[Federal Register Volume 81, Number 18 (Thursday, January 28, 2016)]
[Notices]
[Pages 4931-4942]
[FR Doc No: 2016-01672]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76970; File No. SR-FINRA-2015-040]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Amendment No. 1 and Order Granting
Accelerated Approval to a Proposed Rule Change, as Modified by
Amendment No. 1, to Adopt the Funding Portal Rules and Related Forms
and Rule 4518

January 22, 2016.

I. Introduction

    On October 9, 2015, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``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 Funding Portal Rules
100, 110, 200, 300, 800, 900 and 1200 (collectively, the ``Funding
Portal Rules'') and related forms. In addition, as part of the proposed
rule change, FINRA proposes to adopt new FINRA Rule 4518 (Notification
to FINRA in Connection with the JOBS Act) in the FINRA rulebook. The
proposed rule change was published for comment in the Federal Register
on October 28, 2015.\3\ The Commission received three 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
January 26, 2016. On January 21, 2016, FINRA filed an amendment to the
proposed rule change (``Amendment No. 1'').\5\ FINRA responded to the
comment letters on January 21, 2016.\6\ The Commission is publishing
this Notice and Order to solicit comment on Amendment No. 1 and to
approve the proposed rule change, as modified by
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 76239 (Oct. 28, 2015), 80 FR
66348 (``Notice'').
    \4\ See letters from Judith Shaw, President, North American
Securities Administrators Association, Inc., dated November 19, 2015
(``NASAA Letter''); Hugh D. Berkson, President, Public Investors
Arbitration Bar Association, dated November 18, 2015 (``PIABA
Letter''); Chris Tyrrell, Chair, CrowdFund Intermediary Regulatory
Advocates, dated November 18, 2015 (``CFIRA Letter'').
    \5\ See Partial Amendment No. 1, SR-FINRA-2015-040 (Jan. 21,
2016) (``Amendment No. 1''). Amendment No. 1 revised the proposal to
include ``for purposes of FINRA Rule 8210 any other person listed in
Schedule A of Form Funding Portal of a member'' to the definition of
``associated person of a funding portal member'' or ``person
associated with a funding portal member'' in Funding Portal Rule
100(b)(1). See Amendment No. 1 at 3. Amendment No. 1 is available in
the public comment file for SR-FINRA-2015-040 on the Commission's
Web site. Amendment No. 1 also revised the proposal to make certain
technical changes to Funding Portal Rules 300(a)(1)(A),
900(a)(4)(C), 900(a)(4)(F), 1200(a)(3), 1200(a)(4) and
1200(b)(4)(C). See Amendment No. 1 at 3-4. These changes are
discussed in more detail below.
    \6\ See letter from Adam Arkel, Associate General Counsel,
FINRA, dated January 21, 2016 (``FINRA Letter'').
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    Amendment No. 1, on an accelerated basis.

II. Description of the Rule Change and Amendment No. 1 \7\
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    \7\ The Notice contains a more detailed discussion of the rules.
In addition, the entire text of the rules, including the amendments,
can be found in Exhibit 5 of Amendment No. 1.
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    On October 30, 2015, the Commission adopted Regulation
Crowdfunding,\8\ which implements provisions of Title III of the JOBS
Act, including those relating to registration and membership
requirements of a new type of entity called a funding portal.\9\
Pursuant to Section 3(h)(1)(B) of the Exchange Act and Regulation
Crowdfunding, funding portals are required to become members of a
national securities association registered under Section 15A of the
Exchange Act in order to function as intermediaries in certain
crowdfunding transactions.\10\ In addition, Section 3(h)(2) of the
Exchange Act requires that the national securities association only
examine for and enforce against registered funding portals rules that
the national securities association has written specifically for
registered funding portals.\11\ Accordingly, FINRA, a national
securities association registered under Section 15A of the Exchange
Act, proposed Funding Portal Rules 100 (General Standards), 110
(Funding Portal Application), 200 (Funding Portal Conduct), 300
(Funding Portal Compliance), 800 (Investigations and Sanctions), 900
(Code of Procedure) and 1200 (Arbitration and Mediation), as well as
Form FP-NMA (for new membership applications), Form FP-CMA (for
continuing membership applications), Funding Portal Rule 300(c) Form
(for reporting disclosure events as required by Funding Portal Rule
300(c)) and Form FP--Statement of Revenue (for reporting gross revenue
as required by Funding Portal Rule 300(e)). FINRA proposed to apply the
Funding Portal Rules and related forms to SEC-registered funding
portals that become FINRA members.\12\ FINRA also proposed to adopt new
FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act)
to implement notification requirements for FINRA broker-dealer members
that engage in certain crowdfunding transactions or enter into control
relationships with funding portals.
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    \8\ See Exchange Act Release No. 76324, 80 FR 71387 (Nov. 16,
2015).
    \9\ See Securities Act of 1933 (``Securities Act'') Section
4A(a)(1)-(2); Exchange Act Section 3(h)(1)(B). A funding portal is
defined in Regulation Crowdfunding as ``a broker acting as an
intermediary in a transaction involving the offer or sale of
securities in reliance on Section 4(a)(6) of the Securities Act (15
U.S.C. 77d(a)(6)), that does not: (i) Offer investment advice or
recommendations; (ii) Solicit purchases, sales or offers to buy the
securities displayed on its platform; (iii) Compensate employees,
agents, or other persons for such solicitation or based on the sale
of securities displayed or referenced on its platform; or (iv) Hold,
manage, possess, or otherwise handle investor funds or securities.''
Rule 300(c)(2) of the SEC's Regulation Crowdfunding. See also
Section 3(a)(80) of the Exchange Act.
    \10\ See Section 3(h)(1)(B) of the Exchange Act (requiring, as a
condition of the exemption from broker registration, that a funding
portal be a members of a national securities association that is
registered with the Commission under Section 15A of the Exchange
Act); Regulation Crowdfunding Rule 300(a)(2) (requiring an
intermediary in transactions relying on the crowdfunding exemption
to be a member of a national securities association registered under
Section 15A of the Exchange Act); Regulation Crowdfunding Rule 400
et seq. (containing the registration requirements for funding
portals). See also Securities Act Section 4A(a)(2). FINRA is
currently the only registered national securities association.
    \11\ 15 U.S.C. 78c(h)(2) (``[A] national securities association
shall only examine for and enforce against a registered funding
portal rules of such national securities association written
specifically for registered funding portals.'').
    \12\ FINRA separately proposed Section 15 of Schedule A to the
FINRA By-Laws governing the fees for funding portals that are FINRA
members on October 9, 2015. The proposal became effective upon
receipt of the filing by the Commission. See Exchange Act Release
No. 76238, 80 FR 66341 (Oct. 28, 2015).
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A. General Standards

    Funding Portal Rule 100 sets forth basic standards and definitions
for purposes of the Funding Portal Rules. The rule provides that all
funding portal members and persons associated with funding portal
members shall be subject to the FINRA By-Laws and FINRA Regulation By-
Laws, unless the context requires otherwise, and the Funding Portal
Rules.\13\ The rule also provides that persons associated with a
funding portal member shall have the same duties and obligations as a
funding portal member under the Funding Portal Rules. The term
``associated person of a funding portal member'' or ``person associated
with a funding portal member'' is defined in the rule as ``any sole
proprietor, partner, officer, director or manager of a funding portal,
or other natural person occupying a similar status or performing
similar functions, or any natural person directly or indirectly
controlling or controlled by a

funding portal member, or any employee of a funding portal member.''
\14\
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    \13\ See Funding Portal Rule 100(a).
    \14\ Funding Portal Rule 100(b)(1).
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B. FINRA Membership

    Funding Portal Rule 110(a) addresses the membership application
process (``MAP'') for funding portal applicants (``FP
Applicants'').\15\
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    \15\ ``FP Applicant'' is defined as ``a person that applies for
admission to FINRA as a funding portal member under paragraph (a)(3)
of Funding Portal Rule 110 or a funding portal member that files an
application for approval of a change in ownership or control under
paragraph (a)(4) of the rule.'' Funding Portal Rule 110(a)(1)(B).
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1. MAP for Initial Membership or Change in Ownership or Control
    Funding Portal Rule 110(a)(3)(A) provides that an FP Applicant for
FINRA membership must submit its application to FINRA's Department of
Member Regulation (``Department'') by filing a Form FP-NMA \16\ in the
manner prescribed by FINRA and an application fee. In addition, at the
time an FP Applicant for FINRA membership submits its application, the
FP Applicant must submit information, in a format to be prescribed by
FINRA, indicating whether the FP Applicant or any associated person (as
defined in Funding Portal Rule 100(b)(1)) of the FP Applicant is
subject to an event described in Section 3(a)(39) of the Exchange
Act.\17\ The FP Applicant must keep this information current and must
update such information promptly, but in any event not later than 10
days following any change in such information.
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    \16\ Form FP-NMA is set forth in Exhibit 3a.
    \17\ See Funding Portal Rule 110(a)(3)(B). See also 15 U.S.C.
78c(a)(39). Section 3(a)(39) of the Exchange Act sets forth the
definition of ``statutory disqualification.'' Funding Portal Rule
110(a)(1)(A) includes a different definition of ``associated
person'' solely for purposes of the MAP. Under Funding Portal Rule
110(a)(1)(A), ``associated person'' is defined as ``any: (1) sole
proprietor, partner, officer, director or manager of a funding
portal, or other natural person occupying a similar status or
performing similar functions; (2) natural person directly or
indirectly controlling or controlled by such funding portal, or any
employee of a funding portal, except that any person associated with
a funding portal whose functions are solely clerical or ministerial
shall not be included in the meaning of such term; or (3)
partnership, corporation, association, or other legal entity
controlled by or controlling the FP Applicant as defined in Funding
Portal Rule 110(a)(1)(B).''
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    The rule requires a funding portal member to submit its application
on Form FP-CMA \18\ for prior approval of a change:
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    \18\ Form FP-CMA is set forth in Exhibit 3b.
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     In the equity ownership or partnership capital, LLC
membership interest, or other ownership interest of the funding portal
member that results in one person or entity directly or indirectly
owning or controlling 25 percent or more of the equity or partnership
capital, LLC membership interest, or other ownership interest; or
     of control persons of the funding portal member, other
than the appointment or election of a natural person as an officer or
director of the funding portal member in the normal course of business,
regardless of whether such change occurred as a result of a direct or
indirect change in the equity ownership, partnership capital, LLC
membership interest, or other ownership interest in the funding portal
member.\19\
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    \19\ See Funding Portal Rule 110(a)(4)(A)-(B).
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    After receiving an application, the rules provide that FINRA may
make requests for additional documents or information and will hold one
or more membership interviews.\20\ The Funding Portal Rules also
provide processes for rejection by FINRA due to an incomplete
application,\21\ withdrawal of an initial or continued membership
application by a FP Applicant,\22\ and lapse of application due to
certain types of inaction by the FP Applicant.\23\
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    \20\ See Funding Portal Rule 110(a)(6), 110(a)(9). See also
Notice, 80 FR at 66351. Under the rules, the membership interview(s)
may be conducted by video conference or such other means as FINRA
may specify.
    \21\ See Funding Portal Rule 110(a)(5). See also Notice, 80 FR
at 66351.
    \22\ See Funding Portal Rule 110(a)(7). See also Notice, 80 FR
at 66351.
    \23\ See Funding Portal Rule 110(a)(8). See also Notice, 80 FR
at 66351.
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2. Granting or Denying the Application
    Funding Portal Rule 110(a)(10) requires the Department to consider
the application for initial membership or change of ownership or
control, other information and documents provided by the FP Applicant
during the application process, other information and documents
obtained by the Department, and the public interest and the protection
of investors. After considering this information, the Department is
required to determine whether the FP Applicant meets each of the
following five standards, as applicable: \24\
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    \24\ According to FINRA, the five standards are streamlined and
consolidated in comparison to the 14 standards that apply to broker-
dealer applications under NASD Rule 1014(a). FINRA believes that the
streamlined, consolidated approach is appropriate to reflect the
limited nature of funding portal business. See Notice, 80 FR at
66352, n. 22.
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     The FP Applicant and its associated persons are capable of
complying with applicable federal securities laws, the rules and
regulations thereunder, and the Funding Portal Rules, including
observing high standards of commercial honor and just and equitable
principles of trade. In determining whether this standard is met, the
Department is required to take into consideration all information in
its possession, including information regarding whether an FP Applicant
or its associated persons: \25\
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    \25\ See Funding Portal Rule 110(a)(10)(A).
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    [rtarr8] is subject to an event described in Section 3(a)(39) of
the Exchange Act; and
    [rtarr8] is the subject of a pending, adjudicated, or settled
regulatory action or investigation by the SEC, the Commodity Futures
Trading Commission, a federal, state, or foreign regulatory agency, or
a self-regulatory organization; an adjudicated or settled investment-
related private civil action for damages or an injunction; or a
criminal action (other than a minor traffic violation) that is pending,
adjudicated, or that has resulted in a guilty or no contest plea of an
FP Applicant or its associated persons.
     The FP Applicant has established all contractual or other
arrangements and business relationships with banks, broker-dealers,
clearing corporations, service bureaus, escrow agents, transfer agents,
technology service providers, or others necessary to initiate the
operations described in the FP Applicant's Form FP-NMA.\26\
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    \26\ See Funding Portal Rule 110(a)(10)(B).
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     The FP Applicant has a supervisory system that is
reasonably designed to achieve compliance with applicable federal
securities laws, the rules and regulations thereunder, and the Funding
Portal Rules.\27\
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    \27\ See Funding Portal Rule 110(a)(10)(C).
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     The FP Applicant has fully disclosed and established
through documentation all direct and indirect sources of funding.\28\
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    \28\ See Funding Portal Rule 110(a)(10)(D).
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     The FP Applicant has a recordkeeping system that enables
the FP Applicant to comply with federal, state, and self-regulatory
organization recordkeeping requirements.\29\
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    \29\ See Funding Portal Rule 110(a)(10)(E).
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    Under the rules, if the Department determines that the FP Applicant
meets each of the applicable standards set forth above, it is required
to grant an application for initial membership or change of ownership
or control.\30\ However, if the Department determines that the FP
Applicant does not meet one or more of the applicable standards, the
Department is required to deny the application.\31\ The rules further
provide that the FP Applicant's approval for

membership shall be contingent upon the FP Applicant's filing of an
executed written membership agreement.
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    \30\ See Funding Portal Rule 110(a)(11)(A).
    \31\ See Funding Portal Rule 110(a)(11)(B).
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    Funding Portal Rule 110(a)(12) requires that the Department serve a
written decision on the application for initial membership or change of
ownership or control within 60 days after the filing of the application
or such later date as the Department and the FP Applicant have agreed
in writing. If the Department denies the application, it is required to
explain in detail the reason for denial, referencing the applicable
standard(s). A funding portal may appeal the Department's decision
under the process set forth in Funding Portal Rule 110(a)(13), which is
described in more detail in the Notice.\32\
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    \32\ See Notice, 80 FR at 66352-53.
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3. Application to the SEC for Review
    Funding Portal Rule 110(a)(14) provides that a person aggrieved by
final action of FINRA under paragraph (a) of the rule may apply for
review by the SEC pursuant to Section 19(d)(2) of the Exchange Act.\33\
The filing of an application for review shall not stay the
effectiveness of a decision constituting final action of FINRA, unless
the SEC otherwise orders.
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    \33\ 15 U.S.C. 78s(d)(2).
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4. Filing of Misleading Information as to Membership or Registration
    Funding Portal Rule 110(a)(15) provides that no funding portal
member or person associated with a funding portal member shall file
with FINRA information with respect to membership or registration that
is incomplete or inaccurate so as to be misleading, or that could in
any way tend to mislead, or shall fail to correct such filing after
notice thereof.

C. Funding Portal Conduct

    Funding Portal Rule 200(a) is based in large part on FINRA Rule
2010 (Standards of Commercial Honor and Principles of Trade).\34\ The
rule provides that a funding portal member, in the conduct of its
business, shall observe high standards of commercial honor and just and
equitable principles of trade.
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    \34\ See Notice, 80 FR at 66353.
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    Funding Portal Rule 200(b) is based in large part on FINRA Rule
2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices).\35\
The rule provides that no funding portal member shall effect any
transaction in, or induce the purchase or sale of, any security by
means of, or by aiding or abetting, any manipulative, deceptive or
other fraudulent device or contrivance.
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    \35\ See Notice, 80 FR at 66353.
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    Funding Portal Rule 200(c) (Communications with the Public) is
aimed at prohibiting false and misleading statements.\36\ The rule
defines the term ``funding portal communication'' to mean any
electronic or other written communication that is distributed or made
available by a funding portal member to one or more investors.\37\
Paragraph 200(c)(2) of the rule addresses content standards.\38\
Paragraph 200(c)(2)(A) of the rule provides that no funding portal
communication may:
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    \36\ See Notice, 80 FR at 66353.
    \37\ See Funding Portal Rule 200(c)(1).
    \38\ See Funding Portal Rule 200(c)(2).
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     Include any false, exaggerated, unwarranted, promissory or
misleading statement or claim;
     Omit any material fact or qualification if the omission,
in light of the context of the material presented, would cause the
communication to be misleading; state or imply that FINRA, or any other
corporate name or facility owned by FINRA, or any other regulatory
organization endorses, indemnifies, or guarantees the funding portal
member's business practices; or
     Predict or project performance, imply that past
performance will recur or make any exaggerated or unwarranted claim,
opinion or forecast. A hypothetical illustration of mathematical
principles is permitted, provided that it does not predict or project
the performance of an investment.
    Further, paragraph (c)(2)(B) of the rule provides that all funding
portal member communications must be based on principles of fair
dealing and good faith and must be fair and balanced.\39\ In addition,
the rule provides that all funding portal member communications must
prominently disclose the name of the funding portal member, or the name
under which the funding portal member primarily conducts business as
disclosed on the member's Form FP-NMA.\40\ Finally, paragraph 200(c)(3)
of the rule addresses issuer communications and provides that the
content standards of the rule shall not apply to any communication on
the funding portal member's Web site that is prepared solely by an
issuer; provided, however, that no funding portal member may include on
its Web site any issuer communication that the funding portal member
knows or has reason to know contains any untrue statement of a material
fact or is otherwise false or misleading.\41\
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    \39\ See Funding Portal Rule 200(c)(2)(B).
    \40\ See Funding Portal Rule 200(c)(2)(C).
    \41\ See Funding Portal Rule 200(c)(3).
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D. Funding Portal Compliance

1. Supervisory System
    Funding Portal Rule 300(a) is a streamlined version of FINRA's
supervision rules and is designed to permit funding portal members
flexibility to tailor their supervisory systems to their business
models.\42\ The rule requires that each funding portal member establish
and maintain a system to supervise the activities of each associated
person of the funding portal member that is reasonably designed to
achieve compliance with applicable securities laws and regulations, and
with the Funding Portal Rules.\43\ The rule provides that a funding
portal member's supervisory system must provide, at a minimum, for:
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    \42\ See Notice, 80 FR at 66354.
    \43\ See Funding Portal Rule 300(a)(1).
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     The establishment and maintenance of written procedures to
supervise the activities of the funding portal and its associated
persons; \44\
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    \44\ In Amendment No. 1, FINRA is proposing to revise the
language in this portion of Rule 300(a)(1) reading ``funding portal
and its associated persons'' to ``funding portal member and its
associated persons.'' See Amendment No. 1 at 3-4.
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     the designation of a person with authority to carry out
the supervisory responsibilities of the funding portal member; and
     reasonable efforts to determine that all supervisory
personnel are qualified by virtue of experience or training to carry
out their assigned responsibilities.
    Funding Portal Rule 300(a)(2) provides that a funding portal member
must permit the examination and inspection of all of its businesses and
business operations that relate to its activities as a funding portal,
such as its premises, systems, platforms and records, by
representatives of FINRA and the Commission, and must cooperate with
the examination, inspection or investigation of any persons directly or
indirectly using its platform.
2. Reporting Requirements
    Funding Portal Rule 300(c), which is discussed in further detail in
the Notice, requires funding portal members to report to FINRA (and
sets forth the obligations of such members' associated persons to
report to the member) regulatory proceedings, disciplinary and other
events.\45\ The rule requires that

funding portals promptly report to FINRA, within 30 calendar days,
through such means as FINRA may specify, after the member knows or
should have known of the existence of the event.\46\ The rule is
largely based on current FINRA Rule 4530 (Reporting Requirements).\47\
The rule indicates that nothing contained in the rule eliminates,
reduces or otherwise abrogates the responsibilities of a funding portal
member to promptly disclose required information on SEC Form Funding
Portal as applicable, to make any other required filings or to respond
to FINRA with respect to any investor complaint, examination or
inquiry.\48\ In addition, the rule provides that a funding portal
member is not required to report an event otherwise required to be
reported under paragraph (c)(1)(A) of the rule if the member discloses
the event on SEC Form Funding Portal, consistent with the requirements
of that form, or as required pursuant to Funding Portal Rule 800(b)(2),
which is discussed in more detail below.\49\
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    \45\ See Funding Portal Rule 300(c)(1)(A) (discussing the events
requiring reporting). See also Notice, 80 FR at 66354-55. Each
associated person of a funding portal is also required to promptly
report the existence of an event in Rule 300(c)(1)(A) to the funding
portal. See Funding Portal Rule 300(c)(3). In addition to the events
specified in Rule 300(c)(1)(A), each funding portal member is
required to promptly report to FINRA, within 30 calendar days,
through such means as FINRA may specify, after the funding portal
member has concluded or reasonably should have concluded that an
associated person of the funding portal member or the funding portal
member itself has violated any securities-, commodities-, financial-
or investment-related laws, rules, regulations or standards of
conduct of any foreign or domestic regulatory body or self-
regulatory organization. See Funding Portal Rule 300(c)(2). Funding
portal members will use the Funding Portal Rule 300(c) Form for
their reporting requirements pursuant to the rule. See Funding
Portal Rule 300(c) Form.
    \46\ See Funding Portal Rule 300(c)(1).
    \47\ See Notice, 80 FR at 66354.
    \48\ See Funding Portal Rule 300(c)(4).
    \49\ See id.
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4. Statement of Gross Revenue
    Funding Portal Rule 300(e) requires each funding portal member each
year to report to FINRA, in the manner prescribed by FINRA, the
member's gross revenue on Form FP-Statement of Revenue, no later than
60 calendar days following each calendar year-end.\50\ The rule
requires that the statement of gross revenue must be prepared in
accordance with U.S. Generally Accepted Accounting Principles.
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    \50\ According to FINRA, the Statement of Gross Revenue will be
used to determine a funding portal member's annual fees, which FINRA
is establishing as part of a separate rulemaking. See supra note 12.
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6. Record of Associated Persons of the Funding Portal Member
    Funding Portal Rule 300(f) requires each funding portal member to
make and keep current a record listing every associated person of the
funding portal member that shows, for each such associated person,
every office of the funding portal member where the associated person
regularly conducts any business for the funding portal member, and any
registration number, if any, to be prescribed by FINRA, and every
identification number or code assigned to the associated person by the
funding portal member.\51\ The rule requires each funding portal member
to preserve all records made pursuant to the rule for five years, the
first two in an easily accessible place.
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    \51\ According to FINRA, the rule is based in large part on
Exchange Act Rule 17a-3(a)(12)(ii) (17 CFR 240.17a-3(a)(12)(ii)),
which requires broker-dealers to make and keep current a record
listing every associated person of the broker-dealer. FINRA believes
that requiring funding portals to keep such a record is prudent both
for supervisory and regulatory oversight purposes. See Notice, 80 FR
at 66356.
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    FINRA is also proposing in Amendment No. 1 to include for purposes
of FINRA Rule 8210 any other person listed in Schedule A of Form
Funding Portal of a member to the definition of associated person.\52\
FINRA Rule 8210 authorizes it to require associated persons of broker-
dealers to provide information and testimony, and to inspect and copy
certain books and records, among other things. Adding this language
will more closely align the rule to the definition of associated person
that it applies to associated persons of broker-dealers. Therefore,
FINRA will be able to obtain information and testimony from persons
listed in Schedule A of a funding portal's Form Funding Portal in the
same manner that it may from persons listed in Schedule A of a broker-
dealer's Form BD.\53\
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    \52\ See supra note 5.
    \53\ A funding portal is required to list its direct owners and
executive officers on Schedule A of Form Funding Portal and,
therefore, the amendment will allow FINRA to obtain information and
testimony from these persons.
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E. Investigations and Sanctions

1. Application of the FINRA Rule 8000 Series (Investigations and
Sanctions)
    Funding Portal Rule 800(a) is designed to provide that funding
portal members will be subject to specified FINRA rules governing
investigations and sanctions.\54\ Specifically, the rule provides that,
except for FINRA Rules 8110 (Availability of Manual to Customers), 8211
(Automated Submission of Trading Data Requested by FINRA), 8213
(Automated Submission of Trading Data for Non-Exchange-Listed
Securities Requested by FINRA) and 8312 (FINRA BrokerCheck
Disclosure),\55\ all funding portal members shall be subject to the
FINRA Rule 8000 Series, unless the context requires otherwise.\56\
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    \54\ See Notice, 80 FR at 66356.
    \55\ With respect to FINRA Rule 8312, as discussed below, FINRA
proposed Funding Portal Rule 800(b) as a streamlined version of the
rule to apply to funding portal members. See Notice, 80 FR at 66356,
n. 47.
    \56\ There are a few additional changes from the Rule 8000
series, which are discussed in the Notice. See Notice, 80 FR at
66356-66357.
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2. Public Disclosure of Information on Funding Portals
    Funding Portal Rule 800(b) is a streamlined version of FINRA Rule
8312 (FINRA BrokerCheck Disclosure) and addresses specific information
that FINRA is required to make available to the public.\57\ The rule
authorizes FINRA to provide access to the public, via an appropriate
link on the FINRA Web site, to a funding portal member's current SEC
Form Funding Portal, including amendments and registration withdrawal
requests, as filed with the SEC pursuant to SEC Regulation
Crowdfunding, in the form made publicly available by the SEC.\58\ The
rule provides that, with respect to a former funding portal member,
FINRA may provide similar access to the public to the former funding
portal member's most recent SEC Form Funding Portal, and any amendments
and registration withdrawal requests, as filed with the SEC.
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    \57\ See Notice, 80 FR at 66357.
    \58\ See Funding Portal Rule 800(b)(1).
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    The rule also requires FINRA to make available to the public
information filed by a funding portal member, in a format to be
prescribed by FINRA, indicating whether the funding portal member or
any associated person of the funding portal member is subject to an
event described in Section 3(a)(39) of the Exchange Act.\59\ The rule
provides that the funding portal member must keep this information
current and must update such information promptly, but in any event not
later than 10 days following any change in such information.\60\
---------------------------------------------------------------------------

    \59\ See Funding Portal Rule 800(b)(2).
    \60\ See Funding Portal Rule 800(b)(2).
---------------------------------------------------------------------------

    The rule also provides that, with respect to the information
provided pursuant to paragraph (b)(2) of the rule, FINRA shall not make
available information reported as a social security number, information
that FINRA is otherwise prohibited from releasing under Federal law, or
information that is provided solely for use by FINRA.\61\ The rule
provides that FINRA reserves the right to exclude, on a case-by-case

basis, information that contains confidential customer information,
offensive or potentially defamatory language or information that raises
significant identity theft, personal safety or privacy concerns that
are not outweighed by investor protection concerns or information that
was reported in error by a funding portal member.\62\
---------------------------------------------------------------------------

    \61\ See Funding Portal Rule 800(b)(3).
    \62\ See Funding Portal Rule 800(b)(3).
---------------------------------------------------------------------------

F. Code of Procedure

1. Application of FINRA Rule 9000 Series (Code of Procedure)
    Funding Portal Rule 900(a) is designed to provide that funding
portal members will be subject to specified FINRA rules setting forth
FINRA's Code of Procedure.\63\ Specifically, except for the FINRA Rule
9520 Series, FINRA Rule 9557, and the FINRA Rule 9700 Series,\64\ the
rule provides that all funding portal members shall be subject to the
FINRA Rule 9000 Series, unless the context requires otherwise. The rule
provides that for purposes of FINRA Rule 9217, a funding portal member
may be subject to a fine under FINRA Rule 9216(b) with respect to any
of the following: \65\
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    \63\ See Notice, 80 FR at 66357.
    \64\ The FINRA Rule 9520 Series addresses ``eligibility
proceedings'' in the context of statutory qualifications which, as
discussed further below, FINRA is proposing to address under Funding
Portal Rule 900(b). FINRA Rule 9557 addresses service of notice to
members that are experiencing financial or operational difficulties
under net capital or similar financial responsibility requirements.
Because funding portals would not be subject to such requirements,
FINRA indicated that Rule 9557 would not be applicable. Similarly,
FINRA indicated that it did not propose to apply the Rule 9700
Series to funding portals because the FINRA Rule 9700 Series
addresses the automated quotation, execution or communication
systems owned or operated by FINRA, which are outside the scope of
funding portal business activity. See Notice, 80 FR at 66357.
    \65\ FINRA Rule 9216(b) sets forth procedures for disposition of
specified rule violations designated as minor rule violations
pursuant to a plan (referred to as an ``MRVP'') declared effective
by the SEC in accordance with Exchange Act Section 19(d)(1) (15
U.S.C. 78s(d)(1)) and Rule 19d-1(c)(2) (17 CFR 240.19d-1(c)(2))
thereunder. FINRA Rule 9217 sets forth the rules that are eligible
for such disposition. FINRA's MRVP allows FINRA to impose a fine of
up to $2,500 on any firm it regulates or person associated with a
FINRA regulated firm for a minor violation of an eligible rule.
---------------------------------------------------------------------------

     Failure to timely submit amendments to SEC Form Funding
Portal;
     Funding Portal Rule 200(c) (Communications with the
Public);
     Funding Portal Rule 300(a)--Failure to maintain adequate
written supervisory procedures where the underlying conduct is subject
to Rule 9217; \66\
---------------------------------------------------------------------------

    \66\ In Amendment No. 1, FINRA proposes to change the
``Failure'' to ``failure'' and add ``FINRA'' before ``Rule 9217'' in
Funding Portal Rule 900(a)(4)(C). See Amendment No. 1 at 4.
---------------------------------------------------------------------------

     Funding Portal Rule 300(c)--failure to timely file
reports;
     failure to provide or update contact information as
required by Funding Portal Rule 300(d);
     Rule 303(f) of SEC Regulation Crowdfunding--Confirmation
of Transactions; \67\ and
---------------------------------------------------------------------------

    \67\ In Amendment No. 1, FINRA proposes to change ``Confirmation
of Transactions'' to ``confirmation of transactions'' in Funding
Portal Rule 900(a)(4)(F). See Amendment No. 1 at 4.
---------------------------------------------------------------------------

     Rule 404 of SEC Regulation Crowdfunding--failure to make
and preserve records in conformance with all applicable laws, rules,
regulations and statements of policy promulgated thereunder, and with
the Funding Portal Rules.
    The rule also provides that for purposes of FINRA Rule 9551(a),\68\
FINRA staff may issue a written notice requiring a funding portal
member to file communications with the FINRA Advertising Regulation
Department at least ten days prior to use if FINRA staff determines
that the member has departed from the standards of Funding Portal Rule
200(c).\69\ In addition, the rule provides that for purposes of FINRA
Rule 9551(d), the pre-use filing requirement referenced in a notice
issued and served under FINRA Rule 9551 shall become effective 21 days
after service of the notice, unless stayed by a request for a hearing
pursuant to FINRA Rule 9559.\70\ The rule further provides that for
purposes of proceedings pursuant to FINRA Rule 9810(a),\71\ proceedings
may be initiated with respect to alleged violations of Section 10(b) of
the Exchange Act (15 U.S.C. 78j(b)) and Exchange Act Rule 10b-5 (17 CFR
240.10b-5), Funding Portal Rule 200(a) (if the alleged violation is
misuse of investor funds or assets, or based on violations of Section
17(a) of the Securities Act (15 U.S.C. 77q(a)) and Funding Portal Rule
200(b).\72\
---------------------------------------------------------------------------

    \68\ FINRA Rule 9551 addresses expedited proceedings by FINRA
for failure to comply with public communication standards.
    \69\ See Funding Portal Rule 900(a)(7).
    \70\ See Funding Portal Rule 900(a)(8).
    \71\ FINRA Rule 9810 addresses initiation of cease and desist
proceedings by FINRA for specified violations.
    \72\ See Funding Portal Rule 900(a)(9).
---------------------------------------------------------------------------

2. Eligibility Proceedings
    Funding Portal Rule 900(b) is a streamlined version of the current
FINRA Rule 9520 Series.\73\ The rule sets forth procedures for a person
to become or remain associated with a funding portal member,
notwithstanding the existence of a statutory disqualification as
defined in Article III, Section 4 of the FINRA By-Laws and for a
funding portal member or person associated with a funding portal member
to obtain relief from the eligibility or qualification requirements of
the FINRA By-Laws and Funding Portal Rules.
---------------------------------------------------------------------------

    \73\ See Notice, 80 FR at 66358.
---------------------------------------------------------------------------

G. Arbitration and Mediation

    Funding Portal Rule 1200(a) provides that funding portal members
will be subject to the FINRA Rule 12000 Series (Code of Arbitration
Procedure for Customer Disputes), FINRA Rule 13000 Series (Code of
Arbitration Procedure for Industry Disputes) and FINRA Rule 14000
Series (Code of Mediation Procedure), unless the context requires
otherwise.\74\ The rule addresses predispute arbitration agreements for
investor accounts.\75\ The rule provides that any predispute
arbitration clause must be highlighted and must be immediately preceded
by the following language in outline form:
---------------------------------------------------------------------------

    \74\ In Amendment No. 1, FINRA is proposing to amend Funding
Portal Rules 1200(a)(3) and 1200(a)(4) to add the word ``Series''
after FINRA Rule 1200. See Amendment No. 1 at 4.
    \75\ See Notice, 80 FR at 66362. According to FINRA, the rule is
a streamlined version of current FINRA Rule 2268 (Requirements When
Using Predispute Arbitration Agreements for Customer Agreements).

    ``This agreement contains a predispute arbitration clause. By
signing an arbitration agreement the parties agree as follows:
    (A) All parties to this agreement are giving up the right to sue
each other in court, including the right to a trial by jury, except
as provided by the rules of the arbitration forum in which a claim
is filed.
    (B) Arbitration awards are generally final and binding; a
party's ability to have a court reverse or modify an arbitration
award is very limited.
    (C) The ability of the parties to obtain documents, witness
statements and other discovery is generally more limited in
arbitration than in court proceedings.
    (D) The arbitrators do not have to explain the reason(s) for
their award unless, in an eligible case, a joint request for an
explained decision has been submitted by all parties to the panel at
least 20 days prior to the first scheduled hearing date.
    (E) The panel of arbitrators may include a minority of
arbitrators who were or are affiliated with the securities industry.
    (F) The rules of some arbitration forums may impose time limits
for bringing a claim in arbitration. In some cases, a claim that is
ineligible for arbitration may be brought in court.
    (G) The rules of the arbitration forum in which the claim is
filed, and any amendments thereto, shall be incorporated into this
agreement.'' \76\
---------------------------------------------------------------------------

    \76\ See Funding Portal Rule 1200(b)(1).

    Paragraph (b)(2)(A) of the rule provides that, in any agreement

containing a predispute arbitration agreement, there must be a
highlighted statement immediately preceding any signature line or other
place for indicating agreement that states that the agreement contains
a predispute arbitration clause. The statement must also indicate at
what page and paragraph the arbitration clause is located. Paragraph
(b)(2)(B) provides that, within 30 days of signing, a copy of the
agreement containing any such clause must be given to the investor and
the funding portal member must retain proof of delivery or of the
investor's acknowledgement of receipt.
    Paragraph (b)(3)(A) of the rule provides that, within ten business
days of receipt of the investor's request, a funding portal member must
provide an investor with a copy of any predispute arbitration clause or
investor agreement executed between the investor and the funding portal
member. Paragraph (b)(3)(B) provides that, upon request by an investor,
a funding portal member must provide the investor with the names of,
and information on how to contact or obtain the rules of, all
arbitration forums in which a claim may be filed under the agreement.
    Paragraph (b)(4) of the rule provides that no predispute
arbitration agreement shall include any condition that:
     Limits or contradicts the rules of any self-regulatory
organization;
     limits the ability of a party to file any claim in
arbitration;
     limits the ability of a party to file any claim in court
permitted to be filed in court under the rules of the forums in which a
claim may be filed under the agreement; \77\
---------------------------------------------------------------------------

    \77\ In Amendment No. 1, FINRA is proposing to amend Funding
Portal Rule 1200(b)(4)(C) to change ``may be filed under the
agreement;'' to ``may be filed under the agreement; or''. See
Amendment No. 1 at 4.
---------------------------------------------------------------------------

     limits the ability of arbitrators to make any award.
    Paragraph (b)(5) of the rule provides that, if an investor files a
complaint in court against a funding portal member that contains claims
that are subject to arbitration pursuant to a predispute arbitration
agreement between the funding portal member and the investor, the
funding portal member may seek to compel arbitration of the claims that
are subject to arbitration. If the funding portal member seeks to
compel arbitration of such claims, the funding portal member must agree
to arbitrate all of the claims contained in the complaint if the
investor so requests.
    Paragraph (b)(6) of the rule provides that all agreements must
include a statement that ``No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-
dispute arbitration agreement against any person who has initiated in
court a putative class action; or who is a member of a putative class
who has not opted out of the class with respect to any claims
encompassed by the putative class action until: (i) The class
certification is denied; or (ii) the class is decertified; or (iii) the
investor is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any
rights under this agreement except to the extent stated herein.''

H. Notification to FINRA in Connection With the JOBS Act

    FINRA also proposed new FINRA Rule 4518. The rule, which would
apply to registered broker members, provides that a FINRA member shall
notify FINRA, in a manner prescribed by FINRA: Prior to engaging, for
the first time, in a transaction involving the offer or sale of
securities in reliance on Section 4(a)(6) of the Securities Act; or
within 30 days of directly or indirectly controlling, or being
controlled by or under common control with, a funding portal as defined
pursuant to Rule 300(c)(2) of SEC Regulation Crowdfunding.

III. Summary of Comment Letters and FINRA's Response to Comments

    Commenters generally supported FINRA's proposal. As discussed
below, some commenters recommended that the proposal be expanded and
include additional requirements or explanations in certain aspects. One
of these commenters, while not necessarily opposing the proposed rules,
also suggested that the Commission reject, and require FINRA to
resubmit, the rule proposal. One commenter, while appreciating FINRA's
willingness to address potential issues through subsequent rulemakings,
encouraged FINRA to address potential shortfalls now before any
investors lose money.\78\
---------------------------------------------------------------------------

    \78\ See NASAA Letter at 2.
---------------------------------------------------------------------------

A. Timing

    One commenter suggested that FINRA and the public should review and
evaluate FINRA's proposed Funding Portal Rules, related forms and Rule
4518 (the broker-dealer crowdfunding notification requirement) in light
of Regulation Crowdfunding.\79\ The commenter further suggested that
the Commission should reject FINRA's rule proposal at this time,
require FINRA to resubmit its rules after it has conducted a review and
analysis of Regulation Crowdfunding and extend the comment period.\80\
FINRA, however, notes that: (1) Its proposal has been informed by the
Commission's rulemaking; \81\ (2) its Funding Portal Rules have been in
preparation for a considerable time; and (3) it has received public
input.\82\ According to FINRA, the proposal is intended to create the
means for registered funding portals to become FINRA members and is
consistent with the JOBS Act and Regulation Crowdfunding.\83\ FINRA
further notes that it is important that FINRA should be in a position
to timely implement the Funding Portal Rules so that funding portals
that plan to register with the SEC and seek FINRA membership may avail
themselves of Regulation Crowdfunding as it becomes effective.\84\
Finally, FINRA points out that it noted in the proposal that it will
consider the merit of future rulemakings as regulators gain more
experience with funding portals.\85\
---------------------------------------------------------------------------

    \79\ See PIABA Letter at 2.
    \80\ Id. at 7.
    \81\ See FINRA Letter at 2 (citing Notice, 80 FR at 66349).
    \82\ See id. at 2. FINRA cites, for example, Regulatory Notice
12-34 (July 2012) (FINRA Requests Comment on Proposed Regulation of
Crowdfunding Activities) and Regulatory Notice 13-34). FINRA also
cites to the discussion in the Notice regarding Regulatory Notice
13-34 and the comments it received for the Regulatory Notice. See
id. at 2, n. 9 (citing also to the Notice, 80 FR at 66367).
    \83\ See id. at 2.
    \84\ Id. at 3.
    \85\ See id. at 3. See also Notice, 80 FR at 66349 and 66369.
---------------------------------------------------------------------------

B. General Standards

    One commenter suggested omitting the language of ``unless the
context requires otherwise'' in proposed Funding Portal Rule 100
regarding the application of FINRA by-Laws and FINRA Regulation By-Laws
to funding portal members and their associated persons because the
commenter believes it is unclear when the exception will apply.\86\ In
response, FINRA notes that it intends the phrase ``unless the context
requires otherwise'' to provide clarity and ensure that funding portals
will not be subject to terms under the FINRA By-Laws and FINRA
Regulation By-Laws that could not relate to them by virtue of their
distinct status and limited permissible business activities under the
JOBS Act and Regulation Crowdfunding.\87\ FINRA also notes that the
phrase is used in other portions in the FINRA rulebook, such as FINRA

Rule 0160(b),\88\ and that it is not aware of any ambiguity that has
arisen from the use of the phrase.\89\ Finally, FINRA indicates that it
is open to further discussion of any specific interpretive issues.\90\
---------------------------------------------------------------------------

    \86\ See PIABA Letter at 2. The commenter also noted that
similar limiting language referencing ``context'' is unclear in
several other places in the rules, but did not identify any specific
rules. See id.
    \87\ FINRA Letter at 3.
    \88\ FINRA Rule 0160(b) sets forth definitions for the FINRA
Rules.
    \89\ See FINRA Letter at 3-4.
    \90\ See id. at 4.
---------------------------------------------------------------------------

C. Definition of Associated Person

    As described above, Funding Portal Rule 110(a)(1)(A) includes a
different definition of associated person solely for purposes of the
MAP, which excludes persons whose functions are solely clerical or
ministerial.\91\ One commenter suggested the exception for such persons
from the definition of ``associated person'' should be extended to the
rest of the funding portal rules (i.e., the definition in Funding
Portal Rule 100(b)(1) under the General Standards).\92\ The commenter
noted that employees that are not listed as associated persons in the
funding portal's membership application will become associated persons
once FINRA approves the funding portal for membership.\93\
---------------------------------------------------------------------------

    \91\ See supra note 17.
    \92\ See CFIRA Letter at 2.
    \93\ See id.
---------------------------------------------------------------------------

    In response, FINRA notes that the two different definitions of
associated person in the rules are tailored to different purposes.\94\
FINRA indicates that the language in Funding Portal Rule 110(a)(1)(A)
excepting persons that have ``solely clerical and ministerial''
functions is based on longstanding usage under NASD Rule 1011(b), which
sets forth the definition of ``associated person'' for purposes of
membership proceedings for broker-dealers.\95\ According to FINRA, the
definition of ``associated person'' in Rule 110(a)(1)(A) will perform a
similar function for funding portals applying for FINRA membership.\96\
FINRA points out that it noted in the proposal that Funding Portal Rule
110(a) is intended to be based on the current broker-dealer membership
rules, but FINRA simplified the MAP for funding portals to reflect the
limited natured of their businesses.\97\
---------------------------------------------------------------------------

    \94\ See FINRA Letter at 4.
    \95\ See id. at 4-5 (citing Securities Exchange Act Release No.
48969 (December 22, 2003), 68 FR 75681 (December 31, 2003) (Notice
of Order Granting Approval of Proposed Rule Change; File No. SR-
NASD-2003-007)).
    \96\ See FINRA Letter at 5.
    \97\ See id. See also Notice, 80 FR at 66350.
---------------------------------------------------------------------------

    FINRA further notes that, in contrast, it intended the definition
under Funding Portal Rule 100(b)(1) to be for general application to
funding portal members, in a similar manner to the definition of
associated persons of broker-dealers under paragraph (rr) under Article
I of the FINRA By-Laws.\98\ According to FINRA, the purpose of the
general definition of associated person in Funding Portal Rule
100(b)(1) is to ensure that all associated persons of the funding
portal are subject to the regulatory framework.\99\
---------------------------------------------------------------------------

    \98\ See FINRA Letter at 5.
    \99\ See id.
---------------------------------------------------------------------------

D. Fidelity Bond

    As discussed in the Notice, FINRA has determined not to propose at
this time a fidelity bond requirement for funding portals.\100\ One
commenter conveyed its support for FINRA's approach.\101\ Two
commenters, however, suggested including a fidelity bond requirement
for funding portals.\102\ One commenter stated its view that there is
``minimal regulation of associated persons working for funding
portals'' and that a fidelity bond would protect funding portals
against potential losses due to acts of the employees.\103\ The
commenter further stated its view that a streamlined fidelity bond
requirement that accounts for a funding portal's limited scope of
activity is an economically feasible alternative given the risk that
will otherwise exist for funding portals.\104\ Another commenter
suggested that, in light of a funding portal's responsibilities and
potential liability, it would be ``prudent'' for a funding portal to be
required to have fidelity bond (or some other type) of insurance.\105\
---------------------------------------------------------------------------

    \100\ See Notice, 80 FR 66348, 66349.
    \101\ See CFIRA Letter at 1. That commenter also indicated that
the new member application for funding portals still includes a
provision to attach the bond. However, the Form FP-NMA, as proposed
by FINRA, does not include such a requirement. See Exhibit 3a of the
proposal.
    \102\ See NASAA Letter at 5; PIABA Letter at 3.
    \103\ See NASAA Letter at 5. The commenter also noted that
funding portals will not be members of the Securities Investor
Protection Corporation (``SIPC'') and that their customers will not
receive SIPC protection. See id.
    \104\ Id.
    \105\ See PIABA Letter at 3. In addition, the commenter
suggested that funding portals should be required to clearly
disclose to investors what the bond does and does not cover. Id. The
commenter also suggested that the Commission should impose a
fidelity bond requirement on funding portals and issuers. Id. at n.
5.
---------------------------------------------------------------------------

    In response, FINRA indicates that it is not proposing a fidelity
bond at this time, stating that as discussed in the proposal, it
believes that this approach is appropriate in the interest of reducing
potential burdens on prospective funding portal members given the
limited nature of funding portal business and given that regulatory
experience with funding portals is developing.\106\ FINRA also notes
that the Commission considered and determined not to adopt a fidelity
bond requirement for funding portals when it adopted Regulation
Crowdfunding.\107\ FINRA indicates that it has determined to monitor
the development of the funding portal business and determine whether
future rulemaking regarding fidelity bonds or other financial
responsibility requirements is merited.\108\
---------------------------------------------------------------------------

    \106\ See id. at 5-6 (citing Notice, 80 FR at 66349, 66367).
    \107\ See FINRA Letter at 6 (citing language in the Commission's
adopting release). See also Crowdfunding, Exchange Act Release No.
76324, 80 FR 71388, 71458 (Nov. 16, 2015).
    \108\ See FINRA Letter at 6; Notice, 80 FR at 66349, n. 14 and
66367, n. 86.
---------------------------------------------------------------------------

E. Communications With the Public

    FINRA indicates that it noted in the proposal that the proposed
rule is a streamlined version of FINRA Rule 2210 (Communications with
the Public) and is aimed at prohibiting false and misleading
statements.\109\ One commenter suggested that Funding Portal Rule 200
should include a requirement that funding portal member communications
provide a sound basis for evaluating the facts in regard to any
particular security or type of security, industry or service, which is
language that FINRA had originally proposed in Regulatory Notice 13-
34.\110\ In response, FINRA notes that the rule reflects the limited
scope of activity permitted to funding portals.\111\ Although FINRA had
originally included the language suggested by the commenter in
Regulatory Notice 13-34, it indicates that, upon further consideration,
it determined not to include such language in the proposal because it
believes the language could potentially suggest the activity of
offering investment advice or recommendations to investors, which is
prohibited as a funding portal business activity.\112\
---------------------------------------------------------------------------

    \109\ See FINRA Letter at 6.
    \110\ See PIABA Letter at 4. See also Regulatory Notice 13-34
(Oct. 2013) (FINRA Requests Comment on Proposed Funding Portal Rules
and Related Forms).
    \111\ See FINRA Letter at 6-7.
    \112\ See id. at 7.
---------------------------------------------------------------------------

F. Reporting Requirements

    One commenter suggested that funding portals should be required to
report misconduct in 10 days rather than 30 days as proposed under
Funding Portal Rules 300(c)(1) and 300 (c)(2).\113\ The commenter also
suggested that Funding Portal Rule 300(c)(1)(A)(ii) should be revised
to align with FINRA Rule 4530(a)(1)(B), which requires that

a broker-dealer member report to FINRA when it or one of its associated
persons ``is the subject of any written customer complaint involving
allegations of theft or misappropriation of funds or securities or of
forgery.'' \114\ Funding Portal Rule 300(c)(1)(A)(ii), as proposed,
would require a funding portal to report when the funding portal member
or an associated person of the funding portal member ``is subject to
any written complaint involving allegations of fraudulent conduct or
misuse or misappropriation of funds or assets.'' \115\ The commenter
further suggested that funding portals members, like broker-dealer
members, should be required to (1) report quarterly statistical and
summary information related to written customer complaints and (2)
provide copies of source documents for the reportable information.\116\
---------------------------------------------------------------------------

    \113\ See PIABA Letter at 4.
    \114\ See id. at 4-5. See also FINRA Rule 4530(a)(1)(B).
    \115\ See Funding Portal Rule 300(c)(1)(A)(ii).
    \116\ See PIABA Letter at 5. See also FINRA Rule 4530(d) and
(f).
---------------------------------------------------------------------------

    In response, FINRA indicates that the 30 calendar day requirement,
which is consistent with the corresponding requirement for broker-
dealer members under FINRA Rule 4530, strikes the appropriate balance
between prompt regulatory reporting for purpose of risk oversight and
providing firms sufficient time to assess reportable events and submit
complete and accurate reports.\117\ FINRA also notes that funding
portal's permissible business activities are limited in scope relative
to other FINRA members.\118\ In addition, FINRA notes that funding
portal members would have a shorter amount of time to report statutory
disqualification events under Rules 110(a)(3)(B) and 800(b)(2) because
of the significant regulatory implications of such events as compared
to other reportable events.\119\
---------------------------------------------------------------------------

    \117\ See FINRA Letter at 7.
    \118\ See id. at 8.
    \119\ See id. Both rules, which are discussed above, require
funding portals to update information about statutory
disqualification events ``promptly, but in any event not later than
10 days following any change in such information.'' See Funding
Portal Rules 110(a)(3)(B) and 800(b)(2).
---------------------------------------------------------------------------

    In response to the comment about the types of written complaints
that should be reported, FINRA notes its belief that the rule is
consistent with its goal of tailoring the rule language to the limited
permissible activities in which funding portals may engage.\120\ FINRA
states that it does not believe it is necessary to single out theft and
forgery for purposes of this particular provision, especially given
that funding portals are prohibited in the first place from holding,
managing, possessing or otherwise handling investor funds or
securities.\121\ However, FINRA also noted its belief that the language
of Funding Portal Rule 300(c)(1)(A)(ii) is sufficiently broad to
encompass such fraudulent conduct, or misuse or misappropriation of
funds or assets, as would be involved in an act of theft or
forgery.\122\ FINRA also indicates that the rule is broader than FINRA
Rule 4530(a)(1)(B)--the rule specifies ``any written complaint'' rather
than ``any written customer complaint.'' \123\ In response to the
commenter's other suggestions regarding requirements for statistical
and summary information, and the filing of copies of the specified
documents, FINRA cites to the proposal where it noted its intent to
minimize the initial potential costs and burdens to the development of
the funding portal business.\124\ FINRA, however, indicates that it may
revisit this issue in a future rulemaking after regulators gain more
experience in connection with funding portals.\125\
---------------------------------------------------------------------------

    \120\ See FINRA Letter at 8.
    \121\ See id.
    \122\ See id.
    \123\ See id.
    \124\ See id. (citing the Notice, 80 FR at 66363).
    \125\ See id.
---------------------------------------------------------------------------

G. Disclosure

    As discussed in more detail above, Funding Portal Rule 800(b)(1)
will allow FINRA to provide the public with access to a funding portal
member's current SEC Form Funding Portal, including amendments and
registration withdrawal requests via a link to the Commission's Web
site. One commenter expressed concern about the permissive nature of
Funding Portal Rule 800(b)(1).\126\ The commenter suggested that the
proposed rules should require that FINRA provide investors with most
(if not all) of the information required to be submitted to FINRA under
Funding Portal Rule 300(c).\127\ In response, FINRA notes that it
intends to exercise its authority under Funding Portal Rule 800(b)(1),
which it states is designed to provide FINRA sufficient flexibility as
to carrying out the specified disclosures.\128\ FINRA also notes that
Funding Portal Rule 800(b)(2), which is discussed in more detail above,
requires FINRA to make public information indicating whether the
funding portal member or any associated person of the funding portal
member is subject to an event described in Section 3(a)(39) of the
Exchange Act (i.e., a statutory disqualification event).\129\
---------------------------------------------------------------------------

    \126\ See PIABA Letter at 6.
    \127\ See id.
    \128\ See FINRA Letter at 12.
    \129\ See id.
---------------------------------------------------------------------------

H. Central Registration Depository (``CRD'')

    One commenter suggested that funding portals should be required to
use CRD to register and make ongoing disclosures.\130\ The commenter
stated its view that mandatory use of CRD by funding portals would
create a central location for regulators to easily access information
about the portals at a reasonable expense to the entities.\131\ The
commenter also expressed concern about whether information about
funding portals and their associated persons would be made available to
the public or other regulators.\132\ Another commenter, however,
supported the decision not to use CRD, stating its view that the system
is excessively complex for the limited scope of activity of funding
portals, and using alternative systems will likely lead to compliance
cost savings for portals.\133\
---------------------------------------------------------------------------

    \130\ See NASAA Letter at 2. Broker-dealers register using CRD.
    \131\ See id.at 2.
    \132\ See id. at 3.
    \133\ CFIRA Letter at 2.
---------------------------------------------------------------------------

    In response, FINRA indicates that it is not at this time requiring
funding portals to use CRD.\134\ FINRA notes that the rules provide for
the submission of certain information by funding portals in a manner
and format prescribed by FINRA.\135\ FINRA indicates that it is
developing systems for the submission of such information and it
believes the systems will be appropriate to the limited permissible
activities of funding portals.\136\
---------------------------------------------------------------------------

    \134\ See FINRA Letter at 9.
    \135\ See id. For example, FINRA notes the requirements under
Funding Portal Rules 110(a)(3)(A), 110(a)(4)(B) and 800(b), which
are described in more detail above. See id. See also Notice, 80 FR
at 66368.
    \136\ See FINRA Letter at 9.
---------------------------------------------------------------------------

I. Licensing and Examination

    FINRA has not included any licensing or examination requirements in
its Funding Portal Rules. One commenter expressed support for this
approach, noting its belief that such an approach would result in cost
savings for funding portals and would likely lead to greater
flexibility and innovation in the roles and responsibilities of funding
portal operators and employees.\137\ Two commenters, however, suggested
licensing requirements for associated persons of funding portals.\138\
One of these commenters suggested licensing requirements for all
associated persons of funding portals or, at a minimum, licensing
requirements for any person

with specific responsibilities under the funding portal rules, such as
supervisory or compliance personnel.\139\ The other commenter suggested
that compliance personnel should be required to pass a licensing
test.\140\
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    \137\ See CFIRA Letter at 2.
    \138\ See PIABA Letter at 3, n. 4; NASAA Letter at 3.
    \139\ See NASAA Letter at 3.
    \140\ See PIABA Letter at 3, n. 4.
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    In response, FINRA notes that it will consider whether additional
rulemaking with respect to examination and licensing requirements is
needed as it gains experience regulating funding portals.\141\
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    \141\ See FINRA Letter at 9. See also Notice, 80 FR at 66368.
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J. Suspicious Activity Reporting

    Broker-dealers registered or required to be registered with the
Commission are required to comply with anti-money laundering (``AML'')
regulations promulgated by the Department of Treasury under the Bank
Secrecy Act (``BSA''),\142\ including a requirement to file suspicious
activity reports with the Financial Crimes Enforcement Network
(``FinCEN'').\143\ FINRA requires its broker-dealer members to develop
and implement AML programs reasonably designed to achieve and monitor
their compliance with the requirements of the BSA and the Department of
Treasury's implementing regulations thereunder, including a requirement
to file suspicious activity reports.\144\ One commenter suggested that
funding portals should also be subject to suspicious activity reporting
requirements.\145\ In response, FINRA indicates that it noted in its
proposal that the BSA and its implementing regulations do not currently
apply to funding portals.\146\ FINRA, therefore, indicates that it is
not imposing a requirement at this time for funding portals to develop
and implement an AML program, pending further action by the primary
regulators in this area.\147\
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    \142\ 31 CFR Chapter X. See also 31 CFR 1023.100 (``Broker-
dealer means a person registered or required to be registered as a
broker or dealer with the Commission under the Securities Exchange
Act of 1934 (15 U.S.C. 77a et seq.), except persons who register
pursuant to 15 U.S.C. 78o(b)(11).'').
    \143\ See 31 CFR 1023.320.
    \144\ See FINRA Rule 3310.
    \145\ See NASAA Letter at 5.
    \146\ See FINRA Letter at 11 (citing Notice, 80 FR at 66349).
    \147\ See id. at 12. See also Crowdfunding, Exchange Act Release
No. 76324, 80 FR 71378, 71471, n. 1098 (Nov. 16, 2015) (``FinCEN
within the Department of Treasury has primary regulatory
responsibility for administering the BSA. We note that FinCEN has
included in the Unified Agenda and Regulatory Plan an item that
states: ``FinCEN . . . is proposing amendments to the regulatory
definitions of `broker or dealer in securities' under the
regulations implementing the Bank Secrecy Act. The proposed changes
are intended to expand the current scope of the definitions to
include funding portals. In addition, these amendments would require
funding portals to implement policies and procedures reasonably
designed to achieve compliance with all of the Bank Secrecy Act
requirements that are currently applicable to brokers or dealers in
securities.'') (citing Office of Mgmt. & Budget, Exec. Office of the
President, Office of Info. & Regulatory Affairs, Amendments of the
Definition of Broker or Dealer in Securities, RIN 1506-AB29,
available at http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201504&RIN=1506- AB29).
---------------------------------------------------------------------------

K. Arbitration and Mediation

    Two commenters suggested that crowdfunding investors should be able
to opt out of arbitration agreements and pursue their claims in
court.\148\ The commenters also expressed concern with investors having
to bring claims in multiple forums against funding portals and
issuers.\149\ One commenter suggested that if investors are not
provided the right to choose their forum, at a minimum, FINRA should
bar arbitration agreements that would preclude an investor from joining
a class action against a funding portal member.\150\ Another commenter,
however, generally supported proposed Rule 1200.\151\
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    \148\ See PIABA Letter at 6; NASAA Letter at 4.
    \149\ See PIABA Letter at 7 (suggesting that an investor should
be permitted to include claims against funding portal members and
issuers in the same FINRA arbitration); NASAA Letter at 4
(expressing concern that investors wishing to bring claims against a
funding portal member and issuer will have to bring the related
claims in separate forums if a funding portal uses a pre-dispute
arbitration agreement).
    \150\ See PIABA Letter at 7.
    \151\ See CFIRA Letter at 2.
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    In response, FINRA notes that the purpose of Funding Portal Rule
1200 is to ensure in part that funding portal members shall be subject
to the existing rules in this area, unless the context requires
otherwise.\152\ FINRA also expresses its belief that the proffered
changes to the arbitration rules raise issues for the securities
industry in general that are beyond the scope of the proposal.\153\
Finally, FINRA states that as to the current rules in this area, FINRA
has previously noted that investors experience substantial savings in
arbitration compared to litigation and that the benefits and cost
savings of arbitration make filing an arbitration claim a less costly
option for investors.\154\
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    \152\ See FINRA Letter at 13. See also Notice, 80 FR at 66369.
    \153\ See id.
    \154\ See id. (citing Exchange Act Release No. 73245 (September
29, 2014), 79 FR 59876 (October 3, 2014) (Order Approving Proposed
Rule Change; File No. SR-FINRA-2014-026).
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L. Application of Additional Rules

    One commenter suggested that the following conduct rules for
FINRA's broker-dealer members should be applied to funding portal
members: The prohibition against guarantees and sharing in accounts
under FINRA Rule 2150 (Improper Use of Customers' Securities or Funds;
Prohibition Against Guarantees and Sharing in Accounts); Rule 2210
(Communications with the Public); Rule 3220 (Influencing or Rewarding
Employees of Others); Rule 3240 (Borrowing From or Lending to
Customers); Rule 5230 (Payments Involving Publications that Influence
the Market Price of a Security); and Rule 5110 (Corporate Financing
Rule--Underwriting Terms and Arrangements).\155\ The commenter also
acknowledged that FINRA may not want to duplicate the recordkeeping
rule under Rule 404 of Regulation Crowdfunding, but suggested that
FINRA should ``reiterate the importance of sound recordkeeping
practices'' of funding portals.\156\
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    \155\ See NASAA Letter at 4. The commenter also suggested that
FINRA Rule 2210 (Communications with the Public) should be applied
to funding portals. See id. As explained in further detail above,
FINRA indicates that Funding Portal Rule 200 is a streamlined
version of FINRA Rule 2210 that reflects the limited scope of
activity permitted to funding portals.
    \156\ See NASAA Letter at 5.
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    In response, FINRA notes that it sought to streamline the Funding
Portal Rules to the extent possible to reflect the limited scope of
permissible funding portal activities while also maintaining investor
protection.\157\ FINRA further notes that its Funding Portal Rules
include rules to address fraud and standards of commercial honor and
just and equitable principles of trade (Funding Portal Rules 200(a) and
200(b), which are explained in more detail above).\158\ In addition,
FINRA notes that

Regulation Crowdfunding contains rules to addresses investor
protection.\159\ FINRA believes that Regulation Crowdfunding and
FINRA's Funding Portal Rules, in combination, are robust enough to
address a wide range of potential concerns that may arise from conduct
by funding portals.\160\ As an example, FINRA indicates that, depending
on the facts, it may apply Funding Portal Rule 200(a) in situations in
which a funding portal charged a commission or fee that is clearly
unreasonable under the circumstances.\161\ FINRA further notes that it
will enforce the rules for funding portals under Regulation
Crowdfunding and that it does not intend for its rules to duplicate
Regulation Crowdfunding.\162\ FINRA also indicates that it may impose
additional requirements on funding portals in the future should FINRA
determine that such requirements are merited based on the development
of funding portal business under applicable rules.\163\
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    \157\ See FINRA Letter at 10. See also Notice, 80 FR at 66368.
FINRA also indicates that it is not proposing to apply to funding
portals, at this time, certain rules based on its belief that they
do not appear to be tailored to the limited activities of such
entities. As an example, FINRA cites FINRA Rule 4370, which contains
business continuity plan (``BCP'') requirements for its broker-
dealer members. According to FINRA, it is not requiring a funding
portal to maintain a BCP, given that, among other things, a funding
portal may not hold, manage possess or otherwise handle investor
funds or securities. FINRA, however, stated that it: recognizes that
funding portals are Internet-based businesses and, as part of
FINRA's membership application process, [it] will request access to
a funding portal's platform; [FINRA] will also monitor, as part of
FINRA's examination and surveillance process, the development of
funding portal business to identify emergency or business
disruptions at funding portal members that affect the ability of the
members to meet their existing obligations to investors and issuers
or for investors to access their securities positions. These efforts
will assist in assessing whether additional rulemaking in this area
is required.
     See id. FINRA Letter at 10, n. 34.
    \158\ See FINRA Letter at 10-11.
    \159\ See id. at 11.
    \160\ See id.
    \161\ See id.
    \162\ See FINRA Letter at 10. See also Notice, 80 FR at 66368-
66369.
    \163\ See FINRA Letter at 11.
---------------------------------------------------------------------------

M. FINRA Manual

    One commenter suggested FINRA should require funding portals to
make a current copy of the FINRA Manual available to customers for
examination, which it requires of broker-dealers members.\164\ In
response, FINRA notes that it is seeking to streamline the requirements
for funding portals and, therefore, not proposing to apply this
requirement to such entities.\165\ FINRA indicates, however, that any
approved Funding Portal Rules will be fully available on the FINRA Web
site for public access.\166\
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    \164\ See PIABA Letter at 5-6.
    \165\ See FINRA Letter at 14.
    \166\ See id.
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N. Broker-Dealers: Rule 4518

    One commenter requested additional guidance regarding Rule 4518,
which as discussed in more detail above, requires broker-dealers
members to provide a notification to FINRA prior to engaging in certain
crowdfunding transactions or within 30 days of entering into certain
control relationships with a funding portal.\167\ In response, FINRA
indicates that it will issue a Regulatory Notice providing further
guidance in this area.\168\
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    \167\ See CFIRA Letter at 3.
    \168\ See FINRA Letter at 13.
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O. Private Placements

    One commenter requested guidance regarding whether offerings
relying on the exemption under Section 4(a)(6) will be subject to the
filing requirements of FINRA Rule 5123.\169\ In response, FINRA states
that it will not require that members selling securities in such
offerings to submit filings pursuant to FINRA Rule 5123.\170\
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    \169\ See CFIRA Letter at 3.
    \170\ See FINRA Letter at 13. FINRA cites to its Private
Placement Frequently Asked Questions (FAQ), available at http://www.finra.org/industry/faq-private-placement- frequently-asked-
questions-faq. (``FINRA will not require member firms that
participate in crowdfunding offerings (under the JOBS Act) to make a
filing pursuant to Rule 5123.'').
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IV. Discussion and Commission Findings

    After careful review of the proposed rule change, the comment
letters, and FINRA's response to the comments, the Commission finds
that the proposal, as modified by Amendment No. 1, is consistent with
the requirements of the Exchange Act and the rules and regulations
thereunder that are applicable to a national securities
association.\171\ Specifically, the Commission finds that the rule
change is consistent with Section 15A(b)(6) of the Exchange Act,\172\
which requires, among other things, that FINRA rules 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.
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    \171\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
    \172\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The Commission received three comment letters and FINRA's response
to the comment letters. The Commission notes the commenters were
generally supportive of the proposal but had suggestions regarding
areas where certain aspects of the proposal could be expanded or
further explained. The Commission has considered the commenters'
suggestions and believes that FINRA has responded adequately to their
concerns and that the rules are consistent with the Exchange Act.
    As discussed above, some commenters expressed concern that FINRA
has determined not to impose certain requirements that it imposes on
its broker-dealer members to funding portal members.\173\ Although one
of these commenters suggested additions to FINRA's funding portal
rules, it also indicated that it generally supported the proposed rules
because it ``knows that investors need protection against unscrupulous
brokers, issuers and intermediaries in the crowdfunding space.'' \174\
In addition, FINRA indicated that the rules have been tailored to
reflect the limited scope of permissible activities in which funding
portals may engage, while also maintaining investor protection.\175\
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    \173\ For example, FINRA determined not to include a fidelity
bond or any AML requirements for funding portal members in the
proposal despite the fact that it had proposed such requirements in
its initial Regulatory Notice to its members. FINRA also determined
not to include licensing or examination requirements and to include
a streamlined version of its communications with the public
requirements.
    \174\ See PIABA Letter at 2. See also CFIRA Letter at 1
(supporting certain changes that FINRA made from the Regulatory
Notice as ``reflect[ing] the reality that funding portals will have
limited permissible activities, and these changes are in line with
creating a cost-efficient marketplace for small securities
offerings.'').
    \175\ See FINRA Letter at 1 (citing Notice, 80 FR at 66349).
---------------------------------------------------------------------------

    Taking into consideration the comments and FINRA's response, we
believe that the proposal is consistent with the Exchange Act. In
particular, we believe that the Funding Portal Rules are appropriately
designed to take into account the limited permissible activities of
funding portals, while still maintaining investor protection. We
believe that FINRA's response, as discussed in more detail above,
appropriately addressed the reasons for not including certain
requirements in the proposal. We note that FINRA, in its response,
indicates that Rule 200(a), which requires funding portal members to
observe high standards of commercial honor and just and equitable
principles of trade in the conduct of their business, and Rule 200(b),
which prohibits the use of manipulative, deceptive or other fraudulent
devices, may be used to address misconduct by funding portals not
specifically addressed in the rules. We also note that FINRA has
represented that it will monitor how the funding portal business
develops under the rules as well as other rules applicable to such
entities, and assess whether changes to the rules are appropriate or
necessary. Taken together, we believe that this approach is appropriate
and designed to protect investors and the public interest, consistent
with Section 15A(b)(6) of the Exchange Act.
    The Commission also believes that FINRA's response, which is
discussed in more detail above, appropriately addressed the commenter's
concern regarding the timing of the proposal. In particular, FINRA
notes that its rules have been in preparation for a considerable amount
of time with public input, and the proposal is intended to provide the
means for

funding portals to become FINRA members consistent with the JOBS Act
and Regulation Crowdfunding.\176\
---------------------------------------------------------------------------

    \176\ See FINRA Letter at 2.
---------------------------------------------------------------------------

    In addition, the Commission also believes that the proposal is
designed to provide for an appropriate amount of information to be
reported to FINRA. FINRA stated that its goal is to develop rules for
funding portal members that are tailored to the limited permissible
activities in which funding portals may engage, and to minimize the
initial potential costs and burdens to the development of the funding
portal business. The Commission believes that FINRA's reporting rules
are tailored to funding portal activities. For example, FINRA's Funding
Portal Rule 300(c) requires funding portal members to report regulatory
proceedings, disciplinary and other events.\177\ The rule also requires
funding portal members to respond to FINRA with respect to any investor
complaint, examination or inquiry,\178\ and states that a funding
portal's reporting obligations under SEC rules are not abrogated by the
FINRA rules. In addition, the rule contains a 30 calendar day reporting
requirement, which FINRA believes strikes the appropriate balance
between prompt regulatory reporting for purpose of risk oversight and
providing firms sufficient time to assess reportable events and submit
complete and accurate reports. The Commission believes FINRA's
reporting obligations for funding portal members are appropriate
because a funding portal's permissible business activities are limited
in scope.
---------------------------------------------------------------------------

    \177\ See Funding Portal Rule 300(c).
    \178\ See Funding Portal Rule 300(c)(4).
---------------------------------------------------------------------------

    Further, the Commission believes that the proposal is designed to
provide for an appropriate level of public disclosure of information
relating to funding portals. The Commission notes that FINRA indicates
that it intends to exercise its authority under its rules and provide
the public with access to a funding portal member's current SEC Form
Funding Portal through a link to the Commission's Web site. Form
Funding Portal, which is also publicly available through the
Commission's EDGAR system, provides certain disclosure information
about funding portals and their associated persons. In addition, FINRA
stated its intention to make public information indicating whether the
funding portal member or any associated person of the funding portal
member is subject to a statutory disqualification event.
    Accordingly, the Commission believes that the rule change is
reasonably designed to 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.\179\
---------------------------------------------------------------------------

    \179\ See 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    For the reasons stated above, the Commission finds that the rule
change, as modified by Amendment No. 1, is consistent with the Exchange
Act and the rules and regulations thereunder.

V. Accelerated Approval of Proposal, as Modified by Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of
the Exchange Act \180\ for approving the proposal, as modified by
Amendment No. 1, prior to the 30th day after publication of Amendment
No. 1 in the Federal Register.
---------------------------------------------------------------------------

    \180\ See 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Amendment No. 1 revised the proposal to include ``for purposes of
FINRA Rule 8210 any other person listed in Schedule A of Form Funding
Portal of a member'' to the definition of ``associated person of a
funding portal member'' or ``person associated with a funding portal
member'' in Funding Portal Rule 100(b)(1). This change will help to
ensure that FINRA is capable of using its Rule 8210 authority with
regard to key persons controlling the funding portal. The Commission
also believes the amendment is consistent with FINRA's obligation in
Section 19(g) of the Exchange Act to effectively enforce its rules. The
Commission also believes that Amendment No. 1's amended definition of
associated person does not raise any novel regulatory issues because
the change more closely aligns the definition with the definition of
associated person applicable to FINRA's broker-dealer members.
    Amendment No. 1 also revised the proposal to make technical changes
to the language of Funding Portal Rules 300(a)(1)(A), 900(a)(4)(C),
900(a)(4)(F), 1200(a)(3), 1200(a)(4) and 1200(b)(4)(C). The Commission
does not believe that these changes raise any novel regulatory issues,
but rather are technical changes that do not change the substance of
the rules.
    Accordingly, the Commission finds that good cause exists to approve
the proposal, as modified by Amendment No. 1, on an accelerated basis.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the rule change,
as modified by Amendment No. 1, 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-FINRA-2015-040 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2015-040. 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 rule change that are filed with
the Commission, and all written communications relating to the 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 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 available publicly. All submissions
should refer to File Number SR-FINRA-2015-040, and should be submitted
on or before February 18, 2016.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\181\ that the rule change (SR-FINRA-2015-040), as modified by
Amendment No. 1, be, and hereby is, approved on an accelerated basis.
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    \181\ 15 U.S.C. 78s(b)(2).

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    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\182\
---------------------------------------------------------------------------

    \182\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01672 Filed 1-27-16; 8:45 am]
 BILLING CODE 8011-01-P