered functions, FINRA believes there is value in an examination that
tests for general knowledge about the securities industry. The proposed
examination will be appropriately tailored to individuals subject to
the proposed registration requirements. It is crucial for covered
persons to understand their professional responsibilities, including
key regulatory and control themes, as well as the importance of
identifying and escalating red flags that may harm a firm, its
customers, the integrity of the marketplace, or the public.
Additionally, FINRA believes a representative-level examination is
appropriate for Operations Professionals because the proposed
registration category is based on functions performed by operations
personnel and is not limited to supervisory or managerial staff (e.g.,
persons who fall within proposed FINRA Rule 1230(b)(6)(A)(ii) and
(iii)).
One commenter suggested that FINRA modify the period for retaking
the Operations Professional qualification examination if an applicant
fails to 30 days like the Series 55.\100\ FINRA does not intend to
change its policy regarding the re-taking of qualification examinations
for the proposed Operations Professional examination at this time.
FINRA will reconsider the policy if it finds it to be a necessary step
when the qualification examination for Operations Professionals is
administered.
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\100\ Schwab.
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Exception to Operations Professional Examination Requirement
One commenter noted that the proposed exceptions are so numerous
that they dilute the regulatory intent of the proposed rule change;
instead, FINRA should grant a limited number of exceptions to current
operations employees.\101\ One commenter recommended FINRA incorporate
an exception for certain small firms.\102\ One commenter suggested that
registered principals should be completely exempt from the proposed
Operations Professional requirements; \103\ other commenters suggested
that the proposed rule change should only apply to currently
unregistered persons because the potential costs and burdens involved
with tracking and monitoring multiple registrations outweigh the
benefits.\104\ One commenter suggested FINRA permit firms to identify
any relied upon registration for the proposed exception in their WSPs
instead of a U4 amendment, as is required currently for any person in a
supervisory role.\105\
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\101\ NASAA.
\102\ Freestone.
\103\ NSCP.
\104\ Northwestern Mutual and T. Rowe Price.
\105\ T. Rowe Price.
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Certain other commenters recommended a grandfather provision for
experienced persons who have worked in operations areas for a certain
[[Page 15023]]
time period (e.g., three \106\ or five \107\ years) prior to the
implementation of the proposed rule.\108\ Two commenters requested that
FINRA extend the proposed exception to registrations held beyond the
two-year look back.\109\ One commenter noted that there are costs and
burdens of a two-year look back without a concomitant benefit.\110\
Additionally, one commenter suggested that FINRA consider incorporating
standards within its Qualification Examination Waiver Guidelines that
will accommodate individuals that possessed an eligible registration
within a reasonably recent time period and have been performing an
Operations Professional role for a reasonable period of time.\111\ This
commenter also suggested that FINRA finalize the permissive
registration regime contemplated in Regulatory Notice 09-70 prior to
implementing a new Operations Professional designation, which would
provide firms and their personnel with the option to maintain licenses
while the registered person occupies a non-registered position.\112\
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\106\ Commonwealth.
\107\ FSI, PSD and Sutherland.
\108\ FSI, Modern Woodmen, NFP, UPFS and WSFG.
\109\ Nationwide and TIAA.
\110\ IRI.
\111\ TIAA.
\112\ TIAA.
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FINRA believes the proposed rule change clearly articulates the
exception to the Operations Professional qualification examination
requirement.\113\ A primary purpose of the proposed qualification
examination is to assess a covered person's basic understanding of the
securities industry and the requirement to take a registration
examination serves to alert such person of the role he or she plays in
this highly regulated environment. Thus, FINRA believes the eligible
registrations (and corresponding examinations) serve as a valid proxy
for the Operations Professional examination requirement.
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\113\ The Notice included as an eligible registration the
General Securities Principal--Sales Supervisor Module (Series 23).
FINRA has removed this examination from the list of eligible
registrations. A person who passes the Series 9/10 and the Series 23
may obtain the General Securities Principal (Series 24)
registration, but a person who passes solely the Series 23 is not
considered registered in any capacity.
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FINRA believes the two-year look back for the eligible
registrations is appropriate and has not revised the proposal to extend
this time period. The proposed look back is based on the window during
which an associated person remains eligible to re-activate his or her
registration based on previously qualifying for and holding such
registration. A person who qualifies for the proposed exception based
on their having held an eligible registration within the two years
immediately prior to registering as an Operations Professional would be
required to first re-activate such eligible registration prior to
requesting Operations Professional registration.\114\ Under NASD Rules
1021 and 1031, members are permitted to maintain or make application
for registration as a registered principal or registered representative
for a person who performs back-office operations, among other things.
As such, firms are not currently prohibited from carrying registrations
for back-office personnel. FINRA has determined not to incorporate a
grandfather provision for previously unregistered operations personnel.
FINRA believes that all covered persons benefit from an examination
requirement even if they have been working in the same position for an
extended period. As noted above, the proposed Operations Professional
examination will not test on specific job functions but will focus on
general securities industry knowledge and key regulatory themes.
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\114\ See supra note 7.
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Continuing Education
Certain commenters encouraged FINRA to clarify whether the proposal
requires currently registered principals to take both the S101
continuing education module and the S201 \115\ and requested that FINRA
refine the continuing education requirements to reflect FINRA's diverse
membership.\116\
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\115\ Great Nation.
\116\ ACLI.
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As stated in the Notice and Section E. of the Purpose section,
individuals who avail themselves of the proposed exception to the
Operations Professional qualification examination requirement with an
eligible registration would be subject to the Regulatory Element
program appropriate for such other registration category. FINRA
believes the proposed continuing education requirements for Operations
Professionals are clear and notes that such requirements will be
appropriately suited for those subject to registration, similar to the
continuing education training for other FINRA registration categories.
Outsourced and Shared Functions
One commenter requested confirmation that FINRA does not intend to
alter indirectly the definition of ``associated person'' or the
existing regulatory guidance on outsourcing arrangements with the
proposed rule change.\117\ Numerous commenters requested clarification
that covered persons are limited to persons who have been empowered by
a broker-dealer to oversee the covered functions and would not include
individuals who perform operations functions for affiliated entities,
outsourced operations functions for a third-party service provider or
supervisors within a large, diversified financial services organization
who are far-removed from a member's securities business.\118\ Certain
commenters requested clarification with respect to who must register
where clearing and introducing firms share responsibility for
operations functions (``shared functions'') \119\ and whether such
persons would be considered associated persons of both the introducing
and clearing firms.\120\ Several commenters suggested that an exemption
be provided when covered functions are performed by another registered
broker-dealer, bank, investment advisor, foreign entity \121\ or
affiliated insurance company.\122\ Given a member's obligation to
supervise any outsourced activity, numerous commenters stated that it
should be sufficient for FINRA to confine application of the proposed
registration and examination requirements to ``employees'' of the
member.\123\ One commenter questioned the legal ramifications that
would result from requiring the registration of vendor employees with
more than one member.\124\ Certain commenters requested clarification
with respect to how the proposed rule change affects Office of
Supervisory Jurisdiction (``OSJ'') requirements relating to currently
outsourced activities \125\ and back-office and support locations.\126\
One commenter stated the proposed rule change would place an unfair
burden on small firms that outsource many of the covered
functions.\127\
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\117\ SIFMA.
\118\ ACLI, A&P, ARM, Bank of America, Horace Mann, IRI,
Nationwide, PSD, Sutherland and TIAA.
\119\ ESI, FSI, NFP, UPFS, Wells Fargo and WSFG.
\120\ Northwestern Mutual, Pershing and Wells Fargo.
\121\ AIC and Pershing.
\122\ ACLI and AIC.
\123\ NSCP, Pershing, Schwab, Scottrade and TIAA.
\124\ Pershing.
\125\ IRI.
\126\ Scottrade and TIAA.
\127\ Zelman.
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As noted above, FINRA believes anyone who meets the criteria of a
covered person and engages in one or more of the covered functions on
behalf of a member must register as an
[[Page 15024]]
Operations Professional, regardless of whether such person works
internally at a member, an affiliate or third-party service provider.
Also as previously noted, the proposed rule change does not alter the
definition of an ``associated person'' but rather imposes registration,
qualification examination and continuing education requirements on
persons who meet the depth of personnel criteria and engage in one or
more of the covered functions on behalf of a member. The proposed
registration category is function-based so persons are not shielded
from the requirements based on their job title or employment by an
entity other than a member.
Additionally, FINRA notes that the proposed rule change would apply
to all members regardless of firm size. FINRA reminds members that the
depth of personnel included as covered persons generally is focused on
positions with higher-level responsibilities, so entry level staff will
likely not be required to register.
With respect to clearing arrangements and consistent with Notice to
Members 05-48, a covered person would not be considered an associated
person of both the introducing and clearing firms based solely on
functions performed pursuant to a carrying agreement approved under
FINRA Rule 4311 (Carrying Agreements),\128\ so FINRA would not expect
dual registration as an Operations Professional in such cases. However,
as noted above, FINRA expects each member will designate at least one
Operations Professional, who often may be the Financial and Operations
Principal and/or the Principal Operations Officer.\129\
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\128\ FINRA replaced NASD Rule 3230 (Clearing Agreements) and
NYSE Rule 382 (Carrying Agreements) with new consolidated FINRA Rule
4311 (Carrying Agreements). See Securities Exchange Act Release No.
63999 (March 1, 2011) (Order Approving File No. SR-FINRA-2010-061).
\129\ See supra note 61 and accompanying text.
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One commenter suggested that treating persons that fall within the
covered categories as associated persons of a member will impact state
law prohibitions on dual registration and vendor agreements.\130\ FINRA
has stated throughout this filing the need for this proposed rule
change and its belief that the proposal is appropriately tailored to
meet its stated objectives. FINRA believes it is, therefore, required
additional regulation. That being the case, ill-defined collateral
effects that can be avoided by a member do not serve as a reason to
modify or negate such proposed rulemaking. Finally, FINRA already views
the persons treated as covered persons in the covered functions, and
indeed all non-clerical persons reporting to such covered persons, as
associated persons irrespective of this proposed rule.
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\130\ TIAA.
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Small Firms Concerns
Numerous commenters noted the proposed rule change places an undue
burden on, unnecessarily increases costs for, and is anticompetitive
for small firms with no apparent benefit to the public.\131\ One
commenter noted the proposal is appropriate only in its application to
personnel and broker-dealers that handle customer accounts, customer
funds and/or securities.\132\
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\131\ Crowell, Freestone, Martin Nelson, Mutual Trust, Navidar,
RiverStone, Wellington and Zelman.
\132\ FirstBank PR.
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FINRA does not agree that small firms would be overly burdened by
the proposed rule change since almost all other FINRA registration
requirements apply to small firms and do not provide an exemption for
personnel performing activities that would require registration based
on a firm's limited business. FINRA also anticipates that many persons
who would be subject to the new Operations Professional registration
category would qualify for the proposed exception from the
qualification examination based on existing registrations, and, as
noted above, FINRA would not assess a separate registration fee for
persons relying on the proposed exception to register as Operations
Professionals. Moreover, the impact of the proposed rule change is
expected to be minimal as the majority of the covered functions are
generally performed by the carrying and clearing firm and, as noted
above, a covered person would not be considered an associated person of
both the introducing and clearing firms based solely on functions
performed pursuant to a carrying agreement approved under FINRA Rule
4311 (Carrying Agreements),\133\ so FINRA would not expect dual
registration as an Operations Professional in such cases. However, as
further detailed in Section F. above, in light of the limitations on
personnel at certain smaller firms, FINRA is proposing a 120-day grace
period for covered persons associated with a non-clearing member to
transition into the proposed registration category.
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\133\ See supra note 128 and accompanying text.
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Implementation of the Proposed Rule Change
Numerous commenters suggested that the proposed transition period
of six to nine months for persons acting as Operations Professionals as
of the effective date of the proposed rule change is insufficient for
firms to fully comply because a significant number of personnel will
need to become registered. The commenters noted that firms will likely
need to phase-in such persons' preparation for, and taking of, the
qualification examination to mitigate the impact on customer service
and operational functions.\134\ Also, certain commenters suggested that
personnel may not pass the qualification examination on the first
attempt since good test preparation services may not be available and
certain operations personnel may not have test-taking skills.\135\ The
commenters suggested extending the transition period to between 12 to
18 months \136\ or up to 24 months.\137\ Other commenters noted that
all persons should have the benefit of the transition period regardless
of when they begin work in a covered function.\138\
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\134\ ARM, Bank of America, Commonwealth, ESI, FSI, Horace Mann,
Modern Woodmen, M. Griffith, Morgan Stanley, NFP, NSCP, Scottrade,
SIFMA and WSFG.
\135\ Nationwide, UPFS and Wells Fargo.
\136\ ARM, Bank of America, Commonwealth, ESI, FSI, Horace Mann,
Modern Woodmen, M. Griffith, Morgan Stanley, NFP, NSCP, Scottrade,
SIFMA and WSFG.
\137\ Schwab.
\138\ Schwab, SIFMA and TIAA.
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Certain commenters suggested that persons who begin work as
Operations Professionals following the effective date of the proposed
rule change (i.e., new hires or associated persons who meet the depth
of personnel and transfer into a covered function) should be granted a
grace period to transition into the proposed registration
category.\139\ According to one commenter, subjecting these persons to
the proposed licensing regime immediately undercuts the purpose of the
transition period and may chill hiring of operations personnel while
the transition period is in effect.\140\ Numerous commenters
recommended a 90-day grace period for new hires or those who transition
into a covered function, consistent with current NASD Rule 1021(d),
which generally allows a registered representative to act in a
principal capacity for 90 days while preparing for an applicable
exam.\141\ Two commenters suggested a 120-day grace period for
personnel who transition into a covered function after the transition
period has expired, conditioned on supervision by a licensed Operations
Professional.\142\
[[Page 15025]]
One commenter suggested a 180-day grace period.\143\
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\139\ IRI, Nationwide, NSCP, Scottrade and Wells Fargo.
\140\ Morgan Stanley.
\141\ ARM, Bank of America, PSD, Schwab, Scottrade, Sutherland
and Wells Fargo.
\142\ Morgan Stanley and SIFMA.
\143\ Wells Fargo.
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Based on the comments, FINRA has amended the transition period that
was proposed in the Notice. As further detailed in Section F. above,
FINRA is proposing a 60-day identification period beginning on the
effective date of the proposed rule change during which Day-One
Professionals must request registration as an Operations Professional
via Form U4 in CRD. Day-One Professionals who are identified during the
60-day period and must pass the Operations Professional examination (or
an eligible qualification examination) would be granted 12 months
beginning on the effective date of the proposed rule change to pass
such qualifying examination, during which time such persons may
function as an Operations Professional.
With respect to non-Day-One Professionals, any person associated
with a clearing or self-clearing member must register as an Operations
Professional and, if applicable, pass the Operations Professional
qualification examination (or an eligible qualification examination)
prior to engaging in any activities that would require such
registration. Any non-Day-One Professional associated with a non-
clearing member who must pass the Operations Professional qualification
examination (or an eligible qualification examination) to obtain
registration would be granted a grace period of 120 days beginning on
the date such person requests Operations Professional registration via
Form U4 in CRD to pass such qualifying examination, during which time
such person may function as an Operations Professional.
Two commenters expressed sentiments regarding their general
disagreement with FINRA spending \144\ and the current regulatory
structure for broker-dealers.\145\ These comments are outside the scope
of the proposed rule change.
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\144\ Mutual Trust.
\145\ Wellington.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2011-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2011-013. This
file number should be included on the subject line if e-mail 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 Web site (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 Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of FINRA.
All comments received will be posted without change; 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-2011-013
and should be submitted on or before April 8, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\146\
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\146\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-6315 Filed 3-17-11; 8:45 am]
BILLING CODE 8011-01-P