81 FR 36628 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 109 (June 7, 2016)
Federal Register Volume 81, Issue 109 (June 7, 2016)
| Page Range | 36628-36632 | |
| FR Document | 2016-13318 |
[Federal Register Volume 81, Number 109 (Tuesday, June 7, 2016)] [Notices] [Pages 36628-36632] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-13318] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77963; File No. SR-FINRA-2016-017] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) June 1, 2016. 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 May 24, 2016, 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, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ``non- controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) to clarify the application of the rule in four respects: (1) The consent requirement for institutional debt research reports distributed to non-U.S. investors by non-U.S. affiliates of members; (2) the consent requirement for institutional debt research reports distributed to specified persons for informational purposes unrelated to investing in debt securities; (3) the scope of the institutional debt research report exemption when distributing third-party debt research reports to eligible institutional investors; and (4) the disclosure requirements for debt research analysts in public appearances. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. * * * * * 2240. CONFLICTS OF INTEREST * * * * * 2242. Debt Research Analysts and Debt Research Reports (a) through (i) No Change. (j) Exemption for Debt Research Reports Provided to Institutional Investors (1) Except as provided in paragraphs (j)(2) and (j)(3) of this Rule, the provisions of this Rule shall not apply to the distribution of a debt research report to: (A) through (B) No Change. (2) Notwithstanding paragraph (j)(1) of this Rule, a member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest described in paragraphs (b)(2)(A)(i), (b)(2)(H) (with respect to pressuring), (b)(2)(I), (b)(2)(K), (b)(2)(L), (b)(2)(M), (b)(2)(N) and Supplementary Material .02(a) of this Rule. (3) Notwithstanding paragraph (j)(1) of this Rule, a member that distributes third-party debt research reports to institutional investors pursuant to this exemption must establish, maintain and enforce written policies and procedures reasonably designed to comply with paragraphs (g)(1), (g)(2), (g)(4) and (g)(6) of this Rule. [(3)] (4) Debt research reports provided to institutional investors pursuant to this exemption (``institutional debt research'') must disclose prominently on the first page that: (A) ``This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.'' (B) If applicable, ``The views expressed in this report may differ from the views offered in [Firm's] debt research reports prepared for retail investors.'' (C) If applicable, ``This report may not be independent of [Firm's] proprietary interests. [Firm] trades the securities covered in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to the recommendation(s) offered in this report.'' (5) Notwithstanding paragraph (j)(4) of this Rule, a member that distributes third-party debt research reports to institutional investors pursuant to this exemption must disclose prominently the disclosures required by paragraphs (j)(4)(A) and (j)(4)(C) of this Rule. [(4)] (6) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that institutional debt research is made available only to eligible institutional investors. A member may not rely on this exemption with respect to a debt research report that the member has reason to believe will be redistributed to a retail investor. [(5)] (7) This paragraph (j) does not relieve a member of its obligations to comply with the antifraud provisions of the federal securities laws and FINRA rules. (k) No Change.Supplementary Material: ------ .01 through .11 No Change. .12 Distribution of Institutional Debt Research to Non-U.S. Investors. The requirements of paragraphs (j)(1)(A) and (B) of this Rule shall not apply to the distribution of an institutional debt research report by a non-U.S. affiliate of a member to a non-U.S. investor, provided that: (a) The non-U.S. investor is not a customer of the member; (b) The non-U.S. investor is a customer of the non-U.S. affiliate of the member; and (c) The non-U.S. affiliate of the member has a reasonable basis to believe that the customer meets the definition of ``institutional account'' in Rule 4512(c). .13 Distribution of Institutional Debt Research for Informational Purposes (a) A member may distribute institutional debt research reports to the persons described in paragraph (c) of this Supplementary Material .13 for informational purposes unrelated to [[Page 36629]] investing in debt securities, provided that the member does not distribute the reports prior to their publication and the member has disclosed that: (1) The member may provide the recipient debt research reports that were prepared for institutional investors and are not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors; and (2) The institutional debt research reports would be provided only for informational purposes and not for the purpose of making an investment decision related to debt securities. (b) If the person receiving institutional debt research pursuant to this Supplementary Material .13 does not contact the member to request that such institutional debt research not be provided, the member may reasonably conclude that the person has consented to receiving debt institutional research according to the terms of this Supplementary Material .13. (c) Institutional debt research may be distributed for informational purposes unrelated to investing in debt securities pursuant to this Supplementary Material .13 to: (1) Regulators for regulatory purposes; (2) Academics for academic purposes; (3) Issuers for the purpose of enhancing knowledge of their industry and competitors and market and economic factors; and (4) Media organizations for news gathering purposes. .14 Public Appearances by Research Analysts. A member or debt research analyst will not be required to make a disclosure required by paragraph (d) of this Rule where attendance at the public appearance is limited to institutional investors eligible to receive institutional debt research pursuant to paragraph (j) of this Rule. Members must maintain records of public appearances by debt research analysts sufficient to demonstrate that attendance at the public appearance was limited to institutional investors eligible to receive institutional debt research pursuant to paragraph (j) of this Rule. Such records must be maintained for at least three years from the date of the public appearance. * * * * * 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 On November 14, 2014, FINRA filed SR-FINRA-2014-048 to adopt new Rule 2242 to address conflicts of interest relating to the publication and distribution of debt research reports.\4\ On February 19, 2015, FINRA filed Amendment No. 1 responding to the comments received to the proposal as well as to propose amendments in response to these comments.\5\ The proposed rule change, as modified by Amendment No. 1 thereto, was approved by the Commission on July 16, 2015.\6\ --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 73623 (November 18, 2014), 79 FR 69905 (November 24, 2014) (Notice of Filing of File No. SR-FINRA-2014-048). \5\ See Securities Exchange Act Release No. 74490 (March 12, 2015), 80 FR 14198 (March 18, 2015) (Notice of Filing of Amendment No. 1 to File No. SR-FINRA-2014-048). \6\ See Securities Exchange Act Release No. 75472 (July 16, 2015), 80 FR 43528 (July 22, 2015) (Order Approving File No. SR- FINRA-2014-048). --------------------------------------------------------------------------- Consistent with the proposed rule change, FINRA announced an effective date for Rule 2242 of February 22, 2016 in a Regulatory Notice published on August 26, 2015.\7\ FINRA subsequently delayed implementation of the Rule until July 16, 2016 to give members additional time to implement the requirements of the Rule, including incorporating some guidance published by FINRA in some Frequently Asked Questions.\8\ --------------------------------------------------------------------------- \7\ See Regulatory Notice 15-31 (August 2015). \8\ See Securities Exchange Act Release No. 77158 (February 17, 2016), 81 FR 9065 (February 23, 2016) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2016-008). See also Securities Exchange Act Release No. 77726 (April 27, 2016), 81 FR 26593 (May 3, 2016) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2016-013). --------------------------------------------------------------------------- Distribution to Non-U.S. Investors by Non-U.S. Affiliates of Members Rule 2242(j) exempts debt research reports distributed solely to eligible institutional investors from most of the provisions regarding supervision, coverage determinations, budget and compensation determinations, and all of the disclosure requirements applicable to debt research reports distributed to retail investors. Rule 2242(j)(2) sets out the provisions of the Rule to which institutional debt research remains subject, and Rule 2242(j)(3) specifies a ``health warning'' that must be prominently disclosed on the first page of institutional debt research, alerting recipients that, among other things, the research report is not subject to all of the protections of retail debt research. Rule 2242(j)(1) requires either negative or affirmative written consent for eligible institutional investors to receive institutional debt research pursuant to the exemption. FINRA is proposing to clarify the application of Rule 2242(j) to non-U.S. investors that are customers of a member's U.S. affiliate but not customers of the member. Specifically, FINRA is proposing to amend Rule 2242 to include Supplementary Material providing that the requirements of paragraphs (j)(1)(A) and (B) of the Rule \9\ shall not apply to the distribution of an institutional debt research report by a non-U.S. affiliate of a member to a non-U.S. investor, provided that: (a) The non-U.S. investor is not a customer of the member; (b) the non- U.S. investor is a customer of the non-U.S. affiliate of the member; and (c) the non-U.S. affiliate of the member has a reasonable basis to believe that the customer meets the definition of ``institutional account'' in Rule 4512(c). A member's research reports, including globally branded research reports, may be distributed by a non-U.S. affiliate of the member to its non-U.S. customers pursuant to proposed Supplementary Material .12. --------------------------------------------------------------------------- \9\ Rule 2242(j)(1)(A) allows distribution of institutional debt research via negative written consent to a person who meets the definition of a qualified institutional buyer (QIB) and where, pursuant to FINRA Rule 2111(b): (1) The member or associated person has a reasonable basis to believe that the QIB is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a debt security or debt securities; and (2) the QIB has affirmatively indicated that it is exercising independent judgment in evaluating the member's recommendations pursuant to FINRA Rule 2111 and such affirmation is broad enough to encompass transactions in debt securities. Rule 2242(j)(1)(B) allows distribution of institutional debt research via affirmative written consent to a person who meets the definition of ``institutional account'' in FINRA Rule 4512(c). --------------------------------------------------------------------------- FINRA drafted the institutional debt research exemption with U.S. customers in mind. FINRA is concerned that, absent the proposed amendment, the exemption may be impractical for some U.S. member firms with global operations. These firms typically have non-U.S. affiliates that distribute the member research to those affiliates' non-U.S. customers. In many cases, the U.S. member and its non-U.S. affiliates will produce a single globally branded research product, which the non- U.S. [[Page 36630]] affiliates will distribute to their own customers. Rule 2242(j)(4) states that a member may not rely on the institutional debt research exemption with respect to a debt research report that the member has reason to believe will be redistributed to a retail investor. Thus, to the extent these member firms with global research operations cannot obtain the required consents from all non-U.S. customers of their non- U.S. affiliates, they would lose the ability to use the exemption with respect to institutional debt research distributed to their U.S. customers--the intended purpose of the Rule. Alternatively, the non- U.S. affiliates would be required to cut off distribution of such research to non-U.S. customers that could not or would not give the required consent,\10\ notwithstanding that receipt of the research is permitted and subject to applicable regulations in the home jurisdiction. Under these circumstances, FINRA believes where these customers are not also customers of the U.S. broker-dealers, the regulatory concerns addressed by the consent requirements of the exemption are far more attenuated. --------------------------------------------------------------------------- \10\ FINRA understands that firms have had difficulty obtaining consents from non-U.S. entities for several reasons, including the absence of the QIB standard in other jurisdictions and confusion from the customer as to why it must provide affirmative written consent under a U.S.-based rule regime to continue to receive a valued product from the non-U.S. affiliate of which it is a customer. --------------------------------------------------------------------------- Importantly, the proposed rule change would have no investor protection impact on either U.S. institutional investors or non-U.S. customers of the U.S. broker-dealer, as the consent requirements would continue to apply under those circumstances. Moreover, FINRA believes the proposed rule change would have minimal investor protection impact on the non-U.S. institutional investors, as the institutional debt research they would receive would still be subject to all other aspects of Rule 2242(j), including notably the ``health warning'' that identifies the intended institutional audience and highlights the key conflicts associated with the research report. Distribution to Persons for Informational Purposes The requirements of Rule 2242 are premised on the idea that debt research reports are distributed to investors that may base their investment decisions on the debt research reports or may incorporate elements of the debt research reports into their investment decisions. FINRA is aware that some members make their research reports available to some persons for specific informational purposes unrelated to investing in debt securities. The institutional exemption in Rule 2242(j) does not currently expressly contemplate distributing institutional debt research reports to these ``non-investors.'' FINRA believes that it is appropriate to permit members to distribute institutional debt research reports to these persons, provided that the persons negatively consent to receiving institutional debt research with the understanding that the research is not being provided for investment purposes. The proposed rule change would amend Rule 2242 to include Supplementary Material .13 permitting a member to distribute institutional debt research reports to specified persons for informational purposes unrelated to investing in debt securities, provided that the member does not distribute the reports prior to their publication and the member has disclosed that: (1) The member may provide to institutional investors debt research reports that are not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors; and (2) the debt research reports would be provided only for informational purposes and not for the purpose of making an investment decision related to debt securities. The proposed Supplementary Material would also provide that, if the person receiving institutional debt research does not contact the member to request that such institutional debt research reports not be provided, the member may reasonably conclude that the person has consented to receiving debt institutional research reports according to the terms of the Supplementary Material. The proposed Supplementary Material sets out the circumstances where institutional debt research may be distributed for informational purposes unrelated to investing in debt securities: (1) Regulators for regulatory purposes; (2) academics for academic purposes; (3) issuers for the purpose of enhancing knowledge of their industry and competitors and market and economic factors; and (4) media organizations for news gathering purposes. FINRA believes that permitting the provision of institutional debt research to these persons for the specified informational purposes serves the public interest without investor protection implications. Distribution of Third-Party Debt Research Reports to Institutional Investors FINRA previously stated that the institutional exemption in Rule 2242(j) applies to the content and disclosure requirements for third- party debt research reports.\11\ FINRA is proposing to amend Rule 2242 to clarify the requirements applicable to the distribution of third- party debt research reports pursuant to the institutional debt research exemption. --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 75472 (July 16, 2015), 80 FR 43528 (July 22, 2015) (Order Approving File No. SR- FINRA-2014-048). --------------------------------------------------------------------------- The proposed rule change would amend Rule 2242 to clarify that a member that distributes third-party debt research reports to institutional investors pursuant to the exemption must establish, maintain and enforce written policies and procedures reasonably designed to comply with paragraphs (g)(1), (g)(2), (g)(4) and (g)(6) of the Rule.\12\ The review requirements in paragraphs (g)(2) and (g)(4) for third-party debt research reports and independent third-party debt research reports, respectively, would apply to reports distributed to retail investors or to institutional investors. Accordingly, third- party debt research reports distributed pursuant to the exemption would be subject to the same review requirements as third-party debt research reports distributed to retail investors.\13\ --------------------------------------------------------------------------- \12\ See proposed Rule 2242(j)(3). \13\ FINRA notes that, consistent with FINRA Rule 2210(b)(3) (Communications with the Public), third-party debt research reports that are subject to review under Rule 2242(g)(2) (i.e., non- independent third-party debt research reports) do not require a registered principal to approve the communication prior to distribution, provided that the firm establishes and implements written procedures for the supervision and review of such communications. See FINRA Rule 2210 Questions and Answers at http://www.finra.org/industry/finra-rule-2210-questions-and-answers. --------------------------------------------------------------------------- With respect to disclosures, the proposed rule change would clarify that third-party debt research reports distributed pursuant to the institutional exemption are not required to carry the specific disclosures applicable to retail debt research set forth in paragraph (g)(3) of the Rule. FINRA believes that it is consistent with the exemption not to require specific disclosures when distributing third- party research reports, but instead to require a ``health warning.'' Accordingly, the proposed rule change would amend Rule 2242 to clarify that third-party debt research reports distributed to institutional investors must disclose prominently: (A) ``This document is intended for institutional investors and is not subject [[Page 36631]] to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors''; and (B) if applicable, ``This report may not be independent of [Firm's] proprietary interests. [Firm] trades the securities covered in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to the recommendation(s) offered in this report.'' \14\ --------------------------------------------------------------------------- \14\ See proposed Rule 2242(j)(5). --------------------------------------------------------------------------- FINRA has not proposed requiring that third-party debt research reports distributed to institutional investors disclose prominently the disclosure required by paragraph (j)(4)(B) of the Rule.\15\ FINRA intended the disclosure in paragraph (j)(4)(B) of the Rule to apply only when the research report was produced by the member.\16\ FINRA notes that the Rule does not require similar disclosure for third-party research reports distributed to retail investors, nor is there such a requirement in Rule 2241 with respect to third-party equity research reports. FINRA believes that it is commonly understood that the views in third-party research reports may differ from the views of the member or from other third-party research reports. For these reasons, FINRA believes that it is appropriate not to require third-party debt research reports distributed to institutional investors to disclose prominently the disclosure required by paragraph (j)(4)(B) of the Rule. --------------------------------------------------------------------------- \15\ Rule 2242(j)(4)(B) requires that debt research reports provided to institutional investors pursuant to the exemption disclose prominently on the first page, if applicable, that ``[t]he views expressed in this report may differ from the views offered in [Firm's] debt research reports prepared for retail investors.'' \16\ FINRA has previously stated that the disclosure is required only if the member produces both retail and institutional debt research reports that sometimes differ in their views. See Securities Exchange Act Release No. 75472 (July 16, 2015), 80 FR 43528 (July 22, 2015) (Order Approving File No. SR-FINRA-2014-048). --------------------------------------------------------------------------- In addition, FINRA has not proposed to include paragraph (g)(5) of the Rule in the list of applicable paragraphs of the Rule set forth in proposed paragraph (j)(3). Paragraph (g)(5) of the Rule dictates the circumstances in which paragraph (g)(3) of the Rule does not apply to third-party research reports.\17\ Because FINRA is proposing not to require the specific disclosures set forth in paragraph (g)(3) of the Rule when distributing third-party research reports, but instead to require a ``health warning,'' FINRA believes that paragraph (g)(5) of the Rule should not apply to third-party debt research reports distributed via the exemption to institutional investors. --------------------------------------------------------------------------- \17\ Rule 2242(g)(5) states that ``[a] member shall not be considered to have distributed a third-party debt research report for the purposes of paragraph (g)(3) where the research is an independent third-party debt research report and made available by a member (a) upon request; (b) through a member-maintained Web site; or (c) to a customer in connection with a solicited order in which the registered representative has informed the customer, during the solicitation, of the availability of independent debt research on the solicited debt security and the customer requests such independent debt research.'' --------------------------------------------------------------------------- Public Appearances by Debt Research Analysts Rule 2242(d) requires disclosures from debt research analysts in public appearances, including debt research analysts that only prepare debt research reports pursuant to the institutional debt research exemption. FINRA has previously stated that it would be inconsistent with the rationale of the institutional exemption--i.e., that all recipients of debt research have sufficient sophistication to understand the conflicts of interest without the specific disclosures and other protections afforded retail debt research--to allow debt research analysts to make public appearances before an audience that could include retail investors.\18\ --------------------------------------------------------------------------- \18\ See FINRA Research Rules Frequently Asked Questions at https://www.finra.org/industry/faq-research-rules-frequently-asked-questions-faq. --------------------------------------------------------------------------- However, based on the same rationale, FINRA believes that it is consistent with the institutional exemption in paragraph (j) of the Rule to exempt public appearances by debt research analysts from the disclosure requirements in paragraph (d) of the Rule where attendance is limited to institutional investors eligible to receive institutional debt research reports. Accordingly, FINRA is proposing new Supplementary Material .14 to clarify that the public appearance disclosure requirements do not apply in those circumstances. The proposed rule change would require that the member maintain records sufficient to demonstrate that attendance at the public appearance was limited to institutional investors eligible to receive institutional debt research. The proposed rule change would require that the records be maintained for at least three years from the date of the public appearance. The disclosure requirements of paragraph (d) of the Rule would apply where attendance at the public appearance was not limited to institutional investors eligible to receive institutional debt research reports. FINRA has filed the proposed rule change for immediate effectiveness. The implementation date of the proposed rule change will be July 16, 2016. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\19\ 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 is consistent with the Act in that it clarifies the requirements of Rule 2242, which addresses conflicts of interest relating to the publication and distribution of debt research reports. Specifically, FINRA believes the proposed rule change is consistent with the Act in that it clarifies: (1) The consent requirement for institutional debt research reports distributed to non-U.S. investors by non-U.S. affiliates of members; (2) the consent requirement for institutional debt research reports distributed to specified persons for informational purposes unrelated to investing in debt securities; (3) the scope of the exemption for third-party debt research reports distributed via the exemption to institutional investors and the applicable requirements; and (4) the disclosure requirements for debt research analysts in public appearances. FINRA further believes that the proposed rule change would facilitate the flow of valued information to sophisticated U.S. investors, while maintaining the investor protections intended by the Rule for those investors. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- 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. The clarifications in the proposed rule change will result in reduced burdens for members to comply with the requirements of Rule 2242. The proposed rule change does not impose any material new obligations on members. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. [[Page 36632]] III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b- 4(f)(6) thereunder.\21\ --------------------------------------------------------------------------- \20\ 15 U.S.C. 78s(b)(3)(A). \21\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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 rule-comments@sec.gov. Please include File Number SR-FINRA-2016-017 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-2016-017. 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 such 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-2016-017, and should be submitted on or before June 28, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-13318 Filed 6-6-16; 8:45 am] BILLING CODE 8011-01-P
![36628 Federal Register / Vol. 81, No. 109 / Tuesday, June 7, 2016 / Notices
disapproved. The 45th day after I. Self-Regulatory Organization’s to all of the independence and
publication of the notice for this Statement of the Terms of the Substance disclosure standards applicable to debt
proposed rule change is June 2, 2016. of the Proposed Rule Change research reports prepared for retail
The Commission is extending this 45- FINRA is proposing to amend FINRA investors.’’
day time period. Rule 2242 (Debt Research Analysts and (B) If applicable, ‘‘The views
The Commission finds it appropriate Debt Research Reports) to clarify the expressed in this report may differ from
to designate a longer period within application of the rule in four respects: the views offered in [Firm’s] debt
which to take action on the proposed (1) The consent requirement for research reports prepared for retail
rule change so that it has sufficient time institutional debt research reports investors.’’
to consider this proposed rule change. (C) If applicable, ‘‘This report may not
distributed to non-U.S. investors by
Accordingly, the Commission, pursuant be independent of [Firm’s] proprietary
non-U.S. affiliates of members; (2) the
to section 19(b)(2) of the Act,6 interests. [Firm] trades the securities
consent requirement for institutional
designates July 15, 2016, as the date by covered in this report for its own
debt research reports distributed to
which the Commission shall either account and on a discretionary basis on
specified persons for informational
approve or disapprove, or institute behalf of certain clients. Such trading
purposes unrelated to investing in debt
proceedings to determine whether to interests may be contrary to the
securities; (3) the scope of the
disapprove, the proposed rule change recommendation(s) offered in this
institutional debt research report
(File No. SR–BatsBZX–2016–01). report.’’
exemption when distributing third-party
(5) Notwithstanding paragraph (j)(4)
For the Commission, by the Division of debt research reports to eligible
of this Rule, a member that distributes
Trading and Markets, pursuant to delegated institutional investors; and (4) the
third-party debt research reports to
authority.7 disclosure requirements for debt
institutional investors pursuant to this
Brent J. Fields, research analysts in public appearances.
exemption must disclose prominently
Secretary. Below is the text of the proposed rule
the disclosures required by paragraphs
change. Proposed new language is in
[FR Doc. 2016–13315 Filed 6–6–16; 8:45 am] (j)(4)(A) and (j)(4)(C) of this Rule.
italics; proposed deletions are in
BILLING CODE 8011–01–P [(4)] (6) A member must establish,
brackets.
maintain and enforce written policies
* * * * * and procedures reasonably designed to
SECURITIES AND EXCHANGE 2240. CONFLICTS OF INTEREST ensure that institutional debt research is
COMMISSION * * * * * made available only to eligible
2242. Debt Research Analysts and institutional investors. A member may
[Release No. 34–77963; File No. SR–FINRA– Debt Research Reports not rely on this exemption with respect
2016–017] (a) through (i) No Change. to a debt research report that the
(j) Exemption for Debt Research member has reason to believe will be
Self-Regulatory Organizations; Reports Provided to Institutional redistributed to a retail investor.
Financial Industry Regulatory Investors [(5)] (7) This paragraph (j) does not
Authority, Inc.; Notice of Filing and (1) Except as provided in paragraphs relieve a member of its obligations to
Immediate Effectiveness of a Proposed (j)(2) and (j)(3) of this Rule, the comply with the antifraud provisions of
Rule Change To Amend FINRA Rule provisions of this Rule shall not apply the federal securities laws and FINRA
2242 (Debt Research Analysts and to the distribution of a debt research rules.
Debt Research Reports) report to: (k) No Change.
(A) through (B) No Change. • • • Supplementary Material:
June 1, 2016. (2) Notwithstanding paragraph (j)(1) ———
Pursuant to Section 19(b)(1) of the of this Rule, a member must establish, .01 through .11 No Change.
Securities Exchange Act of 1934 maintain and enforce written policies .12 Distribution of Institutional Debt
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 and procedures reasonably designed to Research to Non-U.S. Investors. The
notice is hereby given that on May 24, identify and effectively manage conflicts requirements of paragraphs (j)(1)(A) and
2016, Financial Industry Regulatory of interest described in paragraphs (B) of this Rule shall not apply to the
Authority, Inc. (‘‘FINRA’’) filed with the (b)(2)(A)(i), (b)(2)(H) (with respect to distribution of an institutional debt
Securities and Exchange Commission pressuring), (b)(2)(I), (b)(2)(K), (b)(2)(L), research report by a non-U.S. affiliate of
(‘‘SEC’’ or ‘‘Commission’’) the proposed (b)(2)(M), (b)(2)(N) and Supplementary a member to a non-U.S. investor,
rule change as described in Items I, II, Material .02(a) of this Rule. provided that:
and III below, which Items have been (3) Notwithstanding paragraph (j)(1) (a) The non-U.S. investor is not a
prepared by FINRA. FINRA has of this Rule, a member that distributes customer of the member;
designated the proposed rule change as third-party debt research reports to (b) The non-U.S. investor is a
constituting a ‘‘non-controversial’’ rule institutional investors pursuant to this customer of the non-U.S. affiliate of the
change under paragraph (f)(6) of Rule exemption must establish, maintain and member; and
19b–4 under the Act,3 which renders enforce written policies and procedures (c) The non-U.S. affiliate of the
the proposal effective upon receipt of reasonably designed to comply with member has a reasonable basis to
this filing by the Commission. The paragraphs (g)(1), (g)(2), (g)(4) and (g)(6) believe that the customer meets the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Commission is publishing this notice to of this Rule. definition of ‘‘institutional account’’ in
solicit comments on the proposed rule [(3)] (4) Debt research reports Rule 4512(c).
change from interested persons. provided to institutional investors .13 Distribution of Institutional Debt
pursuant to this exemption Research for Informational Purposes
6 Id. (‘‘institutional debt research’’) must (a) A member may distribute
7 17 CFR 200.30–3(a)(31). disclose prominently on the first page institutional debt research reports to the
1 15 U.S.C. 78s(b)(1). that: persons described in paragraph (c) of
2 17 CFR 240.19b–4. (A) ‘‘This document is intended for this Supplementary Material .13 for
3 17 CFR 240.19b–4(f)(6). institutional investors and is not subject informational purposes unrelated to
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![Federal Register / Vol. 81, No. 109 / Tuesday, June 7, 2016 / Notices 36631
to all of the independence and Because FINRA is proposing not to implementation date of the proposed
disclosure standards applicable to debt require the specific disclosures set forth rule change will be July 16, 2016.
research reports prepared for retail in paragraph (g)(3) of the Rule when
investors’’; and (B) if applicable, ‘‘This distributing third-party research reports, 2. Statutory Basis
report may not be independent of but instead to require a ‘‘health FINRA believes that the proposed rule
[Firm’s] proprietary interests. [Firm] warning,’’ FINRA believes that change is consistent with the provisions
trades the securities covered in this paragraph (g)(5) of the Rule should not of Section 15A(b)(6) of the Act,19 which
report for its own account and on a apply to third-party debt research requires, among other things, that
discretionary basis on behalf of certain reports distributed via the exemption to FINRA rules must be designed to
clients. Such trading interests may be institutional investors. prevent fraudulent and manipulative
contrary to the recommendation(s) acts and practices, to promote just and
Public Appearances by Debt Research
offered in this report.’’ 14 equitable principles of trade, and, in
Analysts
FINRA has not proposed requiring general, to protect investors and the
that third-party debt research reports Rule 2242(d) requires disclosures
public interest. FINRA believes that the
distributed to institutional investors from debt research analysts in public
proposed rule change is consistent with
disclose prominently the disclosure appearances, including debt research
the Act in that it clarifies the
required by paragraph (j)(4)(B) of the analysts that only prepare debt research
requirements of Rule 2242, which
Rule.15 FINRA intended the disclosure reports pursuant to the institutional
addresses conflicts of interest relating to
in paragraph (j)(4)(B) of the Rule to debt research exemption. FINRA has
the publication and distribution of debt
apply only when the research report previously stated that it would be
inconsistent with the rationale of the research reports. Specifically, FINRA
was produced by the member.16 FINRA
institutional exemption—i.e., that all believes the proposed rule change is
notes that the Rule does not require
recipients of debt research have consistent with the Act in that it
similar disclosure for third-party
sufficient sophistication to understand clarifies: (1) The consent requirement
research reports distributed to retail
the conflicts of interest without the for institutional debt research reports
investors, nor is there such a
specific disclosures and other distributed to non-U.S. investors by
requirement in Rule 2241 with respect
protections afforded retail debt non-U.S. affiliates of members; (2) the
to third-party equity research reports.
research—to allow debt research consent requirement for institutional
FINRA believes that it is commonly
analysts to make public appearances debt research reports distributed to
understood that the views in third-party
before an audience that could include specified persons for informational
research reports may differ from the
retail investors.18 purposes unrelated to investing in debt
views of the member or from other
However, based on the same rationale, securities; (3) the scope of the
third-party research reports. For these
FINRA believes that it is consistent with exemption for third-party debt research
reasons, FINRA believes that it is
the institutional exemption in paragraph reports distributed via the exemption to
appropriate not to require third-party
(j) of the Rule to exempt public institutional investors and the
debt research reports distributed to
appearances by debt research analysts applicable requirements; and (4) the
institutional investors to disclose
from the disclosure requirements in disclosure requirements for debt
prominently the disclosure required by
paragraph (d) of the Rule where research analysts in public appearances.
paragraph (j)(4)(B) of the Rule.
attendance is limited to institutional FINRA further believes that the
In addition, FINRA has not proposed
investors eligible to receive institutional proposed rule change would facilitate
to include paragraph (g)(5) of the Rule
debt research reports. Accordingly, the flow of valued information to
in the list of applicable paragraphs of
FINRA is proposing new Supplementary sophisticated U.S. investors, while
the Rule set forth in proposed paragraph
Material .14 to clarify that the public maintaining the investor protections
(j)(3). Paragraph (g)(5) of the Rule
appearance disclosure requirements do intended by the Rule for those investors.
dictates the circumstances in which
paragraph (g)(3) of the Rule does not not apply in those circumstances. The B. Self-Regulatory Organization’s
apply to third-party research reports.17 proposed rule change would require Statement on Burden on Competition
that the member maintain records
14 See proposed Rule 2242(j)(5). sufficient to demonstrate that FINRA does not believe that the
15 Rule 2242(j)(4)(B) requires that debt research attendance at the public appearance was proposed rule change will result in any
reports provided to institutional investors pursuant limited to institutional investors eligible burden on competition that is not
to the exemption disclose prominently on the first
page, if applicable, that ‘‘[t]he views expressed in to receive institutional debt research. necessary or appropriate in furtherance
this report may differ from the views offered in The proposed rule change would of the purposes of the Act. The
[Firm’s] debt research reports prepared for retail require that the records be maintained clarifications in the proposed rule
investors.’’ for at least three years from the date of change will result in reduced burdens
16 FINRA has previously stated that the disclosure
the public appearance. for members to comply with the
is required only if the member produces both retail
and institutional debt research reports that The disclosure requirements of requirements of Rule 2242. The
sometimes differ in their views. See Securities paragraph (d) of the Rule would apply proposed rule change does not impose
Exchange Act Release No. 75472 (July 16, 2015), 80 where attendance at the public any material new obligations on
FR 43528 (July 22, 2015) (Order Approving File No. members.
SR–FINRA–2014–048).
appearance was not limited to
institutional investors eligible to receive
asabaliauskas on DSK3SPTVN1PROD with NOTICES
17 Rule 2242(g)(5) states that ‘‘[a] member shall
C. Self-Regulatory Organization’s
not be considered to have distributed a third-party institutional debt research reports.
Statement on Comments on the
debt research report for the purposes of paragraph FINRA has filed the proposed rule
(g)(3) where the research is an independent third- Proposed Rule Change Received From
change for immediate effectiveness. The
party debt research report and made available by a Members, Participants, or Others
member (a) upon request; (b) through a member-
maintained Web site; or (c) to a customer in security and the customer requests such Written comments were neither
connection with a solicited order in which the independent debt research.’’
solicited nor received.
registered representative has informed the 18 See FINRA Research Rules Frequently Asked
customer, during the solicitation, of the availability Questions at https://www.finra.org/industry/faq-
of independent debt research on the solicited debt research-rules-frequently-asked-questions-faq. 19 15 U.S.C. 78o–3(b)(6).
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![36632 Federal Register / Vol. 81, No. 109 / Tuesday, June 7, 2016 / Notices
III. Date of Effectiveness of the proposed rule change between the Commission is publishing this notice to
Proposed Rule Change and Timing for Commission and any person, other than solicit comments on the proposed rule
Commission Action those that may be withheld from the change from interested persons.
Because the foregoing proposed rule public in accordance with the
I. Self-Regulatory Organization’s
change does not: (i) Significantly affect provisions of 5 U.S.C. 552, will be
available for Web site viewing and Statement of the Terms of the Substance
the protection of investors or the public of the Proposed Rule Change
interest; (ii) impose any significant printing in the Commission’s Public
burden on competition; and (iii) become Reference Room, 100 F Street NE., The Exchange filed a proposal to
operative for 30 days from the date on Washington, DC 20549 on official amend the fees applicable to securities
which it was filed, or such shorter time business days between the hours of listed on the Exchange, which are set
as the Commission may designate, it has 10:00 a.m. and 3:00 p.m. Copies of such forth in BZX Rule 14.13.
become effective pursuant to Section filing also will be available for The text of the proposed rule change
19(b)(3)(A) of the Act 20 and Rule 19b– inspection and copying at the principal is available at the Exchange’s Web site
4(f)(6) thereunder.21 office of FINRA. All comments received at www.batstrading.com, at the
At any time within 60 days of the will be posted without change; the principal office of the Exchange, and at
filing of the proposed rule change, the Commission does not edit personal
the Commission’s Public Reference
Commission summarily may identifying information from
Room.
temporarily suspend such rule change if submissions. You should submit only
it appears to the Commission that such information that you wish to make II. Self-Regulatory Organization’s
action is necessary or appropriate in the available publicly. All submissions Statement of the Purpose of, and
public interest, for the protection of should refer to File Number SR–FINRA– Statutory Basis for, the Proposed Rule
investors, or otherwise in furtherance of 2016–017, and should be submitted on Change
the purposes of the Act. If the or before June 28, 2016.
In its filing with the Commission, the
Commission takes such action, the For the Commission, by the Division of Exchange included statements
Commission shall institute proceedings Trading and Markets, pursuant to delegated
authority.22
concerning the purpose of and basis for
to determine whether the proposed rule the proposed rule change and discussed
should be approved or disapproved. Brent J. Fields,
any comments it received on the
Secretary.
IV. Solicitation of Comments proposed rule change. The text of these
[FR Doc. 2016–13318 Filed 6–6–16; 8:45 am] statements may be examined at the
Interested persons are invited to
submit written data, views, and
BILLING CODE 8011–01–P places specified in Item IV below. The
arguments concerning the foregoing, Exchange has prepared summaries, set
including whether the proposed rule forth in sections A, B, and C below, of
SECURITIES AND EXCHANGE the most significant parts of such
change is consistent with the Act. COMMISSION
Comments may be submitted by any of statements.
the following methods: [Release No. 34–77960; File No. SR–
BatsBZX–2016–20] A. Self-Regulatory Organization’s
Electronic Comments Statement of the Purpose of, and
Self-Regulatory Organizations; Bats Statutory Basis for, the Proposed Rule
• Use the Commission’s Internet Change
BZX Exchange, Inc.; Notice of Filing
comment form (http://www.sec.gov/
and Immediate Effectiveness of a 1. Purpose
rules/sro.shtml); or
• Send an email to rule-comments@ Proposed Rule Change To Amend Rule
sec.gov. Please include File Number SR– 14.13, Company Listing Fees On August 30, 2011, the Exchange
FINRA–2016–017 on the subject line. received approval of rules applicable to
June 1, 2016. the qualification, listing, and delisting
Paper Comments Pursuant to section 19(b)(1) of the of companies on the Exchange,5 which
Securities Exchange Act of 1934 (the
• Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2
it modified on February 8, 2012 in order
to Secretary, Securities and Exchange to adopt pricing for the listing of
notice is hereby given that on May 20, exchange traded products (‘‘ETPs’’) 6 on
Commission, 100 F Street NE., 2016, Bats BZX Exchange, Inc. (the
Washington, DC 20549–1090. the Exchange,7 which it subsequently
‘‘Exchange’’ or ‘‘BZX’’) filed with the modified again on June 4, 2014.8 On
All submissions should refer to File Securities and Exchange Commission
Number SR–FINRA–2016–017. This file October 16, 2014, the Exchange
(‘‘Commission’’) the proposed rule modified Rule 14.13, entitled ‘‘Company
number should be included on the change as described in Items I, II and III
subject line if email is used. To help the Listing Fees’’ to eliminate the annual
below, which Items have been prepared fees for ETPs not participating in the
Commission process and review your by the Exchange. The Exchange has
comments more efficiently, please use Exchange’s Competitive Liquidity
designated the proposed rule change as Provider Program pursuant to Rule 11.8,
only one method. The Commission will one establishing or changing a member
post all comments on the Commission’s Interpretation and Policy .02 (the ‘‘CLP
due, fee, or other charge imposed by the
Internet Web site (http://www.sec.gov/ Exchange under section 19(b)(3)(A)(ii) 5 See Securities Exchange Act Release No. 65225
rules/sro.shtml). Copies of the of the Act 3 and Rule 19b–4(f)(2) (August 30, 2011), 76 FR 55148 (September 6, 2011)
asabaliauskas on DSK3SPTVN1PROD with NOTICES
submission, all subsequent thereunder,4 which renders the (SR–BATS–2011–018).
amendments, all written statements proposed rule change effective upon 6 As defined in Rule 11.8(e)(1)(A), the term ‘‘ETP’’
with respect to the proposed rule filing with the Commission. The means any security listed pursuant to Exchange
change that are filed with the Rule 14.11.
7 See Securities Exchange Act Release No. 66422
Commission, and all written 22 17 CFR 200.30–3(a)(12). (February 17, 2012), 77 FR 11179 (February 24,
communications relating to the 1 15 U.S.C. 78s(b)(1). 2012) (SR–BATS–2012–010).
2 17 CFR 240.19b–4. 8 See Securities Exchange Act Release No. 72377
20 15 U.S.C. 78s(b)(3)(A). 3 15 U.S.C. 78s(b)(3)(A)(ii).
(June 12, 2014), 79 FR 34822 (June 18, 2014) (SR–
21 17 CFR 240.19b–4(f)(6). 4 17 CFR 240.19b–4(f)(2). BATS–2014–024).
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Document Created: 2018-02-08 07:31:40
Document Modified: 2018-02-08 07:31:40
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| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 81 FR 36628 |
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