March 21, 2016
Mr. Errett:
I would think that FINRA would be extremely limited as to what it could adopt as Rules without going to the public or its Board for comment or approval. Changing the language in FINRA Rule 150, which contains the general prohibition related to regulation of municipal securities, is hardly non-controversial.
It is true that the amendment changed the language to revert to the language previously contained in NASD Rule 114, however, doing so and claiming that the change is technical in nature assumes there was no purpose in aligning the municipal related language in subsection (b) with subsection (c) related to exempt securities that are not municipals. Furthermore, the change was necessary solely to facilitate regulating municipal activity that FINRA will later argue has nothing to do with the transaction: requiring margin on certain municipal transactions in the cash account. FINRA is fully aware that this is a matter of controversy and staff had been informed that any rule change to facilitate such a shift in municipal regulation would be challenged.
Those of us who had intended to challenge any Rule change that would have facilitated requiring margin on municipal transactions have been surprised by the absence of an opportunity to debate the issue. While technically it appears that FINRA may possess the legal authority to make such a change, the facts and circumstances surrounding the change would clearly indicate that they should not have.
Chris Melton