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New FINRA Supervision Rules Impact Broker-Dealers’ Insider Trading Procedures and Supervisory Controls

Posted in Broker-Dealer Regulation, Enforcement, FINRA Enforcement, Insider Trading, SEC Enforcement

Financial Industry Regulatory Authority (FINRA) rules require member firms to establish and maintain a system of written procedures to supervise the activities of its members. On December 23, 2013, the SEC approved new FINRA rules. Among other provisions, the new rules require procedures for detecting and reporting insider trading and impose heightened standards on supervisory controls. Member firms should ensure that their actions conform to the updated regulatory scheme, which is part of FINRA’s continuing efforts to harmonize the NASD and NYSE supervisory rules into one consolidated FINRA rulebook.

The Proposed Rule Changes

The two new FINRA Rules 3110 (Supervision) and 3120 (Supervisory Control System) consolidate and replace NASD Rules 3010 and 3012 and impact:

(i)     which personnel are permitted to act as supervisors;

(ii)    which personnel may perform office inspections;

(iii)   requirements for review of certain internal communications; and

(iv)  obligations to actively monitor for insider trading, including the duty to conduct internal investigations and report information related to those internal investigations back to FINRA.

To learn more about the most significant changes, read our full client alert