When I write an article, I’m never sure if some readers will say, “Who didn’t know that??” But, for folks like myself, who are willing to admit what they don’t know, the following is both a lesson learned about a rule, and an example of how different districts of FINRA may enforce regulations differently. And, you may learn something that you didn’t know- one or more of your branch offices should be listed as an OMSJ- an Office of Municipal Supervisory Jurisdiction.
During a recent cycle exam by FINRA, the firm where I work as CCO (which had recently re-located to District 9-New Jersey) was informed by the examiner that a “finding” that would need correction was the improper designation of our one and only branch office. We’d designated the office as a “non-branch” since the inception of the firm (originally located in District 9-Philadelphia), in 1992.
In our response to the examiner, we cited past history; the Philadelphia District had agreed with us since 1992 that the location did not rise to the level of the definition of a branch. The office had no retail clients, did not hold itself out as a branch, and performed all execution through the systems of the firm.
FINRA’s counter-response was a surprise, but hard to argue with. They pointed not to their own definition of a branch, but to that of the Municipal Securities Rulemaking Board.
The MSRB, under their Rule G-27 “Supervision”, defines what branches should be listed as Offices of Municipal Supervisory Jurisdiction (OMSJ). The section of the rule that related to our business model, was G-27 (b)(iii), which “requires the designation as an office of municipal supervisory jurisdiction of each location that meets the definition contained in section (g) of this rule”.
The definition in section (g) reads as follows:
(g) Definitions. For purposes of this rule, the following terms have the following meanings:
(i) “Office of municipal supervisory jurisdiction” means any office of a dealer at which any one or more of the following functions take place with respect to municipal securities:
(A) order execution and/or market making;
In other words, because the person working in this “branch” was executing orders on municipal bonds with other dealers, the branch did, in fact, fall under the requirement.
Despite having been made aware of the requirement, we still were puzzled. While doing research on the topic, we’d found the following statement published by FINRA regarding the designation of OMSJs on Form BR:
“FINRA CRD – FAQ Branch Office Registration”, Question #8: “Must a firm designate a branch office as an Office of Municipal Supervisory Jurisdiction (OMSJ) for the MSRB in Section 2 (Registration/Notice Filing/ Type of Office/Activities)?”
The answer is “NO”- the question is optional.” (footnote 1)
Why, we wondered, is the designation of a branch as an OMSJ not required on a firm’s Form BR?
The reason for the “No” answer to FINRA’s FAQ, as explained by a person that we contacted at the MSRB, is that MSRB items are not included on Form BR, which is a form associated with the SEC and FINRA. So, while a cursory examination of FINRA’s FAQ might lead a firm to believe that it’s optional to designate a branch as an OMSJ, that would be an incorrect answer. The correct answer is that the filing of the designation on Form BR is optional; the designation itself is not. A firm must still make those designations either in their WSPs or other appropriate books and records.
Firms should review their WSPs, using G-27 (b)(iii) and (g) to determine the designations that they must make for their offices. Designations, once made, should be identified on at least an annual basis.
One piece of good news is that, while OMSJs are not required to be shown on Form BR, they can be listed there. As FINRA says, “a firm may elect to answer this question in Section 2 (Registration/Notice Filing/Type of Office/Activities) to help track their OMSJs”.
I hope that this article taught you something that you didn’t know, or perhaps reminded you of something that you’d known and forgotten. In either case, feel free to contact me with questions about this or other municipal topics.