As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of FINRA, SEC, and NFA notices and bulletins to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort tostrengthen their compliance and regulatory initiatives.
Regulatory Notices
Per Regulatory Notice 23-16, FINRA has amended its By-Laws to exempt from the Trading Activity Fee (TAF) any transaction by a proprietary trading firm that occurs on an exchange of which the proprietary trading firm is a member.
The amendment to FINRA’s TAF will take effect on November 6, 2023.
The amended text of the FINRA By-Laws is set forth in Attachment A.
Per Regulatory Notice 23-17, FINRA is issuing this Notice to inform members that it is discontinuing collection of data under Rule 4540. The data collected under Rule 4540 is used in the Integrated National Surveillance and Information Technology Enhancements program (INSITE). The decision to discontinue the collection of data under Rule 4540 at this time is based on the availability of alternative sources of data that were not available when INSITE was developed and that have enhanced FINRA’s ability to assess risk.
Effective November 30, 2023, FINRA will discontinue its collection of data under Rule 4540.
Per Regulatory Notice 23-18, FINRA ’s Renewal Program supports the collection and disbursement of fees related to the renewal of broker-dealer (BD) and investment adviser (IA) registrations, exempt reporting and notice filings with participating self-regulatory organizations (SRO) and jurisdictions. FINRA communicates information about renewal fees BD and IA firms owe via a Preliminary Statement in November and publishes a Final Statement in January to confirm or reconcile the actual renewal fees BD and IA firms owe after Jan. 1, 2024. Renewal statements reflect all applicable renewal fees assessed for BD and IA firms, branches and individuals.
It is critical that firms ensure that they pay in full by the Preliminary Statement deadline. If payment is late, firms should ensure that the Preliminary Statement is paid in full before the year-end system shutdown. Payments received after the Preliminary Statement deadline for FINRA-registered firms are subject to a late fee.
In addition to this Notice, firms should review resources on the following pages:
• FINRA’s Renewal Program page (for BDs)
• IARD Renewal Program page (for IAs)
Special Notices
There were no Special Notices in October.
Final Rules
Per Release No. 34-98704, the SEC is adopting amendments to certain rules that govern beneficial ownership reporting. The amendments generally shorten the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G. The amendments also clarify the disclosure requirements of Schedule 13D with respect to derivative securities. The SEC also is expanding the timeframe within a given business day by which Schedules 13D and 13G must be filed, and separately requiring that Schedule 13D and 13G filings be made using a structured, machine-readable data language. Further, the SEC discusses how, under the current rules, an investor’s use of a cash-settled derivative security may result in the person being treated as a beneficial owner of the class of the reference equity security. The SEC also isproviding guidance on the application of the current legal standard found in Section 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934 to certain common types of shareholder engagement activities. Finally, the SEC is making certain technical revisions.
The amendments will become effective 90 days after publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on December 18, 2024
Per Release No. 34-98737, the SEC is adopting a new rule under the Securities Exchange Act of 1934 to increase the transparency and efficiency of the securities lending market by requiring certain persons to report information about securities loans to a registered national securities association (“RNSA”). The new rule also requires certain confidential information to be reported to an RNSA to enhance an RNSA’s oversight and enforcement functions. Further, the new rulerequires that an RNSA make certain information it receives, along with daily informationpertaining to the aggregate transaction activity and distribution of loan rates for each reportablesecurity, available to the public.
Rule 10c-1a will become effective 60 days following the date of publication of the adoptingrelease in the Federal Register. The compliance dates for Rule 10c-1a require that: (1) an RNSA propose rules to implement Rule 10c-1a within four months of the effective date of Rule 10c-1a and that such RNSA rules are effective no later than 12 months after the effective date of Rule 10c-1a; (2) covered persons report the information required by Rule 10c-1a to an RNSA starting on the first business day 24 months after the effective date of Rule 10c-1a (“reporting date”); and (3) an RNSA make specified information publicly available within 90 calendar days of the reporting date.
Per Release No. 34-98738, the SEC is adopting a new rule and new Form SHO pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rule and related form are designed to provide greater transparency through the publication of short sale-related data to investors and other market participants. Under the new rule, institutional investment managers that meet or exceed certain specified reporting thresholds are required to report, on a monthly basis using the related form, specified short position data and short activity data for equity securities. In addition, the SEC is adopting an amendment to the national market system (“NMS”) plan governing the consolidated audit trail (“CAT”) created pursuant to the Exchange Act to require the reporting of reliance on the bona fide market making exception in the SEC’s short sale rules. The SEC is publishing the text of the amendments to the NMS plan governing the CAT (“CAT NMS Plan”) in a separate notice.
Effective date: January 2, 2024.
Proposed Rules
Per Release No. 34-98766, the SEC is proposing a new rule under the Securities Exchange Act of 1934 to prohibit national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency-related orders in certain stocks. If exchanges offer such pricing for their members’ proprietary orders, the proposal would require the exchanges to adopt rules and written policies and procedures related to compliance with the prohibition, as well as disclose, on a monthly basis, certain information including the total number of members that qualified for each volume tier during the month.
Interim Final Rules
There were no interim final rules in October.
Interpretive Releases
There were no interpretive releases in October.
There were no policy statements in October.
Notices to Members
Notice I-23-18
October 2, 2023
CPOs and IBs—NFA enhances notice filing user experience
On Tuesday, October 3, NFA will add fillable forms to the following commodity pool operator (CPO) and introducing broker (IB) notices and requests to improve the filing process efficiency. The type and amount of required information Members must provide remains the same.
| Registration Category | CFTC Regulation | Description | System |
| CPO | 4.22(f)(1) | Annual Report Extension Request - Undue Hardship | Easy File |
| CPO | 4.22(f)(2) | Annual Report Extension Request - Fund of Funds | Easy File |
| CPO | 4.22(d)(1) | Replacement of Pool's CPA | Easy File |
| CPO | 4.22(g) | Change in Pool's FYE | Easy File |
| IB | 1.16(g) | Replacement of IB's CPA | Easy File and WinJammer |
| IB | 1.12(a) | Firm is Under-Capitalized | Easy File and WinJammer |
| IB | 1.10(f)(1)(i) | Extension to File Uncertified Statement | Easy File |
| IB | 1.16(f)(1) | Extension to File Certified Statement | Easy File |
Following the update, IBs that are SEC registered broker dealers will now select "Regulation Notices - IBs" to file all notices and requests in WinJammer.
Notice I-23-19
October 23, 2023
NFA Announces 2023 Nominating Committee Nominations
NFA's Board of Directors amended NFA's Articles of Incorporation to reduce the size of NFA's Board of Directors from 29 to 21 Directors. The new Board composition becomes effective at the Board's Annual Meeting on February 15, 2024, and all current Directors' terms expire on that date. Pursuant to NFA's Articles of Incorporation (NFA's Articles), NFA's 2023 Nominating Committee has provided NFA's Secretary with a list of its nominees for the open positions on NFA's Board of Directors and 2024 Member Category Nominating Committee. The list of nominees included with this Notice shall serve as notification to NFA Members of the candidates nominated by the 2023 Nominating Committee.
Article VII, Section 3(b) of NFA's Articles provides that other nominations may be made for elected FCM and LTM, IB; CPO and CTA; and SD, MSP and RFED Director positions as follows:
(i) Petition signed by 50 or more NFA Members* in the category for which the nomination is made (i.e., FCM and LTM; SD, MSP and RFED; IB; and CPO and CTA);or
(ii) Petition submitted by any organization or association recognized by NFA as fairly representing the category (See)(i) above) for which the nomination is made.
No petition may nominate more than one candidate for the same position.
Article X, Section 3 of NFA's Articles similarly permits nominations for the Nominating Committee by petition.
NFA Bylaw 406 requires that each petition identify the position to which the nomination pertains, and that petitions must be received by the Secretary within 21 days of the date of this Notice. Any petition received after November 13, 2023 will not be considered.
News Releases
October 30, 2023
NFA orders New York, N.Y. introducing broker Oscar Gruss & Son Inc. to pay a $140,000 fine
October 30, Chicago—NFA has ordered Oscar Gruss & Son Inc. (Oscar Gruss & Son) to pay a $140,000 fine. Oscar Gruss & Son is an introducing broker (IB) Member of NFA located in New York, N.Y.
The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaintissued by the BCC and a settlement offer submitted by Oscar Gruss & Son, in which the firm neither admitted nor denied the allegations in the Complaint. The Complaint charged Oscar Gruss & Son with failing to comply with its communication recordkeeping obligations, in violation of NFA Compliance Rule 2-10(a), and allowing unregistered individuals to act as associated persons (AP) without being registered as APs and NFA Associates, in violation of NFA Bylaw 301(b). The Complaint further charged Oscar Gruss & Son with a failure to supervise, in violation of NFA Compliance Rule 2-9(a).
In its Decision, the BCC found that Oscar Gruss & Son violated NFA Compliance Rules 2-9(a) and 2-10(a), and NFA Bylaw 301(b).
The complete text of the Complaint and Decision can be viewed on NFA's website.
The SEC released its 2024 examination priorities in October to inform investors and registrants of the key risks, examination topics, and priorities that the Division plans to focus on in the upcoming year. As further detailed in the priorities statement, the SEC is priorities include but are not limited to:
For broker-dealers – Regulation Best Interest (notably dual-registrants, conflicts of interest, account allocation practices, account selection practices and branch office supervision), Form CRS, financial responsibility rules (e.g., accounting for reward programs, point programs, gift cards, and non-brokerage services), and trading practices (particularly Regulations SHO and ATS and Exchange Act Rule 15c2-11).
For investment advisers – advice regarding complex, high cost, and/or illiquid products, and unconventional strategies, processes to determine if advice is in the client’s best interest, how advisers address conflicts of interest and sufficiency of disclosures relating to those conflicts (of note are dual-registrants, those who use affiliated firms for clients services, and have FPs that service brokerage and advisory clients).
For private fund advisers – portfolio management risks when there is exposure to market volatility and higher interest rates, adherence to contractual requirements regarding LP advisory committees or similar structures (e.g., notification and consent processes), accurate calculation and allocation of private fund fees and expenses, due diligence practice consistency (with policies and procedures and disclosures), Advisers Act compliance (e.g., custody, Form ADV, timely audits, and distribution of audited financial statements), and policies and procedures for reporting on Form PF.
For multiple market participants – information security and operational resiliency, crypto assets and emerging financial technology, Regulation Systems Compliance and Integrity, and anti-money laundering.
Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.
The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.
For more information, please contact:
Mitch Avnet
p. (646) 346-2468
David Amster
p. (917) 568-6470
Sources:
• FINRA Notices
• SEC Regulatory Actions
• SEC 2024 Examination Priorities
• NFA Notices
• NFA New Releases
