View Whole SectionText only Print Print Manager Link
Previous Next
  Versions
(2 versions)
 
Nov 3 2006 - Jun 25 2008Jun 26 2008 onwards

IM-1011-1. Safe Harbor for Business Expansions

This interpretive material concerns the types of business expansions that will not require a member to submit a Rule 1017 application to obtain FINRA’s approval of the expansion. This safe harbor applies to: (1) firms that do not have a membership agreement, and (2) firms that have a membership agreement that does not contain a restriction on the factors listed below.
The safe harbor is not available to a member that has a membership agreement that contains a specific restriction as to one or more of the factors listed below. In that case, the agreement takes precedence because FINRA has determined that a particular restriction should apply as to one or more of the factors, and FINRA has issued a decision with a rationale for that restriction. Similarly, the safe harbor also does not apply if the member has a membership agreement that permits expansion beyond the limits set forth below (e.g., an Applicant requests and obtains approval for ten registered representatives in the first six months with an additional ten registered representatives in the next year); in such case, FINRA has specifically considered the firm's expansion plans and approved them.
The safe harbor is not available to any member that has disciplinary history. For purposes of this Interpretation, "disciplinary history" means a finding of a violation by the member or a principal of the member in the past five years by the Securities and Exchange Commission, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: violations of the types enumerated in Section 15(b)(4)(E) of the Securities Exchange Act of 1934; Section 15(c) of the Securities Exchange Act of 1934; Section 17(a) of the Securities Act of 1933; SEC Rules 10b-5 and 15g-1 through 15g-9; NASD Rules 2110 (only if the finding of a violation is for unauthorized trading, churning, conversion, material misrepresentations or omissions to a customer, front-running, trading ahead of research reports or excessive markups), 2120, 2310, 2330, 2440, 3010 (failure to supervise only), 3310, and 3330; and MSRB Rules G-19, G-30, and G-37(b) & (c).
For those firms to which the safe harbor is available, the following types of expansions are presumed not to be a material change in business operations and therefore do not require a Rule 1017 application. For any expansion beyond these limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule 1017. Expansions in each area are measured on a rolling 12-month basis; members are required to keep records of increases in personnel, offices, and markets to determine whether they are within the safe harbor.
"Associated Persons involved in sales" includes all Associated Persons, whether or not registered, who are involved in sales activities with public customers, including sales assistants and cold callers, but excludes clerical, back office, and trading personnel who are not involved in sales activities.
Number of Associated Persons Involved in Sales Safe Harbor — Increase Permitted Within One Year Period Without Rule 1017 Application
1–10 10 persons
11 or more 10 persons or a 30 percent increase, whichever is greater

Number of Offices (registered or unregistered)  
1–5 3 offices
6 or more 3 offices or a 30 percent increase, whichever is greater

Number of Markets Made  
1–10 10 markets
11 or more 10 markets or a 30 percent increase, whichever is greater

Amended by SR-FINRA-2008-008 eff. June 26, 2008.
Amended by SR-NASD-2006-070 eff. Nov. 3, 2006.
Amended by SR-NASD-99-67 eff. Nov. 15, 2000.
Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
Amended by SR-NASD-94-14 eff. July 20, 1994.
Amended by SR-NASD-91-45 eff. Feb. 1, 1992.
Adopted by SR-NASD-82-24 eff. July 20, 1984.

Selected Notice: 00-73, 06-56.

Previous Next