December 6, 2021

Volume XI, Number 340

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December 06, 2021

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December 03, 2021

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FINRA Publishes Consolidated Criteria to Designate Firms for Mandatory Participation in FINRA’s Business Continuity/Disaster Recovery Testing

On April 19, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-15, addressing the criteria used by FINRA to designate member firms that are required to participate in FINRA’s annual business continuity and disaster recovery (BC/DR) testing.

As required by Securities and Exchange Commission Regulation Systems Compliance and Integrity (Regulation SCI), FINRA adopted Rule 4380 in 2015 requiring member firm participation in BC/DR testing. The rule authorizes FINRA to designate firms that are required to participate in FINRA’s annual BC/DR test based on established standards, which FINRA first published in Regulatory Notice 15-43 and updated in Regulatory Notice 18-09. Regulatory Notice 19-15 consolidates FINRA’s designation criteria, as previously announced in Notices 15-43 and 18-09, without change.

FINRA applies the following criteria to designate member firms for required BC/DR testing:

  • For member firms that report on a FINRA Trade Reporting Facility, OTC Reporting Facility, Trade Reporting and Compliance Engine, or Order Audit Trail System, FINRA will designate the participants that account for 5 percent or more of the volume of a specific metric (e.g., number of trades, average dollar volume of certain securities or reportable order events) reported to the applicable reporting facility over the six-month period immediately preceding designation, if the cumulative volume represented by designated firms amounts to at least 50 percent of all volume reported to the applicable reporting facility during the applicable six-month period; and
  • For member firms that report on the FINRA OTC Bulletin Board (OTCBB), FINRA will designate the participants that account for at least 20 positions in OTCBB symbols per day on the OTCBB during the applicable six-month period, if the cumulative quoting represented by designated firms amounts to at least 50 percent of all quoting on the OTCBB during the applicable six-month period.

FINRA will notify firms that meet these criteria individually by email in or around April of each year. Market participants that wish to participate on a voluntary basis in FINRA’s annual BC/DR testing are encouraged to contact FINRA to consider arrangements to take part in FINRA’s testing.

The Notice is available here.

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 116
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About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York
Partner

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

...
212-940-8599
Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

312-902-5452
Associate

Adam Haft is an associate in the Financial Services practice.

Bar Admissions

New York

212.940.6489
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