80 FR 48376 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Adopt FINRA Rule 2272 To Govern Sales or Offers of Sales of Securities on the Premises of Any Military Installation to Members of the U.S. Armed Forces or Their Dependents

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 155 (August 12, 2015)

Page Range		48376-48379
FR Document		2015-19763

Federal Register, Volume 80 Issue 155 (Wednesday, August 12, 2015)

[Federal Register Volume 80, Number 155 (Wednesday, August 12, 2015)]
[Notices]
[Pages 48376-48379]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-19763]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75633; File No. SR-FINRA-2015-009]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Adopt FINRA
Rule 2272 To Govern Sales or Offers of Sales of Securities on the
Premises of Any Military Installation to Members of the U.S. Armed
Forces or Their Dependents

August 6, 2015.

I. Introduction

On April 23, 2015, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt FINRA Rule 2272. Rule
2272 would govern sales or offers of sales of securities on the
premises of any military installation to members of the U.S. Armed
Forces or their dependents. The proposed rule was published for comment
in the Federal Register on May 6, 2015.\3\ The Commission received four
comment letters in response to the proposal.\4\ On June 18, 2015, FINRA
granted the Commission an extension of time, until August 10, 2015, to
act on the proposal.\5\ FINRA responded to the comment letters on July
21, 2015.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing of a Proposed Rule to Adopt FINRA Rule
2272 to Govern Sales or Offers of Sales of Securities on the
Premises of Any Military Installation to Members of the U.S. Armed
Forces or Their Dependents; Exchange Act Release No. 74890 (May 6,
2015), 80 FR 27220 (May 12, 2015) (``Notice'').
\4\ See Letters from Jason T. Robinson, Georgia State University
College of Law Investor Advocacy Clinic, dated May 30, 2015 (``GSU
Letter''); Hugh D. Berkson, Public Investors Arbitration Bar
Association, dated June 1, 2015 (``PIABA Letter''); David T.
Bellaire, Esq., Financial Services Institute, dated June 2, 2015
(``FSI Letter''); David M. Rader, Michigan State University College
of Law Investor Advocacy Legal Clinic, dated June 9, 2015 (``MSU
Letter'').
\5\ See Letter from Jeanette Wingler, Assistant General Counsel,
FINRA, to Katherine England, Assistant Director, Division of Trading
and Markets, Securities and Exchange Commission, dated June 18,
2015.
\6\ See Letter from Jeanette Wingler, Assistant General Counsel,
FINRA, to Brent J. Fields, Secretary, Securities and Exchange
Commission, dated July 21, 2015 (``FINRA Response Letter'').
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This order approves the rule as proposed.

II. Description of the Proposed Rule

a. Background

As stated in the Notice, FINRA is proposing to adopt Rule 2272 to
govern sales or offers of sales of securities on the premises of any
military installation to members of the U.S. Armed Forces or their
dependents.\7\ Proposed Rule 2272 would impose a number of restrictions
upon FINRA members engaged in the sales or offers of sales of
securities, including a disclosure requirement, a suitability
obligation, and a ban on referral fees to persons not associated with a
FINRA member.\8\
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\7\ See Notice at 27221.
\8\ See id.
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i. Statutory Basis
To comply with the requirements of Section 15A(b)(14) of the
Exchange Act,\9\ FINRA proposed rules governing the sales, or offers of
sales, of securities on the premises of any military installation to
members of the U.S. Armed Forces or their dependents.\10\ Section
15A(b)(14) requires these rules mandate: (1) A broker-dealer performing
brokerage services to military personnel or dependents disclose (a)
that securities offered are not being offered or provided on behalf of
the federal government, and that their offer is not sanctioned,
recommended, or encouraged by the federal government and (b) the
identity of the registered broker-dealer offering the securities; (2)
such broker-dealer to perform an appropriate suitability determination
prior to making a recommendation of a security to a member of the U.S.
Armed Forces or a dependent thereof; and (3) that no person receive
referral fees or incentive compensation unless such person is an
associated person of a registered broker-dealer and qualified pursuant
to the rules of a self-regulatory organization.\11\
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\9\ 15 U.S.C. 78o-3(b)(14).
\10\ Congress amended Section 15A(b) of the Exchange Act in the
Military Personnel Financial Services Protection Act (``Military
Act''). Pub. L. 109-290, 120 Stat. 1317. The Military Act requires
the rules of a registered national securities association to include
provisions governing the sales, or offers of sales, of securities on
the premises of any military installation to any member of the Armed
Forces or a dependent thereof.
\11\ 15 U.S.C. 78o-3(b)(14).
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ii. Proposed Rule
Proposed FINRA Rule 2272 requires that, prior to engaging in sales
or offers of sales of securities on the premises of a military
installation to any member of the U.S. Armed Forces or a dependent
thereof, a FINRA member must clearly and conspicuously disclose in
writing: (1) The identity of the member offering

[[Page 48377]]

the securities; and (2) that the securities offered are not being
offered or provided by the member on behalf of the federal government,
and that the offer of such securities is not sanctioned, recommended,
or encouraged by the federal government.\12\
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\12\ See proposed Rule 2722(b).
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The proposed rule also mandates that a FINRA member satisfy the
suitability obligations imposed by FINRA Rule 2111 when making a
recommendation on the premises of a military installation to any member
of the U.S. Armed Forces or a dependent thereof.\13\
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\13\ See proposed Rule 2722(c).
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Finally, the proposed rule requires that no FINRA member cause a
person to receive a referral fee or incentive compensation in
connection with sales or offers of sales of securities on the premises
of a military installation with any member of the U.S. Armed Forces or
a dependent thereof, unless such person is an associated person of a
registered broker-dealer who is appropriately qualified consistent with
FINRA rules, and the payment complies with applicable federal
securities laws and FINRA rules.\14\
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\14\ See proposed Rule 2722(d).
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III. Summary of Comments and FINRA's Response

As noted above, the Commission received four comment letters on the
proposed rule change.\15\ As discussed in more detail below, one
commenter supported the rule in its entirety and stated that it was
thorough and balanced.\16\ Three commentators also supported the
proposed rule, but also suggested some modifications.\17\ The sections
below outline the suggestions and specific concerns raised by the
commenters, as well as FINRA's response.
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\15\ See note 4, supra.
\16\ See FSI Letter (stating that ``FSI fully supports the
Proposed Rule, and [FSI] applaud[s] FINRA's efforts'').
\17\ See GSU Letter, MSU Letter, and PIABA Letter.
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a. Application to Off-Base Offers and Sales of Securities

Two commenters suggested extending the scope of the proposed rule
to cover offers and sales of securities to members of the U.S. Armed
Forces and their dependents both off and on the premises of a military
installation.\18\ One of these commenters stated that suitability
challenges to service members exist irrespective of where the service
member and his/her family live.\19\ The other commenter stated that
perpetrators of financial fraud operate both off and on military
installations, and that expanding the proposed rule to cover sales in
both locations would enhance compliance with FINRA rules.\20\
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\18\ See GSU Letter, and PIABA Letter.
\19\ See PIABA Letter.
\20\ See GSU Letter.
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In its response, FINRA acknowledged that some of the concerns the
rule is designed to address would also be raised by off-base sales.\21\
However, FINRA stated that it drafted the rule to comply with the
statutory requirements of the Exchange Act, which only apply in
relevant part to offers and sales of securities on the premises of a
military installation, rather than in any location.\22\ FINRA also
noted that the potential of investor confusion regarding the
involvement of the federal government in offering the securities may be
reduced for activities occurring off the premises of a military
installation.\23\ In addition, FINRA noted that any such sales or
offers of sales of securities off the premises of a military
installation must comply with applicable FINRA rules and that any
misleading representation would be otherwise prohibited by FINRA
rules.\24\
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\21\ See FINRA Response Letter at 3.
\22\ See id.
\23\ See id.
\24\ See id.
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b. Additional Disclosures

One commenter proposed the creation of a standardized disclosure
form covering each element of Rule 2272, and requiring broker-dealers
to offer a written attestation that proposed investments are suitable
for the prospective investor.\25\ The commenter stated that such a form
would promote clear disclosure and draw attention to the protections
available under the proposed rule.\26\ That commenter expressed concern
that without such a form, broker-dealers could otherwise conceal the
disclosures required by the proposal.\27\
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\25\ See GSU Letter.
\26\ See id. (noting that such a form would ``lend credibility
to the spirit of Rule 2272 and draw attention to the disclosures,
simplifying the process for all parties involved'').
\27\ See id. (stating that such a form would ``limit broker-
dealers' ability to hide these disclosures amongst the numerous
other documents that potential investors are given to review before
a transaction'').
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FINRA responded that a standard disclosure form would be
unnecessary because FINRA allows a risk-based approach to documenting
compliance with Rule 2111.\28\ FINRA responded also that the rule
explicitly requires member firms to make disclosures ``clearly and
conspicuously'' and ``in writing'' prior to engaging in sales or offers
of sales, and believes that these requirements reduce the potential for
investor confusion.\29\
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\28\ See FINRA Response Letter at 3.
\29\ See id. at 3-4.
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Another commenter stated that the disclosure obligations should be
expanded to require that persons associated with any broker-dealer
disclose, both verbally and in writing: (1) If they served in the U.S.
Armed Forces and the status of their discharge; (2) that any former
military service does not relate to their financial advice offered; and
(3) that a service member should not feel compelled to invest because
of that associated person's former military service.\30\
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\30\ See MSU Letter (noting that ``[f]ormer military personnel .
. . hold a certain amount of influence over young service members
that respect military tradition'' and that ``it is critical that
persons serving military communities accurately disclose their
history of service as well as discharge status'').
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In response to the commenter, FINRA noted that--as the commenter
had observed \31\--the military inculcates a culture of deference to
veterans, and that some veterans with prestigious careers or
assignments may hold undue influence over current members of the Armed
Forces.\32\ FINRA stated that requiring disclosure of military service
for persons associated with a member firm could have the unintentional
effect of unduly influencing or pressuring current service members'
investment decisions.\33\
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\31\ See MSU Letter.
\32\ See FINRA Response Letter at 4.
\33\ See id.
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c. Suitability

One commenter proposed to expand the suitability requirements of
the proposed rule to include military-specific factors for broker-
dealers to consider when making sales or offers of sales of securities
to military personnel, or alternatively that FINRA provide guidance to
broker-dealers regarding the application of the proposed rule.\34\ The
commenter suggests specifically including a service member's
anticipated time remaining at their current duty station, as well as
the time a service member has remaining on their contract as criteria a
broker-dealer should consider, and believes that this will protect
service members from incurring unsustainable financial commitments.\35\
Another commenter proposed that FINRA members should be trained to
understand issues relating

[[Page 48378]]

to assets in government Thrift Savings Plan accounts.\36\
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\34\ See MSU Letter.
\35\ See id. (stating that ``[s]ervice members experience
substantial income variability'' due to duty station changes which
have different housing allowances and cost of living adjustments).
\36\ See PIABA Letter (noting that the ``sale of investment
services to military service members and their families provide
unique suitability problems,'' the primary issue of which ``stems
from recommendations that service members purchase products with
increased fees when they move their savings out of their government
savings plan'').
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In response to both commenters, FINRA noted that recommendations
concerning retirement accounts, including Thrift Savings Plan accounts,
are subject to FINRA Rule 2111, requiring a member firm and its
registered representatives to consider the customer's investment
profile, including their financial situation, risk tolerance, and other
concerns.\37\ FINRA stated that suitability obligations imposed by Rule
2111 satisfy the commenters' concerns and the statutory requirement
that FINRA adopt rules requiring its members to perform an appropriate
suitability determination.\38\ FINRA also noted that it has previously
recommend that member firms train their representatives on retirement
savings options and the tax, investment, and other consequences of
those decisions.\39\
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\37\ See FINRA Response Letter at 4-5.
\38\ See id. at 5.
\39\ See id.
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d. Education

One commenter encouraged FINRA to focus on financial education for
members of the U.S. Armed Forces, and suggested that FINRA produce
programs to reach service members and their dependents.\40\ This
commenter also stated that registered representatives should be trained
concerning the special suitability needs of service members.\41\ FINRA
replied that it supported financial education for members of the U.S.
Armed Forces, and that the FINRA Investor Education Foundation's
Military Financial Readiness Program offers such financial education
tools and training to the relevant population.\42\ FINRA also responded
that it has recommended that member firms train registered
representatives concerning retirement savings options.\43\
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\40\ See PIABA Letter (noting that ``service members typically
receive very little financial training and have spent years not
worrying about income and financial needs'').
\41\ See id.
\42\ See FINRA Response Letter at 5 (stating that ``the FINRA
Investor Education Foundation's Military Financial Readiness Program
has delivered free, unbiased financial education tools and training
to service members, their spouses and on-base financial educators
through a variety of programs and public awareness initiatives'').
\43\ See id. at 5 (citing FINRA Regulatory Notice 13-45 from
December 2013).
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IV. Discussion

After carefully considering the proposed rule, the comments
submitted, and FINRA's response to the comments, the Commission is
approving the rule change as proposed. Based on its review of the
record, the Commission finds that FINRA Rule 2272 as proposed is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to a national securities
association.\44\ The Commission also finds that the proposed rule
sufficiently addresses the concerns raised by commenters.
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\44\ In approving this proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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As discussed above, Rule 2272 would govern sales or offers of sales
of securities on the premises of any military installation to members
of the U.S. Armed Forces or their dependents. The proposed rule would
require broker-dealers to disclose their identity and that the
securities are neither offered nor approved by the federal government,
as well as to comply with FINRA suitability obligations. The rule would
also ban referral fees unless paid to an associated person of a FINRA
member and the payment complies with applicable federal securities laws
and FINRA rules.
The Commission takes note of the strong commenter support for both
the specific provisions and broad aim of the underlying rule:
Protecting members of the U.S. Armed Forces from dishonest and
unscrupulous practices.\45\ The Commission acknowledges also the need,
as one commenter expressed, for efficient regulations that keep
investors, particularly American servicemen and women and their
dependents, well-protected and effectively informed.\46\ The Commission
believes that Rule 2272 as proposed provides appropriate protections as
called for by Congress, consistent with the Act for members of the U.S.
Armed Forces and their dependents.
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\45\ See FSI Letter, GSU Letter, MSU Letter, and PIABA Letter.
\46\ See FSI Letter.
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The Commission acknowledges the suggestion by two commenters to
expand the scope of Rule 2272 to cover sales off as well as on military
installations.\47\ The Commission notes in particular the concern of
one commenter, that military members are particularly susceptible to
affinity fraud and that perpetrators of financial fraud may operate
both on and off military installations.\48\ Nonetheless, the Commission
agrees with FINRA that the statutory requirements of the Exchange Act
apply to offers and sales of securities on the premises of a military
installation to members of the U.S. Armed Forces and their
dependents,\49\ and believes that current FINRA rules are designed to
address many of the potential harms commenters have highlighted. The
Commission notes that the registration requirements for broker-dealers
under the Exchange Act and current FINRA rules restrict the payment of
referral fees to unregistered persons.\50\ The Commission also concurs
with FINRA's assessment that sales or an offer of sales of securities
off-base implicates a lesser risk of confusion as to whether those
securities are endorsed or otherwise offered by the federal
government.\51\
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\47\ See GSU Letter, and PIABA Letter.
\48\ See GSU Letter. See also FINRA Response Letter at 3
(acknowledging ``offers and sales of securities off the premises of
a military installation may present some of the same issues as with
offers and sales of securities on the premises of a military
installation'').
\49\ See FINRA Response Letter at 3.
\50\ See id. (noting that ``any such sales or offers of sales of
securities off the premises of a military installation must comply
with applicable FINRA rules, including suitability and referral fee
requirements'').
\51\ See id.
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The Commission also acknowledges the concerns raised by some
commenters that Rule 2272 should incorporate a requirement for a
standardized disclosure form.\52\ In response, FINRA declined to
propose such a requirement, pointing to its risk-based approach to
documenting compliance with Rule 2111.\53\ The Commission notes that
the proposed rule explicitly requires that disclosures be made both
``in writing'' and ``clearly and conspicuously'' before engaging in any
sales or offers of sales, which should reduce the likelihood of
investor confusion.\54\ The Commission also notes that neither the
Exchange Act nor the proposed rule impose specific requirements about
the form that disclosure should take, and believes that this flexible
requirement will be more likely to allow broker-dealers to make the
sort of disclosures best suited to individual investors.
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\52\ See e.g. GSU Letter.
\53\ See FINRA Response Letter at 3, note 11 (citing Regulatory
Notice 12-25 which states that Rule 2111 does not include explicit
documentation requirements, but does require a firm to show
compliance).
\54\ See id. at 3.
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The Commission also notes the concern raised by a commenter that
military veterans associated with member firms could assert undue

[[Page 48379]]

influence upon service members.\55\ FINRA, however, notes that
requiring a registered representative to disclose his or her service
history and discharge status could unduly influence or pressure current
service members' investment decisions.\56\ The Commission agrees that
requiring disclosure of a FINRA member's military service could have
the counter-productive effect of causing that member to gain the sort
of influence which such a requirement would seek to avoid.
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\55\ See MSU Letter.
\56\ See FINRA Response Letter at 4.
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Finally, while the Commission appreciates the concerns raised by
one commenter suggesting that additional suitability criteria be
considered, including those related to the government's Thrift Savings
Plan,\57\ the Commission agrees with FINRA that the suitability
obligations imposed by Rule 2111 satisfy the commenters' concerns.\58\
Thus, the Commission believes that such concerns are already addressed
by the rule as proposed.
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\57\ See PIABA Letter. Both FINRA and the Commission's Office of
Compliance Inspections and Examinations (``OCIE'') have recently
identified sales practices relating to retirement accounts and
rollovers as examination priorities. See FINRA 2015 Regulatory and
Examination Priorities Letter, January 6, 2015, available at http://www.finra.org/sites/default/files/p602239.pdf (discussing Individual
Retirement Account (IRA) Rollovers (and Other ``Wealth Events'')).
See also National Exam Program Examination Priorities for 2015,
available at http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2015.pdf (``[OCIE] will assess
whether registrants are using improper or misleading practices when
recommending the movement of retirement assets from employer-
sponsored defined contribution plans into other investments and
accounts, especially when they pose greater risks and/or charge
higher fees'').
\58\ See FINRA Response Letter at 4.
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In light of the statutory requirements under Section 15A(b)(14) of
the Exchange Act,\59\ and the need to protect members of the U.S. Armed
Forces from unscrupulous practices regarding the sales of investment
products, the Commission believes that the proposed rule is consistent
with the Act in that it is 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.\60\
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\59\ 15 U.S.C. 78o-3(b)(14).
\60\ See 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\61\ that the proposed rule change (SR-FINRA-2015-009), be, and
hereby is, approved.
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\61\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\62\
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\62\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19763 Filed 8-11-15; 8:45 am]
BILLING CODE 8011-01-P

48376 Federal Register / Vol. 80, No. 155 / Wednesday, August 12, 2015 / Notices

Register on July 8, 2015.3 The SECURITIES AND EXCHANGE II. Description of the Proposed Rule
Commission has received no comment COMMISSION a. Background
letters regarding the proposed rule
change. As stated in the Notice, FINRA is
[Release No. 34–75633; File No. SR–FINRA–
proposing to adopt Rule 2272 to govern
Section 19(b)(2) of the Act 4 provides 2015–009]
sales or offers of sales of securities on
that, within 45 days of the publication the premises of any military installation
of the notice of the filing of a proposed Self-Regulatory Organizations;
to members of the U.S. Armed Forces or
rule change, or within such longer Financial Industry Regulatory
their dependents.7 Proposed Rule 2272
period up to 90 days as the Commission Authority, Inc.; Order Approving a
would impose a number of restrictions
may designate if it finds such longer Proposed Rule Change To Adopt
upon FINRA members engaged in the
period to be appropriate and publishes FINRA Rule 2272 To Govern Sales or sales or offers of sales of securities,
its reasons for so finding, or as to which Offers of Sales of Securities on the including a disclosure requirement, a
the self-regulatory organization Premises of Any Military Installation to suitability obligation, and a ban on
consents, the Commission shall either Members of the U.S. Armed Forces or referral fees to persons not associated
Their Dependents with a FINRA member.8
approve the proposed rule change,
disapprove the proposed rule change, or August 6, 2015. i. Statutory Basis
institute proceedings to determine
I. Introduction To comply with the requirements of
whether the proposed rule change
Section 15A(b)(14) of the Exchange
should be disapproved. The On April 23, 2015, the Financial Act,9 FINRA proposed rules governing
Commission is extending this 45-day Industry Regulatory Authority, Inc. the sales, or offers of sales, of securities
time period. (‘‘FINRA’’) filed with the Securities and on the premises of any military
The Commission finds that it is Exchange Commission (‘‘Commission’’), installation to members of the U.S.
appropriate to designate a longer period pursuant to Section 19(b)(1) of the Armed Forces or their dependents.10
within which to take action on the Securities Exchange Act of 1934 (‘‘Act’’ Section 15A(b)(14) requires these rules
proposed rule change so that it has or ‘‘Exchange Act’’) 1 and Rule 19b–4 mandate: (1) A broker-dealer performing
sufficient time to consider the proposed thereunder,2 a proposed rule change to brokerage services to military personnel
rule change. Accordingly, the adopt FINRA Rule 2272. Rule 2272 or dependents disclose (a) that
Commission, pursuant to Section would govern sales or offers of sales of securities offered are not being offered
19(b)(2) of the Act,5 designates October securities on the premises of any or provided on behalf of the federal
6, 2015 as the date by which the military installation to members of the government, and that their offer is not
Commission should either approve or U.S. Armed Forces or their dependents. sanctioned, recommended, or
disapprove or institute proceedings to The proposed rule was published for encouraged by the federal government
determine whether to disapprove the comment in the Federal Register on and (b) the identity of the registered
proposed rule change (File Number SR– May 6, 2015.3 The Commission received broker-dealer offering the securities; (2)
four comment letters in response to the such broker-dealer to perform an
CHX–2015–03).
proposal.4 On June 18, 2015, FINRA appropriate suitability determination
For the Commission, by the Division of granted the Commission an extension of prior to making a recommendation of a
Trading and Markets, pursuant to delegated time, until August 10, 2015, to act on security to a member of the U.S. Armed
authority.6 the proposal.5 FINRA responded to the Forces or a dependent thereof; and (3)
Robert W. Errett, comment letters on July 21, 2015.6 that no person receive referral fees or
Deputy Secretary. incentive compensation unless such
This order approves the rule as
[FR Doc. 2015–19760 Filed 8–11–15; 8:45 am] person is an associated person of a
proposed. registered broker-dealer and qualified
BILLING CODE 8011–01–P
pursuant to the rules of a self-regulatory
1 15 U.S.C. 78s(b)(1).
2 17
organization.11
CFR 240.19b–4.
3 See Notice of Filing of a Proposed Rule to Adopt ii. Proposed Rule
FINRA Rule 2272 to Govern Sales or Offers of Sales
of Securities on the Premises of Any Military Proposed FINRA Rule 2272 requires
Installation to Members of the U.S. Armed Forces that, prior to engaging in sales or offers
or Their Dependents; Exchange Act Release No. of sales of securities on the premises of
74890 (May 6, 2015), 80 FR 27220 (May 12, 2015)
(‘‘Notice’’).
a military installation to any member of
4 See Letters from Jason T. Robinson, Georgia the U.S. Armed Forces or a dependent
State University College of Law Investor Advocacy thereof, a FINRA member must clearly
Clinic, dated May 30, 2015 (‘‘GSU Letter’’); Hugh and conspicuously disclose in writing:
D. Berkson, Public Investors Arbitration Bar (1) The identity of the member offering
Association, dated June 1, 2015 (‘‘PIABA Letter’’);
David T. Bellaire, Esq., Financial Services Institute,
7 See Notice at 27221.
dated June 2, 2015 (‘‘FSI Letter’’); David M. Rader,
8 See id.
Michigan State University College of Law Investor
Advocacy Legal Clinic, dated June 9, 2015 (‘‘MSU 9 15 U.S.C. 78o–3(b)(14).

Letter’’). 10 Congress amended Section 15A(b) of the
mstockstill on DSK4VPTVN1PROD with NOTICES

5 See Letter from Jeanette Wingler, Assistant Exchange Act in the Military Personnel Financial
General Counsel, FINRA, to Katherine England, Services Protection Act (‘‘Military Act’’). Pub. L.
Assistant Director, Division of Trading and Markets, 109–290, 120 Stat. 1317. The Military Act requires
3 See Securities Exchange Act Release No. 75346 Securities and Exchange Commission, dated June the rules of a registered national securities
18, 2015. association to include provisions governing the
(July 1, 2015), 80 FR 39172 (‘‘Notice’’).
6 See Letter from Jeanette Wingler, Assistant sales, or offers of sales, of securities on the premises
4 15 U.S.C. 78s(b)(2).
General Counsel, FINRA, to Brent J. Fields, of any military installation to any member of the
5 Id.
Secretary, Securities and Exchange Commission, Armed Forces or a dependent thereof.
6 17 CFR 200.30–3(a)(31). dated July 21, 2015 (‘‘FINRA Response Letter’’). 11 15 U.S.C. 78o–3(b)(14).

VerDate Sep<11>2014 18:16 Aug 11, 2015 Jkt 235001 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\12AUN1.SGM 12AUN1

Federal Register / Vol. 80, No. 155 / Wednesday, August 12, 2015 / Notices 48379

influence upon service members.55 For the Commission, by the Division of authority, introduced on a pilot basis in
FINRA, however, notes that requiring a Trading and Markets, pursuant to delegated 2003 6 and approved permanently in
registered representative to disclose his authority.62 2009,7 can be used only in connection
or her service history and discharge Robert W. Errett, with the violation of specified rules,8
status could unduly influence or Deputy Secretary. and requires that a Hearing Panel find
pressure current service members’ [FR Doc. 2015–19763 Filed 8–11–15; 8:45 am] by a preponderance of the evidence that
investment decisions.56 The BILLING CODE 8011–01–P the alleged violation has occurred in
Commission agrees that requiring order to impose a TCDO.9 FINRA
disclosure of a FINRA member’s proposed to amend Rule Series 9800 to,
military service could have the counter- SECURITIES AND EXCHANGE among other things, lower the
productive effect of causing that COMMISSION evidentiary standard for finding a
member to gain the sort of influence [Release No. 34–75629; File No. SR–FINRA– violation to ‘‘a showing of likelihood of
which such a requirement would seek to 2015–019] success on the merits.’’ FINRA also
avoid. proposed to amend Rule Series 9100,
Self-Regulatory Organizations; 9200, 9300, and 9550 to adopt a new
Finally, while the Commission Financial Industry Regulatory
appreciates the concerns raised by one expedited proceeding for failure to
Authority, Inc.; Order Approving a comply with a TCDO or PCDO, to
commenter suggesting that additional Proposed Rule Change To Amend
suitability criteria be considered, harmonize the provisions governing
FINRA Rules Regarding Temporary how documents are served in temporary
including those related to the and Permanent Cease and Desist
government’s Thrift Savings Plan,57 the cease and desist proceedings and related
Orders expedited proceedings, to clarify the
Commission agrees with FINRA that the
suitability obligations imposed by Rule August 6, 2015. process for issuing PCDOs, to ease
2111 satisfy the commenters’ FINRA’s administrative burden in
I. Introduction temporary cease and desist proceedings,
concerns.58 Thus, the Commission
On June 16, 2015, the Financial particularly with respect to appointment
believes that such concerns are already
Industry Regulatory Authority, Inc. of a Hearing Officer and Hearing Panel,
addressed by the rule as proposed.
(‘‘FINRA’’), pursuant to Section 19(b)(1) and to make conforming changes
In light of the statutory requirements of the Securities Exchange Act of 1934 throughout the Code of Procedure.
under Section 15A(b)(14) of the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Exchange Act,59 and the need to protect A. TCDO Evidentiary Standard
filed with the Securities and Exchange
members of the U.S. Armed Forces from Commission (‘‘SEC’’ or ‘‘Commission’’) Rule 9840(a)(1) provides that a TCDO
unscrupulous practices regarding the a proposal to amend FINRA Rule Series shall be imposed if the Hearing Panel
sales of investment products, the 9100, 9200, 9300, 9550, and 9800 finds ‘‘by a preponderance of the
Commission believes that the proposed regarding temporary cease and desist evidence that the alleged violation
rule is consistent with the Act in that it orders (TCDO) and permanent cease and specified in the notice has occurred.’’
is designed to prevent fraudulent and desist orders (PCDO). The proposed rule FINRA believes this is too high an
manipulative acts and practices, to change was published for comment in evidentiary threshold to obtain a TCDO,
promote just and equitable principles of the Federal Register on July 7, 2015.3 which FINRA considers a critical
trade, and, in general, to protect The Commission received one comment investor protection tool. FINRA notes
investors and the public interest.60 on the proposal, which supported the that the evidentiary standard to get a
V. Conclusion proposal.4 This order approves the TCDO is the same one needed to find a
proposed rule change. violation in the concurrent underlying
It is therefore ordered, pursuant to II. Description of the Proposed Rule disciplinary proceeding. FINRA states
Section 19(b)(2) of the Act,61 that the Change 5 that it creates an administrative
proposed rule change (SR–FINRA– challenge to have to make the same
2015–009), be, and hereby is, approved. The Code of Procedure (Rule Series evidentiary presentation in the
9000) governs FINRA’s disciplinary temporary cease and desist proceeding
55 See MSU Letter.
process, and includes: Rule 9120, as in the subsequent underlying
56 See FINRA Response Letter at 4. Definitions, Rule Series 9200, disciplinary proceeding, but on an
57 See PIABA Letter. Both FINRA and the Disciplinary Proceedings, Rule Series expedited basis. Therefore, FINRA has
Commission’s Office of Compliance Inspections and 9300, Review of Disciplinary Proceeding proposed to lower the evidentiary
Examinations (‘‘OCIE’’) have recently identified by National Adjudicatory Council and
sales practices relating to retirement accounts and
rollovers as examination priorities. See FINRA 2015
FINRA Board; Application for SEC 6 See Securities Exchange Act Release No. 47925
Regulatory and Examination Priorities Letter, Review, Rule Series 9500, Other (May 23, 2003), 68 FR 33548 (June 4, 2003) (Order
January 6, 2015, available at http://www.finra.org/ Proceedings, and Rule Series 9800, Approving File No. SR–NASD–98–80).
sites/default/files/p602239.pdf (discussing Temporary Cease and Desist Orders. 7 See Securities Exchange Act Release No. 60306
Individual Retirement Account (IRA) Rollovers (and (July 14, 2009), 74 FR 36292 (July 22, 2009) (Order
Other ‘‘Wealth Events’’)). See also National Exam
FINRA’s temporary cease and desist
Approving File No. SR–FINRA–2009–035).
Program Examination Priorities for 2015, available 8 Rule 9810(a) provides that a temporary cease
62 17 CFR 200.30–3(a)(12).
at http://www.sec.gov/about/offices/ocie/national- and desist proceeding may be initiated with respect
examination-program-priorities-2015.pdf (‘‘[OCIE] 1 15 U.S.C. 78s(b)(1). to alleged violations of Section 10(b) of the Act (15
will assess whether registrants are using improper 2 17 CFR 240.19b–4.
U.S.C. 78j(b)) and Rule 10b–5 under the Act (17
mstockstill on DSK4VPTVN1PROD with NOTICES

or misleading practices when recommending the 3 See Securities Exchange Act Release No. 75333
CFR 240.10b–5); Rules 15g–1 through 15g–9 under
movement of retirement assets from employer- (June 30, 2015), 80 FR 38783 (July 7, 2015) the Act (17 CFR 240.15g–1 et seq.); FINRA Rule
sponsored defined contribution plans into other (‘‘Notice’’). 2010 (if the alleged violation is unauthorized
investments and accounts, especially when they 4 See Letter from Joseph C. Peiffer, President, trading, or misuse or conversion of customer assets,
pose greater risks and/or charge higher fees’’). Public Investors Arbitration Bar Association, to or based on violations of Section 17(a) of the
58 See FINRA Response Letter at 4.
Brent J. Fields, Secretary, Commission dated July Securities Act of 1933 (15 U.S.C. 77q(a))); FINRA
59 15 U.S.C. 78o–3(b)(14).
28, 2015 (‘‘PIABA Letter’’). Rule 2020; or Rule 4330 (if the alleged violation is
60 See 15 U.S.C. 78o–3(b)(6). 5 The Notice contains a more detailed description misuse or conversion of customer assets).
61 15 U.S.C. 78s(b)(2). of the proposal. See Notice, supra note 3. 9 Rule 9840(a)(1).

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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
Dates		(1) A broker-dealer performing brokerage services to military personnel or dependents disclose (a) that securities offered are not being offered or provided on behalf of the federal government, and that their offer is not sanctioned, recommended, or encouraged by the federal government and (b) the identity of the registered broker-dealer offering the securities; (2) such broker-dealer to perform an appropriate suitability determination prior to making a recommendation of a security to a member of the U.S. Armed Forces or a dependent thereof; and (3) that no person receive referral fees or incentive compensation unless such person is an associated person of a registered broker-dealer and qualified pursuant to the rules of a self-regulatory organization.\11\
FR Citation		80 FR 48376