The FINRA Board of Governors met last week to take action on the following seven rule proposals and to plan out next steps:

1. Code of Procedure
2. Governmental Accounting Standards Board Support Fee
3. Mid-Case Arbitration Referrals
4. MPIDs for Market Access Arrangements
5. Private Placement of Securities
6. Qualification Examination and Continuing Education Fees
7. Trading Activity Fee Rate Adjustment

See C-I's discussion after the jump, or go to:   [FINRA Board of Governors Meeting Update, 4/18/11]

        1. Code of Procedure.   The Board considered proposals to improve the workability of the Code of Procedure.  Proposed changes include:  (i) allow service of a complaint on counsel;  (ii) permit use of electronic mail for filing papers and require an attorney to file a motion rather than a notice when seeking to withdraw.  A new provision would impose a revolving-door restriction on former FINRA officers - former FINRA officers whose employment has been terminated would be prohibited for 1 year from making a communication, appearing, or testifying as an expert witness on behalf of any respondent in a FINRA disciplinary proceeding or similar action.

 [Resolution:  Proposed rule change to be filed.]

        2. Governmental Accounting Standards Board Support Fee.   As mandated under Section 978 of Dodd-Frank, the Board considered a new rule that would establish a fee to fund the annual budget of the Governmental Accounting Standards Board (GASB Accounting Support Fee), which would be assessed based on a firm's municipal securities transactions. The fee will be proposed only if the SEC orders FINRA to adopt such a fee. 

[Resolution:  Regulatory Notice will be issued on the rule proposal, if the SEC orders FINRA to adopt a GASB Accounting Support Fee.]

        3. Mid-Case Arbitration Referrals.   The Board considered amendments to the pending mid-case referral proposal, which would provide that any arbitrator may:

• make a mid-case referral only after the evidentiary hearing has commenced;
• change the threshold of certainty that the arbitrators must have before making a mid-case referral;
• remove the right for any party to require automatic withdrawal of the arbitrators, and, in its place, permit a party to ask the referring arbitrators to recuse themselves, but not require the recusal; and
• consider waiting until the case concludes before making the referral if a case is nearing completion and, in the arbitrator's judgment, investor protection will not be compromised by this action.

The amendments also would insulate the referring arbitrator from the final referral determination by providing that the arbitrator would make the referral to the Director of Arbitration, who would evaluate it to determine whether to transmit it to other FINRA divisions.

[Resolution:  Proposed rule change to be filed.]

        4. MPIDs for Market Access Arrangements.   The Board considered new rules to require firms to have a unique MPID for each 3rd-party broker-dealer that the firm allows to access a market using an MPID assigned to the firm.  The new rules also would require that firms notify FINRA of the identity of the 3rd-party broker-dealer using each MPID.  Finally, the new rules would make the FINRA rules governing MPIDs permanent.

[Resolution:  Proposed new rule to be filed.]

        5. Private Placement of Securities.   The Board approved a staff recommendation to revise a previous proposal concerning B/D private placement activity - following comments received on Regulatory Notice 11-04 and comments of the Small Firm Advisory Board.  The revised proposal would eliminate an earlier proposal to require that 85% of the proceeds be used for the intended business purposes, and instead require disclosure about the intended uses of the proceeds and the offering expenses.  The revised proposal also would change the proposed date of a "notice" filing requirement with FINRA - from before the offering to within 15 calendar days after the date of first sale.  The filing requirement is not a prerequisite to participating in an offering - rather, the filing will provide FINRA with important information about members' private placement activities. 

[Resolution:  Proposed new rule to be filed.]

        6. Qualification Examination and Continuing Education Fees.   The Board considered amendments to Schedule A of the FINRA By-Laws to establish a fee for individuals who reschedule or cancel a qualification exam or CE session 3 to 10 business days prior to the appointment date.  The proposal would establish a rescheduling/cancellation fee of 1/2 of the amount of the qualification exam or CE program that's being rescheduled or cancelled.  This would help offset costs incurred by FINRA and its vendors. 

[Resolution:  Proposed rule change to be filed.]

        7. Trading Activity Fee Rate Adjustment.    The Board considered adjusting the Trading Activity Fee (TAF) rate on covered equity securities to compensate for regulatory revenue shortfalls due to materially reduced equity trading volumes.  Assuming trading volume remains consistent with current levels, the proposed rate adjustment would result in annualized TAF revenues that remain lower than what was collected in 2010.   Specific numbers:  TAF rate on covered equity securities would go from $0.000075 per share for each sale of a covered equity security (with cap of $3.75 per trade) to $0.000090 per share for each sale of a covered equity security (with cap of $4.50 per trade).  

[Resolution:  Proposed rule change to be filed.]