Document ID: SEC-2018-1716-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-11-07T05:00Z

[Federal Register Volume 83, Number 216 (Wednesday, November 7, 2018)]
[Notices]
[Pages 55781-55784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24306]

[[Page 55781]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84518; File No. SR-FINRA-2018-037]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Rule 9910 Post-Employment Conflict of 
Interest Restrictions; Nonpublic Information

November 1, 2018.
    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 October 24, 2018, 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 concerned solely with the 
administration of the self-regulatory organization under Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(3) thereunder,\4\ 
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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(3).
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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 Rule 9910 (Post-Employment Conflict of 
Interest Restrictions; Nonpublic Information) that would prohibit: (1) 
Any former officer from making certain communications to or appearances 
before FINRA for one year; (2) any former employee from making certain 
communications to or appearances before FINRA at any time in a 
particular matter involving a specific party or parties in which the 
employee was personally and substantially involved during his or her 
employment; (3) any former employee from making certain communications 
to or appearances before FINRA for two years in a particular matter 
involving a specific party or parties, that was under the employee's 
official responsibility during the last year of his or her employment; 
and (4) any current employee from disseminating or disclosing, for a 
purpose unnecessary to the performance of FINRA job responsibilities, 
or any former employee from disseminating or disclosing, for any 
purpose, any nonpublic information obtained in the course of his or her 
employment with FINRA, unless the disclosure is expressly authorized by 
FINRA or is required or protected by law.
    The text of the proposed rule change is available on FINRA's 
website 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 rules prohibit former officers from appearing or providing 
expert testimony on behalf of any other person in a FINRA proceeding 
for one year following separation from FINRA.\5\ FINRA proposes to 
adopt restrictions for FINRA officers and employees similar to those 
that apply to former employees of the SEC. FINRA also proposes to adopt 
restrictions intended to prohibit current and former FINRA employees 
from misusing nonpublic FINRA information. In particular, proposed Rule 
9910 (Post-Employment Conflict of Interest Restrictions; Nonpublic 
Information) would prohibit: \6\
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    \5\ See FINRA Rules 9141(c) and 9242(b).
    \6\ The proposed rule change also would adopt a new rule series 
title, specifically Rule Series 9900, Restrictions on Former FINRA 
Officers and Employees; Nonpublic Information. See Exhibit 5.
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     any former officer from making certain communications to 
or appearances before FINRA for one year from the end of employment;
     any former employee from making certain communications to 
or appearances before FINRA at any time in a particular matter 
involving a specific party or parties in which the employee was 
personally and substantially involved during his or her employment;
     any former employee from making certain communications to 
or appearances before FINRA for two years in a particular matter 
involving a specific party or parties, that was under the employee's 
official responsibility during the last year of his or her employment; 
and
     any current employee from disseminating or disclosing, for 
a purpose unnecessary to the performance of FINRA job responsibilities, 
or a former employee from disseminating or disclosing, for any purpose, 
any nonpublic information obtained in the course of his or her 
employment with FINRA, unless the disclosure is expressly authorized by 
FINRA or is required or protected by law.
1. Expansion of the Prohibition for Former Officers
    FINRA prohibits former officers from appearing or providing expert 
testimony in a FINRA proceeding for one year following separation from 
FINRA. FINRA proposes to expand this prohibition as follows: \7\
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    \7\ See proposed FINRA Rule 9910(a).

    No former officer of FINRA shall knowingly, with the intent to 
influence, make any communication \8\ to or appearance \9\ before a 
FINRA Governor or employee \10\ within one year from the former 
officer's termination of employment with FINRA, on behalf of any 
other person in connection with any matter on which the former 
officer seeks official FINRA action by any Governor or employee of 
FINRA. A duly authorized FINRA officer may grant reasonable 
exceptions and waivers from this prohibition consistent with the 
purposes of the prohibition.
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    \8\ For purposes of Rule 9910, ``communication'' would mean the 
imparting or transmitting of information of any kind, including 
facts, opinions, ideas, questions or direction, to a FINRA Governor 
or employee, whether orally, in written correspondence, by 
electronic media, or by any other means. See proposed Rule 9910.02; 
see also 5 CFR 2641.201(d)(1) (definition of ``communication'' in 
Rule 201 of the Post-Employment Conflict of Interest Restrictions 
under the Ethics in Government Act).
    \9\ For purposes of Rule 9910, ``appearance'' would mean 
physical presence before a FINRA Governor or employee, in either a 
formal or an informal setting. Although an appearance also may be 
accompanied by a communication, an appearance need not involve any 
communication. See proposed Rule 9910.01; see also 5 CFR 
2641.201(d)(2) (definition of ``appearance'' in Rule 201 of the 
Post-Employment Conflict of Interest Restrictions under the Ethics 
in Government Act).
    \10\ For purposes of this proposed rule, ``employee'' would 
include both officer and non-officer employees. See proposed Rule 
9910.03.

    This restriction is modeled on Rule 204(a) of the Post-Employment 
Conflict of Interest Restrictions under the Ethics in Government Act, 
which applies, among others, to senior personnel of the

[[Page 55782]]

SEC.\11\ This restriction would apply even if the former officer never 
worked on or supervised the matter while employed by FINRA. This 
provision does not prohibit ``behind-the-scenes assistance'' (i.e., 
assistance that does not involve a communication to or appearance 
before FINRA), subject to FINRA Rule 9910(d) and, with respect to 
attorneys, any applicable state bar ethics rules.
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    \11\ Rule 204(a) provides, ``For one year after his service in a 
senior position terminates, no former senior employee may knowingly, 
with the intent to influence, make any communication to or 
appearance before an employee of an agency in which he served in any 
capacity within the one-year period prior to his termination from a 
senior position, if that communication or appearance is made on 
behalf of any other person in connection with any matter on which 
the former senior employee seeks official action by any employee of 
such agency.'' 5 CFR 2641.204(a).
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2. Adoption of a New Rule Provision Prohibiting Subject Matter 
Conflicts
    The interaction of a former employee with FINRA Governors or 
employees in a matter in which the former employee participated while 
at FINRA presents a potential conflict of interest and may undermine 
the public's trust and confidence in FINRA. Accordingly, FINRA proposes 
to adopt the following rule provision: \12\
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    \12\ See proposed Rule 9910(b).

    No former employee of FINRA shall knowingly, with the intent to 
influence, make any communication to or appearance before a FINRA 
Governor or employee on behalf of any other person in connection 
with a particular matter involving a specific party or parties, in 
which the former employee participated personally and substantially 
as an employee, and in which FINRA is a party or has a direct and 
substantial interest. A duly authorized FINRA officer may grant 
reasonable exceptions and waivers from this prohibition consistent 
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with the purposes of the prohibition.

    This provision is modeled on Rule 201(a) of the Post-Employment 
Conflict of Interest Restrictions under the Ethics in Government 
Act.\13\ The provision would permit ``behind-the-scenes assistance,'' 
subject to FINRA Rule 9910(d) and, with respect to attorneys, any 
applicable state bar ethics rules.
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    \13\ Rule 201(a) provides, ``No former employee shall knowingly, 
with the intent to influence, make any communication to or 
appearance before an employee of the United States on behalf of any 
other person in connection with a particular matter involving a 
specific party or parties, in which he participated personally and 
substantially as an employee, and in which the United States is a 
party or has a direct and substantial interest.'' 5 CFR 2641.201(a).
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3. Two-Year Ban on ``Switching Sides'' on Matters Within Former 
Employee's Official Responsibility
    The participation of a former employee in a matter that recently 
fell within the employee's official responsibility at FINRA presents at 
least an apparent conflict of interest and could undermine the public's 
trust and confidence in FINRA. Accordingly, FINRA proposes to adopt the 
following rule provision: \14\
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    \14\ See proposed Rule 9910(c).

    For two years after his or her employment with FINRA terminates, 
no former employee shall knowingly, with the intent to influence, 
make any communication to or appearance before a FINRA Governor or 
employee on behalf of any other person in connection with a 
particular matter involving a specific party or parties, in which 
FINRA is a party or has a direct and substantial interest, and which 
the former employee knows or reasonably should know was actually 
pending under the former employee's official responsibility, within 
the one-year period prior to the termination of his or her 
employment with FINRA. A duly authorized FINRA officer may grant 
reasonable exceptions and waivers from this prohibition consistent 
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with the purposes of the prohibition.

    This restriction would be modeled on Rule 202(a) of the Post-
Employment Conflict of Interest Restrictions under the Ethics in 
Government Act.\15\ A matter could fall under the employee's official 
responsibility if, for example, the employee had administrative or 
operating authority, either alone or through others, and either 
personally or through subordinates, to approve or disapprove an action 
in the matter.\16\ The provision would permit ``behind the scenes 
assistance,'' subject to FINRA Rule 9910(d) and, with respect to 
attorneys, any applicable state bar ethics rules.
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    \15\ Rule 202(a) provides, ``For two years after his Government 
service terminates, no former employee shall knowingly, with the 
intent to influence, make any communication to or appearance before 
an employee of the United States on behalf of any other person in 
connection with a particular matter involving a specific party or 
parties, in which the United States is a party or has a direct and 
substantial interest, and which such person knows or reasonably 
should know was actually pending under his official responsibility 
within the one-year period prior to the termination of his 
Government service.'' 5 CFR 2641.202(a).
    \16\ Rule 202 provides extensive interpretations regarding the 
meaning of ``official responsibility.'' Rule 202(j) provides, in 
part, ```Official responsibility' means the direct administrative or 
operating authority, whether intermediate or final, and either 
exercisable alone or with others, and either personally or through 
subordinates, to approve, disapprove, or otherwise direct Government 
action. Ordinarily, the scope of an employee's official 
responsibility is determined by those functions assigned by statute, 
regulation, Executive order, job description, or delegation of 
authority.'' 5 CFR 2641.202(j).
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4. Protection of Nonpublic Information
    FINRA's Code of Conduct prohibits the use or disclosure of 
nonpublic information to anyone (including other FINRA employees) for 
any purpose unnecessary to the performance of an employee's duties, 
unless required by law or instructed to do so by an appropriate FINRA 
officer. All FINRA employees are also bound by confidentiality 
obligations through agreements entered in connection with their 
employment. FINRA seeks to further ensure that current employees do not 
use or disseminate nonpublic FINRA information for a purpose 
unnecessary to the performance of FINRA job responsibilities, and that 
former employees do not use or disseminate nonpublic FINRA information 
for any purpose, without authorization or unless the disclosure is 
required or protected by law, by proposing the following rule 
provision: \17\
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    \17\ See proposed Rule 9910(d).

    No current employee of FINRA may disseminate or disclose, for a 
purpose unnecessary to the performance of FINRA job 
responsibilities, and no former employee of FINRA may disseminate or 
disclose, for any purpose, any nonpublic information obtained in the 
course of his or her FINRA employment, unless expressly authorized 
by FINRA. Nothing in this paragraph shall be deemed to limit current 
or former employees of FINRA from making any disclosures required or 
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protected by law.

    This restriction would place a duty on current FINRA employees not 
to disseminate or disclose, for a purpose unnecessary to the 
performance of FINRA job responsibilities, and on former FINRA 
employees not to disseminate or disclose, for any purpose, nonpublic 
information obtained in the course of their FINRA employment, unless 
expressly authorized by FINRA. The restriction would not limit current 
and former employees from disclosing nonpublic information obtained in 
the course of their employment with FINRA if the disclosure is required 
or protected by law.
    For example, this restriction would not limit a current or former 
employee from participating in an investigation conducted by a 
regulatory entity or government agency. Nor would this provision limit 
current or former employees from making any disclosures protected by 
whistleblower statutes.

[[Page 55783]]

5. Exceptions, Waivers and Operative Dates
    Paragraphs (a), (b) and (c) of proposed Rule 9910 allow a duly 
authorized FINRA officer to grant reasonable exceptions and waivers 
from the prohibitions consistent with their purposes. A senior 
executive level officer in its Office of General Counsel whose 
responsibilities include interpreting and enforcing FINRA's Code of 
Conduct, including the Chief Legal Officer, will serve as the duly 
authorized officer for these purposes. Exceptions and waivers under 
paragraphs (a), (b), and (c) and authorizations under paragraph (d) 
typically will be granted in the rare instance that the prohibition 
conflicts with other law.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of paragraphs (b), (c) and (d) of 
proposed FINRA Rule 9910 will be December 3, 2018. The operative date 
of paragraph (a) of proposed FINRA Rule 9910 will be April 1, 2019.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\18\ 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, and Section 15A(b)(9),\19\ which requires that FINRA 
rules not impose any burden on competition that is not necessary or 
appropriate. FINRA believes that the proposed rule changes will provide 
greater assurance to the industry and investors that FINRA officers and 
employees will avoid actual or potential conflicts of interest when 
their employment with FINRA terminates, and that current and former 
employees will maintain the confidentiality of nonpublic FINRA 
information. Paragraphs (a) through (c) of the proposed rule also will 
better align FINRA's conflict of interest rules with those of the SEC. 
As with the SEC conflicts rules, FINRA believes that the proposed rules 
will help instill greater confidence in FINRA.
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    \18\ 15 U.S.C. 78o-3(b)(6).
    \19\ 15 U.S.C. 78o-3(b)(9).
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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 would impose 
new restrictions on employees that are terminating their employment 
with FINRA by prohibiting them from making certain communications to or 
appearances before FINRA over the specified period after their 
employment with FINRA ends.
    The primary benefit of this proposal would be to mitigate the 
conflicts of interest that may arise if a former FINRA employee used 
influence resulting from his or her employment at FINRA on behalf of 
another party. The proposal also would reduce incentives for private 
employers to hire FINRA employees potentially to influence matters in 
which the former FINRA employee had direct or indirect 
responsibilities. In addition, the proposal would help ensure that 
current and former FINRA employees do not misuse nonpublic FINRA 
information.
    The primary cost of this proposal would be to reduce the value of a 
FINRA employee to a new employer, especially if the new employer valued 
the employee's experience in a particular area that could lead to a 
conflict of interest. However, this proposal does not affect the 
employee's ability to provide ``behind the scenes assistance'' that 
does not involve the use or dissemination of nonpublic information 
obtained in the course of his or her employment with FINRA, mitigating 
the cost to the FINRA employee and the future employer. Further, FINRA 
believes that the benefits to investors and the public associated with 
this proposal justify these costs.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \20\ and paragraph (f)(3) of Rule 19b-4 
thereunder.\21\ 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.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(3).
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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 [email protected]. Please include 
File Number SR-FINRA-2018-037 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-FINRA-2018-037. 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 the 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 Number SR-FINRA-2018-037 and should be submitted 
on or before November 28, 2018.

[[Page 55784]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24306 Filed 11-6-18; 8:45 am]
 BILLING CODE 8011-01-P