FINRA warns member firms to be on the lookout for a fraudulent phishing email that is currently circulating. Brokerage firms reported to FINRA that they have received suspicious emails targeting their compliance personnel. The email appears to be from a legitimate credit union attempting to notify the firm about potential money laundering involving a purported client of the firm. The email directs the recipient to open an attached document—which likely contains a malicious virus or malware designed to obtain unauthorized access to the recipient’s computer network. As a reminder, phishing scams are ever-changing and are designed to infiltrate the computer network of the recipient. Use caution when opening emails from unknown senders and do not open attachments until you verify the sender and information that might be included in the document.
FINRA Regulatory Notice 19-05 FINRA Extends Effective Date of Margin Requirements for Covered Agency Transactions
In June 2016, the SEC approved FINRA’s rule change (referred to as the “rule change”) amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions. FINRA is extending, to March 25, 2020, the effective date of the requirements pursuant to the rule change that otherwise would have become effective on March 25, 2019.
MSRB Regulatory Notice 2019-05 MSRB Amends Implementation Guidance on MSRB Rule G-18, on Best Execution
The MSRB is adopting clarifying amendments to implementation guidance on Rule G-18, on best execution. The Implementation Guidance primarily provides answers to frequently-asked questions (FAQs) about Rule G-18. Since the MSRB’s best execution requirements became effective in 2016, some market participants have communicated to the MSRB that the practice of posting the same bid-wanted for a municipal security simultaneously on multiple trading platforms may have harmful effects on dealers, investors and the market as a whole while not necessarily achieving improved execution for customers. While the posting of bid-wanteds simultaneously on multiple trading platforms is not prohibited by MSRB rules and may be considered by dealers under prevailing facts and circumstances to be consistent with their best-execution obligations and beneficial to their customers, the MSRB has stated previously, including in the Implementation Guidance, that such simultaneous posting is not required.
In October 2018, the Board identified the ongoing retrospective rule review efforts as a strategic priority for its current fiscal year and subsequently developed criteria to help identify priority rules or rule areas for review. The Board has now prioritized for retrospective review: MSRB Rule G-23, on activities of financial advisors, and a newly implemented requirement under MSRB Rule G-34, on CUSIP numbers, new issue and market information requirements. In addition, the Board has approved the filing with the U.S. SEC of proposals to eliminate MSRB Rule G-29, which requires dealers to maintain a copy of the MSRB rulebook in each office in which certain municipal securities activities are conducted, and to update certain outdated references in and make other technical corrections to MSRB rules.
MSRB Information Notice 2019-03 MSRB Extends Effective Date for Amendments to MSRB Rule G-21 and New MSRB Rule G-40
The MSRB today filed a rule change with the SEC to extend the effective date of amendments to Rule G-21, on advertising by brokers, dealers or municipal securities dealers, and the adoption of Rule G-40, on advertising by municipal advisors (together the “advertising rules”). The rule change became effective upon filing pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. The advertising rules for brokers, dealers or municipal securities dealers and municipal advisors were approved by the SEC on May 7, 2018, with an initial effective date of February 7, 2019. The new effective date of the advertising rules will be not more than 6 months following an announcement by the MSRB in an MSRB Notice to be published on the MSRB’s website. The MSRB expects to announce the new effective date within 60 day
FINRA Regulatory Notice 19-04 FINRA’s 529 Plan Share Class Initiative Encourages Firms to Self-Report Potential Violations
Over the past several years, FINRA has found that some firms have failed to reasonably supervise brokers’ recommendations of multi-share class products. FINRA has raised concerns specifically regarding firms’ supervision of share-class recommendations to customers of 529 savings plans. FINRA is launching a 529 Plan Share Class Initiative to promote firms’ compliance with the rules governing 529 plan recommendations, to promptly remedy potential supervisory and suitability violations related to recommendations that customers of 529 plans buy share classes that are inconsistent with the accounts’ investment objectives, and to return money to harmed investors as quickly and efficiently as possible. As described in this Notice, to encourage voluntary reporting under this initiative, FINRA’s Department of Enforcement will recommend that FINRA accept favorable settlement terms for firms that self-report these potential violations and provide FINRA with a detailed remediation plan.
The SEC approved the October 2018 supplement to the Options Disclosure Document (ODD). The ODD contains general disclosures on the characteristics and risks of trading standardized options. The October 2018 supplement (i) amends and restates in its entirety the April 2015 Supplement, which accommodated foreign index options and certain implied volatility index options;2 (ii) provides additional contract adjustment disclosures regarding thedetermination of contract adjustments by OCC rather than adjustment panels and the manner in which certain adjustments may affect an option’s value; and (iii) reflects T+2 settlement. As with other supplements to the ODD, this should be read in conjunction with the current ODD, Characteristics and Risks of Standardized Options.
This Regulatory Circular restates policy concerning prearranged trading. Trading Permit Holders/Members are cautioned that any purchase or sale transaction or series of transactions, coupled with an agreement, arrangement, or understanding, directly or indirectly to reverse such transaction which is not done for a legitimate economic purpose or without subjecting the transactions to market risk, violates Exchange Rules and may be inconsistent with various provisions of the Securities Exchange Act of 1934, as amended, (the “Act”) and rules thereunder. All transactions must be effected in accordance with applicable trading rules, must be subject to risk of the market, and must be reported for dissemination.
MSRB Regulatory Notice 2018-33 MSRB Files Content Outline for the Municipal Advisor Principal Qualification Examination (Series 54)
The MSRB filed the Series 54 examination content outline with the SEC for immediate effectiveness. The Series 54 examination content outline has been developed to assist municipal advisor principal candidates in preparing for the Series 54 examination and sets forth key concepts and rules to be tested on the examination and the percentage of the examination devoted to each topic area. The Series 54 examination content outline, which is available on the MSRB’s website, describes the following three topical sections comprising the examination: (1) Understanding the Municipal Advisor Regulatory Framework (25 questions); (2) Supervising Municipal Advisory Activities (35 questions); and (3) Supervising Municipal Advisor Firm Operations (40 questions). Additionally, to familiarize individuals with the format of the Series 54 examination, the content outline includes sample questions similar to the type of questions that may be found on the Series 54 examination.
A new rule Dodd-Frank Wall Street Reform and Consumer Protection Act requires a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director. The new rule requires a company to describe the practices or policies and the categories of persons they affect. If a company does not have any such practices or policies, the company must disclose that fact or state that hedging transactions are generally permitted. The new disclosure is required in a proxy statement or information statement relating to an election of directors.
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