Federal Register / Vol. 83, No. 241 / Monday, December 17, 2018 / Notices 64609 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3There is a corresponding requirement under 

NASD Rule 2510 (Discretionary Accounts) 

prohibiting members and their registered 

representatives from exercising any discretionary 

power in a customer’s account unless the customer 

has given prior written authorization to a stated 

individual or individuals, and the account has been 

accepted by the firm as evidenced in writing by the 

firm or a designated partner, officer or manager of 

the firm. These signatures need not be manual. In 

addition, SEA Rule 17a–3(a)(17)(ii) requires that, for 

discretionary accounts with a natural person, 

broker-dealers maintain a record containing the 

dated signature of each natural person to whom 

discretionary authority was granted. This signature 

also need not be manual. 

4The terms ‘‘manual’’ and ‘‘wet’’ are used 

interchangeably in this proposed rule change. 

5For retention purposes, members may choose to 

maintain and preserve the signature record on any 

of the acceptable media specified in SEA Rule 17a– 

4, including electronic storage media consistent 

with SEA Rule 17a–4(f). 

6To comply with FINRA Rule 4512(a)(3), most of 

these firms currently print a paper copy of the 

account record and require that the authorized 

associated person physically sign it. They then 

convert the paper record to an electronic record for 

retention on electronic storage media. These firms 

have stated that this two-step process creates 

unnecessary inefficiencies and administrative 

burdens. 

7 17 CFR 240.17a–3(a)(17)(ii). 

POSTAL SERVICE 

Product Change—Priority Mail 

Negotiated Service Agreement 

AGENCY: Postal ServiceTM. 

ACTION: Notice. 

SUMMARY: The Postal Service gives 

notice of filing a request with the Postal 

Regulatory Commission to add a 

domestic shipping services contract to 

the list of Negotiated Service 

Agreements in the Mail Classification 

Schedule’s Competitive Products List. 

DATES: Date of required notice: 

December 17, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Elizabeth Reed, 202–268–3179. 

SUPPLEMENTARY INFORMATION: The 

United States Postal Service® hereby 

gives notice that, pursuant to 39 U.S.C. 

3642 and 3632(b)(3), on December 11, 

2018, it filed with the Postal Regulatory 

Commission a USPS Request to Add 

Priority Mail Contract 492 to 

Competitive Product List. Documents 

are available at www.prc.gov, Docket 

Nos. MC2019–43, CP2019–46. 

Elizabeth Reed, 

Attorney, Corporate and Postal Business Law. 

[FR Doc. 2018–27189 Filed 12–14–18; 8:45 am] 

BILLING CODE 7710–12–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84788; File No. SR–FINRA– 

2018–040] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change Relating to 

FINRA Rule 4512 (Customer Account 

Information) 

December 11, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘SEA,’’ ‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 notice is 

hereby given that on November 28, 

2018, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend 

paragraph (a)(3) of FINRA Rule 4512 

(Customer Account Information) to 

permit the use of electronic signatures 

and to clarify the scope of the rule. 

The text of the proposed rule change 

is available on FINRA’s website at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

With respect to a discretionary 

customer account maintained by a 

member, FINRA Rule 4512(a)(3) 

requires the firm to obtain the manual 

dated signature of each named, natural 

person authorized to exercise discretion 

in the account. Because the rule only 

applies to discretionary accounts 

maintained by a member, the named 

natural person would inevitably be an 

associated person of the firm.3

Currently, to comply with the rule, 

members must obtain the associated 

person’s ‘‘wet’’ signature or a copy of 

his or her wet signature, such as a 

scanned or faxed copy of the wet 

signature.4 The rule also requires 

members to maintain and preserve a 

record of the signature for at least six 

years after the date the account is 

closed.5 The purpose of the signature is 

to validate that the authorized 

associated person is who he or she 

purports to be. In light of the industry’s 

shift towards automated and electronic 

processes, members have requested that 

FINRA reevaluate the need for wet 

signatures under the rule. 

In general, members have stated that 

the requirement to obtain wet signatures 

raises operational and cost concerns 

without providing meaningful investor 

protection benefits. In addition, some 

members have noted that the 

requirement puts them at a competitive 

disadvantage over investment advisers 

because investment advisers are allowed 

to obtain electronic signatures. Finally, 

members that have adopted automated 

and electronic processes have stated 

that the current requirement results in 

significant administrative inefficiencies, 

particularly because all other account 

documentation, including the customer 

authorization form, and related 

recordkeeping may be completed 

electronically through a streamlined 

process.6

Given technological advances relating 

to electronic signatures, including with 

respect to authentication and security, 

FINRA believes that the requirement 

under Rule 4512(a)(3) that members 

obtain an associated person’s wet 

signature has become obsolete. 

Therefore, FINRA is proposing to amend 

the rule to permit the use of electronic 

signatures. The proposed rule change is 

consistent with the Electronic 

Signatures in Global and National 

Commerce Act (‘‘E-Sign Act’’), which 

facilitates the use of electronic 

signatures. The proposed rule change is 

also consistent with the requirements of 

SEA Rule 17a–3(a)(17)(ii),7 which does 

not prescribe the type of signature that 

must be obtained from an authorized 

individual. While FINRA Rule 

4512(a)(3) would continue to require 

members to obtain the signature of an 

associated person, it would provide 


amozie on DSK3GDR082PROD with NOTICES1
64610 Federal Register / Vol. 83, No. 241 / Monday, December 17, 2018 / Notices 

8See Securities Exchange Act Release No. 44238 

(May 1, 2001), 66 FR 22916 (May 7, 2001) 

(Commission Guidance to Broker-Dealers on the 

Use of Electronic Storage Media Under the 

Electronic Signatures in Global and National 

Commerce Act of 2000 with Respect to Rule 17a– 

4(f)). 

9See, e.g., Letter from Nancy Libin, NASD, to 

Jeffrey W. Kilduff, O’Melveny & Myers, LLP, dated 

July 5, 2001, http://www.finra.org/industry/ 

interpretive-letters/july-5-2001-1200am. 

10 15 U.S.C. 78o–3(b)(6). 

11See PriceMetrix, The State of Wealth 

Management, 7th ed., https://www.mckinsey.com/ 

∼/media/mckinsey/industries/financial%20services

/our%20insights/the%20state%20of%20retail

%20wealth%20management%20in%

20north%20america/the-state-of-retail-wealthmanagement.ashx. 

12See Wall Street Journal, Is It Time to Adopt a 

Uniform Fee-Only Standard for Financial Advice? 

(March 18, 2018) (stating that U.S. investors hold 

more than 100 million brokerage accounts and 14 

million fee-based accounts), https://www.wsj.com/ 

articles/is-it-time-to-adopt-a-uniform-fee-onlystandard-for-financial-advice-1521424980. 

13See FINRA Investor Education Foundation, A 

Snapshot of Investor Households in America 

(September 2015), https://www.finrafoundation.org/ 

files/snapshot-investor-households-america. 

firms the option of obtaining either a 

manual or an electronic signature. 

For purposes of compliance with 

FINRA Rule 4512(a)(3), a valid 

electronic signature would be any 

electronic mark that clearly identifies 

the signatory and is otherwise in 

compliance with the E-Sign Act, the 

guidance issued by the Securities and 

Exchange Commission relating to the ESign Act,8 and the guidance provided by 

FINRA staff through interpretive 

letters.9

In addition, FINRA is proposing to 

amend Rule 4512(a)(3) to clarify that the 

rule is limited to discretionary customer 

accounts maintained by a member for 

which associated persons of the member 

are authorized to exercise discretion. 

Specifically, FINRA is proposing to 

amend the rule to state that for a 

discretionary customer account 

maintained by a member, the member 

must obtain the dated signature of each 

named, associated person of the member 

authorized to exercise discretion in the 

account. This proposed change would 

eliminate any potential confusion 

regarding the scope of the rule and aid 

members’ compliance efforts. 

If the Commission approves the 

proposed rule change, FINRA will 

announce the effective date of the 

proposed rule change in a Regulatory 

Notice to be published no later than 60 

days following Commission approval. 

The effective date will be no later than 

30 days following publication of the 

Regulatory Notice announcing 

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,10 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. The proposed rule 

change would provide members the 

option of obtaining either manual or 

electronic signatures for purposes of 

compliance with FINRA Rule 

4512(a)(3). FINRA believes that 

permitting the use of electronic 

signatures will provide flexibility in 

compliance without diminishing 

investor protection. The proposed rule 

change would also clarify that the 

signature requirement for discretionary 

accounts is limited to customer 

accounts maintained by a member for 

which associated persons of the member 

are authorized to exercise discretion, 

which would eliminate any potential 

confusion regarding the scope of the 

rule and assist members in their 

compliance efforts. 

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. 

Economic Impact Assessment 

FINRA has undertaken an economic 

impact assessment, as set forth below, to 

further analyze the regulatory need for 

the proposed rule change, its potential 

economic impacts, including 

anticipated costs, benefits, and 

distributional and competitive effects, 

relative to the current baseline, and the 

alternatives FINRA considered in 

assessing how best to meet its regulatory 

objective. 

Regulatory Need 

FINRA Rule 4512(a)(3) requires a 

member to validate the identity of 

associated persons who are authorized 

to exercise discretion in customer 

accounts maintained by the member. 

However, the current rule only allows 

members to validate the identity of such 

individuals by obtaining their manual 

signatures. This requirement may 

present operational and administrative 

burdens for members that have adopted 

automated and electronic processes for 

account documentation and related 

recordkeeping. In light of technological 

advances and the widespread use of 

electronic signatures in the financial 

services industry, FINRA believes that it 

is appropriate to provide members the 

option of obtaining electronic signatures 

to satisfy the signature requirement 

under FINRA Rule 4512(a)(3). FINRA 

believes that the clarifying amendment 

regarding the scope of the rule will 

eliminate potential confusion and assist 

members in their compliance efforts. 

Economic Baseline 

Current FINRA Rule 4512(a)(3) 

requires that a member validate the 

identity of an associated person 

authorized to exercise discretion in a 

customer’s account by obtaining the 

associated person’s wet signature. This 

typically requires that the customer 

authorization form be printed, manually 

signed by the associated person, and— 

if the member keeps electronic 

records—scanned for retention 

purposes. 

Assets in discretionary accounts grew 

from 10% to 15% of total retail assets 

between 2014 and 2017.11 Further, there 

are more than 100 million brokerage 

accounts and 14 million fee-based 

accounts,12 and approximately 60% of 

U.S. households own one or more 

investment accounts.13 However, 

FINRA does not know what percentage 

of these accounts are discretionary 

accounts maintained by members. 

Economic Impact 

The proposed rule change to permit 

the use of electronic signatures provides 

an additional avenue for complying 

with an existing requirement. The 

primary benefit of the proposed rule 

change is that it may yield a net cost 

savings to members because they will 

no longer be required to conduct a 

manual process. Members may 

experience cost savings in the form of 

time and physical supplies as a result of 

the proposed rule change. This benefit 

will accrue to those members that 

maintain discretionary accounts and 

that wish to validate the identity of their 

associated persons via electronic 

signature as well as to the associated 

persons of such firms. 

The proposed rule change will benefit 

those members willing to leverage 

electronic signatures more than those 

that will maintain their manual (wet 

signature) process. Further, greater 

benefit will accrue to members that 

frequently accept discretionary 

authority over customer accounts than 

those that do so infrequently. However, 

the proposed rule change will apply to 

all members equally. Even if a member 

does not experience cost savings, the 

proposed rule change would not result 

in a greater cost burden to any firm 

because the proposed rule change 

provides an additional option for 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 241 / Monday, December 17, 2018 / Notices 64611 

14Moreover, as noted above, SEA Rule 17a– 

3(a)(17)(ii) does not impose a manual signature 

requirement on broker-dealers. See supra note 3. 

15See supra note 3. 

16 17 CFR 240.17a–3(a)(17)(ii). 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

compliance and does not impose a new 

requirement. Further, it should not 

interfere with or impede the forces of 

competition among members. 

An additional benefit may be 

increased regulatory consistency insofar 

as similar requirements by other 

regulators allow for electronic 

signatures. For example, the SEC allows 

investment advisers to utilize electronic 

signatures for documentation of 

discretionary authority.14 The proposed 

rule change should facilitate compliance 

for all members, but especially for 

dually-registered firms. Further, because 

investment advisers are already allowed 

to use electronic signatures for 

discretionary accounts, allowing 

members to use them will create a more 

level playing field between investment 

advisers and broker-dealers. 

Finally, the proposed rule change 

should not undermine investor 

protection because the primary investor 

protection features relating to the 

exercise of discretion in a customer 

account, including the customer’s prior 

written authorization permitting the 

exercise of discretion, remain intact 

under NASD Rule 2510.15 In addition, 

associated persons with discretionary 

authority will continue to be required to 

acknowledge their discretionary 

authority over accounts, and firms will 

have documented evidence of that 

authority. 

Alternatives Considered 

FINRA considered whether members 

could authenticate the identity of an 

authorized associated person other than 

by obtaining the individual’s signature. 

FINRA determined that requiring 

members to use different means, other 

than signatures, to validate the identity 

of authorized associated persons could 

create confusion and potential 

compliance issues, particularly in light 

of the signature requirement under SEA 

Rule 17a–3(a)(17)(ii).16

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

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 email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2018–040 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2018–040. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. All comments received will be 

posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FINRA– 

2018–040 and should be submitted on 

or before January 7, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2018–27205 Filed 12–14–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84791; File No. SR–GEMX– 

2018–41] 

Self-Regulatory Organizations; Nasdaq 

GEMX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Delete GEMX Section 

22 of the Rulebook 

December 11, 2018. 

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 November 

29, 2018, Nasdaq GEMX, LLC (‘‘GEMX’’ 

or ‘‘Exchange’’) 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 the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to delete 

GEMX Section 22 of the GEMX rulebook 

(‘‘Rulebook’’) entitled ‘‘Rate-Modified 

Foreign Currency Options Rules.’’ 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaqgemx.cchwallstreet.com/, 

at the principal office of the Exchange, 

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, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 


amozie on DSK3GDR082PROD with NOTICES1