Rules on Outside Business Activities and Private Securities Transactions

Summary

SIFMA provided comments to FINRA on Regulatory Notice 17-20, which addresses the effectiveness and efficiency of FINRA’s rules on outside business activities and private securities transactions. SIFMA supports FINRA’s effort to retrospectively review the effectiveness and efficiency of FINRA Rules 3270 and 3280. SIFMA believes that this process should balance the need to identify outdated and inefficient rules with concerns about investor protection. SIFMA appreciates FINRA’s efforts to incorporate comments, including input provided by some of our member firms, regarding how the rules can best meet their investor-protection objectives through reasonably efficient means.

See also:

FINRA Requests Comment on the Effectiveness and Efficiency of Its Rules on Outside Business Activities and Private Securities Transactions

Excerpt

June 29, 2017

By Electronic Mail to [email protected].

Jennifer Piorko Mitchell

Office of the Corporate Secretary

FINRA

1735 K Street, NW

Washington, DC 20006-1506

Re: FINRA Regulatory Notice 17-20:

SIFMA Comment on the Effectiveness and Efficiency of FINRA’s Rules on Outside Business Activities and Private Securities Transactions

Dear Ms. Mitchell:

The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to respond to the request for comment issued by the Financial Industry Regulatory Authority (“FINRA”) in Regulatory Notice 17-20 (“RN 17-20”)2 regarding FINRA Rules 3270 and 3280, which govern outside business activities (“OBAs”) and private security transactions (“PSTs”), respectively.

I. EXECUTIVE SUMMARY

SIFMA supports FINRA’s effort to retrospectively review the effectiveness and efficiency of FINRA Rules 3270 and 3280. SIFMA believes that this process should balance the need to identify outdated and inefficient rules with concerns about investor protection. SIFMA appreciates FINRA’s efforts to incorporate comments, including input provided by some of our member firms, regarding how the rules can best meet their investor-protection objectives through reasonably efficient means. Without detracting from the support stated herein, our comments on RN 17-20 highlight various issues that warrant consideration by FINRA during its retrospective review of the rules governing OBAs and PSTs.

Specifically, SIFMA believes that FINRA can best further its efforts with respect to Rules 3270 and 3280 by:

 clarifying which OBAs are covered by Rule 3270;

 providing specific exemptions for certain activities that would otherwise

be covered under Rule 3270;

 adopting risk-based rules that target problematic OBAs and PSTs over

low-risk activities and transactions; and

 eliminating ambiguities in Rules 3270 and 3280 that cause an excess of

compliance cost with little benefit to the investing public.

SIFMA’s comments are further discussed in the various sections of this comment letter.

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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-20.pdf.