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 August 25, 2026, the 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

FINRA is proposing to amend FINRA Rule 4522 (Periodic Security Counts, Verifications and Comparisons) to simply position statement and reconciliation requirements for certain alternative investments. Specifically, the proposed rule change would amend Rule 4522 to except uncertificated investments in unregistered investment funds from the requirements of paragraph (b)(1) of the rule, as further set forth in the proposed rule change.

The text of the proposed rule change is available on FINRA's website at www.finra.org and at the principal office of FINRA.

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

Security Count and Verification Challenges Faced by Firms Offering Alternative Investments

Members that offer various types of alternative investments to their customers have sought relief from some of the longstanding count and verification requirements under SEA Rule 17a-13 ^[3] (Quarterly security counts to be made by certain exchange members, brokers, and dealers) and, related to these, a number of requirements under FINRA Rule 4522 (Periodic Security Counts, Verifications and Comparisons) that supplement requirements under the SEC rule.

Broadly, SEA Rule 17a-13 sets forth detailed requirements for broker-dealers that maintain custody of securities, on a quarterly basis, to among other things conduct physical examinations and counts of the securities they hold, verify the securities, and compare the results of their counts and verifications. The SEC rule requires the broker-dealer in part to record on its books and records all unresolved differences in a security count difference account no later than seven business days after the date of each required quarterly security examination, count and verification. FINRA Rule 4522 works in tandem with the provisions of SEA Rule 17a-13 by setting forth requirements on carrying or clearing firms to receive position statements no less than once per month, to reconcile all such securities, to report differences to the contra organization, and to promptly resolve such differences.

Many alternative investments currently do not fit readily within the framework of the specific count and verification requirements as set forth in SEA Rule 17a-13 and FINRA Rule 4522. For example, members have pointed out that because in some instances customers' ownership interests in certain alternative investments are represented in terms of the balance of the investor's capital account, rather than in number of shares or other units, issuers of these investments are not able to provide current quarterly position information. As a result, it is difficult for members to comply with the express terms of SEA Rule 17a-13, as well as ( printed page 57403) FINRA Rule 4522, in particular paragraph (b)(1) of that rule, which requires more frequent (not less than monthly) receipt of position statements and related comparisons and reconciliations.^[4] Further, members have also stated that issuers of other types of alternative investments, beyond those represented by the balance of the investor's capital account, such as those represented by number of shares or units, also are not always able to provide current position information or position statements to the members with the higher frequency required by FINRA Rule 4522(b)(1). As part of FINRA's rule modernization,^[5] members have asked for relief from these requirements for alternative investments.

Recent SEC Staff No-Action Letter

The Commission staff recently issued a no-action letter to a broker-dealer (the “Letter”) ^[6] stating that the staff will not recommend enforcement action to the Commission under SEA Rule 17a-13 if the broker-dealer does not record on its books and records all unresolved differences within seven business days after the date of each required quarterly securities count and verification, as long as it performs the securities count, verification, and comparison with respect to the uncertificated alternative investments known as “capital balance funds,” as these products are described in the Letter, under the circumstances listed in the Letter.^[7]

Achieving Greater Clarity Under FINRA Rules

To align with the SEC's specified relief under SEA Rule 17a-13, and to provide greater clarity for members and their customers that participate in alternative investments, as an interim measure, FINRA has published ^[8] guidance to firms, expressing FINRA's view that compliance with all circumstances set out in the Letter, as to the capital balance funds described in the Letter, is deemed to comply with the relevant requirements of FINRA Rule 4522(b)(1) with respect to the capital balance funds.

However, to address more broadly the difficulty firms have in receiving position statements no less than monthly from issuers of uncertificated investments in unregistered investment funds, as well as the associated comparison and reconciliation requirements thereunder, the proposed rule change would except from paragraph (b)(1) of FINRA Rule 4522 all uncertificated investments in unregistered investment funds as set forth in the proposed rule language.^[9] Specifically, the proposed exception would apply where ownership by the member or its customers of such investments is directly recorded on the issuer's ownership registry maintained by the issuer or its agent or, if no such registry exists, is directly recognized by the issuer.^[10] As such, FINRA proposes to revise the first sentence of paragraph (b)(1) to state that each carrying or clearing member subject to the requirements of SEA Rule 17a-13 shall “[r]eceive position statements as frequently as good business practice requires, but no less than once per month with respect to securities held by clearing corporations, other organizations or custodians, except that this requirement shall not apply to uncertificated investments in unregistered investment funds, where ownership by the member or its customers of such investments is directly recorded on the issuer's ownership registry maintained by the issuer or its agent or, if no such registry exists, is directly recognized by the issuer.” In the interest of clarity, FINRA notes that this proposed amendment to the first sentence of paragraph (b)(1) does not affect the applicability of SEA Rule 17a-13, in particular the requirement to conduct at least quarterly the specified securities counts and verifications pursuant to that rule. In that regard, FINRA proposes to revise the second sentence of paragraph (b)(1) to add the phrase “. . . or at least once per quarter with respect to uncertificated investments excepted from the monthly position statement requirement under this paragraph (b)(1) . . .”, so the complete sentence as amended would read: “Each such member shall at least once per month, or at least once per quarter with respect to uncertificated investments excepted from the monthly position statement requirement under this paragraph (b)(1), reconcile all such securities and money balances by comparison of the clearing corporations' or custodians' position statements to the member's books and records and promptly report difference to the contra organization and such differences shall be promptly resolved by both.” ^[11]

FINRA believes that adopting the proposed exception for uncertificated investments from the once-per-month cadence for position statements will help to give members greater clarity with regard to the treatment of uncertificated investments and to reduce unnecessary compliance burdens given the difficulties involved in receiving the position statements within the express parameters of the rule as currently written.^[12] This in turn may encourage members to offer alternative investments, thereby expanding the investment opportunities available to customers. At the same time, the proposed rule change incorporates the quarterly verification requirements under SEA Rule 17a-13 and as such ( printed page 57404) maintains investor protections.^[13] Further, FINRA believes the proposed rule change would help align FINRA Rule 4522 with the no-action relief granted by the Commission staff.

If the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice.

2. Statutory Basis

FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,^[14] which requires, among other things, that FINRA rules 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. The proposed exception in the rule change will help to give members greater clarity with regard to the treatment of uncertificated alternative investments and to reduce unnecessary compliance burdens given the difficulties involved in receiving the position statements within the express parameters of Rule 4522 as currently written. This may encourage members to offer more customers the opportunity to participate in these investments, thereby serving the public interest by promoting investor choice.

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 to analyze the potential economic impacts of the proposed rule change, including anticipated costs, benefits, and distributional and competitive effects, relative to current baseline, and the alternatives considered in assessing how best to meet FINRA's regulatory objectives.

Regulatory Need

FINRA Rule 4522 works in tandem with the provisions of SEA Rule 17a-13 to protect investors by ensuring that, among other things, member firms maintain accurate records of securities in their possession. As discussed above, however, many alternative investments do not fit readily within the framework of the specific count and verification requirements of these rules. The proposed rule change, together with the relief and requirements specified by the SEC, would reduce the particular compliance challenges related to uncertificated investments while ensuring that member firms maintain accurate records of these securities in their possession.

Economic Baseline

The proposed rule change would impact all carrying or clearing members,^[15] particularly those that custody alternative investments for customers, specifically uncertificated investments in unregistered investment funds as is further set forth in the proposed rule change. FINRA does not know the exact number of these carrying and clearing members or the scope of the uncertificated investments in unregistered investment funds. Using information provided by firms in FOCUS Form Custody, FINRA estimates that there are approximately 70 carrying and clearing firms that currently carry U.S. or foreign private funds and potentially carry these products. FINRA understands such products are mostly owned by large institutional investors. FINRA also understands that the relief specified in the Letter would not apply beyond the facts and circumstances specified in the Letter and that the proposed rule change would provide relief and greater regulatory clarity more broadly with regard to uncertificated investments in unregistered investment funds. The number of members that currently offer uncertificated investments in unregistered investment funds, including the products specified in the Letter, and how these members comply with the current rule, are not known with specificity by FINRA.

Economic Impacts

The proposed rule change is expected to provide direct and indirect benefits to carrying or clearing members with regard to the treatment of uncertificated investments in unregistered investment funds. Members that currently offer investment products within the scope of the proposed exception, and have difficulty meeting the current FINRA Rule 4522 requirements for such funds, will benefit from reduced regulatory burden, compliance uncertainty and associated costs and legal risks. The amount of reduction in regulatory burden and associated costs would depend on the scope and magnitude of activity across products covered by the proposed rule change, and the members' practices and procedures for complying with the current rule.

Members that do not currently offer these investment products may begin to offer them if the relief provided by the proposed rule change is material enough. Doing so may lead to expanded access to such alternative investment products. The proposed rule change is also expected to provide indirect benefits to these members' customers by potentially increasing investment options and portfolio diversification opportunities. The proposed rule change maintains investor protections with the additional requirement on recording or recognizing ownership.

Members that currently offer these products and are in compliance with the current rule could continue with their current activities. FINRA expects, however, that these members as well as members that begin to offer these products and could meet current rule requirements would nevertheless make use of the proposed exception. In particular, these members may reduce the frequency of verification to at least quarterly after determining that prudent business practice for specific products does not require monthly verifications. FINRA does not believe that this will have any impact on the protections currently provided under the baseline.

Members that would choose to take advantage of the proposed exception would need to familiarize themselves with the proposed rule amendment and make any necessary changes to their procedures, protocols, and monitoring systems, to ensure compliance. Members will mostly incur these one-time costs if the benefits from doing so are sufficient.

Anticipated Competitive Effects

Regarding competitive effects, the relief stemming from the proposed rule change would be available to all members that meet the specified conditions of the proposal. Relative to the baseline with the relief specified in the Letter, the proposed rule change may enhance competition among members in providing these alternative investments and across various unregistered investment funds. The impacts on competition for customers among members would depend on the magnitude of the direct cost savings and ( printed page 57405) the extent to which those savings would be shared with clients.

Alternatives Considered

The proposed rule change provides relief requested by member firms as part of rule modernization. The proposal builds on the relief and requirements in the Letter. No significant alternatives were considered.

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 Comments

• Use the Commission's internet comment form (www.sec.gov/​rules/​sro.shtml); or
• Send an email torule-comments@sec.gov. Please include File Number SR-FINRA-2026-019 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-2026-019. 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 ( www.sec.gov/​rules/​sro.shtml). Copies of the filing will be available for inspection and copying at the principal office of FINRA. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to File Number SR-FINRA-2026-019 and should be submitted on or before September 30, 2026.