Document ID: SEC-2015-0804-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-05-12T04:00Z

[Federal Register Volume 80, Number 91 (Tuesday, May 12, 2015)]
[Notices]
[Pages 27220-27222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11381]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74890; File No. SR-FINRA-2015-009]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
FINRA Rule 2272 To Govern Sales or Offers of Sales of Securities on the 
Premises of Any Military Installation to Members of the U.S. Armed 
Forces or Their Dependents

May 6, 2015.
    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 April 23, 2015, 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 substantially prepared by 
FINRA. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 2272, which would govern 
sales or offers of sales of securities on the premises of any military 
installation to members of the U.S. Armed Forces or their dependents.
    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,

[[Page 27221]]

and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The proposed rule change would adopt FINRA Rule 2272, which would 
govern sales or offers of sales of securities on the premises of any 
military installation to members of the U.S. Armed Forces or their 
dependents.
Statutory Requirement
    The Military Personnel Financial Services Protection Act 
(``Military Act'') was enacted to protect members of the U.S. Armed 
Forces from unscrupulous practices regarding sales of insurance, 
financial and investment products.\3\ Congress amended Section 15A(b) 
of the Exchange Act with the enactment of the Military Act to require 
FINRA, as a registered securities association, to adopt rules governing 
the sales or offers of sales of securities on the premises of any 
military installation to members of the U.S. Armed Forces or their 
dependents.\4\ Such rules must require: (1) The broker-dealer 
performing brokerage services to clearly and conspicuously disclose to 
potential investors (a) that the securities offered are not being 
offered or provided by the broker-dealer on behalf of the federal 
government, and that its offer is not sanctioned, recommended, or 
encouraged by the federal government and (b) the identity of the 
registered broker-dealer offering the securities; (2) such broker-
dealer to perform an appropriate suitability determination, including 
consideration of costs and knowledge about securities, prior to making 
a recommendation of a security to a member of the U.S. Armed Forces or 
a dependent thereof; and (3) that no person receive any referral fee or 
incentive compensation in connection with a sale or offer of sale of 
securities, unless such person is an associated person of a registered 
broker-dealer and is qualified pursuant to the rules of a self-
regulatory organization.\5\
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    \3\ Public Law 109-290, 120 Stat. 1317.
    \4\ 15 U.S.C. 78o-3(b).
    \5\ 15 U.S.C. 78o-3(b)(14).
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Proposal
    FINRA, as a registered securities association, is proposing to 
adopt Rule 2272 to comply with the statutory requirements of the 
Military Act. Proposed Rule 2272 would require that any member engaging 
in sales or offers of sales of securities on the premises of a military 
installation to any member of the U.S. Armed Forces or a dependent 
thereof shall clearly and conspicuously disclose in writing, which may 
be electronic, to such potential investor prior to engaging in sales or 
offers of sales of securities to such investor: (1) The identity of the 
member offering the securities; and (2) that the securities offered are 
not being offered or provided by the member on behalf of the federal 
government, and that the offer of such securities is not sanctioned, 
recommended or encouraged by the federal government.\6\ Electronic 
delivery of the disclosures required by proposed Rule 2272 must be 
consistent with SEC guidance on the use of electronic media to satisfy 
delivery obligations which, among other things, requires affirmative 
consent of the customer for delivery of certain documents.\7\
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    \6\ See proposed Rule 2272(b).
    \7\ See Securities Exchange Act Release No. 37182 (May 6, 1996); 
61 FR 24644 (May 15, 1996). See also Securities Exchange Act Release 
No. 42728 (April 28, 2000); 65 FR 25843 (May 4, 2000).
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    Proposed Rule 2272 also would incorporate the suitability 
obligations under FINRA Rule 2111. Specifically, the proposed rule 
would explicitly provide that a member must satisfy the suitability 
obligations imposed by Rule 2111 when making a recommendation on the 
premises of a military installation to any member of the U.S. Armed 
Forces or a dependent thereof.\8\ FINRA believes that the suitability 
obligations imposed by Rule 2111 satisfy the statutory requirement that 
FINRA adopt rules requiring its members to perform an appropriate 
suitability determination, including consideration of costs and 
knowledge about securities, prior to making a recommendation to a 
member of the U.S. Armed Forces or a dependent thereof. FINRA has 
previously stated that the cost associated with a recommendation is one 
factor for a member or an associated person to consider when 
determining whether a security or investment strategy is suitable for a 
customer pursuant to Rule 2111.\9\ Further, Rule 2111 requires a member 
or associated person to use reasonable diligence to obtain and 
consider, among other things, the customer's investment experience.\10\
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    \8\ See proposed Rule 2272(c).
    \9\ See Regulatory Notice 12-25 (May 2012). FINRA stated that 
the cost associated with a recommendation is one of many important 
factors to consider when determining whether the subject security or 
investment strategy involving a security or securities is suitable.
    \10\ See Rule 2111(a) (requiring that a member or associated 
person use reasonable diligence to obtain and consider a customer's 
investment profile, which includes the customer's investment 
experience). See also Regulatory Notice 12-25.
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    Proposed Rule 2272 also would provide that no member shall cause a 
person to receive a referral fee or incentive compensation in 
connection with sales or offers of sales of securities on the premises 
of a military installation with any member of the U.S. Armed Forces or 
a dependent thereof, unless such person is an associated person of a 
registered broker-dealer who is appropriately qualified consistent with 
FINRA rules, and the payment complies with applicable federal 
securities laws and FINRA rules.\11\
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    \11\ See proposed Rule 2272(d).
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    For purposes of the proposed rule change, FINRA proposes to define 
``military installation'' to include ``any federally owned, leased or 
operated base, reservation, post, camp, building or other facility to 
which members of the U.S. Armed Forces are assigned for duty, including 
barracks, transient housing and family quarters.'' \12\ FINRA will read 
with interest comments as to whether proposed Rule 2272 should be 
broadened to apply to sales or offers of sales of securities both on 
and off the premises of a military installation to any member of the 
U.S. Armed Forces or a dependent thereof. In this regard, FINRA reminds 
members that any such sales or offers of sales of securities off the 
premises of a military installation must comply with applicable FINRA 
rules, including suitability requirements, and that any misleading 
representation made to a member of the U.S. Armed Forces or a dependent 
thereof off the premises of a military installation that the securities 
are being offered or provided on behalf of, or sanctioned, recommended, 
or encouraged by the federal government would be otherwise prohibited 
by FINRA rules.\13\
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    \12\ See proposed Rule 2272(a). The proposed definition is 
consistent with the definition included in the Military Sales 
Practices Model Regulation adopted by the National Association of 
Insurance Commissioners. See http://www.naic.org/store/free/MDL-568.pdf.
    \13\ See, e.g., Rules 2010, 2020, and 2210.
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    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 180 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

[[Page 27222]]

of Section 15A(b)(6) of the Act,\14\ 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 the proposed rule change will 
further the purposes of the Act by providing members of the U.S. Armed 
Forces and their dependents on the premises of military installations 
with clear disclosure that the securities offered are not being offered 
or provided by the member on behalf of the federal government, and that 
the offer of such securities is not sanctioned, recommended or 
encouraged by the federal government. The proposed rule change also 
would require persons receiving referral fees or other incentive 
compensation in connection with such sales to be appropriately 
qualified associated persons of a broker-dealer so as to mitigate 
potentially abusive and unscrupulous sales practices.
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    \14\ 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. Proposed Rule 2272 is intended 
to benefit members of the U.S. Armed Forces and their dependents on the 
premises of military installations by providing enhanced disclosure 
about securities investments and limiting compensation for referrals.
    According to the 2012 National Financial Capability Study's 
Military Report,\15\ approximately half of the survey respondents hold 
non-retirement investments and approximately 65% have self-directed 
retirement plans. In addition, approximately two-thirds of respondents 
indicated that they have consulted with a financial professional 
outside the military over the past five years.
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    \15\ The report and related materials can be found at: http://www.usfinancialcapability.org/resultsm.php. The report is based on a 
survey of 1,000 members of the U.S. Armed Forces, including active 
duty personnel, activated Reserve and National Guard personnel, and 
Reserve and National Guard personnel not currently on active duty.
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    The Department of Defense has separately imposed requirements for 
personal commercial solicitations, including offers and sales of 
securities, on the premises of military installations. Among other 
things, the Department of Defense has required: (i) Registering persons 
seeking to solicit on the premises of military installations with the 
installation's commander prior to soliciting on the premises; (ii) 
checking the person's license status and complaint history prior to 
granting permission for soliciting on the premises; (iii) permitting 
only previously scheduled meetings in a location designated by the 
commander or in family quarters; and (iv) maintaining a list of persons 
and companies who have had their commercial solicitation privileges 
withdrawn.\16\ The Department of Defense's requirements have the 
practical effect of limiting access to the premises of military 
installations for the purpose of commercial solicitations.
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    \16\ See Department of Defense Instruction No. 1344.07 (March 
30, 2006).
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    The proposed rule change would impose additional costs on members 
that offer to sell securities on the premises of U.S. military 
installations to members of the U.S. Armed Forces and their dependents. 
Specifically, members would be required to provide additional 
disclosure and to adopt supervisory policies and procedures reasonably 
designed to ensure that the disclosure is provided where required. 
FINRA anticipates that the disclosure required by proposed Rule 2272 
would be provided with other materials and disclosures typically 
provided to potential investors.

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-2015-009 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-2015-009. 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-2015-009 and should be 
submitted on or before June 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11381 Filed 5-11-15; 8:45 am]
 BILLING CODE 8011-01-P