Document ID: SEC-2013-0163-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-01-25T05:00Z

[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Notices]
[Pages 5542-5544]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01494]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68700; File No. SR-FINRA-2013-002]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend 
FINRA Rule 2267 (Investor Education and Protection)

January 18, 2013.
    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 January 7, 2013, 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 2267 (Investor Education and 
Protection) to require that members include a prominent description of 
and link to FINRA BrokerCheck, as prescribed by FINRA, on their Web 
sites, social media pages and any comparable Internet presence and on 
Web sites, social media pages and any comparable Internet presence 
relating to a member's investment banking or securities business 
maintained by or on behalf of any person associated with a member.
    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 established BrokerCheck in 1988 (then known as the Public 
Disclosure Program) to provide the public with information on the 
professional background, business practices, and conduct of FINRA-
member firms and their associated persons. The information that FINRA 
releases to the public through BrokerCheck is derived from the Central 
Registration Depository (``CRD[supreg]''), the securities industry 
online registration and licensing database. FINRA-member firms, their 
associated persons and regulators report information to the CRD system 
via the uniform registration forms. By making most of this information 
publicly available, BrokerCheck, among other things, helps investors 
make informed choices about the individuals and firms with which they 
conduct business.
    In January 2011, Commission staff released its Study and 
Recommendations on Improved Investor Access to Registration Information 
About Investment Advisers and Broker-Dealers (``Study''),\3\ in 
furtherance of Section 919B of the Dodd-Frank Act. The Study contains 
four recommendations for improving investor access to registration 
information through BrokerCheck and the Commission's Investment Adviser 
Public Disclosure (``IAPD'') database. In May 2012, FINRA implemented 
the Study's three ``near-term'' recommendations.\4\ FINRA is currently 
working on the Study's ``intermediate-term'' recommendation, which 
involves analyzing the feasibility and advisability of expanding the 
information available through BrokerCheck, as well as the method and 
format that BrokerCheck information is displayed.
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    \3\ The Study is available online at http://www.sec.gov/news/studies/2011/919bstudy.pdf.
    \4\ These recommendations are to unify search returns for 
BrokerCheck and IAPD, add the ability to search BrokerCheck by ZIP 
code, and increase the educational content on BrokerCheck.
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    In light of the Study's ``intermediate-term'' recommendation and 
FINRA's belief that regular evaluation of its BrokerCheck program is an 
important part of its statutory obligation to make information 
available to the public,\5\ FINRA has initiated a thorough review of 
BrokerCheck. As part of this review, FINRA issued Regulatory Notice 12-
10 requesting comment on ways to facilitate and increase investor use 
of BrokerCheck information. In addition, FINRA engaged a market 
research consultant that conducted focus groups and surveyed investors 
throughout the country to obtain their opinions on the BrokerCheck 
program.
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    \5\ See Section 15A(i) of the Act. 15 U.S.C. 78o-3(i). Since 
establishing BrokerCheck, FINRA has regularly assessed the scope and 
utility of the information it provides to the public and, as a 
result, has made numerous changes to improve the program.
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    Participants in the focus groups were asked questions about a 
variety of topics, including the financial markets, working with a 
broker or investment adviser, and the BrokerCheck program. Many of the 
participants stated that they had been unaware of the existence of 
BrokerCheck prior to their participation in the focus groups.\6\ After 
learning about BrokerCheck, the consensus among focus group 
participants was that investors should use BrokerCheck when considering 
whether to work with a new investment professional or firm and that it 
therefore was important for BrokerCheck to be more widely known among 
investors. Based on the focus group results and the comments received 
in response to Regulatory

[[Page 5543]]

Notice 12-10, FINRA is proposing to amend Rule 2267.\7\
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    \6\ This is consistent with a 2009 study that found that only 15 
percent of respondents said that they had checked a financial 
advisor's background with a state or federal regulator. See 
Financial Capability in the United States (FINRA Investor Education 
Foundation, Dec. 1, 2009), available at http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120536.pdf.
    \7\ FINRA continues to consider other comments regarding changes 
to BrokerCheck that were submitted in response to Regulatory Notice 
12-10.
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    Subject to limited exceptions, FINRA Rule 2267(a) currently 
requires members to annually provide in writing to each of their 
customers the BrokerCheck hotline number, the FINRA Web site address, 
and a notification of the availability of an investor brochure that 
includes information describing BrokerCheck.\8\ To further increase 
investor awareness and use of BrokerCheck, the proposed rule change 
would amend Rule 2267 to require all members to include a prominent 
description of and link to BrokerCheck, as prescribed by FINRA, on 
their Web sites, social media pages and any comparable Internet 
presence, as well as on the Web sites, social media pages and any 
comparable Internet presence relating to the firm's investment banking 
or securities business maintained by or on behalf of any person 
associated with a member.
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    \8\ Any member whose contact with customers is limited to 
introducing customer accounts to be held directly at an entity other 
than a FINRA member and thereafter does not carry customer accounts 
or hold customer funds and securities may furnish a customer with 
such information at or prior to the time of the customer's initial 
purchase, in lieu of once every calendar year. Any member that does 
not have customers or is a party to a carrying agreement where the 
carrying firm member furnishes a customer with such information is 
exempt from the requirements of FINRA Rule 2267(a).
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    To ensure consistency and help with the implementation of the 
proposed rule change, FINRA would provide members with the text 
description and web address format for the link to BrokerCheck. The web 
address provided by FINRA, which would include a firm's or individual's 
CRD number, would be specific to each member or associated person. The 
link would take the user to BrokerCheck's search results screen for the 
subject firm or individual, which displays basic information, such as 
CRD number, SEC number (for firms), registration status, and employing 
firm (for individuals). Once the investor completes the challenge-
response test (used to make it more difficult for an automated 
application to collect BrokerCheck information) and agrees to 
BrokerCheck's terms and conditions, the investor will be able to obtain 
a detailed BrokerCheck report on the subject firm or individual.
    FINRA believes that the proposed change will increase investor use 
of BrokerCheck because the link provided on a firm's or individual's 
Web site will take investors to that firm's or individual's specific 
BrokerCheck search results screen rather than the BrokerCheck homepage. 
Thus, investors will not be required to enter the name of the firm or 
individual they are searching for or to select the correct broker or 
firm from the search results.
    To further help with implementation of the proposed rule change, 
FINRA will provide in the Regulatory Notice announcing the effective 
date of the proposed rule change guidance regarding the prominence and 
placement of the BrokerCheck description and link.
    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 of Section 15A(b)(6) of the Act,\9\ 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 would 
increase investor awareness and use of BrokerCheck, thereby helping 
investors make informed choices about the individuals and firms with 
which they conduct business. Specifically, FINRA believes that the 
proposed description of BrokerCheck will alert investors to the 
existence of the program and the link to the subject firm or individual 
will make BrokerCheck even easier to use as a research tool.
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    \9\ 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.
    FINRA believes that the proposed rule change will enhance investor 
protection by increasing the public's awareness and use of BrokerCheck. 
FINRA expects that the inclusion of a prominent description of 
BrokerCheck on a firm's or associated person's Web site will increase 
the public's awareness of the program by alerting investors to the 
existence of BrokerCheck while they are researching a firm or broker. 
FINRA believes that the proposal will not result in a significant 
burden on members or associated persons. In this regard, although FINRA 
has not found any independent estimates relating to the cost of adding 
a link to a Web site, FINRA anticipates that the costs to comply with 
the proposed rule change to members and associated persons will be 
limited, particularly for those firms that will make the changes with a 
content management system,\10\ and will not significantly burden small 
firms. In addition, FINRA will provide firms with the specific links 
(in a user-friendly URL format) to be added to their Web sites, thereby 
helping to contain the costs associated with the proposal.
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    \10\ In general, a content management system is a software 
application that is used to manage text, images, audio and video 
content for a Web site. FINRA recognizes that some firms may not use 
a content management system and therefore may incur additional 
development costs depending on how their Web sites are configured.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment by FINRA in 
Regulatory Notice 12-10 (February 2012). A copy of the Regulatory 
Notice is attached as Exhibit 2a.\11\ The comment period expired on 
April 27, 2012. FINRA received 71 comment letters in response to the 
Regulatory Notice. A list of the comment letters received in response 
to the Regulatory Notice is attached as Exhibit 2b.\12\ Eleven of the 
71 comment letters received addressed proposed changes to Rule 
2267.\13\ Of these 11 comment letters, 10 were in favor of an increase 
in the communication by firms to their customers about the existence of 
BrokerCheck and one was opposed.
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    \11\ The Commission notes that Exhibit 2a is attached to the 
filing, not to this Notice.
    \12\ The Commission notes that Exhibit 2b is attached to the 
filing, not to this Notice. All references to the commenters under 
this Item are to the commenters as listed in Exhibit 2b.
    \13\ ARM, CFA, CFP, Davis, Dickenson, Dorsey, Foresters, Kelly, 
McCraken, PIRC, and Podolak.
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    Several commenters expressed the view that firms should include a 
link to BrokerCheck on their Web sites to help increase investor 
awareness of the program.\14\ Some of these commenters also suggested 
that firms be required to include the BrokerCheck Web site address in 
various other locations such as public communications, new account 
documents, and monthly statements.\15\
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    \14\ CFA, CFP, Davis, Foresters, Kelly, McCracken, and PIRC.
    \15\ ARM, CFA, CFP, PIRC, and Podolak.
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    FINRA appreciates the commenters' suggestions on additional ways to 
increase investor awareness of

[[Page 5544]]

BrokerCheck and will consider them in the future. When considering the 
commenters' suggestions, FINRA will examine, among other things, 
whether the inclusion of the BrokerCheck Web site address on materials 
such as public communications, new account documents, and monthly 
statements would materially increase investor awareness or use of 
BrokerCheck, as well as the potential additional costs that the 
suggested changes would impose on members and their associated persons.
    One commenter suggested that no changes be made to Rule 2267.\16\ 
As previously mentioned, FINRA believes that the proposed rule change 
will benefit investors by increasing the awareness and use of 
BrokerCheck.
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    \16\ Dorsey.
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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-2013-002 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-2013-002. 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-2013-002 and should be 
submitted on or before February 15, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01494 Filed 1-24-13; 8:45 am]
BILLING CODE 8011-01-P