83 FR 61689 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to FINRA Rule 4570 (Custodian of Books and Records)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 231 (November 30, 2018)
Federal Register Volume 83, Issue 231 (November 30, 2018)
| Page Range | 61689-61692 | |
| FR Document | 2018-26000 |
[Federal Register Volume 83, Number 231 (Friday, November 30, 2018)] [Notices] [Pages 61689-61692] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-26000] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84646; File No. SR-FINRA-2018-039] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to FINRA Rule 4570 (Custodian of Books and Records) November 26, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``SEA,'' ``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on November 15, 2018, 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. 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. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 4570 (Custodian of Books and Records) to: (1) Provide a member that is filing a Form BDW (Uniform Request for Broker-Dealer Withdrawal) the option of designating another FINRA member as the custodian of its books and records on the form; (2) clarify the obligations of the designated custodian; and (3) require the designated custodian to consent to act in such a capacity. The text of the proposed rule change is available on FINRA's website at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose SEA Rule 17a-4 (Records to be Preserved by Certain Exchange Members, Brokers and Dealers) \3\ requires broker-dealers to retain their books and records for specified retention periods.\4\ Pursuant to SEA Rule 17a-4(g),\5\ a firm that stops doing business as a registered broker-dealer has a continuing obligation to retain its required books and records for the remainder of the specified retention periods. Form BDW requires that a firm that is withdrawing its registration identify and provide the contact information of the person who will have custody of the firm's books and records after the firm has discontinued its business operations. Form BDW also requires that the firm provide the address where the books and records will be located, if different than the custodian's address. In addition, the Form BDW provides that the firm and person signing the form on behalf of the firm must certify that the firm's books and records will be preserved and made available for inspection. --------------------------------------------------------------------------- \3\ 17 CFR 240.17a-4. \4\ See also FINRA Rule 4511 (General Requirements). \5\ 17 CFR 240.17a-4(g). --------------------------------------------------------------------------- FINRA Rule 4570 currently requires a member to designate as the custodian of its required books and records on the [[Page 61690]] Form BDW a person who is associated with the member at the time the Form BDW is filed.\6\ The rule is intended to enhance the ability of FINRA to obtain a firm's required books and records upon dissolution of the firm.\7\ --------------------------------------------------------------------------- \6\ For purposes of Rule 4570, an associated person is a natural person. See FINRA By-Laws, Article I, paragraph (rr). \7\ FINRA has jurisdiction over, and has the ability to obtain information from, a former associated person of a member for generally two years after: (1) The effective date of the person's termination of registration; (2) the effective date of revocation or cancellation of the person's registration; or (3) in the case of an unregistered person, the date upon which such person ceased to be associated with the member. See FINRA By-Laws, Article V, Section 4 (Retention of Jurisdiction) and FINRA Rule 8210 (Provision of Information and Testimony and Inspection and Copying of Books). --------------------------------------------------------------------------- Permitting Another Member To Act as the Designated Custodian FINRA understands that some members have had difficulty in identifying and designating an associated person as the books and records custodian on their Form BDWs when they are in the process of winding down. These members have indicated that other members are willing to function as custodians for purposes of FINRA Rule 4570, but they cannot do so currently because of the limitations in the rule. To provide greater flexibility to members, FINRA is proposing to amend Rule 4570 to provide a member that is filing a Form BDW the option of designating another FINRA member as the custodian of its books and records on the Form BDW. The proposed rule change would not require members to designate another FINRA member as the custodian of their books and records, but would give them the option to do so, at their discretion. Firms would continue to have the option of designating an associated person as the custodian of their books and records. Further, the proposed rule change would preserve FINRA's ability to obtain the books and records of a former member because FINRA would continue to have jurisdiction over, and the ability to obtain information from, the member that has agreed to act as custodian. Clarifying the Obligations of the Designated Custodian In addition to permitting another member to act as the designated custodian, FINRA is proposing to amend Rule 4570 to clarify the obligations of the designated custodian. Specifically, the proposed rule change would clarify that the custodian designated on the Form BDW, which would be either an associated person or another member, must preserve the books and records on behalf of the member that filed the Form BDW for the remainder of the applicable retention periods and make them available for inspection by FINRA upon request. For example, if a custodian receives a record from a firm that is going out of business that had an original retention period of six years, four years of which have already passed, the custodian must retain that record for the remaining two years and provide it to FINRA upon request. Further, the proposed rule change would clarify that a custodian is required to preserve and produce a former member's books and records in the same manner in which they were received. This provision is intended to ensure that the custodian does not alter the records after taking possession of them. However, the proposed rule change would provide that a custodian would not be precluded from converting the books and records in its possession into another format acceptable under the Exchange Act (e.g., convert from paper format to an electronic storage media), so long as such records are not altered or deleted during the conversion process. In addition, the proposed rule change would provide that where a member is acting as custodian, such member would not be required to verify the completeness or accuracy of the books and records that it receives. This exception is limited to members that are acting as custodians because their function is more akin to that of a recordkeeping service. However, FINRA believes that an associated person who is acting as custodian of a member's books and records is in a position to verify the completeness and accuracy of the member's books and records based on his or her existing relationship with the member. Finally, FINRA is proposing to amend Rule 4570 to require that where a FINRA member has agreed to act as custodian of the books and records of another member that has filed a Form BDW, the member acting as custodian must: (1) Treat such books and records as if they were its own books and records; and (2) arrange upon its dissolution for such books and records to continue to be retained for the remainder of the applicable retention periods under FINRA and Exchange Act rules in the same manner as its own books and records consistent with Rule 4570. FINRA believes that by clarifying the obligations of the custodian, the proposed rule change would facilitate compliance with the obligations under SEA Rule 17a-4(g) and Form BDW. Requiring the Consent of the Designated Custodian FINRA has become aware of situations where the person named as the custodian on the Form BDW was not aware that the member was designating the person as a custodian. To address this issue, the proposed rule change would require a member to obtain the affirmative, written or verbal, consent of the custodian of books and records identified on the firm's Form BDW. In addition, the proposed rule change would require a member that is withdrawing its registration to inform its custodian of the obligations under FINRA and Exchange Act rules, including FINRA Rule 4570, prior to obtaining the custodian's consent. The proposed rule change would also require the designated custodian to represent to FINRA, in a method prescribed by FINRA, that the custodian: (1) Has consented to act in the capacity of a custodian; (2) understands the responsibilities of a custodian; and (3) agrees to provide the books and records of the member for which it is acting as custodian to FINRA upon request during the course of the required retention periods. The proposed rule change would impact all members, including members that have elected to be treated as capital acquisition brokers (``CABs'') and are subject to the CAB Rules. CAB Rule 457 subjects all CABs to FINRA Rule 4570. Accordingly, the proposed rule change to FINRA Rule 4570 would also impact CABs. If the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following Commission approval. The effective date will be no later than 120 days following publication of the Regulatory Notice announcing Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\8\ 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 would facilitate compliance with FINRA and SEC recordkeeping requirements. Specifically, the proposed rule change [[Page 61691]] would provide a member the flexibility to select another member as its custodian, which would enhance FINRA's ability to obtain the member's required books and records upon the member's dissolution. This is because FINRA's jurisdiction over former associated persons is more limited than its jurisdiction over current members. The proposed rule change would also clarify the obligations of the designated custodian and require the designated custodian's consent, which would enhance the ability of designated custodians to carry out their recordkeeping responsibilities. --------------------------------------------------------------------------- \8\ 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. Economic Impact Assessment FINRA has undertaken an economic impact assessment, as set forth below, to further analyze the regulatory need for the proposed rule change, its potential economic impacts, including anticipated costs, benefits, and distributional and competitive effects, relative to the current baseline, and the alternatives FINRA considered in assessing how best to meet its regulatory objective. Regulatory Need FINRA Rule 4570 is intended to ensure that a firm's books and records are properly retained and accessible for the remainder of the applicable retention periods after the firm withdraws its registration with FINRA. However, certain aspects of the rule as currently written limit a firm's ability to identify a willing custodian and reduce the likelihood that books and records are properly retained and accessible following a firm's termination of registration. Economic Baseline The economic baseline for the proposed rule change is the number of firms that withdraw from the industry and thus file a Form BDW, and would therefore have to identify a custodian. In the past five years, approximately 1,100 firms filed a Form BDW, terminating their registration with FINRA. The firms had a median age of 14 years, and a median firm size of five associated persons and $240,000 in total assets, at the time they filed their Form BDW. The number of firms filing a Form BDW annually has largely remained constant over the last five years.\9\ --------------------------------------------------------------------------- \9\ Annually since 2013, FINRA has received a low of 212 withdrawal requests (2014) and a high of 234 withdrawal requests (2013), and an average of 220 withdrawal requests per year. --------------------------------------------------------------------------- Economic Impact The proposed rule change would primarily affect firms filing a Form BDW, customers of those firms, designated custodians, and investors generally. Benefits Currently, firms that file a Form BDW may only designate an associated person as the custodian of their books and records. By allowing such firms to designate another member as their custodian, the proposed rule change may reduce search costs associated with identifying a willing custodian. Search costs can be significant for firms filing a Form BDW as there are many other obligations that must also be addressed as a firm prepares to leave the industry. These obligations can make it difficult for a firm to identify an associated person who is willing, and able, to carry out the custodial responsibilities as the firm is in the process of winding down. FINRA believes that introducing-only firms with established relationships with clearing firms may be most likely to benefit from the additional flexibility provided in the proposed rule change.\10\ The clearing firm will already have possession of at least part of the introducing firm's books and records and, if willing to act in such a capacity, could therefore more easily maintain custody of all of the introducing firm's records along with its own books and records. The value of this flexibility would depend upon the willingness of the clearing firm to take on these custodial obligations after the introducing firm has left the industry. Any factor impacting the provision of clearing services more generally would likely also impact the likelihood that a clearing firm would be willing to take on the custodial responsibilities. Currently, there are approximately 1,479 active introducing-only firms and 112 active clearing firms.\11\ --------------------------------------------------------------------------- \10\ Note that there are many firms that use clearing firms for some but not all of their transactions. The value of the additional flexibility decreases as the percentage of an introducing firm's records with any one clearing firm decreases. \11\ Of the 1,100 firms that withdrew from the industry over the last five years, we can affirmatively identify that 432 (39%) were introducing-only firms. --------------------------------------------------------------------------- FINRA also believes that if a firm that is filing a Form BDW chooses another member as its custodian, it would enhance the ability of FINRA to obtain the books and records of the firm. This is because FINRA's jurisdiction over former associated persons is more limited than its jurisdiction over current members.\12\ As noted below, FINRA's ability to obtain the books and records of a former firm more easily and readily would also benefit customers of the firm and investors more generally. --------------------------------------------------------------------------- \12\ FINRA has jurisdiction over, and has the ability to obtain information from, a former associated person generally for two years. See FINRA By-Laws, Article V, Section 4 (Retention of Jurisdiction) and FINRA Rule 8210 (Provision of Information and Testimony and Inspection and Copying of Books). --------------------------------------------------------------------------- FINRA has become aware of situations where a document request was made to a custodian only to find that the custodian had stopped paying for the document storage or otherwise no longer had access to the books and records of the former firm. This makes books and records unavailable for use by FINRA staff, may inhibit the ability of FINRA staff to conduct its work and could lead to the imposition of sanctions on the custodian. Further, without access to the books and records of a former firm, customers who bring a claim against the firm may be limited in their ability to obtain restitution. Finally, FINRA and other regulators may be more limited in their ability to pursue a disciplinary action against the former firm or an associated person of the firm, possibly increasing risk to investors generally. By clarifying custodians' obligations, the proposed rule change aims to improve custodians' understanding of the time and monetary commitment and the potential sanctions that could be imposed on them should they not comply with their obligations. Further, FINRA has come across instances where the custodian was unaware that they were named as the custodian of a former firm's books and records and did not have access to them. By requiring the custodian's affirmative consent and representation to FINRA, the proposed rule change would eliminate such situations. Similar to the benefits associated with clarifying the obligations of custodians, the custodian's consent and representation to FINRA would also increase the likelihood that a former firm's books and records would be properly retained and accessible. Costs The costs associated with the proposed rule change would likely depend on whether the designated custodian is an associated person or another member. The proposed rule change would give a firm that is filing a Form BDW the additional option of designating another member, rather than [[Page 61692]] an associated person, as its custodian. Therefore, the expansion of the categories of eligible custodians should impose no new burdens on firms that continue to designate associated persons as their custodians. Introducing firms that designate their clearing firms as custodians, subject to their consent, may incur additional costs associated with clearing services. Firms that designate members as their custodians, subject to their consent, may incur costs associated with record-keeping services provided by such members. For instance, a member that agrees to act as custodian is likely to incur operational and technology costs associated with integrating the former member's books and records into its record-keeping systems. Moreover, the proposed rule change could result in a change in how custodianship of books and records by firms leaving the industry is paid for and managed. For instance, clearing firms might adapt their business models to integrate the costs of custodial services into clearing agreements at the outset of the clearing relationship. This would potentially lead to an industry-wide increase in the costs of clearing agreements, regardless of any custodial undertaking by the clearing firms. However, considering the small number of firms that file Form BDW per year, FINRA believes that this is a low probability outcome.\13\ Further, the competitive dynamics of procuring clearing services may preclude this outcome, as firms that raise their fees may lose clients. --------------------------------------------------------------------------- \13\ On average, 220 firms have filed a Form BDW each year over the last five years. This represents about five percent of all active firms. --------------------------------------------------------------------------- The clarification of a custodian's obligations does not add any new direct burdens, but it could make it harder for firms to identify a custodian willing to agree to the obligations. Likewise, the affirmative consent requirement and the requirement to provide a representation to FINRA may make it more difficult for firms to find a willing custodian. However, given the importance to FINRA and investors of proper custody of books and records, FINRA believes that these additional burdens are warranted. Alternatives Considered FINRA considered whether to amend Rule 4570 to require a firm that is going out of business to be only able to designate another member as its custodian. While such a requirement would further enhance FINRA's ability to obtain the books and records of former firms, FINRA determined that a firm that is leaving the industry and that is experiencing financial or operational difficulties may find it difficult to find another member that is willing to act as custodian. Further, FINRA continues to evaluate the viability that FINRA make itself available as an alternative custodian for members' records after withdrawal. 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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-FINRA-2018-039 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-2018-039. 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 website (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 website 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 a.m. and 3 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FINRA-2018-039 and should be submitted on or before December 21, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-26000 Filed 11-29-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / Notices 61689
of SPY ETF LEAPS expiration months to available for website viewing and for Broker-Dealer Withdrawal) the
those of PHLX.19 Accordingly, the printing in the Commission’s Public option of designating another FINRA
Commission believes that the proposal Reference Room, 100 F Street NE, member as the custodian of its books
raises no new or novel regulatory issues, Washington, DC 20549 on official and records on the form; (2) clarify the
and waiver of the 30-day operative business days between the hours of obligations of the designated custodian;
delay is consistent with the protection 10:00 a.m. and 3:00 p.m. Copies of the and (3) require the designated custodian
of investors and the public interest. The filing also will be available for to consent to act in such a capacity.
Commission therefore waives the 30-day inspection and copying at the principal The text of the proposed rule change
operative delay and designates the office of the Exchange. All comments is available on FINRA’s website at
proposal operative upon filing.20 received will be posted without change. http://www.finra.org, at the principal
At any time within 60 days of the Persons submitting comments are office of FINRA and at the
filing of such proposed rule change, the cautioned that we do not redact or edit Commission’s Public Reference Room.
Commission summarily may personal identifying information from II. Self-Regulatory Organization’s
temporarily suspend such rule change if comment submissions. You should Statement of the Purpose of, and
it appears to the Commission that such submit only information that you wish Statutory Basis for, the Proposed Rule
action is necessary or appropriate in the to make available publicly. All Change
public interest, for the protection of submissions should refer to File
investors, or otherwise in furtherance of Number SR–NYSEArca–2018–84 and In its filing with the Commission,
the purposes of the Act. should be submitted on or before FINRA included statements concerning
December 21, 2018. the purpose of and basis for the
IV. Solicitation of Comments proposed rule change and discussed any
For the Commission, by the Division of
Interested persons are invited to Trading and Markets, pursuant to delegated
comments it received on the proposed
submit written data, views, and authority.21 rule change. The text of these statements
arguments concerning the foregoing, Eduardo A. Aleman,
may be examined at the places specified
including whether the proposed rule in Item IV below. FINRA has prepared
Assistant Secretary.
change is consistent with the Act. summaries, set forth in sections A, B,
[FR Doc. 2018–25994 Filed 11–29–18; 8:45 am]
Comments may be submitted by any of and C below, of the most significant
BILLING CODE 8011–01–P aspects of such statements.
the following methods:
Electronic Comments A. Self-Regulatory Organization’s
• Use the Commission’s internet SECURITIES AND EXCHANGE Statement of the Purpose of, and
comment form (http://www.sec.gov/ COMMISSION Statutory Basis for, the Proposed Rule
rules/sro.shtml); or Change
[Release No. 34–84646; File No. SR–FINRA–
• Send an email to rule-comments@ 2018–039] 1. Purpose
sec.gov. Please include File Number SR–
Self-Regulatory Organizations; SEA Rule 17a–4 (Records to be
NYSEArca–2018–84 on the subject line.
Financial Industry Regulatory Preserved by Certain Exchange
Paper Comments Authority, Inc.; Notice of Filing of a Members, Brokers and Dealers) 3
• Send paper comments in triplicate Proposed Rule Change Relating to requires broker-dealers to retain their
to Secretary, Securities and Exchange FINRA Rule 4570 (Custodian of Books books and records for specified
Commission, 100 F Street NE, and Records) retention periods.4 Pursuant to SEA
Washington, DC 20549–1090. Rule 17a–4(g),5 a firm that stops doing
November 26, 2018. business as a registered broker-dealer
All submissions should refer to File
Pursuant to Section 19(b)(1) of the has a continuing obligation to retain its
Number SR–NYSEArca–2018–84. This
Securities Exchange Act of 1934 required books and records for the
file number should be included on the
(‘‘SEA,’’ ‘‘Act’’ or ‘‘Exchange Act’’) 1 and remainder of the specified retention
subject line if email is used. To help the
Rule 19b–4 thereunder,2 notice is periods. Form BDW requires that a firm
Commission process and review your
hereby given that on November 15, that is withdrawing its registration
comments more efficiently, please use
2018, Financial Industry Regulatory identify and provide the contact
only one method. The Commission will
Authority, Inc. (‘‘FINRA’’) filed with the information of the person who will have
post all comments on the Commission’s
Securities and Exchange Commission custody of the firm’s books and records
internet website (http://www.sec.gov/
(‘‘SEC’’ or ‘‘Commission’’) the proposed after the firm has discontinued its
rules/sro.shtml). Copies of the
rule change as described in Items I, II, business operations. Form BDW also
submission, all subsequent
and III below, which Items have been requires that the firm provide the
amendments, all written statements
prepared by FINRA. The Commission is address where the books and records
with respect to the proposed rule
publishing this notice to solicit will be located, if different than the
change that are filed with the
comments on the proposed rule change custodian’s address. In addition, the
Commission, and all written
from interested persons. Form BDW provides that the firm and
communications relating to the
proposed rule change between the I. Self-Regulatory Organization’s person signing the form on behalf of the
Commission and any person, other than Statement of the Terms of Substance of firm must certify that the firm’s books
those that may be withheld from the the Proposed Rule Change and records will be preserved and made
public in accordance with the available for inspection.
FINRA is proposing to amend FINRA
amozie on DSK3GDR082PROD with NOTICES1
FINRA Rule 4570 currently requires a
provisions of 5 U.S.C. 552, will be Rule 4570 (Custodian of Books and member to designate as the custodian of
Records) to: (1) Provide a member that its required books and records on the
19 See supra, note 6.
20 For
is filing a Form BDW (Uniform Request
purposes only of waiving the 30-day
3 17 CFR 240.17a–4.
operative delay, the Commission has also
21 17 CFR 200.30–3(a)(12). 4 See
considered the proposed rule’s impact on also FINRA Rule 4511 (General
1 15 U.S.C. 78s(b)(1). Requirements).
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f). 2 17 CFR 240.19b–4. 5 17 CFR 240.17a–4(g).
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![61692 Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / Notices
an associated person, as its custodian. is experiencing financial or operational with respect to the proposed rule
Therefore, the expansion of the difficulties may find it difficult to find change that are filed with the
categories of eligible custodians should another member that is willing to act as Commission, and all written
impose no new burdens on firms that custodian. Further, FINRA continues to communications relating to the
continue to designate associated persons evaluate the viability that FINRA make proposed rule change between the
as their custodians. Introducing firms itself available as an alternative Commission and any person, other than
that designate their clearing firms as custodian for members’ records after those that may be withheld from the
custodians, subject to their consent, may withdrawal. public in accordance with the
incur additional costs associated with provisions of 5 U.S.C. 552, will be
C. Self-Regulatory Organization’s
clearing services. available for website viewing and
Firms that designate members as their Statement on Comments on the
printing in the Commission’s Public
custodians, subject to their consent, may Proposed Rule Change Received From
Reference Room, 100 F Street NE,
incur costs associated with record- Members, Participants, or Others
Washington, DC 20549, on official
keeping services provided by such Written comments were neither business days between the hours of 10
members. For instance, a member that solicited nor received. a.m. and 3 p.m. Copies of such filing
agrees to act as custodian is likely to III. Date of Effectiveness of the also will be available for inspection and
incur operational and technology costs Proposed Rule Change and Timing for copying at the principal office of
associated with integrating the former Commission Action FINRA. All comments received will be
member’s books and records into its posted without change.
record-keeping systems. Moreover, the Within 45 days of the date of Persons submitting comments are
proposed rule change could result in a publication of this notice in the Federal cautioned that we do not redact or edit
change in how custodianship of books Register or within such longer period (i) personal identifying information from
and records by firms leaving the as the Commission may designate up to comment submissions. You should
industry is paid for and managed. For 90 days of such date if it finds such submit only information that you wish
instance, clearing firms might adapt longer period to be appropriate and to make available publicly. All
their business models to integrate the publishes its reasons for so finding or submissions should refer to File
costs of custodial services into clearing (ii) as to which the self-regulatory Number SR–FINRA–2018–039 and
agreements at the outset of the clearing organization consents, the Commission should be submitted on or before
relationship. This would potentially will: December 21, 2018.
lead to an industry-wide increase in the (A) By order approve or disapprove
such proposed rule change, or For the Commission, by the Division of
costs of clearing agreements, regardless Trading and Markets, pursuant to delegated
of any custodial undertaking by the (B) institute proceedings to determine
authority.14
clearing firms. However, considering the whether the proposed rule change
should be disapproved. Eduardo A. Aleman,
small number of firms that file Form Assistant Secretary.
BDW per year, FINRA believes that this IV. Solicitation of Comments [FR Doc. 2018–26000 Filed 11–29–18; 8:45 am]
is a low probability outcome.13 Further,
Interested persons are invited to BILLING CODE 8011–01–P
the competitive dynamics of procuring
submit written data, views and
clearing services may preclude this
arguments concerning the foregoing,
outcome, as firms that raise their fees SECURITIES AND EXCHANGE
including whether the proposed rule
may lose clients. COMMISSION
The clarification of a custodian’s change is consistent with the Act.
obligations does not add any new direct Comments may be submitted by any of
the following methods: [Release No. 34–84648; File No. SR–
burdens, but it could make it harder for NYSEArca–2018–85]
firms to identify a custodian willing to Electronic Comments
agree to the obligations. Likewise, the Self-Regulatory Organizations; NYSE
• Use the Commission’s internet
affirmative consent requirement and the Arca, Inc.; Notice of Filing and
comment form (http://www.sec.gov/
requirement to provide a representation Immediate Effectiveness of Proposed
rules/sro.shtml); or
to FINRA may make it more difficult for Rule Change To Amend Its Certificate
• Send an email to rule-comments@
firms to find a willing custodian. of Incorporation, Bylaws and Rule 3.3
sec.gov. Please include File Number SR–
However, given the importance to FINRA–2018–039 on the subject line. November 26, 2018.
FINRA and investors of proper custody
of books and records, FINRA believes Paper Comments Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
that these additional burdens are • Send paper comments in triplicate (‘‘Act’’) 2 and Rule 19b–4 thereunder,3
warranted. to Secretary, Securities and Exchange notice is hereby given that, on
Alternatives Considered Commission, 100 F Street NE, November 20, 2018, NYSE Arca, Inc.
Washington, DC 20549–1090. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
FINRA considered whether to amend
All submissions should refer to File with the Securities and Exchange
Rule 4570 to require a firm that is going
Number SR–FINRA–2018–039. This file Commission (‘‘Commission’’) the
out of business to be only able to
number should be included on the proposed rule change as described in
designate another member as its
subject line if email is used. To help the Items I, II, and III below, which Items
custodian. While such a requirement
Commission process and review your have been prepared by the Exchange.
amozie on DSK3GDR082PROD with NOTICES1
would further enhance FINRA’s ability
comments more efficiently, please use The Commission is publishing this
to obtain the books and records of
only one method. The Commission will notice to solicit comments on the
former firms, FINRA determined that a
post all comments on the Commission’s
firm that is leaving the industry and that
internet website (http://www.sec.gov/ 14 17 CFR 200.30–3(a)(12).
13 On average, 220 firms have filed a Form BDW
rules/sro.shtml). Copies of the 1 15 U.S.C. 78s(b)(1).
each year over the last five years. This represents submission, all subsequent 2 15 U.S.C. 78a.
about five percent of all active firms. amendments, all written statements 3 17 CFR 240.19b–4.
VerDate Sep<11>2014 17:00 Nov 29, 2018 Jkt 247001 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 E:\FR\FM\30NON1.SGM 30NON1](https://thefederalregister.org/doc/83_FR_61920/page/4.svg)
Document Created: 2018-11-30 04:35:30
Document Modified: 2018-11-30 04:35:30
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 61689 |
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