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Rule 311 Formation and Approval of Member Organizations

This version is valid from Dec 15 2008 through Sep 30 2018.
Amendments have been announced but are not yet effective. To view other versions open the versions tab on the right.

SR-FINRA-2017-007 has been approved by the SEC. The effective date is October 1, 2018. Upon effectiveness, this version will no longer be applicable; please consult the appropriate FINRA rule.

/01 Principal Executives

General Qualifications

Principal executives must satisfy any and all examination requirements necessary to perform their assigned functions. Candidates for such positions must also have work experience and background commensurate with their responsibilities. The Exchange may request information with respect to the experience of anyone appointed or elected to such positions.
/02 Examination Requirements for Chief Financial Officers ("CFO") and Chief Operations Officers ("COO")

A person designated CFO or COO pursuant to /01 of this Interpretation must pass the Financial and Operations Principal Qualification Examination ("Series 27") unless designated CFO or COO of an introducing member organization, in which case such person must pass either the Series 27 Examination or the Introducing Broker/Dealer Financial and Operations Principal Qualification Examination ("Series 28").
/03 Dual Designation of CFO and COO

If a member organization's activities are limited to introducing customers' accounts and such organization does not hold funds or securities, an individual, who must be either Series 27 or Series 28 qualified, may be designated as both CFO and COO. Member organizations must use due diligence to reasonably assess the supervisory adequacy of such arrangements pursuant to Rule 342. The Exchange must be notified promptly of any such dual designations.
/06 Limitations on Principal Executives

Principal Executives may be part-time employees, subject to the prior approval of the member organization pursuant to Rule 346(e).
/01 Criteria

In order to satisfy the rule's requirement that a member organization's principal place of business be maintained within the U.S., at least the following must be located within the U.S., at a definite and manned physical location which is adequate to serve as the site for Exchange inspection of the organization:
a) Assets of customers who are citizens or residents of the U.S. and assets associated with transactions effected in the U.S., except for: (1) funds which are ordinarily held in branch offices or in transit, and (2) securities which are held as provided for in SEA Rule 15c3-3(c).

To the extent that the broker-dealer introduces customer accounts on a fully disclosed basis to a carrying firm which is located in the U. S., such customer assets may be located at the carrying firm.
b) Books and records customarily maintained by brokers and dealers at their principal place of business and sufficient to permit the Exchange to conduct its inspection of the member organization.

The utilization of a clearing broker, a bank, or a service bureau which prepares or maintains the member organizations' books and records in accordance with SEA Rules 17a-3 and 17a-4 would satisfy this criterion if such broker, bank or bureau is located in the U.S., and the records would be readily accessible to the Exchange.
c) Member organization capital sufficient to meet applicable capital requirements.
d) All allied members, qualified and authorized to perform Rule 342 functions.
e) Clearance, settlement and securities handling operations which pertain to securities transactions effected in the U.S., to the extent that such operations are maintained by the broker-dealer.
f) Operations pertaining to foreign securities transactions effected on behalf of customers who are citizens or residents of the U.S., to the extent that such operations are customarily maintained by a broker-dealer at a principal place of business.
/01 Carrying Accounts

To carry customer accounts a member firm must have at least two general partners who are natural persons actively engaged in the organization's business.

The purpose of this requirement is to avert a situation in which the death or disassociation of a sole general partner could result in a delay in servicing customers' accounts, in the street-side settlement of open contractual commitments or otherwise interfere in the conduct of the firm's business to the detriment of the public interest and investor confidence.
/02 Divisions of Member Organizations — Names

Divisions that are not separate legal entities may not be identified by the use of such words as "Company", "Corporation" or "Incorporation", which connote separate entities. Persons staffing such divisions should not have the title of "President", which indicates a separate entity. The titles, "Vice President" or "Assistant Vice President" are satisfactory when used in a context which does not convey the existence of authority on behalf of the member organization not, in fact, possessed by that individual.

Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.

Selected Notices: 08-57, 08-64.

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