We are proposing a new rule under the Securities Exchange Act of 1934 establishing a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. The proposed standard of conduct is to act in the best interest of the retail customer at the time a recommendation is made without placing the financial or other interest of the broker-dealer or natural person who is an associated person making the recommendation ahead of the interest of the retail customer (“Regulation Best Interest”). This obligation shall be satisfied if: the brokerdealer or a natural person who is an associated person of a broker-dealer, before or at the time of such recommendation reasonably discloses to the retail customer, in writing, the material facts relating to the scope and terms of the relationship, and all material conflicts of interest associated with the recommendation; the broker-dealer or a natural person who is an associated person of a broker-dealer, in making the recommendation, exercises reasonable diligence, care, skill, and prudence; the broker-dealer establishes, maintains, and enforces written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all material conflicts of interest that are associated with such recommendations; and the broker-dealer establishes, maintains, and enforces written policies and procedures reasonably designed to identify and disclose and mitigate, or eliminate, material conflicts of interest arising from financial incentives associated with such recommendations.
SEC Release 34-83063 Proposed Rule on Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles
The SEC is proposing new and amended rules and forms under both the Investment Advisers Act of 1940 andvthe Securities Exchange Act of 1934 to require registered investment advisers and registered broker-dealers (together, “firms”) to provide a brief relationship summary to retail investors to inform them about the relationships and services the firm offers, the standard of conduct and the fees and costs associated with those services, specified conflicts of interest, and whether the firm and its financial professionals currently have reportable legal or disciplinary events. Retail investors would receive a relationship summary at the beginning of a relationship with a firm, and would receive updated information following a material change. The relationship summary would be subject to SEC filing and recordkeeping requirements. The SEC also is proposing new rules to reduce investor confusion in the marketplace for firm services, specifically: (i) a new rule under the Exchange Act that would restrict brokerdealers and associated natural persons of broker-dealers, when communicating with a retail investor, from using the term “adviser” or “advisor” in specified circumstances, and (ii) new rules under the Exchange Act and Advisers Act that would require broker-dealers and investment advisers, and their associated natural persons and supervised persons, respectively, to disclose, in retail investor communications, the firm’s registration status with the Commission and an associated natural person’s and/or supervised person’s relationship with the firm.
MSRB Regulatory Notice 2018-07 Notice Regarding Transactions in the Municipal Securities of Distressed Municipalities
Transactions in the municipal securities of distressed municipalities recently have received increased attention in the municipal securities market, in some instances based on substantial price fluctuations. The MSRB is publishing this notice to remind brokers, dealers and municipal securities dealers of some of the investor protection rules applicable to dealers effecting customer transactions in such securities.
MSRB Regulatory Notice 2018-06 MSRB Provides Investor Education Resources on New Mark-Up Disclosure Requirements
To support investor awareness and understanding of information about mark-up and mark-down disclosures that will begin appearing on certain municipal securities trade confirmations, the MSRB today made available new and updated investor education resources. Brokers, dealers and municipal securities dealers, particularly retail broker networks, that work with individual investors may find the documents helpful as they adapt to the new disclosure standard.
FINRA Regulatory Notice 18-11 FINRA Cautions Members Regarding Recommending and Entering Unpriced Customer Orders at and Around the Opening on the First Day of Trading of a Direct Listing
FINRA advises firms to exercise caution in recommending and entering unpriced customer orders at and around the opening on the first day of trading of a direct listing of a security. FINRA is concerned that, without the use of a limit price, customers may receive executions at prices that are not in line with their expectations and ultimate investment decision. FINRA encourages firms to consider the appropriateness of using and recommending (and discussing with customers the benefits of using) priced, limit orders at and around the opening on the first day of trading of a direct listing.
FINRA Regulatory Notice 18-10 FINRA Requests Comment on the Effectiveness and Efficiency of Its Carrying Agreements Rule
FINRA is conducting a retrospective review of the rule governing carrying agreements to assess its effectiveness and efficiency. This Notice outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule.
MSRB Regulatory Notice 2018-05 MSRB Provides New and Updated FAQs on Confirmation Disclosure and Prevailing Market Price
New MSRB confirmation disclosure requirements and related guidance are scheduled to go into effect on May 14, 2018. Specifically, amendments to Rule G-15, on confirmation, clearance and other matters will require brokers, dealers and municipal securities dealers to disclose additional information, including their mark-ups and mark-downs to retail customers on certain principal transactions. In addition, amendments to Rule G-30, on prices and commissions, will provide guidance on prevailing market price (PMP) for the purpose of determining mark-ups and mark-downs and other Rule G-30 determinations. These amendments are designed to enhance transparency for retail investors as to the costs of their transactions in municipal securities and to provide them with valuable access to pricing and related information about their municipal securities.
MSRB Regulatory Notice 2018-04 Designation Information Regarding Mandatory Participation in Business Continuity and Disaster Recovery Testing
Regulation Systems Compliance and Integrity (Regulation SCI) was adopted by the SEC under the Securities Exchange Act of 19341 and requires the MSRB, as an SCI entity, to, among other things, require certain brokers, dealers, municipal securities dealers and municipal advisors registered with the MSRB to participate in the testing of the operation of the MSRB’s business continuity and disaster recovery plans (BC/DR Plans), in the manner and frequency specified by the MSRB, provided that such frequency shall not be less than once every 12 months. To facilitate this Regulation SCI requirement, the MSRB adopted Rule A-18, on mandatory participation in business continuity and disaster recovery testing, on November 2, 2015. Under Rule A-18, the MSRB designates as Participants in the mandatory functional and performance testing of the operation of the MSRB’s BC/DR Plans those MSRB registrants whose submissions of data to the MSRB, taken as a whole, account for a meaningful percentage of the MSRB’s data submission volume required to be provided by MSRB registrants, measured during an established time period (the “Measurement Period”).
FINRA Regulatory Notice 18-08 FINRA Requests Comment on Proposed New Rule Governing Outside Business Activities and Private Securities Transactions
FINRA seeks comment on a proposed new rule to address the outside business activities of registered persons. The proposal is the result of FINRA’s recent retrospective review of FINRA’s rules governing outside business activities and private securities transactions, FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person), respectively. The proposed rule would replace FINRA Rules 3270 and 3280 and is intended to reduce unnecessary burdens while strengthening investor protections relating to outside activities.
TPHs are reminded that paragraph (g) of Cboe Options and C2 Options Rule 4.24, Supervision, requires that each TPH submit to the Exchanges a written report by April 1st of each year on the TPH’s supervision and compliance effort during the preceding year and on the adequacy of the TPH’s ongoing compliance processes and procedures. Please note, because April 1, 2018 falls on a Sunday, the Rule 4.24 report for calendar year 2017 will be due April 2nd.
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