Moseley on Rewriting FINRA Rule Consolidation


The adoption of a unified set of rules has been the eagerly awaited product of the merger of National Association of Securities Dealers (NASD) and New York Stock Exchange (NYSE) regulation into Financial Industry Regulatory Authority (FINRA). The consolidated FINRA rulebook is being rolled out in installments, and in this Commentary, Melvin G. Moseley, Jr., a partner at Warner Norcross & Judd, LLP., discusses the rulebook consolidation process and the latest phase-in. He writes:
 
     New Financial Industry Regulatory Authority (FINRA) rules relating to warrants, options, and security futures will take effect February 17, 2009, in the latest phase-in of the Consolidated FINRA Rulebook. This rule change adopts, with minor revisions, the existing National Association of Securities Dealers (NASD) rules pertaining to these derivative securities and deletes the corresponding provisions in the New York Stock Exchange (NYSE) rules regarding warrants and options. . . .
 
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     Soon after the merger of NASD and the regulatory operations of NYSE in July 2007, FINRA embarked upon the daunting task of combining the legacy NASD and NYSE rulebooks into a single set of unified rules. The new, consolidated FINRA rules attempt to eliminate duplicative or obsolete rules, harmonize conflicting ones, streamline the rule text, and group rules into a more logical organizational framework. More ambitiously, FINRA is also exploring the feasibility of incorporating a "principles-based" approach for certain areas of regulation, as well as a "tiered" strategy for certain rules, according to firm size, business model, and type of customer (i.e., retail or institutional). Consequently, some rules will be incorporated nearly verbatim into the Consolidated FINRA Rulebook, others will be revised significantly, and some will be deleted in their entirety.
 
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     Literally hundreds of new FINRA rules went into effect on December 15, 2008, with the initial phase-in of the Consolidated FINRA Rulebook. However, most of the new rules largely comprise housekeeping measures, tidying up the text of existing rules: resolving discrepancies between certain NASD and NYSE rules, discarding obsolete or duplicative provisions, and making other minor, technical changes. The lion’s share of the phase-in involved wholesale transfers of existing NASD rules series to the Consolidated FINRA Rulebook, generally in their entirety, with only minor, non-material changes. These transfers import the NASD Rule 0100 Series (rules of general application) and the NASD Rule 400014000 Series (excepting the Rule 11000 Series), comprising marketplace and procedural rules, into the consolidated rulebook without substantive change. However, many of these rules have been renumbered and reorganized into a more logical framework.
 
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