546 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

22 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73238 

(September 26, 2014), 79 FR 59884 (October 3, 

2014) (Notice of Filing of SR–FINRA–2014–038) 

(‘‘Notice’’). 

4See Letters to Brent J. Fields, Secretary, 

Commission, from Joseph C. Peiffer, Executive Vice 

President and President-Elect, Public Investors 

Arbitration Bar Association, dated October 16, 2014 

(‘‘PIABA Letter’’); William A. Jacobson, Clinical 

Professor of Law, Cornell University Law School, 

dated October 20, 2014 (‘‘Cornell Letter’’); William 

Beatty, President, North American Securities 

Administrators Association, Inc., dated October 22, 

2014 (‘‘NASAA Letter’’); Kyle Ortiz and Kathryn 

Hespe, Law Student Clinicians, Investor Advocacy 

Clinic, Michigan State University College of Law, 

dated October 23, 2014 (‘‘Michigan State Letter’’); 

John Astarita and Olivia Darius, Student Interns, 

John Jay Legal Services, Inc., Pace University 

School of Law, dated October 24, 2014 (‘‘Pace 

Letter’’); Kevin Zambrowicz, Associate General 

Counsel and Managing Director, the Securities 

Industry and Financial Markets Association, dated 

October 24, 2014 (‘‘SIFMA Letter’’); Michele Van 

Tassel, President, Association of Registration 

Management, dated October 24, 2014 (‘‘ARM 

Letter’’); Robert J. McCarthy, Director of Regulatory 

Policy, Wells Fargo Advisors, LLC, dated October 

24, 2014 (‘‘Wells Fargo Letter’’); and David T. 

Bellaire, Executive Vice President and General 

Counsel, the Financial Services Institute, dated 

October 24, 2014 (‘‘FSI Letter’’). See also email from 

Suzanne Shatto, dated October 6, 2014 (‘‘Shatto 

Letter’’). Comment Letters are available at: http://

www.sec.gov/comments/sr-finra-2014-038/

finra2014038.shtml. 

5See SR–FINRA–2014–038, Amendment No. 1, 

dated December 8, 2014, (‘‘Amendment No. 1’’). 

Amendment No. 1 is described below in Section II 

and the text of Amendment No. 1 is available on 

FINRA’s Web site at http://www.finra.org, at the 

principal office of FINRA, and on the Commission’s 

Web site at http://www.sec.gov/rules/sro.shtml. 

6FINRA also is proposing to re-label current 

FINRA Rule 3110(e) (Definitions) as FINRA Rule 

3110(f) (Definitions) and update the crossreferences in FINRA Rule 3110 to reflect this 

change. 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the 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– 

NASDAQ–2014–127 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–NASDAQ–2014–127. 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 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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. 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– 

NASDAQ–2014–127 and should be 

submitted on or before January 27, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30896 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73966; File No. SR–FINRA– 

2014–038] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Accelerated Approval of a Proposed 

Rule Change, as Modified by 

Amendment No. 1 Thereto, Relating to 

the Adoption of FINRA Rule 3110(e) 

(Responsibility of Member To 

Investigate Applicants for Registration) 

in the Consolidated FINRA Rulebook 

December 30, 2014. 

I. Introduction 

On September 18, 2014, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

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

Securities and Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to adopt NASD 

Rule 3010(e) relating to background 

investigations as FINRA Rule 3110(e) in 

the consolidated FINRA rulebook 

(‘‘Consolidated FINRA Rulebook’’). The 

proposed rule change was published for 

comment in the Federal Register on 

October 3, 2014.3 The Commission 

received 10 comment letters in response 

to the Notice.4 On December 8, 2014, 

FINRA filed Amendment No.1 

responding to these comments and 

proposing amendments in response to 

the comments.5 The Commission is 

publishing this notice to solicit 

comments from interested persons on 

the filing as amended by Amendment 

No.1 and is approving the proposed rule 

change, as amended, on an accelerated 

basis. 

II. Description of the Proposal, as 

Modified by Amendment No. 1 

As part of the process of developing 

the Consolidated FINRA Rulebook, 

FINRA is proposing to adopt NASD 

Rule 3010(e) (Qualifications 

Investigated) relating to background 

investigations as FINRA Rule 3110(e). 

According to FINRA, the proposed rule 

change streamlines and clarifies the rule 

language. For instance, NASD Rule 

3010(e) currently provides that ‘‘[e]ach 

member shall have the responsibility 

and duty to ascertain by investigation 

the good character, business repute, 

qualifications, and experience of any 

person prior to making such a 

certification in the application of such 

person for registration with this 

Association,’’ whereas proposed FINRA 

Rule 3110(e) provides that ‘‘[e]ach 

member shall ascertain by investigation 

the good character, business reputation, 

qualifications and experience of an 

applicant before the member applies to 

register that applicant with FINRA and 

before making a representation to that 

effect on the application for 

registration.’’ Further, proposed FINRA 

Rule 3110(e) clarifies that a firm is 

required to review a copy of an 

applicant’s most recent Form U5 

(Uniform Termination Notice for 

Securities Industry Registration) if the 

applicant previously has been registered 

with FINRA or another self-regulatory 

organization.6


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 547 

7The proposed rule change would delete NASD 

Rule 3010(f) because it has been rendered obsolete. 

The proposed rule change would also delete 

Incorporated NYSE Rule 345.11 and NYSE Rule 

Interpretation 345.11/01 and/02 as they are 

substantially similar to proposed FINRA Rule 

3110(e), addressed by other rules or otherwise 

rendered obsolete by the approach reflected in 

proposed FINRA Rule 3110(e). For convenience, the 

proposed rule change refers to Incorporated NYSE 

Rules as NYSE Rules. 

8 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

9 15 U.S.C. 78o–3(b)(6). 

10The information in BrokerCheck is a subset of 

the information in CRD. 

11See supra note 4. 

12See NASAA Letter. 

13See PIABA Letter. 

14See Cornell Letter. 

15See NASAA Letter. 

16 Id. 

17See Shatto Letter, NASAA Letter and Michigan 

State Letter. 

18See PIABA Letter. 

19See Cornell Letter. 

20See Pace Letter. 

21See PIABA Letter and Cornell Letter. 

22See SIFMA Letter and Wells Fargo Letter. 

23See ARM Letter. 

24See FSI Letter. 

25 Id. 

26See PIABA Letter, Cornell Letter, SIFMA Letter 

and ARM Letter. 

27See SIFMA Letter and ARM Letter. 

In addition, the proposed rule change 

adds to FINRA Rule 3110(e) a 

requirement that firms adopt written 

procedures that are reasonably designed 

to verify the accuracy and completeness 

of the information contained in an 

applicant’s Form U4 (Uniform 

Application for Securities Industry 

Registration or Transfer) no later than 30 

calendar days after the form is filed with 

FINRA. The proposed requirement 

would apply to an initial or a transfer 

Form U4 for an applicant for 

registration, not to amendments to Form 

U4. Proposed FINRA Rule 3110(e) 

would also require that a firm’s written 

procedures, at a minimum, provide for 

a national search of reasonably available 

public records to verify the accuracy 

and completeness of the information 

contained in an applicant’s Form U4. 

The requirement to conduct a public 

records search must be satisfied no later 

than 30 calendar days after the initial or 

transfer Form U4 is filed with FINRA. 

Further, the proposed rule change adds 

Supplementary Material .15 to FINRA 

Rule 3110 to establish a temporary 

program to refund Late Disclosure Fees, 

subject to specified conditions.7

III. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposed rule change as 

modified by Amendment No. 1, the 

comments submitted, and FINRA’s 

response to the comments, and believes 

that FINRA has responded adequately to 

the concerns raised by the commenters.8

For the reasons discussed below, the 

Commission finds that the proposal is 

consistent with the provisions of 

Section 15A(b)(6) of the Act,9 which 

requires, among other things, that 

FINRA rules be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and, in general, to 

protect investors and the public interest. 

By streamlining and clarifying members’ 

obligations relating to background 

investigations of registered personnel 

and adding a requirement to adopt 

written procedures to verify the 

accuracy and completeness of the 

information contained in an applicant’s 

Form U4, including the requirement to 

conduct a public records search, the 

proposal should result in complete and 

accurate information in CRD,10 which is 

critical from both a regulatory and an 

investor protection standpoint. Finally, 

the proposed temporary program under 

proposed FINRA Rule 3110.15 to refund 

Late Disclosure Fees under certain 

circumstances should incentivize 

members to more accurately and 

completely report information relating 

to judgments and liens. Having 

complete and accurate information in 

CRD is important to regulators, the 

industry, and the public. 

As noted above, the Commission 

received ten comment letters in 

response to the proposed rule change, 

all of which support the proposal.11 For 

example, one commenter states the 

proposal ‘‘will contribute to ensuring 

the accuracy and completeness of the 

information disclosed in Form U4.’’ 12

‘‘[A]ccurate [Form] U4 information,’’ 

adds another commenter, ‘‘is critical to 

FINRA’s own regulatory review of an 

applicant, as well as for customers, 

whose primary source of public 

information . . . is through FINRA’s 

BrokerCheck.’’ 13 Another commenter 

states that requiring ‘‘written procedures 

for Form U4 verification . . . will 

enable the member firm to conduct 

more consistent—and hopefully more 

thorough—background checks on 

applicants [for registration].’’ 14 One 

commenter ‘‘supports the additional 

requirements’’ aimed at enhancing the 

accuracy of information on Form U4 

because ‘‘the Form U4 serves as the 

primary avenue through which 

investors obtain important information 

about brokers.’’ 15 The same commenter 

also supports the temporary refund 

program because it ‘‘creates an incentive 

for firms to make the required updated 

filings’’ which in turn would ‘‘increase 

the completeness of information 

contained in CRD.’’ 16

Three commenters supported the 

proposal without qualifications.17 Three 

commenters provided suggestions, 

including extending the scope of the 

proposed public records search to 

foreign jurisdictions, specifying that 

members unable to comply with all 

verification requirements must 

demonstrate ‘‘reasonable efforts’’ to do 

so,18 clarifying the term ‘‘reasonably 

available public records,’’ 19 and 

limiting the proposed refund program to 

a one-time program.20 Two of these 

commenters also requested additional 

clarification regarding the requirements 

under proposed FINRA Rule 3110(e).21

One commenter supported the 

consolidation of NASD Rule 3010(e) and 

NYSE Rule 345.11 as proposed FINRA 

Rule 3110(e), but (1) requested further 

clarification regarding the investigation 

and verification requirements; (2) 

suggested changes to the verification 

requirement, to the implementation date 

of the proposal and to the sunset date 

of the refund program; and (3) requested 

clarification regarding Questions 14K 

and 14M on the Form U4.22 Finally, two 

commenters supported the purpose of 

the verification requirement, but 

requested additional clarification 

regarding its scope, as well as its 

relationship to the investigation 

requirement, suggested changes to the 

30-day post-submission verification 

period,23 as well as to the refund 

program, and sought clarification on 

procedures for obtaining 

reimbursement.24 One of these 

commenters also requested clarification 

regarding Questions 14K and 14M on 

the Form U4.25

1. Relationship Between Investigation 

and Verification Requirements 

Several commenters requested that 

FINRA clarify the relationship between 

the investigation and verification 

requirements under proposed FINRA 

Rule 3110(e).26 Two of these 

commenters also asked whether the 

investigation and verification 

requirements are duplicative, whether 

firms can use any of the information 

obtained in the investigation process to 

comply with the verification process, 

and whether firms are required to 

conduct the verification process after 

the Form U4 has been filed and separate 

from the investigation process.27

FINRA responded that although the 

requirements are closely related, the 

requirements are complementary, not 

duplicative, in nature. FINRA states that 

proposed FINRA Rule 3110(e) requires 


tkelley on DSK3SPTVN1PROD with NOTICES
548 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

28FINRA notes this is a principle-based 

requirement that is substantially similar to the 

current requirement under NASD Rule 3010(e), and 

explains that firms are required to complete the 

investigation process before filing the Form U4. See 

FINRA, Regulatory Notice 07–55, Personnel 

Background Investigations, (November 2007) 

available at https://www.finra.org/web/groups/

industry/@ip/@reg/@notice/documents/notices/

p037480.pdf. Firms must also comply with MSRB 

Rule G–7 (Information Concerning Associated 

Persons) for those applicants engaged solely in 

municipal securities activities. See Municipal 

Securities Rulemaking Board, Rule Book, Rule 

G–7 (October 2014) available at http://

www.msrb.org/Rules-and-Interpretations/MSRBRules/General/Rule-G-7.aspx. 

29 If the applicant has been recently employed by 

a Futures Commission Merchant or an Introducing 

Broker that is notice-registered with the SEC 

pursuant to Section 15(b)(11) of the Act, the 

registering firm also is required to review a copy of 

the individual’s most recent CFTC Form 8–T. 

30FINRA expects firms to use this provision in 

very limited circumstances, such as where the 

previous firm fails to file a Form U5 or goes out of 

business before filing a Form U5. 

31FINRA states that the verification process could 

vary firm by firm, e.g., one firm may verify an 

applicant’s identity and name by checking a valid 

state-issued driver’s license whereas another firm 

may do so by reviewing a valid government-issued 

passport. 

32FINRA notes this is a minimum or base 

requirement, and a firm may find it necessary to 

conduct a more in-depth search of public records 

depending on the applicant’s job function, 

responsibilities or position at the firm. 

33See SIFMA Letter and ARM Letter. 

34See SIFMA Letter. 

35See ARM Letter. 

that each member ascertain by 

investigation the good character, 

business reputation, qualifications and 

experience of an applicant before the 

member applies to register that 

applicant with FINRA and before 

making a representation to that effect on 

the application for registration.28 FINRA 

also states that if an applicant has been 

previously registered with FINRA or 

another self-regulatory organization, 

proposed FINRA Rule 3110(e) requires 

that a firm review a copy of the 

applicant’s most recent Form U5, 

including any amendments, within 60 

days of the filing date of the applicant’s 

Form U4.29 FINRA states that, if the firm 

is unable to review the Form U5, the 

firm must demonstrate it has made 

reasonable efforts to do so.30

Proposed FINRA Rule 3110(e) 

requires that a firm establish and 

implement written procedures 

reasonably designed to verify the 

accuracy and completeness of the 

information contained in an applicant’s 

Form U4 no later than 30 calendar days 

after an initial or a transfer Form U4 is 

filed with FINRA. While this is a new 

requirement, FINRA explains that it is 

based on an existing requirement in the 

Form U4 that the person signing the 

form certify that he has taken 

appropriate steps to verify the accuracy 

and completeness of the information 

contained in that form. FINRA also 

states that proposed FINRA Rule 3110(e) 

expressly requires that a firm’s written 

procedures specify the firm’s process for 

verifying the information in the Form 

U4 and that the firm complete that 

verification process no later than 30 

calendar days after the Form U4 is filed. 

FINRA notes that the verification 

process for some of the information in 

the Form U4 is embedded in the form 

itself.31

FINRA states that under proposed 

FINRA Rule 3110(e), firms must 

complete the verification process no 

later than 30 calendar days after the 

Form U4 is filed with FINRA. The Rule 

3110(e) does not require firms to 

conduct the verification process only 

during the 30-day window after the 

Form U4 has been filed or base the 

verification on information that is 

obtained only in the 30-day window 

after the form has been filed. Rather, 

FINRA states, the 30-day window is 

intended to accommodate firms that 

may find it difficult to conduct the 

verification process before filing an 

applicant’s Form U4, such as where an 

applicant is hired immediately to fill a 

needed role at the firm. For most 

applicants, FINRA expects that firms 

will conduct the investigation and 

verification process concurrently using 

some of the same information and 

before filing the Form U4. FINRA also 

encourages firms to complete the 

verification process before filing the 

Form U4. FINRA notes that, with 

respect to amended filings, a firm will 

incur a Late Disclosure Fee if the 

disclosure event should have been 

reported on the initial or transfer Form 

U4, regardless of whether the firm 

completes the verification process 

within the 30-day window in proposed 

FINRA Rule 3110(e). 

FINRA also recognizes that there will 

on occasion be circumstances beyond a 

firm’s control that prevent completion 

of the verification process within the 30- 

day window after the Form U4 is filed 

with FINRA. FINRA explains, for 

example, that a firm may not be able to 

comply with the proposed 30-day 

window where the firm is relying on 

fingerprint results for verifying criminal 

information, and the FBI determines the 

fingerprints to be ‘‘illegible’’ and 

requires resubmission of the 

fingerprints. In such circumstances, 

FINRA points-out, the firm’s procedures 

should provide that the verification 

must be completed as soon as practical 

and the firm should document the basis 

for the delay. 

Finally, FINRA states that proposed 

FINRA Rule 3110(e) requires that a 

firm’s verification process must, at a 

minimum, provide for a national search 

of reasonably available public records to 

verify the accuracy and completeness of 

the information contained in an 

applicant’s Form U4. As FINRA 

explains, similar to the overall 

verification process, the requirement to 

conduct a public records search must be 

satisfied by no later than 30 calendar 

days after an initial or a transfer Form 

U4 is filed with FINRA. FINRA also 

states that the public records search is 

a new requirement; it is a component of 

the overall verification process 

described above. As FINRA explains, 

public records include, but are not 

limited to: General information, such as 

name and address of individuals; 

criminal records; bankruptcy records; 

civil litigations and judgments; liens; 

and business records. FINRA explains, 

however, that the proposed rule only 

requires a national search of reasonably 

available public records.32

2. Member’s Obligation To Adopt 

Written Procedures for Verification of 

Information in the Form U4 

Two commenters asked whether firms 

are required to verify all of the 

information in the Form U4, stating that 

it may not be feasible or practical to do 

so in some cases.33 In response, FINRA 

states it does not expect firms to verify 

all of the information in the Form U4 

where such verification is not feasible or 

practical. In such cases, FINRA states 

that a firm should document that the 

information could not be verified and 

document the reason that it could not be 

verified. 

One commenter recommended that 

the proposed verification requirement, 

including the minimum public records 

search requirement, be removed 

altogether.34 Alternatively, the 

commenter requested that firms be 

given 90 days to complete a public 

records search and any necessary follow 

ups and asked whether firms are 

required to complete the entire 

verification process within the proposed 

30-day window. One commenter 

requested that firms be given a 60- or 

90-day period to complete the 

verification process.35 Another 

commenter suggested that FINRA 

amend the proposed rule to require that 

a firm’s written procedures provide that 

if the firm is unable to complete the 

verification process within the 30-day 

window, it must demonstrate to FINRA 

that it has made reasonable efforts to do 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 549 

36See PIABA Letter. 

37See FINRA By-Laws, Article V, Section 2(c). 

38See SIFMA Letter. 

39See PIABA Letter. 

40FINRA notes, however, that firms may find it 

necessary to conduct a search of public records in 

a foreign jurisdiction as part of their verification 

process and, where appropriate, should ensure such 

a search is consistent with applicable foreign laws, 

rules and regulations. 

41See Cornell Letter. 

42See SIFMA Letter. 

43 Id. 

so and explain the cause for the delayed 

verification.36

In response, FINRA states it is 

retaining the proposed Form U4 

verification requirement and the 

requirement to conduct a public records 

search, indicating it continues to believe 

that the proposed requirements will 

enhance the accuracy of the information 

in CRD and ultimately in BrokerCheck. 

FINRA also clarifies that as described 

above, firms must complete the 

verification process by no later than 30 

calendar days after the Form U4 is filed 

with FINRA. FINRA expects that for the 

majority of applicants, firms will 

conduct the proposed verification 

process, including the public records 

search, before filing the Form U4, a 

practice that FINRA encourages. 

FINRA does not believe that it is 

necessary to extend the period by which 

firms must complete the verification 

process because under FINRA By-Laws, 

a firm is obligated to file an amended 

Form U4 no later than 30 calendar days 

after learning of the facts or 

circumstances giving rise for the need to 

file an amendment.37 Therefore, FINRA 

states, if a firm completes its verification 

process during the 30-day window in 

proposed FINRA Rule 3110(e) and 

learns of facts or circumstances that 

require the filing of an amended Form 

U4, the firm will have 30 calendar days 

from the date it learns of such facts or 

circumstances to file an amended Form 

U4; the firm will be subject to any 

applicable Late Disclosure Fees. 

FINRA recognizes that there will on 

occasion be circumstances beyond a 

firm’s control that prevent completion 

of the verification process within the 

30-day window. In such cases, FINRA 

states, the firm’s procedures should 

provide that the verification be 

completed as soon as practical, and the 

firm should document the basis for the 

delay. FINRA does not believe that it is 

necessary to amend the proposed rule 

text to clarify this point. 

One commenter requested that FINRA 

confirm that the proposed verification 

requirement, including the public 

records search, applies to an initial 

Form U4 filed with FINRA through CRD 

requesting registration with FINRA and 

that the proposed requirement does not 

apply to a Form U4 filed by an affiliate 

of a member or a registration transferred 

through the mass transfer process.38 The 

commenter also suggested that FINRA 

replace the term ‘‘transfer Form U4’’ as 

used in the proposed FINRA Rule 

3110(e) with the term ‘‘relicense Form 

U4’’ and amend the proposed rule text 

to include a reference to ‘‘an applicant’s 

initial or relicense Form U4.’’ 

In response, FINRA states that the 

proposed verification requirement, 

including the public records search, 

applies to an initial Form U4 or a 

transfer Form U4. The term ‘‘initial 

Form U4’’ refers to the Form U4 filing 

required when an individual is 

registering with a FINRA member for 

the first time, including in the context 

of dual registration, or is registering 

with a FINRA member after more than 

two years have passed since the 

individual was last registered with a 

FINRA member. The term ‘‘transfer 

Form U4’’ refers to the Form U4 filing 

required when a registered person 

transfers from one FINRA member to 

another FINRA member. FINRA is not 

replacing the term ‘‘transfer Form U4’’. 

With respect to a Form U4 filed by a 

member that is an affiliate of another 

member, FINRA further states that the 

verification requirement would apply to 

the filing to the extent that it is 

considered an initial or a transfer Form 

U4 (e.g., a dual registration). The 

proposed verification requirement 

would not apply to the mass transfer 

process because that process does not 

require the filing of a Form U4. FINRA 

is proposing to clarify that the 

verification requirement, including the 

public records search, applies to an 

applicant’s initial or transfer Form U4. 

3. Member’s Obligation To Conduct a 

Search of Reasonably Available Public 

Records 

One commenter suggested that the 

public records search should extend to 

foreign jurisdictions in some 

circumstances, such as where an 

applicant has been registered with a 

foreign securities regulator or has 

resided in a foreign jurisdiction.39 In 

response, FINRA states that it is often 

difficult to assess the comparability of a 

foreign country’s laws, rules and 

regulations to those in the United States, 

particularly as it relates to the purposes 

of this proposed rule, and therefore, the 

requirement should be limited to a 

national search of reasonably available 

public records.40 One commenter 

recommended that FINRA clarify the 

term ‘‘reasonably available public 

records’’ so that firms have an objective 

standard for compliance purposes.41

One commenter stated that FINRA 

should revise the proposed rule text to 

specifically identify the information in 

the Form U4 that firms are expected to 

verify through a public records search or 

define the term ‘‘public records’’ so the 

scope of the requirement is less 

uncertain.42 The commenter noted that 

business records are listed as an 

example of public records, but many 

business records (e.g., business 

formation documents) are not 

maintained in a comprehensive national 

database and may not be offered by a 

third-party service provider. In 

response, FINRA states that while 

public records include, among other 

records, business records, proposed 

FINRA Rule 3110(e) only requires a 

national search of reasonably available 

public records. FINRA further states 

that, as indicated above, the scope of 

what is considered reasonably available 

public records may change over time. 

Therefore, rather than define the term 

‘‘reasonably available public records,’’ 

FINRA believes that it is more useful for 

compliance purposes to specify the 

public records that are currently 

considered reasonably available, which 

include criminal records, bankruptcy 

records, judgments and liens. 

One commenter asked FINRA to 

confirm that, to the extent that the 

proposed rule requires firms to obtain 

an investigative consumer report for an 

applicant, firms can rely on the 

applicant’s consent on a Form U4 for 

purposes of complying with applicable 

laws, rules and regulations requiring an 

applicant’s consent to obtain such 

reports, otherwise firms will need to 

implement additional procedures to 

ensure compliance with such laws, 

rules and regulations in each 

jurisdiction.43 In response, FINRA states 

that the proposed rule does not require 

firms to obtain investigative consumer 

reports to comply with the requirements 

of the rule and that, with regard to the 

Form U4 or any similar report the firm 

may rely upon, it is the responsibility of 

the registering firm to determine 

whether consent on the Form U4 or any 

other document is in compliance with 

the laws, rules and regulations of the 

particular jurisdiction in which the firm 

and the applicant are operating. 

4. Implementation Date 

One commenter requested that FINRA 

extend the implementation date of 

proposed FINRA Rule 3110(e) from 

December 1, 2014, to December 1, 2015, 

so that firms have sufficient time to 

establish or revise their written 


tkelley on DSK3SPTVN1PROD with NOTICES
550 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

44 Id. 

45NASAA stated that ‘‘firms usually have in 

place a review process to verify the information 

contained in the Form U4 for most registration 

applicants’’ and, as such, the requirement 

formalizes an industry best practice. See NASAA 

letter. 

46See Pace Letter. 

47See SIFMA Letter. 48See FSI Letter. 

49See FINRA, Information Notice, Late Disclosure 

Fee Related to Reporting of Judgment/Lien Events 

(August 2012), available at http://www.finra.org/

web/groups/industry/@ip/@reg/@notice/documents/

notices/p152106.pdf. 

50FINRA believes that there is a misconception 

regarding the obligation to report unsatisfied 

judgments and liens under Question 14M on the 

Form U4. The obligation to amend a Form U4 arises 

on the date a registered person receives notice or 

learns that he is subject to an unsatisfied judgment 

or lien, and an amended Form U4 should be filed 

no later than 30 calendar days from that date, 

regardless of whether the registered person satisfies 

the judgment or lien in the interim period before 

the 30-day deadline for filing a Form U4 

amendment. 

51See FINRA, Form U4 and U5 Interpretive 

Questions and Answers (January 2013), available at 

http://www.finra.org/web/groups/industry/@ip/@

comp/@regis/documents/appsupportdocs/

p119944.pdf. 

52See SIFMA Letter. 

procedures and address the operational 

issues resulting from the proposed 

rule.44 In response, FINRA states that it 

expects firms to have an existing 

process in place to verify the 

information contained in an applicant’s 

Form U4 noting that currently the 

person signing the form on behalf of the 

firm must certify that he has taken 

appropriate steps to verify the accuracy 

and completeness of the information 

contained in the form. FINRA also states 

it understands that most firms already 

conduct some form of public records 

search; 45 consequently, the proposed 

new requirements should not create an 

unreasonable burden for firms. 

FINRA recognizes that the proposed 

rule imposes an affirmative obligation 

on firms to establish and implement 

written procedures to comply with the 

Form U4 verification process to the 

extent they currently do not have such 

procedures, and that such procedures 

must include a search of reasonably 

available public records. Thus, to 

accommodate any potential operational 

issues resulting from the proposed new 

requirements, FINRA is proposing to 

extend the implementation date of 

proposed FINRA Rule 3110(e) from 

December 1, 2014 to July 1, 2015. 

5. Temporary Program To Address 

Underreported Form U4 Information 

One commenter recommended that 

the refund program should be a onetime program and stated that FINRA 

should not use such programs in the 

future for late disclosure reporting 

because it may provide firms with 

negative reinforcement for untimely 

Form U4 reporting.46 In response, 

FINRA states that the refund program 

under proposed FINRA Rule 3110.15 is 

intended to incentivize members to 

report underreported information and 

save FINRA the time and regulatory 

resources expended in contacting firms 

and requesting that such information be 

reported. FINRA also states that 

program is intended to run concurrent 

with FINRA’s one-time search of 

specific financial public records, and 

thus is of limited duration. FINRA notes 

it may find it necessary to provide such 

programs in the future depending on the 

circumstances, but it will do so 

judiciously and only where appropriate. 

Another commenter requested that 

FINRA consider adopting a more 

permanent refund program or extending 

the sunset date from March 31, 2015 to 

December 1, 2015.47 FINRA states that 

the refund program is intended to run 

concurrent with FINRA’s one-time 

search of specific financial public 

records on all registered persons, which 

FINRA expects to complete on or before 

August 2015. FINRA is thus proposing 

to extend the sunset date of the program 

from March 31, 2015 to July 31, 2015. 

One commenter suggested that Question 

14M on the Form U4 is ambiguous and 

open to interpretation and requested 

that FINRA revise the eligibility 

conditions under the refund program to 

address this perceived ambiguity.48

According to the commenter, Question 

14M on the Form U4 is confusing 

because one could argue that if an 

unsatisfied judgment or lien is satisfied 

within the 30-day window of having to 

file an amended Form U4, the firm 

would not have to amend the Form U4 

to mark ‘‘yes’’ because the lien was 

satisfied before the filing deadline. The 

commenter also stated that if a firm 

learns of an unreported satisfied lien, 

the language of Question 14M suggests 

that the firm does not have to report 

such lien because it is not currently 

unsatisfied. The commenter stated that 

FINRA should modify the program to 

refund Late Disclosure Fees to members 

if the judgment or lien (1) occurred 

while the individual was registered with 

a prior firm; (2) is more than five years 

old; or (3) is under $5,000. The 

commenter also asked whether the 

refund will be automated or whether 

firms have the burden to prove that they 

satisfy the conditions of the program to 

receive a refund. 

FINRA is proposing to revise the 

refund program to address concerns 

regarding the assessment of the Late 

Disclosure Fee in circumstances where 

the unsatisfied judgment or lien has 

been satisfied, and at the time it was 

unsatisfied was of a relatively low 

amount (under $5,000) and was 

reportable before the introduction of the 

procedures regarding the application of 

the Late Disclosure Fee to the reporting 

of judgments and liens on the Form U4 

that became effective on August 13, 

2012.49 FINRA states the proposed 

revisions also address circumstances 

where the failure to report related to a 

mistaken belief that satisfying the 

judgment or lien shortly after learning it 

was unsatisfied (within 30 calendar 

days of when it became unsatisfied) 

obviated the need to report the matter.50

As revised, the members will receive 

a refund of Late Disclosure Fees 

assessed for the late filing of responses 

to Form U4 Question 14M (unsatisfied 

judgments or liens) if the Form U4 

amendment is filed between April 24, 

2014, and July 31, 2015, and one of the 

following conditions is met: (1) The 

judgment or lien has been satisfied, and 

at the time it was unsatisfied, it was 

under $5,000 and the date the judgment 

or lien was filed with a court (as 

reported on Form U4 Judgment/Lien 

DRP, Question 4.A.) was on or before 

August 13, 2012; or (2) the unsatisfied 

judgment or lien was satisfied within 30 

days after the individual learned of the 

judgment or lien (as reported on Form 

U4 Judgment/Lien DRP, Question 4.B.). 

The program has a retroactive effective 

date of April 24, 2014, and as revised it 

will sunset on July 31, 2015. With 

respect to refund procedures, FINRA 

explains that firms initially will be 

charged a Late Disclosure Fee and 

subsequently receive a refund in their 

FINRA Flex-Funding Account if they 

can establish, or if FINRA otherwise 

determines, that the conditions of the 

revised program have been satisfied. 

6. Clarification of Questions 14K and 

14M on the Form U4 

One commenter requested that FINRA 

file with the Commission as part of a 

proposed rule change its FAQ 

statement 51 that a compromise with 

creditors is a compromise with one or 

more creditors for purposes of Question 

14K on the Form U4.52 The commenter 

also noted that Question 14M on the 

Form U4 is confusing because it asks 

‘‘Do you have any unsatisfied judgments 

or liens against you,’’ which could 

imply that a ‘‘yes’’ response is required 

only if an applicant currently has an 

outstanding unsatisfied judgment or 

lien. To clarify this point, the 

commenter suggested model language 

for FINRA’s consideration. Similarly, 

another commenter requested that 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 551 

53See FSI Letter. 

54 15 U.S.C. 78s(b)(2). 

55 Id. 

56 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

FINRA clarify Question 14M on the 

Form U4 to remove any confusion 

regarding its scope.53 In addition, the 

commenter stated that FINRA should 

clarify that it will not fine firms in 

instances where they did not treat a 

short sale as a compromise with 

creditors under Question 14K on the 

Form U4 prior to FINRA’s guidance on 

the subject. In response, FINRA states it 

believes that these comments are 

outside the scope of the proposed rule 

change, and should be addressed in the 

context of changes to the Form U4 or its 

interpretations. 

IV. Accelerated Approval 

The Commission finds good cause to 

approve the proposed rule change, as 

amended by Amendment No. 1, prior to 

the thirtieth day after the date of 

publication of notice of filing thereof in 

the Federal Register. The amendment 

responds to issues raised by 

commenters and makes minor 

modifications in response to the 

comments. Accelerated approval would 

allow FINRA to implement the amended 

proposal without delay. The proposal 

will provide firms with an incentive to 

determine if additional disclosures on 

Form U4 are required for their registered 

personnel, ultimately resulting in more 

complete and accurate information in 

WebCRD, and as a consequence in 

BrokerCheck. As noted by FINRA and 

the commenters, WebCRD is an 

important tool used by regulators, as 

well as the public to get information 

about registered persons with whom 

they may wish to do business. 

Therefore, implementing the proposal 

without delay is in the public interest. 

Accordingly, the Commission believes 

that good cause exists, pursuant to 

Section 19(b)(2) of the Act,54 to approve 

the proposed rule change, as amended 

by Amendment No. 1, on an accelerated 

basis. 

V. 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–2014–038 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2014–038. 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 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 on official business 

days between the hours of 10:00 a.m. 

and 3:00 p.m. Copies of the 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–2014–038 and 

should be submitted on or before 

January 27, 2015. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) 55 of the Act, that the 

proposed rule change (SR–FINRA– 

2014–038) be and hereby is approved, as 

amended, on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.56

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30902 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73963; File No. SR– 

NYSEArca–2014–141] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending the Bylaws of 

the Exchange’s Ultimate Parent 

Company, Intercontinental Exchange, 

Inc., To Designate Its Chief Strategic 

Officer, Chief Technology Officer and 

General Counsel as ‘‘Senior Officers’’ 

of ICE 

December 30, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that, on December 

29, 2014, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. 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 the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend the 

Bylaws (the ‘‘ICE Bylaws’’) of the 

Exchange’s ultimate parent company, 

Intercontinental Exchange, Inc. (‘‘ICE’’), 

to designate its Chief Strategic Officer, 

Chief Technology Officer and General 

Counsel as ‘‘Senior Officers’’ of ICE. The 

text of the proposed rule change is 

available on the Exchange’s Web site at 

www.nyse.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 

self-regulatory organization 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 those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 


tkelley on DSK3SPTVN1PROD with NOTICES