FINRA proposes to adopt five new rules for governing broker-dealer supervision and supervisory control systems.  Specifically, FINRA would adopt new FINRA Rules 3110, Supervision, and 3120, Supervisory Control System, to replace NASD Rules 3010 and 3012.  As proposed, FINRA also would:

• Incorporate into FINRA Rule 3110 and its supplementary material ... the requirements of:  (i) NASD IM-1000-4, Branch Offices and Offices of Supervisory Jurisdiction, Standards for Reasonable Review, (ii) Incorp'd NYSE Rule 401A, Customer Complaints, and (iii) Incorp'd NYSE Rule 342.21, Trade Review and Investigation;

• Adopt new FINRA Rule 3170 ...  to replace NASD Rule 3010(b)(2) - often referred to as the “Taping Rule.”  The new rule would be entitled, "Tape Recording of Registered Persons by Certain Firms";

• Adopt new FINRA Rule 1260 ...  to replace NASD Rule 3010(e).  The new rule would be entitled "Responsibility of Member to Investigate Applicants for Registration;"

• Adopt new FINRA Rule 3150 ...  to replace NASD Rule 3110(i).  The new rule would be entitled, "Holding of Customer Mail."

• Delete NASD and Incorporated NYSE Rules and NYSE Rule Interps:  (i) NASD Rule 3010(f);  (ii) NYSE Rule 342 and related NYSE Rule Interpretations;  (iii) NYSE Rule 343 and related NYSE Rule Interps;  (iv) NYSE Rule Interpretation 351(e)/01;  (v) NYSE Rule 354; and  (vi) NYSE Rule 401
  

Proposed FINRA Rule 3110 is based primarily on existing requirements in NASD Rule 3010 and Incorporated NYSE Rule 342 relating to, among other things, supervisory systems, written procedures, internal inspections, and review of correspondence.  Proposed FINRA Rule 3110 also incorporates provisions in other NASD rules that pertain to supervision, including NASD Rule 3012.  

Proposed FINRA Rule 3120 would replace NASD Rule 3012 (Supervisory Control System).  Rule 3120(a) retains NASD Rule 3012(a)(1)’s testing and verification requirements for the member’s supervisory procedures, including the requirement to prepare and submit to the member’s senior management a report at least annually summarizing the test results and any necessary amendments to those procedures.  Proposed FINRA Rule 3120(b) requires a member that reported $150 million or more in gross revenue (total revenue less, if applicable, commodities revenue) on its FOCUS reports in the prior calendar year to include in the report it submits to senior management.

Additional analysis will be given to the 188-page rule filing.  For further details, go to:  [FINRA Rule Filing, 11-28, 6/10/11]