On April 20, 2016, FINRA proposed delaying further the implementation date of its new debt research rule (Rule 2422) until July 16, 2016.  Rule 2422 was set to take effect on April 22, 2016, after the implementation date was extended from the initial February 22, 2016 deadline.  We will continue to monitor developments relating to the implementation date of Rule 2422 on this blog.

The proposed FINRA rule change is available at: http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2016-013.pdf.

The SEC approved FINRA’s Funding Portal rules for entities that intend to function as funding portals in crowdfunded offerings made pursuant to Regulation Crowdfunding.   We had previously posted a link to the rule text.  Today, FINRA issued Regulatory Notice 16-06, which provides an overview of the new Funding Portal Rules.  The Regulatory Notice can be accessed here: http://www.lexissecuritiesmosaic.com/gateway/finra/regulatory-notices/Regulatory-Notice-16-06.pdf.

Today, the Commission issued an advanced notice of proposed rulemaking (ANPR) for new requirements for transfer agents, together with a concept release requesting public comment on the Commission’s broader review of transfer agent regulation.

Over the course of the last year, various Commissioners, including Commissioner Aguilar, had noted that the Commission’s regulation of transfer agents had not been reviewed or updated in quite some time.  Commissioner Aguilar and former Commissioner Gallagher had urged the Commission to review its regulations relating to transfer agents.  The Commission and FINRA have been focused for some time on the incidence of microcap and small cap fraud.  In some instances, closer regulation of the activities of transfer agents might have served to prevent, or perhaps to detect, certain transfers of restricted securities.  Also, many of the new offering exemptions require that issuers retain the services of a transfer agent.  This is the case, for example, with the final crowdfunding rules.

The Commission’s press release notes that, “The Commission also identifies in the ANPR certain areas in which it intends to propose specific rules or rule amendments, including registration and annual reporting requirements, safeguarding of funds and securities, antifraud requirements in connection with the issuance and transfer of restricted securities, and cybersecurity and information technology, among others.  The concept release seeks comment on a broader range of issues to help inform the Commission’s consideration of additional rulemaking.  These include the processing of book entry securities, bank and broker-dealer recordkeeping for beneficial owners, administration of issuer plans, outsourcing and the role of transfer agents to mutual funds and crowdfunding.”

The release is available here:  http://www.sec.gov/rules/concept/2015/34-76743.pdf.

On June 25, 2014, the Securities and Exchange Commission (the “SEC”) announced that it had ordered the national securities exchanges and the Financial Industry Regulatory Authority, Inc. (“FINRA”) to act jointly to develop and file with the SEC a national market system plan to implement a targeted 12 month pilot program that will widen minimum quoting and trading increments (“tick sizes”) for certain smaller capitalization stocks. The SEC indicated that it plans to use the pilot program to assess whether these tick size changes would enhance market quality to the benefit of U.S. investors, issuers and other market participants. More specifically, the pilot program should facilitate studies of the effect of tick size on liquidity, execution quality for investors, volatility, market maker profitability, competition, transparency and institutional ownership. The SEC order requires the national securities exchanges and FINRA to submit a national market system plan detailing the pilot program by August 25, 2014.

The pilot program, which will be designed so as to not cause excessive disruption to the market and to limit increases in transaction costs, will last for one year and include stocks with: (1) a market capitalization of $5 billion or less; (2) an average daily trading volume of one million shares or less; and (3) a share price of $2 per share or more. The pilot program will consist of one control group and three test groups with 300 securities in each test group selected by stratified sampling. Pilot securities in the control group will be quoted at the current tick size increment of $0.01 per share, and trade at the increments currently permitted. Pilot securities in the first test group will be quoted in $0.05 minimum increments. Pilot securities in the second test group will be quoted in $0.05 minimum increments, and traded in $0.05 minimum increments subject to certain exceptions. Pilot securities in the third test group will be subject to the same minimum quoting and trading increments (and the same exceptions) as the second test group, but would also be subject to a “trade-at” requirement.

For more information, see Press Release, “SEC Announces Order for Tick Size Pilot Plan – Pilot to Assess Impact of Tick Size on Market Quality for Small Cap Companies” (June 25, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542172819#.U62K7ovD-9I, and SEC Release No. 34-72460 (June 24, 2014), available at http://www.sec.gov/rules/other/2014/34-72460.pdf

Broker-dealers selling interests in IPOs need to have adequate supervisory systems to ensure that registered representatives do not make actual sales before the securities are registered, according to a settlement of a formal disciplinary proceeding announced by FINRA yesterday. In this particular case, FINRA found that for a little  more than a year, a firm had failed to adequately supervise the pre-registration solicitation of retail interest in IPOs because the firm had not distinguished between “indications of interest” and “conditional offers” in its policies and procedures.

Read the rest of this post here on the BD/IA Regulator, our sister blog.

FINRA published Regulatory Notice 14-09 (available:  https://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p449586.pdf) to solicit comments regarding a series of new rules that would be applicable to firms that perform certain limited functions.  FINRA is proposing to establish a new, reduced regulatory framework for firms that advise issuers on debt and equity private placements with institutional investors or provide certain advisory services.  Firms that engage in these limited services and that do not maintain customer accounts, handle customer funds or securities, accept trading orders or engage in proprietary trading or market-making activities would not be subject to broker-dealer registration.

As we recently reported, the SEC provided no-action guidance in the context of M&A brokers, and, of course, FINRA has proposed a scaled regulatory framework for crowdfunding portals.  This would be another modified approach to regulating another category of financial intermediary.

In March 2013, Nasdaq and SharesPost announced Nasdaq Private Market (NPM), a joint venture intended to create a preeminent marketplace for private growth companies.  The road to full regulatory approval has been long but in January 2014, FINRA approved the registration as a broker-dealer of NPM Securities, LLC, a Nasdaq OMX Group brokerage unit, a necessary first step to the launch of NPM itself.  In its broker-dealer FINRA profile, NPM Securities said that it is in “the process of registering with the SEC as an alternative trading system assisting in the matching of buyers and sellers in primary and secondary offerings of the securities of privately held companies.”  The profile also revealed that NPM is owned 75% by Nasdaq OMX and the balance by SharesPost.

FINRA has released its annual letter highlighting its areas of focus.  Quite a number of the priorities reflect market changes, and reflect FINRA’s focus on developments post-JOBS Act.  For example, the letter notes that given the resurgence of the IPO market, FINRA will review the firm’s due diligence activities, monitor the completeness and accuracy of firms’ filings regarding public underwritings with FINRA’s Corporate Finance Department, and review compliance with rules concerning the sales and allocations of IPO securities, including whether firms are incenting associated persons to sell cold offerings to obtain client allocations of hot offerings.  Consistent with prior years, FINRA notes that it remains concerned with abuses in the private placement market, including the use of advertisements and marketing materials, and the diligence undertaken by placement agents in private offerings.  FINRA cites various concerns uncovered in its review of filings made pursuant to Rule 5123, such as contingency offerings with deficient escrow procedures; private placements in which the issuer is in distressed financial condition or in default on its outstanding liabilities; and raising proceeds in serial private placements to repay previous investors.  Finally, FINRA mentions its ongoing crowdfunding efforts.  Review the letter here:  http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p419710.pdf.

As we reported in a previous post (http://www.mofojumpstarter.com/2013/09/20/trace-dissemination-of-144a-data/), the SEC approved amendments to FINRA Rules 6750 and 7730, and TRACE dissemination procedures for Rule 144A trade data. FINRA has announced (see: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p375662.pdf) that these amendments will go into effect beginning June 30, 2014.

Today, FINRA released a regulatory notice with proposed funding portal rules and solicited comments on the seven rules—Funding Portal Rules 100, 110, 200, 300, 800, 900 and 12009—and related forms.

The FINRA release is available here:  http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p370743.pdf

The proposed regulations are available here:  http://www.finra.org/web/groups/industry/%40ip/%40reg/%40notice/documents/industry/p369763.pdf