August 12, 2020

Volume X, Number 225

August 11, 2020

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August 10, 2020

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FINRA Updates on July 10, 2020

FINRA Announces Updates to Interpretations of Margin Rule Regarding Control and Restricted Securities and Consolidation of Accounts

On July 2, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-22 (the Notice) announcing updates to its interpretations regarding (1) FINRA Rule 4210(e)(8), which specifies margin requirements for control and restricted securities, and (2) FINRA Rule 4210(f)(5), which specifies conditions for the consolidation of two or more accounts carried for the same customer.

With respect to FINRA Rule 4210(e)(8), the revised interpretation clarifies the exemption for securities that are “then saleable” pursuant to the terms and conditions of Securities Act Rule 144(b)(1) or Rule 145(d)(2) from the margin requirements generally applicable to control and restricted securities subject to Securities Act Rule 144 or 145(c).

FINRA Rule 4210(f)(5) allows member firms to consolidate two or more accounts carried for a customer if the customer has consented that the money and securities in each account may be used to carry or pay any deficit in all such accounts. The revised interpretation clarifies that though Regulation T only permits firms to maintain multiple margin accounts for a single customer under three specific circumstances, firms may maintain multiple sub-accounts of a customer’s margin account as provided in the interpretations.

The Notice and revised interpretations are available here.

FINRA Provides Guidance on Retail Communications Concerning Private Placements

On July 1, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-21 (the Notice) providing guidance on compliance with FINRA Rule 2210 Communications with the Public when creating, reviewing, approving, distributing or using retail communications concerning private placement offerings. Among other things, the Notice reminds members that private placement retail communications of the member firm are subject to FINRA Rule 2210 regarding advertising, which requires a balanced presentation of risks and investment benefits.

The Notice is available here.

FINRA Updates Members on Regulatory Coordination Concerning CAT Reporting Compliance

On June 29, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-20, updating members on regulatory coordination efforts concerning compliance with Consolidated Audit Trail (CAT) reporting rules. Specifically, FINRA and the national securities exchanges, as CAT NMS Plan Participants, have entered into a Rule 17d-2 Plan and corresponding Regulatory Services Agreements to coordinate regulation of the CAT compliance rules through FINRA. Additionally, FINRA and the exchanges have also developed a coordinated approach to enforce the CAT compliance rules under the Participants’ respective Minor Rule Violation Plans.

The Notice is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 192


About this Author

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

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.

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 Commission, the US Commodity Futures Trading Commission and financial industry self-regulatory organizations. 

Jack West Financial Attorney Katten

Jack West is an associate in the Financial Markets and Funds practice.