Development of new FINRA Rules

The rules of the Financial Industry Regulatory Authority (FINRA) help to regulate and hold responsible financial professionals and the firms they work for. As the financial industry evolves, new FINRA rules must also be developed. The process for developing these rules involves both input from FINRA and the Securities and Exchange Commission (SEC).

There are numerous different places in which new proposals originate from, including:

1. FINRA-member firms;
2. Investors;
3. FINRA Staff initiatives;
4. Recommendations from the SEC or other regulatory agencies;
5. Recommendations from FINRA committees, the Small Firm Advisory Board (SFAB), or the National Adjudicatory Council (NAC); or
6. Responses to developments in the market.

After a rule is proposed, FINRA subject-matter experts conduct research and develop the proposal for presentation to FINRA management. The potential economic impact of the proposed rule is assessed by FINRA staff and FINRA’s Office of the Chief Economist. FINRA staff presents the proposed rule to the FINRA Advisory and District Committees and NAC for review and suggestions. Additionally, prior to submission to the FINRA Board for approval, SFAB and the Compliance Advisory Committee also review the proposal.

Following all of the reviews discussed above, an “Action Item” is presented to the FINRA Board. This describes the proposed rule in detail and includes all input collected during the review process. At this point, the Board may authorize the publication of a Regulatory Notice, which solicits comments. Alternatively, the Board can file the proposal with the SEC for notice and comment.

The comment period after publication of a Regulatory Notice is usually between one and two months. All comments become part of the “official record” of the proposal. Depending on the comments received and whether any changes were made to the proposal, FINRA staff either presents the rule to the Board or files with the SEC for notice and comment.

The SEC notice and comment involves a review by SEC staff members, who look for consistency with the requirements of the Securities Exchange Act of 1934. The SEC may request changes or amendments to the proposed rule. Additionally, the SEC publishes the rule for comment in the Federal Register, with the period for comment usually lasting 21 days. After the comment period ends, the SEC usually requests FINRA to respond to those comments, which may result in amendments to the proposal.

If the SEC approves of the rule proposal, an official announcement is made in the Federal Register. Following this publication, FINRA issues a Regulatory Notice announcing the SEC’s approval. Ordinarily, a specified number of days must pass following the publication of the Regulatory Notice before the rule goes into effect.

Silver Law Group actively participates in the FINRA process by submitting comment letters or otherwise advocating on behalf of investors. Our attorneys welcome the opportunity to lobby on behalf of investors on ways to improve the FINRA arbitration process.

If you have suffered investment losses and believe that it may have been the result of misconduct on the part of your stockbroker or other investment professional, it may be possible for you to recover damages. For more information, contact an experienced securities law attorney today. At the Silver Law Group, we help investors through securities litigation, as well as through the FINRA arbitration and mediation processes.