Notice2026-18292
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 4522 (Periodic Security Counts, Verifications and Comparisons) To Simplify Position Statement and Reconciliation Requirements for Certain Alternative Investments
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Published
September 9, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 173 (Wednesday, September 9, 2026)</title>
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[Federal Register Volume 91, Number 173 (Wednesday, September 9, 2026)]
[Notices]
[Pages 57402-57405]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-18292]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106269; File No. SR-FINRA-2026-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 4522 (Periodic Security Counts, Verifications and
Comparisons) To Simplify Position Statement and Reconciliation
Requirements for Certain Alternative Investments
September 3, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 25, 2026, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been` prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 4522 (Periodic Security
Counts, Verifications and Comparisons) to simply position statement and
reconciliation requirements for certain alternative investments.
Specifically, the proposed rule change would amend Rule 4522 to except
uncertificated investments in unregistered investment funds from the
requirements of paragraph (b)(1) of the rule, as further set forth in
the proposed rule change.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a> and at the principal office of FINRA.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Security Count and Verification Challenges Faced by Firms Offering
Alternative Investments
Members that offer various types of alternative investments to
their customers have sought relief from some of the longstanding count
and verification requirements under SEA Rule 17a-13 \3\ (Quarterly
security counts to be made by certain exchange members, brokers, and
dealers) and, related to these, a number of requirements under FINRA
Rule 4522 (Periodic Security Counts, Verifications and Comparisons)
that supplement requirements under the SEC rule.
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\3\ 17 CFR 240.17a-13 (hereinafter ``SEA Rule 17a-13'').
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Broadly, SEA Rule 17a-13 sets forth detailed requirements for
broker-dealers that maintain custody of securities, on a quarterly
basis, to among other things conduct physical examinations and counts
of the securities they hold, verify the securities, and compare the
results of their counts and verifications. The SEC rule requires the
broker-dealer in part to record on its books and records all unresolved
differences in a security count difference account no later than seven
business days after the date of each required quarterly security
examination, count and verification. FINRA Rule 4522 works in tandem
with the provisions of SEA Rule 17a-13 by setting forth requirements on
carrying or clearing firms to receive position statements no less than
once per month, to reconcile all such securities, to report differences
to the contra organization, and to promptly resolve such differences.
Many alternative investments currently do not fit readily within
the framework of the specific count and verification requirements as
set forth in SEA Rule 17a-13 and FINRA Rule 4522. For example, members
have pointed out that because in some instances customers' ownership
interests in certain alternative investments are represented in terms
of the balance of the investor's capital account, rather than in number
of shares or other units, issuers of these investments are not able to
provide current quarterly position information. As a result, it is
difficult for members to comply with the express terms of SEA Rule 17a-
13, as well as
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FINRA Rule 4522, in particular paragraph (b)(1) of that rule, which
requires more frequent (not less than monthly) receipt of position
statements and related comparisons and reconciliations.\4\ Further,
members have also stated that issuers of other types of alternative
investments, beyond those represented by the balance of the investor's
capital account, such as those represented by number of shares or
units, also are not always able to provide current position information
or position statements to the members with the higher frequency
required by FINRA Rule 4522(b)(1). As part of FINRA's rule
modernization,\5\ members have asked for relief from these requirements
for alternative investments.
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\4\ Specifically, paragraph (b)(1) of FINRA Rule 4522 currently
requires each carrying or clearing member that is subject to the
requirements of SEA Rule 17a-13 to ``[r]eceive position statements
as frequently as good business practice requires, but no less than
once per month with respect to securities held by clearing
corporations, other organizations or custodians. Each such member
shall at least once per month reconcile all such securities and
money balances by comparison of the clearing corporations' or
custodians' position statements to the member's books and records
and promptly report differences to the contra organization and such
differences shall be promptly resolved by both. Where there is a
higher volume of activity, good business practice may require a more
frequent exchange of statements and their reconciliation . . .''
\5\ See, e.g., Regulatory Notice 25-04 (March 2025) (FINRA
Launches Broad Review to Modernize Rules Regarding Member Firms and
Associated Persons).
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Recent SEC Staff No-Action Letter
The Commission staff recently issued a no-action letter to a
broker-dealer (the ``Letter'') \6\ stating that the staff will not
recommend enforcement action to the Commission under SEA Rule 17a-13 if
the broker-dealer does not record on its books and records all
unresolved differences within seven business days after the date of
each required quarterly securities count and verification, as long as
it performs the securities count, verification, and comparison with
respect to the uncertificated alternative investments known as
``capital balance funds,'' as these products are described in the
Letter, under the circumstances listed in the Letter.\7\
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\6\ See Letter regarding Capital Balance Fund Reconciliations
from Raymond A. Lombardo, Assistant Director, SEC Division of
Trading & Markets, to Mark M. Attar of Stradley Ronon Stevens &
Young, LLP and counsel to Raymond James & Associates, Inc., dated
January 6, 2026, <a href="https://www.sec.gov/files/tm/no-action/raymond-james-associates-inc-010626.pdf">https://www.sec.gov/files/tm/no-action/raymond-james-associates-inc-010626.pdf</a>.
\7\ In general terms, the circumstances in the Letter include:
maintaining a record of the position statement reporting schedule
for each capital balance fund issuer; seeking explanations for any
deviations from the schedule; reconciling and updating books and
records within five business days of receipt of a position statement
for a capital balance fund; identifying on customer statements the
last reported value for capital balance funds and the date such
value was reported to the broker-dealer; and disclosing to customers
that the capital balance fund value reported on the customer
statement is based on information from the issuer and may not be
current or realizable upon liquidation.
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Achieving Greater Clarity Under FINRA Rules
To align with the SEC's specified relief under SEA Rule 17a-13, and
to provide greater clarity for members and their customers that
participate in alternative investments, as an interim measure, FINRA
has published \8\ guidance to firms, expressing FINRA's view that
compliance with all circumstances set out in the Letter, as to the
capital balance funds described in the Letter, is deemed to comply with
the relevant requirements of FINRA Rule 4522(b)(1) with respect to the
capital balance funds.
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\8\ See FAQ ``FINRA Rule 4522(b)(1) and Certain Capital Balance
Funds,'' available at: <a href="https://www.finra.org/rules-guidance/guidance/faqs/finra-rule-4522b1-and-certain-capital-balance-funds">https://www.finra.org/rules-guidance/guidance/faqs/finra-rule-4522b1-and-certain-capital-balance-funds</a>.
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However, to address more broadly the difficulty firms have in
receiving position statements no less than monthly from issuers of
uncertificated investments in unregistered investment funds, as well as
the associated comparison and reconciliation requirements thereunder,
the proposed rule change would except from paragraph (b)(1) of FINRA
Rule 4522 all uncertificated investments in unregistered investment
funds as set forth in the proposed rule language.\9\ Specifically, the
proposed exception would apply where ownership by the member or its
customers of such investments is directly recorded on the issuer's
ownership registry maintained by the issuer or its agent or, if no such
registry exists, is directly recognized by the issuer.\10\ As such,
FINRA proposes to revise the first sentence of paragraph (b)(1) to
state that each carrying or clearing member subject to the requirements
of SEA Rule 17a-13 shall ``[r]eceive position statements as frequently
as good business practice requires, but no less than once per month
with respect to securities held by clearing corporations, other
organizations or custodians, except that this requirement shall not
apply to uncertificated investments in unregistered investment funds,
where ownership by the member or its customers of such investments is
directly recorded on the issuer's ownership registry maintained by the
issuer or its agent or, if no such registry exists, is directly
recognized by the issuer.'' In the interest of clarity, FINRA notes
that this proposed amendment to the first sentence of paragraph (b)(1)
does not affect the applicability of SEA Rule 17a-13, in particular the
requirement to conduct at least quarterly the specified securities
counts and verifications pursuant to that rule. In that regard, FINRA
proposes to revise the second sentence of paragraph (b)(1) to add the
phrase ``. . . or at least once per quarter with respect to
uncertificated investments excepted from the monthly position statement
requirement under this paragraph (b)(1) . . .'', so the complete
sentence as amended would read: ``Each such member shall at least once
per month, or at least once per quarter with respect to uncertificated
investments excepted from the monthly position statement requirement
under this paragraph (b)(1), reconcile all such securities and money
balances by comparison of the clearing corporations' or custodians'
position statements to the member's books and records and promptly
report difference to the contra organization and such differences shall
be promptly resolved by both.'' \11\
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\9\ See the proposed amendments to paragraph (b)(1) in Exhibit
5.
\10\ FINRA notes, however, that members will continue to be
subject to FINRA Rule 4522(b), which states: ``Each carrying or
clearing member subject to the requirements of SEA Rule 17a-13 shall
make more frequent counts, examinations, verifications, comparisons
and entries where prudent business practice would so require.'' This
requirement would continue to apply to uncertificated investments in
an unregistered fund or security excepted from FINRA Rule 4522(b)(1)
by the proposed amendments, and firms should have policies and
procedures in place to ensure compliance with this provision of the
rule.
\11\ See the proposed amendments to paragraph (b)(1) in Exhibit
5.
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FINRA believes that adopting the proposed exception for
uncertificated investments from the once-per-month cadence for position
statements will help to give members greater clarity with regard to the
treatment of uncertificated investments and to reduce unnecessary
compliance burdens given the difficulties involved in receiving the
position statements within the express parameters of the rule as
currently written.\12\ This in turn may encourage members to offer
alternative investments, thereby expanding the investment opportunities
available to customers. At the same time, the proposed rule change
incorporates the quarterly verification requirements under SEA Rule
17a-13 and as such
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maintains investor protections.\13\ Further, FINRA believes the
proposed rule change would help align FINRA Rule 4522 with the no-
action relief granted by the Commission staff.
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\12\ FINRA notes that the proposed rule change would not impact
members that are funding portals or that have elected to be treated
as capital acquisition brokers (``CABs''), given that neither
funding portals nor CABs are subject to FINRA Rule 4522.
\13\ Uncertificated investments in unregistered investment funds
are typically offered by issuers, commonly known as private
investment companies, venture capital funds or hedge funds, relying
on the exceptions from the definition of ``investment company'' set
forth in Section 3(c)(1) and Section 3(c)(7) of the Investment
Company Act. 15 U.S.C. 80a-3(c)(1) and 15 U.S.C. 80a-3(c)(7). FINRA
understands owners of these products are mostly large institutional
investors. See the Economic Impact Assessment in Item II. B. of this
filing.
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If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed exception in the rule change will help to
give members greater clarity with regard to the treatment of
uncertificated alternative investments and to reduce unnecessary
compliance burdens given the difficulties involved in receiving the
position statements within the express parameters of Rule 4522 as
currently written. This may encourage members to offer more customers
the opportunity to participate in these investments, thereby serving
the public interest by promoting investor choice.
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\14\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment to analyze the
potential economic impacts of the proposed rule change, including
anticipated costs, benefits, and distributional and competitive
effects, relative to current baseline, and the alternatives considered
in assessing how best to meet FINRA's regulatory objectives.
Regulatory Need
FINRA Rule 4522 works in tandem with the provisions of SEA Rule
17a-13 to protect investors by ensuring that, among other things,
member firms maintain accurate records of securities in their
possession. As discussed above, however, many alternative investments
do not fit readily within the framework of the specific count and
verification requirements of these rules. The proposed rule change,
together with the relief and requirements specified by the SEC, would
reduce the particular compliance challenges related to uncertificated
investments while ensuring that member firms maintain accurate records
of these securities in their possession.
Economic Baseline
The proposed rule change would impact all carrying or clearing
members,\15\ particularly those that custody alternative investments
for customers, specifically uncertificated investments in unregistered
investment funds as is further set forth in the proposed rule change.
FINRA does not know the exact number of these carrying and clearing
members or the scope of the uncertificated investments in unregistered
investment funds. Using information provided by firms in FOCUS Form
Custody, FINRA estimates that there are approximately 70 carrying and
clearing firms that currently carry U.S. or foreign private funds and
potentially carry these products. FINRA understands such products are
mostly owned by large institutional investors. FINRA also understands
that the relief specified in the Letter would not apply beyond the
facts and circumstances specified in the Letter and that the proposed
rule change would provide relief and greater regulatory clarity more
broadly with regard to uncertificated investments in unregistered
investment funds. The number of members that currently offer
uncertificated investments in unregistered investment funds, including
the products specified in the Letter, and how these members comply with
the current rule, are not known with specificity by FINRA.
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\15\ See Section 2.6 of the FINRA 2025 Industry Snapshot,
available at: <a href="https://www.finra.org/media-center/reports-studies/2025-industry-snapshot">https://www.finra.org/media-center/reports-studies/2025-industry-snapshot</a>.
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Economic Impacts
The proposed rule change is expected to provide direct and indirect
benefits to carrying or clearing members with regard to the treatment
of uncertificated investments in unregistered investment funds. Members
that currently offer investment products within the scope of the
proposed exception, and have difficulty meeting the current FINRA Rule
4522 requirements for such funds, will benefit from reduced regulatory
burden, compliance uncertainty and associated costs and legal risks.
The amount of reduction in regulatory burden and associated costs would
depend on the scope and magnitude of activity across products covered
by the proposed rule change, and the members' practices and procedures
for complying with the current rule.
Members that do not currently offer these investment products may
begin to offer them if the relief provided by the proposed rule change
is material enough. Doing so may lead to expanded access to such
alternative investment products. The proposed rule change is also
expected to provide indirect benefits to these members' customers by
potentially increasing investment options and portfolio diversification
opportunities. The proposed rule change maintains investor protections
with the additional requirement on recording or recognizing ownership.
Members that currently offer these products and are in compliance
with the current rule could continue with their current activities.
FINRA expects, however, that these members as well as members that
begin to offer these products and could meet current rule requirements
would nevertheless make use of the proposed exception. In particular,
these members may reduce the frequency of verification to at least
quarterly after determining that prudent business practice for specific
products does not require monthly verifications. FINRA does not believe
that this will have any impact on the protections currently provided
under the baseline.
Members that would choose to take advantage of the proposed
exception would need to familiarize themselves with the proposed rule
amendment and make any necessary changes to their procedures,
protocols, and monitoring systems, to ensure compliance. Members will
mostly incur these one-time costs if the benefits from doing so are
sufficient.
Anticipated Competitive Effects
Regarding competitive effects, the relief stemming from the
proposed rule change would be available to all members that meet the
specified conditions of the proposal. Relative to the baseline with the
relief specified in the Letter, the proposed rule change may enhance
competition among members in providing these alternative investments
and across various unregistered investment funds. The impacts on
competition for customers among members would depend on the magnitude
of the direct cost savings and
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the extent to which those savings would be shared with clients.
Alternatives Considered
The proposed rule change provides relief requested by member firms
as part of rule modernization. The proposal builds on the relief and
requirements in the Letter. No significant alternatives were
considered.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#493b3c252c642a2624242c273d3a093a2c2a672e263f"><span class="__cf_email__" data-cfemail="1b696e777e36787476767e756f685b687e78357c746d">[email protected]</span></a>. Please include
File Number SR-FINRA-2026-019 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2026-019. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the filing will be available for inspection and
copying at the principal office of FINRA. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-FINRA-2026-019 and should be submitted on or
before September 30, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-18292 Filed 9-8-26; 8:45 am]
BILLING CODE 8011-01-P
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