Document ID: SEC-2022-0027-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-01-10T05:00Z

[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Notices]
[Pages 1201-1203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00157]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93897; File No. SR-FINRA-2021-024]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
the Proposed Rule Change To Amend FINRA Rule 2231 (Customer Account 
Statements)

January 4, 2022.

I. Introduction

    On September 29, 2021, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FINRA-2021-024 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 \2\ thereunder to amend FINRA Rule 2231 
(Customer Account Statements) to add new supplementary materials, 
incorporate specified provisions from dual FINRA-NYSE temporary rules, 
and delete those temporary rules.\3\ The proposed rule change was 
published for public comment in the Federal Register on September 30, 
2021.\4\ On November 9, 2021, FINRA consented to an extension of the 
time period in which the Commission must approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change 
to January 4, 2022.\5\ On January 4, 2022, FINRA responded to the 
comment letters received in response to the Notice and filed an 
amendment to modify the proposed rule change (``Amendment No. 1'').\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 93215 (September 30, 2021), 86 FR 
55641 (October 6, 2021) (File No. SR-FINRA-2021-024) (``Notice'').
    \4\ See supra note 3.
    \5\ See letter from Sarah Kwak, Associate General Counsel, 
Office of General Counsel, FINRA, to Daniel Fisher, Branch Chief, 
Office of Chief Counsel, Division of Trading and Markets, 
Commission, dated November 9, 2021.
    \6\ See letter from Sarak Kwak, Associate General Counsel, 
Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, 
Commission, dated January 4, 2022 (``FINRA Response'').
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    The Commission is publishing this order pursuant to Section 
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed 
rule change, as modified by Amendment No. 1, from interested persons 
and to institute proceedings to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
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    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    FINRA is proposing to amend Rule 2231 (Customer Account Statements) 
to add new supplementary materials, incorporate specified provisions 
from dual FINRA-NYSE temporary rules, and delete those temporary rules. 
The proposed rule change would amend Rule 2231 to add new supplementary 
materials pertaining to compliance with FINRA Rule 4311 (Carrying 
Agreements), the transmission of customer account statements to other 
persons or entities, the use of electronic media to satisfy delivery 
obligations, and compliance with FINRA Rule 3150 (Holding of Customer 
Mail).
    Specifically, proposed new Supplementary Material .01 to Rule 2231 
would remind firms of their obligations under Rule 4311, including 
specifically the rights and obligations of carrying firms under Rule 
4311(c)(2) that generally require each carrying agreement in which 
accounts are to be carried on a fully disclosed basis to expressly 
allocate to the carrying firm the responsibility for the safeguarding 
of funds and securities for the purposes of Exchange Act Rule 15c3-3 
and for preparing and transmitting statements of account to customers.
    Proposed new Supplementary Material .02 to Rule 2231 would prohibit 
member firms from sending customer account statements to third parties 
unless: (1) The customer provided written instructions to the

[[Page 1202]]

member to send statements to such third parties; and (2) the member 
sends duplicate account statements directly to the customer either in 
paper format or electronically. The proposed Supplementary Material .02 
would add that a member firm may cease sending duplicate account 
statements to a customer where a court of competent jurisdiction has 
appointed a guardian, conservator, trustee, personal representative or 
other person with legal authority to act on a customer's behalf, and 
such court-appointed fiduciary provides written instructions to the 
member and furnishes to the member an official copy of the court 
appointment that establishes authority over the customer's accounts.
    Proposed new Supplementary Material .03 to Rule 2231 would allow 
member firms to satisfy their delivery obligations under the rule by 
using electronic media, subject to compliance with standards 
established by the Commission on the use of electronic media for 
delivery purposes.
    Proposed new Supplementary Material .04 to Rule 2231 would permit 
member firms to hold customer mail, including customer account 
statements or other communications relating to a customer's account, 
subject to the requirements of Rule 3150.
    Proposed new Supplementary Material .05 to Rule 2231 would 
incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/02 by requiring the following information to be clearly and 
prominently disclosed on the front of a customer account statement: (1) 
The identity of the introducing and clearing firm, if different, and 
their respective contact information for customer service (although the 
proposed rule change would permit the identity of the clearing firm and 
its contact information to appear on the back of the statement provided 
such information is in ``bold'' or ``highlighted'' letters); (2) that 
the clearing firm is a member of SIPC; and (3) the opening and closing 
balances for the account.
    Proposed new Supplementary Material .06 to Rule 2231 would 
incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/04 which provides that where a customer account statement 
includes assets the member firm does not carry on behalf of a customer 
and are not included on the member's books and records, such assets 
must be clearly and distinguishably separated on the account statement. 
The proposed rule change would also require the account statement to: 
(1) Clearly indicate that such externally held assets are included on 
the statement solely as a courtesy to the customer; (2) disclose that 
information (including valuation) for such externally held assets 
included on the statement is derived from the customer or other 
external source for which the member is not responsible; and (3) 
identify that such externally held assets may not be covered by SIPC.
    Proposed new Supplementary Material .07 to Rule 2231 would 
incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/05, which provides that where the logo, trademark or other 
identification of a person (other than the introducing firm or clearing 
firm) appears on a customer account statement, then the identity of 
such person and the relationship to the introducing, clearing, or other 
firm included on the statement must be provided and may not be used in 
a manner that is misleading or causes customer confusion.
    Proposed new Supplementary Material .08 to Rule 2231 would 
incorporate without substantive changes NYSE Rule Interpretation 
409T(a)/06 by establishing a member firm's obligations where the member 
holding a customer's account and another person who separately offers 
financial related products or services to the same customer jointly 
provide their respective customer account statements together with a 
statement summarizing or combining assets held in different accounts.
    Finally, FINRA is proposing to delete NYSE Rule 409T and NYSE Rule 
Interpretation 409T in their entirety on the basis that the underlying 
concepts in these provisions will have been included in Rule 2231, are 
duplicative of other rules, or are outdated.
    Amendment No. 1 would modify the proposed rule change by changing 
the term ``clearing firm'' to ``carrying firm'' in the following 
places: (1) Proposed Rule 2231(a); (2) proposed Rule 2231.05(a) and 
(b); (3) proposed Rule 2231.07; and (4) proposed Rule 2231.08(d). FINRA 
stated that changing the term ``clearing firm'' to ``carrying firm'' 
would maintain consistency given the proposed supplementary materials 
are derived largely from their corresponding NYSE provisions, which use 
the term ``carrying organization.'' \8\
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    \8\ See FINRA Response.
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III. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-FINRA-2021-024 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved.\9\ Institution of proceedings is appropriate at this time 
in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to the proposed 
rule change, as modified by Amendment No. 1.
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    \9\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\10\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis and input concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Exchange 
Act and the rules thereunder.
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    \10\ Id.
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IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change, as modified by Amendment No. 1. In 
particular, the Commission invites the written views of interested 
persons concerning whether the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Exchange Act and the rules 
thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\11\
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    \11\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by January 31, 2022. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by February 14, 2022.
    Comments may be submitted by any of the following methods:

[[Page 1203]]

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-FINRA-2021-024 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 No. SR-FINRA-2021-024. 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 10:00 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. 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 No. SR-FINRA-2021-024 and 
should be submitted on or before January 31, 2022. If comments are 
received, any rebuttal comments should be submitted on or before 
February 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00157 Filed 1-7-22; 8:45 am]
BILLING CODE 8011-01-P