The Technology is Designed to Enhance Firms’ Compliance Efforts, Reduce Costs and Aid in Risk Management

FINRA announced today that it has launched a machine-readable rulebook initiative designed to enhance firms’ compliance efforts, reduce costs and aid in risk management.

FINRA developed the machine-readable rulebook through the creation of an embedded taxonomy—a method of classifying and categorizing a hierarchy of key terms and concepts—that was applied or “tagged” to the 40 most frequently viewed FINRA rules. The taxonomy allows users to apply an enhanced search feature to find specific content by starting with a broad topic and then narrowing down to more specific topics through sub-categories and combinations of multiple terms.

As part of this initiative, FINRA has created a prototype of a rulebook search tool—the FINRA Rulebook Search Tool™ (FIRST™). This enhanced search feature is designed to help users, including market participants and members of the public alike, to efficiently identify potentially relevant FINRA rules and their associated requirements using the taxonomy terms. FINRA has launched the FIRST search feature through a user interface on the FINRA website.

In addition, FINRA is offering access to the taxonomy terms that have been tagged to each of the 40 rules through an Application Programming Interface (API)—a software intermediary that allows two applications to communicate and interact with each other. This feature can enable member firms seeking to automate compliance functions to link the FINRA rule content and the taxonomy terms to their internal compliance policies and procedures, where appropriate.

“The securities industry is increasingly relying on technology to improve both internal operational functions as well as regulatory compliance. FINRA’s machine-readable rulebook initiative is designed to support these efforts by providing technology-based tools, allowing market participants to potentially enhance the effectiveness and efficiency of their compliance efforts and thereby support investor protection and market integrity,” said Haimera Workie, Vice President and Head of FINRA’s Office of Financial Innovation.

Machine Readability Through FIRST

The taxonomy applied to the FINRA rulebook, as part of the machine-readable rulebook initiative, is made available through FIRST using a browse functionality that allows users to explore the summary topics and detailed topics before selecting search terms. Users can expand and collapse the taxonomy as they browse. There is also a free text search function through which users can look for a specific term. The browse and free text search functions work together to enhance the overall user experience and increase the value of research efforts.

“We developed the taxonomy structure and the FIRST search tool to help all users more easily identify and search applicable rules regardless of their level of expertise,” said Afshin Atabaki, Special Advisor and Associate General Counsel at FINRA. “Whether you are a seasoned securities law practitioner or a new investor, you are likely to find FIRST to be a valuable search tool.”

Machine Readability Through an API

The taxonomy applied to the FINRA rulebook is also made available through an API interface. APIs can facilitate how developers integrate new application components into their existing technology frameworks. Through the rulebook API on the FINRA API Platform, firms can ingest the rule content along with taxonomy terms applied to each of the 40 tagged FINRA rules. This would enable member firms to develop an integration that links the rule content and taxonomy terms to their internal compliance policies and procedures, where appropriate.

In a Special Notice discussing the machine-readable rulebook initiative, FINRA is soliciting comments, including on the development of the taxonomy, the enhanced search features available through FIRST, the content available through the API, and any potential benefits or challenges associated with the overall user experience. The comment period runs through Dec. 20.

The 40 FINRA rules tagged as part of the initiative are: 1210, 1220, 1230, 1240, 2010, 2040, 2090, 2111, 2122, 2210, 2231, 2241, 2360, 3110, 3120, 3130, 3210, 3220, 3240, 3270, 3280, 3310, 4140, 4160, 4210, 4311, 4370, 4511, 4512, 4513, 4530, 4570, 5110, 5121, 5123, 5130, 5131, 5310, 8210 and 8312.

About FINRA

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

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