On June 21, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed a new set of proposed and updated supervisory rules with the Securities and Exchange Commission (“SEC”). These proposed and updated rules are part of FINRA’s continued efforts to consolidate legacy New York Stock Exchange (“NYSE”) and National Association of Securities Dealers (“NASD”) Rules. The June 2013 proposal from FINRA did not include a new rule proposed by FINRA in its original proposed rule filing in June 2011, which would have required broker-dealers to supervise non-securities related businesses. Despite the decision to not include that proposed rule in its recent filing, FINRA reminded broker-dealers that FINRA Rule 2010, which requires high commercial standards and just and equitable principles of trade, applies to non-securities activities of member firms and associated persons. Another proposed rule which was included in the June 2013 proposal requires independent broker-dealers to tighten supervision of “far-flung offices.” FINRA proposed that an “appropriately registered [senior] principal” needs to “regularly supervise the activities of on-site producing principal” through regular, periodic on-site supervision. FINRA stated that this supervision is necessary since a registered principal cannot effectively supervise their own sales activities. The proposed filing states, “[w]hile the senior principal is not required to be physically present full time at the one-person [office of supervisory jurisdiction], the member must be able to demonstrate ‘effective supervision and control’ of the activities of the on-site principal.” Further, the proposed filing only requires a principal to supervise no more than one office of supervisory jurisdiction (“OSJ”). Indeed the FINRA filing states, “[t]here is a further general presumption that a principal supervising more than two OSJs is unreasonable and . . . will be subject to greater scrutiny.” The SEC is expected to publish these newly proposed rules for comment shortly.
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