80 FR 40092 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change to Amend FINRA Rule 2210 (Communications with the Public)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 133 (July 13, 2015)

Page Range		40092-40098
FR Document		2015-16978
Federal Register, Volume 80 Issue 133 (Monday, July 13, 2015)
[Federal Register Volume 80, Number 133 (Monday, July 13, 2015)]
[Notices]
[Pages 40092-40098]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-16978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75377; File No. SR-FINRA-2015-022]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change to Amend 
FINRA Rule 2210 (Communications with the Public)

July 7, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 29, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 2210 to require each of a 
member's Web sites to include a readily apparent reference and 
hyperlink to BrokerCheck on: (i) The initial Web page that the member 
intends to be viewed by retail investors; and (ii) any other Web page 
that includes a professional profile of one or more registered persons 
who conduct [sic] business with retail investors. These requirements 
would not apply to a member that does not provide products or services 
to retail investors, or to a directory or list of registered persons 
limited to names and contact information.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA established BrokerCheck in 1988 (then known as the Public 
Disclosure Program) to provide the public with information on the 
professional background, business practices, and conduct of FINRA 
members and their associated persons. The information that FINRA 
releases to the public through BrokerCheck is derived from the Central 
Registration Depository (``CRD[supreg]''), the securities industry 
online registration and licensing database. FINRA members, their 
associated persons and regulators report information to the CRD system 
via the uniform registration forms. By making most of this information 
publicly available, BrokerCheck, among other things, helps investors 
make informed choices about the individuals and firms with which they 
conduct business.
    In January 2013, FINRA filed with the SEC a proposed rule change to 
amend FINRA Rule 2267 (Investor Education and Protection) \3\ to 
require all members to include a prominent description of and link to 
BrokerCheck on their Web sites, social media pages and any comparable 
Internet presence, as well as on the Web sites, social media pages and 
any comparable Internet presence relating to a member's investment 
banking or securities business maintained by or on behalf of any person 
associated with a member.\4\ The proposed rule change was intended to 
increase investor awareness and use of BrokerCheck. The Commission 
received 24 comment letters in response to the proposed rule change. 
FINRA withdrew the filing to better understand commenters' concerns 
regarding the challenges of implementing the proposed rule change.
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    \3\ Subject to limited exceptions, FINRA Rule 2267(a) requires 
members to provide annually in writing to each of their customers 
the BrokerCheck hotline number, the FINRA Web site address, and a 
notification of the availability of an investor brochure that 
describes BrokerCheck.
    \4\ See Securities Exchange Act Release No. 68700 (January 18, 
2013), 78 FR 5542 (January 25, 2013) (Notice of Filing of SR-FINRA-
2013-002). See also infra Item II.C. of the filing for further 
discussion of the 2013 filing and prior proposals.
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    Many of the comments received on the 2013 proposed rule change 
expressed concern with the challenges of implementing the proposal with 
respect to social media pages, the lack of guidance with respect to 
terms and phrases in the proposed amendments, and the disadvantages of 
using a ``deep'' link to BrokerCheck summary reports that would bypass 
the BrokerCheck homepage.\5\ Commenters suggested that the link to 
BrokerCheck be required initially for member Web sites, where its 
implementation would be relatively straightforward, and that the value 
of the link be assessed first in that context before expanding to third 
party sites.
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    \5\ The SEC also received numerous comment letters that raised 
issues outside the scope of the proposed rule change to FINRA Rule 
2267. These comment letters focused generally on concerns regarding 
the current operation and display of BrokerCheck reports.
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    In light of commenters' concerns, FINRA has developed a revised 
proposal that addresses member Web sites. Specifically, the revised 
proposal would amend FINRA Rule 2210 (Communications with the Public) 
to require each of a member's Web sites to include a readily apparent 
reference and hyperlink to BrokerCheck on: (i) The initial Web page 
that the member intends to be viewed by retail investors; and (ii) any 
other Web page that includes a professional profile of one or more 
registered persons who conduct

[[Page 40093]]

[sic] business with retail investors. The proposal would not apply to a 
member that does not provide products or services to retail investors, 
or a directory or list of registered persons limited to names and 
contact information.
    FINRA believes that the revised proposal addresses many of the 
commenters' concerns on the original proposal to amend Rule 2267. By 
incorporating the proposed rule change into the regulatory framework 
for communications with the public, the revised proposal would group 
the proposed requirement with other related standards that apply to 
member Web sites. By excluding those members that do not provide 
products and services to retail investors, the revised proposal is more 
aligned with its goal of increasing retail investor awareness and usage 
of BrokerCheck. FINRA also believes that the revised proposal should 
reduce the potential burden on members by clarifying that the 
requirement would not apply to directory pages limited to registered 
persons' names and contact information, since firms would not need to 
include as many links to BrokerCheck on their Web sites.
    The revised proposal also responds to commenters' concerns with 
respect to communications on third-party sites that are not controlled 
by the member, such as social media sites, by limiting its application 
to Web sites of the member, rather than applying its requirements to 
third-party sites, such as social media sites, which the member does 
not control. The revised proposal also no longer requires a deep link 
to the BrokerCheck report of a member or registered person; instead, it 
would require a link to the BrokerCheck homepage.
    FINRA will announce the implementation date of the proposed rule 
change in a Regulatory Notice to be published no later than 60 days 
following Commission approval. The effective date will be no later than 
180 days following publication of the Regulatory Notice announcing 
Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change will help 
protect investors by making them aware of information available on 
BrokerCheck by requiring links to BrokerCheck on member Web sites.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA recognizes that the 
proposed rule change would impose burdens on members associated with 
implementing references and hyperlinks to BrokerCheck on their Web 
sites and to keep those references and hyperlinks current. However, 
FINRA believes that by limiting the application of the proposal only to 
a member's own Web sites, the revised proposal significantly reduces 
these implementation costs for members, while maintaining the 
proposal's investor protection goals.
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the regulatory need for the proposed rulemaking, its 
potential economic impacts, including anticipated costs and benefits, 
and the alternatives FINRA considered in assessing how to best meet its 
regulatory objectives.
Economic Impact Assessment
A. Regulatory Need
    BrokerCheck provides investors with information on the professional 
background, business practices, regulatory history, and conduct of 
members and their associated persons. Among other things, BrokerCheck 
helps investors make well-informed choices about the individuals and 
firms with which they conduct business. FINRA believes that the need 
for greater investor awareness and access to BrokerCheck continues to 
be important to protect investors. The proposed rule change will help 
increase investor awareness and make it easier for investors to find 
BrokerCheck by requiring references and hyperlinks to BrokerCheck on 
member Web sites.
B. Economic Impacts
(i) Anticipated Benefits
    FINRA believes that BrokerCheck serves as a critical source of 
information for investors and considers BrokerCheck to be among the 
first resources they should turn to when choosing whether to do 
business with a particular firm or registered person. BrokerCheck 
enables investors to search for and download information on 
professional background and regulatory history of members and their 
registered persons, thereby reducing the direct and indirect costs 
associated with acquiring valuable information about the members and 
their registered persons (``search costs'').\7\ As discussed above, the 
proposed rule will increase investor awareness and the likely usage of 
BrokerCheck. By making more investors aware of the information 
available on BrokerCheck, the proposed rule will make investors' 
searches for information about firms and registered persons more 
efficient and will help them make more informed decisions about whether 
to do business with a particular firm or registered person, thereby 
enhancing investor protection.
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    \7\ Search costs encompass the time, energy and money expended 
by a consumer who is researching a product or service for purchase. 
See, e.g., Meir G. Kohn & Steven Shavell, The Theory of Search, 9 
Journal of Economic Theory 93 (1974); Simon P. Anderson & Regis 
Renault, Pricing, Product Diversity, and Search Costs: A Bertrand-
Chamberlin-Diamond Model, 30, No. 4 The RAND Journal of Economics 
719 (1999).
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(ii) Anticipated Costs
    The proposed rule change will impose costs on members that provide 
products and services to retail investors, which FINRA estimates to be 
approximately 3,800 members.\8\ These members would incur costs 
associated with identifying the Web pages that would need to be updated 
based upon this proposed rule and determining where to place the 
references and hyperlinks within these Web pages, updating the required 
Web pages, as well as testing and deploying the updated Web site. In 
addition, these members would incur costs associated with maintaining 
the links on their Web pages and updating their policies and procedures 
to ensure ongoing compliance as their Web sites are updated or new Web 
pages are added over time. Members would have flexibility on how best 
to link to BrokerCheck, which is intended to

[[Page 40094]]

reduce costs by allowing members to choose the most cost-effective 
option.
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    \8\ FINRA's estimate is based on the types of business in which 
members are engaged (based on information provided in response to 
Question 12 on Form BD). FINRA identified businesses that are 
generally associated with products and services for retail investors 
and estimates that approximately 3,800 members are engaged in such 
retail-oriented businesses. FINRA notes that this estimate includes 
members engaged in private placements of securities. Form BD 
information identifies members engaged in private placements but 
does not distinguish between those who conduct private placement of 
securities with retail versus institutional investors as those terms 
are defined in Rule 2210. However, based on staff experience, FINRA 
believes that a significant portion of the members engaged in 
private placements provide products and services to retail 
investors. Nonetheless, FINRA notes that the estimates in this 
proposal could be overstated and serve as an upper-bound for the 
number of impacted members and the corresponding aggregate cost 
estimates, discussed below.
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    Based on staff experience, FINRA estimates that on average the 
initial implementation costs for large members would be approximately 
$2,400 per member, and for mid-size and small members \9\ the costs are 
estimated to be approximately $128 per member.
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    \9\ Based on FINRA By-Laws, Article I (Definitions), members 
with 150 or fewer registered representatives are classified as 
small, members with 151 to 499 registered representatives are 
classified as mid-size, and members with 500 or more registered 
representatives are classified as large.
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    These estimates are based on FINRA's assumption that large members 
typically have full-featured Web sites that dynamically generate Web 
pages based on data and logic. The technology personnel at these 
members would be required to update the underlying information in order 
to automate the implementation of references and hyperlinks to 
BrokerCheck across all applicable Web pages. FINRA estimates that on 
average it would take large members approximately 60 hours of 
technology staffs' time to make the required updates, which at a $40 
hourly rate would cost approximately $2,400 per firm.\10\ FINRA assumes 
that mid-size and small members typically have less complex Web sites, 
which they manage and maintain with non-technical staff. These members 
would use personnel in non-technical roles to accomplish the required 
updates to their Web sites. FINRA estimates that on average it would 
take mid-size or small members approximately eight hours of non-
technical staffs' time to make the required updates, which at a $16 
hourly rate would cost approximately $128 per member.\11\
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    \10\ The $40 per hour estimate is based on the high end of the 
compensation range for web application developers, reported on 
publicly available sources. For example, the total compensation, 
including salary, bonus and other benefits, reported for web 
applications developer on payscale.com ranges from $33,122 to 
$84,271, which on an hourly basis is approximately $16-$41 per hour. 
See http://www.payscale.com/research/US/Job=Web_Developer/Salary 
(accessed May 20, 2015).
    \11\ For the purpose of estimating costs for mid-size or small 
members, FINRA uses a $16 hourly rate, which corresponds to the low 
end of the compensation range for a web application developer, as 
discussed above.
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    FINRA notes that costs associated with updating existing Web sites 
to include the required information will likely vary significantly 
across members depending on the scope and design of their Web sites, 
the extent to which the Web sites are automated (e.g., include content 
management systems that dynamically generate Web pages) and the number 
of Web pages that include professional profiles of the applicable 
registered representatives. FINRA further estimates that there are 
approximately 175 large members and 3,625 mid-size and small members 
that provide products and services to retail investors and would be 
required to implement references and hyperlinks to BrokerCheck on their 
Web sites. Based on its average cost estimates for large, mid-size and 
small members, FINRA estimates that the total implementation costs 
associated with this rule proposal to the membership would be 
approximately $884,000.\12\
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    \12\ As discussed above, FINRA estimates that there are 175 
large members that would be required to implement references and 
hyperlinks to BrokerCheck on their Web sites, and the implementation 
costs for these large firms would be approximately $2,400 per firm. 
Thus, the total implementation costs for these large members would 
be approximately $420,000 ($2,400 x 175). Similarly, the total 
implementation cost for the 3,625 mid-size and small members, based 
on a $128 per firm estimate, would be approximately $464,000 ($128 x 
3,625). Hence, the total implementation cost across all members is 
anticipated to be about $884,000.
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    In addition to the initial implementation costs, members would also 
incur ongoing costs associated with maintaining the links on their Web 
pages and creating and maintaining procedures and internal controls to 
ensure that they remain compliant with the proposed rule. However, 
FINRA believes that the ongoing compliance costs associated with this 
rule proposal would likely be minimal because, apart from standard Web 
site upkeep, ``static'' BrokerCheck hyperlinks and references would 
require minimal (if any) additional maintenance on an ongoing 
basis.\13\ FINRA will read with interest comments from members on the 
anticipated costs of compliance with the proposal.
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    \13\ Ongoing costs associated with maintaining hyperlinks could 
be significant if the underlying hyperlinks change regularly over 
time. However, considering that FINRA does not anticipate changing 
the BrokerCheck hyperlink, costs associated with maintaining such a 
link are anticipated to be minimal.
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C. Alternatives
    In considering how to best meet its regulatory objectives, FINRA 
considered several alternatives to particular features of this 
proposal. For example, some commenters suggested that the goals of the 
rule could be attained more cost effectively if FINRA were to advertise 
BrokerCheck and its benefits to investors more aggressively. FINRA 
agrees that better recognition of the benefits of BrokerCheck will 
serve the investing public well and is considering additional ways in 
which to enhance awareness. FINRA believes that the proposed rule 
change serves as a well-calibrated effort to reduce investor search 
costs and to provide investors access to critical information as they 
make their decision regarding whether to engage in business with a 
particular firm or individual.
    In developing this proposal, FINRA considered requiring members to 
include links to BrokerCheck on third-party Web sites, including social 
media sites. Several commenters expressed concerns about this 
requirement. As discussed in more detail below, commenters pointed out 
the limitations in their ability to control the content and features of 
third-party Web sites, and the significant costs associated with 
complying with such a requirement. FINRA recognizes the difficulties 
and costs associated with including links on third-party Web sites, and 
as a result FINRA has determined at this time to exclude the third-
party Web site requirement and limit the application of the rule 
proposal to members' Web sites.
    Finally, FINRA initially proposed that members would be required to 
include a deep link to BrokerCheck summary reports. These links would 
direct investors to the specific BrokerCheck page representing the 
collected information for an individual broker. Commenters noted the 
disadvantages of using a deep link that would bypass the BrokerCheck 
homepage, and speculated that there would be significant costs and 
operational challenges associated with including and tracking deep 
links. Based on these comments, FINRA has determined not to require the 
deep link in the proposed rule at this time.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

Background
    In February 2012, FINRA published Regulatory Notice 12-10 seeking 
comment on a proposal regarding ways to facilitate and increase 
investor use of BrokerCheck information. A copy of the Regulatory 
Notice is attached as Exhibit 2a.\14\ FINRA received 71 comment letters 
in response to Regulatory Notice 12-10. In January 2013, FINRA filed 
with the SEC SR-FINRA-2013-002, a proposed rule change to amend FINRA 
Rule 2267 to require that members include a prominent description of 
and link to BrokerCheck on their Web sites, social media pages and any 
comparable Internet presence and on Web sites, social media pages and 
any comparable Internet presence relating to a member's investment 
banking or securities

[[Page 40095]]

business maintained by or on behalf of any person associated with a 
member. A copy of the 2013 Notice of Filing is attached as Exhibit 2b. 
On January 25, 2013, the 2013 filing was published for comment in the 
Federal Register, and the SEC received 24 comment letters in response 
to the proposal. FINRA withdrew the filing on April 18, 2013 to assess 
and respond to commenters' concerns.
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    \14\ The Commission notes that the Exhibits referred to herein 
(Exhibits 2a--2e) are attached to the filing, not to this Notice.
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    In light of concerns raised on the earlier proposals, in April 
2014, FINRA published Regulatory Notice 14-19 (``Notice 14-19''), 
requesting comment on the rules as proposed therein (the ``Notice 14-19 
proposal''). A copy of Notice 14-19 is attached as Exhibit 2c. The 
comment period expired on June 16, 2014. FINRA received 22 comments in 
response to Notice 14-19. A list of the commenters in response to 
Notice 14-19 is attached as Exhibit 2d, and copies of the comment 
letters received in response to Notice 14-19 are attached as Exhibit 
2e.\15\ A summary of the comments and FINRA's response is provided 
below.
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    \15\ See Exhibit 2d for a list of abbreviations assigned to 
commenters.
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    The Notice 14-19 proposal would have required a member to include a 
readily apparent reference and hyperlink to BrokerCheck on each firm 
Web site that is available to retail investors. It also would have 
required a member to include a readily apparent reference and hyperlink 
to BrokerCheck in online retail communications with the public that 
include a professional profile of, or contact information for, an 
associated person.
    The requirement to include a link to BrokerCheck where there is 
contact information or a professional profile of an associated person 
would have been subject to the following conditions:
     If the retail communication appeared on the member's Web 
site or any site that it hosted, the link would have had to appear in 
close proximity to the profile or contact information.
     If the retail communication appeared on a third-party Web 
site (such as a social media page) that permitted a hyperlink to 
another Web site, the member would have been required to either:
    [cir] Post a hyperlink to BrokerCheck in close proximity to the 
profile or contact information; or
    [cir] Post a hyperlink to the member's Web site, which included a 
readily apparent reference and hyperlink to BrokerCheck, in close 
proximity to the profile or contact information. The third-party Web 
site would have had to disclose that a hyperlink to BrokerCheck is 
available through the linked Web site.
     If the retail communication appeared on a third-party Web 
site that did not permit a hyperlink to another Web site, the member 
would have been required to provide the BrokerCheck web address (URL) 
in close proximity to the profile or contact information and, to the 
extent feasible, disclose that information concerning the associated 
person is available through BrokerCheck.
    The proposal would have excepted from these requirements:
     Electronic mail and text messages;
     A retail communication that is posted on an online 
interactive forum (such as a message board, Twitter feed or chat room);
     A member that does not provide products or services to 
retail investors; and
     A directory or list of associated persons limited to names 
and contact information.
    Seven commenters supported the proposal.\16\ Six commenters opposed 
the proposal.\17\ Eight commenters did not expressly support or oppose 
the proposal, but recommended changes to, or sought clarification of, 
the proposal.\18\ One commenter expressed overall opposition to FINRA 
and to BrokerCheck in particular.\19\
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    \16\ See GSU, NASAA, ICI, PIRC, PIABA, University of Miami 
School of Law Investor Rights Clinic, and Teresa Vollenweider.
    \17\ See Alpine, Buckman, Farmers, First Georgetown, MSTC, and 
Windham.
    \18\ See Schwab, CAI, Commonwealth, FSI, Lincoln, NFP, SIFMA, 
and Wells Fargo.
    \19\ See Carrie Devorah.
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Comments Supporting Proposal
    Commenters supporting the proposal stated that the benefits of the 
proposal outweigh its potential costs, and that the proposal would 
increase investors' awareness of BrokerCheck. Four commenters \20\ 
supported the proposal overall, but opposed the omission of the 2013 
version's requirement to include a deep link to an associated person's 
BrokerCheck report. These commenters stated that investors would have 
difficulty searching for a particular broker's BrokerCheck report on 
the FINRA Web site without a deep link, particularly where a broker has 
a common name, such as John Smith. One commenter recognized the 
difficulty of including deep links on third-party sites, but suggested 
that FINRA at least require deep links from pages on a member's Web 
site that include a broker's contact or profile information.\21\ One 
commenter suggested that FINRA inquire of its examination staff or, 
alternatively, poll members firms to ascertain and compare utilization 
rates of the different types of online communications occurring between 
a financial advisor and their clients and gear the requirements toward 
embedding links to BrokerCheck and deep links to individual financial 
advisors in those communications.\22\
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    \20\ See NASAA, GSU, PIRC and PIABA.
    \21\ See GSU.
    \22\ See NASAA.
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    Two commenters \23\ opposed the exception for electronic mail. 
PIABA noted that including a link to BrokerCheck in an associated 
person's email signature block would not be burdensome. PIABA also 
recommended that the proposal require a BrokerCheck description and 
hyperlink be placed in printed customer account statements. PIABA 
further recommended changes to BrokerCheck itself to increase the 
information available to investors.
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    \23\ See NASAA and PIABA.
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Comments Opposing the Proposal
    Six commenters opposed the proposal. All cited the potential 
compliance burdens associated with this proposed rule change as a 
principal reason not to adopt it, particularly the burdens it would 
impose on small members. Two commenters strongly opposed the proposal 
because they believe BrokerCheck presents a biased and unfavorable view 
of securities firms and their personnel.\24\
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    \24\ See Alpine and Buckman.
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    Many questioned the potential benefits the proposal would offer to 
investors, noting that investors may already search for information 
about members and their representatives, such as through Google or the 
FINRA Web site.\25\ One commenter also noted that the proposal will 
require a small firm compliance officer to divert resources from 
servicing client accounts and instead use them to achieve compliance 
with a rule that offers little public benefits.\26\
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    \25\ See Farmers, First Georgetown, MSTC, and Windham.
    \26\ See Windham.
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Comments Recommending Changes to or Clarifications of the Proposal
    A number of commenters expressed concerns with requirements to 
include links and disclosures on third-party Web sites not controlled 
by a member.\27\ Commenters noted that members do not control the 
content, appearance, or features of third-party sites, and thus are 
dependent on these sites in terms of complying with the rule proposal.
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    \27\ See Schwab, CAI, FSI, Lincoln, SIFMA and Wells Fargo.

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[[Page 40096]]

    Commenters pointed out that the proposal appears to be based on 
technology and social media site rules as they appear today, without 
taking into account future changes. For example, commenters stated the 
rules fail to explain a member's responsibilities if a third-party site 
revised its rules and no longer allowed links to other Web sites. These 
commenters also argued that the proposal inadequately addressed limits 
imposed by third-party sites. For example, although Twitter allows a 
single link to another site, its Profile section limits the user to 160 
characters, hardly enough to include either a link to BrokerCheck, or a 
link to a member's Web site plus the additional disclosure required by 
the rule proposal. In addition, the requirement would preclude a member 
from including any other content in the Profile section.
    SIFMA recommended that FINRA alter its proposal to make it more 
principles-based with respect to requirements applicable to third-party 
sites. SIFMA suggested that the rule be revised to use ``should, to the 
extent reasonable'' or similar language regarding third-party site 
linking and disclosure obligations instead of ``must.'' Wells Fargo 
recommended that the proposal should relieve members of its 
requirements if a third-party site cannot accommodate a firm's request 
to include the required link or disclosures.
    Commenters requested that FINRA clarify that the rule proposal does 
not apply to either: (i) Search-engine based, text-only advertising 
(such as advertisements generated by Google or Bing); or (ii) other 
``static'' web-based advertising that contains general references to 
the services provided by an associated person and includes a link to 
the person's profile page.\28\ One commenter also requested that the 
proposal expressly exclude certain types of online retail 
communications, such as interviews, articles, reprints, award listings, 
biographies, sponsorships, press releases, radio replays, and 
advertisements that include associated persons' profiles or contact 
information.\29\
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    \28\ See SIFMA and Wells Fargo.
    \29\ See Wells Fargo.
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    Commenters also urged FINRA to clarify when a member would be 
deemed to have ``adopted'' or become ``entangled'' with a third-party 
Web site, thus making it responsible for including a link to 
BrokerCheck on the site.\30\ One commenter recommended that FINRA make 
clear in the rule language that it does not apply to a third-party site 
that a member has not adopted or become entangled with.\31\
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    \30\ See CAI and Commonwealth.
    \31\ See Commonwealth.
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    Commenters requested that FINRA clarify the extent to which a 
member must include a BrokerCheck link on its own Web site.\32\ For 
example, does a member have to include a link on each Web page of the 
firm's Web site, or only once on its homepage? Also, what if a member 
has contact information or profiles of multiple representatives on a 
single Web page? Does the member have to include multiple links to 
BrokerCheck, or may it only include one such link?
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    \32\ See CAI, Commonwealth, Lincoln and SIFMA.
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    The ICI recommended that FINRA provide members with flexibility as 
to where on a firm's Web site a link to BrokerCheck must appear. For 
example, a member should be allowed to include the link on a Web page 
that the member reasonably determines will draw the attention of retail 
investors. SIFMA and the ICI also requested that FINRA clarify that 
members may use ``buffer'' screens that inform a user that they are 
leaving the firm's Web site before the user lands on the BrokerCheck 
Web site.
    Given that FINRA includes a link to BrokerCheck on its own Web 
site, one member asked whether a link to the FINRA Web site would meet 
the rule's requirements.\33\ This commenter noted that, if so, the rule 
proposal appears to be redundant, given that FINRA Rule 2210(e)(3) 
already requires members that indicate FINRA membership to include a 
link to FINRA's Web site.
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    \33\ See NFP.
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    Two commenters recommended that the proposal only apply to Web 
pages that provide contact or profile information for registered 
representatives, rather than all associated persons.\34\
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    \34\ See CAI and Lincoln.
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    SIFMA and Wells Fargo requested that the exception for directories 
be clarified. First, SIFMA sought clarification that including a link 
to an associated person's profile page in a directory would not trigger 
the requirements to include a link to and description of BrokerCheck. 
Second, they urged FINRA to allow more information in directories 
without requiring a BrokerCheck link, such as general biographical 
information and areas of expertise.
    The ICI and SIFMA recommended that FINRA expand the exception for 
email and text messages to include other similar forms of messaging. 
This expansion would take into account future technological changes to 
electronic messaging.
    SIFMA requested clarification that the rule proposal would not 
apply to mobile device ``apps'' or other web-based applications (such 
as trading platforms or OES) that provide customers with access to 
their accounts and other member-provided information and capabilities. 
SIFMA also requested that FINRA include a safe harbor for broken links 
that allow members time to correct any links that subsequently fail.
    Commenters agreed with the revision to the prior proposal that 
eliminated the requirement to include a deep link to a member's or 
associated person's BrokerCheck report.\35\ Commenters noted that the 
costs of including and tracking deep links in member and third-party 
Web sites would have been significant and operationally unfeasible.
---------------------------------------------------------------------------

    \35\ See Schwab, CAI, Commonwealth, FSI, SIFMA and Wells Fargo.
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    Commenters reiterated opponents' views that the proposal would 
impose significant costs and burdens on members.\36\ These costs 
include requiring members to create and implement new written policies 
and procedures, and performing ongoing surveillance of firm and 
associated persons' Web sites to ensure compliance with the rule 
proposal. One member noted that it has approved roughly 1,000 LinkedIn 
profiles, and that in order to achieve compliance with the rule, the 
firm would have to incur 700 employee hours (or nearly 17 weeks of a 
full-time employee's time).\37\
---------------------------------------------------------------------------

    \36\ See CAI, FSI, Lincoln, SIFMA and Wells Fargo.
    \37\ See Lincoln.
---------------------------------------------------------------------------

    Commenters recommended that the Chief Economist's office perform a 
cost-benefit analysis of the rule proposal to ensure that its benefits 
will exceed its costs before FINRA proceeds with the proposal. Other 
commenters urged that, if FINRA adopts the rule proposal, members be 
given at least six months to implement any required changes.\38\
---------------------------------------------------------------------------

    \38\ See ICI, SIFMA and Wells Fargo.
---------------------------------------------------------------------------

    Commenters also recommended that FINRA explore alternatives to 
requiring links to BrokerCheck as a means to increase investor 
knowledge and usage of the site.\39\ For example, FINRA could pursue 
its own investor outreach program, or encourage state securities 
regulators to include links to BrokerCheck on their Web sites. FINRA 
could make the references to BrokerCheck on its own Web site more 
prominent and user-friendly, and improve the visual quality and clarity 
of BrokerCheck summary reports. FINRA could also target focus groups in 
order to identify possible alternative means of

[[Page 40097]]

facilitating and increasing investor use of BrokerCheck.
---------------------------------------------------------------------------

    \39\ See Schwab, CAI, and FSI.
---------------------------------------------------------------------------

General Comments
    One commenter strongly criticized FINRA's commitment to protect 
investors. The commenter noted that the proposal would do little good 
because, in this commenter's view, it would merely present ``expunged 
backgrounds and brokercheck historys [sic] that are, too often, 
fairytales.'' \40\
---------------------------------------------------------------------------

    \40\ See Carrie Devorah.
---------------------------------------------------------------------------

Response to Comments
    As discussed above, many of the comments either opposing the 
proposal in full, or recommending changes to the proposal, concerned 
requirements in the Notice 14-19 proposal that would have required 
members to include links to BrokerCheck on third-party Web sites, such 
as social media sites. FINRA believes it has addressed these concerns 
by revising the current proposal to limit its applicability to a 
member's own Web site. FINRA however will further consider the 
commenters' concerns regarding links on third-party Web sites and 
determine whether to pursue separate rulemaking addressing such links.
    Under the current version, each of a member's Web sites must 
include a readily apparent reference and link to BrokerCheck on: (i) 
The initial Web page that the member intends to be viewed by retail 
investors; and (ii) any other Web page that includes a professional 
profile of one or more registered persons who conduct [sic] business 
with retail investors. The current version provides exceptions from 
these requirements for: (i) A member that does not provide products or 
services to retail investors; and (ii) a directory or list of 
registered persons limited to names and contact information. The 
current version would not require a member to include a link to 
BrokerCheck from any third-party Web site, such as a social media site.
    FINRA does not agree that it is necessary at this time to reinstate 
a requirement to include a deep link to a member's or a registered 
person's BrokerCheck report. A deep link requirement could potentially 
increase Web site maintenance costs, and FINRA is not proposing to 
require such links at this time. Most investors should be able to find 
information concerning particular members or registered representatives 
without difficulty given the ease of operation of the BrokerCheck 
search feature.
    FINRA also does not believe it is necessary or appropriate to 
require links to BrokerCheck on each email sent by a member or 
registered person. FINRA believes that such a requirement would be 
overly burdensome and require significant system changes, without 
commensurate benefit. However, FINRA has removed the express exception 
for emails and text messages as unnecessary, since the proposal by its 
terms only applies to a member's own Web site. For the same reason, 
FINRA has removed the prior exception for retail communications posted 
on online interactive forums.
    FINRA does not agree with comments that BrokerCheck presents a 
biased and unfavorable view of securities firms and their personnel, or 
that it omits important information to which investors should have 
access. FINRA has carefully considered the need to provide investors 
with information necessary to make informed choices about the 
individuals and members with which they conduct business. Moreover, 
FINRA is required by statute to establish and maintain a system for 
collecting and retaining registration information, including 
disciplinary actions, regulatory, judicial and arbitration proceedings, 
and other information required by law, or exchange or association rule, 
and the source and status of such information.\41\ FINRA believes that 
it is important that investors have access to this information to help 
them make informed decisions when selecting a broker-dealer or 
registered person with whom to do business. FINRA regularly assesses 
the BrokerCheck program and may consider the inclusion of additional 
information in BrokerCheck at a later time.
---------------------------------------------------------------------------

    \41\ See 15 U.S.C. 78o-3(i).
---------------------------------------------------------------------------

    FINRA does not agree that the proposal should allow more 
information in directories of registered persons without requiring a 
BrokerCheck link, such as biographical information or areas of 
expertise. This kind of information is precisely the content that 
should trigger a link to BrokerCheck, since its intent is to generate 
investor interest in a particular registered representative.
    FINRA believes it has answered commenters' questions concerning the 
scope of the proposed link requirements. In this regard, a member is 
required to include a link to BrokerCheck only on Web pages that are 
either the initial page that the member intends to be viewed by retail 
investors, or pages that include profile information about registered 
persons that conduct business with retail investors. Links are not 
required on every Web page of a member's Web site. If a Web page 
includes profile information about multiple registered persons, only 
one link to BrokerCheck is required. In response to comments received 
to the Notice 14-19 proposal, FINRA has revised the rule as proposed in 
Notice 14-19 to require a link to BrokerCheck on Web pages that provide 
profile information about registered persons, rather than Web pages 
that provide profile information about any associated person. Members 
also may use ``buffer'' screens or interstitial exiting site pages to 
inform investors that they are leaving the member Web site prior to 
connecting to BrokerCheck, although there is no requirement to do so.
    In addition, members have flexibility on how best to link to 
BrokerCheck, as long as the reference and link to BrokerCheck are 
readily apparent. For example, members have expressed interest in using 
``widgets'' as a way to link to BrokerCheck. Use of widgets would meet 
to [sic] the proposal's requirements, as long as the link and reference 
to BrokerCheck are readily apparent.
    FINRA does not agree that the proposal is redundant given that 
FINRA includes a link to BrokerCheck on the FINRA Web site. FINRA 
believes that the proposal will increase awareness of BrokerCheck and 
believes that more investors will use BrokerCheck after it is 
implemented.
    FINRA also does not believe it is necessary or appropriate to 
create an exception from the proposal for mobile device applications. 
To the extent that a web-based application merely provides access to a 
customer's account information and does not contain profile information 
about a registered representative that conducts business with retail 
investors, the proposed requirements would not apply. However, if a 
customer uses his or her mobile device to access a Web page that 
contains profile information about a registered representative that 
conducts business with retail investors, FINRA believes it is important 
for the customer to be made aware of BrokerCheck, irrespective of 
whether the investor used a mobile device or a desktop or laptop 
computer to view such a Web page.
    FINRA has considered the potential costs and benefits of the Notice 
14-19 proposal and, accordingly, revised the proposal to reduce its 
potential costs while maintaining the proposal's investor protection 
goals. FINRA also has proposed to allow members at least six months to 
comply with the proposed rule change. FINRA appreciates the suggestions 
to explore alternatives to increase investor knowledge and usage

[[Page 40098]]

of BrokerCheck. While such suggestions are beyond the scope of this 
proposal, FINRA intends to continue to consider ways to increase 
investor knowledge and usage of BrokerCheck.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2015-022 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

    All submissions should refer to File Number SR-FINRA-2015-022. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2015-022 and should be 
submitted on or before August 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
---------------------------------------------------------------------------

    \42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-16978 Filed 7-10-15; 8:45 am]
 BILLING CODE 8011-01-P
40098 Federal Register / Vol. 80, No. 133 / Monday, July 13, 2015 / Notices

of BrokerCheck. While such suggestions Reference Room, 100 F Street, NE., II. Self-Regulatory Organization’s
are beyond the scope of this proposal, Washington, DC 20549, on official Statement of the Purpose of, and
FINRA intends to continue to consider business days between the hours of Statutory Basis for, the Proposed Rule
ways to increase investor knowledge 10:00 a.m. and 3:00 p.m. Copies of the Change
and usage of BrokerCheck. filing also will be available for In its filing with the Commission,
inspection and copying at the principal Nasdaq included statements concerning
III. Date of Effectiveness of the
office of FINRA. All comments received the purpose of, and basis for, the
Proposed Rule Change and Timing for
will be posted without change; the proposed rule change. The text of these
Commission Action
Commission does not edit personal statements may be examined at the
Within 45 days of the date of identifying information from
publication of this notice in the Federal places specified in Item IV below, and
submissions. You should submit only is set forth in Sections A, B, and C
Register or within such longer period information that you wish to make
up to 90 days (i) as the Commission may below.
available publicly. All submissions
designate if it finds such longer period should refer to File Number SR–FINRA– A. Self-Regulatory Organization’s
to be appropriate and publishes its 2015–022 and should be submitted on Statement of the Purpose of, and
reasons for so finding or (ii) as to which or before August 3, 2015. Statutory Basis for, the Proposed Rule
the self-regulatory organization Change
For the Commission, by the Division of
consents, the Commission will: Trading and Markets, pursuant to delegated
A. by order approve or disapprove 1. Purpose
authority.42
such proposed rule change, or The Exchange proposes to amend the
Brent J. Fields,
B. institute proceedings to determine definition of ‘‘Designated Retail Order’’
whether the proposed rule change Secretary.
(‘‘DRO’’) in Nasdaq Rule 7018 in order
should be disapproved. [FR Doc. 2015–16978 Filed 7–10–15; 8:45 am]
to clarify it and make it more consistent
BILLING CODE 8011–01–P with the definition of ‘‘Retail Order’’ as
IV. Solicitation of Comments
previously set forth in Nasdaq Rule
Interested persons are invited to 4780(a)(2) (eliminated by the recently
submit written data, views, and SECURITIES AND EXCHANGE
approved SR–NASDAQ–2015–024),
arguments concerning the foregoing, COMMISSION
BATS Y-Exchange, Inc. (‘‘BATS’’) Rule
including whether the proposed rule 11.24(a)(2) 3 and NYSE Arca, Inc.
[Release No. 34–75375; File No. SR–
change is consistent with the Act. NASDAQ–2015–066] (‘‘NYSE Arca’’) Rule 7.44(a)(3) 4, as well
Comments may be submitted by any of as how it is defined in within the BATS
the following methods: Self-Regulatory Organizations; The Retail Member Organization
Electronic Comments NASDAQ Stock Market LLC; Notice of Application Form (‘‘BATS Form’’).5 The
Filing and Immediate Effectiveness of Exchange will also update its
• Use the Commission’s Internet Proposed Rule Change to Amend the Designated Retail Order Attestation
comment form (http://www.sec.gov/ Definition of Designated Retail Order in form 6 (‘‘Attestation Form’’) to be
rules/sro.shtml); or Nasdaq Rule 7018
• Send an email to rule-comments@ consistent with the proposed rule
sec.gov. Please include File Number SR– change. Pursuant to previous approvals,
July 7, 2015.
FINRA–2015–022 on the subject line. any and all members are required to
Pursuant to Section 19(b)(1) of the submit a retail order attestation form to
Paper Comments Securities Exchange Act of 1934 the specific exchange before submitting
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a retail order to that exchange.7
• Send paper comments in triplicate notice is hereby given that on June 24,
to Secretary, Securities and Exchange As mentioned above, the proposed
2015, The NASDAQ Stock Market LLC changes to the DRO definition in
Commission, 100 F Street, NE., (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with
Washington, DC 20549–1090. Nasdaq Rule 7018, as well as the
the Securities and Exchange corresponding changes to Nasdaq’s
All submissions should refer to File Commission (‘‘Commission’’) the
Number SR–FINRA–2015–022. This file Attestation Form, will be consistent
proposed rule change as described in in with the recently eliminated Nasdaq
number should be included on the Items I and II below, which Items have
subject line if email is used. To help the Rule 4780 and in line with the revisions
been prepared by Nasdaq. The made by BATS to the BATS Form.
Commission process and review your Commission is publishing this notice to
comments more efficiently, please use Specifically, BATS updated its BATS
solicit comments on the proposed rule Form to include three key elements: 8 (1)
only one method. The Commission will change from interested persons.
post all comments on the Commission’s To ensure that the order is a riskless
Internet Web site (http://www.sec.gov/ I. Self-Regulatory Organization’s principal order that meets the criteria of
rules/sro.shtml). Copies of the Statement of the Terms of Substance of
3 See BATS Rule 11.24(a)(2).
submission, all subsequent the Proposed Rule Change
4 See NYSE Arca Rule 7.44(a)(3).
amendments, all written statements Nasdaq proposes to amend the 5 See http://cdn.batstrading.com/resources/
with respect to the proposed rule definition of ‘‘Designated Retail Order’’ membership/BYX_Retail_Member_Organization_
change that are filed with the in Nasdaq Rule 7018. Application.pdf.
6 See http://www.nasdaqtrader.com/content/
Commission, and all written
asabaliauskas on DSK5VPTVN1PROD with NOTICES

The text of the proposed rule change
AdministrationSupport/AgreementsTrading/dro_
communications relating to the is available at http:// eligibility_form.pdf.
proposed rule change between the nasdaq.cchwallstreet.com/, at Nasdaq’s 7 See e.g., Securities Exchange Act Release No.
Commission and any person, other than principal office, and at the 69719 (June 7, 2013), 78 FR 35656 (June 13, 2014)
those that may be withheld from the Commission’s Public Reference Room. (SR–NASDAQ–2013–031); Securities Exchange Act
public in accordance with the Release No. 69643 (May 28, 2013), 78 FR 33136
(June 3, 2014) (SR–BYX–2013–008); and Securities
provisions of 5 U.S.C. 552, will be 42 17 CFR 200.30–3(a)(12). Exchange Act Release No. 69513 (May 3, 2013), 78
available for Web site viewing and 1 15 U.S.C. 78s(b)(1). FR 27261 (May 9, 2014) (SR–NYSE–2013–08).
printing in the Commission’s Public 2 17 CFR 240.19b–4. 8 Supra note 5.

VerDate Sep<11>2014 19:27 Jul 10, 2015 Jkt 235001 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 E:\FR\FM\13JYN1.SGM 13JYN1
Document Created: 2018-02-23 09:18:06
Document Modified: 2018-02-23 09:18:06
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 40092