Document ID: SEC-2010-0606-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-04-22T04:00Z

[Federal Register: April 22, 2010 (Volume 75, Number 77)]
[Notices]               
[Page 21064-21069]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap10-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61927; File No. SR-FINRA-2010-012]

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

April 16, 2010.
    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 March 30, 2010, the 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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[[Page 21065]]

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 (1) expand the information released through BrokerCheck, 
both in terms of scope and time disclosed; and (2) establish a process 
to dispute the accuracy of (or update) information disclosed through 
BrokerCheck.
    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, on the 
Commission's Web site at http://www.sec.gov, 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
    The proposed rule change amends FINRA Rule 8312, which pertains to 
FINRA's BrokerCheck program. As described in more detail below, the 
proposed rule change would (1) expand the information released through 
BrokerCheck, both in terms of scope and time disclosed; and (2) 
establish a process to dispute the accuracy of (or update) information 
disclosed through BrokerCheck.
I. Expansion of Information Released through 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. In 1990, with FINRA's support, 
Congress passed legislation requiring FINRA to establish and maintain a 
toll-free telephone number to respond to inquiries about members and 
associated persons. In 1998, FINRA began providing certain 
administrative information, such as registration and employment 
history, online via FINRA's Web site. FINRA again amended its rules 
pertaining to BrokerCheck in 2000 to establish a two-year period for 
disclosure of information about persons formerly registered with a 
FINRA member, increase the amount of information disclosed to investors 
through BrokerCheck, and refine the report delivery process. In 2007, 
FINRA expanded the types of information made available through 
BrokerCheck, made BrokerCheck more user friendly, introduced an 
educational component of the BrokerCheck report and Web site, and 
provided a compilation of selected data of FINRA members. Last year, 
FINRA expanded BrokerCheck to permanently make publicly available in 
BrokerCheck certain information about former associated persons of a 
member who were the subject of a final regulatory action.
    As the above discussion demonstrates, FINRA has regularly assessed 
the scope and utility of the information provided to the public through 
BrokerCheck and, as a result, has made numerous changes to improve the 
program. Last year, in addressing the public comment letters submitted 
to the Commission in connection with its most recent BrokerCheck 
expansion proposal, FINRA noted that it would continue to evaluate all 
aspects of the BrokerCheck program and consider whether greater 
disclosure of information through BrokerCheck should be made in the 
future.\3\ FINRA believes that such regular evaluation of the program 
is important due to FINRA's statutory obligation to make information 
available to the public, as well as the prominence that BrokerCheck has 
attained as an investor protection service.\4\
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    \3\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Richard E. Pullano, Associate Vice President and Chief Counsel, 
Registration and Disclosure, FINRA, dated October 15, 2009, in 
response to comments received regarding Securities Exchange Act 
Release No. 60462 (August 7, 2009), 74 FR 41470 (August 17, 2009) 
(Notice of Filing File No. SR-FINRA-2009-050). See also discussion 
of comments in Securities Exchange Act Release No. 61002 (November 
13, 2009), 74 FR 61193 (November 23, 2009) (Order Approving File No. 
SR-FINRA-2009-050).
    \4\ Approximately 18.5 million records were viewed last year on 
BrokerCheck, and the program is routinely mentioned in news articles 
and investor education materials as a premier tool for researching 
investment professionals. The Commission has also recognized 
BrokerCheck as a valuable tool for the public in deciding, among 
other things, whether to do business with an industry member. See 
Securities Exchange Act Release No. 61002 (November 13, 2009), 74 FR 
61193 (November 23, 2009) (Order Approving File No. SR-FINRA-2009-
050).
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    Late last year, FINRA evaluated the BrokerCheck program, including 
the fundamental policies governing the disclosure of information 
through the program, as well as the types, the length of availability, 
and the value to the public of the information that is disclosed via 
BrokerCheck. Additionally, FINRA considered the role that BrokerCheck 
plays as an investor protection service and the significant shift in 
the financial services landscape that has occurred during the past few 
years and continues to this day.
    Based on the results of its evaluation, FINRA has determined that 
further expansion of the BrokerCheck program is warranted. As such, 
FINRA is proposing to amend FINRA Rule 8312 to (1) expand the 
BrokerCheck disclosure period for former associated persons of a member 
to ten years from two years; (2) permanently make publicly available in 
BrokerCheck certain information about former associated persons of a 
member if any of the following applies, as reported to the Central 
Registration Depository (``CRD'' or ``Web CRD'') on a uniform 
registration form: (i) The person was convicted of or pled guilty or 
nolo contendere to a crime; (ii) the person was the subject of a civil 
injunction in connection with investment-related activity or a civil 
court finding of involvement in a violation of any investment-related 
statute or regulation; or (iii) the person was named as a respondent or 
defendant in an investment-related, consumer-initiated arbitration or 
civil litigation which alleged that the person was involved in a sales 
practice violation and which resulted in an arbitration award or civil 
judgment against the person; and (3) make publicly available in 
BrokerCheck all historic customer complaints that were archived after 
the implementation of Web CRD. FINRA has concluded that these 
proposals, as described in more detail below, are a logical extension 
of the BrokerCheck program that will help protect investors and other 
users of BrokerCheck, and make BrokerCheck a more effective tool in 
combating fraud across the financial services sector.

Expansion of the BrokerCheck Disclosure Period for Former Registered 
Persons

    Currently, as described in FINRA Rule 8312, BrokerCheck provides 
certain information regarding current associated persons and persons 
who were associated with a member within the preceding two years (i.e., 
a two year ``post-registration disclosure period'').\5\

[[Page 21066]]

This information is derived from the uniform registration forms.\6\
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    \5\ BrokerCheck also provides public access to certain 
information about formerly associated persons, regardless of when 
they were associated with a member, if they were the subject of a 
final regulatory action as defined in Form U4 that has been reported 
to CRD via a uniform registration form. As discussed below, FINRA 
also is proposing to broaden the scope of information made 
permanently available to the public via BrokerCheck.
    \6\ The uniform registration forms are Form BD (Uniform 
Application for Broker-Dealer Registration), Form BDW (Uniform 
Request for Broker-Dealer Withdrawal), Form BR (Uniform Branch 
Office Registration Form), 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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    When FINRA proposed implementing the two year post-registration 
disclosure period over a decade ago, it noted that such a disclosure 
period was appropriate because it generally coincides with the period 
in which an individual can return to the industry without being 
required to requalify by examination and the initial period in which an 
individual remains subject to FINRA's jurisdiction.\7\ Since that time, 
the purpose of BrokerCheck has broadened from helping investors make 
informed choices about the individuals and firms with which they may 
wish to do business to also include providing the public with 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 may seek to attain other positions of 
trust with potential investors and about whom investors may wish to 
learn relevant information. Consequently, FINRA believes that the 
reasons initially set forth for the two year post-registration 
disclosure period are no longer as compelling as when the disclosure 
period was initially established.
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    \7\ See Securities Exchange Act Release No. 42402 (February 7, 
2000), 65 FR 7582 (February 15, 2000) (Order Approving File No. SR-
NASD-99-45).
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    Therefore, FINRA is proposing to expand the post-registration 
disclosure period to ten years from two years. FINRA believes that a 
ten year post-registration disclosure period is now more reasonable 
since it may take individuals some time after leaving the securities 
industry to establish themselves in another investment-related industry 
or to attain other positions of trust with potential investors. A ten 
year post-registration disclosure period will provide investors and 
other users of BrokerCheck with a longer period of time to consider 
relevant and important information about such formerly registered 
individuals. FINRA believes that a ten year post-registration 
disclosure period will accomplish this goal without unduly burdening or 
infringing on the reputational or privacy interests of those 
individuals whose FINRA registrations have terminated.

Expansion of BrokerCheck To Permanently Include Additional Information

    As previously mentioned, currently under FINRA Rule 8312, 
BrokerCheck generally provides information about individuals who are 
registered with FINRA or who were associated with a member within the 
preceding two years. Last year, BrokerCheck was expanded to permanently 
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 CRD 
via a uniform registration form.\8\ This change was designed to allow 
the public to access information about formerly registered persons who 
may work in other investment-related industries or may otherwise seek 
to attain positions of trust with potential investors.
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    \8\ See Securities Exchange Act Release No. 61002 (November 13, 
2009), 74 FR 61193 (November 23, 2009) (Order Approving File No. SR-
FINRA-2009-050).
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    As a result of its evaluation of the BrokerCheck program, FINRA now 
believes that BrokerCheck should permanently make publicly available 
additional information about certain former associated persons of a 
member. FINRA is proposing to permanently make publicly available in 
BrokerCheck certain information about former associated persons of a 
member \9\ if any of the following applies, as reported to CRD on a 
uniform registration form: (1) The person was convicted of or pled 
guilty or nolo contendere to a crime; \10\ (2) the person was the 
subject of a civil injunction in connection with investment-related 
activity or a civil court finding of involvement in a violation of any 
investment-related statute or regulation; \11\ or (3) the person was 
named as a respondent or defendant in an investment-related, consumer-
initiated arbitration or civil litigation which alleged that the person 
was involved in a sales practice violation and which resulted in an 
arbitration award or civil judgment against the person.\12\ FINRA is 
proposing to provide through BrokerCheck information concerning any 
such disclosure event(s),\13\ as well as certain administrative 
information (e.g., employment and registration history) and information 
as to qualification examinations passed by these formerly registered 
individuals. FINRA is also proposing to make available the most 
recently submitted comment, if any, provided by the 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.\14\ Other disclosure matters that may be disclosed 
pursuant to FINRA Rule 8312 for associated persons and during the post-
registration period (e.g., reportable customer complaints or Historic 
Complaints, criminal charges, terminations, bankruptcies, liens) would 
continue not to be disclosed after the post-registration period 
expires.
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    \9\ The proposal will apply only to those individuals registered 
with FINRA on or after August 16, 1999, which is the date that Web 
CRD was implemented. Since FINRA launched the Web CRD system, it has 
used the information in the Web CRD database to generate BrokerCheck 
reports. Such information is available in a Web-based format and 
therefore can be easily used to generate BrokerCheck reports. 
Although the Web CRD database contains information regarding all 
persons that have been registered with FINRA since the 
implementation of the Legacy CRD system (the predecessor to Web CRD) 
in 1981, certain data limitations apply to the information available 
for some individuals who were no longer registered at the time Web 
CRD was established. Therefore, the proposal will not apply to those 
individuals whose FINRA registration terminated prior to August 16, 
1999.
    \10\ This information is currently elicited by Questions 
14A(1)(a) and 14B(1)(a) on Form U4 and Questions 7C(1) and 7C(3) on 
Form U5.
    \11\ This information is currently elicited by Questions 
14H(1)(a) and 14H(1)(b) on Form U4.
    \12\ This information is currently elicited by Question 
14I(1)(b) on Form U4 and Question 7E(1)(b) on Form U5.
    \13\ Under the proposed rule change, FINRA will provide 
information regarding any of the enumerated disclosure events that 
is reported on Form U6 even if the event has not been reported by an 
individual on Form U4 or Form U5, as referenced above, because, for 
example, the individual was not registered at the time the event was 
reported.
    \14\ The proposed information to be disclosed permanently (i.e., 
administrative information, examination information and the most 
recently submitted comment) mirrors the information currently 
disclosed permanently with respect to any formerly registered person 
who is the subject of a final regulatory action.
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    FINRA believes that this proposal will allow the public access to 
relevant and important 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 may seek 
to attain other positions of trust with potential investors and about 
whom investors may wish to learn relevant information. FINRA believes 
that this information should be included on a permanent basis, rather 
than for only ten years following the termination of an individual's 
FINRA registration,

[[Page 21067]]

because, like final regulatory actions (which are included permanently 
in BrokerCheck), each of the disclosure events that is proposed to be 
permanently included in BrokerCheck constitutes a final disposition. In 
addition, in most circumstances, these disclosure events allow the 
subject person an opportunity to present arguments to an impartial 
fact-finder about the allegations prior to such final disposition. 
Furthermore, much of the information that would be subject to release 
pursuant to the proposal may be available through other public sources. 
For example, information regarding arbitration awards is available on 
FINRA's Arbitration Awards Online database,\15\ and information 
regarding civil and criminal proceedings is provided to the public via 
numerous state Web sites.
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    \15\ See http://finraawardsonline.finra.org/.
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Disclosure of Historic Complaints

    Pursuant to FINRA Rule 8312, Historic Complaints are customer 
complaints that were reported on a uniform registration form that are 
more than two years old and that have not been settled or adjudicated 
and customer complaints, arbitrations, or litigations that have been 
settled for an amount less than the specified dollar amount (identified 
on the customer complaint question) and are therefore no longer 
reportable on a uniform registration form. Currently, FINRA Rule 8312 
provides that Historic Complaints be displayed in BrokerCheck only 
after the following conditions have been met: (1) A matter became a 
Historic Complaint on or after March 19, 2007; (2) the most recent 
Historic Complaint or currently reported customer complaint, 
arbitration or litigation is less than ten years old; and (3) the 
person has a total of three or more currently disclosable regulatory 
actions, currently reported customer complaints, arbitrations or 
litigations, or Historic Complaints (subject to the limitation that 
they became Historic Complaints on or after March 19, 2007), or any 
combination thereof. Unless all three conditions are met, a person's 
Historic Complaints are not disclosed through BrokerCheck.\16\
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    \16\ In addition, even if a person meets the criteria 
established for disclosing Historic Complaints, only those Historic 
Complaints that became Historic Complaints after March 19, 2007, 
will be displayed through BrokerCheck.
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    FINRA established the ``three or more'' standard for the release of 
Historic Complaints so as to allow public investors ``to determine for 
themselves whether a particular associated person has demonstrated a 
pattern of conduct over the years and the significance, if any, they 
should attach to the Historic Complaint information.'' \17\ Following 
its recent evaluation of the BrokerCheck program, however, FINRA no 
longer believes that such a standard is prudent. In this regard, FINRA 
is concerned that the standard may discourage public investors from 
making a qualitative assessment of a current or former associated 
person based on all of the potentially relevant information available 
regarding that individual. FINRA believes that, rather than allowing 
public investors to determine for themselves whether an individual has 
demonstrated a pattern of conduct, the standard may actually suggest to 
investors that any individual who meets the standard has in fact 
demonstrated a pattern of (mis)conduct (i.e., three events constitutes 
a pattern of conduct, otherwise the rule would not have established 
such a threshold). FINRA is also concerned that the standard, along 
with the current date limitation for Historic Complaints that are 
eligible for display, may limit the ability of public investors to 
place Historic Complaints in the appropriate context or to otherwise 
accurately evaluate a current or former associated person's entire 
record.
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    \17\ See Securities Exchange Act Release No. 51915 (June 23, 
2005), 70 FR 37880, 37884 (June 30, 2005) (Notice of Filing File No. 
SR-NASD-2003-168).
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    Therefore, FINRA is proposing to amend FINRA Rule 8312 to eliminate 
the conditions set forth in the rule that must be met before Historic 
Complaints will be displayed in BrokerCheck. Eliminating these 
conditions will result in the disclosure of all Historic Complaints via 
BrokerCheck that became non-reportable after the implementation of Web 
CRD on August 16, 1999.\18\
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    \18\ FINRA is proposing to limit the Historic Complaints 
eligible for display in BrokerCheck to those that became non-
reportable after the implementation of Web CRD in 1999, because the 
Web CRD system (unlike Legacy CRD) contains the specific reason that 
a matter was archived. Therefore, FINRA will be able to determine 
whether a matter was archived because it was no longer reportable on 
a uniform registration form (and therefore qualifies as a Historic 
Complaint) or whether it was archived for a different reason (e.g., 
the matter was filed in error).
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    This proposed change will allow investors and other users of 
BrokerCheck to determine for themselves the significance, if any, they 
should attach to the Historic Complaints on an individual's record 
based on all available customer complaint information and to put such 
complaints in the appropriate context based on the entire BrokerCheck 
record for the individual.\19\ Additionally, FINRA believes that the 
proposed change will allow investors seeking to do business with 
investment professionals--whether associated persons of securities 
firms or advisers--to have similar information available to them.\20\
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    \19\ In conjunction with the implementation of the proposed rule 
change, FINRA will revise the educational component of BrokerCheck 
with respect to Historic Complaints to help readers view these 
disclosures in the appropriate context and give them the appropriate 
weight when evaluating an associated person.
    \20\ The Investment Adviser Public Disclosure-Individual 
(``IAPD-I'') database (currently scheduled to be deployed in June 
2010) will provide to the public registration and licensing 
information on natural persons who are registered as investment 
advisers with the states. IAPD-I will disclose all Historic 
Complaints that became non-reportable after the individual first 
became registered through the Investment Adviser Registration 
Depository (``IARD'') system. Accordingly, IAPD-I will include 
Historic Complaints that became Historic Complaints on or after 
March 18, 2002, which is the date IARD was established for 
investment adviser representative registration. As a result, when 
IAPD-I is deployed, BrokerCheck and IAPD-I may disclose slightly 
different information regarding Historic Complaints of those 
financial services professionals that are dually registered as 
brokers and investment advisers.
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II. BrokerCheck Dispute Process
    The proposed changes described above will result in BrokerCheck 
disclosing additional information about current and former associated 
persons. This underscores the need for a formalized process for 
disputing the accuracy of (or updating) information displayed through 
BrokerCheck. FINRA recognizes, for example, that there may be an 
increased possibility that information disclosed through BrokerCheck 
for former associated persons may have become inaccurate (i.e., a 
disposition reported previously may have changed). Additionally, 
Congress amended Section 15A(i) of the Exchange Act with the enactment 
of the Military Personnel Financial Services Protection Act to require 
FINRA, as a registered securities association, to adopt rules 
establishing an administrative process for disputing the accuracy of 
information provided through BrokerCheck in response to inquiries 
regarding ``registration information'' \21\ on its members and their 
associated persons. Therefore, FINRA is proposing to codify its current 
process for disputing the accuracy of (or

[[Page 21068]]

updating) information disclosed through BrokerCheck.\22\
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    \21\ For purposes of Section 15A(i), ``registration 
information'' is defined to mean ``the information reported in 
connection with the registration or licensing of brokers and dealers 
and their associated persons, including disciplinary actions, 
regulatory, judicial, and arbitration proceedings, and other 
information required by law, or exchange or association rule, and 
the source and status of such information.''
    \22\ While the dispute process will be available to currently, 
as well as formerly, registered individuals, FINRA anticipates that 
most disputes will be brought by the latter because a mechanism 
already exists for currently registered individuals to update 
information (i.e., through the filing of an amended Form U4).
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    Under FINRA's current dispute process, FINRA staff occasionally 
receives telephonic and written inquiries from persons subject to 
BrokerCheck who believe that information disclosed about them through 
BrokerCheck is inaccurate. Upon the receipt of such an inquiry, FINRA 
staff typically reviews the alleged inaccuracy and, if appropriate, 
contacts the entity that reported the information to determine whether 
the information is accurate. Once it has obtained all of the available 
pertinent information, FINRA staff determines whether the information 
is still accurate or whether the information should be modified or 
removed from BrokerCheck. FINRA is proposing to enhance and codify this 
process, which will allow individuals and firms to dispute the accuracy 
of information being displayed through BrokerCheck. The dispute process 
will be available both for challenges alleging the information was 
incorrect when filed and challenges asserting that the information has 
become incorrect due to events subsequent to filing.
    FINRA is proposing to establish a dispute process under which only 
an ``eligible party'' would be able to dispute the accuracy of 
information disclosed in that party's BrokerCheck report. An eligible 
party would consist of any current member, any former member (subject 
to a condition discussed below), and any associated person of a member 
or person formerly associated with a member for whom a BrokerCheck 
report is available. Regarding former members, the proposal would 
require that a dispute be submitted by a natural person who served as 
the former member's Chief Executive Officer, Chief Financial Officer, 
Chief Operating Officer, Chief Legal Officer or Chief Compliance 
Officer, or individual with similar status or function, as identified 
on Schedule A of Form BD at the time the former member ceased being 
registered with FINRA. This requirement on the submission of disputes 
by former member firms is intended to ensure that only authorized 
representatives of former firms are able to submit disputes.
    To dispute the accuracy of BrokerCheck information, an eligible 
party would be required to submit a written notice to FINRA, in such 
manner and format that FINRA may require, identifying the information 
that the party alleges is inaccurate and providing an explanation as to 
the reason the information is believed to be inaccurate. Additionally, 
the eligible party would be required to submit with the written notice 
all available supporting documentation (if any exists).
    After receiving the written notice, FINRA would determine whether 
the dispute is eligible for investigation. To be eligible for 
investigation, the dispute would need to pertain only to factual 
information and not to information that is subjective in nature or a 
matter of interpretation. For example, a dispute involving allegations 
made in a customer complaint or a firm's determination that a customer 
complaint is required to be reported would not be eligible for 
investigation.
    FINRA would presume that a dispute involving factual information is 
eligible for investigation. Nevertheless, the proposed rule change 
would specifically identify in Supplementary Material to FINRA Rule 
8312 the following non-exhaustive list of situations as ineligible for 
investigation, even if they may involve factual information:
    (a) A dispute that involves information that was previously 
disputed under this process and that does not contain any new or 
additional evidence;
    (b) a dispute that is brought by an individual or entity that is 
not an eligible party;
    (c) a dispute that does not challenge the accuracy of information 
contained in a BrokerCheck report but only provides an explanation of 
such information;
    (d) a dispute that constitutes a collateral attack on or otherwise 
challenges the allegations underlying a previously reported matter such 
as a regulatory action, customer complaint, arbitration, civil 
litigation or termination;
    (e) a dispute that consists of a general statement contesting 
information in a BrokerCheck report with no accompanying explanation; 
and
    (f) a dispute that involves information contained in CRD that is 
not disclosed through BrokerCheck.
    If FINRA determines that a dispute is eligible for investigation, 
FINRA would add a general notation to the eligible party's BrokerCheck 
report stating that the eligible party has disputed certain information 
included in the report.\23\ The notation would be removed from the 
eligible party's BrokerCheck report upon resolution of the dispute by 
FINRA. If FINRA determines that a request is not eligible for 
investigation, it would notify the eligible party of this determination 
in writing, including a brief description of the reason for the 
determination. A determination by FINRA that a dispute is not eligible 
for investigation would not be subject to appeal.
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    \23\ In those circumstances where a dispute involves a court 
order to expunge information from BrokerCheck, FINRA would, as it 
does today, prevent the disputed information from being displayed 
via BrokerCheck while FINRA evaluates the matter.
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    If a dispute is deemed eligible for investigation, FINRA would 
evaluate the written notice and supporting documentation submitted by 
the eligible party. If FINRA determines that the written notice and 
documentation submitted is sufficient to update, modify or remove the 
information that is the subject of the request, FINRA would make the 
appropriate change. For example, if an eligible party disputed a 
criminal conviction being displayed through BrokerCheck and submitted a 
valid court order expunging the matter, FINRA would remove any 
information referencing the criminal conviction from BrokerCheck. If, 
however, the written notice and supporting documentation do not include 
sufficient information upon which FINRA can make a determination, FINRA 
would, under most circumstances, contact the entity that reported the 
information to CRD (i.e., a firm, other regulator, or FINRA department, 
defined in the proposed rule change as a ``reporting entity'') and 
request that this reporting entity verify that the information is 
accurate.\24\ Where a reporting entity other than FINRA is involved, 
FINRA would defer to that reporting entity regarding the accuracy of 
the information provided to FINRA and disclosed through 
BrokerCheck.\25\ If the reporting entity acknowledges that the 
information is not accurate, FINRA would update, modify or remove the 
information, as appropriate, based on the information

[[Page 21069]]

provided by the reporting entity. If the reporting entity verifies the 
accuracy of the information or the reporting entity no longer exists or 
is unable to verify the accuracy of the information, FINRA would not 
change the information.\26\
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    \24\ FINRA would not contact the reporting entity if the entity 
is unlikely to have information regarding the disputed information. 
For example, if the previously mentioned eligible party disputing a 
criminal conviction failed to provide a valid court order, FINRA 
would not contact the securities firm that reported the conviction 
since the firm is unlikely to have the court order in its 
possession.
    \25\ If the reporting entity obtained its information from a 
third party (e.g., a firm reported to CRD that an associated 
individual had declared bankruptcy based on information from a 
consumer reporting agency), FINRA would not contact the third party 
(in this example, the consumer reporting agency) to try to verify 
the accuracy of the information. The reporting entity would have the 
responsibility of verifying the accuracy of the information it 
received from the third party.
    \26\ The principle guiding FINRA's proposed approach is that 
because information in BrokerCheck is derived from the information 
filed on the uniform registration forms, it is presumed accurate as 
filed. FINRA expects that the dispute process will be used 
principally to address genuine filing errors, which FINRA expects to 
be rare, or those instances where an event displayed through 
BrokerCheck has a changed disposition subsequent to it being filed 
on a uniform registration form.
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    Upon making its determination, FINRA would notify the disputing 
eligible party in writing that the investigation resulted in a 
determination that (1) the information is inaccurate or not accurately 
presented and has been updated, modified or deleted; (2) the 
information is accurate in content and presentation and no changes have 
been made; or (3) the accuracy of the information or its presentation 
could not be verified and no changes have been made. A determination by 
FINRA regarding a dispute, including a determination to leave unchanged 
or to update, modify or delete disputed information, would not be 
subject to appeal.\27\
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    \27\ Although FINRA determinations under the proposed dispute 
process would not be subject to appeal, individuals and firms would 
continue to have the ability to challenge BrokerCheck information 
they believe to be inaccurate through other processes that are 
available today (e.g., an arbitration or court proceeding).
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    As noted above, 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. FINRA will implement the 
proposal in phases, with full implementation occurring no later than 
180 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,\28\ 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 expanding the information disclosed to 
investors and other users of BrokerCheck.
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    \28\ 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-2010-012 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-2010-012. 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,\29\ 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 a.m. and 3 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; 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-2010-012 and should be submitted on or before May 13, 2010.
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    \29\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9282 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P