SEC Approves Amendments Regarding Best Execution and Interpositioning
Effective September 8, 2009, the SEC approved amendments to NASD Rule 2320 pertaining to best execution and interpositions. The rule, as approved, makes it a requirement for all firms and registered persons to use reasonable diligence in determining the best market for a security in both customer transactions and with another broker-dealer. The firm must buy or sell in the best market to make certain that the customer receives the best possible execution under prevailing market conditions. In the past, a firm was prohibited from interposing a third party between the firm and the best available market unless the firm was able to document that “at the time of the transaction the total cost or proceeds of the transaction…was better than the prevailing inter-dealer market for the security.”

FINRA Provides Guidance on Pandemic Preparedness
With the recent outbreaks of H1N1 swine flu, FINRA issued guidance to firms to assist them with business continuity planning. Similar guidance was offered following Hurricanes Katrina and Rita. No new rules or obligations were created; however, they do offer guidance for firms susceptible to this type of business disruption.

SEC Approval and Effective Dates for New Consolidated FINRA Rules
As a part of the continuing effort in developing the new consolidated rulebook between NASD and NYSE, the SEC approved eleven new consolidated FINRA rules in August and September. All of these, with the exception of FINRA Rule 3310 (Anti-Money Laundering Compliance Program) took effect December 14, 2009. FINRA Rule 3310 will take effect January 1, 2010. FINRA has posted a Rule Conversion Chart on its website to assist firms in becoming familiar with the new rules.

Securities Industry/Regulatory Council on Continuing Education Issues Firm Element Advisory Update
The Securities Industry/Regulatory Council identifies for firms sales practice and regulatory topics for firms to consider when drafting their Firm Element training plans. Additional topics have been added or updated since the spring Advisory and are included in this notice. The Advisory can be located at www.cecouncil.com/Documents/FEA_Semi_Annual_Update.pdf.

Broker-Dealer, Investment Adviser Firm, Agent and Investment Adviser Representative, and Branch Renewals for 2010
Preliminary Renewal statements were made available to all firms on November 16, 2009 on Web CRD/IARD. Full payment of the preliminary statement was due by December 11, 2009. January 4, 2010, the final renewal statements will be available on Web CRD/IARD, with full payment due on February 5, 2010.

FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Discretionary Accounts and Transactions
NASD Rule 2510 and Incorporated NYSE Rule 408 addresses the obligations of members who exercise discretionary power over a customer’s account. The Rules prohibits firms and their representatives that have discretionary authority in a customer’s account from executing excessive transactions in the client’s account in view of the financial resources and/or character of the account. Prior written permissions must be given to the firm before a firm exercised discretion, and that each discretionary order entered must be promptly approved in writing and reviewed at frequent intervals to prevent excess transactions. Changes that are proposed in the new rule (FINRA Rule 3260) include – the person accepting the discretionary accounts, approving and reviewing discretionary orders and account must be someone other than the person vested with the discretionary power, that the approval contain the date discretionary authority was given, and that the written authorization that would grant discretion to a person other than the customer must be obtained prior to accepting the order from that person. Comments must be received by December 28, 2009.

Verification of Instructions to Transmit or Withdraw Assets from Customer Accounts
Member firms are required to have policies and procedures in place regarding transferring or withdrawals of funds and other assets from customer accounts. The procedures should include a review and monitoring process of all instructions from clients to withdraw or transmit assets from customer accounts, including instructions received from an investment advisor or other third party acting on behalf of the client. FINRA encourages firms to test the adequacy of these procedures during the firm’s annual 3012 testing.

FINRA delays the Effective Date for Increased Margin Requirements for Options on Leveraged ETFs and Day-Trading Requirements for Leveraged ETFs
FINRA had announced in August, 2009 that effective December 1, 2009, increased customer margin requirements for leveraged ETFs and uncovered options overlying leveraged ETFs. FINRA has delayed this effective date for this as well as the application of day-trading margin requirements for leveraged ETFs to April 30, 2010. However, increased maintenance margin for leveraged ETFs did take effect as originally scheduled on December 1, 2009.

SEC Approves Changes to FINRA’s Broker-Check Disclosure Rule to Retain and Make Publicly Available Information about Final Regulatory Actions Against Former Brokers
Effective November 30, 2009, any final regulatory actions against brokers as well as a representative’s employment, registration history, and qualification examination history will be permanently available to anyone in BrokerCheck, regardless of when they were employed in the securities industry. This information used to be limited to current associated persons and persons who were associated with a firm within the preceding two years.

Regulatory Element Continuing Education Fees to Increase
Effective January 4, 2010, the fee for the Regulatory Element portion of Continuing Education will increase from $75.00 to $100.00. This fee applies to all three sessions: The General Program (S101), the Series 6 Program (S106), and the Principal Program (S201).

SEC Approves Changes to the Personnel Assessment and Gross Income Assessment Fees
FINRA will implement January 1, 2010 a new Personnel Assessment (PA) rate structure and a revised calculation for the Gross Income Assessment (GIA). The GIA is currently assessed through a seven-tiered rate structure with a minimum of $1,200.  Under the change, FINRA will assess a GIA of the greater of – the amount that would be the GIA based on the existing rate structure (current year GIA) or a 3-year average of the GIA calculated by adding the current year GIA plus the GIAS assessed to the firm over the previous two calendar years. The PA is increasing to better align FINRA’s revenues with its costs.  Firms with one to five registered persons have been assessed $75 per registered person and it increases to $150; 6-25 registered persons goes from $70 each to $140; and 26 or  more registered persons will increase from $65 each to $130.

FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Payments to Unregistered Persons
FINRA is requesting comment on Proposed FINRA Rule 2040 regarding payments to unregistered persons. The comment period expires February 1, 2010.

FINRA Requests Comment on Proposed Consolidated FINRA Rules Governing Registration and Qualification Requirements
FINRA is requesting comment on how to streamline the registration and qualification processes.  Comment period expires February 1, 2010.

SEC Approves Consolidated FINRA Rules Governing Financial Responsibility
SEC approved a new set of financial responsibility rules for the consolidated rulebook. FINRA Rules 4110, 4210, 4130, 4140 and 4521 are new consolidated rules governing financial responsibility that are either based on, or replace provisions in the NASD and Incorporated NYSE Rules. This new set of rules sets forth a number of enhancements and clarifications of procedures. The rule change also amends FINRA Rules 9557 and 9559 which include providing members who are served with a notice under the financial responsibility rules an expedited appeal process. The effective date is February 8, 2010.