November 25, 2011
Marcia E. Asquith
Office of the Corporate Secretary
1735 K Street, N.W.
Washington, D.C. 20006‐1506
Re: Regulatory Notice 10‐33
Proposed Rule Requiring the Filing of Supplemental FOCUS Information and
Supplementary Schedule to the Statement of Income (Loss) Parts II and IIA
Dear Ms. Asquith:
I appreciate the opportunity to comment on the proposed rule. We at Stock USA are very concerned that the implications of this rule have not been fully vetted.
FINRA appears to justify the rule based on its assertion that it "will further strengthen FINRA’s ability to protect investors through a more informed understanding of the drivers of members’ business." This justification is much too general and could essentially be used to justify any expansion of regulatory activity. FINRA fails to make further justification about how the proposed rule will be used to enhance its meeting of both the economic and protective provisions of Section 15A(b)(6) of the Act. It also fails to balance the burdens with the benefits of implementation.
The proposed rule is written in a such a way as to take authority away from the SEC in a way not contemplated by the Act and to give overly broad powers to FINRA. With phrases such as "specific information, among other things" and "require that all members or any specified subset," the proposed rule gives wide-ranging authority to supplement Rule 17a-5 without the SEC's direct approval. FINRA may argue that it will publish the content of each Regulatory Notice with the SEC; however, this is not the same as requesting approval. If FINRA argues that the publishing with the SEC effectively requires commission approval, then it is in effect arguing that Rule FINRA 4524 is unnecessary, as it already has the ability to ask for approval of each FOCUS filing change, as originally contemplated by Rule 17a of the Act. The review of each change is and should be the responsibility of the SEC, not FINRA.
The proposed rule could be clearly characterized as Anti-small-business. The rule requires essentially the same level of detail for every broker-dealer, with only a small exception for items less than $5,000. A percentage structure with a de minimis exception for items less than $25,000 would seem much more appropriate. Further, small broker-dealers generally do not have sophisticated systems that break down each item of revenue or expense by product or segment, nor should they necessarily be required to. FINRA's proposed rule demonstrates a lack of sensitivity to small business when it ignores this fact. Were FINRA to be bound by this rule itself, it would have a very difficult time separating its revenue and expense items into product classifications as it contemplates with the proposed rule. If it were able to do so, we might have a more complete picture of FINRA's activities, but it is not clear that it would be better for the industry as a whole.
With significantly more specific category information required for filing, the risk of mistakes in categorizing or allocating expenses would provide a greater chance for FINRA to disagree or to extract fines for mistakes. Much like the introduction of OATS has required massive amounts of data to be collected, with many more fines levied for late or incorrect submissions than for its original purpose, the additional information proposed to be collected by Rule 4524 could well lead to more administrative enforcement than substantive improvement in regulatory focus.
We believe that the proposed rule should be withdrawn and that new discussions should be held to consider the serious legislative, economic, and regulatory issues and burdens it contemplates.
CEO and President
Stock USA Execution Services, Inc.