SEC Rule to Monitor Trading Activity

On July 11, the SEC approved a rule to require the national securities exchanges and FINRA to establish a market-wide consolidated audit trail to enhance regulators’ ability to monitor and analyze trading activity. The rule requires the exchanges and FINRA to jointly submit a plan detailing how they would implement an audit trail to collect and identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets. The rule will be effective 60 days after publication in the Federal Register. SEC Release.

SEC Approves New FINRA Communications Rules

On June 14, the SEC approved the adoption by FINRA of final rules governing member firms’ communications with the public. The final rules include general contact standards, such as requiring communications to provide a sound basis for evaluating the facts with respect to a security, as well as content standards that apply to specific issues or securities. The final rules will be effective on February 4, 2013. FINRA Notice.   FINRA Rules.

FINRA Proposed Amendment to Deferred Compensation Rule

On June 6, FINRA proposed amendments to Rule 5110 that address current deferred compensation arrangements for financial industry advisory services in connection with public offerings, eliminate a filing requirement for exchange traded funds structured as statutory or grantor trusts, and new electronic filing requirements. Comments to the proposed amendments must be submitted by July 23.

SEC Approves Proposals on Extraordinary Volatility in Stocks and Market

On June 1, the SEC approved two proposals submitted by the national securities exchanges and FINRA that are designed to address extraordinary volatility in individual securities and the broader U.S. stock market. One initiative establishes a “limit up-limit down” mechanism to prevent trades in individual exchange-listed stocks outside of a specified price band. The second initiative updates existing market-wide circuit breakers which halt trading in all exchange-listed securities throughout the U.S. markets when triggered. The changes lower the percentage-decline threshold for triggering a trading halt and shorten the period of time that trading is halted. Changes will be implemented by February 4, 2013, and have been approved for a one-year pilot period. SEC Release. National Market System Plan Approval Order. Market-Wide Circuit Breaker Approval Order.

FINRA Fines Citigroup $35 Million for Violation of FINRA and SEC Rules

On May 22, 2012, the Financial Industry Regulatory Authority (“FINRA”) fined Citigroup $35 million for alleged rule violations, including providing investors with inaccurate information in connection with several RMBS offerings. Citigroup consented to the $35 million fine, but neither admitted nor denied FINRA’s findings. FINRA found that between January of 2006 and October of 2007, Citigroup posted inaccurate performance data and static pool information on its website after receiving information indicating that the data was incorrect. The agency further found that the errors in the information were significant enough potentially to have affected prospective investors’ assessments of six subprime and Alt-A RMBS offerings. Additionally, the organization found that Citigroup failed to maintain required books and records and failed to supervise the pricing of certain CDO securities, violating, among other things, SEC Rules 17(a)-3(a)(8) and 17a-4.  AWC Letter.

FINRA Revised Proposed Amendments to NASD Rule 2340

On March 7, FINRA issued a revised proposal to amend NASD Rule 2340 to address the per share estimated values at which unlisted Direct Participation Programs and unlisted Real Estate Investment Trusts are reported on customer account statements.  Among the changes made to the previous proposed amendments to the rule, the revised proposal no longer requires general securities members to provide a per share estimated value, unless and until the issuer provides an estimate based upon an appraisal of assets and liabilities in a periodic or current report filed under Securities Exchange Act of 1934.  In addition, the revised proposal provides members firms with the option of using a modified net offering price or designating the securities as “not priced” during the initial offering period.  Comments to the revised proposal must be submitted by April 11.  FINRA Regulatory Notice.

FINRA Proposed Amendments To Reporting of Mixed Capacity OTC Trades

On February 8, FINRA requested comment on a proposal to amend FINRA trade reporting rules relating over-the-counter trades in equity securities that are executed by a member firm in a mixed trading capacity (e.g., a single trade execution by a firm as principal and agent). Comments must be submitted by March 26. FINRA Notice.

SEC Authorizes FINRA to Collect SARs from Member Firms

On January 26, pursuant to the Financial Crimes Enforcement Network regulations, the SEC issued a letter to FINRA authorizing FINRA staff to ask for suspicious activity reports (SARs) and SAR information from member firms in certain circumstances. The SEC also issued a letter to chief executive officers of all SEC-registered FINRA member firms requesting that they make SARs and supporting documentation available to FINRA. FINRA Notice.

SEC Orders FINRA to Improve Internal Compliance Policies and Procedures

On October 27, the SEC ordered FINRA to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. The order was made in connection with alleged violations of Section 17(a) of the Exchange Act and Rule 17a-1, namely the alteration of certain records prior to submission to SEC inspection staff. SEC Release. SEC Order.