Document ID: SEC-2013-1511-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-08-23T04:00Z

[Federal Register Volume 78, Number 164 (Friday, August 23, 2013)]
[Notices]
[Pages 52594-52596]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20569]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70227; File No. SR-FINRA-2013-034]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend the Form U4 Regarding the Reporting of 
Unsatisfied Judgments and Liens

August 19, 2013.
    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 August 13, 2013, 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. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the Uniform Application for Securities 
Industry Registration or Transfer (``Form U4'') with respect to the 
reporting of unsatisfied judgments and liens.
    The proposed rule change does not make any changes to the text of 
FINRA rules.
    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, Proposed Rule Change

1. Purpose
    The Form U4 is the Uniform Application for Securities Industry 
Registration or Transfer. Representatives of broker-dealers, investment 
advisers, or issuers of securities must use the Form U4 to become 
registered in the appropriate jurisdictions and with the appropriate 
self-regulatory organizations (``SROs''). The Form U4 elicits 
administrative information (e.g., residential history, office of 
employment, outside business activities) and disclosure information 
(e.g., criminal charges and convictions, customer complaints, 
bankruptcies) about a representative. Firms and individuals have a 
continuing obligation to ensure that a Form U4 is timely updated when 
an event or proceeding occurs that renders a prior response on the form 
inaccurate or incomplete.
    Section 14 of the Form U4 sets forth a series of questions 
regarding the existence of disclosure events that must be answered in 
the affirmative or negative. Additional details must be provided on the 
appropriate Disclosure Reporting Page (``DRP'') for any affirmative 
answer to those questions. One of the disclosure events that must be 
reported on Form U4 involves unsatisfied judgments and liens. To report 
that a registered representative has become subject to an unsatisfied 
judgment or lien, a firm must respond affirmatively to Question 14M on 
Form U4 and then complete the corresponding Judgment/Lien DRP to 
provide details about the unsatisfied judgment or lien. An unsatisfied 
judgment or lien must be reported no later than 30 days after a 
registered representative learns of the facts or circumstances giving 
rise to the event (i.e., the filing of the judgment or lien).\4\
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    \4\ See FINRA By-Laws, Article V, Section 2(c), which states 
that every application for registration filed with the Corporation 
shall be kept current at all times by supplementary amendments via 
electronic process or such other process as the Corporation may 
prescribe to the original application. Such amendment to the 
application shall be filed with the Corporation not later than 30 
days after learning of the facts or circumstances giving rise to the 
amendment.
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    In connection with fee changes implemented last year, it came to 
FINRA's attention that the Form U4 does not elicit a piece of 
information regarding an unsatisfied judgment or lien that is essential 
in enabling the CRD system to identify whether such a matter has been 
reported late. Specifically, the Judgment/Lien DRP elicits information 
only about the date a judgment or lien was filed; \5\ it does not 
elicit information about the date that the registered representative 
learned of the judgment or lien. In addition, the CRD system is 
programmed to determine whether a matter has been reported late based 
on a comparison of the date the judgment or lien was filed and the date 
it was reported. As result, the CRD system may assess an erroneous late 
disclosure fee because it is unable to take into account the date the 
registered representative learned of the judgment or lien.\6\ In such 
circumstances, the late disclosure fee may be unwarranted or the amount 
of the fee may be incorrect because the CRD system assessed the late 
disclosure fee based on the date the judgment or lien was filed rather 
than when the registered representative learned of it.
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    \5\ See Section 4 of the Form U4 Judgment/Lien DRP.
    \6\ FINRA will assess a late disclosure fee when a firm fails to 
report a disclosure event in a timely manner. The amount of the fee 
is based upon the number of days the disclosure is late. See Section 
4(h) of Schedule A to the FINRA By-Laws.
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    To help limit the instances of erroneous late disclosure fees being 
assessed by the CRD system, in August 2012, FINRA implemented new 
procedures for the reporting of unsatisfied judgments and liens.\7\ The 
new procedures instruct firms to provide the date the registered 
representative learned of the judgment or lien, if such date is 
different from the date the judgment or lien was filed, in a free-text 
section at the end of the DRP.\8\ If a firm reports a date in this 
section of the DRP, FINRA staff reviews the date provided to determine 
whether

[[Page 52595]]

a late disclosure fee should be assessed and, if so, the amount of the 
fee.\9\
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    \7\ See Information Notice, August 17, 2012.
    \8\ See Section 8 of the Judgment/Lien DRP.
    \9\ In conjunction with the implementation of the new procedures 
for the reporting of judgments and liens, the CRD system was 
modified to no longer automatically assess a late fee upon the 
reporting of these matters.
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    To provide additional clarity with respect to the reporting of 
events involving unsatisfied judgments and liens, the proposed rule 
change would amend Section 4 of the Judgment/Lien DRP to add a question 
regarding the date that the registered representative learned of the 
judgment or lien. The current question regarding the date the judgment 
or lien was filed will remain in Section 4 of the DRP.\10\ By amending 
the Judgment/Lien DRP in this manner, all member firms will be aware of 
the need to report both the date the judgment or lien was filed with a 
court and the date the registered representative learned of the matter. 
In addition, the proposed rule change would allow FINRA to once again 
automate the process for the calculation and assessment of the late 
disclosure fee with respect to the reporting of unsatisfied judgments 
and liens.\11\
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    \10\ FINRA, however, is proposing to clarify that this question 
pertains to the date that the judgment or lien was filed with a 
court.
    \11\ As noted above, in August 2012, FINRA suspended the 
automated process for calculating and assessing the late disclosure 
fee with respect to the reporting of unsatisfied judgments and 
liens, and instituted a temporary manual process. The proposed 
change would allow FINRA to reinstitute the automated process.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. 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 notice of the filing of the proposed 
rule change for immediate effectiveness. FINRA is proposing that the 
implementation date of the proposed rule change be the date of the 
software release to the CRD system in the fourth quarter of 2013.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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 that, by adding a question to the 
Judgment/Lien DRP to elicit the date that a registered representative 
learned of a judgment or lien, the proposed rule change will clarify 
and facilitate industry reporting requirements and thereby help to 
ensure that member firms report information about unsatisfied judgments 
and liens accurately and completely. FINRA also believes that the 
proposed rule change will limit the instances of the assessment of an 
erroneous late disclosure fee by allowing FINRA to automate the process 
by which such a fee is calculated and assessed.
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    \12\ 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. The proposed rule change to the 
Form U4 Judgment/Lien DRP will clarify and facilitate the accurate and 
complete reporting of information about unsatisfied judgments and liens 
by member firms. Furthermore, by specifically eliciting information 
about the date a registered representative learned of an unsatisfied 
judgment or lien, the proposed rule change will significantly limit, if 
not eliminate, the instances in which a member firm is assessed an 
erroneous late disclosure fee in connection with the reporting of such 
an event. This, in turn, will reduce the need for firms to contact 
FINRA for a refund of a late disclosure fee.\13\
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    \13\ Information about the late disclosure fee, including the 
procedure for requesting a refund, is available on FINRA's Web site 
at http://www.finra.org/industry/compliance/registration/crd/usersupport/p005225.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2013-034 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.

All submissions should refer to File Number SR-FINRA-2013-034. 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 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-

[[Page 52596]]

2013-034 and should be submitted on or before September 13, 2013.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20569 Filed 8-22-13; 8:45 am]
BILLING CODE 8011-01-P