Alert January 22, 2013

SEC Approves FINRA Proposal to Amend FINRA Rule 4530 to Eliminate Certain Redundant Disclosure and Permit Online Filing of Copies of Litigation Documents

On January 14, 2013, FINRA filed a proposal with the SEC (File No. SR-2013-006) to amend FINRA Rule 4530 (the “Rule”), which requires a member firm, among other things, to report within 30 days certain criminal and other disclosable events for itself and its associated persons, and to promptly file copies of certain litigation documents with FINRA.  The proposal would amend the Rule to eliminate some reporting of information already disclosed to or known to FINRA, and also permit online filing of litigation documents, as an alternative to the filing methods now permitted.  The SEC approved the rule proposal on January 18, 2013, effective January 14, the date of filing by FINRA.

Exception for Information Filed on Form U4.  Rule 4530 reporting to FINRA does not eliminate or reduce the obligation to report the same events, to the extent required, on Forms BD, U4 or U5.  However, certain information disclosed on Form U5 (for termination of registered representatives) is not required to be reported under Rule 4530.  The proposed exemption would likewise except from reporting events listed in Rule 4530(a)(1) that are disclosed on Form U4 (the application for registration of representatives).  These include findings of securities and similar investment-related violations by regulatory agencies or business or professional organizations; customer complaints alleging theft or misappropriation of funds or securities or of forgery; registration or suspension from registration by securities or other regulatory agencies or suspension or expulsion from membership in a self-regulatory organization (SRO); criminal indictment or conviction of a felony or of certain misdemeanors; and being a defendant or respondent in certain litigation or arbitration matters.  As the Rule is proposed to be amended, if the event is of a type that is disclosable on Form U4, and is actually disclosed, it would not need to be reported under Rule 4530. 

FINRA proposes to add functionality to the Central Registration Depository (CRD) system, through which amendments to Forms U4 are filed, to enable filers to designate through the use of a checkbox that data reported on certain Form U4 disclosure reporting pages (DRPs) should also be applied to satisfy the corresponding requirement under Rule 4530(a)(1).

Exception for FINRA Findings and Actions.  Rule 4530(a)(1)(A) requires a member to report external findings by regulatory agencies and SROs regarding the member or an associated person.  Rules 4530(a)(1)(C) and (D) require a member to report regulatory actions against the member or an associated person.  Those provisions do not currently exclude findings and actions by FINRA.  However, FINRA notes in its filing that FINRA staff have access to information about FINRA findings and actions through an enterprise-wide solution.  Therefore, FINRA proposes to add supplementary material to the Rule to provide that members are not required to report actions and findings by FINRA that would otherwise be required to be reported by Rule 4530(a)(1)(A), (C) and (D).

Online Filing of Litigation Documents.  Members may currently satisfy the requirement to file copies of documents in certain criminal actions, civil complaints and arbitration claims, as required by Rule 4530(f), by filing the copies in paper form or electronic form, as a scanned email attachment or saved on a disk delivered to FINRA.  FINRA proposes to amend the rule to give members the additional option of filing the required documents online via FINRA’s Firm Gateway.  In conjunction with the proposed rule change, FINRA proposes to create a new form, available on the Gateway, by which filers will be able to provide basic information about the person filing the documents and the matter to which it relates.

Implementation Date; Comments.  FINRA stated in its rule filing that it will announce the implementation date of the rule change in a regulatory notice to be published no later than 60 days following the date of filing, and that the implementation date will be no later than 180 days after the date of filing.  Comments on the rule proposal are due 21 days after its publication in the Federal Register.