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FINRA Issues Annual Regulatory and Examination Priorities Letter for 2013

On January 11, the Financial Industry Regulatory Authority (FINRA) issued its annual letter outlining FINRA’s regulatory and examination priorities for 2013 to FINRA-registered firms. The letter is meant to highlight to FINRA-registered firms’ areas of significance to FINRA’s regulatory programs.

In the letter, FINRA stated that it is focusing its resources on how firms are supervising the development of algorithms and trading systems and the need to have adequate testing and controls related to high-frequency trading and other algorithmic trading strategies and trading systems. Potential areas of review will include, among other things: (i) pre-implementation testing of algorithms and trading systems; (ii) design and development of the firm’s algorithms and trading systems; (iii) procedures and controls to monitor algorithms and trading systems to detect potential trading abuses; (iv) controls with respect to changes made after an algorithm and trading system is placed into production; (v) firmwide disconnect or “kill” switches; and (iv) procedures for responding to widespread system malfunctions. FINRA also remains focused on the proper use of order origin codes across the options industry

In light of the current market environment, FINRA is concerned about sales practice abuses, yield-chasing behaviors and the potential impact of a market correction, external stress event or market dislocation. FINRA is continuing to focus its efforts in areas such as suitability and complex products and firms’ and brokers’ understanding of such products. Among the products FINRA listed in its letter as those on which FINRA will focus its examination efforts include private placement securities, business development companies, leveraged loan products, commercial mortgage-backed securities, high-yield debt instruments, structured products, exchange-traded funds and notes, non-traded REITS, closed-end funds, municipal securities and variable annuities. In addition, FINRA remains concerned about firms’ ability to fund their activities under stress conditions and is focusing its efforts on net capital issues and protection of customer funds and assets.

Click here to read FINRA’s January 11, 2013 Letter.

©2017 Katten Muchin Rosenman LLP


About this Author

Janet M. Angstadt, Securities Lawyer, Katten Muchin

Janet M. Angstadt is the head of Katten's Chicago Financial Services practice. She focuses her practice on broker-dealer and exchange compliance issues and advises companies on matters regarding compliance with the regulations of the US Securities and Exchange Commission (SEC) and self-regulatory organizations (SROs).

Janet represents clients in a wide range of legal and regulatory matters, including mergers and acquisitions, SRO investigations, compliance issues related to registrations, sales practice, short sales, Regulation NMS, market-making and...