associated persons' accounts, as well as any other ``covered account,''
to identify trades that may violate the provisions of the SEA, its
regulations, or FINRA rules prohibiting insider trading and
manipulative and deceptive devices.
    One commenter suggested that the proposed rule should be limited to
identifying insider trading and not require trades to be reviewed for
possible violations of rules regarding ``manipulative and deceptive
devices,'' especially as retail brokerages are already obligated under
existing rules to review accounts for that type of activity.\85\ The
commenter noted that SEA Rule 10b5-1(a) states that ``manipulative and
deceptive devices'' includes, among other things, insider trading. The
commenter argued that ``other things'' could reasonably be expected to
encompass manipulation of security prices as described in Section 9 of
the SEA and asserted that detecting that type of activity could be
costly and burdensome, especially for online brokerage services that
would be ``forced to establish electronic feeds of trading activity in
covered accounts held at other member firms to enable the `computerized
surveillance of account activity' in those accounts.''
---------------------------------------------------------------------------

    \85\ NSCP.
---------------------------------------------------------------------------

    The required review in proposed FINRA Rule 3110(d)(1) for ``trades
that may violate the provisions of the Exchange Act, the rules
thereunder, or FINRA rules prohibiting insider trading and manipulative
and deceptive devices'' is taken from existing obligations in
Incorporated NYSE Rule 342.21 (Trade Review and Investigation). FINRA
believes that the continued use of this standard is appropriate for
many of the same reasons identified by the Commission when it approved
NYSE Rule 342.21. In approving NYSE Rule 342.21, the Commission noted
that, among other things, the increased surveillance mandated by the
rule ``should have a positive impact upon the compliance efforts of
Exchange members and member organizations[.]'' \86\ In addition, the
Commission found that ``mandating

such a thorough review will not only increase the possibility of
detecting illegal trades, but also will have a deterrent effect on
insider trading and manipulative and deceptive practices.'' \87\ FINRA
believes that the benefits identified by the Commission, which would
continue to be present by adopting the standards of NYSE Rule 342.21
into the Consolidated FINRA Rulebook, would help to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principles of trade, and protect investors, particularly since the
provision covers the review of trading activity of the member in
addition to its associated persons.
---------------------------------------------------------------------------

    \86\ Securities Exchange Act Release No. 25763 (May 27, 1988),
53 FR 20925 (June 7, 1988) (Order Approving File No. SR-NYSE-87-10).
    \87\ Id.
---------------------------------------------------------------------------

    FINRA also notes that there is no obligation on members to
establish electronic feeds of trading activity at other firms. As
discussed in detail below, FINRA has revised the definition of
``covered account'' to clarify a member's obligations regarding which
accounts must be reviewed. Under the new definition, members are
required to review (1) accounts of an associated person (and certain of
his or her family members) that are held at or introduced by the
member; and (2) accounts held away from the member if the associated
person is required to disclose the account pursuant to FINRA rules
(currently, NASD Rule 3050 (Transactions for or by Associated Persons)
and Incorporated NYSE Rule 407 (Transactions--Employees of Members,
Member Organizations and the Exchange)). Thus, the only outside trading
activity members are required to review under this provision is
activity in a covered account that is disclosed to the member pursuant
to other FINRA rules.\88\ In addition, FINRA emphasizes that firms are
permitted to take a risk-based approach to monitoring trading activity.
---------------------------------------------------------------------------

    \88\ FINRA notes that NASD Rule 3050(b)(2) requires the firm at
which the trading activity is taking place to provide the member
with duplicate confirmations, account statements, or other account
information upon written request. Incorporated NYSE Rule 407(a)
generally requires the member to promptly send duplicate
confirmations and account statements.
---------------------------------------------------------------------------

    One commenter stated that the Initial Filing ``appears to infer
that firms may be required to, at a minimum, conduct periodic reviews
of trading'' and did not agree that this would always be the case for
all firm personnel when using a risk-based review, as provided for
under Rule 3110(d).\89\ In the Initial Filing, FINRA stated that a
``member's procedures should take into consideration the nature of the
member's business, which would include an assessment of the risks
presented by different transactions and different departments within a
firm. Thus, while some members may need to develop restricted lists
and/or watch lists, other members may only need to periodically review
employee and proprietary trading. . . . [T]here is no requirement that
a member examine every trade of every employee or every proprietary
trade.'' As noted, the review would be informed by the firm's business
model, and firms may determine that certain departments or employees
pose a greater risk and examine trading in those accounts accordingly.
There is no implied obligation on firms as to how best to conduct the
reviews.
---------------------------------------------------------------------------

    \89\ CAI.
---------------------------------------------------------------------------

    One commenter expressed concerns about a firm's ability to prevent
violations of insider trading or the use of manipulative and deceptive
devices, especially when supervising account activity occurring in an
account held at another firm in which an associated person has a
beneficial interest, where the firm will, at best, receive post
transaction notification through confirmation statements.\90\ The
commenter asked FINRA to clarify that a firm's supervisory obligations
for brokerage accounts held outside of the member is limited to
detecting and reporting indicia of potential insider trading or use of
manipulative and deceptive devices.
---------------------------------------------------------------------------

    \90\ FSI.
---------------------------------------------------------------------------

    Section 15(g) of the SEA requires broker-dealers to ``establish,
maintain, and enforce written policies and procedures reasonably
designed * * * to prevent the misuse * * * of material, nonpublic
information by such broker or dealer or any person associated with such
broker or dealer.''\91\ Transaction review is one tool for firms in
meeting this statutory obligation, in addition to steps such as
information barriers and restricted lists that broker-dealers may
implement to meet this requirement. Reviewing transactions can also
help firms spot potential weaknesses in, or violations of, other
procedures. Robust transaction review also provides a deterrent effect
that can prevent insider trading and other manipulative or deceptive
trading activity by associated persons. As noted above, the only
account activity outside of the member firm that it must review under
this provision is trading activity in certain accounts reported to the
firm pursuant to other FINRA rules, and FINRA recognizes that the
information firms receive regarding outside accounts may be less timely
and less comprehensive than information firms have available with
respect to accounts they hold or introduce.
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 78o(g).
---------------------------------------------------------------------------

    One commenter requested that FINRA provide a substantial
implementation period because implementing the new review process would
be burdensome and time consuming, especially in light of the ``covered
accounts'' definition.\92\ FINRA would provide firms with adequate time
to develop and establish policies and procedures for complying with new
rules and obligations. FINRA notes, however, that the proposed
procedures, in large part, help implement existing obligations for
broker-dealers pursuant to Section 15(g) of the SEA. Thus, while some
firms may need to revise and update procedures to comply with new
requirements, FINRA expects that many members will already have some
level of policies and procedures in place to meet their existing
obligations under Section 15(g) of the SEA.
---------------------------------------------------------------------------

    \92\ CAI.
---------------------------------------------------------------------------

(2) ``Covered Accounts''
    As proposed in the Initial Filing, FINRA Rule 3110(d)(3)(A) defined
``covered account'' to include (i) any account held by the spouse,
child, son-in-law, or daughter-in-law of a person associated with the
member where such account is introduced or carried by the member; (ii)
any account in which a person associated with the member has a
beneficial interest; and (iii) any account over which a person
associated with the member has the authority to make investment
decisions. FINRA, however, has revised the definition as described
below in response to comments.
    One commenter asserted that the definition of ``covered account''
was unduly narrow and should include an associated person's parents,
siblings, mother-in-law, and father-in-law, as well as any life
partner.\93\ Other commenters argued that the definition was too broad.
For example, one commenter suggested limiting the scope of (ii) and
(iii) to accounts introduced or carried by the member \94\ while
another commenter suggested that FINRA use a more uniform definition
that does not differentiate between accounts that are introduced or
carried by the member versus those that are not.\95\ Other

commenters stated that the definition of ``covered account'' should not
include accounts of associated persons' adult children or their
spouses.\96\ One commenter stated that adult children and their spouses
are under no obligation to provide associated persons with information
related to their accounts introduced or carried by the member.\97\
Another commenter asserted that extending review to this class of
accounts will require an unnecessary and burdensome layer of filtering
to an already ``robust'' system of compliance with no added
benefit.\98\
---------------------------------------------------------------------------

    \93\ PIABA.
    \94\ NSCP.
    \95\ SIFMA. This commenter also stated its belief that, for
carrying members, an account should not be subject to review only by
virtue of its being introduced by an unaffiliated correspondent
broker. FINRA questions whether such accounts would generally be
subject to review under the proposed rule because an account held by
a carrying firm for an unaffiliated correspondent broker would
generally not be an account of the carrying firm or one of its
associated persons.
    \96\ Schwab, T. Rowe Price.
    \97\ Schwab.
    \98\ T. Rowe Price.
---------------------------------------------------------------------------

    In response to these comments, FINRA has revised the definition of
``covered account.'' As amended, the transaction review requirements in
the proposed rule would apply to two types of ``covered accounts'': (i)
Certain accounts held at or introduced by the member and (ii) accounts
that are reported to the member pursuant to other FINRA rules.
Consequently, firms are under no obligation under this provision to
review transaction information in accounts to which they do not have
access to confirmations and account statements. In addition, FINRA has
amended the definition of ``covered account'' to add the accounts of
parents, siblings, fathers-in-law, mothers-in-law, and domestic
partners if the account is held at or introduced by the member.
Although some commenters requested that FINRA exclude accounts of adult
children and spouses, the primary purpose of the rule is to help firms
identify insider trading, and FINRA does not view the accounts of an
associated person's adult children and spouses as presenting less risk
for that type of trading activity than other accounts.\99\ Thus, for
those accounts in the first category above (i.e., those held at or
introduced by the member), FINRA has expanded the definition to include
additional family members. FINRA has also clarified that the only
accounts held away from the member (or the member's clearing firm) that
fall within the definition of ``covered account'' are those accounts of
associated persons disclosed to the member pursuant to other FINRA
rules.
---------------------------------------------------------------------------

    \99\ See, e.g., Securities Exchange Act Release No. 43154
(August 15, 2000), 65 FR 51716 (August 24, 2000) (noting that the
Commission's experience ``indicates that most instances of insider
trading between or among family members involve spouses, parents and
children, or siblings''). See also Securities Exchange Act Release
No. 42259 (December 20, 1999), 64 FR 72590, 72604 (December 28,
1999) (noting that the inclusion of children in proposed Rule 10b5-2
was not intended to be limited to minor children because the
Commission's ``enforcement cases in this area typically involve
communications between parents and adult sons or daughters''). For
this same reason, FINRA declines to incorporate the definitions in
NYSE Information Memo 89-17 (April 4, 1989), which excepted from the
covered accounts outlined in NYSE Information Memo 88-21 (July 29,
1988) those accounts held by children of employees and their spouses
who do not reside in the same household with or are not financially
dependent on the employee. See Schwab, SIFMA.
---------------------------------------------------------------------------

(3) Internal Investigation Reporting
    As proposed in the Initial Filing, FINRA Rule 3110(d)(2) would have
required any member that engages in ``investment banking services,'' to
provide reports to FINRA regarding internal investigations within ten
business days of the initiation of an investigation, update the status
of all ongoing investigations each quarter, and report to FINRA within
five business days of the completion of any internal investigation. As
described below, FINRA is retaining the definition of ``investment
banking services'' as proposed but has substantially revised the
reporting requirements.
(A) ``Investment Banking Services''
    The reporting requirements in proposed FINRA Rule 3110(d)(2) would
apply only to those firms that engage in ``investment banking
services.'' Proposed FINRA Rule 3110(d)(3)(B) defines the term
``investment banking services'' to include, without limitation, acting
as an underwriter, participating in a selling group in an offering for
the issuer, or otherwise acting in furtherance of a public offering of
the issuer; acting as a financial adviser in a merger or acquisition;
providing venture capital or equity lines of credit or serving as
placement agent for the issuer or otherwise acting in furtherance of a
private offering of the issuer.\100\
---------------------------------------------------------------------------

    \100\ One commenter asked that FINRA clarify that this
definition only applies to proposed FINRA Rule 3110 and not to other
rules. See CAI. Paragraph (d)(3) begins with the language ``For
purposes of this Rule''; consequently, the proposed definition is
solely for purposes of determining those firms subject to the
proposed reporting requirement in proposed FINRA Rule 3110(d)(2).
FINRA notes, however, that it has proposed to use the same
definition for purposes of the proposed research analyst conflict of
interest rules. See Regulatory Notice 08-55 (October 2008).
---------------------------------------------------------------------------

    Several commenters to the Initial Filing requested that FINRA
exclude certain activity from the definition of ``investment banking
services.'' One commenter suggested that distribution activities
undertaken by firms in connection with investment companies and 529
plans should not fall under this definition as long as a firm engaged
in this activity does not also engage in the functions typically seen
as traditional underwriting activities, such as those described in the
proposal.\101\ Other commenters requested that FINRA revise the
definition to exclude activities such as serving as a principal
underwriter or a selling firm of variable annuities \102\ or selling
shares of real estate investment trusts, variable annuity contracts,
and limited partnerships.\103\
---------------------------------------------------------------------------

    \101\ T. Rowe Price.
    \102\ CAI.
    \103\ FSI.
---------------------------------------------------------------------------

    FINRA does not believe that any of the categories of activity
identified by the commenters should be categorically excluded from the
definition of ``investment banking services,'' given its limited use
for the purposes of proposed FINRA Rule 3110. All members, including
those who engage in ``investment banking services,'' are required to
include in their supervisory procedures a process for reviewing
securities transactions and promptly conducting an internal
investigation into any trade that may violate the provisions of the
SEA, the rules thereunder, or FINRA rules prohibiting insider trading
and manipulative and deceptive devices. The only additional requirement
of those firms that engage in ``investment banking services'' is that
they report information regarding their internal investigations to
FINRA. Because individuals engaged in investment banking activities may
have special access to material, non-public information,\104\ which
increases the risk of insider trading by those individuals, FINRA
believes that this additional reporting requirement is appropriate. To
the extent the commenters are correct that certain types of
underwriting activities do not present the same risks of insider
trading, the instances of reporting obligations on firms that only
engage in those activities should not be significant. To the extent
such firms do have internal investigative actions to report, FINRA
believes that they should be reported.
---------------------------------------------------------------------------

    \104\ See, e.g., United States v. Contorinis, 692 F.3d 136, 144
(2d Cir. 2012) (affirming co-portfolio manager's conviction for
insider trading and securities fraud based on tips received from an
investment banker with material, non-public information regarding
pending merger discussions).
---------------------------------------------------------------------------

(B) Reporting Requirements
    Several commenters suggested that FINRA eliminate the requirement
that members must, within ten business days of the initiation of an
internal investigation, file a written report and replace it with more
targeted disclosure

within a more reasonable time frame, such as that in Incorporated NYSE
Rule 351(e) (Reporting Requirements).\105\ One commenter stated that
firms already have robust and detailed procedures for complying with
the reporting requirements in Incorporated NYSE Rule 351(e), and
FINRA's proposed changes would be costly and burdensome to implement
and would not appear to yield substantial benefits, especially as
members cannot know whether an internal investigation has viability or
merit within ten business days.\106\
---------------------------------------------------------------------------

    \105\ SIFMA, T. Rowe Price.
    \106\ SIFMA.
---------------------------------------------------------------------------

    In light of the comments, FINRA has modified the reporting
obligations for firms that are engaged in investment banking services
in a manner that reduces the potential burden for firms, while also
providing necessary information to assist FINRA in preventing and
detecting violations of insider trading and use of manipulative and
deceptive devices. First, FINRA has eliminated the requirement that
firms file an initial report of an internal investigation within ten
business days of its commencement and has replaced it with a quarterly
reporting requirement. Under the amended provision, within ten business
days of the end of each calendar quarter, a member engaged in
investment banking services must file a written report describing each
internal investigation initiated in the previous calendar quarter. The
report must include the identity of the member, the date each internal
investigation commenced, the status of each open internal
investigation, the resolution of any internal investigation reached
during the previous calendar quarter, and, with respect to each
internal investigation, the identity of the security, trades, accounts,
associated persons of the member, or associated person of the member's
family members holding a covered account, under review, and that
includes a copy of the member's policies and procedures required by
proposed FINRA Rule 3110(d)(1). Also, as noted above, if a member
subject to this requirement did not have an open internal investigation
or either initiate or complete an internal investigation during a
particular calendar quarter, the member would not be required to submit
a report for that quarter. Second, FINRA has replaced the proposed
requirement to report the completion of each internal investigation
within five business days of its completion with a more focused
requirement that is limited to investigations that resulted in a
finding of violation. Under the amended provision, members engaged in
investment banking services must, within five business days of
completion of an internal investigation in which it was determined that
a violation of the provisions of the SEA, the rules thereunder, or
FINRA rules prohibiting insider trading and manipulative and deceptive
devices had occurred, file with FINRA a written report detailing the
completion of the investigation, including the results of the
investigation, any internal disciplinary action taken, and any referral
of the matter to FINRA, another SRO, the SEC, or any other federal,
state, or international regulatory authority.
    One commenter questioned the need to file reports of investigations
that did not result in a finding of violation, stating that the Initial
Filing, more than the rule text, indicates that reports are required
even if violations have not been found during the investigation.\107\
The commenter believed that additional reporting is unnecessary and
exceeded the reporting requirements in FINRA Rule 4530 (Reporting
Requirements). The commenter also asserted that FINRA has not provided
any rationale for why firms must still file a report even when
violations have not been found during the investigation.
---------------------------------------------------------------------------

    \107\ T. Rowe Price.
---------------------------------------------------------------------------

    Unlike FINRA Rule 4530, proposed FINRA Rule 3110(d) would require
more targeted and detailed reporting. While FINRA Rule 4530(b) requires
reporting only where a member concludes or reasonably should have
concluded that an associated person of the member or the member itself
has violated, among other things, any securities-related law or
rule,\108\ the proposed reporting requirement in proposed FINRA Rule
3110(d)(2) would require that members engaged in investment banking
services report investigations (and results of those investigations) of
securities transactions effected for the accounts of the member, the
member's associated persons, and any other covered account\109\ that
may violate the provisions of the Exchange Act, the rules thereunder,
or FINRA rules prohibiting insider trading and manipulative and
deceptive devices, regardless of whether a violation was ultimately
discovered. Information regarding internal investigations that do not
result in a finding of violation must be included in the quarterly
report. FINRA believes that this reporting obligation is necessary to
help protect investors and market integrity. As described in the
Initial Filing, the rationale for filing a report when no violation has
been found by the member is because a fact pattern that may result in a
member concluding that no misconduct has occurred could nonetheless
prove vital to FINRA in connecting the underlying conduct to other
conduct about which the member may not know.
---------------------------------------------------------------------------

    \108\ See FINRA Rules 4530(b) and 4530.01.
    \109\ As noted above, for purposes of proposed FINRA Rule
3110(d), a ``covered account'' is defined to include: (1) Any
account held by the spouse, domestic partner, child, parent,
sibling, son-in-law, daughter-in-law, father-in-law, or mother-in-
law of a person associated with the member where such account is
introduced or carried by the member; (2) any account introduced or
carried by the member in which a person associated with the member
has a beneficial interest; (3) any account introduced or carried by
the member over which a person associated with the member has the
authority to make investment decisions; and (4) any account of a
person associated with a member that is disclosed to the member
pursuant to NASD Rule 3050 or NYSE Rule 407, as applicable.
---------------------------------------------------------------------------

(l) Comments on Proposed FINRA Rule 3120
    All of the comments FINRA received regarding proposed FINRA Rule
3120 (Supervisory Control System) addressed the provisions requiring a
member that meets a specified gross revenue threshold in the preceding
year to include additional content in the proposed rule's annual report
to senior management. FINRA originally proposed a gross revenue
threshold of $150 million or more in the Initial Filing; however, as
discussed further below, FINRA has revised the threshold to $200
million or more.
    The required additional content includes a tabulation of the
reports pertaining to the previous year's customer complaints and
internal investigations made to FINRA. Also, the report must include a
discussion of the preceding year's compliance efforts, including
procedures and educational programs, in each of the following areas:
(1) Trading and marketing activities; (2) investment banking
activities; (3) antifraud and sales practices; (4) finance and
operations; (5) supervision; and (6) anti-money laundering.
(1) Revenue Threshold
    One commenter suggested that all members be required to include the
supplemental information in the report, not merely those members
reporting more than $150 million in revenue.\110\ FINRA addressed this
comment in the Initial Filing and declined to make the suggested
change. As FINRA noted in that rule filing, FINRA believes that the
additional information reported by

members meeting the gross revenue threshold, now proposed as $200
million or more, would prove to be valuable information for FINRA's
regulatory program, especially as Incorporated NYSE Rule 342.30's
annual report supplemental information was a valuable tool for the NYSE
regulatory program.\111\ Also, as FINRA noted in the Initial Filing,
such information would be valuable compliance information for the
senior management of the firm.
---------------------------------------------------------------------------

    \110\ PIABA.
    \111\ See also Regulatory Notice 08-24 (noting that the
supplemental information in Incorporated NYSE Rule 342.30's annual
report was a valuable tool for the NYSE regulatory program and would
also be valuable information for FINRA's regulatory program going
forward).
---------------------------------------------------------------------------

    FINRA, however, recognizes the burden the additional content
requirements could place on FINRA members and, as a result, proposed
only requiring certain members to include such additional content in
their reports. Although FINRA considered several alternative metrics
(e.g., number of registered persons), FINRA decided to use a gross
revenue metric. FINRA has further attempted to balance the value of the
information with the burden by increasing the gross revenue threshold
from the $150 million threshold proposed in the Initial Filing to $200
million. FINRA believes that the revised threshold strikes the
appropriate balance as it encompasses larger dual member firms, members
engaged in significant underwriting activities (including variable
annuity principal underwriting and fund distributions) and substantial
trading activities or market making business, and members with
extensive sales platforms--approximately 160 member firms in total, for
which the additional content requirements would provide a valuable
resource in the context of understanding and examining those firms and
their activities, which can generally be more complex or sizeable than
smaller firms' activities. FINRA also took into account the fact that
most members meeting that threshold already comply with Incorporated
NYSE Rule 342.30's reporting requirement. Further, the metric is easily
determined by reference to the member's most recent FOCUS reports in
the calendar year prior to the annual report. FINRA continues to
believe that its rationale supports the gross revenue threshold, as
revised to $200 million, and again declines to make the suggested
change.
(2) Additional Content Requirements
    One commenter suggested that members should have the flexibility to
determine the content of their respective annual reports and requested
that the additional content requirements listed above be revised as
merely examples of additional report content.\112\ Other commenters
suggested that the additional content topics were vague and requested
that FINRA provide more guidance (e.g., definitions, examples) on the
additional content requirements.\113\ In particular, one commenter
asked whether the tabulation of reports pertaining to customer
complaints and internal investigations was the same as the customer
complaint data for FINRA Rule 4530.\114\
---------------------------------------------------------------------------

    \112\ T. Rowe Price.
    \113\ CAI, FSI.
    \114\ CAI.
---------------------------------------------------------------------------

    FINRA disagrees with the commenters' suggestions that the
supplementary information topics are vague and require examples or
definitions. The topics refer to specific components common to a
member's business. In addition, as FINRA noted in the Initial Filing,
with the exception of risk management (which is no longer included, as
discussed below), the categories listed above are incorporated from the
annual report content requirements of Incorporated NYSE Rule 342.30
(Annual Report and Certification) and are familiar to many of the firms
that would be required to comply with proposed FINRA Rule 3120's
additional content requirements. Also, FINRA made clear in the Initial
Filing that the proposed requirement to include a tabulation of
information provided to FINRA regarding customer complaints and
internal investigations was not duplicative of existing requirements in
FINRA Rule 4530, as each rule serves a distinct purpose. Whereas FINRA
Rule 4530 requires reporting certain information to FINRA, the
requirement in proposed FINRA Rule 3120 covers information required to
be provided to a firm's senior management. To that end, however, firms
may use the information reported to FINRA pursuant to FINRA Rule 4530,
as well as other relevant information reported to FINRA pursuant to
other regulatory requirements (e.g., investigation information reported
to FINRA pursuant to proposed FINRA Rule 3110(d)), to prepare the
tabulation required by proposed FINRA Rule 3120.
(3) Risk Management
    As proposed in the Initial Filing, FINRA Rule 3120 would have
required that a member meeting the applicable gross revenue threshold
must include a discussion of the preceding year's compliance efforts in
the area of risk management. At least one commenter suggested that
FINRA eliminate this requirement since the term ``risk management,'' as
proposed, appears to encompass specific control functions for various
types of risk (e.g., market, credit, liquidity, operational). The
commenter asserted that, because there are no SEC or FINRA rules
relating to ``risk management'' as there are with finance and
operations, the compliance departments generally do not have programs
to assess the performance of that function and supervisors so
designated for purposes of FINRA rules are not therefore charged with
supervision of compliance efforts in the area of risk management.
Alternatively, the commenter suggested that FINRA acknowledge that
``risk management'' relates solely to ``compliance risk,'' which would
be covered by the firm's compliance department.\115\ Another commenter
also stated that the risk management topic appears to fall outside of
the responsibilities of many compliance departments and requested that
FINRA confirm whether chief compliance officers can rely on such items
as certifications and representations from managers of areas not under
the purview of, or routinely overseen by, the compliance department in
completing and submitting the annual report.\116\
---------------------------------------------------------------------------

    \115\ SIFMA.
    \116\ NSCP.
---------------------------------------------------------------------------

    FINRA originally proposed the requirement for the purpose of
providing senior management with a narrative specifically reflecting
whether a member is effectively supervising and managing its business
risks. However, in response to commenters' ongoing concerns regarding
the role of compliance departments with respect to risk management
activities, FINRA is eliminating risk management from the additional
content requirements under proposed FINRA Rule 3120 and will consider
whether to address separately members' risk management practices. Based
on its examination and enforcement experience, FINRA has found that a
strong risk management program mitigates a member's potential
compliance problems.\117\
---------------------------------------------------------------------------

    \117\ See e.g., Regulatory Notice 10-57 (November 2010)
(guidance on developing and maintaining robust funding and liquidity
risk management practices to prepare for adverse circumstances);
Notice to Members 99-92 (November 1999) (SEC, NASD Regulation, and
NYSE Issue Joint Statement on Broker/Dealer Risk Management
Practices) (emphasizing the importance of maintaining an appropriate
risk management system and providing examples of weaknesses and
strengths in various broker-dealers' risk management policies and
practices).

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

(m) Comments on Proposed FINRA Rule 3170
    SIFMA requested that FINRA confirm whether it would continue to
maintain and disseminate the ``Disciplined Firms List'' once new FINRA
Rule 3170 (Tape Recording of Registered Persons by Certain Firms),
which replaces NASD Rule 3010(b)(2) (the ``Taping Rule''), becomes
effective. Currently, FINRA provides a ``Disciplined Firms List''
identifying those firms that meet NASD Rule 3010(b)(2)'s definition of
``disciplined firm.'' This list assists members that are required to
establish special supervisory procedures, including the tape recording
of conversations, when they have hired more than a specified percentage
of registered persons from firms that meet the Taping Rule's definition
of ``disciplined firm.'' FINRA intends to continue to maintain the list
to assist members in meeting their supervisory obligations under FINRA
Rule 3170.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2013-025 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2013-025. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 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-2013-025 and should be
submitted on or before July 29, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\118\
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    \118\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16231 Filed 7-5-13; 8:45 am]
BILLING CODE 8011-01-P