Document ID: SEC-2009-1157-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-08-17T04:00Z

[Federal Register: August 17, 2009 (Volume 74, Number 157)]
[Notices]               
[Page 41470-41472]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17au09-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60462; File No. SR-FINRA-2009-050]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
FINRA Rule 8312 (FINRA BrokerCheck Disclosure)

August 7, 2009.
    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 July 24, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 amend FINRA Rule 8312 (FINRA BrokerCheck 
Disclosure) to retain and make publicly available in BrokerCheck 
certain information about former associated persons of a member who 
were the subject of a final regulatory action as defined in Form U4 
that has been reported to the Central Registration Depository 
(``CRD[supreg]'' or ``CRD System'') via a uniform registration form.\3\
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    \3\ The uniform registration forms are Form BD (Uniform 
Application for Broker-Dealer Registration), Form BDW (Uniform 
Request for Broker-Dealer Withdrawal), Form U4 (Uniform Application 
for Securities Industry Registration or Transfer), Form U5 (Uniform 
Termination Notice for Securities Industry Registration), and Form 
U6 (Uniform Disciplinary Action Reporting Form).
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    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, the Proposed Rule Change

1. Purpose
    FINRA Rule 8312 governs the information FINRA releases to the 
public via BrokerCheck. FINRA established BrokerCheck (then known as 
the Public Disclosure Program) in 1988 to provide the public with 
information on the professional background, business practices, and 
conduct of FINRA members and their associated persons. Via BrokerCheck, 
FINRA releases to the public certain information reported on uniform 
registration forms to the CRD System. The primary purpose of 
BrokerCheck is to help investors make informed choices about the 
individuals and firms with which they may wish to do business.
    Currently, as described in FINRA Rule 8312, BrokerCheck provides 
information regarding current and former members, as well as current 
associated persons and persons who were associated with a member within 
the preceding two years. The proposed rule change would expand 
BrokerCheck with respect to former associated persons to provide public 
access to certain information about such persons, regardless of when 
they were associated with a member, if they were the subject of any 
final regulatory action as defined in Form U4 that has been reported to 
CRD via a uniform registration form.\4\ For purposes of the proposed 
rule change, a final regulatory action as defined in Form U4 may 
include any final action, including any action that is on appeal, by 
the SEC, Commodity Futures Trading Commission, a federal banking 
agency, the National Credit Union Administration, another federal 
regulatory agency, a state regulatory agency, a foreign financial 
regulatory authority, or a self-regulatory organization (as those terms 
are used in Form U4).\5\ To illustrate, actions that are delineated in 
current Form U4 Questions 14C, 14D, or 14E would be considered ``final 
regulatory actions.'' Similarly, actions that are detailed in current 
Form U5 Question 7D, and have a status of ``final'' or ``on appeal,'' 
would be considered ``final regulatory actions'' as such actions are 
also addressed in Form U4.\6\
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    \4\ Because the information disclosed through BrokerCheck is 
derived from the CRD System, BrokerCheck will only disclose 
information regarding regulatory actions that have been reported to 
CRD via a uniform registration form.
    \5\ A final regulatory action would not include any action 
limited to the revocation or suspension of an individual's 
authorization to act as an attorney, accountant or federal 
contractor (current Form U4 Question 14F).
    \6\ FINRA staff also will review responses to all Regulatory 
Action Disclosure questions and Disclosure Review Pages on the Forms 
U4 and U5 (including the predecessor questions in this area), as 
well as information filed on Form U6 to determine whether a former 
associated person is subject to a final regulatory action and should 
therefore be included in BrokerCheck pursuant to the proposed rule 
change. Under the proposed rule change, FINRA may disclose a final 
action that is reported by a regulator on a Form U6 even if that 
action has not been reported by an individual on a Form U4 because, 
for example, the individual was not registered at the time the final 
regulatory action was reported.
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    The proposed rule change would allow the public access to 
information about formerly registered persons who, although no longer 
in the securities industry in a registered capacity, may work in other 
investment-related industries or attain other positions of trust and 
about whom investors may wish to learn relevant disciplinary 
information. Specifically, FINRA would disclose through BrokerCheck

[[Page 41471]]

information concerning any final regulatory action(s), as well as 
certain administrative information (e.g., employment and registration 
history) and information as to qualification examinations, if 
available, regarding these formerly registered individuals. FINRA also 
would provide the most recently submitted comment, if any, provided by 
the subject person, presuming the comment is in the form and in 
accordance with the procedures established by FINRA and relates to the 
information provided through BrokerCheck. The proposed rule change 
would not expand access to other information that may be part of the 
CRD System regarding the former registered person, such as customer 
complaints, bankruptcies, liens, criminal events or arbitration claims.
    FINRA notes that the amount and format of information made 
available for this expanded category of individuals will depend in part 
on when such individuals left the securities industry, and whether 
their CRD data is available in Web-based format. Since FINRA launched 
its Web-based CRD system (``Web CRD'') in 1999, it has used the 
information in the Web CRD database to generate BrokerCheck reports. 
The Web CRD database contains information regarding all persons that 
have been registered with FINRA since the implementation of the Legacy 
CRD system in 1981. The majority of those records contain 
administrative and disclosure information and are in the Web CRD 
format. However, two conditions apply to a small percentage of 
individuals who were no longer registered at the time Web CRD was 
established in 1999. First, not all of these individuals' records are 
available in the Web CRD format; instead, their records exist in the 
Legacy CRD format.\7\ Second, for a very small percentage of 
individuals, certain administrative information is unavailable in 
either the Web or Legacy CRD format.\8\
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    \7\ For prudential reasons, FINRA did not convert into the Web 
CRD format the data for all individuals whose FINRA registrations 
were terminated prior to November 1996 (``Legacy CRD individuals''); 
instead, these records were moved to Web CRD in their Legacy CRD 
data format. As a result of the different data formats, and certain 
technical and operational challenges associated with providing 
information on eligible Legacy CRD individuals, FINRA expects to 
implement the expanded program in two phases. Eligible individuals 
whose records are in the Web CRD format will be available in the 
first phase; eligible individuals whose records are in the Legacy 
format will be available in the second phase.
    \8\ During the existence of the Legacy CRD system, FINRA removed 
from the system administrative data for individuals who had ceased 
being registered for a period of time to free up storage space on 
the system. As a result, this data was not moved to Web CRD (in 
either Legacy or Web CRD format) and is not available for display in 
BrokerCheck.
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    Consequently, FINRA expects that, for the large majority of the 
individuals who will be subject to BrokerCheck as a result of the 
proposed expansion, all of the information proposed to be disclosed 
(i.e., information regarding final regulatory actions, employment and 
registration history, qualification examinations, and most recent 
comment) will be made available to the public. FINRA recognizes, 
however, that for a limited number of individuals whose registration 
with FINRA ceased prior to 1999, not all of the administrative data and 
qualification information will be available. In such situations, only 
the individual's name, information about any final regulatory actions, 
and the most recent comment, if any, will be disclosed through 
BrokerCheck.
    With respect to individuals whose records exist in the Legacy CRD 
format, FINRA staff will manually prepare the BrokerCheck report (upon 
request), convert the report to an electronic format, and make the 
report available through BrokerCheck to a requester. FINRA staff will 
endeavor to respond promptly to requests for information regarding 
these persons. This protocol also will allow FINRA staff to review the 
information to determine if the content is in the form and in 
accordance with the procedures established by FINRA prior to making the 
information available through BrokerCheck.\9\ Upon identifying or being 
made aware of the inclusion in a BrokerCheck report of potentially 
inappropriate information, including customer names, confidential 
account information or possibly offensive or potentially defamatory 
language, FINRA will continue to employ a balancing test to weigh the 
value of the language in controversy for regulatory and investor 
protection purposes against the objector's asserted privacy rights and/
or potential defamation claims. Based on this balancing, FINRA could 
determine to redact the controversial language from BrokerCheck reports 
on a case-by-case basis.\10\
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    \9\ See, e.g., Securities Exchange Act Release No. 42402 
(February 7, 2000), 65 FR 7582 (February 15, 2000) (Order Approving 
SR-NASD-99-45).
    \10\ See, e.g., Securities Exchange Act Release No. 42402 
(February 7, 2000), 65 FR 7582 (February 15, 2000) (Order Approving 
SR-NASD-99-45).
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    FINRA believes this measured expansion of BrokerCheck strikes a 
balance between, on the one hand, investor protection interests, and on 
the other hand, personal privacy and fairness to former registered 
persons. In this regard, FINRA notes that much of the information that 
would be subject to release pursuant to the proposed rule change (i.e., 
information concerning certain final regulatory actions) may be 
available through other public sources. For example, FINRA provides 
information about its disciplinary actions involving current and 
formerly registered persons on its Web site; information about other 
actions that would be considered final regulatory actions may be 
available through other public sources, such as online search engines, 
regulators' Web sites, and fee-based services such as Lexis or Westlaw. 
Further, final regulatory actions are subject to procedures that allow 
an opportunity for the subject person to present arguments to a fact-
finder about the allegations prior to the final disposition of the 
matter. In addition, final regulatory actions may be relevant or 
material to investors wishing to find out disciplinary information 
about a formerly registered person. As a result, providing this 
information through BrokerCheck would provide the public with a useful 
method to discover information about former registered persons without 
undue burden on formerly registered persons. As mentioned above, the 
former registered person has the opportunity to submit a comment for 
publication in BrokerCheck in response to information provided through 
BrokerCheck, provided the comment is in the form and in accordance with 
the procedures established by FINRA and relates to the information 
provided through BrokerCheck.
    In further recognition of FINRA's attempt to strike a balance 
between personal privacy and investor protection concerns, as noted 
above, FINRA is not proposing to expand access to other information 
that may be part of the CRD System regarding former registered persons 
who have not been registered with a member for more than two years, 
such as bankruptcies, liens, criminal events or arbitration claims. In 
that regard, FINRA believes that these other categories of information 
are more relevant to an investor or potential customer when the 
individual is registered or was recently registered (i.e., within two 
years). FINRA also notes that, unlike final regulatory actions, 
arbitration claims may not be subject to procedures that allow an 
opportunity for the subject person to present arguments to a fact-
finder about the allegations prior to final disposition (including, 
e.g., arbitration claims filed at or near the time the subject person 
left the industry). Further, a firm may

[[Page 41472]]

choose to settle an arbitration claim (e.g., for business reasons) 
notwithstanding the desire of a subject person to contest the claim. In 
addition, both criminal charges and convictions that are reported 
subsequently may have a different disposition, which may significantly 
change the meaning of the matter as originally reported (for example, 
such charges or convictions may be dismissed or expunged). Finally, 
FINRA does not view reportable financial matters (e.g., bankruptcies 
and liens) as having the same degree of materiality as final regulatory 
actions such that they should continue to be disclosed on a permanent 
basis.
    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.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. The proposed rule change, among other things, would 
enhance investor protection by providing access through the BrokerCheck 
program to certain information about former associated persons of a 
member who were the subject of a final regulatory action as defined in 
Form U4 that has been reported to CRD on a uniform registration form.
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    \11\ 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.

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 35 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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-050 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 20549-1090.

All submissions should refer to File Number SR-FINRA-2009-050. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; 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-2009-050 and should be 
submitted on or before September 8, 2009.

    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).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19571 Filed 8-14-09; 8:45 am]

BILLING CODE 8010-01-P