SIFMA Criticizes FINRA's Proposal Regarding Discretionary Accounts and Transactions (Reg. Notice 15-22) (with Lofchie Comment)

SIFMA criticized FINRA's proposed Rule 3260 ("Discretionary Accounts and Transactions") (the "Proposal"). The Proposal addresses the treatment of customers' free credit balances and sweep programs, the bulk transfers of customers' accounts and changes of the broker-dealer of record. SIFMA's criticisms of the Proposal included the following:

• The signature requirement for authorized persons under Proposed Rule 3260(b) raises significant operational, cost, regulatory and other concerns with no investor protection benefit.
• The Proposal's update requirement will result in a significant administrative undertaking for member firms that will be passed on to investors.
• The significant cost of compliance with Proposed Rule 3260(a) is unwarranted in the Rule 10b5-1 plan context, especially in light of the reduced risk of unauthorized or excessive trading.
• Proposed Rule 3260(c)(1)(C) should include additional bulk transfers via negative consent scenarios, e.g., scenarios involving accounts that have become "orphaned," that are not covered currently by Proposed Rule 3260(c)(1)(C). In addition, SIFMA stated its belief that Proposed Rule 3260(c)(1)(C) should permit firms to transfer, via negative consent, mutual funds, 529 plan assets and accounts held directly (i.e., not at an introducing broker's clearing firm) to introduce broker monitoring of numerous supervisory obligations more efficiently.
• SIFMA stated its belief that Proposed Supplementary Material 3260.04 should include the language, "to the extent practicable," that the SEC included in its guidance.
• FINRA should consider the appropriateness of disclosure requirements that might make sense for bank sweep products, but are less applicable to money market funds.