The FINRA Board of Governors approved several new rules and rule amendments, then issued staff directives in the following areas:  (i) private placements;  (ii) debt research COI's;  (iii) short interest reporting;  (iv) minimum quotation sizes;  (v) registrations;  (vi) motions in arbitrations;  (vii) panel composition in certain types of arbitrations.  Here are the details.

    Action Plan - Private Placements.   FINRA staff will issue a Regulatory Notice requesting comment on proposed amendments to expand FINRA Rule 5122, Private Placements of Securities Issued by Members, governing most, if not all, private placements in which a member firm participates.  Expanding the rule would extend investor protections and regulatory oversight to a broader range of private placements.  The fundamental elements of the rule have broad applicability to private placements, and are pertinent to offerings by a firm and certain affiliates).

     Action Plan - Debt Research Conflicts of Interest.   FINRA staff will issue a Regulatory Notice requesting comment on concept proposal for a new debt research COI's rule.  FINRA is considering possible tiered approaches to regulating debt research reports and research analysts, depending upon whether the research reports are distributed to an audience that includes retail investors or to an institution-only audience.

    Action Plan - Short Interest Reporting.   FINRA staff will file a rule proposal with the SEC that would amend FINRA Rule 4560, Short Interest Reporting, which sets forth a firm's reporting obligations for customer and prop short interest positions.  The proposal, among other things, clarifies that firms are required to report short interest positions that have settled by the designated settlement date and provides that firms must report short interest positions based on the gross position of each individual account.  The changes should facilitate more consistent and accurate calculation of short interest positions.

    Action Plan - Minimum Quotation Sizes.   FINRA staff will file a rule proposal with the SEC that would amend FINRA Rule 6450, Minimum Quotation Size Requirements for OTC Equity Securities, to ensure quotations in lower-priced securities represent a minimum aggregate dollar value commitment and to better align with the minimums in place for listed stocks.  The proposal also would expand the scope of the rule to cover any quotation on an inter-dealer quotation system, whether or not the quote represents a prop quote or a customer order, and irrespective of whether the quote is being displayed by a market maker or an ATS.

    Action Plan - Consolidated Registration Rules.   FINRA staff will file a rule proposal with the SEC that would, among other changes, revise the time and manner limitations for individuals (Retained Associates) engaged in the business of a financial services industry affiliate of a firm - so as to simplify the process of tracking them.   FINRA rule filing will take into account the 22 comments received in response to RegNote 09-79, which described the proposed changes.

    Action Plan - Replies to Responses to Motions in Arbitration.   FINRA staff will file a rule proposal with the SEC that would provide a moving party with a 5-day period to reply to a response to a motion.  The proposal also would give parties an opportunity to brief fully the issues in dispute, and ensures that arbitrators have all of the motion papers before issuing a final decision on the motion.

    Action Plan - Panel Composition in Arbitration in Industry Disputes Involving Promissory Notes.   FINRA staff will file a rule proposal with the SEC that would amend the Industry Code to provide that FINRA will appoint a chair-qualified, public arbitrator to resolve a promissory note dispute, instead of a statutory-discrimination-qualified arbitrator.  Chair-qualified arbitrators have completed chair training and are attorneys who have served through award on at least 2 cases, or, if not attorneys, are arbitrators who have served through award on at least 3 cases. 

Two factors weighed heavily in the Board's decision:  (i) promissory note cases don't require the depth of experience that these arbitrators possess;  (ii) the number of promissory note cases has more than doubled in the past 2 years, making it more difficult to appoint arbitrators to resolve these cases.

For further details, click onto:   [FINRA Board Meeting Update, 12/9]