U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)
SEC Staff No-Action Letter to FINRA: Allowing Technical or Temporary Relief by FINRA
On May 13, 2020, the Staff of the SEC’s Division of Trading and Markets issued a no-action letter to the Financial Industry Regulatory Authority (FINRA) stating that Staff would not recommend enforcement action against FINRA for issuing targeted, solely technical or ministerial COVID-19 regulatory relief or temporary guidance without complying with Sections 19(b)(1) and 19(g)(1) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 19b-4.
This relief will permit FINRA to enact temporary rule changes necessary to provide COVID-19 relief without complying with the requirements under Section 19(b)(1) to file with the SEC and have the SEC approve such changes.
The no-action letter also provides relief from FINRA’s obligation to ensure that its members comply with the Exchange Act in connection with such COVID-19 guidance/rule changes. Among other things, FINRA member firms or associated persons that rely on FINRA’s COVID-19 guidance and temporary relief issued in reliance on the no-action letter must document and, when necessary as required by FINRA, publicly disclose reliance on the relief. The SEC’s relief under the no-action letter expires on June 30, 2020.
FINRA
On May 12 and May 15, 2020, FINRA updated the FAQs on its COVID-19 resource page.
- Verification of U4 Information FINRA recognizes that, due to the limitations and restrictions imposed as a result of the COVID-19 outbreak, some firms are unable to verify the accuracy and completeness of some of the information contained in an applicant’s initial or transfer Form U4 within the 30-day period required by FINRA Rule 3110(e).FINRA notes that, if verification of the information contained in a Form U4 filed with FINRA between Feb. 15 and May 31, 2020, is not currently feasible within the 30-day period due to the COVID-19 outbreak, firms should document which information could not be verified and why, including steps taken to verify the information, and should maintain an appropriate record.Firms should make reasonable efforts to verify such information no later than June 30, 2020, and, if necessary, file an amended Form U4 to correct any discrepancies.
- FINRA recognizes that, due to the limitations and restrictions imposed as a result of the COVID-19 outbreak, some firms are unable to verify the accuracy and completeness of some of the information contained in an applicant’s initial or transfer Form U4 within the 30-day period required by FINRA Rule 3110(e).
- FINRA notes that, if verification of the information contained in a Form U4 filed with FINRA between Feb. 15 and May 31, 2020, is not currently feasible within the 30-day period due to the COVID-19 outbreak, firms should document which information could not be verified and why, including steps taken to verify the information, and should maintain an appropriate record.
- Firms should make reasonable efforts to verify such information no later than June 30, 2020, and, if necessary, file an amended Form U4 to correct any discrepancies.
- Qualification Examinations Given FINRA’s closing of the Prometric test centers for a period of 30 days due to the COVID-19 crisis, FINRA is extending expiring qualification examination windows until June 30, 2020. Consistent with this extension, individuals who were designated to function as operations professionals under FINRA Rule 1220(b)(3)(B) prior to Feb. 2, 2020, will be given until June 30, 2020, to pass the appropriate examination.FINRA will continue to assess the situation and consider whether any additional extensions of time are necessary.FINRA also notes that it is continuing to consider waiving the qualification examination requirement for individuals whose two-year registration period under FINRA Rule 1210.08 recently lapsed under the standards set forth in FINRA Rule 1210.03 (Qualification Examinations and Waivers of Examinations). As set forth in FINRA Rule 1210.03, FINRA may, in exceptional cases and where good cause is shown, waive the applicable qualification examination(s) and accept other standards as evidence of an applicant’s qualifications for registration.FINRA will only consider waiver requests submitted by a member for individuals associated with the member who are seeking registration in a representative or principal registration category.Members may request, on behalf of such an applicant for registration whose prior registration has been terminated for two or more years, a waiver of the applicable FINRA qualification examinations, including the SIE examination.FINRA evaluates requests for waivers on a case-by-case basis and considers, among other factors, the applicant’s previous registration history, including the length of time since the applicant was last registered.
- Given FINRA’s closing of the Prometric test centers for a period of 30 days due to the COVID-19 crisis, FINRA is extending expiring qualification examination windows until June 30, 2020. Consistent with this extension, individuals who were designated to function as operations professionals under FINRA Rule 1220(b)(3)(B) prior to Feb. 2, 2020, will be given until June 30, 2020, to pass the appropriate examination.FINRA will continue to assess the situation and consider whether any additional extensions of time are necessary.
- Consistent with this extension, individuals who were designated to function as operations professionals under FINRA Rule 1220(b)(3)(B) prior to Feb. 2, 2020, will be given until June 30, 2020, to pass the appropriate examination.
- FINRA will continue to assess the situation and consider whether any additional extensions of time are necessary.
- FINRA also notes that it is continuing to consider waiving the qualification examination requirement for individuals whose two-year registration period under FINRA Rule 1210.08 recently lapsed under the standards set forth in FINRA Rule 1210.03 (Qualification Examinations and Waivers of Examinations). As set forth in FINRA Rule 1210.03, FINRA may, in exceptional cases and where good cause is shown, waive the applicable qualification examination(s) and accept other standards as evidence of an applicant’s qualifications for registration.FINRA will only consider waiver requests submitted by a member for individuals associated with the member who are seeking registration in a representative or principal registration category.Members may request, on behalf of such an applicant for registration whose prior registration has been terminated for two or more years, a waiver of the applicable FINRA qualification examinations, including the SIE examination.FINRA evaluates requests for waivers on a case-by-case basis and considers, among other factors, the applicant’s previous registration history, including the length of time since the applicant was last registered.
- As set forth in FINRA Rule 1210.03, FINRA may, in exceptional cases and where good cause is shown, waive the applicable qualification examination(s) and accept other standards as evidence of an applicant’s qualifications for registration.
- FINRA will only consider waiver requests submitted by a member for individuals associated with the member who are seeking registration in a representative or principal registration category.
- Members may request, on behalf of such an applicant for registration whose prior registration has been terminated for two or more years, a waiver of the applicable FINRA qualification examinations, including the SIE examination.
- FINRA evaluates requests for waivers on a case-by-case basis and considers, among other factors, the applicant’s previous registration history, including the length of time since the applicant was last registered.
MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB)
COVID-19 and Transaction Cost Observations
On May 19, 2020, the MSRB’s Chief Economist released an analysis showing that the COVID-19 crisis has driven a spike in transaction costs for municipal securities. According to the report, MSRB’s analysis showed that, among other things, the sharp increase in spreads across municipal securities during the COVID-19 crisis in March and April 2020 reversed the steady trend in decreases in spreads that had existed beginning in January 2016. The Rreport noted that the increase in spreads during the COVID-19 crisis had “wiped out nearly the entire reduction in effective spread realized over the preceding four-year period.” As spread is a common measure of transaction costs paid by investors to execute their trades, this sharp increase in spreads reflects an increase in transaction costs so sharp that it may have wiped out cost savings from an entire four-year period.
The report concludes by stating:
“The increase in effective spread as a result of the COVID-19 crisis was significant, though not unexpected given the severe market volatility, the liquidity crunch in fixed-income markets and the uncertainty surrounding financial asset pricing in general. However, the speed and magnitude of the increase was still surprising. The question now facing investors and market participants is how likely and quickly effective spreads might revert to precrisis levels, particularly for trades under $100,000 par value indicative of ‘mom-and-pop’ retail investors. The answer may depend on the market assessment of various risk factors in upcoming months, including general market risk, credit risk of municipal issuers and liquidity risk of the municipal securities market.”
Weekly Report Changes
On May 12, 2020, the MSRB announced that it had enhanced the format of its weekly report aggregating disclosures that reference COVID-19 submitted to the Electronic Municipal Market Access (EMMA) system. The MSRB’s weekly disclosure report captures primary market disclosures, as well as all categories of continuing disclosures, including financial disclosures and event notices. The enhanced format of the MSRB’s weekly disclosure summary permits users to sort by category, issuer name, state and posted date.
SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION (SIFMA)
On May 15, 2020, SIFMA Research released analysis of daily market metrics (prices, volumes, rates) across equities, listed options and various fixed income and securitized products markets and also looked at trends for the first quarter of 2020 in light of the impacts of COVID-19. The analysis shows price declines and volume spikes in equities markets, as well as one-way flows from risk to safe assets resulting in substantial liquidity constraints in many fixed income and securitized products markets.
STATE REGULATORS
On May 12, 2020, the New York Investor Protection Bureau extended to June 6, 2020, the Relief End Date for certain registration renewal, amendment, financial statement or NY-IAQ filing deadlines, commensurate with the end date of the “Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency,” issued by Gov. Andrew Cuomo and reflected in Executive Order 2020.
MOVING FORWARD
McGuireWoods is monitoring these developments and will provide updates to clients as information becomes available. Please let us know if you have any questions or if there is anything else we can do to support you during this challenging time.
As reported in prior McGuireWoods alerts, financial services regulators have been issuing guidance and relief to assist the industry as financial services firms and public companies continue to deal with the impact COVID-19 is having on day-to-day business operations. See May 14, May 7, April 28, April 21, April 15, April 6, March 26 and March 17 Updates.
McGuireWoods’ COVID-19 Response Team helps clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic. Lawyers in the firm’s 21 offices are ready to assist quickly on questions involving healthcare, labor and employment, education, real estate and more. For assistance, contact a team member or send an email to [email protected].
McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial COVID-19-related business and legal issues.