Financial Industry Regulatory Authority, Inc. (“FINRA”) has filed a proposed rule change with the Securities and Exchange Commission (“SEC”) to adopt NASD Rule 3040 (Private Securities Transactions of an Associated Person) as FINRA Rule 3280 (Private Securities Transactions of an Associated Person) in the consolidated FINRA Rulebook. FINRA also proposes to update cross-references within other FINRA rules accordingly.
As part of the process of developing a new consolidated rulebook (“Consolidated FINRA Rulebook”), FINRA is proposing to transfer NASD Rule 3040 (Private Securities Transactions of an Associated Person) into the Consolidated FINRA Rulebook as FINRA Rule 3280 (Private Securities Transactions of an Associated Person) without any substantive changes. As with NASD Rule 3040, proposed FINRA Rule 3280 states that, prior to participating in any private securities transaction, any person associated with a FINRA member must provide written notice to the member with which he or she is associated. The written notice must describe the transaction and the associated person’s role, and disclose whether the associated person has received or may receive selling compensation in connection with the transaction. If the associated person has received or may receive selling compensation, the FINRA member must advise the individual in writing whether it approves or disapproves the associated person’s participation in the transaction. If the member disapproves the associated person’s participation in the transaction, the associated person may not directly or indirectly participate in the transaction in any manner. If the member approves the associated person’s participation in the transaction, then the transaction must be recorded on the member’s books and records, and the member must supervise the associated person’s participation as if the transaction were executed on behalf of the member. If the associated person has not received and will not receive any selling compensation, the member must provide the associated person with written acknowledgement of the notice and, at its discretion, may impose conditions on the associated person’s participation in the transaction. In addition, proposed FINRA Rule 3280 includes definitions of the terms “private securities transaction” and “selling compensation” that are substantively identical to the definitions in NASD Rule 3040.
Proposed FINRA Rule 3280 closely tracks the language of NASD Rule 3040 and makes only non-substantive, technical changes to the text of the NASD rule by, for instance, replacing the reference to a legacy NASD rule with the applicable FINRA rule.
The proposed rule change would also replace all references to NASD Rule 3040 in FINRA Rules 0150 (Application of Rules to Exempted Securities Except Municipal Securities), 2150.04 (Applicability of Other Rules to Sharing Arrangements), 3270 (Outside Business Activities of Registered Persons), and 6630 (Applicability of FINRA Rules to Securities Previously Designated as PORTAL Securities) with references to proposed FINRA Rule 3280 accordingly.