[Federal Register Volume 81, Number 56 (Wednesday, March 23, 2016)]
[Notices]
[Pages 15588-15596]
[FR Doc No: 2016-06453]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77391; File No. SR-FINRA-2015-054]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove Proposed Rule Change To Adopt FINRA Capital
Acquisition Broker Rules

March 17, 2016.

I. Introduction

    On October 9, 2015, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt rules for capital
acquisition brokers (collectively, the ``CAB Rules''). The proposed
rule change was published for comment in the Federal Register on
December 23, 2015.\3\ The Commission received seventeen comment letters
on the proposed rule change.\4\ On December 9, 2015, FINRA extended the
time period for Commission action on this proposed rule change until
March 22, 2016.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 76675 (Dec. 23, 2015), 80 FR
79969 (``Notice'').
    \4\ See letters from Peter W. LaVigne, Esq., Chair, Securities
Regulation Committee, Business Law Section, New York State Bar
Association dated January 22, 2016 (``New York State Bar Association
Letter''); Judith M. Shaw, President, North American Securities
Administrators Association (``NASAA''), and Maine Securities
Administrator, Washington, District of Columbia dated January 15,
2016 (``NASAA Letter''); Michael S. Quinn, Member and CCO, Q
Advisors dated January 13, 2016 (``Q Advisors Letter''); Howard
Spindel, Senior Managing Director, and Cassondra E. Joseph, Managing
Director, Integrated Management Solutions USA LLC dated January 13,
2016 (``IMS Letter''); Lisa Roth, President, Monahan & Roth, LLC
dated January 13, 2016 (``Roth Letter''); Mark Fairbanks, President,
Foreside Distributors dated January 13, 2016 (``Foreside Letter'');
Arne Rovell, Coronado Investments, LLC dated January 6, 2016
(``Coronado Letter''); Daniel H. Kolber, President/CEO, Intellivest
Securities, Inc. dated December 30, 2016 (``Intellivest Letter'');
Roger W. Mehle, Washington, District of Columbia dated December 29,
2015 (``Mehle Letter''); Donna B. DiMaria, Chairman of the Board of
Directors, and Lisa Roth, Board of Directors, Third Party Marketers
Association dated January 12, 2016 (``3PM Letter'') (letters
supporting the 3PM letter: Sajan K. Thomas, President, and Stephen
J. Myott, Chief Compliance Officer, Thomas Capital Group, Inc. dated
January 13, 2016; Richard A. Murphy, North Bridge Capital LLC,
Boston, Massachusetts dated January 13, 2016; Steven Jafarzadeh,
CAIA, CCO, Stonehaven, New York dated January 13, 2016; Dan Glusker,
Perkins Fund Marketing LLC dated January 13, 2016; Ron Oldenkamp,
President, Genesis Marketing Group dated January 13, 2016; Timothy
Cahill, President, Compass Securities Corporation dated January 13,
2016; Frank P. L. Minard, Managing Partner, XT Capital Partners, LLC
dated January 12, 2016).
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    The Commission is publishing this order to solicit comments on the
proposed rule change and to institute proceedings pursuant to Exchange
Act Section 19(b)(2)(B) \5\ to determine whether to approve or
disapprove the proposed rule change.
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    \5\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to the proposed rule change,
nor does it mean that the Commission will ultimately disapprove the
proposed rule change. Rather, as discussed below, the Commission seeks
additional input on the proposed rule change and issues presented by
the proposal.

II. Description of the Proposed Rule Change \6\
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    \6\ The proposed rule change, as described in this Item II, is
excerpted, in part, from the Notice, which was substantially
prepared by FINRA. See supra note 3.
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    FINRA is proposing to create a separate rule set that would apply
to firms that meet the definition of ``capital acquisition broker''
(``CAB'') and elect to be governed under this rule set. FINRA states
that there are firms that are solely corporate financing firms that
advise companies on mergers and acquisitions, advise issuers on raising
debt and equity capital in private placements with institutional
investors, or provide advisory services on a consulting basis to
companies that need assistance analyzing their strategic and financial
alternatives. These firms often are registered as broker-dealers
because of their activities and because they may receive transaction-
based compensation as part of their services.
    Nevertheless, FINRA believes that these firms do not engage in many
of the types of activities typically associated with traditional
broker-dealers. For example, these firms typically do not carry or act
as an introducing broker with respect to customer accounts, handle
customer funds or securities, accept orders to purchase or sell
securities either as principal or agent for the customer, exercise
investment discretion on behalf of any customer, or engage in
proprietary trading of securities or market-making activities.
    FINRA is proposing to establish a separate rule set that would
apply exclusively to firms that meet the definition of ``capital
acquisition broker'' and that elect to be governed under this rule set.
CABs would be subject to the FINRA By-Laws, as well as core FINRA rules
that FINRA believes

should apply to all firms. The rule set would also include other FINRA
rules that are tailored to address CABs' business activities. A brief
description of the proposed rule set for CABs is contained below.

A. General Standards

    Proposed CAB Rule 014 provides that all persons that have been
approved for membership in FINRA as a CAB and persons associated with
CABs shall be subject to the Capital Acquisition Broker rules and the
FINRA By-Laws (including the schedules thereto), unless the context
requires otherwise. Proposed CAB Rule 015 provides that FINRA Rule
0150(b) shall apply to the CAB rules. FINRA Rule 0150(b) provides that
the FINRA rules do not apply to transactions in, and business
activities relating to, municipal securities as that term is defined in
the Exchange Act.
    CAB Rule 016 sets forth basic definitions modified as appropriate
to apply to CABs. The proposed definitions of ``capital acquisition
broker'' and ``institutional investor'' are particularly important to
the application of the rule set. The term ``capital acquisition
broker'' would mean any broker that solely engages in any one or more
of the following activities:

     advising an issuer, including a private fund,
concerning its securities offerings or other capital raising
activities;
     advising a company regarding its purchase or sale of a
business or assets or regarding its corporate restructuring,
including a going-private transaction, divestiture or merger;
     advising a company regarding its selection of an
investment banker;
     assisting in the preparation of offering materials on
behalf of an issuer;
     providing fairness opinions, valuation services, expert
testimony, litigation support, and negotiation and structuring
services;
     qualifying, identifying, soliciting, or acting as a
placement agent or finder with respect to institutional investors in
connection with purchases or sales of unregistered securities; and
     effecting securities transactions solely in connection
with the transfer of ownership and control of a privately-held
company through the purchase, sale, exchange, issuance, repurchase,
or redemption of, or a business combination involving, securities or
assets of the company, to a buyer that will actively operate the
company or the business conducted with the assets of the company, in
accordance with the terms and conditions of an SEC rule, release,
interpretation or ``no-action'' letter that permits a person to
engage in such activities without having to register as a broker or
dealer pursuant to Section 15(b) of the Exchange Act.\7\

    \7\ See proposed CAB Rule 016(c)(1).
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    A firm would be permitted to register as, or change its status to,
a CAB only if the firm solely engages in one or more of these
activities.
    The term ``capital acquisition broker'' would not include any
broker or dealer that:

     carries or acts as an introducing broker with respect
to customer accounts;
     holds or handles customers' funds or securities;
     accepts orders from customers to purchase or sell
securities either as principal or as agent for the customer (except
as permitted by paragraphs (c)(1)(F) and (G) of CAB Rule 016);
     has investment discretion on behalf of any customer;
     engages in proprietary trading of securities or market-
making activities; or
     participates in or maintains an online platform in
connection with offerings of unregistered securities pursuant to
Regulation Crowdfunding or Regulation A under the Securities Act of
1933.\8\

    \8\ See proposed CAB Rule 016(c)(2).
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    The term ``institutional investor'' would have the same meaning as
that term has under FINRA Rule 2210 (Communications with the Public),
with one exception. The term would include any:

     bank, savings and loan association, insurance company
or registered investment company;
     governmental entity or subdivision thereof;
     employee benefit plan, or multiple employee benefit
plans offered to employees of the same employer, that meet the
requirements of Section 403(b) or Section 457 of the Internal
Revenue Code and in the aggregate have at least 100 participants,
but does not include any participant of such plans;
     qualified plan, as defined in Section 3(a)(12)(C) of
the Exchange Act, or multiple qualified plans offered to employees
of the same employer, that in the aggregate have at least 100
participants, but does not include any participant of such plans;
     other person (whether a natural person, corporation,
partnership, trust, family office or otherwise) with total assets of
at least $50 million; and
     person acting solely on behalf of any such
institutional investor.

    The definition also would include any person meeting the definition
of ``qualified purchaser'' as that term is defined in Section 2(a)(51)
of the Investment Company Act of 1940.\9\
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    \9\ See proposed CAB Rule 016(i). FINRA Rule 2210 does not
include ``qualified purchaser'' within its definition of
``institutional investor.''
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B. FINRA Membership

    The proposed CAB Rule 100 Series sets forth the requirements for
firms that wish to register as a CAB. The proposed CAB Rule 100 Series
generally incorporates by reference FINRA Rules 1010 (Electronic Filing
Requirements for Uniform Forms), and 1122 (Filing of Misleading
Information as to Membership or Registration), and NASD Rules 1011
(Definitions), 1012 (General Provisions), 1013 (New Member Application
and Interview), 1014 (Department Decision), 1015 (Review by National
Adjudicatory Council), 1016 (Discretionary Review by FINRA Board), 1017
(Application for Approval of Change in Ownership, Control, or Business
Operations), 1019 (Application to Commission for Review), 1090 (Foreign
Members), 1100 (Foreign Associates) and IM-1011-1 (Safe Harbor for
Business Expansions). Accordingly, a CAB applicant would follow the
same procedures for membership as any other FINRA applicant, with four
modifications.
     First, an applicant for membership that seeks to qualify
as a CAB would have to state in its application that it intends to
operate solely as such.
     Second, in reviewing an application for membership as a
CAB, the FINRA Member Regulation Department would consider, in addition
to the standards for admission set forth in NASD Rule 1014, whether the
applicant's proposed activities are consistent with the limitations
imposed on CABs under CAB Rule 016(c).
     Third, proposed CAB Rule 116(b) sets forth the procedures
for an existing FINRA firm to change its status to a CAB. If an
existing firm is already approved to engage in the activities of a CAB,
and the firm does not intend to change its existing ownership, control
or business operations, it would not be required to file either a New
Member Application (``NMA'') or a Change in Membership Application
(``CMA''). Instead, such a firm would be required to file a request to
amend its membership agreement or obtain a membership agreement (if
none exists currently) to provide that: (i) The firm's activities will
be limited to those permitted for CABs under CAB Rule 016(c), and (ii)
the firm agrees to comply with the CAB rules.\10\
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    \10\ There would not be an application fee associated with this
request.
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     Fourth, proposed CAB Rules 116(c) and (d) set forth the
procedures for an existing CAB to terminate its status as such and
continue as a FINRA firm. Under Rule 116(c), such a firm would be
required to file a CMA with the FINRA Member Regulation Department, and
to amend its membership agreement to

provide that the firm agrees to comply with all FINRA rules.\11\
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    \11\ Absent a waiver, such a firm would have to pay an
application fee associated with the CMA. See FINRA By-Laws, Schedule
A, Section 4(i).
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    Under Rule 116(d), however, if during the first year following an
existing FINRA member firm's amendment to its membership agreement to
convert a full-service broker-dealer to a CAB pursuant to Rule 116(b) a
CAB seeks to terminate its status as such and continue as a FINRA
member firm, the CAB may notify the FINRA Membership Application
Program group of this change without having to file an application for
approval of a material change in business operations pursuant to NASD
Rule 1017. The CAB would instead file a request to amend its membership
agreement to provide that the member firm agrees to comply with all
FINRA rules, and execute an amended membership agreement that imposes
the same limitations on the member firm's activities that existed prior
to the member firm's change of status to a CAB.\12\
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    \12\ To the extent that the rules applicable to the member firm
had been amended since it had changed its status to a CAB, FINRA
would have the discretion to modify any limitations to reflect any
new rule requirements.
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    The proposed CAB Rule 100 Series also would govern the registration
and qualification examinations of principals and representatives that
are associated with CABs. These Rules incorporate by reference NASD
Rules 1021 (Registration Requirements--Principals), 1022 (Categories of
Principal Registration), 1031 (Registration Requirements--
Representatives), 1032 (Categories of Representative Registration),
1060 (Persons Exempt from Registration), 1070 (Qualification
Examinations and Waiver of Requirements), 1080 (Confidentiality of
Examinations), IM-1000-2 (Status of Persons Serving in the Armed Forces
of the United States), IM-1000-3 (Failure to Register Personnel) and
FINRA Rule 1250 (Continuing Education Requirements). Accordingly, CAB
firm principals and representatives would be subject to the same
registration, qualification examination, and continuing education
requirements as principals and representatives of other FINRA firms.
CABs also would be subject to FINRA Rule 1230(b)(6) regarding
Operations Professional registration.

C. Duties and Conflicts (CAB Rule 200 Series)

    The proposed CAB Rule 200 Series would establish a streamlined set
of conduct rules. CABs would be subject to FINRA Rules 2010 (Standards
of Commercial Honor and Principles of Trade), 2020 (Use of
Manipulative, Deceptive or Other Fraudulent Devices), 2040 (Payments to
Unregistered Persons),\13\ 2070 (Transactions Involving FINRA
Employees), 2080 (Obtaining an Order of Expungement of Customer Dispute
Information from the CRD System), 2081 (Prohibited Conditions Relating
to Expungement of Customer Dispute Information), 2263 (Arbitration
Disclosure to Associated Persons Signing or Acknowledging Form U4), and
2268 (Requirements When Using Predispute Arbitration Agreements for
Customer Accounts).
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    \13\ The SEC has approved FINRA's rule change to adopt rules
relating to payments to unregistered persons for the consolidated
FINRA rulebook. See Regulatory Notice 15-07 (March 2015). FINRA Rule
2040 became effective on August 24, 2015.
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    CAB Rules 209 and 211 would impose know-your-customer and
suitability obligations similar to those imposed under FINRA Rules 2090
and 2111. CAB Rule 211(b) includes an exception to the customer-
specific suitability obligations for institutional investors similar to
the exception found in FINRA Rule 2111(b).
    Proposed CAB Rule 221 is an abbreviated version of FINRA Rule 2210
(Communications with the Public), essentially prohibiting false and
misleading statements.
    Under proposed CAB Rule 240, if a CAB or associated person of a CAB
had engaged in activities that would require the CAB to register as a
broker or dealer under the Exchange Act, and that are inconsistent with
the limitations imposed on CABs under CAB Rule 016(c), FINRA could
examine for and enforce all FINRA rules against such a broker or
associated person, including any rule that applies to a FINRA broker-
dealer that is not a CAB or to an associated person who is not a person
associated with a CAB.
    FINRA has determined not to subject CABs to FINRA Rules 2121 (Fair
Prices and Commissions), 2122 (Charges for Services Performed), and
2124 (Net Transactions with Customers), since CABs' business model does
not raise the same concerns that Rules 2121, 2122 and 2124 are intended
to address.
    Rule 2121 provides that, for securities in both listed and unlisted
securities, a member that buys for its own account from its customer,
or sells for its own account to its customer, shall buy or sell at a
price which is fair, taking into consideration all relevant
circumstances, including market conditions with respect to the security
at the time of the transaction, the expense involved, and the fact that
the member is entitled to a profit. Further, if the member acts as
agent for its customer in any such transaction, the member shall not
charge its customer more than a fair commission or service charge,
taking into consideration all relevant circumstances, including market
conditions with respect to the security at the time of the transaction,
the expense of executing the order and the value of any service the
member may have rendered by reason of its experience in and knowledge
of such security and the market therefor.
    CABs would not be permitted to act as a principal in a securities
transaction. Accordingly, the provisions of Rule 2121 that govern
principal transactions would not apply to a CAB's permitted activities.
    CABs would be permitted act as agent in a securities transaction
only in very narrow circumstances. CABs would be allowed to act as an
agent with respect to institutional investors in connection with
purchases or sales of unregistered securities. CABs also would be
permitted to effect securities transactions solely in connection with
the transfer of ownership and control of a privately-held company to a
buyer that will actively operate the company or the business conducted
with the assets of the company in accordance with the terms and
conditions of an SEC rule, release, interpretation or ``no-action''
letter.
    In both instances, FINRA believes that these circumstances either
involve institutional parties that negotiate the terms of permitted
securities transactions without the need for the conditions set forth
in Rule 2121, or involve the sale of a business as a going concern,
which differs in nature from the types of transactions that typically
raise issues under Rule 2121.
    Rule 2122 provides that charges, if any, for services performed,
including, but not limited to, miscellaneous services such as
collections due for principal, dividends, or interest; exchange or
transfer of securities; appraisals, safekeeping or custody of
securities, and other services shall be reasonable and not unfairly
discriminatory among customers. As discussed above, CABs typically
provide services to institutional customers that generally do not need
the protections that Rule 2122 offers, since these customers are
capable of negotiating fair prices for the services that CABs provide.
Moreover, CABs are not permitted to provide many of the services listed
in Rule 2122, such as collecting principal, dividends or interest, or
providing safekeeping or custody services.

    Rule 2124 sets forth specific requirements for executing
transactions with customers on a ``net'' basis. ``Net'' transactions
are defined as a type of principal transaction, and CABs may not trade
securities on a principal basis. For these reasons, FINRA does not
believe it is necessary to include FINRA Rules 2121, 2122 and 2124 as
part of the CAB rule set.
    CAB Rule 201 would subject CABs to FINRA Rule 2010 (Standards of
Commercial Honor and Principles of Trade), which requires a member, in
the conduct of its business, to observe high standards of commercial
honor and just and equitable principles of trade. Depending on the
facts, other rules, such as Rule 2010, may apply in situations in which
a CAB charged a commission or fee that clearly is unreasonable under
the circumstances.

D. Supervision and Responsibilities Related to Associated Persons (CAB
Rule 300 Series)

    The proposed CAB Rule 300 Series would establish a limited set of
supervisory rules for CABs. CABs would be subject to FINRA Rules 3220
(Influencing or Rewarding Employees of Others), 3240 (Borrowing from or
Lending to Customers), and 3270 (Outside Business Activities of
Registered Persons).
    Proposed CAB Rule 311 would subject CABs to some, but not all, of
the requirements of FINRA Rule 3110 (Supervision) and, consistent with
Rule 3110, is designed to provide CABs with the flexibility to tailor
their supervisory systems to their business models. CABs would be
subject to many of the provisions of Rule 3110 concerning the
supervision of offices, personnel, customer complaints, correspondence
and internal communications. However, CABs would not be subject to the
provisions of Rule 3110 that require annual compliance meetings
(paragraph (a)(7)), review and investigation of transactions
(paragraphs (b)(2) and (d)), specific documentation and supervisory
procedures for supervisory personnel (paragraph (b)(6)), and internal
inspections (paragraph (c)).
    FINRA does not believe that the annual compliance meeting
requirement in FINRA Rule 3110(a)(7) should apply to CABs given the
nature of CABs' business model and structure. FINRA has observed that
most current FINRA member firms that would qualify as CABs tend to be
small and often operate out of a single office. In addition, the range
of rules that CABs would be subject to is narrower than the rules that
apply to other broker-dealers. Moreover, as noted above, CABs would be
subject to both the Regulatory and Firm Element continuing education
requirements. Accordingly, FINRA does not believe that CABs need to
conduct an annual compliance meeting as required under FINRA Rule
3110(a)(7).\14\ The fact that the annual compliance meeting requirement
would not apply to CABs or their associated persons in no way would
reduce their responsibility to have knowledge of and comply with
applicable securities laws and regulations and the CAB rule set.
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    \14\ For the same reasons, FINRA does not believe that FINRA
Rule 3110.04 should apply to CABs.
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    FINRA does not believe that FINRA Rule 3110(b)(2), which requires
members to adopt and implement procedures for the review by a
registered principal of all transactions relating to the member's
investment banking or securities business, or FINRA Rule 3110(d), which
imposes requirements related to the investigation of securities
transactions and heightened reporting requirements for members engaged
in investment banking services, should apply to CABs. CABs would not be
permitted to carry or act as an introducing broker with respect to
customer accounts, hold or handle customers' funds or securities,
accept orders from customers to purchase or sell securities except
under the narrow circumstances discussed above, have investment
discretion on behalf of any customer, engage in proprietary trading or
market-making activities, or participate in Crowdfunding or Regulation
A securities offerings. Accordingly, due to these restrictions, FINRA
does not believe a CAB's business model necessitates the application of
these provisions, which primarily address trading and investment
banking functions that are beyond the permissible scope of a CAB's
activities.\15\
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    \15\ For the same reasons, FINRA does not believe that FINRA
Rule 3110.05 should apply to CABs.
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    FINRA does not believe that the requirements of FINRA Rule
3110(b)(6) should apply to CABs. Paragraph (b)(6) generally requires a
member to have procedures to prohibit its supervisory personnel from
(1) supervising their own activities; and (2) reporting to, or having
their compensation or continued employment determined by, a person the
supervisor is supervising.\16\ FINRA also does not believe that FINRA
Rule 3110(c), which requires members to conduct internal inspections of
their businesses, should apply to CABs.
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    \16\ FINRA Rule 3110(b)(6)(C)(i) and (ii). FINRA Rule 3110(b)(6)
also requires that a member's supervisory procedures include the
titles, registration status and locations of the required
supervisory personnel and the responsibilities of each supervisory
person as these relate to the types of business engaged in,
applicable securities laws and regulations, and FINRA rules, as well
as a record of the names of its designated supervisory personnel and
the dates for which such designation is or was effective. FINRA Rule
3110(b)(6)(A) and (B). In addition, paragraph (b)(6) requires a
member to have procedures reasonably designed to prevent the
standards of supervision required pursuant to FINRA Rule 3110(a)
from being compromised due to the conflicts of interest that may be
present with respect to an associated person being supervised. FINRA
Rule 3110(b)(6)(D).
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    FINRA believes that a CAB's business model, which is geared toward
acting as a consultant in capital acquisition transactions, or acting
as an agent solely in connection with purchases or sales of
unregistered securities to institutional investors, or with the
transfer of ownership and control of a privately-held company, does not
give rise to the same conflicts of interest and supervisory concerns
that paragraph (b)(6) is intended to address. As discussed above, many
CABs operate out of a single office with a small staff, which reduces
the need for internal inspections of numerous or remote offices. In
addition, part of the purpose of creating a separate CAB rule set is to
streamline and reduce existing FINRA rule requirements where it does
not hinder investor protection. FINRA believes that the remaining
provisions of FINRA Rule 3110, coupled with the CAB Rule 200 Series
addressing duties and conflicts, will sufficiently protect CABs'
customers from potential harm due to insufficient supervision.\17\
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    \17\ For the same reasons, FINRA does not believe that FINRA
Rules 3110.10, .12, .13, or .14 should apply to CABs. FINRA also
believes that it is unnecessary to apply FINRA Rule 3110.15 to CABs,
since the temporary program authorized by the rule expired on
December 1, 2015.
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    Proposed CAB Rule 313 would require CABs to designate and identify
one or more principals to serve as a firm's chief compliance officer,
similar to the requirements of FINRA Rule 3130(a). CAB Rule 313 would
not require a CAB to have its chief executive officer (``CEO'') certify
that the member has in place processes to establish, maintain, review,
test and modify written compliance policies and written supervisory
procedures reasonably designed to achieve compliance with applicable
federal securities laws and regulations, and FINRA and MSRB rules,
which are required under FINRA Rules 3130(b) and (c). FINRA does not
believe the CEO certification is necessary given a CAB's narrow
business model and smaller rule set.
    Proposed Rule 328 would prohibit any person associated with a CAB
from participating in any manner in a private securities transaction as
defined in

FINRA Rule 3280(e).\18\ FINRA does not believe that an associated
person of a CAB should be engaged in selling securities away from the
CAB, nor should a CAB have to oversee and review such transactions,
given its limited business model. This restriction would not prohibit
associated persons from investing in securities on their own behalf, or
engaging in securities transactions with immediate family members,
provided that the associated person does not receive selling
compensation.
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    \18\ FINRA Rule 3280(e) defines ``private securities
transaction'' as ``any securities transaction outside the regular
course or scope of an associated person's employment with a member,
including, though not limited to, new offerings of securities which
are not registered with the Commission, provided however that
transactions subject to the notification requirements of NASD Rule
3050, transactions among immediate family members (as defined in
FINRA Rule 5130), for which no associated person receives any
selling compensation, and personal transactions in investment
company and variable annuity securities, shall be excluded.''
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    Proposed CAB Rule 331 would require each CAB to implement a written
anti-money laundering (``AML'') program. This is consistent with the
SEC's requirements and Chapter X of Title 31 of the Code of Federal
Regulations. Accordingly, the proposed rule is similar to FINRA Rule
3310 (Anti-Money Laundering Compliance Program); however, the proposed
rule contemplates that all CABs would be eligible to conduct the
required independent testing for compliance every two years.

E. Financial and Operational Rules (CAB Rule 400 Series)

    The proposed CAB Rule 400 Series would establish a streamlined set
of rules concerning firms' financial and operational obligations. CABs
would be subject to FINRA Rules 4140 (Audit), 4150 (Guarantees by, or
Flow through Benefits for, Members), 4160 (Verification of Assets),
4511 (Books and Records--General Requirements), 4513 (Records of
Written Customer Complaints), 4517 (Member Filing and Contact
Information Requirements), 4524 (Supplemental FOCUS Information), 4530
(Reporting Requirements), and 4570 (Custodian of Books and Records).
    Proposed CAB Rule 411 includes some, but not all, of the capital
compliance requirements of FINRA Rule 4110. CABs would be required to
suspend business operations during any period a firm is not in
compliance with the applicable net capital requirements set forth in
Exchange Act Rule 15c3-1, and the rule also would authorize FINRA to
direct a CAB to suspend its operation under those circumstances.
Proposed CAB Rule 411 also sets forth requirements concerning
withdrawal of capital, subordinated loans, notes collateralized by
securities, and capital borrowings.
    CABs would not be subject to FINRA Rules 4370 (Business Continuity
Plans and Emergency Contact Information) or 4380 (Mandatory
Participation in FINRA BC/DR Testing Under Regulation SCI). FINRA does
not believe it would be necessary for a CAB to maintain a business
continuity plan (BCP), given a CAB's limited activities, particularly
since a CAB would not engage in retail customer account transactions or
clearance, settlement, trading, underwriting or similar investment
banking activities. Moreover, FINRA Rule 4380 relates to Rule SCI under
the Exchange Act, which is not applicable to a member that limits its
activities to those permitted under the CAB rule set.
    Because CABs would not carry or act as an introducing broker with
respect to customer accounts, they would have more limited customer
information requirements than is imposed under FINRA Rule 4512.\19\
CABs would have to maintain each customer's name and residence, whether
the customer is of legal age (if applicable), and the names of any
persons authorized to transact business on behalf of the customer. CABs
would still have to make and preserve all books and records required
under Exchange Act Rules 17a-3 and 17a-4.
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    \19\ See proposed CAB Rule 451(b).
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    CAB Rule 452(a) establishes a limited set of requirements for the
supervision and review of a firm's general ledger accounts.

F. Securities Offerings (CAB Rule 500 Series)

    The proposed CAB Rule 500 Series would subject CABs to certain
rules concerning securities offerings. CABs would be subject to FINRA
Rules 5122 (Private Placements of Securities Issued by Members) and
5150 (Fairness Opinions).

G. Investigations and Sanctions, Code of Procedure, and Arbitration and
Mediation (CAB Rules 800, 900 and 1000)

    CABs would be subject to the FINRA Rule 8000 Series governing
investigations and sanctions of firms, other than FINRA Rules 8110
(Availability of Manual to Customers), 8211 (Automated Submission of
Trading Data Requested by FINRA), and 8213 (Automated Submission of
Trading Data for Non-Exchange-Listed Securities Requested by FINRA).
    CABs would not be subject to FINRA Rule 8110 (Availability of
Manual to Customers), which requires members to make available a
current copy of the FINRA manual for examination by customers upon
request. If the Commission approves this proposed rule change, the CAB
rule set would be available through the FINRA Web site. Accordingly,
FINRA does not believe this rule is necessary for CABs.
    CABs also would not be subject to FINRA Rules 8211 (Automated
Submission of Trading Data Requested by FINRA) or 8213 (Automated
Submission of Trading Data for Non-Exchange-Listed Securities Requested
by FINRA). Given that these rules are intended to assist FINRA in
requesting trade data from firms engaged in securities trading, and
that CABs would not engage in securities trading, FINRA does not
believe that these rules should apply to CABs.
    CABs would be subject to the FINRA Rule 9000 Series governing
disciplinary and other proceedings involving firms, other than the
FINRA Rule 9700 Series (Procedures on Grievances Concerning the
Automated Systems). Proposed CAB Rule 900(c) would provide that any CAB
may be subject to a fine under FINRA Rule 9216(b) with respect to an
enumerated list of FINRA By-Laws, CAB rules and SEC rules under the
Exchange Act. Proposed CAB Rule 900(d) would authorize FINRA staff to
require a CAB to file communications with the FINRA Advertising
Regulation Department at least ten days prior to use if the staff
determined that the CAB had departed from CAB Rule 221's standards.
    CABs would be subject to the FINRA Rule 12000 Series (Code of
Arbitration Procedure for Customer Disputes), 13000 Series (Code of
Arbitration Procedure for Industry Disputes) and 14000 Series (Code of
Mediation Procedure).

III. Summary of Comments

    Commenters generally supported FINRA's proposal to develop a new
rule set for CABs. As discussed below, some commenters recommended that
the proposal include additional requirements or explanations in certain
aspects.

A. Review of Membership Application

    One commenter suggested that FINRA should approve the membership
applications of new CABs within 60 days of the filing of the
application, provided that certain conditions are met, including: A
completed application; the required supervisory

principals, who have each taken and passed the applicable examinations;
and no significant disciplinary history or other red flag indications
of potential compliance problems.\20\
---------------------------------------------------------------------------

    \20\ See New York State Bar Association Letter. NASD Rule 1014
permits up to a 180 day review period absent an extension.
---------------------------------------------------------------------------

B. Registration and Licensing

    Two commenters requested that FINRA confirm that CABs may hold all
licenses previously sought and attained by their associated persons,
including Series 53, 4 and other licenses.\21\ One of these commenters
also suggested that CABs should not be subject to FINRA Rule 1230(b)(6)
\22\ regarding Operations Professional registration because of the
scope and nature of the examination.\23\ The other commenter suggested
that FINRA should exempt CAB Chief Compliance Officers (``CCOs'') from
the proposed requirement to obtain and maintain the Series 14 CCO
license because of the broad and comprehensive scope of the proposed
license.\24\ This commenter also sought clarification as to whether a
CAB's responsibility under Rule 209 \25\ is limited to learning the
essential facts of the agent.\26\
---------------------------------------------------------------------------

    \21\ See 3PM and M&R Letters.
    \22\ Rule 1230 requires that each of the following persons be
registered with FINRA as an Operations Professional: (i) Senior
management with direct responsibility over the covered functions
under the Rule; (ii) any person designated by senior management
under the Rule as a supervisor, manager or other person responsible
for approving or authorizing work, including work of other persons,
in direct furtherance of each of the covered functions in the Rule,
as applicable, provided that there is sufficient designation of such
persons by senior management to address each of the applicable
covered functions; and (iii) persons with the authority or
discretion materially to commit a member's capital in direct
furtherance of the covered functions in the Rule or to commit a
member to any material contract or agreement (written or oral) in
direct furtherance of the covered functions in the Rule.
    \23\ See 3PM Letter.
    \24\ See M&R Letter.
    \25\ Proposed Rule 209 states that every capital acquisition
broker shall use reasonable diligence to know (and retain) the
essential facts concerning every customer and concerning the
authority of each person acting on behalf of such customer. For
purposes of this Rule, facts ``essential'' to ``knowing the
customer'' are those required to (a) effectively service the
customer, (b) understand the authority of each person acting on
behalf of the customer, and (c) comply with applicable laws,
regulations and rules.
    \26\ See M&R Letter.
---------------------------------------------------------------------------

C. Registered Representative Exams

    One commenter suggested that FINRA (outside of the rulemaking
context) establish new examinations specifically for the registered
representatives and supervisory principals of CABs that will test only
that subject matter relevant to the business of CABs.\27\
---------------------------------------------------------------------------

    \27\ See New York State Bar Association Letter.
---------------------------------------------------------------------------

D. Prohibition on Private Securities Transactions

    One commenter suggested that proposed Rule 328 (Prohibition on
Private Securities Transactions) \28\ should be revised to exclude: (1)
The investment advisory activities of associated persons who are also
employees or supervised persons of an investment adviser registered
with the SEC or a state, and (2) employees of a bank or trust company
engaged in securities or advisory activities that a bank may engage in
pursuant to the exceptions from the definition of broker or dealer in
Exchange Act Sections 3(a)(4) or (5) of Regulation R.\29\
---------------------------------------------------------------------------

    \28\ Proposed Rule 328 would prohibit persons associated with a
CAB from participating in any manner in a private securities
transaction as defined in FINRA Rule 3280(e).
    \29\ See New York State Bar Association Letter.
---------------------------------------------------------------------------

    Another commenter believes that FINRA's proposed CAB rule set
unduly prohibits sales of private placements to accredited investors
and therefore vitiates any usefulness or appeal of the CAB rules to
certain firms.\30\
---------------------------------------------------------------------------

    \30\ See Mehle Letter.
---------------------------------------------------------------------------

E. Secondary Transactions

    As discussed above, the definition of CAB in proposed Rule 016(c)
includes, among the permissible activities of a CAB, ``qualifying,
identifying, soliciting, or acting as a placement agent or finder with
respect to institutional investors in connection with purchases or
sales of unregistered securities.'' One commenter interpreted that
description as including both primary issuances and secondary
transaction in unregistered securities and requested that FINRA confirm
the intent to include secondary transactions among the permitted
activities of a CAB.\31\
---------------------------------------------------------------------------

    \31\ See New York State Bar Association Letter.
---------------------------------------------------------------------------

F. Grace Period for Reverses CAB Registration

    One commenter states although a CAB firm has a year to decide if it
wants to become a registered broker-dealer, it is not convinced that
this one-year grace period is a sufficient amount of time for a firm to
determine if CAB status is appropriate for its business model.\32\ The
commenter states that a converted firm may not have sufficient data
within the first year to evaluate its decision fully and recommends
that this grace period be extended to at least 24 months or that there
be no grace time restrictions at all.\33\ This commenter suggested that
FINRA allow interim continued operations as a CAB (provided the firm is
in regulatory compliance) while an active CMA is being reviewed by
FINRA, with the firm remaining subject to all the CAB strictures
pending a final decision by FINRA on the CMA.\34\
---------------------------------------------------------------------------

    \32\ Id.
    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

G. Impermissible Activities

    One commenter recommended that FINRA consider a grace period for
firms that unintentionally conduct activities beyond the scope of a
CAB's permissible activities.\35\
---------------------------------------------------------------------------

    \35\ See 3PM Letter.
---------------------------------------------------------------------------

H. CAB Rule Suggested Changes

    Several commenters suggested various changes to FINRA's proposed
CAB rules. The significant suggested changes are described below.
1. Institutional Investor Definition
    One comment suggested that FINRA consider lowering the threshold
for institutional investor preferably to $5 million or even less.\36\
This commenter also suggested that many broker-dealers would otherwise
qualify as a CAB except that sometimes investors investing in clients'
offerings may have less than $50 million in assets but are otherwise
sophisticated, knowledgeable and advised by competent attorneys.\37\
---------------------------------------------------------------------------

    \36\ See Intellivest Letter.
    \37\ Id.
---------------------------------------------------------------------------

    In addition to institutional investors, one commenter suggested
that FINRA permit CAB transactions with certain other categories of
persons, specifically: (1) A ``knowledgeable employee'' as defined in
Investment Company Act Rule 3C-5, except that for purposes of the
institutional investor definition, ``covered company'' would mean
either the CAB or the issuer of the securities sold in the transaction;
and (2) a person designated by the issuer of the securities sold in the
transaction, provided that the CAB did not solicit the person or make a
recommendation to the person with respect to purchase of the
securities.\38\
---------------------------------------------------------------------------

    \38\ New York State Bar Association Letter. See also Coronado
Letter (requesting a de minimis and/or knowledgeable employee
exemption to allow for one-off capital-raises (under various
scenarios where accredited individuals working at alternative
investment firms and the funds they manage or other closely
affiliated individuals desire to invest) without violating the
proposed CAB rules).
---------------------------------------------------------------------------

    This commenter also stated that there may be circumstances where
the issuer wishes to sell securities to persons who would not otherwise
qualify as institutional investors, but wants the transaction to be
effected by the CAB.\39\ In addition, the commenter believes that CAB
rules should not prohibit sales to those categories of persons, since
the

usual concerns about suitability determinations and content of
communications by member firms to retail investors would not apply.\40\
---------------------------------------------------------------------------

    \39\ New York State Bar Association Letter.
    \40\ Id.
---------------------------------------------------------------------------

2. Know Your Customer
    One commenter requested clarification of FINRA's statement that
``[i]t also recognizes that a CAB or its associated person may look to
an institutional investor's agent if the investor is represented by an
agent.'' \41\ Specifically, clarification as to what ``look to''
requires and whether this can be interpreted to mean that a CAB's
responsibility under Rule 209 is limited to learning the essential
facts of the agent.\42\
---------------------------------------------------------------------------

    \41\ See 3PM Letter.
    \42\ Id.
---------------------------------------------------------------------------

3. Suitability
    One commenter generally agreed with Rule 211 (Suitability), but
believes that the rule as proposed fails by requiring the suitability
analyses to be performed before any recommendation is made.\43\ The
commenter believes that the rule does not recognize that the process of
diligence is ongoing, in many cases can take several months to several
years before an investment decision is made, and often does not, and
should not conclude until the deal is closed. The commenter also
believes that Rule 211 should emphasize this point and encourage
registered representatives to periodically review their suitability
analysis throughout the offering process, but no less frequently than
once before the subscription agreement or relevant contract is signed
and due diligence is as complete as it can be at that particular
time.\44\
---------------------------------------------------------------------------

    \43\ Id. Rule 211 states that a capital acquisition broker or an
associated person of a capital acquisition broker must have a
reasonable basis to believe that a recommended transaction or
investment strategy (as defined in FINRA Rule 2111) involving a
security or securities is suitable for the customer, based on the
information obtained through the reasonable diligence of the broker
or associated person to ascertain the customer's investment profile.
    \44\ 3PM Letter.
---------------------------------------------------------------------------

    One commenter stated that CABs are not making recommendations in
the traditional definition of the term, and therefore, as an example,
will not have insight into the overall composition of the institutional
investor's portfolio--as a retail broker would have over one of their
accounts.\45\ Accordingly, this commenter suggested that the rules
should address some type of minimum compliance that would be
appropriate in these situations. Further, the commenter suggested that
a demonstrable best efforts basis may be a satisfactory alternative in
such instances.\46\
---------------------------------------------------------------------------

    \45\ Id.
    \46\ Id.
---------------------------------------------------------------------------

4. Commissions/Fees
    One commenter stated that applying Rule 2010 (Standards of
Commercial Honor and Principles of Trade) in situations in which a CAB
charged a commission or fee that clearly is unreasonable under the
circumstances may create an interpretive issue between the two sets of
rules.\47\
---------------------------------------------------------------------------

    \47\ IMS Letter.
---------------------------------------------------------------------------

5. Supervisory Procedures
    One commenter stated that requirements related to supervisory
procedures for supervisors should not be required for CABs.\48\ This
commenter also recommended that FINRA clarify its expectations with
respect to email review.\49\ Specifically, the commenter suggested that
the rules should note that expectations for email review should be
tailored according to the CAB's business and that such expectations
would not be as stringent as those for broker-dealers engaged in non-
CAB activities.\50\
---------------------------------------------------------------------------

    \48\ Foreside Letter.
    \49\ Id.
    \50\ Id.
---------------------------------------------------------------------------

6. Cybersecurity
    One commenter recommended that FINRA clarify the expectations with
respect to cybersecurity.\51\ Specifically, while the proposal suggests
that a CAB not be required to have a business continuity plan, the
commenter suggested that the final rules include a requirement to have
appropriate cybersecurity/information security programs in place,
tailored to the CAB's business.\52\
---------------------------------------------------------------------------

    \51\ Id.
    \52\ Id.
---------------------------------------------------------------------------

I. Rules Beyond FINRA's CAB Rules

1. SIPC
    One commenter stated that the CAB designation should be added to
the list of exempt entities contained in the SIPC rules (although the
commenter understands that FINRA is not in a position to alter the
current SIPC requirement).\53\
---------------------------------------------------------------------------

    \53\ Q Advisors Letter.
---------------------------------------------------------------------------

2. Net Capital
    One commenter expressed concern that FINRA will force existing
FINRA members and new applicants who now or will operate as so-called
``nickel BDs'' to become CABs, if for no other reason than to vindicate
FINRA's questionable statistics of eligible firms.\54\ This commenter
also disagreed with the fact that although CABs may nominally advise an
issuer of private funds on its capital raising efforts, FINRA's
customer limitations for CABs only allow them to contact institutional
investors.
---------------------------------------------------------------------------

    \54\ IMS Letter.
---------------------------------------------------------------------------

    One commenter objected to what it believes is FINRA's failure to
change or in any way modify the net capital, recordkeeping and
reporting requirements applicable to CABs.\55\ This commenter stated
that compliance with the Financial Responsibility and Net Capital rules
remains the same for both CABs and FINRA-registered BDs, and that there
is no relief from the annual audit requirement, which, in light of
auditors having to comply with onerous PCAOB and SEC rules, has become
a significant expense to all FINRA member firms regardless of size.\56\
---------------------------------------------------------------------------

    \55\ Id.
    \56\ Id.
---------------------------------------------------------------------------

    Similarly, one commenter stated that the FINRA proposal should
address the capital requirements, which appear to be unnecessary based
on the business model of CABs and also address the requirement for a
PCAOB audit in light of the streamlined rule set seems wholly out of
line, excessive and meaningless to investor protections.\57\
---------------------------------------------------------------------------

    \57\ See M&R Letter.
---------------------------------------------------------------------------

    One commenter suggested that proposed CAB Rule 411 \58\ should
remove the minimum net capital requirement of $5,000 currently applied
to CAB members.\59\ While the commenter understood that this is outside
of FINRA's authority, the commenter urged the SEC to review the
calculation of net capital for CABs and modify the rule so that the
nature of a CAB's business does not cause it to have to improperly
report its financial condition to FINRA.\60\
---------------------------------------------------------------------------

    \58\ Rule 411 states that unless otherwise permitted by FINRA, a
capital acquisition broker must suspend all business operations
during any period in which it is not in compliance with applicable
net capital requirements set forth in Exchange Act Rule 15c3-1.
    \59\ See 3PM Letter.
    \60\ Id.
---------------------------------------------------------------------------

3. Audit
    One commenter believed FINRA should eliminate the audit requirement
altogether for broker-dealers that never hold securities or cash
belonging to others.\61\ Another commenter also suggested that FINRA
has not made any effort to have the SEC change Rule 17a-5 to exclude
CABs from the annual audit requirement, or to require a review instead
of an audit.\62\
---------------------------------------------------------------------------

    \61\ See IMS Letter.
    \62\ See Mehle Letter.
---------------------------------------------------------------------------

    Another commenter suggested that annual compliance meetings and
annual

inspections should not be required for CABs.\63\
---------------------------------------------------------------------------

    \63\ See Foreside Letter.
---------------------------------------------------------------------------

4. Anti-Money Laundering
    One commenter requests that the SEC work with the appropriate
authorities to revisit the AML responsibilities of CABs and consider
requiring U.S. registered entities, such as registered investment
advisers, to share certain data with FINRA member firms so that all
registered participants may satisfy their respective compliance
obligations in the most complete and accurate manner possible.\64\ In
addition, this commenter sought the SEC's confirmation that the terms
and conditions of the no[hyphen]action letters initially dated 2004 and
extended by subsequent no[hyphen]action letter in January 2015 apply to
CABs to the extent that customer identification is reasonable performed
by a federally regulated entity under a contractual obligation.\65\
---------------------------------------------------------------------------

    \64\ See 3PM Letter.
    \65\ Id.
---------------------------------------------------------------------------

5. Form Custody
    One commenter urged FINRA to make efforts to have the SEC eliminate
the quarterly ``Form Custody'' FOCUS report for CABs.\66\
---------------------------------------------------------------------------

    \66\ Mehle Letter.
---------------------------------------------------------------------------

J. State Regulation

    One commenter suggested that the Commission, FINRA, and NASAA
should cooperate to more fully analyze the interaction between the CAB
proposal and state registration requirements to better harmonize the
application of these provisions.\67\ This commenter suggested that the
most relevant provisions to it are the proposal's inclusion of firms
that effect securities transactions solely in connection with the
transfer of ownership and control of a privately-held company through
the purchase, sale, exchange, issuance, repurchase, or redemption of,
or a business combination involving, securities or assets of the
company, to a buyer that will actively operate the company or the
business conducted with the assets of the company, in accordance with
the terms and conditions of an SEC rule, release, interpretation or
``no-action'' letter that permits a person to engage in such activities
without having to register as a broker or dealer pursuant to Section
15(b) of the Exchange Act.\68\
---------------------------------------------------------------------------

    \67\ NASAA Letter.
    \68\ Id.
---------------------------------------------------------------------------

    The commenter indicated that it would welcome the opportunity to
work with FINRA and the Commission on the issues presented by the
proposal, and encouraged the Commission to delay approval of the
proposal until there has been an opportunity to more fully explore
these issues.\69\
---------------------------------------------------------------------------

    \69\ Id.
---------------------------------------------------------------------------

IV. Proceedings to Determine Whether to Approve or Disapprove SR-FINRA-
2015-054 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Exchange Act
Section 19(b)(2)(B) to determine whether the proposed rule change
should be approved or disapproved.\70\ Institution of proceedings
appears appropriate at this time in view of the legal and policy issues
raised by the proposal. As noted above, institution of proceedings does
not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the issues presented by the
proposed rule change and provide the Commission with arguments to
support the Commission's analysis as to whether to approve or
disapprove the proposal.
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 78s(b)(2). Exchange Act Section 19(b)(2)(B)
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
The time for conclusion of the proceedings may be extended for up to
an additional 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding or if the self-
regulatory organization consents to the extension.
---------------------------------------------------------------------------

    Pursuant to Exchange Act Section 19(b)(2)(B),\71\ the Commission is
providing notice of the grounds for disapproval under consideration. In
particular, Exchange Act Section 15A(b)(6) \72\ 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. In addition, Exchange Act Section 15A(b)(9) \73\
requires that FINRA rules not impose any unnecessary or inappropriate
burden on competition.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78s(b)(2)(B).
    \72\ 15 U.S.C. 78o-3(b)(6).
    \73\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    The Commission believes FINRA's proposed rule change raises
questions as to whether it is consistent with the requirements of
Exchange Act Sections 15A(b)(6) and 15A(b)(9).

V. Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues raised by the proposed rule change. In particular, the
Commission invites the written views of interested persons on whether
the proposed rule change is inconsistent with Sections 15A(b)(6) and
15A(b)(9), or any other provision, of the Exchange Act, or the rules
and regulations thereunder.
    Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\74\
---------------------------------------------------------------------------

    \74\ Exchange Act Section 19(b)(2), as amended by the Securities
Acts Amendments of 1975, Pub. L. 94-29, 89 Stat. 97 (1975), grants
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking, Housing and Urban Affairs
to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and
arguments by April 13, 2016 concerning whether the proposed rule change
should be approved or disapproved. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
May 9, 2016. 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<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2015-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-054. 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 principle 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 publicly available.

    All submissions should refer to File Number SR-FINRA-2015-054 and
should be submitted on or before April 13, 2016. If comments are
received, any rebuttal comments should be submitted by May 9, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\75\
---------------------------------------------------------------------------

    \75\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06453 Filed 3-22-16; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: October 17, 2005 (Volume 70, Number 199)]
[Notices]
[Page 60320]
[DOCID:fr17oc05-65]

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket Nos. RP04-280-003 and RP04-94-004]

Northern Natural Gas Company; Notice of SLA Refund Report

October 6, 2005.
    Take notice that on October 4, 2005, Northern Natural Gas Company
(Northern) tendered for filing a refund report showing refunds that
were made to Northern's customers pursuant to Northern's System
Levelized Account (SLA) Settlement filed on November 24, 2004 in the
above-referenced dockets and approved by the Commission on February 14,
2005.
    Northern further states that copies of the filing have been mailed
to each of its customers and interested State commissions.
    Any person desiring to protest this filing must file in accordance
with Rule 211 of the Commission's Rules of Practice and Procedure (18
CFR 385.211). Protests to this filing will be considered by the
Commission in determining the appropriate action to be taken, but will
not serve to make protestants parties to the proceeding. Such protests
must be filed on or before the date as indicated below. Anyone filing a
protest must serve a copy of that document on all the parties to the
proceeding.
    The Commission encourages electronic submission of protests in lieu
of paper using the ``eFiling'' link at http://www.ferc.gov. Persons

unable to file electronically should submit an original and 14 copies
of the protest to the Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426.
    This filing is accessible on-line at http://www.ferc.gov, using the

``eLibrary'' link and is available for review in the Commission's
Public Reference Room in Washington, DC. There is an ``eSubscription''
link on the Web site that enables subscribers to receive e-mail
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please e-mail
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For

TTY, call<PHONE_NUMBER>.
    Comment Date: 5 p.m. Eastern Time on October 14, 2005.

Magalie R. Salas,
Secretary.
[FR Doc. E5-5666 Filed 10-14-05; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register Volume 81, Number 27 (Wednesday, February 10, 2016)]
[Notices]
[Pages 7161-7163]
[FR Doc No: 2016-02603]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77050; File No. SR-NYSEArca-2016-23]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to the
AdvisorShares Athena High Dividend ETF's Investments in Sponsored and
Unsponsored American Depositary Receipts

February 4, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 29, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to change the description of the
AdvisorShares Athena High Dividend ETF's investments in sponsored and
unsponsored American Depositary Receipts. The Commission has previously
approved listing and trading on the Exchange of shares of the
AdvisorShares Athena High Dividend ETF, and such shares are currently
listed and traded on the Exchange under NYSE Arca Equities Rule 8.600.
The proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, 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, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved listing and trading on the Exchange of
shares (``Shares'') of the AdvisorShares Athena High Dividend ETF (the
``Fund'') \4\ under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares. The Fund is an actively
managed exchange traded fund. The Shares are offered by the
AdvisorShares Trust (the ``Trust'').\5\ Shares of the Fund are
currently listed and traded on the Exchange under NYSE Arca Equities
Rule 8.600.
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    \4\ See Securities Exchange Act Release No. 72665 (July 24,
2014), 79 FR 44236 (July 30, 2014) (SR-NYSEArca-2014-59) (order
approving listing and trading on the Exchange of Shares of the Fund)
(``Prior Order''). See also Securities Exchange Act Release No.
72298 (June 3, 2014), 79 FR 33024 (June 9, 2014) (SR-NYSEArca-2014-
59) (notice of filing of proposed rule change relating to listing
and trading on the Exchange of Shares of the Fund (``Prior Notice'',
and together with the Prior Order, the ``Prior Release'').
    \5\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On February 18, 2014, the Trust filed with the
Commission an amendment to its registration statement on Form N-1A
under the Securities Act of 1933 (``Securities Act'') and the 1940
Act relating to the Fund (File Nos. 333-157876 and 811-22110)
(``Registration Statement''). The description of the operation of
the Trust and the Fund herein is based, in part, on the Registration
Statement.
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    The investment adviser to the Fund is AdvisorShares Investments,
LLC (the ``Adviser''). AthenaInvest Advisors LLC (``Sub-Adviser'') is
the Fund's sub-adviser.
    As stated in the Prior Release, the Fund's investment objective is
to seek long-term capital appreciation. Under normal market conditions,
the Fund seeks to achieve its investment objective by investing
substantially all of the Fund's assets in (1) U.S. and foreign common
stock of issuers of any capitalization range, and (2) American
Depositary Receipts (``ADRs''), Global Depositary Receipts (``GDRs''),
European Depositary Receipts (``EDRs'') and International Depository
Receipts (``IDRs'', and together with ADRs, GDRs, and EDRs,
``Depositary Receipts'') that provide investment exposure to global
equity markets.\6\ The Prior Release stated that, other than
unsponsored ADRs, all U.S. and foreign common stocks and Depositary
Receipts in which the Fund will invest will be exchange-traded. The
Prior Release further stated

that ADRs may be sponsored or unsponsored, but unsponsored ADRs will
not exceed 10% of the Fund's net assets.\7\
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    \6\ See note 10 of the Prior Notice.
    \7\ Id.
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    In this proposed rule change, the Exchange proposes to change the
description of the Fund's investments in sponsored and unsponsored
ADRs. Going forward, U.S. and foreign common stocks in which the Fund
will invest will be exchange-traded, and non-exchange-traded ADRs will
not exceed 10% of the Fund's net assets.\8\ The proposed change,
therefore, would include both unsponsored ADRs (which are not exchange-
traded) and certain sponsored ADRs that are traded over-the-counter
(``OTC'') within the 10% limit to Fund assets that may be invested in
non-exchange-traded ADRs.
---------------------------------------------------------------------------

    \8\ The Adviser and Sub-Adviser represent that the Sub-Adviser
will not implement the changes described herein until the instant
proposed rule change is operative.
---------------------------------------------------------------------------

    While sponsored ADRs are usually exchange-traded, certain sponsored
ADRs are traded OTC. The Prior Release did not accommodate investments
by the Fund in sponsored ADRs that are traded OTC. The proposed change
would allow the Fund to invest in both exchange-traded and OTC
sponsored ADRs. However, the Fund's investments in unsponsored ADRs and
OTC sponsored ADRs will not exceed 10% of the Fund's net assets, in the
aggregate.
    OTC sponsored ADRs will be valued at the last reported sale price
from the OTC Bulletin Board or OTC Link LLC on the valuation date. If
an OTC sponsored ADR does not trade on a particular day, then the mean
between the last quoted closing bid and asked price will be used.
Intra-day and closing price information relating to OTC sponsored ADRs
will be available from major market data vendors.
    In addition, the Prior Release stated that unsponsored ADRs will be
valued on the basis of the market closing price on the exchange where
the stock of the foreign issuer that underlies the ADR is listed. The
Exchange proposes to change this representation to state that
unsponsored ADRs will be valued at the last reported sale price from
the OTC Bulletin Board or OTC Link LLC on the valuation date. If an
unsponsored ADR does not trade on a particular day, then the mean
between the last quoted closing bid and asked price will be used.
    The Sub-Adviser represents that there is no change to the Fund's
investment objective. The Fund will continue to comply with all initial
and continued listing requirements under NYSE Arca Equities Rule 8.600.
    Except for the changes noted above, all other representations made
in the Prior Release remain unchanged.
    All terms referenced but not defined herein are defined in the
Prior Release.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \9\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the Fund
will continue to comply with all initial and continued listing
requirements under NYSE Arca Equities Rule 8.600. The proposed change
would include both unsponsored ADRs (which are not exchange-traded) and
certain sponsored ADRs that are traded OTC within the 10% limit to Fund
assets that may be invested in non-exchange-traded ADRs.
    The Prior Release did not accommodate investments by the Fund in
sponsored ADRs that are traded OTC. The proposed change would provide
the Fund with additional flexibility with respect to its investments in
sponsored ADRs by allowing the Fund to invest in both exchange-traded
and OTC sponsored ADRs. However, the Fund's investments in unsponsored
ADRs and OTC sponsored ADRs will not exceed 10% of the Fund's net
assets, in the aggregate.
    The Sub-Adviser represents that there is no change to the Fund's
investment objective. The Fund will continue to comply with all initial
and continued listing requirements under NYSE Arca Equities Rule 8.600.
    Except for the changes noted above, all other representations made
in the Prior Release remain unchanged.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Sub-Adviser represents that there is no change to the Fund's
investment objective. As noted above, the Fund's investments in
unsponsored ADRs and OTC sponsored ADRs will not exceed 10% of the
Fund's net assets, in the aggregate.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that the Fund will continue to comply with all
initial and continued listing requirements under NYSE Arca Equities
Rule 8.600. Except for the change noted above, all other
representations made in the Rule 19b-4 filing underlying the Prior
Release remain unchanged.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposed rule change regarding investments in ADRs will promote
competition among actively managed funds that invest in U.S. and
foreign common stocks and Depositary Receipts, to the benefit of the
investing public.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, if consistent with
the protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\10\ and Rule 19b-4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \12\ of the Act to

determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2016-23 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-23. 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 offices of the Exchange.
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-NYSEArca-2016-
23, and should be submitted on or before March 2, 2016.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02603 Filed 2-9-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15444-15445]
[FR Doc No: 2020-05570]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings

    Take notice that the Commission has received the following Natural
Gas Pipeline Rate and Refund Report filings:

    Docket Number: PR20-40-001.
    Applicants: Bay Gas Storage Company, LLC.
    Description: Tariff filing per 284.123(b),(e)/: Amended 2020 Annual
Adjustment to Company Use Percentage to be effective 3/1/2020.
    Filed Date: 3/9/2020.
    Accession Number:<PHONE_NUMBER>88.
    Comments/Protests Due: 5 p.m. ET 3/30/2020.

    Docket Number: PR20-43-000.
    Applicants: Columbia Gas of Maryland, Inc.
    Description: Tariff filing per 284.123(b),(e)/: CMD SOC Rates
effective Feb 19 2020 to be effective 2/19/2020.
    Filed Date: 3/9/2020.
    Accession Number:<PHONE_NUMBER>30.
    Comments/Protests Due: 5 p.m. ET 3/30/2020.

    Docket Numbers: RP19-1523-005.
    Applicants: Panhandle Eastern Pipe Line Company, LP.
    Description: Compliance filing Compliance with RP19-1523 Order on
Technical Conference to be effective 3/1/2020.
    Filed Date: 3/11/20.
    Accession Number: 20200311-5023.
    Comments Due: 5 p.m. ET 3/23/20.

    Docket Numbers: RP20-653-000.
    Applicants: Tennessee Gas Pipeline Company, L.L.C.
    Description: Sec.  4(d) Rate Filing: Abandonment of T-154 in Volume
No. 2 to be effective 4/13/2020.
    Filed Date: 3/11/20.
    Accession Number: 20200311-5001.
    Comments Due: 5 p.m. ET 3/23/20.

    Docket Numbers: RP20-655-000.
    Applicants: Southern Star Central Gas Pipeline, Inc.
    Description: Sec.  4(d) Rate Filing: Vol. 2--Negotiated Rate
Agreements--BCE-Mach to be effective 2/1/2020.
    Filed Date: 3/11/20.
    Accession Number: 20200311-5205.
    Comments Due: 5 p.m. ET 3/23/20.

    The filings are accessible in the Commission's eLibrary system by
clicking on the links or querying the docket number.
    Any person desiring to intervene or protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00
p.m. Eastern time on the specified date(s). Protests may be considered,
but intervention is necessary to become a party to the proceeding.
    eFiling is encouraged. More detailed information relating to filing
requirements, interventions, protests, service, and qualifying
facilities filings can be found at: http://www.ferc.gov/docs-filing/efiling/filing-req.pdf. For other information, call<PHONE_NUMBER>
(toll free). For TTY, call<PHONE_NUMBER>.

    Dated: March 12, 2020.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2020-05570 Filed 3-17-20; 8:45 am]
 BILLING CODE 6717-01-P