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Exam Alert: NYSE changes pegging quote rules

Effective February 3, 2012, the NYSE has modified its rules regarding pegging quotes. A pegging quote is a quote that is set to be available for execution at the national best bid or national best offer. This quote is automatically updated as the national best bid or offer (NBBO) changes, as long as the NBBO is at or within the quote’s limit price. Continue reading

Effective February 3, 2012, the NYSE has modified NYSE Rules 70.26 and 72 regarding pegging quotes. A pegging quote is a quote that is set to be available for execution at the national best bid or national best offer. This quote is automatically updated as the national best bid or offer (NBBO) changes, as long as the NBBO is at or within the quote’s limit price. Essentially, the broker states a range where they will match the national best bid or national best offer, and as long as the NBBO is in that range, the broker “pegs” their quote for the security to that value.

The changes are as follows:

-A pegging quote no longer matches the national best bid (or offer) if it would lock or cross the Exchange best offer (or bid). Instead, the quote matches the best-priced non-pegging quote that does not lock or cross the Exchange best offer (or bid).

-If the national best bid or offer is outside the price range chosen by the broker for a pegging quote, the quote matches the next available best-priced non-pegging quote within the selected price range.

-Brokers may no longer specify a maximum volume to limit the quotes that a pegging quote will match.

-A non-pegging quote at the Exchange best bid or offer is considered the setting interest, even if a pegging quote matches its price. The setting interest receives priority in allocation of executions.

Source: NYSE Information Memo 12-3

This alert applies to the Series 7. The Series 7 addresses NYSE rules, including Rules 70 and 72.

Exam Alert: FINRA raises exam fees

Effective April 2, 2012, FINRA will increase the fees associated with several of its qualification examinations. The fee increases range from $5 to $25. In addition, FINRA will impose a $15 service charge for examinations taken outside of the territorial limits of the United States. Continue reading

Source: FINRA Regulatory Notice 12-16

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 55, Series 62, Series 79, and Series 82.

Exam Alert: TRACE data feeds to include BSYM

Effective July 25, 2012, FINRA will update the Agency Debt Trade Dissemination Service (ATDS) and the Bond Trade Dissemination Service (BTDS) data feeds to include the BSYM (Bloomberg Symbol) for transactions in fixed income securities. The Web API for Securitized Products will also include the BSYM. Continue reading

The BSYM is a twelve-digit alphanumeric identifier for securities that is assigned by Bloomberg. Note that the BSYM only available for “data receipt processing purposes” on TRACE (Trade Reporting and Compliance Engine). The BSYM may not be used to report trades in fixed income securities to TRACE.

Sources:

TRACE Data Changes (TRACE Notice)

Bloomberg Press Release

This alert applies to the Series 7, Series 24, and Series 62.

Exam Alert: MSRB changes RTRS Facility rules

On March 20, 2012, the SEC approved amendments to the MSRB’s operational rules for the Real-time Transaction Reporting System (RTRS). The amendments have varying effective dates. The changes include:
-modified hours of operation
-calculation and dissemination of yields on inter-dealer transactions
-removal of rarely-used transaction reporting requirements
-dealer submission of prices on inter-dealer transactions
-increased dissemination of customer transactions Continue reading

-modified hours of operation

-calculation and dissemination of yields on inter-dealer transactions

-removal of rarely-used transaction reporting requirements

-dealer submission of prices on inter-dealer transactions

-increased dissemination of customer transactions

The following change is effective March 20, 2012:

-RTRS will accept and disseminate any trade reports received between 6:00 AM and 9:00 PM. This is an increase from the prior RTRS “Window” Hours, which were from 7:00 AM to 8:00 PM.

The following changes are effective April 30, 2012:

-RTRS will be reprogrammed to calculate and disseminate the yield for most inter-dealer transactions. Currently, RTRS only reports the dollar prices of inter-dealer transactions, but reports both the dollar price and yield for customer trades.

-MSRB rules will no longer require reporting additional details about certain trades to RTRS in two situations:

1. The identity of an “intermediate dealer” (a broker that passes trade data from an effecting broker to a clearing broker) will no longer need to be included on trade reports.

2. Trades that are reported with the “away from the market – extraordinary settlement” special condition indicator will instead be reported with the generic “away from the market” indicator.

The following changes are effective on a date to be announced by the MSRB, but not later than November 30, 2012:

-Dealers will be required to report the contractual dollar price of their inter-dealer transactions. Currently, RTRS calculates a price based on the final money, par amount, and accrued interest submitted to the DTCC (Depository Trust & Clearing Corporation). This change is to avoid RTRS errors that occur when the system tries to calculate the price of a trade and the par value of the traded bonds is a value other than $1,000.

-RTRS will disseminate trade reports for customer transactions if the dealer-reported price and the RTRS-calculated price are within one dollar of each other. Currently, if there is any difference between the two prices, RTRS returns an error to the dealers and does not disseminate the trade.

Source: MSRB Notice 2012-15

This alert applies to the Series 7.

Exam Alert: SEC approves changes to FINRA’s Code of Procedure

The SEC has approved amendments to FINRA’s Code of Procedure that modify the specifics of how various proceedings are conducted. These changes will be effective on March 30, 2012. The changes are described as “procedural in nature,” and are generally minor changes, though they affect several different rules. Continue reading

A breakdown of the changes is as follows:

-Service of Complaint: A complaint may be served to the counsel representing a party, instead of to the party directly, if the counsel consents to receive it.

-Filing Papers with Adjudicator: Email may be used to file documents with an adjudicator. Footnotes should be single-spaced. The number of copies to be filed has decreased from three to one (unless otherwise ordered).

-Motion to Withdraw by Attorney: If an attorney representing one of the parties seeks to withdraw, he or she must provide contact information for the party no longer being represented.

-Subjects Discussed at Pre-Hearing Conference: During a pre-hearing conference, a hearing office may act upon relevant portions of transcripts from investigative testimony.

-Fees for Copying Costs During Discovery: FINRA staff determine the rates for copying materials.

-Submission of Evidence: Documents submitted prior to a hearing are not automatically entered into record for that hearing (to minimize duplication).

-Hearing Panel and NAC Decisions: Decisions must be independently stated only if they are not already on record.

-Review Proceedings: The Review Subcommittee may review decisions.

-Oral Argument on Appeal: If a respondent appeals a decision and requests an oral argument, but then abandons the request or is unreasonably unavailable, the reviewing committee/subcommittee may cancel the oral argument.

-Failure to Participate in a Disciplinary Proceeding: The reviewing committee/subcommittee must remand a disciplinary proceeding if the appealing party fails to participate and shows good cause.

-Filing Papers in Eligibility Proceedings: Consent from all parties is no longer required for a hearing panel to extend filing deadlines for an eligibility proceeding.

-Procedural Motions in Eligibility or Expedited Proceedings: The National Adjudicatory Council (NAC) may decide any procedural motion made for an eligibility or expedited proceeding.

Source: FINRA Regulatory Notice 12-12

This alert applies to the Series 62, Series 26, Series 24, Series 7, and Series 82.

Exam Alert: SEC approves consolidated FINRA Best Execution rule

The SEC has approved changes to FINRA’s Best Execution rule that will take effect on May 31, 2012. Four new pieces of supplementary material were added to the rule that address the following topics: securities with limited quotation or pricing information, orders for securities with no U.S. market, customer instructions regarding the routing of orders, and regular and rigorous reviews of execution quality. The new rule is otherwise generally similar to the old rule. Continue reading

Here is a breakdown of the new supplementary material:

1. Supplementary Material .06: Securities with Limited Quotation or Pricing Information

This material replaces the old “Three Quote Rule.” The new material does not specify a minimum number of quotes that must be obtained – rather, it emphasizes that members must be diligent in complying with best execution practices when there are customer orders for securities with limited quotation or pricing information. The material requires that the member have written policies in place to ensure that they meet their best execution requirements.

2. Supplementary Material .07: Orders for Foreign Securities with No U.S. Market

This material states that in order to determine if a firm used reasonable diligence in executing orders in a given market, the firm must analyze the “facts and circumstances” of the situation. The material requires that if a firm trades in a security that does not trade in the U.S., the firm must have written policies in place to ensure best execution of customer orders. The policies must be reviewed regularly.

3. Supplementary Material .08: Customer Instructions Regarding the Routing of Orders

This material specifies that when a customer requests the firm to route their order to a specific market, the firm is not required to make a best execution determination beyond the customer’s instructions. The firm must still process the customer’s order promptly, however.

4. Supplementary Material .09: Regular and Rigorous Review of Execution Quality

This material codifies existing requirements for reviewing the firm’s execution quality. These requirements were previously established through SEC releases and FINRA notices.

Source: FINRA Regulatory Notice 12-13

This alert applies to the Series 62, Series 55, Series 24, and Series 99.

Exam Alert: FINRA requires firms to file SSOI supplement to FOCUS Reports

FINRA Rule 4524, which became effective on February 28, 2012, allows FINRA to require member firms to file supplemental reports to their Financial and Operational Combined Uniform Single (FOCUS) Report. FINRA will require firms to file the Supplemental Statement of Income (SSOI), which provides a more detailed breakdown of certain financials than the Statement of Income page of the FOCUS Report. Firms that derive more than 10% of their revenues from unregistered offerings will be required to complete an Operational Page that requires additional information about each unregistered offering. Firms will have to file the SSOI within 20 business days of the end of each calendar quarter, and the due date for the first required SSOI is October 26, 2012.

Source: FINRA Regulatory Notice 12-11

This alert applies to the Series 24, the Series 26 and the Series 99.

Exam Alert: SEC requests that broker-dealers provide FINRA with SAR information

Member firms must make suspicious activity reports (SARs) and supporting documentation available to FINRA, as well as any information that would reveal the existence of an SAR or any decision not to file an SAR. Continue reading

On January 26, 2012, the SEC issued a letter that authorized FINRA to request suspicious activity reports (SARs) and supporting documentation from member firms when FINRA conducts examinations, investigations, or risk assessment for its examination program. Member firms must make these documents available to FINRA, as well as any information that would reveal the existence of an SAR or any decision not to file an SAR.

Source: FINRA Regulatory Notice 12-08

This alert applies to the Series 79, Series 62, Series 6, Series 26, Series 24, Series 99, Series 7, and Series 82

Exam Alert: SEC rule excludes home value from net worth calculation for “qualified clients”

An SEC rule change announced on February 15, 2012, will exclude the value of an investor’s home from the “qualified client” net worth calculation. Continue reading

A qualified client is a client that may be charged performance-based fees by an investment adviser. The threshold for determining whether a client is a qualified client is if they have at least $1 million in assets under management with the adviser or if they have a net worth of at least $2 million. An SEC rule change announced on February 15, 2012, will exclude the value of an investor’s home (primary residence) from the net worth calculation. The rule amendment will take effect 90 days after publication in the Federal Register.

Source: SEC Release 2012-29

This alert applies to the Series 63, Series 65, Series 66, and Series 24.

Exam Alert: US Labor Dept requires disclosures from plan service providers

The US Labor Department has finalized a rule under ERISA that will require service providers for pension plans to disclose information about their fees to the employers sponsoring the plans. The rule will be effective July 1, 2012. Continue reading

The rule will require disclosure of the service provider’s compensation structure (including both “direct” compensation from the plan sponsor and “indirect” compensation from other sources), as well as potential conflicts of interest. The rule is limited in scope to ERISA-covered defined benefit and defined contribution pension plans. The rule applies to service providers who expect to receive at least $1,000 in compensation for specified plan-related services, including fiduciary, advisory, brokerage, and recordkeeping services, or other financial services for which they receive indirect compensation.

Sources:

U.S. Treasury, Labor Departments Act to Enhance Retirement Security for an America Built to Last

Fact Sheet – Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2)

This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, Series 65, Series 66, and Series 82 – these exams address ERISA considerations.