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  • FINRA Manual

    • Corporate Organization

      • Restated Certificate of Incorporation of Financial Industry Regulatory Authority, Inc.

        The present name of the corporation is Financial Industry Regulatory Authority, Inc. (the "Corporation"). The Corporation was originally incorporated as a nonstock corporation under the name of Investment Bankers Conference, Inc., and its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 3, 1936. This Restated Certificate of Incorporation of the Corporation, which both restates and further amends the provisions of the Corporation's Certificate of Incorporation as heretofore amended, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
        Name
        First: The name of the Corporation is Financial Industry Regulatory Authority, Inc.
        Delaware Office and Agent
        Second: The registered office of the Corporation in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The registered agent at such address is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
        Objects or Purposes
        Third: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, and, without limiting the generality of the foregoing, the business or purposes to be conducted or promoted shall include the following:
        (1) To promote through cooperative effort the investment banking and securities business, to standardize its principles and practices, to promote therein high standards of commercial honor, and to encourage and promote among members observance of federal and state securities laws;
        (2) To provide a medium through which its membership may be enabled to confer, consult, and cooperate with governmental and other agencies in the solution of problems affecting investors, the public, and the investment banking and securities business;
        (3) To adopt, administer, and enforce rules of fair practice and rules to prevent fraudulent and manipulative acts and practices, and in general to promote just and equitable principles of trade for the protection of investors;
        (4) To promote self-discipline among members, and to investigate and adjust grievances between the public and members and between members;
        (5) To establish, and to register with the Securities and Exchange Commission as, a national securities association pursuant to Section 15A of the Securities Exchange Act of 1934, as amended, and thereby to provide a medium for effectuating the purposes of said Section; and
        (6) To transact business and to purchase, hold, own, lease, mortgage, sell, and convey any and all property, real and personal, necessary, convenient, or useful for the purposes of the Corporation.
        The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, not be limited or restricted by reference to, or inference from, the terms of any other clause in this Restated Certificate of Incorporation, but the objects and purposes specified in each of the foregoing clauses of this Article shall be regarded as independent objects and purposes.
        Form of Organization
        Fourth: The Corporation shall be a membership corporation and shall have no capital stock. The Corporation is not organized and shall not be conducted for profit, and no part of its net revenues or earnings shall inure to the benefit of any individual, subscriber, contributor, or member.
        Except as may be otherwise provided by the General Corporation Law of the State of Delaware or this Restated Certificate of Incorporation, the members of the Corporation shall have no voting rights. Notwithstanding the foregoing, Small Firm Members shall be entitled to vote for the election of Small Firm Governors, Mid-Size Firm Members shall be entitled to vote for the election of Mid-Size Firm Governors, Large Firm Members shall be entitled to vote for the election of Large Firm Governors and the members shall be entitled to vote on any amendment to the By-Laws of the Corporation, in each case, in accordance with the procedures for such a vote as provided in the By-Laws.
        Except as may be otherwise provided by the General Corporation Law of the State of Delaware, other applicable law or this Restated Certificate of Incorporation, the conditions, method of admission, qualifications and classifications of membership, the limitations, rights, powers and duties of members, the dues, assessments, and contributions of members, the method of expulsion from and termination of membership, and all other matters pertaining to the membership and the conduct, management, and control of the business, property, and affairs of the Corporation shall be provided from time to time in the By-Laws of the Corporation and the Rules of the Corporation.
        Indemnification; Liability
        Fifth:
        (a) The Corporation shall indemnify, and hold harmless, to the fullest extent permitted by the General Corporation Law of the State of Delaware as it presently exists or may thereafter be amended, any person (and the heirs, executors, and administrators of such person) who, by reason of the fact that he or she is or was a Governor, officer, employee, or National Adjudicatory Council or committee member of the Corporation, or is or was a Governor, officer, or employee of the Corporation who is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, is or was a party, or is threatened to be made a party to:
        (i) any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation) against expenses (including attorneys' fees and disbursements), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with any such action, suit, or proceeding; or
        (ii) any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor against expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit.
        (b) The Corporation shall advance expenses (including attorneys' fees and disbursements) to persons described in Article Fifth (a); provided, however, that the payment of expenses incurred by such person in advance of the final disposition of the matter shall be conditioned upon receipt of a written undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article Fifth or otherwise.
        (c) The Corporation may, in its discretion, indemnify and hold harmless, to the fullest extent permitted by the General Corporation Law of the State of Delaware as it presently exists or may thereafter be amended, any person (and the heirs, executors, and administrators of such persons) who, by reason of the fact that he or she is or was an agent of the Corporation or is or was an agent of the Corporation who is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, was or is a party, or is threatened to be made a party to any action or proceeding described in Article Fifth (a).
        (d) The Corporation may, in its discretion, pay the expenses (including attorneys' fees and disbursements) reasonably and actually incurred by an agent in defending any action, suit, or proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by such person in advance of the final disposition of the matter shall be conditioned upon receipt of a written undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article Fifth or otherwise.
        (e) Notwithstanding the foregoing or any other provision of this Restated Certificate of Incorporation, no advance shall be made by the Corporation to an agent or non-officer employee if a determination is reasonably and promptly made by the Board by a majority vote of those Governors who have not been named parties to the action, even though less than a quorum, or, if there are no such Governors or if such Governors so direct, by independent legal counsel, that, based upon the facts known to the Board or such counsel at the time such determination is made: (1) the person seeking advancement of expenses (i) acted in bad faith, or (ii) did not act in a manner that he or she reasonably believed to be in or not opposed to the best interests of the Corporation; (2) with respect to any criminal proceeding, such person believed or had reasonable cause to believe that his or her conduct was unlawful; or (3) such person deliberately breached his or her duty to the Corporation.
        (f) The indemnification provided by this Article Fifth in a specific case shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Governor, officer, employee, or agent and shall inure to the benefit of such person's heirs, executors, and administrators.
        (g) Notwithstanding the foregoing, but subject to Article Fifth (j), the Corporation shall be required to indemnify any person identified in Article Fifth (a) in connection with a proceeding (or part thereof) initiated by such person only if the initiation of such proceeding (or part thereof) by such person was authorized by the Board.
        (h) The Corporation's obligation, if any, to indemnify or advance expenses to any person who is or was serving at its request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity shall be reduced by any amount such person may collect as indemnification or advancement from such other corporation, partnership, joint venture, trust, enterprise, or non-profit entity.
        (i) Any repeal or modification of the foregoing provisions of this Article Fifth shall not adversely affect any right or protection hereunder of any person respecting any act or omission occurring prior to the time of such repeal or modification.
        (j) If a claim for indemnification or advancement of expenses under this Article Fifth is not paid in full within 60 days after a written claim therefor by an indemnified person has been received by the Corporation, the indemnified person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that the indemnified person is not entitled to the requested indemnification or advancement of expenses under the General Corporation Law of the State of Delaware.
        (k) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a Governor, officer, employee, agent, or National Adjudicatory Council or committee member of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability hereunder.
        (l) A Governor shall not be liable to the Corporation or its members for monetary damages for breach of fiduciary duty as a Governor, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as it presently exists or may hereafter be amended.
        Perpetual Existence
        Sixth: The Corporation shall have perpetual existence.
        Members' Liability
        Seventh: The private property of the members shall not be subject to the payment of corporate debts to any extent whatever.
        Governors
        Eighth:
        (a) To the fullest extent permitted by Sections 141(a), 141(j), and 215 of the General Corporation Law of the State of Delaware and other applicable law, the business and affairs of the Corporation shall be managed and the election of Governors shall be conducted in the manner provided in this Restated Certificate of Incorporation and the By-Laws of the Corporation. To the extent there is any inconsistency between the provisions of this Restated Certificate of Incorporation and the By-Laws relating to such matters and the General Corporation Law, the provisions of this Restated Certificate of Incorporation and the By-Laws shall govern to the fullest extent permitted by the General Corporation Law and other applicable law. To the fullest extent permitted by the General Corporation Law of the State of Delaware and other applicable law, the Board of Governors may delegate such powers, authority, and functions as it shall determine from time to time, in a manner not inconsistent with the "Plan of Allocation and Delegation of Functions by NASD to Subsidiaries," approved by the Securities and Exchange Commission, as amended from time to time.
        (b) The Corporation shall be managed under the direction of a Board of Governors having such powers and duties as shall be provided from time to time in this Restated Certificate of Incorporation or the By-Laws of the Corporation. The Board of Governors shall be the governing body of the Corporation. Each member of the Board of Governors who is to be elected by members of the Corporation shall be elected by a plurality of the votes of the members of the Corporation present in person or represented by proxy at the annual meeting of the members of the Corporation and entitled to vote for such category of Governors. Elections shall be by written ballot. Any Governor so elected by members of the Corporation must be nominated by the Nominating Committee or certified by the Secretary of the Corporation (as provided in the By-Laws of the Corporation) and must satisfy the other qualifications for Governors set forth in this Restated Certificate of Incorporation or the By-Laws or established by resolution of the Board of Governors from time to time, which qualifications shall be consistent with the "Plan of Allocation and Delegation of Functions by NASD to Subsidiaries". The By-Laws may also provide for such assistants to the Board of Governors, and such officers, agents, and employees, as may be deemed necessary to administer affairs of the Corporation.
        From and after the Transitional Period, the Board of Governors shall consist of (i) the Chief Executive Officer of the Corporation, (ii) a number of Public Governors determined by the Board of Governors, (iii) a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor and (iv) three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors. The number of Public Governors shall exceed the number of Industry Governors.
        The Chief Executive Officer shall serve as a Governor until a successor is elected, or until death, resignation, or removal.
        Public Governors and the Floor Member Governor, the Independent Dealer/Insurance Affiliate Governor and the Investment Company Affiliate Governor (the "Appointed Governors") shall be appointed by the Board of Governors from candidates recommended to the Board by the Nominating Committee of the Board of Governors.
        As of the first annual meeting of members following the Transitional Period, the Appointed Governors shall be divided by the Board of Governors into three classes, as equal in number as possible, with the first class holding office until the first succeeding annual meeting of members, the second class holding office until the second succeeding annual meeting of members and the third class holding office until the third succeeding annual meeting of members, or until a successor is duly appointed and qualified, or until death, resignation, disqualification, or removal. Each class shall initially contain as equivalent a number as possible of Appointed Governors who were members of the NYSE Group Committee during the Transitional Period or are successors to such Governor positions, on the one hand, and Appointed Governors who were members of the NASD Group Committee during the Transitional Period or are successors to such Governor positions, on the other hand, to the extent the Board of Governors determines that such persons are to remain Governors after the Transitional Period. No Appointed Governor may serve more than two consecutive terms. If an Appointed Governor is appointed to fill a vacancy of such a Governor position for a term of less than one year, the Governor may serve up to two consecutive terms following the expiration of the Governor's initial term. At each annual election following the first annual meeting of members following the Transitional Period, Appointed Governors shall be appointed by the Board of Governors for a term of three years to replace those whose terms expire.
        As of the first annual meeting of members following the Transitional Period, the Large Firm Governors, the Mid-Size Firm Governor and the Small Firm Governors shall be divided into three classes, as equal in number as possible, with the first class, being comprised of one Large Firm Governor and one Small Firm Governor, holding office until the first succeeding annual meeting of members, the second class, being comprised of one Large Firm Governor, one Mid-Size Firm Governor and one Small Firm Governor, holding office until the second succeeding annual meeting of members and the third class, being comprised of one Large Firm Governor and one Small Firm Governor, holding office until the third succeeding annual meeting of members, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal. A Governor elected by members of the Corporation may not serve more than two consecutive terms.
        If a Governor is elected to fill a vacancy of such a Governor position for a term of less than one year, the Governor may serve up to two consecutive terms following the expiration of the Governor's initial term. At each annual election following the first annual meeting of members following the Transitional Period, Large Firm Governors, Small Firm Governors and the Mid-Size Firm Governor shall be elected for a term of three years to replace those whose terms expire.
        In the event of any vacancy among the Large Firm Governors, the Mid-Size Firm Governor or the Small Firm Governors, such vacancy shall only be filled by the Large Firm Governor Committee in the case of a Large Firm Governor vacancy, the Board of Governors in the case of a Mid-Size Firm Governor vacancy or the Small Firm Governor Committee in the case of a Small Firm Governor vacancy; provided, however, that in the event the remaining term of office of any Large Firm, Mid-Size Firm or Small Firm Governor position that becomes vacant is for more than 12 months, such vacancy shall be filled by the members of the Corporation entitled to vote thereon at a meeting thereof convened to vote thereon.
        (c) In furtherance and not in limitation of the powers granted by the General Corporation Law of the State of Delaware, the Board of Governors is expressly authorized unless the By-Laws otherwise provide, to make, alter, or repeal the By-Laws of the Corporation.
        In the event of the refusal, failure, neglect, or inability of any member of the Board of Governors to discharge such member's duties, or for any cause affecting the best interest of the Corporation the sufficiency of which the Board of Governors shall be the sole judge, the Board shall have the power, by the affirmative vote of two-thirds of the Governors then in office, to remove such member and declare such member's position vacant and that, subject to this Restated Certificate of Incorporation, it shall be filled in accordance with the provisions of the By-Laws; provided, that during the Transitional Period, (i) a Governor that is a member of the NYSE Group Committee may only be removed by the affirmative vote of a majority of the Governors who are members of the NYSE Group Committee and (ii) a Governor that is a member of the NASD Group Committee may only be removed by the affirmative vote of a majority of the Governors who are members of the NASD Group Committee.
        The Corporation may, in its By-Laws, confer powers upon its Board of Governors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon them by the General Corporation Law of the State of Delaware.
        Meetings and Offices
        Ninth: Both members and the Board of Governors shall have power, if the By-Laws so provide, to hold their meetings and to have one or more offices within or without the State of Delaware and to keep the books of the Corporation (subject to the provision of the statutes), outside the State of Delaware at such places as may be from time to time designated by the Board of Governors. At all meetings of members of the Corporation the presence in person or by proxy of one-third of the members entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum; provided, however, where a separate vote by a class or group or classes or groups is required, the presence in person or by proxy of one-third of the members of such class or group or classes or groups shall be necessary and sufficient to constitute a quorum with respect to that vote on that matter.
        Right to Amend Certificate of Incorporation
        Tenth: The Corporation reserves the right to amend, alter, change, or repeal any provisions contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon members herein are granted subject to this reservation.
        Transitional Governance
        Eleventh: Notwithstanding anything herein to the contrary, to the extent there is any inconsistency between the other provisions of this Restated Certificate of Incorporation, including, without limitation, Paragraph (b) of Article Eighth, and this Article Eleventh, the provisions of this Article Eleventh shall govern as of Closing and for the Transitional Period to the fullest extent permitted by applicable law:
        (a) The Corporation shall be managed under the direction of a Board of Governors having such powers and duties as shall be provided from time to time in this Restated Certificate of Incorporation or the By-Laws of the Corporation; provided, however, that (i) during the Transitional Period, the Board of Governors, after consultation with the Chief Executive Officer of the Corporation, shall have the exclusive authority to appoint any Lead Governor of the Corporation, (ii) during the Transitional Period, the Board of Governors, after receiving the recommendation of the Chief Executive Officer, shall have the exclusive authority to appoint the Chair of the Finance Committee and (iii) during the Transitional Period, the Nominating Committee of the Board of Governors will be jointly populated by the Chief Executive Officer and the Chief Executive Officer of NYSE Regulation, Inc. as of Closing (or his duly appointed or elected successor as Chair of the Board of Governors), subject to ratification of the appointees by the Board of Governors. Any Governor elected by members of the Corporation must be nominated by the Nominating Committee or certified by the Secretary of the Corporation (as provided in the By-Laws of the Corporation) and must satisfy the other qualifications for Governors set forth in this Restated Certificate of Incorporation or the By-Laws or established by resolution of the Board of Governors from time to time, which qualifications shall be consistent with the "Plan of Allocation and Delegation of Functions by NASD to Subsidiaries"; provided, however, that, in the case of the first annual meeting of members following the Closing, nominations shall be by the Board of Directors of NYSE Group, Inc. with respect to Large Firm Governors, jointly by the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing with respect to the Mid-Size Firm Governor and by the Board of Governors in office prior to the Closing with respect to Small Firm Governors, instead of the Nominating Committee.
        (b) Upon the Closing, the term of office of each Governor in office immediately prior to the Closing who is not to be a Governor as of Closing pursuant to the immediately succeeding paragraph shall automatically, and without any further action, terminate, and such persons shall no longer be members of the Board of Governors.
        (c) As of Closing, and for the Transitional Period, the Board of Governors shall consist of 23 authorized members, consisting of (i) the Chief Executive Officer of the Corporation, (ii) the Chief Executive Officer of NYSE Regulation, Inc., (iii) eleven Public Governors, (iv) a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor and (v) three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors; provided, however that the Board of Governors shall not include such Small Firm Governors, Mid-Size Firm Governor or Large Firm Governors, but rather shall include three persons, who immediately prior to the Closing are Industry Governors, selected by the Board of Governors in office prior to the Closing, three persons, who immediately prior to the Closing qualified as Industry Governors pursuant to the By-Laws in existence prior to the Closing, selected by the Board of Directors of NYSE Group, Inc. and one person, who immediately prior to the Closing qualified as an Industry Governor pursuant to the By-Laws in existence prior to the Closing, selected by the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly, until the election of such Small Firm Governors, Mid-Size Firm Governor or Large Firm Governors at the first annual meeting of members following the Closing (which shall be held as soon as practicable after the Closing).
        The Chief Executive Officer shall serve as a Governor until a successor is elected, or until death, resignation, or removal.
        The Chief Executive Officer of NYSE Regulation, Inc. as of Closing shall serve as a Governor during the Transitional Period, until death, resignation, or removal; provided, however, in the event of a vacancy during the Transitional Period with respect to this Governor position by virtue of death, resignation or removal, the then Chief Executive Officer of NYSE Regulation, Inc. shall serve as a Governor for the remainder of the Transitional Period, until death, resignation or removal; provided, further however, a person who becomes a Governor pursuant to the immediately preceding proviso shall not be qualified to serve as Chair of the Board of Governors.
        Effective as of Closing, the Board of Directors of NYSE Group, Inc. shall appoint the NYSE Public Governors, the Board of Governors in office prior to the Closing shall appoint the NASD Public Governors and the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly shall appoint the Joint Public Governor.
        The Public Governors appointed in accordance with the preceding paragraph shall hold office for the Transitional Period, or until death, resignation, disqualification, or removal. In the event of any vacancy among the NYSE Public Governors, the Joint Public Governor or the NASD Public Governors during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a vacant NYSE Public Governor position, such vacancy shall only be filled by the Board of Governors, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of a vacant Joint Public Governor position or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of a vacant NASD Public Governor position.
        Effective as of Closing, the Board of Directors of NYSE Group, Inc. shall appoint the Floor Member Governor, the Board of Governors in office prior to the Closing shall appoint the Independent Dealer/Insurance Affiliate Governor and the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly shall appoint the Investment Company Affiliate Governor.
        The Floor Member Governor, the Investment Company Affiliate Governor and the Independent Dealer/Insurance Affiliate Governor appointed in accordance with the preceding paragraph shall hold office for the Transitional Period, or until death, resignation, disqualification, or removal. In the event of any vacancy among the Floor Member Governor, the Investment Company Affiliate Governor or the Independent Dealer/Insurance Affiliate Governor during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a Floor Member Governor vacancy, such vacancy shall only be filled by the Board of Governors, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of an Investment Company Affiliate Governor vacancy or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of an Independent Dealer/Insurance Affiliate Governor vacancy.
        Three Large Firm Governors, three Small Firm Governors and one Mid-Size Firm Governor shall be elected as Governors at the first annual meeting of members following the Closing (the "Initial Member Elected Governors"). The Initial Member Elected Governors shall hold office until the first annual meeting of members following the Transitional Period, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal.
        In the event of any vacancy among the Large Firm Governors, the Mid-Size Firm Governor or the Small Firm Governors during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a Large Firm Governor vacancy, such vacancy shall only be filled by the Board of Governors, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of a Mid-Size Firm Governor vacancy or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of a Small Firm Governor vacancy; provided, however, that in the event the remaining term of office of any Large Firm, Mid-Size Firm or Small Firm Governor position that becomes vacant is for more than 12 months, such vacancy shall be filled by the members of the Corporation entitled to vote thereon at a meeting thereof convened to vote thereon.
        (d) The annual meeting of members shall be on such date and at such place as the Board of Governors shall designate; provided, however, that, except for the first annual meeting following the Closing at which Large Firm Governors, the Mid-Size Firm Governor and Small Firm Governors shall be elected, there shall be no annual meetings of members during the Transitional Period.
        (e) Upon the expiration of the Transitional Period, the term of office of the Chief Executive Officer of NYSE Regulation, Inc. as a member of the Board shall automatically, and without any further action, terminate, such person shall no longer be a member of the Board of Governors and the authorized number of members of the Board of Governors shall automatically be reduced by one.
        Definitions
        Twelfth: For purposes hereof:
        A) "bank" shall mean:
        (1) a banking institution organized under the laws of the United States;
        (2) a member bank of the Federal Reserve System;
        (3) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency pursuant to the first section of Public Law 87-722 (12 U.S.C. § 92a), and which is supervised and examined by a State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of the Securities Exchange Act of 1934, as amended (the "Act"); and
        (4) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (1), (2), or (3) of this definition;
        B) "broker" shall mean any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization, or other legal entity engaged in the business of effecting transactions in securities for the account of others, but does not include a bank;
        C) "Closing" shall mean the closing of the consolidation of certain member firm regulatory functions of NYSE Regulation, Inc. and the Corporation;
        D) "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity;
        E) "dealer" shall mean any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization, or other legal entity engaged in the business of buying and selling securities for such individual's or entity's own account, through a broker or otherwise, but does not include a bank, or any person insofar as such person buys or sells securities for such person's own account, either individually or in some fiduciary capacity, but not as part of a regular business;
        F) "Floor Member Governor" shall mean a member of the Board of Governors appointed as such who is a person associated with a member (or a firm in the process of becoming a member) which is a specialist or floor broker on the New York Stock Exchange trading floor;
        G) "Independent Dealer/Insurance Affiliate Governor" shall mean a member of the Board of Governors appointed as such who is a person associated with a member which is an independent contractor financial planning member firm or an insurance company, or an affiliate of such a member;
        H) "Industry Governor" shall mean the Floor Member Governor, the Independent Dealer/Insurance Affiliate Governor and the Investment Company Affiliate Governor and any other Governor (excluding the Chief Executive Officer of the Corporation and, during the Transitional Period, the Chief Executive Officer of NYSE Regulation, Inc.) who:
        (1) is or has served in the prior year as an officer, director (other than as an independent director), employee or controlling person of a broker or dealer; or
        (2) has a consulting or employment relationship with or provides professional services to a self regulatory organization registered under the Act or has had any such relationship or provided any such services at any time within the prior year;
        I) "Investment Company Affiliate Governor" shall mean a member of the Board of Governors of the Corporation appointed as such who is a person associated with a member which is an "investment company" as such term is defined in The Investment Company Act of 1940, as amended, or an affiliate of such a member;
        J) "Joint Public Governor" shall mean the one Public Governor to be appointed as such by the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly;
        K) "Large Firm Governors" shall mean the members of the Board of Governors of the Corporation to be elected by Large Firm Members, provided, however, that in order to be eligible to serve, a Large Firm Governor must be an Industry Governor and must be registered with a member which is a Large Firm Member;
        L) "Large Firm Governor Committee" shall mean a committee of the Board of Governors comprised of all of the Large Firm Governors;
        M) "Large Firm Member" shall mean any broker or dealer admitted to membership in the Corporation which, at the time of determination, has 500 or more registered persons;
        N) "Mid-Size Firm Governor" shall mean the member of the Board of Governors of the Corporation to be elected by Mid-Size Firm Members, provided, however, that in order to be eligible to serve, a Mid-Size Firm Governor must be an Industry Governor and must be registered with a member which is a Mid-Size Firm Member;
        O) "Mid-Size Firm Member" shall mean any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least 151 and no more than 499 registered persons;
        P) "NASD Group Committee" shall mean a committee of the Board of Governors comprised of the five Public Governors and the Independent Dealer/Insurance Affiliate Governor appointed as such by the Board of Governors in office prior to Closing, and the Small Firm Governors which were nominated for election as such by the Board of Governors in office prior to Closing, and in each case their successors;
        Q) "NASD Public Governors" shall mean the five Public Governors to be appointed as such by the Board of Governors in office prior to the Closing effective as of Closing;
        R) "NYSE Group Committee" shall mean a committee of the Board of Governors comprised of the five Public Governors and the Floor Member Governor appointed as such by the Board of Directors of NYSE Group, Inc., and the Large Firm Governors which were nominated for election as such by the Board of Directors of NYSE Group, Inc., and in each case their successors;
        S) "NYSE Public Governors" shall mean the five Public Governors to be appointed as such by the Board of Directors of NYSE Group, Inc. effective as of Closing;
        T) "person associated with a member" shall mean:
        (1) a natural person who is registered or has applied for registration under the Rules of the Corporation;
        (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under the By-Laws of the Corporation or the Rules of the Corporation; and
        (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member;
        U) "Public Governor" shall mean any Governor who is not the Chief Executive Officer of the Corporation or, during the Transitional Period, the Chief Executive Officer of NYSE Regulation, Inc., who is not an Industry Governor and who otherwise has no material business relationship with a broker or dealer or a self regulatory organization registered under the Act (other than serving as a public director of such a self regulatory organization);
        V) "Rules of the Corporation" or "Rules" shall mean the numbered rules set forth in the manual of the Corporation beginning with the Rule 0100 Series, as adopted by the Board of Governors of the Corporation pursuant to the By-Laws of the Corporation, as hereafter amended or supplemented;
        W) "Small Firm Governors" shall mean the members of the Board of Governors of the Corporation to be elected by Small Firm Members, provided, however, that in order to be eligible to serve, a Small Firm Governor must be registered with a member which is a Small Firm Member and must be an Industry Governor;
        X) "Small Firm Governor Committee" shall mean a committee of the Board of Governors comprised of all the Small Firm Governors;
        Y) "Small Firm Member" shall mean any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least 1 and no more than 150 registered persons; and
        Z) "Transitional Period" shall mean the period commencing on the date of the Closing and ending on the third anniversary of the date of the Closing.

        IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed under the seal of the Corporation the 15th day of July, 2010.


        FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.

        By: _______________________
        T. Grant Callery
        EVP & General Counsel

        Amended by SR-FINRA-2010-027 eff. July 2, 2010.

      • TRF LLC Agreements

        • Limited Liability Company Agreement of the FINRA/NASDAQ Trade Reporting Facility LLC

          This First Amended and Restated Limited Liability Company Agreement of The FINRA/NASDAQ Trade Reporting Facility LLC (the "Company") (together with the schedules attached hereto, this "Agreement"), dated as of July 23, 2008, to the Limited Liability Company Agreement of the Trade Reporting Facility, LLC, between the Nasdaq Stock Market, Inc. and National Association of Securities Dealers, Inc. dated April 27, 2006 ("Prior Agreement"), is entered into by and between The NASDAQ OMX Group, Inc., a Delaware corporation (the "Business Member"), and Financial Industry Regulatory Authority, Inc. ("FINRA"), a Delaware non-stock corporation (the "SRO Member" and, together with the Business Member, the "Members", and each, a "Member"). Capitalized terms used herein and not otherwise defined have the meanings set forth on Schedule A hereto.
          WHEREAS, the Members formed and continued the Company as a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act (6 Del.C. §18-101, et seq.), as amended from time to time (the "Act") on April 27, 2006 (the "Original Effective Date"). By execution of this Agreement, the Members continue the Company as a limited liability company pursuant to and in accordance with the Act. This Agreement is effective as of the date of this Agreement; and
          WHEREAS the Members have determined that it is appropriate to amend and restate the Prior Agreement for the purposes of reflecting the change in the names of the Members,
          NOW, THEREFORE, for and in consideration of the covenants, conditions and agreements contained herein, the Members do hereby agree as follows:
          1. Name.
          The name of the limited liability company operating under this Agreement shall be The FINRA/NASDAQ Trade Reporting Facility LLC.
          2. Principal Business Office.
          The principal business office of the Company shall be located at such location as may hereafter be determined by the Members.
          3. Registered Office.
          The address of the registered office of the Company in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801.
          4. Registered Agent.
          The name and address of the registered agent of the Company for service of process on the Company in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801.
          5. Members.
          The name and the mailing address of the Members are set forth on Schedule B attached hereto.
          6. Certificates.
          John M. Yetter as an "authorized person" within the meaning of the Act, executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware on April 27, 2006. Upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, his powers as an "authorized person" ceased, and each Member thereupon became a designated "authorized person" and each Member shall continue as a designated "authorized person" within the meaning of the Act. The Members or an Officer shall execute, deliver and file any other certificates (and any amendments thereto and/or restatements thereof) necessary for the Company to qualify to do business in any jurisdiction in which the Company may wish to conduct business.
          7. Purposes.
          The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is, to operate a facility for Non-System Trading and to engage in all related activities arising therefrom or relating thereto or necessary, desirable, advisable, convenient or appropriate in connection therewith as the Members may determine. The Company may not undertake material business activities unrelated to the business of Non-System Trading without obtaining the approval required by Section 10(e).
          8. Powers.
          The Company (a) shall have and exercise all powers necessary, convenient or incidental to accomplish its purposes as set forth in Section 7 and (b) shall have and exercise all of the powers and rights conferred upon limited liability companies formed pursuant to the Act.
          9. Roles of Members.
          (a) SRO Member. The SRO Member shall have the sole regulatory responsibility for the activities of the Company. Pursuant to the Statement of Work, the SRO Member shall perform for the Company SRO Responsibilities including, but not limited to, those relating to:
          (i) adoption, amendment and interpretation of policies arising out of and regarding:
          (A) any material aspect of the operation of the facilities of the SRO;
          (B) any statement made generally available to membership of, to all participants in, or to Persons having or seeking access to facilities of the SRO, or to a group or category of specified Persons, that establishes or changes any standard, limit, or guideline with respect to (1) the rights, obligations, or privileges of specified Persons or, Persons associated with specific Persons, or (2) the meaning, administration, or enforcement of an existing rule of the SRO, including any generally applicable exemption from such a rule;
          (ii) approval of rule filings of the SRO prior to filing with the SEC;
          (iii) regulation of the Company's activities, including the right to review and approve the regulatory budget for the Company;
          (iv) securities regulation and any other matter implicating SRO Responsibilities; and
          (v) real-time market surveillance;
          (b) Business Member. The Business Member shall be primarily responsible for the management of the Company's business affairs. Pursuant to the Facility Services Agreement, the Business Member shall provide those services relating to:
          (i) matters regarding business policy;
          (ii) approval of business decisions, including budgets, capital expenditures, technology changes, marketing and product changes;
          (iii) identification and creation of officer positions necessary to manage the Company pursuant to Section 11 hereof and appointment or termination of the officers of the Company;
          (iv) management and control of day-to-day operations, including business management, technology operations and enhancements, accounting, finance, human resources, pricing recommendations and market operations;
          (v) incurrence, issuance, assumption, guarantee or refinancing of any debt of the Company;
          (vi) acquisition of assets consistent with the purpose set forth in Section 7;
          (vii) engaging or terminating an independent auditor;
          (viii) declaration and payment of any distributions;
          (ix) commencement or settlement of litigation not directly related to the SRO Responsibilities;
          (x) internal audits, including Sarbanes-Oxley 404 compliance efforts and business risk review; and
          (xi) other operations of the Company.
          (c) Consultation with Business Member. Notwithstanding anything to the contrary contained in this Section 9 or elsewhere in this Agreement, the SRO Member shall endeavor to carry out its material regulatory obligations, pursuant to Section 9(a), in consultation with the Business Member. Such consultation shall, to the extent reasonably practicable, include providing the Business Member with the opportunity to review and comment upon in advance nonroutine information relating to the Company that appears in filings, statements or applications submitted to the SEC or another governmental or regulatory authority on behalf of the Company that are material to ensuring that the Company complies with applicable federal securities laws and keeping the Company and the Business Member apprised, in a regular and timely manner, of nonroutine notices or orders relating to the Company received by the SRO Member from the SEC or another governmental or regulatory authority. Nothing in this Section 9(c) shall be construed to allow the Business Member to require the SRO Member to act or fail to act in a manner that the SRO Member believes to be inconsistent with its regulatory obligations.
          (d) Compliance with Securities Laws. Each Member agrees to comply with the federal securities laws and the rules and regulations thereunder and to cooperate with the SEC pursuant to its regulatory authority and the provisions of this Agreement.
          (e) Other Facilities. The SRO Member covenants and agrees if it enters into an agreement with another party regarding a facility for Non-System Trading the terms and conditions shall be no more favorable to such other party than the terms and conditions of this Agreement.
          10. Board of Directors.
          (a) Number and Composition. The Company shall be managed by or under the direction of the board of directors (the "Board of Directors" or "Board"), which shall be established by the Members. The Board is comprised of three (3) Directors. The Business Member is entitled to designate two (2) Directors, each of whom must be a director, officer or employee of the Business Member or an Affiliate thereof. The SRO Member is entitled to designate one (1) Director (the "SRO Member Director") who shall be a member of the SRO Member's Board of Governors or an officer or employee of the SRO Member designated by the SRO Member's Board of Governors. Each Director elected, designated or appointed to the Board shall hold office until a successor is elected and qualified or until such Director's earlier death, resignation or removal. Each Director shall execute and deliver a Management Agreement or other instrument pursuant to which such Director shall accept its appointment and duties as a Director and agree to be bound by the terms of this Agreement. Subject to Section 10(e) of this Agreement, the Board may change the number of the Directors and the composition of the Board from time to time at its discretion; provided, however, that the Board shall, at all times, include at least one SRO Member Director. No person that is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Exchange Act) may be a Director.
          (b) Authority and Conduct. The Board shall have the authority to do any and all acts necessary, convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise. Subject to Section 10(e), the Board shall have the authority to bind the Company. Each Director agrees to comply with the federal securities laws and the rules and regulations thereunder and to cooperate with the SEC and the SRO Member pursuant to their regulatory authority and the provisions of this Agreement. Furthermore, in discharging his or her responsibilities as a member of the Board, each Director shall take into consideration whether his or her actions as a Director would cause the Company or either Member to engage in conduct that would be consistent with the purposes of the Exchange Act.
          (c) Meetings. The Board may hold meetings, both regular and special, within or outside the State of Delaware. Regular or special meetings of the Board may be held at such time and at such place as shall from time to time be determined by the Board. Regular meetings of the Board may be held without notice. The President or other Officer of the Company as designated by the Board may call special meetings of the Board on not less than one day's notice to each Director of the Board by telephone, facsimile, mail, telegram or any other means of communication, and special meetings of the Board shall be called by the President or other Officer of the Company as designated by the Board in like manner and with like notice upon the written request of any one or more of the Directors of the Board.
          (d) Quorum; Acts of the Board. At all meetings of the Board, a majority of the Directors of the Board shall constitute a quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the Directors of the Board present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Directors of the Board present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Notwithstanding the foregoing, any act of the Board shall be subject to the limitations set forth in Section 10(e).
          (e) Special Voting Requirements; Major Actions. Notwithstanding the provisions set forth in Section 10(d) regarding voting requirements, no action with respect to any Major Action (as defined below), shall be effective unless approved by consent of the SRO Member Director. Additionally, unless approved by the SRO Member Director, neither Member on behalf of the Company shall enter into or permit the Company to enter into any Major Action. For purposes of this Agreement, "Major Action" means any of the following:
          (i) approving pricing decisions that are subject to the SEC filing process;
          (ii) approving contracts between the Company and the Business Member, any of its Affiliates, directors, officers or employees;
          (iii) approving Director compensation;
          (iv) selling, licensing, leasing or otherwise transferring material assets used in the operation of the Company's business outside of the ordinary course of business with an aggregate value in excess of $3 million;
          (v) approving or undertaking a merger, consolidation or reorganization of the Company with any other entity;
          (vi) entering into any partnership, joint venture or other similar joint business undertaking;
          (vii) making any fundamental change in the market structure of the Company from that contemplated by the Members as of the date hereof;
          (viii) to the fullest extent permitted by law, taking any action to effect the voluntary, or which would precipitate an involuntary, dissolution or winding up of the Company, other than as contemplated by Section 20;
          (ix) conversion of the Company from a Delaware limited liability company into any other type of entity;
          (x) expansion of or modification to the business which results in the Company engaging in material business unrelated to the business of Non-System Trading;
          (xi) changing the number of Directors on or composition of the Board; and
          (xii) adopting or amending policies regarding access and credit matters affecting the Company.
          (f) Electronic Communications. Directors on the Board, or any committee of the Board, may participate in meetings of the Board, or any committee, by means of telephone conference or similar communications equipment that allows all Persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company.
          (g) Committees of Directors. The Board may, by resolution passed by the unanimous vote of the Board, designate one or more committees thereof, each committee to consist of one or more of the Directors. The Board may designate one or more Directors as alternate members of any committee thereof, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board designating such committee, shall have and may exercise all the powers and authority of the Board in the management of the affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. Notwithstanding the foregoing, committees of the Board shall not have any power or authority to approve or transact any Major Action.
          (h) Compensation of Directors; Expenses. Subject to Section 10(e) hereof, the Board shall have the authority to fix the compensation of the Company's Directors. The Directors may be paid their expenses, if any, associated with attendance at Board meetings, which may be a fixed sum for attendance at each such meeting or a stated Director salary. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
          (i) Removal of Directors. Unless otherwise restricted by law and notwithstanding any other provision of this Agreement, any Director may be removed, with or without cause, by the Member that had appointed such Director, and any vacancy caused by any such removal may be filled by action of such Member.
          (j) Directors as Agents. To the extent of their powers set forth in this Agreement, the Directors are agents of the Company for the purpose of the Company's business, and the actions of the Directors taken in accordance with such powers set forth in this Agreement shall bind the Company. Except as provided in this Agreement or pursuant to an authorization from the Board, an individual Director may not bind the Company.
          (k) Duties of Directors. Except as provided in this Agreement, in exercising their rights and performing their duties under this Agreement, the Directors shall have a fiduciary duty of loyalty and care similar to that of a director of a business corporation organized under the General Corporation Law of the State of Delaware.
          11. Officers.
          The Officers of the Company shall be appointed by the Business Member and approved by a majority of the Board and shall consist of at least a President, Secretary and Treasurer. In addition, the Business Member may appoint subject to the Board's approval one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. Any Officer or Director of the Company may also serve as an officer or director of the Business Member or the SRO Member. The Business Member may appoint subject to the Board's approval such other Officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The salaries of all Officers and agents of the Company appointed by the Business Member subject to the Board's approval shall be fixed by or in the manner prescribed by the Board. The Officers of the Company shall hold office until their successors are chosen and qualified. Any Officer may be removed at any time, with or without cause, by the Board. Any vacancy occurring in any office of the Company shall be filled by the Business Member subject to the Board's approval. No person that is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Exchange Act) may be an Officer.
          (a) President. The President shall be the chief executive officer of the Company, shall preside at all meetings of the Members, if any, and of the Board, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Company's Board are carried into effect. The President shall execute all bonds, mortgages and other contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; (ii) where signing and execution thereof shall be expressly delegated by the Company's Directors to some other Officer or agent of the Company; and (iii) as otherwise permitted in Section 11(b).
          (b) Vice President. In the absence of the President or in the event of the President's inability to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (c) Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Board and all meetings of the Members, if any, and record all the proceedings of the meetings of the Board and the Members in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members, if any, and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or the President, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, in the order determined by the Board (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (d) Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Company as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and to the Board, at their regular meetings or when the Board so requires, an account of all of the Treasurer's transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (e) Officers as Agents. The Officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Board not inconsistent with this Agreement, are agents of the Company for the purpose of the Company's business, and, the actions of the Officers taken in accordance with such powers shall bind the Company.
          (f) Duties of Officers. Except to the extent otherwise provided herein, each Officer shall have a fiduciary duty of loyalty and care similar to that of officers of business corporations organized under the General Corporation Law of the State of Delaware.
          12. Limited Liability.
          Except as otherwise expressly provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company and neither the SRO Member, Business Member nor any Director of the Company shall be obligated personally for any debt, obligation or liability of the Company solely by reason of being a Member or Director of the Company. Notwithstanding the foregoing, the Business Member shall ensure that the Company has funds sufficient to satisfy its regulatory obligations and shall guaranty the Company's payment obligations relating to the costs associated with those SRO Responsibilities performed for the Company pursuant to the Statement of Work.
          13. Capital Contributions.
          The Business Member shall contribute the property, rights and other assets and liabilities to the Company listed on Schedule B attached hereto. The SRO Member shall not make any capital contribution to the Company and shall have no claim to any assets, tangible or intangible, of the Company.
          14. Additional Contributions.
          The Members are not required to make any additional capital contributions to the Company. However, the Business Member may make additional capital contributions to the Company at any time upon the written consent of such Member. To the extent that the Business Member makes an additional capital contribution to the Company, the Business Member shall revise Schedule B of this Agreement. The SRO Member may not make and shall not be required to make any capital contribution to the Company. The provisions of this Agreement, including this Section 14, are intended solely to benefit the Members and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company (and no such creditor of the Company shall be a third-party beneficiary of this Agreement) and no Member shall have any duty or obligation to any creditor of the Company to make any contribution to the Company or to issue any call for capital pursuant to this Agreement.
          15. Allocation of Profits and Losses.
          The Company's profits and losses shall be allocated to the Business Member.
          16. Distributions.
          Distributions shall be made to the Business Member at the times and in the aggregate amounts determined by the Business Member. Distributions shall not be made to the SRO Member. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to make a distribution to any Member on account of its interest in the Company if such distribution would violate the Act or any other applicable law.
          17. Books, Records and Jurisdiction.
          (a) The Board shall keep or cause to be kept complete and accurate books of account and records with respect to the Company's business. The books of the Company shall at all times be maintained by the Board in compliance with Section 17(a)(1) of the Exchange Act and the rules thereunder. Each Member and its duly authorized representatives and the SEC shall have the right to examine the Company books, records and documents during normal business hours. At the request of the SEC, the Company shall provide to the SEC copies of the Company books and the costs associated with such copies shall be borne by the Company. The Company, and the Board on behalf of the Company, shall not have the right to keep confidential from any Member information that the Board would otherwise be permitted to keep confidential from any Member pursuant to Section 18-305(c) of the Act. The Company's books of account shall be kept using the method of accounting determined by the Business Member. The Company's independent auditor shall be an independent public accounting firm selected by the Business Member.
          (b) The Members acknowledge that to the extent directly related to the Company's activities, the books, records, premises, officers, directors, governors, agents and employees of the Members shall be deemed to be the books, records, premises, officers, directors, governors, agents and employees of FINRA and its Affiliates for the purpose of and subject to oversight pursuant to the Exchange Act.
          (c) The Members and the officers, directors, governors, agents and employees of the Members irrevocably submit to the jurisdiction of the U.S. federal courts, SEC and FINRA for the purpose of any suit, action or proceeding pursuant to U.S. federal securities laws, and the rules or regulations thereunder, arising from, or relating to, the Company's activities or Section 17(b) hereof (except that such jurisdictions shall include Delaware for any such matter relating to the organization or internal affairs of the Company, provided that such matter is not related to trading on, or the regulation of, the market operated by the Company), and hereby waive and agree not to assert by way of motion, as a defense or otherwise, in any such suit, action or proceeding any claims that they are not personally subject to the jurisdiction of the SEC, that the suit, action or proceeding is an inconvenient forum or that the venue of the suit, action or proceeding is improper, or that the subject matter hereof may not be enforced in or by such courts or agency.
          (d) During the term of this Agreement, none of the Company, any Member or their respective Affiliates shall reveal to any Person any confidential or proprietary information or trade secrets of the Company or any of the Members or their respective Affiliates ("Confidential Information"); provided, however, that such Confidential Information may be disclosed (i) to any employee and subcontractor involved in the performance of this Agreement, (ii) to any Person who is a director, officer, employee of, or counsel or advisor to, the Company or any of the Members or any of their respective Affiliates, (iii) to any person who is an official or employee of, or counsel to, any regulatory body or agency having jurisdiction over the Company or its Affiliates, (iv) for the purpose of furthering the aims and interests of the Company as determined by its Board, or (v) pursuant to a subpoena or order issued by a court of competent jurisdiction or as otherwise required by law. The obligations of this Section 17(d) shall survive for a period of five years from termination of this Agreement.
          (e) The Company and each Member shall cause its respective Affiliates, officers, directors, governors, employees, representatives and agents to comply with this Section 17.
          18. Exculpation and Indemnification.
          (a) To the fullest extent permitted by law, no Member, Officer, Director, employee or agent of the Company and no officer, director, governor, employee, representative, agent or Affiliate of any Member (collectively, the "Covered Persons") shall be liable to the Company or any other Person who is bound by this Agreement for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's gross negligence or willful misconduct.
          (b) To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of such Covered Person's gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 18 shall be provided out of and to the extent of Company assets only, and no Member shall have personal liability on account thereof.
          (c) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in this Section 18.
          (d) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, or any other facts pertinent to the existence and amount of assets from which distributions to any Member might properly be paid.
          (e) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person bound by this Agreement for its good faith reliance on the provisions of this Agreement or any approval or authorization granted by the Company or any other Covered Person. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.
          (f) The foregoing provisions of this Section 18 shall survive any termination of this Agreement.
          19. Assignment.
          Neither Member may transfer or assign in whole or in part its limited liability company interest in the Company except (i) in the case of either Member, to an Affiliate of such Member, provided in the case of the SRO Member, that the Affiliate has proper authority to perform the SRO Responsibilities of the SRO Member.
          20. Termination.
          (a) Unless otherwise agreed in writing by the Members, the Company may be dissolved by either Member in accordance with this Section 20. Either Member may dissolve the Company by providing to the other Member prior written notice of at least one year, unless the Member revokes such notice prior to the expiration of the one-year period; provided, however, that neither Member may deliver such notice of dissolution to the other Member before the second anniversary of the Effective Date of the Prior Agreement. Unless the notice is revoked prior to the date of dissolution or as otherwise agreed to by the Members, the Company shall dissolve in accordance with the terms of this Agreement one year from the date notice of such dissolution is received by the applicable Member or at such later time as expressly set forth in the notice (the "Dissolution Date"). If the SRO Member provides notice of dissolution pursuant to this Section 20 (the date of delivery by the SRO Member of such notice of dissolution is hereinafter referred to as the "Notice of Dissolution Delivery Date"), then the Members shall negotiate in good faith to: (i) allow the Business Member to continue to operate the Company or the business of the Company under the SRO Member's SRO registration, (ii) restructure the Company so that the Business Member can operate the Company or the business of the Company under the SRO registration of the Business Member or any Affiliate thereof, as the case may be, or (iii) sell the Company or the business of the Company to the SRO Member based on a valuation of the Company's business and assets conducted in such manner as the parties may agree, and consideration for the sale may include a contract for the Business Member to provide services to the SRO Member relating to the operation of the Company and the business of the Company.
          (b) In the event the parties have not agreed on any of (i), (ii) or (iii) of Section 20(a) by the date that is 60 days after the Notice of Dissolution Delivery Date (the "FMV Commencement Date"), the Members shall thereafter in good faith seek to agree on the Fair Market Value. If the Members cannot agree on the Fair Market Value within 30 days after the FMV Commencement Date, the Members shall cooperate in good faith to select an independent investment banking firm (an "Investment Bank") of recognized international standing (the "Appraiser") to determine the Fair Market Value. Any Investment Bank that has received an aggregate of $100,000 or more for services or otherwise from either Member during the three-year period prior to the Dissolution Date shall not be eligible to serve as the Appraiser. The fees and expenses of the Appraiser will be borne by the Members in equal amounts. Each Member will share with the other Member any written information it provides to the Appraiser and will not communicate with the Appraiser, other than through such written information, without giving the other Member an opportunity to be present at any such communication. Within 90 days after the date on which the date the Appraiser has been selected, the Appraiser will determine the Fair Market Value and will notify the Members in writing of such determination (specifying the Fair Market Value and setting forth, in reasonable detail, the basis for such determination). The determination of Fair Market Value in accordance with this Section 20(b) will be final, binding and conclusive upon the Members. At a closing to occur on the date that is 10 business days following the determination of the Fair Market Value (whether by agreement of the Members or by determination of the Appraiser), or such other date as the Members shall mutually determine: (i) the SRO Member shall pay to the Business Member an amount equal to the Fair Market Value; (ii) the Business Member shall transfer to the SRO Member the Business Member's interest in the Company in its entirety; and (iii) the Notice of Dissolution shall be deemed revoked. Upon dissolution of the Company, except as may be prohibited by applicable law, the Business Member covenants and agrees that it will not apply to register as a Registered Securities Association. This covenant shall survive termination of this Agreement for a period of five years.
          21. Dissolution and Winding Up.
          (a) The Company shall be dissolved, and its affairs shall be wound up upon the first to occur of the following: (i) an action by either Member in accordance with and pursuant to Section 20 herein, (ii) the occurrence of any event which terminates the continued membership of the last remaining Member in the Company unless the Company is continued in a manner permitted by the Act or (iii) the entry of a decree of judicial dissolution under Section 18-802 of the Act.
          (b) The bankruptcy (as defined in Section 18-101(1) of the Act) of any Member shall not cause such Member to cease to be a member of the Company and upon the occurrence of such an event, the business of the Company shall continue without dissolution.
          (c) In the event of dissolution, the Business Member shall be responsible for the winding up of the Company and the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in an orderly manner), and the assets of the Company shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act.
          (d) The Company and, except as otherwise provided herein, this Agreement shall each terminate when (i) all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Business Member in the manner provided for in this Agreement and (ii) the Certificate of Formation shall have been canceled in the manner required by the Act.
          22. Waiver of Partition.
          Except as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, the SRO Member hereby irrevocably waives any right or power that such Member might have to cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Company.
          23. Related Party Transactions.
          Subject to Section 10(e) hereof, the Company may enter into transactions with its Members.
          24. Severability of Provisions.
          Each provision of this Agreement shall be considered severable and if for any reason any provision or provisions herein are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Agreement which are valid, enforceable and legal.
          25. Entire Agreement.
          This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.
          26. Governing Law.
          This Agreement shall be governed by and construed under the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by said laws.
          27. Amendments.
          This Agreement may not be modified, altered, supplemented or amended except pursuant to a written agreement executed and delivered by both Members.
          28. Counterparts.
          This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement and all of which together shall constitute one and the same instrument.
          29. Notices.
          Any notices required to be delivered hereunder shall be in writing and personally delivered, mailed or sent by telecopy, electronic mail, or other similar form of rapid transmission, and shall be deemed to have been duly given upon receipt (a) in the case of the Company, to the Company at its address determined pursuant to Section 2, (b) in the case of a Member, to such Member at its address as listed on Schedule B attached hereto and (c) in the case of either of the foregoing, at such other address as may be designated by written notice to the other party.
          IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement as of the date first written herein.

          THE NASDAQ OMX GROUP, INC.

          By:

          Name: Christopher R. Concannon
          Title: Executive Vice President — Transaction Services

          FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.

          By:

          Name: Steven A. Joachim
          Title: Executive Vice President, Transparency Services and International Affairs and Service

          SCHEDULE A

          Definitions

          A. Definitions
          When used in this Agreement, the following terms not otherwise defined herein have the following meanings:
          "Act" has the meaning set forth in the preamble to this Agreement.
          "Affiliate" means, with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person.
          "Agreement" means this First Amended and Restated Limited Liability Company Agreement of the Company, together with the schedules attached hereto, as amended, restated or supplemented from time to time.
          "Appraiser" has the meaning set forth in Section 20(b) of this Agreement.
          "Board" or "Board of Directors" has the meaning set forth in Section 10(a).
          "Business Member" means The NASDAQ OMX Group, Inc., a Delaware corporation, in its capacity as a member of the Company, and includes any of its permitted successors or assigns admitted to the Company as such pursuant to this Agreement.
          "Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware on April 27, 2006, as amended or amended and restated from time to time.
          "Confidential Information" has the meaning set forth in Section 17(d) of this Agreement.
          "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or general partnership or managing member interests, by contract or otherwise. "Controlling" and "Controlled" shall have correlative meanings. Without limiting the generality of the foregoing, a Person shall be deemed to Control any other Person in which it owns, directly or indirectly, a majority of the ownership interests.
          "Covered Persons" has the meaning set forth in Section 18(a) of this Agreement.
          "Directors" means the directors elected, designated or appointed to the Board from time to time by the Members. A Director is hereby designated as a "manager" of the Company within the meaning of Section 18-101(10) of the Act.
          "Dissolution Date" has the meaning set forth in Section 20(a) of this Agreement.
          "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
          "Facility Services Agreement" means the Facility Services Agreement entered into between the Company and the Business Member or an Affiliate thereof, as such agreement may from time to time be amended.
          "Fair Market Value" means the private market value that a willing Third Party would pay for the Business Member's interest in the Company in an arms-length transaction taking into account the prospects and potential of the Company's business operated as a going concern under a valid SRO registration.
          "FMV Commencement Date" has the meaning set forth in Section 20(b) of this Agreement.
          "Investment Bank" has the meaning set forth in Section 20(b) of this Agreement.
          "Major Action" has the meaning set forth in Section 10(e) of this Agreement.
          "Management Agreement" means the agreement of the Directors in substantially the form attached hereto as Schedule C.
          "Member" has the meaning set forth in the preamble to this Agreement.
          "Non-System Trading" means trading otherwise than on an exchange of securities for which the SEC has approved a transaction reporting plan pursuant to SEC Rule 240.11Aa3-1 or SEC Rule 242.601
          "Notice of Dissolution Delivery Date" has the meaning set forth in Section 20(a) of this Agreement.
          "Officer" means an officer of the Company described in Section 11. The Officers are listed on Schedule D hereto.
          "Person" means any individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint-stock company, trust, unincorporated organization, or other organization, whether or not a legal entity, and any governmental authority.
          "Registered Securities Association" means a "registered securities association" within the meaning of the Exchange Act.
          "SEC" means the Securities and Exchange Commission.
          "SRO" means a "self-regulatory organization" within the meaning of the Exchange Act.
          "SRO Member" means Financial Industry Regulatory Authority, Inc., a Delaware non-stock corporation, in its capacity as a member of the Company, and includes any of its permitted successors or assigns admitted to the Company pursuant to this Agreement.
          "SRO Member Director" has the meaning set forth in Section 10(a) of this Agreement.
          "SRO Responsibilities" means those duties or responsibilities of an SRO pursuant to the Exchange Act and the rules promulgated thereunder.
          "Statement of Work" means the written statement to be delivered to the Company by FINRA or an Affiliate thereof setting forth the SRO Responsibilities that FINRA or an Affiliate thereof will perform for the Company.
          "Third Party" means any person other than (i) the Company or any Affiliate thereof or (ii) either Member or any Affiliate thereof.
          B. Rules of Construction
          Definitions in this Agreement apply equally to both the singular and plural forms of the defined terms. The words "include" and "including" shall be deemed to be followed by the phrase "without limitation." The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph or subdivision. The Section titles appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All Section, paragraph, clause, Exhibit or Schedule references not attributed to a particular document shall be references to such parts of this Agreement.

          SCHEDULE B

          Members

          Name Mailing Address Capital Contribution
          The NASDAQ OMX Group, Inc. One Liberty Plaza
          New York, NY 10006
          $1,000,000
          Financial Industry Regulatory Authority, Inc. 1735 K Street, N.W.
          Washington D.C. 20006
          None



          SCHEDULE C

          Management Agreement

          April 7, 2010

          The FINRA/NASDAQ Trade Reporting Facility LLC
          One Liberty Plaza
          New York, New York 10006
               Re: Management Agreement
          The FINRA/NASDAQ Trade Reporting Facility LLC
          Ladies and Gentlemen:
          For good and valuable consideration, each of the undersigned persons, who have been designated as directors of the Board of Directors (the "Board") of The FINRA/NASDAQ Trade Reporting Facility LLC, a Delaware limited liability company (the "Company"), in accordance with the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of July 23, 2008, as it may be amended or restated from time to time (the "LLC Agreement"), hereby agree as follows:
          1. Each of the undersigned accepts such person's rights and authority as a Director (as defined in the LLC Agreement) of the Board of the Company under the LLC Agreement and agrees to perform and discharge such person's duties and obligations as a Director of such Board under the LLC Agreement, and further agrees that such rights, authorities, duties and obligations under the LLC Agreement shall continue until such person's successor as a Director is designated or until such person's resignation or removal as a Director in accordance with the LLC Agreement. Each of the undersigned agrees and acknowledges that it has been designated as a "manager" of the Company within the meaning of the Delaware Limited Liability Company Act.
          2. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
          IN WITNESS WHEREOF, the undersigned have executed this Management Agreement as of the day and year first above written.



          Name: Eric Noll


          Name: Adena T. Friedman


          Name: Steven A. Joachim


          SCHEDULE D

          Officers of The FINRA/NASDAQ Trade Reporting Facility LLC

          Name Title
          Brian Hyndman President
          Randall Hopkins Vice President and Chief Operating Officer
          Donald Bollerman Vice President
          Joan C. Conley Secretary
          Ronald Hassen Treasurer

          Amended by SR-FINRA-2010-020 eff. April 27, 2010.

        • First Amended and Restated Limited Liability Company Agreement of FINRA/NYSE Trade Reporting Facility LLC

          This First Amended and Restated Limited Liability Company Agreement of FINRA/NYSE Trade Reporting Facility LLC (the "Company") to the Limited Liability Company Agreement of NASD/NYSE Trade Reporting Facility LLC, between the NYSE Market, Inc., and National Association of Securities Dealers, Inc., dated January 10, 2007 (the "Prior Agreement"), is entered into by and between NYSE Market, Inc., a Delaware corporation with a principal place of business at 11 Wall Street, New York, New York (the "Business Member"), and Financial Industry Regulatory Authority, Inc. ("FINRA"), a Delaware non-stock corporation (the "SRO Member" and, together with the Business Member, the "Members" and each a "Member") dated as of October 10, 2008, (together with the schedules attached hereto, the "Agreement"). Capitalized terms used herein and not otherwise defined have the meanings set forth on Schedule A hereto.
          WHEREAS, on January 10, 2007 (the "Effective Date of the Prior Agreement") the Members formed and continue to operate the Company as a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act (6 Del.C. §18-101, et seq.), as amended from time to time (the "Act"). By execution of the Agreement, the Members continue the Company as a limited liability company pursuant to and in accordance with the Act. This Agreement is effective as of the date of this Agreement; and
          WHEREAS, the Members have determined that it is appropriate to amend and restate the Prior Agreement for the purposes of reflecting the change in the name of SRO Member;
          NOW, THEREFORE, for and in consideration of the covenants, conditions and agreements contained herein, the Members do hereby agree as follows:
          1. Name.
          The name of the limited liability company operating under this Agreement shall be FINRA/NYSE Trade Reporting Facility LLC.
          2. Principal Business Office.
          The principal business office of the Company shall be located at such location as may hereafter be determined by the Members.
          3. Registered Office.
          The address of the registered office of the Company in the State of Delaware is c/o National Registered Agents, Inc., 160 Greentree Drive, in the City of Dover, Suite 101, County of Kent, State of Delaware 19904.
          4. Registered Agent.
          The name and address of the registered agent of the Company for service of process on the Company in the State of Delaware is National Registered Agents, Inc., 160 Greentree Drive, in the City of Dover, Suite 101, County of Kent, State of Delaware.
          5. Members.
          The name and the mailing address of the Members are set forth on Schedule B attached hereto.
          6. Certificates.
          William M. Freeman, as an "authorized person" within the meaning of the Act, executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware on January 10, 2007. Upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, his powers as an "authorized person" ceased, and each Member thereupon became a designated "authorized person" and each Member shall continue as a designated "authorized person" within the meaning of the Act. The Members or an Officer shall execute, deliver and file any other certificates (and any amendments thereto and/or restatements thereof) necessary for the Company to qualify to do business in any jurisdiction in which the Company may wish to conduct business.
          7. Purposes.
          The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is, to operate a facility for Non-System Trading and to engage in all related activities arising therefrom or relating thereto or necessary, desirable, advisable, convenient or appropriate in connection therewith as the Members may determine. The Company may not undertake material business activities unrelated to the business of Non-System Trading without obtaining the approval required by Section 10(e).
          8. Powers.
          The Company (a) shall have and exercise all powers necessary, convenient or incidental to accomplish its purposes as set forth in Section 7 and (b) shall have and exercise all of the powers and rights conferred upon limited liability companies formed pursuant to the Act.
          9. Roles of Members.
          (a) SRO Member.
          The SRO Member shall have the sole regulatory responsibility for the activities of the Company. In furtherance of its regulatory responsibility and pursuant to the Statement of Work, SRO Member shall perform SRO Responsibilities for the Company which shall include, but not be limited to, actions relating to:
          (i) adoption, amendment and interpretation of policies arising out of and regarding:
          (A) any aspect of the operation of the facility considered material by SRO Member;
          (B) any statement made generally available to membership of, to all participants in, or to Persons having or seeking access to facilities of the SRO Member, or to a group or category of specified Persons, that establishes or changes any standard, limit, or guideline with respect to (1) the rights, obligations, or privileges of specified Persons or, Persons associated with specific Persons, or (2) the meaning, administration, or enforcement of an existing rule of the SRO Member, including any generally applicable exemption from such a rule;
          (ii) approval of rule filings of the SRO Member prior to filing with the SEC;
          (iii) regulation of the Company's activities of or relating to SRO Responsibilities, including the right to review and approve in SRO Member's sole reasonable discretion all budgets relating to the provision of SRO Responsibilities for the Company;
          (iv) securities regulation and any other matter implicating SRO Responsibilities; and
          (v) real-time market surveillance and trading activity reported to the Company.
          (b) Business Member.
          The Business Member shall be primarily responsible for the management of the Company's business affairs. Pursuant to the Facility Services Agreement, the Business Member shall provide those services relating to:
          (i) executing on matters regarding business policy;
          (ii) approval of business decisions, including budgets, capital expenditures, technology changes, marketing and product changes;
          (iii) identification and creation of management team and officer positions necessary to manage the Company pursuant to Section 11 hereof and appointment or termination of the officers of the Company;
          (iv) management and control of day-to-day operations, including business management, technology operations and enhancements, accounting, finance, human resources, pricing recommendations and market operations;
          (v) incurrence, issuance, assumption, guarantee or refinancing of any debt of the Company;
          (vi) acquisition of assets consistent with the purpose set forth in Section 7;
          (vii) engaging or terminating an independent auditor;
          (viii) declaration and payment of any distributions;
          (ix) commencement, defense or settlement of litigation or claims not related to SRO Responsibilities or the SRO Member's responsibilities (Business Member shall follow the direction of SRO Member which, in the operation of its sole reasonable discretion, shall direct Business Member on the disposition of all claims relating to SRO Responsibilities or the SRO Member's responsibilities);
          (x) internal audits and business risk review; and
          (xi) other operations of the Company.
          (c) Consultation with Business Member.
          Notwithstanding anything to the contrary contained in this Section 9 or elsewhere in this Agreement, the SRO Member shall endeavor to carry out its material regulatory obligations, pursuant to Section 9(a), in consultation with the Business Member. Such consultation shall, to the extent reasonably practicable, include providing the Business Member with the opportunity to review and comment in advance upon nonroutine information relating to the Company that appears in filings, statements or applications submitted to the SEC or another governmental or regulatory authority on behalf of the Company that are material to ensuring that the Company complies with applicable federal securities laws and keeping the Company and the Business Member apprised, in a regular and timely manner, of nonroutine notices or orders relating to the Company received by the SRO Member from the SEC or another governmental or regulatory authority. Nothing in this Section 9(c) shall be construed to allow the Business Member to require the SRO Member to act or fail to act in a manner that the SRO Member believes to be inconsistent with its regulatory obligations.
          (d) Compliance with Securities Laws.
          Each Member agrees to comply with the federal securities laws and the rules and regulations thereunder and to cooperate with the SEC pursuant to its regulatory authority and the provisions of this Agreement.
          10. Board of Directors.
          (a) Number and Composition.
          The Company shall be managed by or under the direction of the board of directors (the "Board of Directors" or "Board"), which shall be established by the Members. The Board is comprised of three (3) Directors. The Business Member is entitled to designate two (2) Directors, each of whom must be a director, officer or employee of the Business Member or an Affiliate thereof. The SRO Member is entitled to designate one (1) Director (the "SRO Member Director") who shall be a member of the SRO Member's Board of Governors or an officer or employee of the SRO Member designated by the SRO Member's Board of Governors. Each Director elected, designated or appointed to the Board shall hold office until a successor is elected and qualified or until such Director's earlier death, resignation or removal. Each Director shall execute and deliver a Management Agreement or other instrument pursuant to which such Director shall accept its appointment and duties as a Director and agree to be bound by the terms of this Agreement. Subject to Section 10(e) of this Agreement, the Board may change the number of the Directors and the composition of the Board from time to time at its discretion; provided, however, that the Board shall, at all times, include at least one SRO Member Director. No person that is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Exchange Act) may be a Director.
          (b) Authority and Conduct.
          The Board shall have the authority to do any and all acts necessary, convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise. Subject to Section 10(e), the Board shall have the authority to bind the Company. Each Director agrees to comply with the federal securities laws and the rules and regulations thereunder and to cooperate with the SEC and the SRO Member pursuant to their regulatory authority and the provisions of this Agreement. Furthermore, in discharging his or her responsibilities as a member of the Board, each Director shall take into consideration whether his or her actions as a Director would cause the Company or either Member to engage in conduct that would be consistent with the purposes of the Exchange Act.
          (c) Meetings.
          The Board may hold meetings, both regular and special, within or outside the State of Delaware. Regular or special meetings of the Board may be held at such time and at such place as shall from time to time be determined by the Board. Regular meetings of the Board may be held without notice. The President or other Officer of the Company as designated by the Board may call special meetings of the Board on not less than one day's notice to each Director of the Board by telephone, facsimile, mail, telegram or any other means of communication, and special meetings of the Board shall be called by the President or other Officer of the Company as designated by the Board in like manner and with like notice upon the written request of any one or more of the Directors of the Board.
          (d) Quorum; Acts of the Board.
          At all meetings of the Board, a majority of the Directors of the Board shall constitute a quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the Directors of the Board present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Directors of the Board present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Notwithstanding the foregoing, any act of the Board shall be subject to the limitations set forth in Section 10(e).
          (e) Special Voting Requirements; Major Actions.
          Notwithstanding the provisions set forth in Section 10(d) regarding voting requirements, no action with respect to any Major Action (as defined below), shall be effective unless approved by consent of the SRO Member Director. Additionally, unless approved by the SRO Member Director, neither Member on behalf of the Company shall enter into or permit the Company to enter into any Major Action. For purposes of this Agreement, "Major Action" means any of the following:
          (i) approving pricing decisions that are subject to the SEC filing process;
          (ii) approving contracts between the Company and the Business Member, any of its Affiliates, directors, officers or employees;
          (iii) approving Director compensation;
          (iv) selling, licensing, leasing or otherwise transferring material assets used in the operation of the Company's business outside of the ordinary course of business with an aggregate value in excess of $3 million;
          (v) approving or undertaking a merger, consolidation or reorganization of the Company with any other entity;
          (vi) entering into any partnership, joint venture or other similar joint business undertaking;
          (vii) making any fundamental change in the market structure of the Company from that contemplated by the Members as of the date hereof;
          (viii) to the fullest extent permitted by law, taking any action to effect the voluntary, or which would precipitate an involuntary, dissolution or winding up of the Company, other than as contemplated by Section 21;
          (ix) conversion of the Company from a Delaware limited liability company into any other type of entity;
          (x) expansion of or modification to the business which results in the Company engaging in material business unrelated to the business of Non-System Trading;
          (xi) changing the number of Directors on or composition of the Board; and
          (xii) adopting or amending policies regarding access and credit matters affecting the Company.
          (f) Electronic Communications.
          Directors on the Board, or any committee of the Board, may participate in meetings of the Board, or any committee, by means of telephone conference or similar communications equipment that allows all Persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company.
          (g) Committees of Directors.
          The Board may, by resolution passed by the unanimous vote of the Board, designate one or more committees thereof, each committee to consist of one or more of the Directors. The Board may designate one or more Directors as alternate members of any committee thereof, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board designating such committee, shall have and may exercise all the powers and authority of the Board in the management of the affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. Notwithstanding the foregoing, committees of the Board shall not have any power or authority to approve or transact any Major Action.
          (h) Compensation of Directors; Expenses.
          Subject to Section 10(e) hereof, the Board shall have the authority to fix the compensation of the Company's Directors. The Directors may be paid their expenses, if any, associated with attendance at Board meetings, which may be a fixed sum for attendance at each such meeting or a stated Director salary. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
          (i) Removal of Directors.
          Unless otherwise restricted by law and notwithstanding any other provision of this Agreement, any Director may be removed, with or without cause, by the Member that had appointed such Director, and any vacancy caused by any such removal may be filled by action of such Member.
          (j) Directors as Agents.
          To the extent of their powers set forth in this Agreement, the Directors are agents of the Company for the purpose of the Company's business, and the actions of the Directors taken in accordance with such powers set forth in this Agreement shall bind the Company. Except as provided in this Agreement or pursuant to an authorization from the Board, an individual Director may not bind the Company.
          (k) Duties of Directors.
          Except as provided in this Agreement, in exercising their rights and performing their duties under this Agreement, the Directors shall have a fiduciary duty of loyalty and care similar to that of a director of a business corporation organized under the General Corporation Law of the State of Delaware.
          11. Officers.
          The Officers of the Company shall be appointed by the Business Member and approved by a majority of the Board and shall consist of at least a President, Secretary and Treasurer. In addition, the Business Member may appoint subject to the Board's approval one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. Any Officer or Director of the Company may also serve as an officer or director of the Business Member or the SRO Member. The Business Member may appoint subject to the Board's approval such other Officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The salaries of all Officers and agents of the Company appointed by the Business Member subject to the Board's approval shall be fixed by or in the manner prescribed by the Board. The Officers of the Company shall hold office until their successors are chosen and qualified. Any Officer may be removed at any time, with or without cause, by the Board. Any vacancy occurring in any office of the Company shall be filled by the Business Member subject to the Board's approval. No person that is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Exchange Act) may be an Officer.
          (a) President.
          The President shall be the chief executive officer of the Company, shall preside at all meetings of the Members, if any, and of the Board, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Company's Board are carried into effect. The President shall execute all bonds, mortgages and other contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; (ii) where signing and execution thereof shall be expressly delegated by the Company's Directors to some other Officer or agent of the Company; and (iii) as otherwise permitted in Section 11(b).
          (b) Vice President.
          In the absence of the President or in the event of the President's inability to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (c) Secretary and Assistant Secretary.
          The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Board and all meetings of the Members, if any, and record all the proceedings of the meetings of the Board and the Members in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members, if any, and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or the President, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, in the order determined by the Board (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (d) Treasurer and Assistant Treasurer.
          The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Company as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and to the Board, at their regular meetings or when the Board so requires, an account of all of the Treasurer's transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.
          (e) Officers as Agents.
          The Officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Board not inconsistent with this Agreement, are agents of the Company for the purpose of the Company's business, and, the actions of the Officers taken in accordance with such powers shall bind the Company.
          (f) Duties of Officers.
          Except to the extent otherwise provided herein, each Officer shall have a fiduciary duty of loyalty and care similar to that of officers of business corporations organized under the General Corporation Law of the State of Delaware.
          12. Limited Liability.
          Except as otherwise expressly provided by this Agreement or the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company and neither the SRO Member, Business Member nor any Director of the Company shall be obligated personally for any debt, obligation or liability of the Company solely by reason of being a Member or Director of the Company. Notwithstanding the foregoing, Business Member shall ensure that the Company has funds sufficient to satisfy its regulatory obligations and shall guarantee the Company's payment obligations relating to the costs associated with those SRO Responsibilities performed for the Company pursuant to the Statement of Work.
          13. Capital Contributions.
          The Business Member shall contribute the property, rights and other assets and liabilities to the Company listed on Schedule B attached hereto. The SRO Member shall not make any capital contribution to the Company and shall have no claim to any assets, tangible or intangible, of the Company.
          14. Additional Contributions.
          The Members are not required to make any capital contributions to the Company in addition to those specifically set forth in this Agreement. However, the Business Member may make additional capital contributions to the Company at any time upon the written consent of such Member. To the extent that the Business Member makes an additional capital contribution to the Company, the Business Member shall revise Schedule B of this Agreement. The SRO Member may not make and shall not be required to make any capital contribution to the Company. The provisions of this Agreement, including this Section 14, are intended solely to benefit the Members and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company (and no such creditor of the Company shall be a third-party beneficiary of this Agreement) and no Member shall have any duty or obligation to any creditor of the Company to make any contribution to the Company or to issue any call for capital pursuant to this Agreement.
          14A. Capital Accounts.
          It is intended that the Company will be disregarded for federal income tax purposes. If the Company ceases to be disregarded as a separate entity for federal income tax purposes, then the Business Member shall establish capital accounts and related balances in such accounts as necessary. Any amounts paid or distributed to the SRO Member will be treated as fees paid by the Business Member to the SRO Member.
          15. Allocation of Profits and Losses.
          The Company's profits and losses shall be allocated solely to the Business Member.
          16. Distributions.
          Distributions shall be made to the Business Member at the times and in the aggregate amounts determined by the Business Member. Other than as specifically set forth herein, distributions shall not be made to the SRO Member. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to make a distribution to any Member on account of its interest in the Company if such distribution would violate the Act or any other applicable law.
          17. Books, Records and Jurisdiction.
          (a) The Board shall keep or cause to be kept complete and accurate books of account and records with respect to the Company's business. The books of the Company shall at all times be maintained by the Board in compliance with Section 17(a)(1) of the Exchange Act and the rules thereunder. Each Member and its duly authorized representatives and the SEC shall have the right to examine the Company books, records and documents during normal business hours. At the request of the SEC, the Company shall provide to the SEC copies of the Company books and the costs associated with such copies shall be borne by the Company. The Company, and the Board on behalf of the Company, shall not have the right to keep confidential from any Member information that the Board would otherwise be permitted to keep confidential from any Member pursuant to Section 18-305(c) of the Act. The Company's books of account shall be kept using the method of accounting determined by the Business Member. The Company's independent auditor shall be an independent public accounting firm selected by the Business Member.
          (b) The Members acknowledge that to the extent directly related to the Company's activities, the books, records, premises, officers, directors, governors, agents and employees of the Members shall be deemed to be the books, records, premises, officers, directors, governors, agents and employees of FINRA and its Affiliates for the purpose of and subject to oversight pursuant to the Exchange Act. Notwithstanding the foregoing, with respect to all other employment matters or concerns, other than as set forth above, employees of the Company are not employees of SRO Member.
          (c) The Members and the officers, directors, governors, agents and employees of the Members irrevocably submit to the jurisdiction of the U.S. federal courts, SEC and FINRA for the purpose of any suit, action or proceeding pursuant to U.S. federal securities laws, and the rules or regulations thereunder, arising from, or relating to, the Company's activities or Section 17(b) hereof (except that such jurisdictions shall include Delaware for any such matter relating to the organization or internal affairs of the Company, provided that such matter is not related to trading on, or the regulation of, the market operated by the Company), and hereby waive and agree not to assert by way of motion, as a defense or otherwise, in any such suit, action or proceeding any claims that they are not personally subject to the jurisdiction of the SEC, that the suit, action or proceeding is an inconvenient forum or that the venue of the suit, action or proceeding is improper, or that the subject matter hereof may not be enforced in or by such courts or agency.
          (d) During the term of this Agreement, none of the Company, any Member or their respective Affiliates shall reveal to any Person any confidential or proprietary information or trade secrets of the Company or any of the Members or their respective Affiliates ("Confidential Information"); provided, however, that such Confidential Information may be disclosed (i) to any employee and subcontractor involved in the performance of this Agreement provided they are under an obligation of confidentiality that is no less restrictive that is set out herein, (ii) to any Person who is a director, officer, employee of, or counsel or advisor to, the Company or any of the Members or any of their respective Affiliates, (iii) to any person who is an official or employee of, or counsel to, any regulatory body or agency having jurisdiction over the Company or its Affiliates, (iv) for the purpose of furthering the aims and interests of the Company as determined by its Board, or (v) pursuant to a subpoena or order issued by a court of competent jurisdiction or as otherwise required by law. The obligations of this Section 17(d) shall survive for a period of five years from termination of this Agreement with the exception of Confidential Information which is comprised of trade secrets which shall be subject to the confidentiality obligations set out in this Agreement in perpetuity.
          (e) The Company and each Member shall cause its respective Affiliates, officers, directors, governors, employees, representatives and agents to comply with this Section 17.
          18. Exculpation, Indemnification and Limitation on Liability.
          (a) Unless specifically set forth herein, to the fullest extent permitted by law, no Member, Officer, Director, employee or agent of the Company and no officer, director, governor, employee, representative, agent or Affiliate of any Member (collectively, the "Covered Persons") shall be liable to the Company or any other Person who is bound by this Agreement for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's gross negligence or willful misconduct.
          (b) To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by a Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of such Covered Person's gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 18, other than as specifically set forth herein, shall be provided out of and to the extent of Company assets only, and no Member, unless such Member has committed gross negligence or willful misconduct, or unless specifically set forth in this Agreement, shall have personal liability on account thereof. The Covered Person shall provide the indemnifying party with prompt, written notice of any such claim, sole control of the defense and settlement of such claim, and all reasonable assistance to defend such claim at the indemnifying party's cost. The Covered Person may appear in such action with counsel of its choice, at its own expense. The indemnifying party shall have no obligations under this section up to and to the extent any such claims, damages and liabilities result from the Covered Person's material breach of any term of the agreement under which such indemnification is sought, and up to and to the extent such breach prejudices the indemnifying party's ability to provide the indemnification set out in this section.
          (c) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in this Section 18.
          (d) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, or any other facts pertinent to the existence and amount of assets from which distributions to any Member might properly be paid.
          (e) Except as otherwise set forth in this Agreement or the Facilities Agreement, to the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person bound by this Agreement for its good faith reliance on the provisions of this Agreement or any approval or authorization granted by the Company or any other Covered Person that does not contradict any agreements between the parties put in place to effectuate Section 7. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.
          (f) The foregoing provisions of this Section 18 shall survive any termination of this Agreement.
          19. Assignment.
          Neither Member may transfer or assign in whole or in part its limited liability Company interest in the Company without the prior written permission of the other Member(s).
          20. Termination.
          (a) For Breach. Any Member may terminate this Agreement for material breach of another Member if the material breach is not cured within 30 days of receipt of written notice to the other Member, such notice to set forth in reasonable detail the material breach and state that this Agreement will be terminated if such breach is not cured.
          (b) For Bankruptcy. Either party will have the right to terminate this Agreement upon a Member's bankruptcy or insolvency on 30 days notice.
          (c) By SRO Member for maintenance of its status as a preeminent SRO. In the event Business Member or the Company take any action or fail to take any action that SRO Member determines in the exercise of its business judgment, could or does in fact jeopardize SRO Member status or reputation as an SRO, that cannot be cured or that has not been cured within thirty (30) days of receipt of written notice to the Business Member, such notice to set forth in reasonable detail the nature of the action, SRO Member shall thereafter be entitled to immediate dissolution of the Company. In such an event, the Company shall immediately suspend all operations and SRO Member shall have no further obligations to the Company but shall be entitled to any and all amounts due to SRO Member under the then current term in which the dissolution was commenced, in addition to any other damages provided for under common law or the agreements between the parties.
          (d) For Convenience. In the event the Company does not reach Substantial Trade Volume (as defined below), Business Member may terminate this Agreement, Statement of Work, the Facilities Agreement and any other agreement between the parties executed to effectuate the Purpose of the Company as set out in Section 2 upon sixty (60) days prior written notice. Notwithstanding anything to the contrary, Business Member shall not terminate the Facilities Agreement prior to termination or dissolution of this Agreement without SRO Member's prior written approval. SRO Member shall not terminate for convenience for one year from the Effective Date of the Prior Agreement. Thereafter, if the Company has not reach Substantial Trade Volume, FINRA may terminate for convenience with 180 days prior written notice.
          (e) Upon Substantial Trade Volume. In the event the Company averages 250,000 trades or more per day for three consecutive months ("Substantial Trade Volume"), other than as provided for under Sections (a) through (c) above, a Member may only dissolve the Company by providing to the non-terminating Member with at least one year's prior written notice. Notwithstanding the foregoing, neither Member may deliver such notice of dissolution to the other Member before the second anniversary of the Effective Date of the Prior Agreement. Unless the notice is revoked prior to the date of dissolution or as otherwise agreed to by the Members, the Company shall dissolve in accordance with the terms of this Agreement one year from the date notice of such dissolution is received by the non-terminating Member or at such later time as expressly set forth in the notice (the "Dissolution Date").
          21. Dissolution and Winding Up.
          (a) The Company shall be dissolved, and its affairs shall be wound up upon the first to occur of the following: (i) an action by either Member in accordance with and pursuant to Section 20 herein, (ii) the occurrence of any event which terminates the continued membership of the last remaining Member in the Company unless the Company is continued in a manner permitted by the Act or (iii) the entry of a decree of judicial dissolution under Section 18-802 of the Act.
          (b) In the event of dissolution, the Business Member shall be responsible for the winding up of the Company and the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in an orderly manner), and the assets of the Company shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act.
          (c) The Company and, except as otherwise provided herein, this Agreement shall each terminate when (i) all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Business Member in the manner provided for in this Agreement and (ii) the Certificate of Formation shall have been canceled in the manner required by the Act.
          (d) All other agreements between the Members to effectuate the operation of a facility for Non-System Trading and to engage in all related activities arising therefrom or relating thereto or necessary, desirable, advisable, convenient or appropriate in connection therewith shall automatically terminate on the date of termination of this Agreement, should this Agreement be terminated for any reason.
          22. Waiver of Partition.
          Except as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, the SRO Member hereby irrevocably waives any right or power that such Member might have to cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Company.
          23. Related Party Transactions.
          Subject to Section 10(e) hereof, the Company may enter into transactions with its Members.
          24. Severability of Provisions.
          Each provision of this Agreement shall be considered severable and if for any reason any provision or provisions herein are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Agreement which are valid, enforceable and legal.
          25. Entire Agreement.
          This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.
          26. Governing Law.
          This Agreement shall be governed by and construed under the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by said laws.
          27. Amendments.
          This Agreement may not be modified, altered, supplemented or amended except pursuant to a written agreement executed and delivered by both Members.
          28. Counterparts.
          This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement and all of which together shall constitute one and the same instrument.
          29. Notices.
          Any notices required to be delivered hereunder shall be in writing and personally delivered, mailed or sent by telecopy, electronic mail, or other similar form of rapid transmission, and shall be deemed to have been duly given upon receipt (a) in the case of the Company, to the Company at its address determined pursuant to Section 2, (b) in the case of a Member, to such Member at its address as listed on Schedule B attached hereto and (c) in the case of either of the foregoing, at such other address as may be designated by written notice to the other party.
          IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement as of the date first written herein.
          NYSE Market, Inc.
          By: _________________________________
          Name: Louis G. Pastina
          Title: EVP, NYSE Operations

          FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.
          By: _________________________________
          Name: Steven A. Joachim
          Title: Executive Vice President,
          Transparency Services and
          International Affairs and Services

          SCHEDULE A

          Definitions and Rules of Construction

          A. Definitions
          When used in this Agreement, the following terms not otherwise defined herein have the following meanings:
          "Act" has the meaning set forth in the preamble to this Agreement.
          "Affiliate" means, with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person.
          "Agreement" means this First Amended and Restated Limited Liability Company Agreement of the Company, together with the schedules attached hereto, as amended, restated or supplemented from time to time.
          "Board" or "Board of Directors" has the meaning set forth in Section 10(a).
          "Business Member" means NYSE Market, Inc., a Delaware corporation, in its capacity as a member of the Company, and includes any of its permitted successors or assigns admitted to the Company as such pursuant to this Agreement.
          "Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware on January 10, 2007, as amended or amended and restated from time to time.
          "Confidential Information" has the meaning set forth in Section 17(d) of this Agreement.
          "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or general partnership or managing member interests, by contract or otherwise. "Controlling" and "Controlled" shall have correlative meanings. Without limiting the generality of the foregoing, a Person shall be deemed to Control any other Person in which it owns, directly or indirectly, a majority of the ownership interests.
          "Covered Persons" has the meaning set forth in Section 18(a) of this Agreement.
          "Directors" means the directors elected, designated or appointed to the Board from time to time by the Members. A Director is hereby designated as a "manager" of the Company within the meaning of Section 18-101(10) of the Act.
          "Dissolution Date" has the meaning set forth in Section 20(d) of this Agreement.
          "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
          "Facility Services Agreement" means the Facility Services Agreement entered into between the Company and the Business Member or an Affiliate thereof, as such agreement may from time to time be amended.
          "FINRA" has the meaning set forth in the preamble to this Agreement.
          "Major Action" has the meaning set forth in Section 10(e) of this Agreement.
          "Management Agreement" means the agreement of the Directors in substantially the form attached hereto as Schedule C.
          "Member" has the meaning set forth in the preamble to this Agreement.
          "Non-System Trading" means trading otherwise than on an exchange of securities for which the SEC has approved a transaction reporting plan pursuant to SEC Rule 601 under Regulation NMS under the Act.
          "Officer" means an officer of the Company described in Section 11. The Officers are listed on Schedule D hereto.
          "Person" means any individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint-stock company, trust, unincorporated organization, or other organization, whether or not a legal entity, and any governmental authority.
          "Registered Securities Association" means a "registered securities association" within the meaning of the Exchange Act.
          "SEC" means the Securities and Exchange Commission.
          "SIP" means Securities Information Processor.
          "SRO" means a "self-regulatory organization" within the meaning of the Exchange Act.
          "SRO Member" means Financial Industry Regulatory Authority, Inc., a Delaware non-stock corporation, in its capacity as a member of the Company, and includes any of its permitted successors or assigns admitted to the Company pursuant to this Agreement.
          "SRO Member Director" has the meaning set forth in Section 10(a) of this Agreement.
          "SRO Responsibilities" means those duties or responsibilities of an SRO pursuant to the Exchange Act and the rules promulgated thereunder, including but not limited to those set out in Section 9(a) supra.
          "Statement of Work" means the written statement to be delivered to the Company by FINRA or an Affiliate thereof setting forth the SRO Responsibilities that SRO Member or an Affiliate thereof will perform for the Company.
          "Third Party" means any person other than (i) the Company or any Affiliate thereof or (ii) either Member or any Affiliate thereof.
          B. Rules of Construction
          Definitions in this Agreement apply equally to both the singular and plural forms of the defined terms. The words "include" and "including" shall be deemed to be followed by the phrase "without limitation." The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph or subdivision. The Section titles appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All Section, paragraph, clause, Exhibit or Schedule references not attributed to a particular document shall be references to such parts of this Agreement.

          SCHEDULE B

          Members

          Name Mailing Address Capital Contribution
          NYSE Market, Inc. 11 Wall Street
          New York, NY 10005
          $150,000
          Financial Industry Regulatory Authority, Inc. 1735 K Street, N.W.
          Washington D.C. 20006
          None

          SCHEDULE C

          Management Agreement

          October 10, 2008

          The FINRA/NYSE Trade Reporting Facility, LLC
          Re: Management Agreement
          The FINRA/NYSE Trade Reporting Facility LLC
          Ladies and Gentlemen:
          For good and valuable consideration, each of the undersigned persons, who have been designated as directors of the Board of Directors (the "Board") of FINRA/NYSE Trade Reporting Facility LLC, a Delaware limited liability company (the "Company"), in accordance with the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 10, 2008, as it may be amended or restated from time to time (the "LLC Agreement"), hereby agree as follows:
          1. Each of the undersigned accepts such person's rights and authority as a Director (as defined in the LLC Agreement) of the Board of the Company under the LLC Agreement and agrees to perform and discharge such person's duties and obligations as a Director of such Board under the LLC Agreement, and further agrees that such rights, authorities, duties and obligations under the LLC Agreement shall continue until such person's successor as a Director is designated or until such person's resignation or removal as a Director in accordance with the LLC Agreement. Each of the undersigned agrees and acknowledges that it has been designated as a "manager" of the Company within the meaning of the Delaware Limited Liability Company Act.
          2. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
          IN WITNESS WHEREOF, the undersigned have executed this Management Agreement as of the day and year first above written.

          __________________________________
          Name: Louis G. Pastina

          __________________________________
          Name: Paul Adcock

          __________________________________
          Name: Steven A. Joachim


          SCHEDULE D

          Officers of FINRA/NYSE Trade Reporting Facility LLC

          Name Title
          Mark Wille President
          Karen Lorentz Vice President
          Bob Hill Vice President
          Janet Kissane Secretary
          Greg Ochojski Treasurer

          Amended by SR-FINRA-2010-020 eff. April 27, 2010.
          Adopted by SR-NASD-2007-011 eff. April 18, 2007.

      • Plan of Allocation and Delegation of Functions by FINRA to FINRA Regulation, Inc.

        • I. FINRA, Inc.

          FINRA, Inc. (referenced as "FINRA"), the Registered Section 15A Association, is the parent company of FINRA Regulation, Inc. (referenced as "FINRA Regulation"). The term "Association" shall refer to FINRA and FINRA Regulation collectively.
          A. Other Defined Terms—The terms "Industry Governors," "Non-Industry Governors," "Public Governors," "Industry Directors," "Non-Industry Directors," "Public Directors," "Industry committee members," "Non-Industry committee members," and "Public committee members," as used herein, shall have the meanings set forth in the By-Laws of FINRA and FINRA Regulation, as applicable.
          B. Functions and Authority of FINRAFINRA shall have ultimate responsibility for the rules and regulations of the Association and its operation and administration. As set forth below in Section II.A., FINRA has delegated certain authority and functions to FINRA Regulation. Actions taken pursuant to delegated authority, however, remain subject to review, ratification or rejection by the FINRA Board in accordance with procedures established by that Board. Any function or responsibility as a registered securities association under the Securities Exchange Act of 1934 ("Act"), or as set forth in the Restated Certificate of Incorporation or the By-Laws is hereby reserved, except as expressly delegated to FINRA Regulation. In addition, FINRA expressly retains the following authority and functions:
          1. To exercise overall responsibility for ensuring that the Association's statutory and self-regulatory obligations and functions are fulfilled.
          2. To delegate authority to FINRA Regulation to take actions on behalf of FINRA.
          3. To elect the FINRA Regulation Board of Directors.
          4. To review the rulemaking and disciplinary decisions of FINRA Regulation (See Section II.B. below).
          5. To administer overhead and technology of FINRA Regulation.
          6. To administer the Office of Internal Audit as provided in the FINRA By-Laws.
          7. To manage external Association relations on major policy issues.
          8. To direct FINRA Regulation to take action necessary to effectuate the purposes and functions of the Association.
          9. To take action ab initio in an area of responsibility delegated to FINRA Regulation in Section II.
          C. Management Compensation Committee
          1. The Management Compensation Committee shall be a Committee of the FINRA Board and shall have the following functions: To consider and recommend compensation policies, programs, and practices for employees of the Association.
          2. Composition: The Management Compensation Committee shall consist of no fewer than four and no more than seven Governors. The number of Non-Industry committee members shall equal or exceed the number of Industry committee members. The Chief Executive Officer shall be an ex-officio, non-voting member of the Management Compensation Committee. Each member shall serve a term of office of one year.
          3. Quorum: At all meetings of the Management Compensation Committee, a quorum for the transaction of business shall consist of a majority of the Management Compensation Committee, including not less than 50 percent of the Non-Industry committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
          D. Market Regulation Committee
          The Market Regulation Committee shall exercise the functions contained in the Rule 6200 Series, among others, in accordance with the procedures specified therein.
          E. Access to and Status of Officers, Directors, Employees, Books, Records, and Premises of FINRA Regulation
          Notwithstanding the delegation of authority to FINRA Regulation, as set forth in Section II.A. below, the staff, books, records, and premises of FINRA Regulation are the staff, books, records, and premises of FINRA subject to oversight pursuant to the Act, and all officers, directors, employees, and agents of FINRA Regulation are officers, directors, employees, and agents of FINRA for purposes of the Act.
          Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
          Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
          Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
          Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
          Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
          Amended by SR-NASD-2004-159 eff. May 26, 2005.
          Amended by SR-NASD-99-21 eff. July 9, 2000.
          Amended by SR-NASD-98-46 eff. July 9, 1998.

          Selected Notices: 05-30, 16-04.

        • II. FINRA Regulation, Inc.

          A. Delegation of Functions and Authority:
          1. Subject to Section I.B.9., FINRA hereby delegates to FINRA Regulation and FINRA Regulation assumes the following responsibilities and functions as a registered securities association:
          a. To establish and interpret rules and regulations and provide exemptions for FINRA members including, but not limited to, fees, membership requirements and dispute resolution programs.
          b. To determine Association policy, including developing and adopting necessary or appropriate rule changes, relating to the business and sales practices of FINRA members and associated persons with respect to, but not limited to, (i) public and private sale or distribution of securities including underwriting arrangements and compensation, (ii) financial responsibility, (iii) qualifications for FINRA membership and association with FINRA members, (iv) clearance and settlement of securities transactions and other financial responsibility and operational matters affecting members in general and securities quoted or trade reported through a FINRA facility, (v) FINRA member advertising practices, (vi) administration, interpretation, and enforcement of FINRA rules, (vii) administration and enforcement of Municipal Securities Rulemaking Board ("MSRB") rules, the federal securities laws, and other laws, rules and regulations that the Association has the authority to administer or enforce, (viii) standards of proof for violations and sanctions imposed on FINRA members and associated persons in connection with disciplinary actions, and (ix) arbitration, mediation or other resolution of disputes among and between FINRA members, associated persons and customers.
          c. To take necessary or appropriate action to assure compliance with Association policy, FINRA and MSRB rules, the federal securities laws, and other laws, rules and regulations that the Association has the authority to administer or enforce, through examination, surveillance, investigation, enforcement, disciplinary, and other programs.
          d. To administer programs and systems for the surveillance and enforcement of FINRA rules governing members' conduct and trading activities.
          e. To examine and investigate FINRA members and associated persons to determine if they have violated FINRA or MSRB rules, the federal securities laws, and other laws, rules, and regulations that the Association has the authority to administer, interpret, or enforce.
          f. To administer Association enforcement and disciplinary programs, including investigation, adjudication of cases and the imposition of fines and other sanctions.
          g. To administer the Association's office of professional hearing officers.
          h. To conduct qualification examinations and continuing education programs.
          i. To operate the Central Registration Depository.
          j. To determine whether applicants for FINRA membership have met the requirements for membership established by the Association.
          k. To place restrictions on the business activities of FINRA members consistent with the public interest, the protection of investors, and the federal securities laws.
          l. To determine whether persons seeking to register as associated persons of FINRA members have met such qualifications for registration as may be established by the Association, including whether statutorily disqualified persons will be permitted to associate with particular FINRA members and the conditions of such association.
          m. To oversee all District Office activities.
          n. To conduct arbitrations, mediations, and other dispute resolution programs.
          o. To establish the annual budget and business plan for FINRA Regulation.
          p. To determine allocation of FINRA Regulation resources.
          q. To establish and assess fees and other charges on FINRA members, persons associated with FINRA members, and others using the services or facilities of FINRA or FINRA Regulation, which includes the dispute resolution forum.
          r. To manage external relations on enforcement, regulatory, dispute resolution, and other policy issues with Congress, the Securities and Exchange Commission ("Commission"), state regulators, other self-regulatory organizations, business groups, and the public.
          s. To establish internal procedures for considering complaints by members, associated persons, and members of the public who request an investigation or disciplinary action by the Association.
          t. To develop and adopt rule changes (i) applicable to the collection, processing, and dissemination of quotation and transaction information for securities traded in the over-the-counter market, and (ii) establishing trading practices with respect to these securities.
          u. To develop and adopt rules, interpretations, policies, and procedures and provide exemptions to maintain and enhance the integrity, fairness, efficiency, and competitiveness of the over-the-counter market.
          2. All action taken pursuant to authority delegated pursuant to A.1 shall be subject to the review, ratification, or rejection by the FINRA Board in accordance with procedures established by the FINRA Board.
          B. FINRA Regulation Board Procedures
          1. Rule Filings—The FINRA Board shall review and ratify a rule change adopted by the FINRA Regulation Board before the rule change becomes the final action of the Association if the rule change: (a) imposes fees or other charges on persons or entities other than FINRA members; (b) raises significant policy issues in the view of the FINRA Regulation Board, and the FINRA Regulation Board refers the rule change to the FINRA Board; or (c) is materially inconsistent with a recommendation of the National Adjudicatory Council. If the FINRA Regulation Board does not refer a rule change to the FINRA Board for review, the FINRA Regulation Board action shall become the final action of the Association unless called for review by any member of the FINRA Board not later than the FINRA Board meeting next following the FINRA Regulation Board's action.
          2. Petitions for Reconsideration
          a. If the FINRA Regulation Board or FINRA Board takes action on a rule change relating to the business and sales practices of FINRA members or associated persons or enforcement policies, including policies with respect to fines and other sanctions, and such action is materially inconsistent with the recommendation of the National Adjudicatory Council, the FINRA Regulation Board or the FINRA Board, as applicable, shall provide written notice of its action to the National Adjudicatory Council within one calendar day.
          b. Within two calendar days after receipt of such notice, the National Adjudicatory Council, by majority vote, may petition the FINRA Board for reconsideration. Such petition shall be in writing and include a statement explaining in detail why the National Adjudicatory Council believes that the FINRA Regulation Board's or FINRA Board's action should be set aside.
          c. The FINRA Executive Committee shall act on a timely and complete petition for reconsideration within three calendar days after its receipt. If the FINRA Executive Committee grants reconsideration, the matter shall be added to the agenda of the next regularly scheduled meeting of the FINRA Board. If the FINRA Executive Committee denies reconsideration, the FINRA Regulation Board's or FINRA Board's previous action on the rule shall be final, and staff shall submit the necessary rule filing to the Commission.
          C. Supplemental Delegation Regarding Committees
          1. Market Regulation Committee
          a. The Market Regulation Committee shall advise the FINRA Regulation Board on regulatory proposals and industry initiatives relating to quotations, execution, trade reporting, and trading practices; advise the FINRA Regulation Board in its administration of programs and systems for the surveillance and enforcement of rules governing FINRA members' conduct and trading activities in the over-the-counter market; provide a pool of panelists for those hearing panels that the Chief Hearing Officer or his or her designee determines should include a member of the Market Regulation Committee pursuant to FINRA rules; participate in the training of hearing panelists on issues relating to quotations, executions, trade reporting, and trading practices; and review and recommend to the National Adjudicatory Council changes to the Association's Sanction Guidelines.
          b. The FINRA Regulation Board shall appoint the Market Regulation Committee by resolution. The members of the Market Regulation Committee shall be balanced between Industry and Non-Industry committee members.
          c. At all meetings of the Market Regulation Committee, a quorum for the transaction of business shall consist of a majority of the Market Regulation Committee, including not less than 50 percent of the Non-Industry committee members. If at least 50 percent of the Non-Industry committee members are (i) present at or (ii) have filed a waiver of attendance for a meeting after receiving an agenda prior to such meeting, the requirement that not less than 50 percent of the Non-Industry committee members be present to constitute the quorum shall be waived.
          2. Uniform Practice Code Committee
          a. The Uniform Practice Code Committee shall have the following functions:
          i. to issue interpretations or rulings with respect to the Uniform Practice Code ("UPC");
          ii. to advise the FINRA Regulation Board with respect to the clearance and settlement of securities transactions and other financial responsibility and operational matters that may require modifications to the UPC or other FINRA rules; and
          iii. to exercise the functions contained in the Rule 11000 Series in accordance with the procedures specified therein.
          b. The FINRA Regulation Board shall appoint the Uniform Practice Code Committee by resolution. The Uniform Practice Code Committee shall have not more than 50 percent of its members directly engaged in market-making activity or employed by a member firm whose revenues from market-making activity exceed ten percent of its total revenues.
          3. National Arbitration and Mediation Committee
          a. The National Arbitration and Mediation Committee shall have the powers and authority pursuant to FINRA rules to advise the FINRA Regulation Board on the development and maintenance of an equitable and efficient system of dispute resolution that will equally serve the needs of public investors and FINRA members, to monitor rules and procedures governing the conduct of dispute resolution, and to have such other powers and authority as is necessary to effectuate the purposes of FINRA rules.
          b. The FINRA Regulation Board shall appoint the National Arbitration and Mediation Committee by resolution. The National Arbitration and Mediation Committee shall consist of no fewer than ten and no more than 25 members. The National Arbitration and Mediation Committee shall have at least 50 percent Non-Industry members.
          c. At all meetings of the National Arbitration and Mediation Committee, a quorum for the transaction of business shall consist of a majority of the National Arbitration and Mediation Committee, including not less than 50 percent of the Non-Industry committee members. If at least 50 percent of the Non-Industry committee members are either (i) present at or (ii) have filed a waiver of attendance for a meeting after receiving an agenda prior to such meeting, the requirement that not less than 50 percent of the Non-Industry committee members be present to constitute the quorum shall be waived.
          Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
          Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
          Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
          Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
          Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
          Amended by SR-NASD-99-21 eff. July 9, 2000.

          Selected Notice: 16-04

      • By-Laws of the Corporation

        • ARTICLE I DEFINITIONS

          When used in these By-Laws, unless the context otherwise requires, the term:
          (a) "Act" means the Securities Exchange Act of 1934, as amended;
          (b) "bank" means (1) a banking institution organized under the laws of the United States, (2) a member bank of the Federal Reserve System, (3) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency pursuant to the first section of Public Law 87-722 (12 U.S.C. § 92a), and which is supervised and examined by a State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of the Act, and (4) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (1), (2), or (3) of this subsection;
          (c) "Board" means the Board of Governors of the Corporation;
          (d) "branch office" means an office defined as a branch office in the Rules of the Corporation;
          (e) "broker" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization, or other legal entity engaged in the business of effecting transactions in securities for the account of others, but does not include a bank;
          (f) "Closing" means the closing of the consolidation of certain member firm regulatory functions of NYSE Regulation, Inc. and the Corporation;
          (g) "Commission" means the Securities and Exchange Commission;
          (h) "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity;
          (i) "Corporation" means the National Association of Securities Dealers, Inc. or any future name of this entity;
          (j) "day" means calendar day;
          (k) "dealer" means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization, or other legal entity engaged in the business of buying and selling securities for such individual's or entity's own account, through a broker or otherwise, but does not include a bank, or any person insofar as such person buys or sells securities for such person's own account, either individually or in some fiduciary capacity, but not as part of a regular business;
          (l) "Delegation Plan" means the "Plan of Allocation and Delegation of Functions by NASD to Subsidiaries" as approved by the Commission, and as amended from time to time;
          (m) "district" means a district established by the NASD Regulation Board pursuant to the NASD Regulation By-Laws;
          (n) "Floor Member Governor" means a member of the Board appointed as such who is a person associated with a member (or a firm in the process of becoming a member) which is a specialist or floor broker on the New York Stock Exchange trading floor;
          (o) "government securities broker" shall have the same meaning as in Section 3(a)(43) of the Act except that it shall not include financial institutions as defined in Section 3(a)(46) of the Act;
          (p) "government securities dealer" shall have the same meaning as in Section 3(a)(44) of the Act except that it shall not include financial institutions as defined in Section 3(a)(46) of the Act;
          (q) "Governor" means a member of the Board;
          (r) "Independent Dealer/Insurance Affiliate Governor" means a member of the Board appointed as such who is a person associated with a member which is an independent contractor financial planning member firm or an insurance company, or an affiliate of such a member;
          (s) "Industry Director" means a Director of the NASD Regulation Board or NASD Dispute Resolution Board (excluding the Presidents) who: (1) is or has served in the prior year as an officer, director (other than as an independent director), employee or controlling person of a broker or dealer, or (2) has a consulting or employment relationship with or provides professional services to a self regulatory organization registered under the Act, or has had any such relationship or provided any such services at any time within the prior year;
          (t) "Industry Governor" or "Industry committee member" means the Floor Member Governor, the Independent Dealer/Insurance Affiliate Governor and the Investment Company Affiliate Governor and any other Governor (excluding the Chief Executive Officer of the Corporation and, during the Transitional Period, the Chief Executive Officer of NYSE Regulation, Inc.) or committee member who: (1) is or has served in the prior year as an officer, director (other than as an independent director), employee or controlling person of a broker or dealer, or (2) has a consulting or employment relationship with or provides professional services to a self regulatory organization registered under the Act, or has had any such relationship or provided any such services at any time within the prior year;
          (u) "investment banking or securities business" means the business, carried on by a broker, dealer, or municipal securities dealer (other than a bank or department or division of a bank), or government securities broker or dealer, of underwriting or distributing issues of securities, or of purchasing securities and offering the same for sale as a dealer, or of purchasing and selling securities upon the order and for the account of others;
          (v) "Investment Company" means an "investment company" as such term is defined in The Investment Company Act of 1940, as amended;
          (w) "Investment Company Affiliate Governor" means a member of the Board appointed as such who is a person associated with a member which is an Investment Company or an affiliate of such a member;
          (x) "Joint Public Governor" means the one Public Governor to be appointed as such by the Board of Directors of NYSE Group, Inc. and the Board in office prior to the Closing jointly;
          (y) "Large Firm" means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has 500 or more registered persons;
          (z) "Large Firm Governor" means a member of the Board to be elected by Large Firm members, provided, however, that in order to be eligible to serve, a Large Firm Governor must be an Industry Governor and must be registered with a member which is a Large Firm member;
          (aa) "Large Firm Governor Committee" means a committee of the Board comprised of all of the Large Firm Governors;
          (bb) "Lead Governor" means a member of the Board elected as such by the Board, provided, however, that any member of the Board who is concurrently serving as a member of the Board of Directors of NYSE Group, Inc. shall not be eligible to serve as the Lead Governor;
          (cc) "Mid-Size Firm" means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least 151 and no more than 499 registered persons;
          (dd) "Mid-Size Firm Governor" means a member of the Board to be elected by Mid-Size Firm members, provided, however, that in order to be eligible to serve, a Mid-Size Firm Governor must be an Industry Governor and must be registered with a member which is a Mid-Size Firm member;
          (ee) "member" means any broker or dealer admitted to membership in the Corporation;
          (ff) "municipal securities" means securities which are direct obligations of, or obligations guaranteed as to principal or interest by, a State or any political subdivision thereof, or any agency or instrumentality of a State or any political subdivision thereof, or any municipal corporate instrumentality of one or more States, or any security which is an industrial development bond as defined by Section 3(a)(29) of the Act;
          (gg) "municipal securities broker" means a broker, except a bank or department or division of a bank, engaged in the business of effecting transactions in municipal securities for the account of others;
          (hh) "municipal securities dealer" means any person, except a bank or department or division of a bank, engaged in the business of buying and selling municipal securities for such person's own account, through a broker or otherwise, but does not include any person insofar as such person buys or sells securities for such person's own account either individually or in some fiduciary capacity, but not as a part of a regular business;
          (ii) "NASD Dispute Resolution" means NASD Dispute Resolution, Inc. or any future name of this entity;
          (jj) "NASD Group Committee" means a committee of the Board comprised of the five Public Governors and the Independent Dealer/Insurance Affiliate Governor appointed as such by the Board in office prior to Closing, and the Small Firm Governors which were nominated for election as such by the Board in office prior to Closing, and in each case their successors;
          (kk) "NASD Public Governors" means the five Public Governors to be appointed as such by the Board in office prior to the Closing effective as of Closing;
          (ll) "NASD Regulation" means NASD Regulation, Inc. or any future name of this entity;
          (mm) "NASD Regulation Board" means the Board of Directors of NASD Regulation;
          (nn) "National Adjudicatory Council" means a body appointed pursuant to Article V of the NASD Regulation By-Laws;
          (oo) "Nominating Committee" means the Nominating Committee appointed pursuant to Article VII, Section 9 of these By-Laws;
          (pp) "NYSE Group Committee" means a committee of the Board comprised of the five Public Governors and the Floor Member Governor appointed as such by the Board of Directors of NYSE Group, Inc., and the Large Firm Governors which were nominated for election as such by the Board of Directors of NYSE Group, Inc., and in each case their successors;
          (qq) "NYSE Public Governors" shall mean the five Public Governors to be appointed as such by the Board of Directors of NYSE Group, Inc. effective as of Closing;
          (rr) "person associated with a member" or "associated person of a member" means: (1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member;
          (ss) "Public Director" means a Director of the NASD Regulation Board or NASD Dispute Resolution Board who is not an Industry Director and who otherwise has no material business relationship with a broker or dealer or a self regulatory organization registered under the Act (other than serving as a public director of such a self regulatory organization);
          (tt) "Public Governor" or "Public committee member" means any Governor or committee member who is not the Chief Executive Officer of the Corporation or, during the Transitional Period, the Chief Executive Officer of NYSE Regulation, Inc., who is not an Industry Governor and who otherwise has no material business relationship with a broker or dealer or a self regulatory organization registered under the Act (other than serving as a public director of such a self regulatory organization);
          (uu) "registered broker, dealer, municipal securities broker or dealer, or government securities broker or dealer" means any broker, dealer, municipal securities broker or dealer, or government securities broker or dealer which is registered with the Commission under the Act;
          (vv) "Rules of the Corporation" or "Rules" means the numbered rules set forth in the manual of the Corporation beginning with the Rule 0100 Series, as adopted by the Board pursuant to these By-Laws, as hereafter amended or supplemented;
          (ww) "Small Firm" means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least 1 and no more than 150 registered persons;
          (xx) "Small Firm Governor" means a member of the Board to be elected by Small Firm members, provided, however, that in order to be eligible to serve, a Small Firm Governor must be registered with a member which is a Small Firm member and must be an Industry Governor;
          (yy) "Small Firm Governor Committee" means a committee of the Board comprised of all the Small Firm Governors; and
          (zz) "Transitional Period" means the period commencing on the date of the Closing and ending on the third anniversary of the date of the Closing.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
          Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
          Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
          Amended by SR-NASD-2001-06 eff. May 8, 2001.
          Amended by SR-NASD-99-35 eff. Dec. 1, 1999.
          Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended by SR-NASD-95-39 eff. Aug 20, 1996.
          Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
          Amended eff. Mar. 9, 1988 and Sept. 4, 1990.

          Selected Notices: 87-14, 87-37, 87-41, 88-51, 94-52, 99-95.

        • ARTICLE II OFFICES

          • Location

            Sec. 1.  The address of the registered office of the Corporation in the State of Delaware and the name of the registered agent at such address shall be: The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The Corporation also may have offices at such other places both within and without the State of Delaware as the Board may from time to time designate or the business of the Corporation may require.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.

          • Change of Location

            Sec. 2.  In the manner permitted by law, the Board or the registered agent may change the address of the Corporation's registered office in the State of Delaware and the Board may make, revoke, or change the designation of the registered agent.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE III QUALIFICATIONS OF MEMBERS AND ASSOCIATED PERSONS

          • Persons Eligible to Become Members and Associated Persons of Members

            Sec. 1.  (a) Any registered broker, dealer, municipal securities broker or dealer, or government securities broker or dealer authorized to transact, and whose regular course of business consists in actually transacting, any branch of the investment banking or securities business in the United States, under the laws of the United States, shall be eligible for membership in the Corporation, except such registered brokers, dealers, or municipal securities brokers or dealers, or government securities brokers or dealers which are excluded under the provisions of Section 3.
            (b) Any person shall be eligible to become an associated person of a member, except such persons who are excluded under the provisions of Section 3.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Authority of Board to Adopt Qualification Requirements

            Sec. 2.  (a) The Board shall have authority to adopt rules and regulations applicable to applicants for membership, members, and persons associated with applicants or members establishing specified and appropriate standards with respect to the training, experience, competence, and such other qualifications as the Board finds necessary or desirable, and in the case of an applicant for membership or a member, standards of financial responsibility and operational capability.
            (b) In establishing and applying such standards, the Board may classify members and persons associated with such members, taking into account relevant matters, including the nature, extent, and type of business being conducted and of securities sold, dealt in, or otherwise handled. The Board may specify that all or any portion of such standards shall be applicable to any such class and may require the persons in any such class to be registered with the Corporation.
            (c) The Board may from time to time make changes in such rules, regulations, and standards as it deems necessary or appropriate.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ineligibility of Certain Persons for Membership or Association

            Sec. 3.  (a) No registered broker, dealer, municipal securities broker or dealer, or government securities broker or dealer shall be admitted to membership, and no member shall be continued in membership, if such broker, dealer, municipal securities broker or dealer, government securities broker or dealer, or member fails or ceases to satisfy the qualification requirements established under Section 2, if applicable, or if such broker, dealer, municipal securities broker or dealer, government securities broker or dealer, or member is or becomes subject to a disqualification under Section 4, or if such member fails to comply with the requirement that all forms filed pursuant to these By-Laws be filed via electronic process or such other process as the Corporation may prescribe.
            (b) No person shall become associated with a member, continue to be associated with a member, or transfer association to another member, if such person fails or ceases to satisfy the qualification requirements established under Section 2, if applicable, or if such person is or becomes subject to a disqualification under Section 4; and no broker, dealer, municipal securities broker or dealer, or government securities broker or dealer shall be admitted to membership, and no member shall be continued in membership, if any person associated with it is ineligible to be an associated person under this subsection.
            (c) If it deems appropriate, the Board, upon notice and opportunity for a hearing, may cancel the membership of a member if it becomes ineligible for continuance in membership under subsection (a), may suspend or bar a person from continuing to be associated with any member if such person is or becomes ineligible for association under subsection (b), and may cancel the membership of any member who continues to be associated with any such ineligible person.
            (d) Any member that is ineligible for continuance in membership may file with the Board an application requesting relief from the ineligibility pursuant to the Rules of the Corporation. A member may file such application on its own behalf and on behalf of a current or prospective associated person. The Board may, in its discretion, approve the continuance in membership, and may also approve the association or continuance of association of any person, if the Board determines that such approval is consistent with the public interest and the protection of investors. Any approval hereunder may be granted unconditionally or on such terms and conditions as the Board considers necessary or appropriate. In the exercise of the authority granted hereunder, the Board may conduct such inquiry or investigation into the relevant facts and circumstances as it, in its discretion, considers necessary to its determination, which, in addition to the background and circumstances giving rise to the failure to qualify or disqualification, may include the proposed or present business of a member and the conditions of association of any current or prospective associated person.
            (e) An application filed under subsection (d) shall not foreclose any action which the Board is authorized to take under subsection (c) until approval has been granted.
            (f) Approval by the Board of an application made under subsection (d) shall be subject to whatever further action the Commission may take pursuant to authority granted to the Commission under the Act.
            (g) The Board may delegate its authority under this Section in a manner not inconsistent with the Delegation Plan.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended by SR-NASD-95-45 eff. Nov. 8, 1995.

            Selected Notices: 86-85, 87-13, 88-96, 95-61.

          • Definition of Disqualification

            Sec. 4.  A person is subject to a "disqualification" with respect to membership, or association with a member, if such person is subject to any "statutory disqualification" as such term is defined in Section 3(a)(39) of the Act.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended by SR-NASD-95-45 eff. Nov. 8, 1995.

            Selected Notices: 86-85, 87-13, 88-96, 95-61.

        • ARTICLE IV MEMBERSHIP

          • Application for Membership

            Sec. 1.  (a) Application for membership in the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation, and shall contain:
            (1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, or NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation;
            (2) an agreement to pay such dues, assessments, and other charges in the manner and amount as from time to time shall be fixed pursuant to the By-Laws of the Corporation, Schedules to the By-Laws of the Corporation, and the Rules of the Corporation; and
            (3) such other reasonable information with respect to the applicant as the Corporation may require.
            (b) Any application for membership received by the Corporation shall be processed in the manner set forth in the Rules of the Corporation.
            (c) Each applicant and member shall ensure that its membership application with the Corporation is kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendments to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended by SR-NASD-94-14 eff. July 20, 1994.

            Selected Notice: 94-22.

          • Similarity of Membership Names

            Sec. 2.  (a) No person or firm shall be admitted to or continued in membership in the Corporation having a name that is identical to the name of another member appearing on the membership roll of the Corporation or a name so similar to any such name as to tend to confuse or mislead.
            (b) No member may change its name without prior approval of the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Executive Representative

            Sec. 3.  Each member shall appoint and certify to the Secretary of the Corporation one "executive representative" who shall represent, vote, and act for the member in all the affairs of the Corporation, except that other executives of a member may also hold office in the Corporation, serve on the Board or committees appointed under Article IX, Section 1 or otherwise take part in the affairs of the Corporation. A member may change its executive representative upon giving notice thereof via electronic process or such other process as the Corporation may prescribe to the Secretary, or may, when necessary, appoint, by notice via electronic process to the Secretary, a substitute for its executive representative. An executive representative of a member or a substitute shall be a member of senior management and registered principal of the member. Not later than January 1, 1999, each executive representative shall maintain an Internet electronic mail account for communication with the Corporation and shall update firm contact information via the NASD Regulation Web Site or such other means as prescribed by the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-92 eff. May 5, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended eff. Dec. 23, 1991.

            Selected Notice: 92-10.

          • Membership Roll

            Sec. 4.  The Secretary of the Corporation shall keep a currently accurate and complete membership roll, containing the name and address of each member, and the name and address of the executive representative of each member. In any case where a membership has been terminated, such fact shall be recorded together with the date on which the membership ceased. The membership roll of the Corporation shall at all times be available to all members of the Corporation, to all governmental authorities, and to the general public.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Resignation of Members

            Sec. 5.  Membership in the Corporation may be voluntarily terminated only by formal resignation. Resignations of members must be filed via electronic process or such other process as the Corporation may prescribe and addressed to the Corporation. Any member may resign from the Corporation at any time. Such resignation shall not take effect until 30 days after receipt thereof by the Corporation and until all indebtedness due the Corporation from such member shall have been paid in full and so long as any complaint or action is pending against the member under the Rules of the Corporation. The Corporation, however, may in its discretion declare a resignation effective at any time.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

          • Retention of Jurisdiction

            Sec. 6.  A resigned member or a member that has had its membership canceled or revoked shall continue to be subject to the filing of a complaint under the Rules of the Corporation based upon conduct which commenced prior to the effective date of the member's resignation from the Corporation or the cancellation or revocation of its membership. Any such complaint, however, shall be filed within two years after the effective date of resignation, cancellation, or revocation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended eff. Apr. 15, 1992.

            Selected Notice: 92-19.

          • Transfer and Termination of Membership

            Sec. 7.  (a) Except as provided hereinafter, no member of the Corporation may transfer its membership or any right arising therefrom and the membership of a corporation, partnership, or any other business organization which is a member of the Corporation shall terminate upon its liquidation, dissolution, or winding up, and the membership of a sole proprietor which is a member shall terminate at death, provided that all obligations of membership under the By-Laws and the Rules of the Corporation have been fulfilled.
            (b) The consolidation, reorganization, merger, change of name, or similar change in any corporate member shall not terminate the membership of such corporate member provided that the member or surviving organization, if any, shall be deemed a successor to the business of the corporate member, and the member or the surviving organization shall continue in the investment banking and securities business, and shall possess the qualifications for membership in the Corporation. The death, change of name, withdrawal of any partner, the addition of any new partner, reorganization, consolidation, or any change in the legal structure of a partnership member shall not terminate the membership of such partnership member provided that the member or surviving organization, if any, shall be deemed a successor to the business of the partnership member, and the member or surviving organization shall continue in the investment banking and securities business and shall possess the qualifications for membership in the Corporation. If the business of any predecessor member is to be carried on by an organization deemed to be a successor organization by the Corporation, the membership of such predecessor member shall be extended to the successor organization subject to the notice and application requirements of the Rules of the Corporation and the right of the Corporation to place restrictions on the successor organization pursuant to the Rules of the Corporation; otherwise, any surviving organization shall be required to satisfy all of the membership application requirements of these By-Laws and the Rules of the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Registration of Branch Offices

            Sec. 8.  (a) Each branch office of a member of the Corporation shall be registered with and listed upon the membership roll of the Corporation, and shall pay such dues, assessments, and other charges as shall be fixed from time to time by the Board pursuant to Article VI.
            (b) Each member of the Corporation shall promptly advise the Corporation via electronic process or such other process as the Corporation may prescribe of the opening, closing, relocation, change in designated supervisor, or change in designated activities of any branch office of such member not later than 30 days after the effective date of such change.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. Apr. 15, 1992.

        • ARTICLE V REGISTERED REPRESENTATIVES AND ASSOCIATED PERSONS

          • Qualification Requirements

            Sec. 1.  No member shall permit any person associated with the member to engage in the investment banking or securities business unless the member determines that such person satisfies the qualification requirements established under Article III, Section 2 and is not subject to a disqualification under Article III, Section 4.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Application for Registration

            Sec. 2.  (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation and shall contain:
            (1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, and NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation; and
            (2) such other reasonable information with respect to the applicant as the Corporation may require.
            (b) The Corporation shall not approve an application for registration of any person who is not eligible to be an associated person of a member under the provisions of Article III, Section 3.
            (c) Every application for registration filed with the Corporation shall be kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendment to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.

          • Notification by Member to the Corporation and Associated Person of Termination; Amendments to Notification

            Sec. 3.  (a) Following the termination of the association with a member of a person who is registered with it, such member shall, not later than 30 days after such termination, give notice of the termination of such association to the Corporation via electronic process or such other process as the Corporation may prescribe on a form designated by the Corporation, and concurrently shall provide to the person whose association has been terminated a copy of said notice as filed with the Corporation. A member that does not submit such notification and provide a copy to the person whose association has been terminated, within the time period prescribed, shall be assessed a late filing fee as specified by the Corporation. Termination of registration of such person associated with a member shall not take effect so long as any complaint or action under the Rules of the Corporation is pending against a member and to which complaint or action such person associated with a member is also a respondent, or so long as any complaint or action is pending against such person individually under the Rules of the Corporation. The Corporation, however, may in its discretion declare the termination effective at any time.
            (b) The member shall notify the Corporation via electronic process or such other process as the Corporation may prescribe by means of an amendment to the notice filed pursuant to subsection (a) in the event that the member learns of facts or circumstances causing any information set forth in said notice to become inaccurate or incomplete. Such amendment shall be filed with the Corporation via electronic process or such other process as the Corporation may prescribe and a copy provided to the person whose association with the member has been terminated not later than 30 days after the member learns of the facts or circumstances giving rise to the amendment.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-21 eff. July 15, 1996.
            Amended eff. June 12, 1989 and Apr. 15, 1992.

          • Retention of Jurisdiction

            Sec. 4.  (a) A person whose association with a member has been terminated and is no longer associated with any member of Corporation or a person whose registration has been revoked or canceled shall continue to be subject to the filing of a complaint under the Corporation Rules based upon conduct that commenced prior to the termination, revocation, or cancellation or upon such person's failure, while subject to the Corporation's jurisdiction as provided herein, to provide information requested by Corporation pursuant to the Corporation's Rules, but any such complaint shall be filed within:
            (i) two years after the effective date of termination of registration pursuant to Section 3, provided, however that any amendment to a notice of termination filed pursuant to Section 3(b) that is filed within two years of the original notice that discloses that such person may have engaged in conduct actionable under any applicable statute, rule, or regulation shall operate to recommence the running of the two-year period under this subsection;
            (ii) two years after the effective date of revocation or cancellation of registration pursuant to the Corporation's Rules ; or
            (iii) in the case of an unregistered person, two years after the date upon which such person ceased to be associated with the member.
            (b) A person whose association with a member has been terminated and is no longer associated with any member of Corporation shall continue to be subject to a proceeding to suspend, consistent with Article VI, Section 3 of the By-Laws, his or her ability to associate with a member based on such person's failure to comply with an arbitration award or a written and executed settlement agreement obtained in connection with an arbitration or mediation submitted for disposition pursuant to the Corporation's Rules, provided that such proceeding is instituted within two years after the date of entry of such award or settlement.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2003-069 eff. Sept. 9, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. Apr. 15, 1992.

            Selected Notices: 87-16, 88-67, 88-68, 89-57, 90-61, 91-60, 91-61, 94-52, 04-57.

        • ARTICLE VI DUES, ASSESSMENTS, AND OTHER CHARGES

          • Power of the Corporation to Fix and Levy Assessments

            Sec. 1.  The Corporation shall prepare an estimate of the funds necessary to defray reasonable expenses of administration in carrying on the work of the Corporation each fiscal year, and on the basis of such estimate, shall fix and levy the amount of admission fees, dues, assessments, and other charges to be paid by the members and issuers and any other persons using any facility or system which the Corporation, NASD Regulation, or NASD Dispute Resolution operates or controls. Fees, dues, assessments, and other charges shall be called and payable as determined by the Corporation from time to time; provided, however, that such admission fees, dues, assessments, and other charges shall be equitably allocated among members and issuers and any other persons using any facility or system which the Corporation operates or controls. The Corporation may from time to time make such changes or adjustments in such fees, dues, assessments, and other charges as it deems necessary or appropriate to assure equitable allocation of dues among members. In the event of termination of membership or the extension of any membership to a successor organization during any fiscal year for which an assessment has been levied and become payable, the Corporation may make such adjustment in the fees, dues, assessments, or other charges payable by any such member or successor organization or organizations during such fiscal years as it deems fair and appropriate in the circumstances.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Reports of Members

            Sec. 2.  Each member, issuer, or other person shall promptly furnish all information or reports requested by the Corporation in connection with the determination of the amount of admission fees, dues, assessments, or other charges.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Suspension or Cancellation

            Sec. 3.  (a) The Corporation after 15 days notice in writing, may suspend or cancel the membership of any member or the registration of any person in arrears in the payment of any fees, dues, assessments, or other charges or for failure to furnish any information or reports requested pursuant to Section 2 .
            (b) The Corporation after 15 days notice in writing, may suspend or cancel the membership of any member or suspend from association with any member any person, for failure to comply with an award of arbitrators properly rendered pursuant to the Corporation's Rules, where a timely motion to vacate or modify such award has not been made pursuant to applicable law or where such a motion has been denied, or for failure to comply with a written and executed settlement agreement obtained in connection with an arbitration or mediation submitted for disposition pursuant to the Corporation's Rules.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2003-069 eff. Sept. 9, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-95-20 eff. Oct. 2, 1995.
            Amended eff. Aug. 29, 1991 and Jan. 26, 1993.

            Selected Notices: 91-24, 04-57.

          • Reinstatement of Membership or Registration

            Sec. 4.  Any membership or registration suspended or canceled under this Article may be reinstated by the Corporation upon such terms and conditions as it shall deem just; provided, however, that any applicant for reinstatement of membership or registration shall possess the qualifications required for membership or registration in the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended eff. Aug. 29, 1991.

            Selected Notices: 91-24, 93-16, 95-33.

          • Delegation

            Sec. 5.  The Corporation may delegate its authority under this Article in a manner not inconsistent with the Delegation Plan.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE VII BOARD OF GOVERNORS

          • Powers and Authority of Board

            Sec. 1.  (a) The Board shall be the governing body of the Corporation and, except as otherwise provided by applicable law, the Restated Certificate of Incorporation, or these By-Laws, shall be vested with all powers necessary for the management and administration of the affairs of the Corporation and the promotion of the Corporation's welfare, objects, and purposes. In the exercise of such powers, the Board shall have the authority to:
            (i) adopt for submission to the membership, as hereinafter provided, such By-Laws and changes or additions thereto as it deems necessary or appropriate;
            (ii) adopt such other Rules of the Corporation and changes or additions thereto as it deems necessary or appropriate, provided, however, that the Board may at its option submit to the membership any such adoption, change, or addition to such Rules;
            (iii) make such regulations, issue such orders, resolutions, exemptions, interpretations, including interpretations of these By-Laws and the Rules of the Corporation, and directions, and make such decisions as it deems necessary or appropriate;
            (iv) prescribe rules for the required or voluntary arbitration of controversies between members and between members and customers or others as it shall deem necessary or appropriate;
            (v) establish rules and procedures to be followed by members in connection with the distribution of securities issued by members and affiliates thereof;
            (vi) require all over-the-counter transactions in securities between members, other than transactions in exempted securities as defined in Section 3(a)(12) of the Act, to be cleared and settled through the facilities of a clearing agency registered with the Commission pursuant to the Act, which clears and settles such over-the-counter transactions in securities;
            (vii) organize and operate automated systems to provide qualified subscribers with securities information and automated services. The systems may be organized and operated by a division or subsidiary company of the Corporation or by one or more independent firms under contract with the Corporation as the Board may deem necessary or appropriate. The Board may adopt rules for such automated systems, establish reasonable qualifications and classifications for members and other subscribers, provide qualification standards for securities included in such systems, require members to report promptly information in connection with securities included in such systems, and establish charges to be collected from subscribers and others;
            (viii) require the prompt reporting by members of such original and supplementary trade data as the Board deems appropriate. Such reporting requirements may be administered by the Corporation, a division or subsidiary thereof, or a clearing agency registered under the Act; and
            (ix) engage in any activities or conduct necessary or appropriate to carry out the Corporation's purposes under its Restated Certificate of Incorporation and the federal securities laws.
            (b) In the event of the refusal, failure, neglect, or inability of any Governor to discharge such Governor's duties, or for any cause affecting the best interests of the Corporation the sufficiency of which the Board shall be the sole judge, the Board shall have the power, by the affirmative vote of two-thirds of the Governors then in office, to remove such Governor and declare such Governor's position vacant and that, subject to the Restated Certificate of Incorporation, such position shall be filled in accordance with these By-Laws; provided, that during the Transitional Period, (i) a Governor that is a member of the NYSE Group Committee may only be removed by the affirmative vote of a majority of the Governors who are members of the NYSE Group Committee and (ii) a Governor that is a member of the NASD Group Committee may only be removed by the affirmative vote of a majority of the Governors who are members of the NASD Group Committee.
            (c) To the fullest extent permitted by applicable law, the Restated Certificate of Incorporation, and these By-Laws, the Corporation may delegate any power of the Corporation or the Board to a committee appointed pursuant to Article IX, Section 1, the NASD Regulation Board, the NASD Dispute Resolution Board, or the Corporation's staff in a manner not inconsistent with the Delegation Plan; provided, that during the Transitional Period, no such delegation shall occur without the prior affirmative vote of two-thirds of the Governors then in office.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-93-48 eff. Mar. 8, 1994.
            Amended eff. Oct. 25, 1988.

            Selected Notice: 93-15.

          • Authority to Cancel or Suspend for Failure to Submit Required Information

            Sec. 2.  (a) The Board shall have authority, upon notice and opportunity for a hearing, to cancel or suspend the membership of any member or suspend the association of any person associated with a member for failure to file, or to submit on request, any report, document, or other information required to be filed with or requested by the Corporation pursuant to these By-Laws or the Rules of the Corporation.
            (b) Any membership or association suspended or canceled pursuant to this Section may be reinstated by the Corporation pursuant to the Rules of the Corporation.
            (c) The Board is authorized to delegate its authority under this Section in a manner not inconsistent with the Delegation Plan and otherwise in accordance with the Rules of the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Authority to Take Action Under Emergency or Extraordinary Market Conditions

            Sec. 3.  The Board, or such person or persons as may be designated by the Board, in the event of an emergency or extraordinary market conditions, shall have the authority to take any action regarding:
            (a) the trading in or operation of the over-the-counter securities market, the operation of any automated system owned or operated by the Corporation or NASD Regulation, and the participation in any such system of any or all persons or the trading therein of any or all securities; and
            (b) the operation of any or all member firms' offices or systems, if, in the opinion of the Board or the person or persons hereby designated, such action is necessary or appropriate for the protection of investors or the public interest or for the orderly operation of the marketplace or the system.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff,. July 11, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Adopted Sept. 12, 1988.

          • Composition and Qualifications of the Board

            Sec. 4.  (a) The Board shall consist of no fewer than 16 nor more than 25 Governors. The number of Public Governors shall exceed the number of Industry Governors.

            From and after the Transitional Period, the Board of Governors shall consist of (i) the Chief Executive Officer of the Corporation, (ii) a number of Public Governors determined by the Board, (iii) a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor and (iv) three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors.
            (b) As soon as practicable following the annual election of Governors, the Board shall elect from among its members a Chair and such other persons having such titles as it shall deem necessary or advisable, to serve until the next annual election or until their successors are chosen and qualify. The Chair of the Board shall preside over all meetings of the Board, and shall not have any other power or authority except as otherwise expressly provided for herein. The Lead Governor shall preside at all meetings of the Board at which the Chair is not present, and shall have the authority to call, and will lead if the Chair of the Board is recused, executive sessions of the Board. Any other persons elected under this subsection shall have such powers and duties as may be determined from time to time by the Board. Except as otherwise provided herein, the Board, by resolution adopted by a majority of the Governors then in office, (i) after the completion of the Transitional Period, may remove the Chair and any person elected under this subsection from such position at any time and (ii) during the Transitional Period, may remove any person, other than the Chair, elected under this subsection from such position at any time.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-96-02 eff. Apr. 11, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. Sept. 4, 1990.

            Selected Notices: 88-8, 88-29.

          • Term of Office of Governors

            Sec. 5.  From and after the Transitional Period:

            The Chief Executive Officer shall serve as a Governor until a successor is elected, or until death, resignation, or removal.
            Public Governors and the Floor Member Governor, the Independent Dealer/Insurance Affiliate Governor and the Investment Company Affiliate Governor (the "Appointed Governors") shall be appointed by the Board from candidates recommended to the Board by the Nominating Committee.
            As of the first annual meeting of members following the Transitional Period, the Appointed Governors shall be divided by the Board into three classes, as equal in number as possible, with the first class holding office until the first succeeding annual meeting of members, the second class holding office until the second succeeding annual meeting of members and the third class holding office until the third succeeding annual meeting of members, or until a successor is duly appointed and qualified, or until death, resignation, disqualification, or removal. Each class shall initially contain as equivalent a number as possible of Appointed Governors who were members of the NYSE Group Committee during the Transitional Period or are successors to such Governor positions, on the one hand, and Appointed Governors who were members of the NASD Group Committee during the Transitional Period or are successors to such Governor positions, on the other hand, to the extent the Board determines such persons are to remain Governors after the Transitional Period. No Appointed Governor may serve more than two consecutive terms. If a Governor is appointed to fill a vacancy of such a Governor position for a term of less than one year, the Governor may serve up to two consecutive terms following the expiration of the Governor's initial term. At each annual election following the first annual meeting of members following the Transitional Period, Appointed Governors shall be appointed by the Board for a term of three years to replace those whose terms expire.
            As of the first annual meeting of members following the Transitional Period, the Large Firm Governors, the Mid-Size Firm Governor and the Small Firm Governors shall be divided into three classes, as equal in number as possible, with the first class, being comprised of one Large Firm Governor and one Small Firm Governor, holding office until the first succeeding annual meeting of members, the second class, being comprised of one Large Firm Governor, one Mid-Size Firm Governor and one Small Firm Governor, holding office until the second succeeding annual meeting of members and the third class, being comprised of one Large Firm Governor and one Small Firm Governor, holding office until the third succeeding annual meeting of members, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal. A Governor elected by the members may not serve more than two consecutive terms. If a Governor is elected to fill a vacancy of such a Governor position for a term of less than one year, the Governor may serve up to two consecutive terms following the expiration of the Governor's initial term. At each annual election following the first annual meeting of members following the Transitional Period, Large Firm Governors, Small Firm Governors and the Mid-Size Firm Governor shall be elected for a term of three years to replace those whose terms expire.
            In the event of any vacancy among the Large Firm Governors, the Mid-Size Firm Governor or the Small Firm Governors, such vacancy shall only be filled by the Large Firm Governor Committee in the case of a Large Firm Governor vacancy, the Board in the case of a Mid-Size Firm Governor vacancy or the Small Firm Governor Committee in the case of a Small Firm Governor vacancy; provided, however, that in the event the remaining term of office of any Large Firm, Mid-Size Firm or Small Firm Governor position that becomes vacant is for more than 12 months, such vacancy shall be filled by the members entitled to vote thereon at a meeting thereof convened to vote thereon.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended eff. Sept. 4, 1990.

          • Disqualification

            Sec. 6.  Notwithstanding Section 5 or Article XXII, the term of office of a Governor shall terminate immediately upon a determination by the Board, by a majority vote of the remaining Governors, that: (a) the Governor no longer satisfies the classification for which the Governor was elected; and (b) the Governor's continued service as such would violate the compositional requirements of the Board set forth in Section 4 (or, in the case of the Transitional Period, Article XXII). If the term of office of a Governor terminates under this Section, and the remaining term of office of such Governor at the time of termination is not more than six months, during the period of vacancy the Board shall not be deemed to be in violation of Section 4 (or, in the case of the Transitional Period, Article XXII) by virtue of such vacancy.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Filling of Vacancies

            Intentionally Deleted
            Sec. 7. Intentionally Deleted
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-96-02 eff. Apr. 11, 1996.
            Amended eff. Sept. 4, 1990.

          • Meetings of Board; Quorum; Required Vote

            Sec. 8.  Meetings of the Board shall be held at such times and places, upon such notice, and in accordance with such procedure as the Board in its discretion may determine. Special meetings of the Board of the Corporation may be called by the Board, the Chief Executive Officer of the Corporation, the Chair or the Lead Governor. Each of the Chief Executive Officer of the Corporation and the Chair, and with respect to matters from which the Chief Executive Officer of the Corporation and the Chair recuse themselves, the Lead Governor, shall have the authority to include matters on the agenda of a meeting of the Board. At all meetings of the Board, unless otherwise set forth in these By-Laws or required by law, a quorum for the transaction of business shall consist of a majority of the Board, including not less than 50 percent of the Public Governors. Any action taken by a majority vote at any meeting at which a quorum is present, except as otherwise provided in the Restated Certificate of Incorporation or these By-Laws, shall constitute the action of the Board. Governors or members of any committee appointed by the Board under Article IX, Section 1 may participate in a meeting of the Board or a committee by means of communications facilities that ensure all persons participating in the meeting can hear and speak to one another, and participation in a meeting pursuant to this By-Law shall constitute presence in person at such meeting. No Governor shall vote by proxy at any meeting of the Board.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended eff. Dec. 15, 1986.

            Selected Notices: 88-96, 93-15, 94-24, 94-52.

          • The Nominating Committee

            Sec. 9.  (a) Except as otherwise provided in these By-Laws, the Nominating Committee shall nominate and, in the event of a contested election, may, as described in Section 11(b), support: Large Firm, Mid-Size Firm, Small Firm, Public, Floor Member, Independent Dealer/Insurance Affiliate and Investment Company Affiliate Governors for each such vacant or new Governor position on the Board; Industry and Public Directors for each vacant or new position on the NASD Regulation Board and the NASD Dispute Resolution Board for election by the stockholder; and Industry and Public members for each vacant or new position on the National Adjudicatory Council for appointment by the NASD Regulation Board.
            (b) Except as otherwise provided in these By-laws, after the completion of the Transitional Period the Nominating Committee shall consist of such number of members of the Board as the Board shall determine from time to time; provided, however, that the Nominating Committee shall at all times be comprised of a number of members which is a minority of the entire Board and the Chief Executive Officer shall not be a member of the Nominating Committee. The number of Public Governors on the Nominating Committee shall equal or exceed the number of Industry Governors on the Nominating Committee.
            (c) After the completion of the Transitional Period, and except as otherwise provided in these By-Laws, members of the Nominating Committee shall be appointed annually by the Board and may be removed only by majority vote of the whole Board, after appropriate notice, for refusal, failure, neglect, or inability to discharge such member's duties.
            (d) The Secretary of the Corporation shall collect from each nominee for Governor such information as is reasonably necessary to serve as the basis for a determination of the nominee's classification a Large Firm, Mid-Size Firm, Small Firm, Public, Floor Member, Independent Dealer/Insurance Affiliate and/or Investment Company Affiliate Governor, and the Secretary shall certify to the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) each nominee's classification.
            (e) At all meetings of the Nominating Committee, a quorum for the transaction of business shall consist of a majority of the Nominating Committee. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Amended by SR-NASD-97-92 eff. May 5, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998 (Sec. 9(a), 9(e) eff. Nov. 14, 1997).
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. July 19, 1990 and Sept. 4, 1990.

          • Procedure for Nomination of Governors

            Sec. 10.  Prior to a meeting of members pursuant to Article XXI for the election of Governors, the Corporation shall notify the members of the names of each nominee selected by the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) for each governorship up for election by the members, the classification of governorship (Large Firm, Mid-Size Firm or Small Firm) for which the nominee is nominated, the qualifications of each nominee, and such other information regarding each nominee as the Board or the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) deems pertinent. A person who has not been so nominated may be included on the ballot for the election of Governors if: (a) within 45 days after the date of such notice, such person presents to the Secretary of the Corporation (i) in the case of petitions solely in support of such person, petitions in support of his or her nomination duly executed by three percent of the members entitled to vote for such nominees' election, and no such member shall endorse more than one such nominee, or (ii) in the case of petitions in support of more than one person, petitions in support of the nominations of such persons duly executed by ten percent of the members entitled to vote for such nominees' election; and (b) the Secretary certifies that (i) the petitions are duly executed by the Executive Representatives of the requisite number of members entitled to vote for such nominee's/nominees' election, and (ii) the person(s) satisfies/satisfy the classification (Large Firm, Mid-Size Firm or Small Firm) of the governorship(s) to be filled, based on such information provided by the person(s) as is reasonably necessary to make the certification. The Secretary shall not unreasonably withhold or delay the certification. Upon certification, the election shall be deemed a contested election with respect to the category of Governor to which the nomination relates. After the certification of a contested election or the expiration of time for contesting an election under this Section, the Secretary shall deliver notice of a meeting of members pursuant to Article XXI, Section 3(a).
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. July 19, 1990 and Sept. 4, 1990.

          • Communication of Views

            Sec. 11.  (a) The Corporation, the Board, a committee appointed pursuant to Article IX, Section 1, and the Corporation's staff shall not take any position publicly or with a member or person associated with or employed by a member with respect to any candidate in a contested election or nomination held pursuant to these By-Laws or the NASD Regulation By-Laws. A Governor or a member of any committee (other than the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein)) may communicate his or her views with respect to any candidate if such Governor or committee member acts solely in his or her individual capacity and disclaims any intention to communicate in any official capacity on behalf of the Corporation, the Board, or any committee (other than the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein)). Except as provided herein, any candidate and his or her representatives may communicate support for the candidate to a member or person associated with or employed by a member.
            (b) In a contested election, the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) may support its nominees under this Article by sending to members eligible to vote up to two mailings of materials in support of its nominees in lieu of mailings sent by its candidates under Article VII, Section 12. In addition to such mailings, in the event of mailings and or other communications to members by or on behalf of a candidate by petition in a contested election, the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) may respond in-kind, but shall not take a position unresponsive, to the contesting candidate's communications.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May. 8, 2001.
            Adopted by SR-NASD-97-71 eff. Nov. 14, 1997.

          • Administrative Support

            Sec. 12.  The Secretary of the Corporation shall provide administrative support to the candidates in a contested election under this Article by sending to members eligible to vote for such category of Governors up to two mailings of materials prepared by the candidates. The Corporation shall pay the postage for the mailings. If a candidate wants such mailings sent, the candidate shall prepare such material on the candidate's personal stationery. The material shall state that it represents the opinions of the candidate. The candidate shall provide a copy of such material for each member eligible to vote for such category of Governors. A candidate nominated by the Nominating Committee (or, in the case of Article XXII, the relevant body with the authority to nominate as specified therein) may identify himself or herself as such in his or her materials. Any candidate may send additional materials to members at the candidate's own expense. Except as provided in this Article, the Corporation, the Board, any committee, and the Corporation's staff shall not provide any other administrative support to a candidate in a contested election conducted under this Article or a contested election or nomination conducted under the NASD Regulation By-Laws.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Election of Governors

            Sec. 13.  Governors that are to be elected by the members shall be elected by a plurality of the votes of the members of the Corporation present in person or represented by proxy at the annual meeting of the Corporation and entitled to vote for such category of Governors. The annual meeting of the Corporation shall be on such date and at such place as the Board shall designate pursuant to Article XXI. Except as otherwise provided in these By-Laws or the Restated Certificate of Incorporation, any Governor so elected must be nominated by the Nominating Committee or certified by the Secretary pursuant to Section 10.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Amended by SR-NASD-97-71 eff. Nov. 14, 1997.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended by SR-NASD-94-64 eff. Feb. 9, 1995.
            Amended eff. July 19, 1990 and Sept. 4, 1990.

          • Maintenance of Compositional Requirements of the Board

            Sec. 14.  Each elected or appointed Governor shall update the information submitted under Section 9(d) regarding his or her classification as a Large Firm, Mid-Size Firm, Small Firm, Public, Floor Member, Independent Dealer/Insurance Affiliate and/or Investment Company Affiliate Governor at least annually and upon request of the Secretary of the Corporation, and shall report immediately to the Secretary any change in such classification.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Resignation

            Sec. 15.  Any Governor may resign at any time either upon written notice of resignation to the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time is not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE VIII OFFICERS, AGENTS, AND EMPLOYEES

          • Officers

            Sec. 1.  The Board shall elect a Chief Executive Officer, who shall be responsible for the management and administration of its affairs and shall be the official representative of the Corporation in all public matters and who shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board, and which powers and duties shall not be inconsistent with the Delegation Plan. The Board shall elect a Secretary, who shall have such powers and duties conferred by these By-Laws and such other powers and duties as may be prescribed in a resolution by the Board. The Board may provide for such other executive or administrative officers as it shall deem necessary or advisable. All such officers shall have such titles, powers, and duties, and shall be entitled to such compensation, as shall be determined from time to time by the Board. Each such officer shall hold office until a successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Nov. 17, 1997.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

          • Absence of Chief Executive Officer

            Sec. 2.  In the case of the absence or inability to act of the Chief Executive Officer of the Corporation, or in the case of a vacancy in such office, the Board may appoint its Chair or such other person as it may designate to act as such officer pro tem, who shall assume all the functions and discharge all the duties of the Chief Executive Officer.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Nov. 17, 1997.
            Amended by SR-NASD-96-20 July 11, 1996.

          • Agents and Employees

            Sec. 3.  The Board may employ or authorize the employment and prescribe the powers and duties of such agents and employees as it deems necessary or advisable. The employment and compensation of such agents and employees shall be at the pleasure of the Board, provided that such determinations are not inconsistent with the requirements of the Delegation Plan. Except as provided in Article IX, Section 5(d), agents and employees of the Corporation shall be under the supervision and control of the officers of the Corporation, unless the Board provides by resolution that an agent or employee shall be under the supervision and control of the Board.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Nov. 17, 1997.
            Amended by SR-NASD-96-20 July 11, 1996.

          • Employment of Counsel

            Sec. 4.  The Board may retain or authorize the employment of counsel, with such powers, titles, duties, and authority as it shall deem necessary or advisable.
            Amended by SR-NASD-97-71 eff. Nov. 17, 1997.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

          • Delegation of Duties of Officers

            Sec. 5.  The Board may delegate the duties and powers of any officer of the Corporation to any other officer or to any Governor for a specified period of time and for any reason that the Board may deem sufficient.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Resignation and Removal of Officers

            Sec. 6.  (a) Any officer may resign at any time upon written notice of resignation to the Board, the Chief Executive Officer, or the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein. The acceptance of a resignation shall not be necessary to make the resignation effective.
            (b) Any officer of the Corporation may be removed, with or without cause, by resolution adopted by a majority of the Governors then in office at any regular or special meeting of the Board or by a consent adopted by all of the Governors then in office in accordance with applicable law. Such removal shall be without prejudice to the contractual rights of the affected officer, if any, with the Corporation.

            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Bond

            Sec. 7.  The Corporation may secure the fidelity of any or all of its officers, agents, or employees by bond or otherwise.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE IX COMMITTEES

          • Appointment

            Sec. 1.  (a) The Corporation shall have the following committees of the Board: the NASD Group Committee (during the Transitional Period); the NYSE Group Committee (during the Transitional Period); the Small Firm Governor Committee; and the Large Firm Governor Committee, which in each case shall be comprised of the Governors specified herein and in the Restated Certificate of Incorporation to be the members thereof and shall have the authority provided for herein and in the Restated Certificate of Incorporation. The Corporation shall also have the following committees: the Audit Committee, the Finance Committee and, during the first year of the Transitional Period or as extended thereafter by resolution of the Board, the Integration Committee, which in each case shall have the authority provided for herein.
            (b) Subject to Article VII, Section 1(c), the Board may appoint such other committees or subcommittees as it deems necessary or desirable, and it shall fix their powers, duties, and terms of office in a manner not inconsistent with these By-Laws or the Restated Certificate of Incorporation. Any such other committee or subcommittee consisting solely of one or more Governors, to the extent provided by these By-Laws or by resolution of the Board and to the extent not inconsistent with these By-Laws or the Restated Certificate of Incorporation, shall have and may exercise all powers and authority of the Board in the management of the business and affairs of the Corporation. Any such other committee having the authority to exercise the powers and authority of the Board shall have a number of Public Governors as members thereof in excess of the number of Industry Governors which are members thereof. During the Transitional Period, all committees of the Board having the authority to exercise the powers and authority of the Board (with the exception of the Large Firm Governor Committee, the Small Firm Governor Committee, the NASD Group Committee and the NYSE Group Committee), shall also have (i) a percentage of members (to the nearest whole number of committee members) that are members of the NASD Group Committee at least as great as the percentage of Governors on the Board that are members of the NASD Group Committee; and (ii) a percentage of members (to the nearest whole number of committee members) that are members of the NYSE Group Committee at least as great as the percentage of Governors on the Board that are members of the NYSE Group Committee.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996
            Amended eff. Sept. 4, 1990;

          • Maintenance of Compositional Requirements of Committees

            Sec. 2.  Upon request of the Secretary of the Corporation, each prospective committee member who is not a Governor shall provide to the Secretary such information as is reasonably necessary to serve as the basis for a determination of the prospective committee member's classification as an Industry or Public committee member. The Secretary shall certify to the Board each prospective committee member's classification. Each committee member shall update the information submitted under this Section at least annually and upon request of the Secretary of the Corporation, and shall report immediately to the Secretary any change in such classification.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Removal of Committee Member

            Sec. 3.  A member of the Audit Committee, the Finance Committee (other than the Chair thereof) or a committee or subcommittee appointed pursuant to Section 1(b) of this Article may be removed from such committee or subcommittee only by a majority vote of the whole Board, after appropriate notice, for refusal, failure, neglect, or inability to discharge such member's duties.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.
            Amended eff. Sept. 4, 1990.

          • Executive Committee

            Sec. 4.  (a) The Board may appoint an Executive Committee, which shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware and other applicable law, and subject to the Restated Certificate of Incorporation and these By-Laws, have and be permitted to exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation between meetings of the Board, and which may authorize the seal of the Corporation to be affixed to all papers that may require it.
            (b) The Executive Committee shall consist of no fewer than five and no more than eight Governors. The Executive Committee shall include the Chief Executive Officer of the Corporation and the Chair of the Board.
            (c) An Executive Committee member shall hold office for a term of one year.
            (d) At all meetings of the Executive Committee, a quorum for the transaction of business shall consist of a majority of the Executive Committee, including not less than 50 percent of the Public committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Audit Committee

            Sec. 5.  (a) The Board shall appoint an Audit Committee. The Audit Committee shall consist of four or five Governors, none of whom shall be officers or employees of the Corporation. The Audit Committee shall include at least two Public Governors. A Public Governor shall serve as Chair of the Committee. An Audit Committee member shall hold office for a term of one year.
            (b) The Audit Committee shall perform the following functions: (i) ensure the existence of adequate controls and the integrity of the financial reporting process of the Corporation; (ii) recommend to the Board, and monitor the independence and performance of, the certified public accountants retained as outside auditors by the Corporation; and (iii) direct and oversee all the activities of the Corporation's internal review function, including but not limited to management's responses to the internal review function.
            (c) No member of the Audit Committee shall participate in the consideration or decision of any matter relating to a particular member, company, or individual if such Audit Committee member has a material interest in, or a professional, business, or personal relationship with, that member, company, or individual, or if such participation shall create an appearance of impropriety. An Audit Committee member shall consult with the General Counsel of the Corporation to determine if recusal is necessary. If a member of the Audit Committee is recused from consideration of a matter, any decision on the matter shall be by a vote of a majority of the remaining members of the Audit Committee.
            (d) The Audit Committee shall have exclusive authority to: (i) hire or terminate the Director of Internal Review; (ii) determine the compensation of the Director of Internal Review; and (iii) determine the budget for the Office of Internal Review. The Office of Internal Review and the Director of Internal Review shall report directly to the Audit Committee. The Audit Committee may, in its discretion, direct that the Office of Internal Review also report to senior management of the Corporation on matters the Audit Committee deems appropriate and may request that senior management perform such operational oversight as necessary and proper, consistent with preservation of the independence of the internal review function.
            (e) At all meetings of the Audit Committee, a quorum for the transaction of business shall consist of a majority of the Audit Committee, including not less than 50 percent of the Public committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Finance Committee

            Sec. 6.  (a) The Board shall appoint a Finance Committee. The Finance Committee shall advise the Board with respect to the oversight of the financial operations and conditions of the Corporation, including recommendations for the Corporation's annual operating and capital budgets and proposed changes to the rates and fees charged by Corporation.
            (b) The Finance Committee shall consist of four or more Governors. The Chief Executive Officer of the Corporation shall be a member of the Finance Committee. A Finance Committee member shall hold office for a term of one year.
            (c) At all meetings of the Finance Committee, a quorum for the transaction of business shall consist of a majority of the Finance Committee, including not less than 50 percent of the Public committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            (d) The Corporation shall also have an Investment Committee which shall not be a committee of the Board. The majority of the Investment Committee during the Transitional Period will be comprised of members of the Investment Committee immediately prior to the Closing, unless otherwise determined by the NASD Group Committee, and a minority of the Investment Committee during the Transitional Period will be comprised of members of the NYSE Group Committee.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Integration Committee

            Sec. 7.   (a) The Board shall appoint an Integration Committee. The Integration Committee shall have a term not to exceed one year from the Closing unless continued for a longer period by resolution of the Board.
            (b) The Chair of the Board shall be the Chair of the Integration Committee unless, in the case of the Integration Committee continuing beyond one year after Closing pursuant to Section 7(a), otherwise determined by the Board.
            (c) At all meetings of the Integration Committee, a quorum for the transaction of business shall consist of a majority of the Integration Committee, including not less than 50 percent of the Public committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            Adopted by SR-NASD-2007-023 eff. July 30, 2007.

        • ARTICLE X COMPENSATION OF BOARD AND COMMITTEE MEMBERS

          Sec. 1.  The Board may provide for reasonable compensation of the Chair of the Board, the Governors, and the members of any committee. The Board may also provide for reimbursement of reasonable expenses incurred by such persons in connection with the business of the Corporation, including those expenses incurred in connection with the support of a candidate or candidates by the Nominating Committee in contested elections in accordance with the By-Laws.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-2001-06 eff. May 8, 2001.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended eff. Apr. 15, 1987 and Sept. 4, 1990.

        • ARTICLE XI RULES

          Sec. 1.  To promote and enforce just and equitable principles of trade and business, to maintain high standards of commercial honor and integrity among members of the Corporation, to prevent fraudulent and manipulative acts and practices, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, to protect investors and the public interest, to collaborate with governmental and other agencies in the promotion of fair practices and the elimination of fraud, and in general to carry out the purposes of the Corporation and of the Act, the Board is hereby authorized to adopt such rules for the members and persons associated with members, and such amendments thereto as it may, from time to time, deem necessary or appropriate. If any such rules or amendments thereto are approved by the Commission as provided in the Act, they shall become effective Rules of the Corporation as of such date as the Board may prescribe. The Board is hereby authorized, subject to the provisions of the By-Laws and the Act, to administer, enforce, suspend, or cancel any Rules of the Corporation adopted hereunder.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended by SR-NASD-96-20 eff. July 11, 1996.
          Amended by SR-NASD-93-48 eff. Mar. 8, 1994.

          Selected Notice: 93-15, 94-52.

        • ARTICLE XII DISCIPLINARY PROCEEDINGS

          Sec. 1.  The Board shall have authority to establish procedures relating to disciplinary proceedings involving members and their associated persons.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended by SR-NASD-96-20 eff. July 11, 1996.

          Sec. 2.  Except as otherwise permitted under these By-Laws or the Act, in any disciplinary proceeding under the Rules of the Corporation, any member or person associated with a member shall be given the opportunity to have a hearing at which such member or person associated with a member shall be entitled to be heard in person or by counsel or by a representative as provided in the Rules of the Corporation. Such persons may present any relevant material in accordance with the Rules of the Corporation. In any such proceeding against a member or against a person associated with a member to determine whether the member or the person associated with a member shall be disciplined:
          (a) specific charges shall be brought;

          (b) such member or person associated with a member shall be notified of and be given an opportunity to defend against such charges;

          (c) a record shall be kept; and

          (d) any determination shall include a statement setting forth:

          (i) any act or practice, in which such member or person associated with a member may be found to have engaged or which such member or person associated with a member may be found to have omitted;

          (ii) the rule, regulation, or statutory provision of which any such act or practice, or omission to act, is deemed to be in violation;

          (iii) the basis upon which any findings are made; and

          (iv) the sanction imposed.

          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended by SR-NASD-96-20 eff. July 11, 1996.

        • ARTICLE XIII POWERS OF BOARD TO IMPOSE SANCTIONS

          Sec. 1.  The Board is hereby authorized to impose appropriate sanctions applicable to members, including censure, fine, suspension, or expulsion from membership, suspension or bar from being associated with all members, limitation of activities, functions, and operations of a member, or any other fitting sanction, and to impose appropriate sanctions applicable to persons associated with members, including censure, fine, suspension or barring a person associated with a member from being associated with all members, limitation of activities, functions, and operations of a person associated with a member, or any other fitting sanction, for:
          (a) breach by a member or a person associated with a member of any covenant with the Corporation or its members;
          (b) violation by a member or a person associated with a member of any of the terms, conditions, covenants, and provisions of the By-Laws of the Corporation, NASD Regulation, or NASD Dispute Resolution, the Rules of the Corporation, or the federal securities laws, including the rules and regulations adopted thereunder, the rules of the Municipal Securities Rulemaking Board, and the rules of the Treasury Department;
          (c) failure by a member or person associated with a member to: (i) submit a dispute for arbitration as required by the Rules of the Corporation; (ii) appear or produce any document in the member's or person's possession or control as directed pursuant to the Rules of the Corporation; (iii) comply with an award of arbitrators properly rendered pursuant to the Rules of the Corporation, where a timely motion to vacate or modify such award has not been made pursuant to applicable law or where such a motion has been denied; or (iv) comply with a written and executed settlement agreement obtained in connection with an arbitration or mediation submitted for disposition pursuant to the Rules of the Corporation;
          (d) refusal by a member or person associated with a member to abide by an official ruling of the Board or any committee exercising powers assigned by the Board with respect to any transaction which is subject to the Uniform Practice Code; or
          (e) failure by a member or person associated with a member to adhere to any ruling, order, direction, or decision of or to pay any sanction, fine, or costs imposed by the Board or any entity to which the Board has delegated its powers in accordance with the Delegation Plan.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
          Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
          Amended by SR-NASD-2001-06 eff. May 8, 2001.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
          Amended by SR-NASD-96-20 eff. July 11, 1996.
          Amended eff. Sept. 4, 1990.

          Sec. 2.  The Board may delegate its authority under this Article in accordance with the Delegation Plan.
          Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XIV UNIFORM PRACTICE CODE

          • Authority to Adopt Code

            Sec. 1.  The Board is hereby authorized to adopt a Uniform Practice Code and amendments, interpretations and explanations thereto, designed to make uniform, where practicable, custom, practice, usage, and trading technique in the investment banking and securities business with respect to such matters as trade terms, deliveries, payments, dividends, rights, interest, reclamations, exchange of confirmations, stamp taxes, claims, assignments, powers of substitution, computation of interest and basis prices, due-bills, transfer fees, "when, as and if issued" trading, "when, as and if distributed" trading, marking to the market, and close-out procedure, all to the end that the transaction of day-to-day business by members may be simplified and facilitated, that business disputes and misunderstandings, which arise from uncertainty and lack of uniformity in such matters, may be eliminated, and that the mechanisms of a free and open market may be improved and impediments thereto removed.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

          • Administration of Code

            Sec. 2.  The administration of any Uniform Practice Code, or any amendment thereto, adopted by the Board pursuant to Section 1, shall be vested in the Board, and the Board is hereby granted such powers as are reasonably necessary to achieve its effective operation. In the exercise of such powers, the Board may issue explanations and interpretations and make binding rulings with respect to the applicability of the provisions of the Uniform Practice Code to situations in which there is no substantial disagreement as to the facts involved. In accordance with the Delegation Plan, the Board may delegate to the NASD Regulation Board such of the Board's powers hereunder as it deems necessary and appropriate to achieve effective administration and operation of the Uniform Practice Code.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

          • Transactions Subject to Code

            Sec. 3.  All over-the-counter transactions in securities by members, except transactions in securities which are exempted under Section 3(a)(12) of the Act, or are municipal securities as defined in Section 3(a)(29) of the Act, are subject to the provisions of the Uniform Practice Code and to the provisions of Section 2 unless exempted therefrom by the terms of the Uniform Practice Code.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.
            Amended by SR-NASD-96-20 eff. July 11, 1996.

        • ARTICLE XV LIMITATION OF POWERS

          • Prohibitions

            Sec. 1.  Under no circumstances shall the Board or any officer, employee, or member of the Corporation have the power to:
            (a) make any donation or contribution from the funds of the Corporation or to commit the Corporation for the payment of any donations or contributions for political or charitable purposes; or
            (b) use the name or the facilities of the Corporation in aid of any political party or candidate for any public office.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Use of Name of the Corporation by Members

            Sec. 2.  No member shall use the name of the Corporation except to the extent that may be permitted by the Rules of the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Unauthorized Expenditures

            Sec. 3.  No officer, employee, member of the Board or of any committee shall have any power to incur or contract any liability on behalf of the Corporation not authorized by the Board. The Board may delegate to the Chief Executive Officer of the Corporation or the Chief Executive Officer's delegate such authority as it deems necessary to contract on behalf of the Corporation or to satisfy unanticipated liabilities during the period between Board meetings.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Conflicts of Interest

            Sec. 4.  (a) A Governor or a member of a committee shall not directly or indirectly participate in any adjudication of the interests of any party if such Governor or committee member has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In any such case, the Governor or committee member shall recuse himself or herself or shall be disqualified in accordance with the Rules of the Corporation.
            (b) No contract or transaction between the Corporation and one or more of its Governors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Governors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason if: (i) the material facts pertaining to such Governor's or officer's relationship or interest and the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Governors, even though the disinterested governors be less than a quorum; or (ii) the material facts are disclosed or become known to the Board or committee after the contract or transaction is entered into, and the Board or committee in good faith ratifies the contract or transaction by the affirmative vote of a majority of the disinterested Governors even though the disinterested governors be less than a quorum. Only disinterested Governors may be counted in determining the presence of a quorum at the portion of a meeting of the Board or of a committee that authorizes the contract or transaction. This subsection shall not apply to any contract or transaction between the Corporation and NASD Regulation, or NASD Dispute Resolution.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
            Amended by SR-NASD-2001-06 eff. May 8, 2001.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Municipal Securities

            Sec. 5.  The provisions of the By-Laws conferring rulemaking authority upon the Board shall not be applicable to the municipal securities activities of members or persons associated with members to the extent that the application of such authority would be inconsistent with Section 15B of the Act.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XVI PROCEDURE FOR ADOPTING AMENDMENTS TO BY-LAWS

          Sec. 1.  A Governor or a committee appointed by the Board may propose amendments to these By-Laws. Any 25 members of the Corporation by petition signed by such members may propose amendments to these By-Laws. Every proposed amendment shall be presented in writing to the Board, and a record shall be kept thereof. The Board may adopt any proposed amendment to these By-Laws by affirmative vote of a majority of the Governors then in office. The Board, upon adoption of any such amendment to these By-Laws, except as to spelling or numbering corrections or as otherwise provided in these By-Laws, shall forthwith cause a copy to be sent to and voted upon by each member of the Corporation. If such amendment to these By-Laws is approved by a majority of the members voting within 30 days after the date of submission to the membership, and is approved by the Commission as provided in the Act, it shall become effective as of such date as the Board may prescribe.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XVII CORPORATE SEAL

          Sec. 1.  The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be imposed or affixed or reproduced or otherwise.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XVIII CHECKS

          Sec. 1.  All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XIX ANNUAL FINANCIAL STATEMENT

          Sec. 1.  As soon as practicable after the end of each fiscal year, the Board shall send to each member of the Corporation a reasonably itemized statement of receipts and expenditures of the Corporation for such preceding fiscal year.
          Amended by SR-NASD-2007-023 eff. July 30, 2007.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XX RECORD DATES

          • Fixing of Date by Board

            Sec. 1.  In order that the Corporation may determine the members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or to express consent or dissent to corporate action in writing without a meeting, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, pursuant to Section 213 of the General Corporation Law of the State of Delaware. Only such members as shall be members of record on the date so fixed shall be entitled to notice of and to vote at such meeting or any adjournment thereof, or to give such consent or dissent.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Default Date

            Sec. 2.  If no record date is fixed by the Board, the record date for determining members entitled to notice of or to vote at a meeting of members shall be at the close of business on the day next preceding the date on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Adjournment

            Sec. 3.  A determination of members of record entitled to notice of or to vote at a meeting of members shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XXI MEETINGS OF MEMBERS

          • Annual Meeting

            Sec. 1.  The annual meeting shall be on such date and at such place as the Board shall designate; provided, however, that, except for the first annual meeting following the Closing at which Large Firm Governors, the Mid-Size Governor and Small Firm Governors shall be elected, there shall be no annual meetings of members during the Transitional Period. The business of the meeting shall include: (a) election of the members of the Board pursuant to Article VII, Section 13; and (b) the proposal of business (i) by or at the direction of the Chief Executive Officer of the Corporation or the Board, or (ii) by any member entitled to vote at the meeting who complied with the notice procedures set forth in Section 3 and was a member at the time such notice was delivered to the Secretary of the Corporation.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Special Meetings

            Sec. 2.  A special meeting shall be on such date and at such place as the Board shall designate. Only such business shall be conducted at a special meeting as shall have been brought before the meeting pursuant to Section 3(a); provided, however, that in no event shall the announcement to the members of an adjournment of a special meeting commence a new time period for the giving of notice.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Notice of Meeting; Member Business

            Sec. 3.  (a) Notice of each meeting shall be written or printed; shall state the date, time, and place of the meeting; shall state the purpose or purposes for which the meeting is called; and unless it is the annual meeting, indicate that the notice is being issued at the direction of the person or persons calling the meeting. The Secretary of the Corporation shall deliver the notice to the Executive Representative of each member entitled to vote not less than 30 days nor more than 60 days before the date of an annual meeting and not less than ten days nor more than 60 days before the date of a special meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage in the United States mail and addressed to the Executive Representative of the member as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. Meetings may be held without notice if all members entitled to vote are present (except as otherwise provided by law), or if notice is waived by those not present. Any previously scheduled meeting of the members may be postponed and any special meeting of the members may be canceled by resolution of the Board upon notice given to the members prior to the time previously scheduled for the meeting.
            (b) For business other than the election of Governors to be brought properly before an annual meeting by a member pursuant to Section 1, the member must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for member action. To be timely, a member's notice shall be delivered to the Secretary at the Corporation's principal executive offices within 25 days after the date of the notice of the meeting. Such member's notice shall set forth a brief description of the business desired to be brought before the meeting, any material interest of the member in such business, and the reasons for conducting such business at the meeting. In no event shall the announcement to the members of an adjournment of an annual meeting commence a new time period for the giving of a member's notice as described above.
            (c) Except as otherwise provided by applicable law, the Restated Certificate of Incorporation, or these By-Laws, the chairman of the meeting shall have the power and duty to determine whether any nomination or other business proposed to be brought before the meeting pursuant to subsection (b) or Article VII, Section 10 was made in accordance with the procedures set forth herein and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defective nomination or proposal shall be disregarded.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Inspector

            Sec. 4.  At each meeting of the members, the polls shall be opened and closed, the proxies and ballots received and taken in charge, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by an inspector appointed by the Secretary of the Corporation before the meeting, or in default thereof by the chairman of the meeting. If the inspector previously appointed fails to attend or refuses or is unable to serve, a substitute shall be appointed by the chairman of the meeting. The inspector shall not be a Governor, officer, or employee of the Corporation or a director, officer, partner, or employee of an Corporation subsidiary or member.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Conduct of Meetings

            Sec. 5.  The chairman of the meeting shall be the Chief Executive Officer of the Corporation or his or her designee. The date and time of the opening and closing of the polls for each matter upon which the members will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of members as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and to do all such acts as, in the judgment of the chairman of the meeting, are appropriate for the proper conduct of the meeting. Such rules, regulations, or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to members, their duly authorized and constituted proxies, or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairman of the meeting, meetings of members shall not be required to be held in accordance with the rules of parliamentary procedure.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Adopted by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XXII TRANSITIONAL PERIOD

          Notwithstanding anything herein to the contrary, to the extent there is any inconsistency between the other provisions of these By-Laws, including, without limitation, Sections 1, 4, 5 and 9 of Article VII hereof, and this Article XXII, the provisions of this Article XXII shall govern as of Closing and for the Transitional Period to the fullest extent permitted by applicable law:
          Adopted by SR-NASD-2007-023 eff. July 30, 2007.

          • Powers and Authority of Board

            Sec. 1.   The Board shall be the governing body of the Corporation and, except as otherwise provided by applicable law, the Restated Certificate of Incorporation, or these By-Laws, shall be vested with all powers necessary for the management and administration of the affairs of the Corporation and the promotion of the Corporation's welfare, objects, and purposes; provided, however, that (i) during the Transitional Period, the Board, after consultation with the Chief Executive Officer of the Corporation, shall have the exclusive authority to appoint any Lead Governor of the Corporation, (ii) during the Transitional Period, the Board, after receiving the recommendation of the Chief Executive Officer, shall have the exclusive authority to appoint the Chair of the Finance Committee and (iii) during the Transitional Period, the Nominating Committee will be jointly populated by the Chief Executive Officer and the Chief Executive Officer of NYSE Regulation, Inc. as of Closing (or his duly appointed or elected successor as Chair of the Board), subject to ratification of the appointees by the Board.
            Adopted by SR-NASD-2007-023 eff. July 30, 2007.

          • Composition and Qualifications of the Board

            Sec. 2.   (a) As of Closing, and for the Transitional Period, the Board shall consist of 23 authorized members, consisting of (i) the Chief Executive Officer of the Corporation, (ii) the Chief Executive Officer of NYSE Regulation, Inc., (iii) eleven Public Governors, (iv) a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor and (v) three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors; provided, however that the Board shall not include such Small Firm Governors, Mid-Size Firm Governor or Large Firm Governors, but rather shall include three persons, who immediately prior to the Closing are Industry Governors, selected by the Board in office prior to the Closing, three persons, who immediately prior to the Closing qualified as Industry Governors pursuant to the By-Laws in existence prior to the Closing, selected by the Board of Directors of NYSE Group, Inc. and one person, who immediately prior to the Closing qualified as an Industry Governor pursuant to the By-Laws in existence prior to the Closing, selected by the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly, until the election of such Small Firm Governors, Mid-Size Firm Governor and Large Firm Governors at the first annual meeting of members following the Closing (which shall be held as soon as practicable after the Closing).
            (b) During the Transitional Period, the Chair shall be the Chief Executive Officer of NYSE Regulation, Inc. as of Closing so long as he remains a Governor. In the event the Chief Executive Officer of NYSE Regulation, Inc. as of the Closing ceases to be Chair during the Transitional Period, subject to the Restated Certificate of Incorporation and these By-Laws, the Chair shall be selected by the NYSE Group Committee from among its members; provided that the Chair so selected shall not be a member of the Board of Directors of NYSE Group, Inc.
            Adopted by SR-NASD-2007-023 eff. July 30, 2007.

          • Term of Office of Governors

            Sec. 3.   Upon the Closing, the term of office of each Governor in office immediately prior to the Closing who is not to be a Governor as of Closing pursuant to this Article XXII shall automatically, and without any further action, terminate, and such persons shall no longer be members of the Board of Governors.
            The Chief Executive Officer shall serve as a Governor until a successor is elected, or until death, resignation, or removal.
            The Chief Executive Officer of NYSE Regulation, Inc. as of Closing shall serve as a Governor during the Transitional Period, until death, resignation, or removal; provided, however, in the event of a vacancy during the Transitional Period with respect to this Governor position by virtue of death, resignation or removal, the then Chief Executive Officer of NYSE Regulation, Inc. shall serve as a Governor for the remainder of the Transitional Period, until death, resignation or removal; provided, further however, a person who becomes a Governor pursuant to the immediately preceding proviso shall not be qualified to serve as Chair.
            Effective as of Closing, the Board of Directors of NYSE Group, Inc. shall appoint the NYSE Public Governors, the Board in office prior to the Closing shall appoint the NASD Public Governors and the Board of Directors of NYSE Group, Inc. and the Board in office prior to the Closing jointly shall appoint the Joint Public Governor.
            The Public Governors appointed in accordance with the preceding paragraph shall hold office for the Transitional Period, or until death, resignation, disqualification, or removal. In the event of any vacancy among the NYSE Public Governors, the Joint Public Governor or NASD Public Governors during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a vacant NYSE Public Governor position, such vacancy shall only be filled by the Board, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of a vacant Joint Public Governor position or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of a vacant NASD Public Governor position.
            Effective as of Closing, the Board of Directors of NYSE Group, Inc. shall appoint the Floor Member Governor, the Board of Governors in office prior to the Closing shall appoint the Independent Dealer/Insurance Affiliate Governor and the Board of Directors of NYSE Group, Inc. and the Board of Governors in office prior to the Closing jointly shall appoint the Investment Company Affiliate Governor.
            The Floor Member Governor, the Investment Company Affiliate Governor and the Independent Dealer/Insurance Affiliate Governor appointed in accordance with the preceding paragraph shall hold office for the Transitional Period, or until death, resignation, disqualification, or removal. In the event of any vacancy among the Floor Member Governor, the Investment Company Affiliate Governor or the Independent Dealer/Insurance Affiliate Governor during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a Floor Member Governor vacancy, such vacancy shall only be filled by the Board, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of an Investment Company Affiliate Governor vacancy or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of an Independent Dealer/Insurance Affiliate Governor vacancy.
            Three Large Firm Governors, three Small Firm Governors and one Mid-Size Governor shall be elected as Governors at the first annual meeting of members following the Closing (the "Initial Member Elected Governors"). The Initial Member Elected Governors shall hold office until the first annual meeting of members following the Transitional Period, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal.
            In the event of any vacancy among the Large Firm Governors, the Mid-Size Firm Governor or the Small Firm Governors during the Transitional Period, such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NYSE Group Committee in the case of a Large Firm Governor vacancy, such vacancy shall only be filled by the Board, and nominations for persons to fill such vacancy shall be made by the Nominating Committee, in the case of a Mid-Size Firm Governor vacancy or such vacancy shall only be filled by, and nominations for persons to fill such vacancy shall be made by, the NASD Group Committee in the case of a Small Firm Governor vacancy; provided, however, that in the event the remaining term of office of any Large Firm, Mid-Size Firm or Small Firm Governor position that becomes vacant is for more than 12 months, nominations shall be made as set forth above in this paragraph, but such vacancy shall be filled by the members entitled to vote thereon at a meeting thereof convened to vote thereon.
            Upon the expiration of the Transitional Period, the term of office of the Chief Executive Officer of NYSE Regulation, Inc. as a member of the Board shall automatically, and without any further action, terminate, such person shall no longer be a member of the Board and the authorized number of members of the Board shall automatically be reduced by one.
            Adopted by SR-NASD-2007-023 eff. July 30, 2007.

          • Nominations at the First Annual Meeting Following Closing

            Sec. 4.   In the case of the first annual meeting of members following the Closing, nominations shall be by the Board of Directors of NYSE Group, Inc. with respect to Large Firm Governors, jointly by the Board of Directors of NYSE Group, Inc. and the Board in office prior to the Closing with respect to the Mid-Size Firm Governor and by the Board in office prior to the Closing with respect to Small Firm Governors, instead of the Nominating Committee.
            Adopted by SR-NASD-2007-023 eff. July 30, 2007.

        • Schedule A to the By-Laws of the Corporation

          Assessments and fees pursuant to the provisions of Article VI of the By-Laws of the Corporation shall be determined on the following basis.
          Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
          Amended by SR-NASD-2002-162 eff. Dec. 24, 2002.
          Amended by SR-NASD-2002-98 eff. July 24, 2002.

          • Section 1 — Member Regulatory Fees

            (a) Recovery of cost of services. FINRA shall, in accordance with this section, collect member regulatory fees that are designed to recover the costs to FINRA of the supervision and regulation of members, including performing examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. FINRA shall periodically review these revenues in conjunction with these costs to determine the applicable rate. FINRA shall publish notices of the fees and adjustments to the assessment rates applicable under this section.
            (b) Each member shall be assessed a Trading Activity Fee for the sale of covered securities.
            (1) Covered Securities. For purposes of the rule, covered securities shall mean:
            (A) All exchange registered securities wherever executed (except debt securities that are not TRACE-Eligible Securities);
            (B) All other equity securities traded otherwise than on an exchange;
            (C) All security futures wherever executed;
            (D) All "TRACE-Eligible Securities" wherever executed, provided that the transaction also is a "Reportable TRACE Transaction," as these terms are defined in Rule 6710; and
            (E) All municipal securities subject to MSRB reporting requirements.
            (2) Transactions exempt from the fee. The following shall be exempt from the Trading Activity Fee:
            (A) Transactions in securities offered pursuant to an effective registration statement under the Securities Act of 1933 (except transactions in put or call options issued by the Options Clearing Corporation) or offered in accordance with an exemption from registration afforded by Section 3(a) or 3(b) thereof, or a rule thereunder;
            (B) Transactions by an issuer not involving any public offering within the meaning of Section 4(2) of the Securities Act of 1933 (except any "Reportable TRACE Transaction");
            (C) The purchase or sale of securities pursuant to and in consummation of a tender or exchange offer;
            (D) The purchase or sale of securities upon the exercise of a warrant or right (except a put or call), or upon the conversion of a convertible security;
            (E) Transactions that are executed outside the United States and are not reported, or required to be reported, to a transaction reporting association as defined in SEC Rule 600(b)(81) and any approved plan filed in accordance with SEC Rule 11Aa3-1 or SEC Rule 601;
            (F) Proprietary transactions by a firm that is a member of both FINRA and a national securities exchange, effected in its capacity as an exchange specialist or market maker, that are subject to Securities Exchange Act of 1934, Section 11(a) and Rule 11a1-1(T)(a) thereunder; however this exemption does not apply to other transactions permitted by Section 11(a) such as bona fide arbitrage or hedge transactions;
            (G) Transactions by a firm that is a floor based broker and that is a member of both FINRA and a national securities exchange provided that the floor based broker qualifies for exemption from FINRA membership under Exchange Act Rule 15b9-1;
            (H) Transactions in conventional options;
            (I) Transactions in options and futures involving narrow and broad based indexes;
            (J) Transactions in security futures held in futures accounts; and
            (K) Proprietary transactions in TRACE-Eligible Securities by a firm that is a member of both FINRA and a national securities exchange and that are effected in the firm's capacity as an exchange specialist or exchange market maker.
            FINRA may exempt other securities and transactions as it deems appropriate.
            (3) Fee Rates*
            (A) Each member shall pay to FINRA a fee per share for each sale of a covered equity security.
            (B) Each member shall pay to FINRA a fee per contract for each sale of an option.
            (C) Each member shall pay to FINRA a fee for each round turn transaction (treated as including one purchase and one sale of a contract of sale for future delivery) of a security future.
            (D) Each member shall pay to FINRA a fee per bond for each sale of a covered TRACE-Eligible Security (other than an Asset-Backed Security, as that term is defined in Rule 6710) and/or municipal security.
            (E) Each member shall pay to FINRA a fee based on the reported value of the sale of an Asset-Backed Security, as that term is defined in Rule 6710.
            (4) Reporting of Transactions. Members shall report to FINRA the aggregate share, bond, contract, and/or round turn volume of sales of covered securities in a manner as prescribed by FINRA from time to time.
            (c) Subject to paragraph (d), each member shall pay an annual Gross Income Assessment equal to the greater of:
            (1) the total of:
            (A) $1,200.00 on annual gross revenue up to $1 million;
            (B) 0.1215% of annual gross revenue greater than $1 million up to $25 million;
            (C) 0.2599% of annual gross revenue greater than $25 million up to $50 million;
            (D) 0.0518% of annual gross revenue greater than $50 million up to $100 million;
            (E) 0.0365% of annual gross revenue greater than $100 million up to $5 billion;
            (F) 0.0397% of annual gross revenue greater than $5 billion up to $25 billion; and
            (G) 0.0855% of annual gross revenue greater than $25 billion; or
            (2) The average Gross Income Assessment from the preceding three calendar years, to be determined by adding the Gross Income Assessment calculation pursuant to paragraph (c)(1) to the actual Gross Income Assessment in the preceding two calendar years, then dividing by three.
            The rate structure set forth in paragraph (c)(1) will be implemented over a three year period beginning in 2008 in such manner as specified by FINRA.
            For the purpose of paragraph (c)(1), each member is to report annual gross revenue as defined in Section 2 of this Schedule for the preceding calendar year.
            (d) Notwithstanding paragraph (c)(2), a member whose annual gross revenue does not exceed $25 million shall pay an annual Gross Income Assessment equal to amount set forth in paragraphs (c)(1).
            (e) Each member shall pay an annual Personnel Assessment equal to:
            (1) $150.00 per principal and each representative up to five principals and representatives as defined below;
            (2) $140.00 per principal and each representative for six principals and representatives up to twenty-five principals and representatives as defined below; or
            (3) $130.00 per principal and each representative for twenty-six or more principals and representatives as defined below.
            A principal or representative is defined as a principal or representative in the member's organization who is registered with FINRA as of December 31st of the prior fiscal year.


            * Trading Activity Fee rates are as follows: Each member shall pay to FINRA: (1) $0.000119 per share for each sale of a covered equity security, with a maximum charge of $5.95 per trade; (2) $0.002 per contract for each sale of an option; (3) $0.00008 per contract for each round turn transaction of a security future, provided there is a minimum charge of $0.01 per round turn transaction; (4) $0.00075 per bond for each sale of a covered TRACE-Eligible Security (other than an Asset-Backed Security) and/or municipal security, with a maximum charge of $0.75 per trade; and (5) $0.00000075 times the value, as reported to TRACE, of a sale of an Asset-Backed Security, with a maximum charge of $0.75 per trade. In addition, if the execution price for a covered security is less than the Trading Activity Fee rate ($0.000119 for covered equity securities, $0.002 for covered option contracts, or $0.01 for a security future) on a per share, per contract, or round turn transaction basis then no fee will be assessed.

            Amended by SR-FINRA-2014-046 eff. Jan. 1, 2015.
            Amended by SR-FINRA-2012-044 eff. Oct. 1, 2012.
            Amended by SR-FINRA-2012-023 eff. July 1, 2012.
            Amended by SR-FINRA-2012-008 eff. March 1, 2012.
            Amended by SR-FINRA-2011-071 eff. March 1, 2012.
            Amended by SR-FINRA-2011-020 eff. July 1, 2011.
            Amended by SR-FINRA-2011-004 eff. May 16, 2011.
            Amended by SR-FINRA-2010-046 eff. Nov. 1, 2010.
            Amended by SR-FINRA-2009-057 eff. Jan. 1, 2010.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2006-091 eff. March 5, 2007.
            Amended by SR-NASD-2003-201 partially effective Nov. 1, 2004 and fully effective April 1, 2005.
            Amended by SR-NASD-2003-93 eff. Sept. 1, 2003.
            Amended by SR-NASD-2002-148 eff. May 30, 2003.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-147 eff. Oct. 18, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-2002-65 eff. June 27, 2002.
            Amended by SR-NASD-97-62 eff. Aug. 22, 1997.
            Amended by SR-NASD-96-57 eff. Jan. 2, 1997.
            Amended by SR-NASD-95-52 eff. Nov. 3, 1995.
            Amended by SR-NASD-95-23 eff. July 11, 1995.
            Amended by SR-NASD-94-58 eff. Nov. 30, 1994.
            Amended by SR-NASD-94-29 eff. May 23, 1994.
            Amended by SR-NASD-94-03 eff. Jan. 14, 1994.
            Amended by SR-NASD-93-71 eff. Dec. 2, 1993.
            Amended by SR-NASD-93-30 eff. July 4, 1993.
            Amended by SR-NASD-92-24 eff. July 23, 1992.
            Amended by SR-NASD-91-69 eff. Dec. 17, 1991.
            Amended by SR-NASD-90-66 eff. Jan. 1, 1991.
            Amended by SR-NASD-89-37 eff. Oct. 1, 1989.
            Amended by SR-NASD-88-55 eff. Sept. 21, 1989.
            Amended by SR-NASD-88-41 eff. Oct. 1, 1988.
            Amended by SR-NASD-87-30 eff. Oct. 1, 1987.
            Amended by SR-NASD-86-24 eff. Oct. 1, 1986.
            Amended by SR-NASD-85-23 eff. Oct. 1, 1985.
            Amended by SR-NASD-84-13 eff. Sept. 6, 1984.
            Amended by SR-NASD-83-18 eff. Oct. 1, 1983.
            Amended by SR-NASD-83-7 eff. July 1, 1983
            Amended by SR-NASD-79-7 eff. Oct. 1, 1979.
            Amended by SR-NASD-78-18 eff. Nov. 22, 1978.
            Amended by SR-NASD-78-01 eff. Oct. 1, 1977.
            Amended by SR-NASD-76-12 eff. Oct. 1, 1976.
            Former Schedule A, Sec. 1 amended by SR-NASD-75-01 eff. Dec. 1, 1975.

            Selected Notices: 83-35, 96-81, 97-62, 02-63, 04-84, 08-19, 09-56, 09-68, 10-56, 11-27, 12-06, 12-31, 12-41.

          • Section 2 — Gross Revenue for Assessment Purposes

            Gross revenue is defined for assessment purposes as total income as reported on FOCUS form Part II or IIA with the following exclusion: commodities income.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-96-15 eff. June 13, 1996.
            Amended by SR-NASD-94-58 eff. Nov 30, 1994.
            Amended by SR-NASD-88-41 eff. Oct. 1, 1988.
            Amended by SR-NASD-83-18 eff. Oct. 1, 1983.
            Amended by SR-NASD-78-01 eff. Oct. 1, 1977.
            Amended by SR-NASD-76-12 eff. Oct. 1, 1976.
            Schedule A, Sec. 5 amended by SR-NASD-75-01 eff. Dec. 1, 1975.

            Selected Notices: 95-54, 96-43.

          • Section 3 — Regulatory Transaction Fee

            Each member shall be assessed a regulatory transaction fee. The amount shall be determined periodically in accordance with Section 31 of the Act. Transactions assessable under this Section 3 that must be reported to FINRA shall be reported in an automated manner.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2006-055 eff. Dec. 1, 2006.
            Amended by SR-NASD-2004-129 eff. Aug. 20, 2004.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Adopted by SR-NASD-96-57 eff. Jan. 2, 1997.

            Selected Notices: 04-63, 06-39.

          • Section 4 — Fees

            (a)(1) Each member shall be assessed a registration fee of $75.00 and a branch office system processing fee of $20.00 upon the registration of each branch office, as defined in the By-Laws.
            (2) FINRA shall waive, for the first branch office registered by a member, payment of the $75.00 registration fee and the $20.00 branch office system processing fee (where such fees have been assessed pursuant to paragraph (a)(1)).
            (3) Each member also shall be assessed:
            (A) an annual registration fee of:
            (i) $175, for each of the first 250 branch offices registered by the member;
            (ii) $150, for each of branch offices 251 to 500 registered by the member;
            (iii) $125, for each of branch offices 501 to 1,000 registered by the member;
            (iv) $100, for each of branch offices 1,001 to 2,000 registered by the member;
            (v) $75, for every branch office greater than 2,000 registered by the member; and
            (B) an annual branch office system processing fee of $20.00 per registered branch.
            (4) FINRA shall waive, for one branch office per member per year, payment of the $175 annual registration fee (where such fee has been assessed pursuant to paragraph (a)(3)(A)(i) and the $20.00 annual branch office system processing fee assessed pursuant to paragraph (a)(3)(B).
            (b) FINRA shall assess each member a fee of:
            (1) $100.00 for each initial Form U4 filed by the member with FINRA for the registration of a representative or principal, except that the following discounts shall apply to the filing of Forms U4 to transfer the registration of representatives or principals in connection with acquisition of all or a part of a member's business by another member:

            Number of Registered Personnel Transferred

            Discount

            1,000–1,999

            10%

            2,000–2,999

            20%

            3,000–3,999

            30%

            4,000–4,999

            40%

            5,000 and over

            50%

            (2) $40.00 for each initial Form U5 filed by the member with FINRA for the termination of a registered representative or registered principal, plus a late filing fee of $80.00 if the member fails to file the initial Form U5 within 30 days after the date of termination;
            (3) $110.00 for the additional processing of each initial or amended Form U4, Form U5 or Form BD that includes the initial reporting, amendment, or certification of one or more disclosure events or proceedings;
            (4) $15.00 for processing and posting to the CRD system each set of fingerprints submitted electronically by the member to FINRA, plus any other charge that may be imposed by the United States Department of Justice for processing each set of fingerprints;
            (5) $30.00 for processing and posting to the CRD system each set of fingerprint cards submitted in non-electronic format by the member to FINRA, plus any other charge that may be imposed by the United States Department of Justice for processing each set of fingerprints;
            (6) $30.00 for processing and posting to the CRD system each set of fingerprint results and identifying information that have been processed through another self-regulatory organization and submitted by a member to FINRA;
            (7) $45.00 annually for each of the member's registered representatives and principals for system processing; and
            (8) 10% of a member's final annual renewal assessment or $100, whichever is greater, with a maximum charge of $5,000, if the member fails timely to pay the amount indicated on its preliminary annual renewal statement.
            (c) The following fees shall be assessed to each individual who registers to take an examination as described below. These fees are in addition to the registration fee described in paragraph (b) and any other fees that the owner of an examination that FINRA administers may assess.
            Series 4 Registered Options Principal $105
            Series 6 Investment Company Products/Variable Contracts Representative $100
            Series 7 General Securities Representative $305
            Series 9 General Securities Sales Supervisor — Options Module $80
            Series 10 General Securities Sales Supervisor — General Module $125
            Series 11 Assistant Representative — Order Processing $80
            Series 14 Compliance Official $350
            Series 16 Supervisory Analyst $240
            Series 17 Limited Registered Representative $80
            Series 22 Direct Participation Programs Representative $100
            Series 23 General Securities Principal Sales Supervisor Module $100
            Series 24 General Securities Principal $120
            Series 26 Investment Company Products/Variable Contracts Principal $100
            Series 27 Financial and Operations Principal $120
            Series 28 Introducing Broker-Dealer Financial and Operations Principal $100
            Series 37 Canada Module of S7 (Options Required) $185
            Series 38 Canada Module of S7 (No Options Required) $185
            Series 39 Direct Participation Programs Principal $95
            Series 42 Registered Options Representative $75
            Series 50 Municipal Advisor Representative $115
            Series 51 Municipal Fund Securities Limited Principal $105
            Series 52 Municipal Securities Representative $130
            Series 53 Municipal Securities Principal $115
            Series 57 Securities Trader $120
            Series 62 Corporate Securities Limited Representative $95
            Series 72 Government Securities Representative $110
            Series 79 Investment Banking Qualification Examination $305
            Series 82 Limited Representative — Private Securities Offering $95
            Series 86 Research Analyst — Analysis $185
            Series 87 Research Analyst — Regulatory $130
            Series 99 Operations Professional $130
            (1) Persons for whom any qualification examination is waived pursuant to Rule 1070 shall be assessed as an application fee the examination fee for each qualification examination so waived.
            (2) There shall be an additional service charge of $15.00 for any examination or Regulatory Element session taken in a test center located outside the territorial limits of the United States.
            (3) There shall be a service charge equal to the examination or Regulatory Element session fee assessed to each individual who, having made an appointment for a specific time and place for a test center-based administration of an examination listed above or Regulatory Element session, fails to timely appear for such appointment or cancels or reschedules such appointment within two business days prior to the test center appointment date.
            (4) There shall be a service charge equal to one-half of the examination or Regulatory Element session fee assessed to each individual who, having made an appointment for a specific time and place for a test center-based administration of an examination listed above or Regulatory Element session, cancels or reschedules such appointment three to 10 business days prior to the test center appointment date.
            (d) In the event a member believes it should not be required to pay the late filing fee, it shall be entitled to a hearing in accordance with the procedures set forth in the Rule 9520 Series.
            (e)(1) In addition to any dues or fees otherwise payable, each applicant for membership shall be assessed an application fee, based on the number of registered persons proposed to be associated with the applicant at the time the application is filed, as outlined in the tables below:
            Number of Registered Persons Associated with Applicant Small Medium Large
            Tier 1 1–10 151–300 501–1,000
            Tier 2 11–100 301–500 1,001–5,000
            Tier 3 101–150 N/A >5,000

            Application Fee per Tier Small Medium Large
            Tier 1 $7,500 $25,000 $35,000
            Tier 2 $12,500 $30,000 $45,000
            Tier 3 $20,000 N/A $55,000
            (2) Each applicant for membership also shall be assessed an additional $5,000 if the applicant will be engaging in any clearing and carrying activity.
            (f) There shall be a session fee of $55 assessed to each individual who completes the Regulatory Element of the Continuing Education requirements pursuant to FINRA rules.
            (g)(1) Unless a specific temporary extension of time has been granted, there shall be imposed upon each member required to file reports, as designated by this paragraph ("Designated Reports"), a fee of $100 for each day that such report is not timely filed. The fee will be assessed for a period not to exceed 10 business days. Requests for such extension of time must be submitted to FINRA at least three business days prior to the due date; and
            (2) Any report filed pursuant to this Rule containing material inaccuracies or filed incompletely shall be deemed not to have been filed until a corrected copy of the report has been resubmitted.
            (3) List of Designated Reports:
            (A) SEA Rule 17a-5 — Monthly and quarterly FOCUS reports and annual audit reports;
            (B) SEA Rule 17a-10 — Schedule I;
            (C) FINRA Rule 4140 — any audited financial and/or operational report or examination report required pursuant to Rule 4140; and
            (D) FINRA Rule 4521 — any report, notification or information required pursuant to Rule 4521.
            (h) FINRA shall assess each member a fee of $100.00 on the first day and $25.00 for each subsequent day, up to a maximum of $1,575, that a new disclosure event or a change in the status of a previously reported disclosure event is not timely filed as required by FINRA on an initial Form U5, an amendment to a Form U5, or an amendment to a Form U4, with such fee to be assessed starting on the day following the last date on which the event was required to be reported.
            (i)(1) In addition to any dues or fees otherwise payable, each applicant submitting an application for approval of a change in ownership, control, or business operations shall be assessed an application fee, based on the number of registered persons associated with the applicant (including registered persons proposed to be associated with the applicant upon approval of the application) at the time the application is filed and the type of change in ownership, control, or business operations, as outlined in the tables below:
            Number of Registered Persons Associated with Applicant Small Medium Large
            Tier 1 1–10 151–300 501–1,000
            Tier 2 11–100 301–500 1,001–5,000
            Tier 3 101–150 N/A >5,000

            Application Fee per Tier Small Medium Large
            Merger      
            Tier 1 $7,500 $25,000 $50,000
            Tier 2 $12,500 $30,000 $75,000
            Tier 3 $20,000 N/A $100,000
            Material Change      
            Tier 1 $5,000 $20,000 $35,000
            Tier 2 $10,000 $25,000 $50,000
            Tier 3 $15,000 N/A $75,000
            Ownership Change $5,000 $10,000 $15,000
            Transfer of Assets $5,000 $10,000 $15,000
            Acquisition $5,000 $10,000 $15,000
            (2) If an applicant's application for approval of a change in ownership, control, or business operations involves more than one type of application identified in the "application fee per tier and application type" table in paragraph (i)(1) of this section, the application fee shall be the highest amount of the applicable fees (e.g., the application fee for an applicant associated with 1–10 registered persons filing an application involving a merger and material change would be $7,500).
            (3) FINRA shall waive the fee assessed pursuant to paragraph (i)(1) for a continuing membership application where FINRA determines that such application is proposing less significant changes that do not require substantial staff review. For example, a continuing membership application may qualify for a fee waiver under this paragraph (i)(3) where the proposed change:
            (A) does not make any day-to-day changes in the applicant's business activities, management, supervision, assets, or liabilities, and the applicant is only proposing a change in the:
            (i) applicant's legal structure (e.g., changing from a corporation to an LLC);
            (ii) equity ownership, partnership capital, or other ownership interest in an applicant held by a corporate legal structure that is due solely to a reorganization of ownership or control of the applicant within the corporate legal structure (e.g., reorganizing only to add a holding company to the corporate legal structure's ownership or control chain of the applicant); or
            (iii) percentage of ownership interest or partnership capital of an applicant's existing owners or partners resulting in an owner or partner owning or controlling 25 percent or more of the ownership interest or partnership and that owner or partner has no disclosure or disciplinary issues in the preceding five years; or
            (B) is filed in connection with a direct or indirect acquisition or transfer of 25 percent or more in the aggregate of the applicant's assets or any asset, business, or line of operation that generates revenues composing 25 percent or more in the aggregate of the applicant's earnings, measured on a rolling 36-month basis, where the applicant also is ceasing operations as a broker or dealer (including filing a Form BDW with the SEC); and there are either:
            (i) no pending or unpaid settled customer related claims (including, but not limited to, pending or unpaid settled arbitration or litigation actions) against the applicant or any of its associated persons; or
            (ii) pending or unpaid settled customer related claims (including, but not limited to, pending or unpaid settled arbitration or litigation actions) against the applicant or its associated persons, but the applicant demonstrates in the continuing membership application its ability to satisfy in full any unpaid customer related claim (e.g., sufficient capital or escrow funds, proof of adequate insurance for customer related claims).
            Amended by SR-FINRA-2016-025 eff. July 1, 2016.
            Amended by SR-FINRA-2015-044 eff. Jan. 4, 2016.
            Amended by SR-FINRA-2015-015 eff. Oct. 1, 2015.
            Amended by SR-FINRA-2015-031 eff. Sept. 21, 2015.
            Amended by SR-FINRA-2015-027 eff. Aug. 24, 2015.
            Amended by SR-FINRA-2015-006 eff. Apr. 1, 2015.
            Amended by SR-FINRA-2013-015 eff. Feb. 5, 2013.
            Amended by SR-FINRA-2012-030 eff. Jan. 2, 2013.
            Amended by SR-FINRA-2012-031 eff. Jan. 2, 2013.
            Amended by SR-FINRA-2012-031 eff. July 23, 2012.
            Amended by SR-FINRA-2012-009 eff. Apr. 2, 2012.
            Amended by SR-FINRA-2011-042 eff. Oct. 17, 2011.
            Amended by SR-FINRA-2011-026 eff. Sept. 1, 2011.
            Amended by SR-FINRA-2010-016 eff. April 9, 2010.
            Amended by SR-FINRA-2008-067 eff. Feb. 8, 2010.
            Amended by SR-FINRA-2009-071 eff. Jan. 4, 2010.
            Amended by SR-FINRA-2009-056 eff. Nov. 2, 2009.
            Amended by SR-FINRA-2008-053 eff. Jan. 2, 2009.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-FINRA-2008-035 eff. July 30, 2007.
            Amended by SR-NASD-2006-065 eff. July 3, 2006.
            Amended by SR-NASD-2005-133 eff. Jan. 1, 2006.
            Amended by SR-NASD-2005-132 eff. Jan. 1, 2006.
            Amended by SR-NASD-2004-145 eff. Jan. 1, 2005.
            Amended by SR-NASD-2004-087 eff. June 7, 2004.
            Amended by SR-NASD-2004-049 eff. Mar. 30, 2004.
            Amended by SR-NASD-2003-192 eff. Feb. 11, 2004.
            Amended by SR-NASD-2004-115 eff. Jan. 1, 2004.
            Amended by SR-NASD-2003-148 eff. Oct. 3, 2003.
            Amended by SR-NASD-2003-109 eff. July 10, 2003.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-147 eff. Oct. 18, 2002.
            Amended by SR-NASD-2002-100 eff. July 25, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-00-39 eff. Sept. 10, 2001.
            Amended by SR-NASD-99-38 eff. Sept. 15, 1999.
            Amended by SR-NASD-99-43 eff. Sept. 7, 1999.
            Amended by SR-NASD-98-77 eff. Jan 1, 1999.
            Amended by SR-NASD-98-95 eff. Dec 21, 1998.
            Amended by SR-NASD-96-53 eff. Jan 3, 1997.
            Amended by SR-NASD-95-32 eff. July 26, 1995.
            Amended by SR-NASD-95-23 eff. July 1, 1995.
            Amended by SR-NASD-94-58 eff. Dec. 9, 1994.
            Amended by SR-NASD-94-06 eff. Feb. 9, 1994.
            Amended by SR-NASD-94-05 eff. Jan. 21, 1994.
            Schedule A, Sec. 2 amended eff. May 20, 1975; May 30, 1979; Oct. 1, 1979; Nov. 23, 1982; Oct. 1, 1985; Aug. 14, 1987; Apr. 4, 1990 (eff. May 1, 1990); May 3, 1990; Aug. 13, 1990; Mar. 1, 1991; July 16, 1991; Nov. 4, 1992; July 13, 1993.

            Selected Notices: 95-59, 98-89; 99-75, 01-54, 04-25, 08-61, 09-67, 09-71, 11-36, 12-16, 12-32, 13-11, 15-28, 15-45.

            • IM-Section 4(b)(1) and (e) Exemption from Certain Registration and Membership Application Fees for Certain NYSE and NYSE Alternext US LLC Member Organizations

              NYSE and NYSE Alternext US LLC member organizations that become members of FINRA pursuant to IM-1013-1 and IM-1013-2, respectively, shall not be assessed the fee set forth in Section 4(b)(1) to Schedule A of the FINRA By-Laws for the initial Form U4 filed by firms for the registration of any representative or principal associated with the member organization at the time a firm submits its application for FINRA membership. Such firms also shall not be assessed the membership application fee set forth in Section 4(e) to Schedule A of the FINRA By-Laws. However, those firms will otherwise remain subject to FINRA's By-Laws and Schedules to By-Laws, including Schedule A.
              Amended by SR-FINRA-2008-043 eff. Oct. 1, 2008.
              Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
              Adopted by SR-NASD-2007-056 eff. Oct. 12, 2007.

          • Section 5 — Elimination of Duplicate Assessments and Fees

            Two or more members under substantially the same ownership or control shall be required to pay (1) only one personnel assessment and one system processing fee annually for those individuals employed by more than one of the members; (2) only one fee annually for each branch office registered at the same location by more than one of the members; and (3) one registration fee, one fingerprint processing fee, and one termination fee applicable to each applicant registered or terminated simultaneously with two or more members under substantially the same ownership or control. To establish their eligibility to receive the reduction in fees described herein, members must provide FINRA with information as requested by FINRA and in the format specified by FINRA prior to FINRA's assessment of such fees.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2003-194 eff. Jan. 6, 2004.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-98-77 eff. Jan 1, 1999.

            Selected Notice: 98-89.

          • Section 6 — Assessments and Fees for New Members, Resigning Members and Successor Organizations

            (a) The assessment of a firm, which is not a member throughout FINRA's full calendar year from January 1 to December 31, shall be based upon the number of quarter years of membership. The proration for a new member shall include the quarter year in which the member is admitted to membership. The proration for a member which resigns shall include the quarter year in which the member's letter of resignation is received in FINRA's Executive Office.
            (b) A member that is a successor organization to a previous member or members shall assume the unpaid balance of the assessments of its predecessor or predecessors and its next assessment shall be determined, if applicable, upon the assessment data of its predecessors. Such successor member shall not be required to re-register branch offices and personnel of predecessor members, but shall be required to pay registration fees therefor. Whether a member is the successor organization to a previous member or members shall be determined by FINRA upon a consideration of the terms and conditions of the particular merger, consolidation, reorganization, or succession. A member that has simply acquired the personnel and offices of another member under circumstances that do not constitute the member a successor organization shall not be required to assume the unpaid assessments of the other member. Such non-successor member shall be required to re-register the branch offices and personnel acquired from the other member and pay applicable registration fees.
            Amended by SR-FINRA-2012-030 eff. Jan. 2, 2013.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Schedule A, Sec. 4 added by SR-NASD-75-01 eff. Dec. 1, 1975.

            Selected Notices: 95-94, 96-43, 08-19, 12-32.

          • Section 7 — Fees for Filing Documents Pursuant to the Corporate Financing Rule

            (a) There shall be a fee imposed for the filing of initial documents relating to any offering filed with FINRA pursuant to the Corporate Financing Rule equal to: (1) $500 plus .015% of the proposed maximum aggregate offering price or other applicable value of all securities registered on an SEC registration statement or included on any other type of offering document (where not filed with the SEC), but shall not exceed $225,500; or (2) $225,500 for an offering of securities on an automatically effective Form S-3 or F-3 registration statement filed with the SEC and offered pursuant to Securities Act Rule 415 by a Well-Known Seasoned Issuer as defined in Securities Act Rule 405. The amount of the filing fee may be rounded to the nearest dollar.
            (b) There shall be an additional fee imposed for the filing of any amendment or other change to the documents initially filed with FINRA pursuant to the Corporate Financing Rule equal to .015% of the net increase in the maximum aggregate offering price or other applicable value of all securities registered on an SEC registration statement, or any related Securities Act Rule 462(b) registration statement, or reflected on any Securities Act Rule 430A prospectus, or included on any other type of offering document. However, the aggregate of all filing fees paid in connection with an SEC registration statement or other type of offering document shall not exceed $225,500.
            Amended by SR-FINRA-2012-029 eff. July 2, 2012.
            Amended by SR-FINRA-2008-001 eff. Jan 1, 2008.
            Amended by SR-NASD-2007-006 eff. Feb. 26, 2007.
            Amended by SR-NASD-2004-177 eff. Jan. 1, 2005.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-99-01 eff. May 17, 1999.
            Amended by SR-NASD-98-87 eff. Nov. 23, 1998.
            Amended by SR-NASD-94-12 eff. Mar. 7, 1994.
            Amended eff. Sept. 7, 1989 and Apr. 15, 1992.
            Schedule A, Sec. 6 added eff. May 25, 1970.

            Selected Notices: 88-81, 99-50, 04-91, 07-05, 12-32.

          • Section 8 — Service Charge for Processing Extension of Time Requests

            (a) There shall be a service charge imposed on all members who file with the association a request for an extension of time pursuant to the provisions of Section 220.4(c)(3) of Regulation T and/or paragraph (n) of Rule 15c3-3 under the Act.
            (b) The service charge for processing each initial extension of time request and for all subsequent extension of time requests (1) involving the same transaction under Regulation T and/or (2) involving an extension of time previously granted pursuant to SEC Rule 15c3-3(n) shall be $4.00 per request.
            Amended by SR-NASD-2006-063 eff. July 1, 2006.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended Oct. 1, 1979 and Sept. 7, 1989.
            Schedule A, Sec. 7 added eff. Oct. 1, 1974.

          • Section 9 — Subscription Charges for Registration Batch Filing/Data Download Via the Web CRD Electronic File Transfer (EFT) System

            (a) Each firm electing to subscribe to the Web CRD Electronic File Transfer (EFT) System for registration batch filing and/or data download will be assessed an annual subscription fee based on the type of service that the firm uses. The fee schedule to be paid by each firm is as follows:
            (1) Data Download — $1,800.00
            (2) Form Filing — $3,600.00
            (3) Data Download and Form Filing — $4,800.00
            Amended by SR-NASD-2003-18 effective date February 11, 2003 (implementation date March 24, 2003).
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Renumbered as Sec. 9 by SR-NASD-85-23 eff. Oct. 1, 1985.
            Amended by SR-NASD-84-13 eff. Sept. 6, 1984.
            Sec. 10 added by SR-NASD-83-18 eff. Oct. 1, 1983.

          • Section 10 — Request for Data and Publications

            Where there is no provision elsewhere in the By-Laws for specific fees, the corporation may impose and collect compensatory charges for data from its records or for its publications.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Renumbered as Sec. 10 eff. Oct. 1, 1985.
            Schedule A, Sec. 11 added eff. Mar. 19, 1985.

          • Section 11 — Reserved



            * * *

            Resolution of the Board of Governors

            Failure to File Assessment Report with Membership Application

            District Committees shall not consider applications for membership and in no event shall an application for membership be approved for admission to membership, until an assessment report has been filed by the applicant.

            The President shall notify District Committees when assessment reports have not been filed with the membership applications.

            * * *

            Resolution of the Board of Governors

            Branch Offices

            Each member of the Corporation shall immediately advise the Board of Governors of the opening or closing of any branch office of such member.

            Each member shall be subject to the fee specified in Schedule A to the By-Laws for each branch office in existence during the fiscal year or part thereof.

            * * *

            Resolution of the Board of Governors

            Expulsion and Revocation for Failure to Pay Dues and Assessments

            Article VI, Section 3 of the By-Laws provides that the Board of Governors, after fifteen days notice in writing, may suspend or cancel the membership of any member in arrears in the payment of any dues, assessments or other charges or for failure to furnish any information or reports requested by the Board of Governors pursuant to Article VI, Section 2 of the By-Laws, pertaining to furnishing any information or reports in connection with the determination of the amount of admission fees, dues, assessments or other charges payable by the members during any given fiscal year; and the Board of Governors deems it necessary and advisable that the President exercise the power granted to the Board of Governors by this provision when he deems it necessary and appropriate.

            Therefore, the President of the Association is authorized and empowered to take any and all action permitted by the authority granted to the Board of Governors in Article VI, Section 3 of the By-Laws in respect to the suspension or cancellation of membership.

            * * *

            Cross Reference:

            The procedures for suspension or cancellation of membership are contained in the Rule 9620 Series.

            * * *

            Resolution of the Board of Governors

            Suspension for Failure to Register Personnel and to Pay Fees

            Pursuant to the provisions of Section 3 of Article VI of the Association's By-Laws, the President be and hereby is authorized and directed, after fifteen days notice in writing, to suspend the membership of any member on behalf of the Board of Governors who has not filed appropriate application for registration of Registered Representatives after due notice by registered mail, return receipt requested, and has not paid the prescribed fee; provided that the President shall further notify the Executive Committee of the Board of Governors with respect to such suspension and shall advise the member concerned in writing as to such suspension.

            * * *

            Cross Reference:

            The procedures for suspension or cancellation of membership are contained in the Rule 9620 Series.

            * * *

            Resolution of the Board of Governors

            Fees for Registered Representatives

            Each application for registration as a "Registered Representative" or "Registered Principal" filed with the Corporation shall be accompanied by payment of the fee specified in Schedule A of the By-Laws.

            Where an applicant for registration as a "Registered Representative" or "Registered Principal" is required to pass an examination in accordance with the provisions of Section 2 of Article II of the By-Laws the application shall be accompanied by payment of such additional fee as specified in Schedule A of the By-Laws.

            The registration of a "Registered Representative" or "Registered Principal" of the member shall not become effective unless accompanied by such payment as required above.

            In no event shall such fees be refunded.

            The President is directed to advise any member who has filed an application for registration of a "Registered Representative" or "Registered Principal" and has not accompanied such application with payment of the required fee or fees as described above that such registration may not become effective until such payment is made.

            * * *

            Renumbered by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Renumbered by SR-NASD-2002-98 eff. July 24, 2002.
            Schedule A, Sec. 11 deleted eff. Jan. 5, 1993.

          • Section 12 — Application and Annual Fees for Member Firms with Statutorily Disqualified Individuals

            (a) Any member firm seeking to employ or continuing to employ as an associated person any individual who is subject to a disqualification from association with a member as set forth in Article III, Section 4 of the By-Laws of the Corporation shall, upon the filing of an application pursuant to Article III, Section 3, paragraph (d) of the By-Laws of the Corporation, pay to FINRA a fee of $1,500.00. Any member firm whose application filed pursuant to Article III, Section 3, paragraph (d) of the By-Laws of the Corporation results in a full hearing for eligibility in FINRA pursuant to the Rule 9520 Series, shall pay to FINRA an additional fee of $2,500.00.
            (b) Any member firm continuing to employ as an associated person any individual subject to disqualification from association with a member as set forth in Article III, Section 4 of the By-Laws of the Corporation shall pay annually to FINRA a fee of $1,500.00 when such person or individual is classified as a Tier 1 statutorily disqualified individual, and a fee of $1,000.00 when such person or individual is classified as a Tier 2 statutorily disqualified individual.
            Amended by SR-FINRA-2015-027 eff. Aug. 24, 2015.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-94-57 eff. Oct. 14, 1994.
            Amended by SR-NASD-88-3 eff. Feb. 29, 1988.
            Adopted by SR-NASD-86-1 eff. Jan. 29, 1986.

            Selected Notices: 86-11, 88-15.

          • Section 13 — Review Charge for Communications Filed or Submitted

            There shall be a review charge for each and every communication, whether in printed, video or other form, filed with or submitted to FINRA, except for items that are filed or submitted in response to a written request from FINRA's Advertising Regulation Department ("the Department") issued pursuant to the spot check procedures set forth in FINRA rules as follows: (1) for printed material reviewed, $125.00, plus $10.00 for each page reviewed in excess of 10 pages; and (2) for video or audio media, $125.00, plus $10.00 per minute for each minute of tape reviewed in excess of 10 minutes.
            Where a member requests expedited review of material submitted to the Department there shall be a review charge of $600.00 per item plus $50.00 for each page reviewed in excess of 10 pages. Expedited review shall be completed within three business days, not including the date the item is received by the Department, unless a shorter or longer period is agreed to by the Department. The Department may, in its sole discretion, refuse requests for expedited review.
            Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
            Amended by SR-FINRA-2012-028 eff. July 2, 2012.
            Amended by SR-FINRA-2008-001 eff. Jan. 1, 2008.
            Amended by SR-NASD-2004-179 eff. Dec. 8, 2004.
            Amended by SR-NASD-2002-99 eff. Dec. 30, 2002.
            Amended by SR-NASD-2002-182 eff. Dec. 24, 2002.
            Amended by SR-NASD-2002-98 eff. July 24, 2002.
            Amended by SR-NASD-98-82 eff. Jan. 1, 1999.
            Amended by SR-NASD-94-21 eff. May 1, 1994.
            Amended by SR-NASD-89-37 eff. Sept. 7, 1989; Jan. 25, 1991.
            Adopted by SR-NASD-88-2 eff. Feb. 22, 1988.

            Selected Notices: 88-14, 91-13, 94-27, 98-97, 12-32.

          • Section 14 — Accounting Support Fee for Governmental Accounting Standards Board

            (a) FINRA shall, in accordance with this Section, allocate, assess, and collect a GASB Accounting Support Fee to fund the annual budget of the Governmental Accounting Standards Board. The GASB Accounting Support Fee is based on the recoverable annual budgeted expenses provided to FINRA by the Governmental Accounting Standards Board, and amounts collected under this Section shall be remitted to the Financial Accounting Foundation.
            (b) Except as provided in paragraph (c), each calendar quarter, each member shall pay an assessment to FINRA of its portion of one quarter of the annual GASB Accounting Support Fee amount that reflects the member's portion of the total par value of municipal securities transactions reported by members to the Municipal Securities Rulemaking Board under MSRB Rule G-14(b) in the previous calendar quarter.
            (c) If, in a given calendar quarter, a member's GASB Accounting Support Fee assessment is less than $25, the member will not be assessed a GASB Accounting Support Fee for that quarter. The amount not assessed to the member will be reallocated among the other members assessed a GASB Accounting Support Fee for that quarter based on each member's portion of the total par value of municipal securities transactions reported by members to the Municipal Securities Rulemaking Board under MSRB Rule G-14(b) in the previous calendar quarter.
            Adopted by SR-FINRA-2011-073 eff. Feb. 23, 2012.

            Selected Notice: 12-15.

          • Section 15 — Funding Portal Member Fees

            (a) FINRA shall, in accordance with this section, collect fees that are designed to recover the costs to FINRA of the supervision and regulation of funding portal members, including the membership process and performing examinations, policy, rulemaking, interpretive and enforcement activities. FINRA shall periodically review funding portal fee revenues in conjunction with these costs to determine the applicable fees and rates. FINRA shall publish notices of the fees and adjustments to the assessment rates applicable under this section.
            (b)(1) Each funding portal applicant for membership shall be assessed an application fee of $2,700 at the time Form FP-NMA is filed.
            (b)(2) Each funding portal applicant for approval of a change in ownership or control shall be assessed an application fee of $500 at the time Form FP-CMA is filed.
            (b)(3) If an application pursuant to paragraph (b)(1) or (b)(2) is rejected as incomplete or is withdrawn by the funding portal applicant in accordance with Funding Portal Rule 110(a)(5) or (a)(7), the application fee shall be refunded less $250, which shall be retained by FINRA as a processing fee.
            (c)(1) Each funding portal member shall pay an annual gross income assessment determined in accordance with Section 1(c) of this Schedule A. Gross revenue is defined for assessment purposes as gross revenue as reported on Form FP-Statement of Revenue.
            (c)(2) The annual fee of a funding portal that is not a member throughout FINRA's full calendar year from January 1 to December 31 shall be based upon the number of quarter years of membership. The proration for a new funding portal member shall include the quarter year in which the funding portal member is admitted to membership. The proration for a funding portal member that withdraws from membership shall include the quarter year in which the funding portal member's withdrawal from membership is effective.
            (c)(3) A funding portal member that is a successor organization to a previous funding portal member or members shall assume the unpaid balance of the assessments of its predecessor or predecessors and its next assessment shall be determined, if applicable, upon the assessment data of its predecessors. Whether a funding portal member is the successor organization to a previous funding portal member or members shall be determined by FINRA upon a consideration of the terms and conditions of the particular merger, consolidation, reorganization, or succession. A funding portal member that has simply acquired the personnel and offices of another funding portal member under circumstances that do not constitute the funding portal member a successor organization shall not be required to assume the unpaid assessments of the other member.
            (d) A nonresident funding portal member shall reimburse FINRA for any expenses incurred in connection with examinations of the member to the extent that such expenses exceed the cost of examining a member located within the continental United States in the geographic location most distant from the District Office of appropriate jurisdiction.
            (e) FINRA shall assess each funding portal member a fee of $100 on the first day and $25 for each subsequent day, up to a maximum of $1,575, that a new disclosure event or a change in the status of a previously reported matter is not timely filed pursuant to Funding Portal Rule 800(b)(2).
            (f)(1) A funding portal member shall pay a fee of $1,500 at the time that it files an application to initiate eligibility proceedings pursuant to Funding Portal Rule 900(b). Any funding portal member whose application results in a full hearing for eligibility in FINRA pursuant to Funding Portal Rule 900(b) shall pay to FINRA an additional fee of $2,500.
            (f)(2) A funding portal member that continues to associate with any individual subject to disqualification or otherwise ineligible from association with a member shall pay annually to FINRA a fee of $1,500 when such person or individual is classified as a Tier 1 statutorily disqualified individual, and a fee of $1,000 when such person or individual is classified as a Tier 2 statutorily disqualified individual.
            (g) A funding portal member shall pay $15 for processing and posting to the CRD system each set of fingerprints submitted electronically by the member, or $30 if submitted in non-electronic format, to FINRA, plus any other charge that may be imposed by the United States Department of Justice for processing each set of fingerprints.
            (h) Request for Data and Publications. Where there is no provision elsewhere in the By-Laws for specific fees, the corporation may impose and collect compensatory charges for data from its records or for its publications.
            Adopted by SR-FINRA-2015-041 eff. Jan. 29, 2016.

      • By-Laws of FINRA Regulation, Inc.

        • ARTICLE I DEFINITIONS

          When used in these By-Laws, unless the context otherwise requires, the term:
          (a) "Act" means the Securities Exchange Act of 1934, as amended;
          (b) "Board" means the Board of Directors of FINRA Regulation;
          (c) "broker" shall have the same meaning as in Section 3(a)(4) of the Act;
          (d) "Commission" means the Securities and Exchange Commission;
          (e) "Corporation" means the Financial Industry Regulatory Authority, Inc., the National Association of Securities Dealers, Inc., or any future name of the entity;
          (f) "day" means calendar day;
          (g) "dealer" shall have the same meaning as in Section 3(a)(5) of the Act;
          (h) "Delaware law" means the General Corporation Law of the State of Delaware;
          (i) "Delegation Plan" means the "Plan of Allocation and Delegation of Functions by FINRA to FINRA Regulation, Inc." as approved by the Commission, and as amended from time to time;
          (j) "Director" means a member of the Board;
          (k) "district" means a district established by the Board pursuant to Article VIII, Section 8.1 of these By-Laws;
          (l) "District Committee" means a District Committee elected pursuant to Article VIII of these By-Laws;
          (m) "District Director" means a FINRA Regulation staff member who heads a district office;
          (n) "district office" means an office of FINRA Regulation located in a district;
          (o) "Electronic transmission" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process;
          (p) "Executive Representative" means the executive representative of a FINRA member appointed pursuant to Article IV, Section 3 of the FINRA By-Laws;
          (q) "FINRA" means the Financial Industry Regulatory Authority, Inc.;
          (r) "FINRA Board" means the FINRA Board of Governors;
          (s) "FINRA member" means any broker or dealer admitted to membership in FINRA. For purposes of the Code of Arbitration Procedure for Customer Disputes or the Code of Arbitration Procedure for Industry Disputes, FINRA members include any broker or dealer admitted to membership in FINRA whether or not the membership has been terminated or cancelled; and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code of Arbitration Procedure for Customer Disputes or the Code of Arbitration Procedure for Industry Disputes and/or to be treated as members of FINRA for purposes of the Codes of Arbitration Procedure, whether or not the membership has been terminated or cancelled;
          (t) "FINRA Regulation" means FINRA Regulation, Inc.;
          (u) “Governor” means a member of the FINRA Board;
          (v) "Independent Agent" means a corporation or entity selected by the Secretary of FINRA or FINRA Regulation to assist FINRA Regulation with nomination and election procedures under Articles VI and VIII of these By-Laws and the representatives of such corporation or entity;
          (w) "Industry Director" means a Director of the Board (other than the Chairman of the FINRA Board and the Chief Executive Officer of FINRA) who (1) is or has served in the prior year as an officer, director (other than as an independent director), employee, or controlling person of a broker or dealer, or (2) has a consulting or employment relationship with or provides professional services to a self-regulatory organization registered under the Act, or has had any such relationship or provided any such services at any time within the prior year;
          (x) “Industry Member” means a National Adjudicatory Council or committee member who (1) is or has served in the prior year as an officer, director, employee, or controlling person of a broker or dealer, excluding an independent director, an outside director, or a director not engaged in the day-to-day management of a broker or dealer; (2) is an officer, director (excluding an outside director), or employee of an entity that owns more than ten percent of the equity of a broker or dealer, and the broker or dealer accounts for more than five percent of the gross revenues received by the consolidated entity; (3) owns more than five percent of the equity securities of any broker or dealer, whose investments in brokers or dealers exceed ten percent of his or her net worth, or whose ownership interest otherwise permits him or her to be engaged in the day-to-day management of a broker or dealer; (4) provides professional services to brokers or dealers, and such services constitute 20 percent or more of the professional revenues received by the member or 20 percent or more of the gross revenues received by the member's firm or partnership (for the purposes of determining membership on the National Arbitration and Mediation Committee, any services provided in the capacity as a mediator of disputes involving a broker or dealer and not representing any party in such mediations shall not be considered professional services provided to brokers or dealers); (5) provides professional services to a director, officer, or employee of a broker, dealer, or corporation that owns 50 percent or more of the voting stock of a broker or dealer, and such services relate to the director's, officer's, or employee's professional capacity and constitute 20 percent or more of the professional revenues received by the member or 20 percent or more of the gross revenues received by the member's firm or partnership (for the purposes of determining membership on the National Arbitration and Mediation Committee, any services provided in the capacity as a mediator of disputes involving a director, officer, or employee as described in this subsection (5) and not representing any party in such mediations shall not be considered professional services provided to such individuals); or (6) has a consulting or employment relationship with or provides professional services to a self-regulatory organization registered under the Act, or has had any such relationship or provided any such services at any time within the prior year;
          (y) “Large Firm” means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has 500 or more registered persons;
          (z) “Large Firm NAC Member” or “Large Firm Committee Member” means a National Adjudicatory Council or committee member that must, in order to be eligible to serve, be an Industry Member and, at the time of election or appointment, must be registered with a member which is a Large Firm;
          (aa) “Mid-Size Firm” means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least 151 and no more than 499 registered persons;
          (bb) “Mid-Size Firm NAC Member” or “Mid-Size Firm Committee Member” means a National Adjudicatory Council or committee member that must, in order to be eligible to serve, be an Industry Member and, at the time of election or appointment, must be registered with a member which is a Mid-Size Firm;
          (cc) "National Adjudicatory Council" or “NAC” means a body appointed pursuant to Article V of these By-Laws.
          (dd) "Nominating Committee" means the Nominating Committee appointed pursuant to Article VII, Section 9 of the FINRA By-Laws;
          (ee) "Non-Industry Member" means a National Adjudicatory Council or committee member who is (1) a Public Member; (2) an officer or employee of an issuer of securities listed on a market for which FINRA provides regulation; (3) an officer or employee of an issuer of unlisted securities that are traded in the over-the-counter market; or (4) any other individual who would not be an Industry Member;
          (ff) "person associated with a member" or "associated person of a member" means: (1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member;
          (gg) "Public Director" means a Director of the Board who is not an Industry Director and who otherwise has no material business relationship with a broker or dealer or a self-regulatory organization registered under the Act (other than serving as a public director of such a self-regulatory organization);
          (hh) “Public Member” means a National Adjudicatory Council or committee member who has no material business relationship with a broker or dealer or a self-regulatory organization registered under the Act (other than serving as a public director or a public member on a committee of such a self-regulatory organization or, for the purposes of determining membership on the National Arbitration and Mediation Committee, acting in the capacity as a mediator of disputes involving a broker or dealer and not representing any party in such mediations);
          (ii) “Rules of the Corporation” or “Rules” means the numbered rules set forth in the Manual of the Corporation beginning with the Rule 0100 Series, as adopted by the FINRA Board pursuant to the FINRA By-Laws, as hereafter amended or supplemented;
          (jj) “Small Firm” means any broker or dealer admitted to membership in the Corporation which, at the time of determination, has at least one and no more than 150 registered persons; and
          (kk) “Small Firm NAC Member” or “Small Firm Committee Member” means a National Adjudicatory Council or committee member that must, in order to be eligible to serve, be an Industry Member and, at the time of election or appointment, must be registered with a member which is a Small Firm.
          Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
          Amended by SR-FINRA-2011-011 eff. April 28, 2011.
          Amended by SR-FINRA-2008-046. eff. Nov. 6, 2008.
          Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
          Amended by SR-NASD-2001-57 eff. Sept. 12, 2001.
          Amended by SR-NASD-01-13 eff. May 12, 2001.
          Amended by SR-NASD-99-21 eff. July 9, 2000.
          Amended by SR-NASD-99-35 eff. Dec. 1, 1999.
          Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
          Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          Selected Notice: 99-95, 16-04

        • ARTICLE II OFFICES

          • Location

            Sec. 2.1  The address of the registered office of FINRA Regulation in the State of Delaware and the name of the registered agent at such address shall be: Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808. FINRA Regulation also may have offices at such other places both within and without the State of Delaware as the Board may from time to time designate or the business of FINRA Regulation may require.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notices: 16-04

          • Change of Location

            Sec. 2.2  In the manner permitted by law, the Board or the registered agent may change the address of FINRA Regulation's registered office in the State of Delaware and the Board may make, revoke, or change the designation of the registered agent.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE III MEETINGS OF THE STOCKHOLDER

          • Action by Consent of Stockholder

            Sec. 3.1  Any action required or permitted by law to be taken at any meeting of the stockholder of FINRA Regulation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holder of the outstanding stock.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE IV BOARD OF DIRECTORS

          • General Powers

            Sec. 4.1  The property, business, and affairs of FINRA Regulation shall be managed by or under the direction of the Board. The Board may exercise all such powers of FINRA Regulation and have the authority to perform all such lawful acts as are permitted by law, the Restated Certificate of Incorporation, these By-Laws, or the Delegation Plan to assist FINRA in fulfilling its self-regulatory responsibilities as set forth in Section 15A of the Act, and to support such other initiatives as the Board may deem appropriate. To the fullest extent permitted by applicable law, the Restated Certificate of Incorporation, and these By-Laws, the Board may delegate any of its powers to a committee appointed pursuant to Section 4.13 or to FINRA Regulation staff in a manner not inconsistent with the Delegation Plan.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Number of Directors

            Sec. 4.2  The Board shall consist of no fewer than five and no more than seventeen Directors, the exact number of Board members will be determined by resolution adopted by the stockholder of FINRA Regulation from time to time. Any new Director position created as a result of an increase in the size of the Board shall be filled pursuant to Section 4.4.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-2001-57 eff. Sept. 12, 2001.
            Amended by SR-NASD-00-43 eff. July 21, 2000.
            Amended by SR-NASD-99-10 eff. Feb. 8, 1999.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notices: 09-39, 16-04.

          • Qualifications

            Sec. 4.3  (a) The Board shall consist exclusively of members of the FINRA Board. The number of Public Directors shall exceed the number of Industry Directors. The Chairman of the FINRA Board and the Chief Executive Officer of FINRA shall be ex-officio non-voting members of the Board. At least two, and not less than 20%, of the Directors shall be Small Firm, Mid-Size Firm, or Large Firm Governors. The terms "Small Firm Governor," "Mid-Size Firm Governor," and "Large Firm Governor" are defined as specified in the FINRA By-Laws. Ex-officio non-voting members of the Board shall not be counted as Board members for purposes of this section.
            (b) Contemporaneous with the annual election of Directors, the stockholder of FINRA Regulation shall designate from the elected Directors a Chair and such other persons having such titles as it shall deem necessary or advisable to serve until the next annual election or until their successors are chosen and qualify. The persons so elected shall have such powers and duties as may be determined from time to time by the Board. The Board, by resolution adopted by a majority of Directors then in office, may remove any such person from such position at any time.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-2001-57 eff. Sept. 12, 2001.
            Amended by SR-NASD-99-10 eff. Feb. 8, 1999.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Election

            Sec. 4.4  Except as otherwise provided by law, these By-Laws, or the Delegation Plan, Directors of FINRA Regulation shall be elected each year at the annual meeting of the stockholder, or at a special meeting called for such purpose in lieu of the annual meeting. If the annual election of Directors is not held on the date designated therefor, the Directors shall cause such election to be held as soon thereafter as convenient.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Resignation

            Sec. 4.5  Any Director may resign at any time either upon written notice of resignation to the Chair of the Board or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time is not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Removal

            Sec. 4.6  Any or all of the Directors may be removed from office at any time, with or without cause by the stockholder of FINRA Regulation.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Disqualification

            Sec. 4.7  The term of office of a Director shall terminate immediately upon a determination by the Board, by a majority vote of the remaining Directors, that: (a) the Director no longer satisfies the classification for which the Director was elected; and (b) the Director's continued service as such would violate the compositional requirements of the Board set forth in Section 4.3. If the term of office of a Director terminates under this Section, and the remaining term of office of such Director at the time of termination is not more than six months, during the period of vacancy the Board shall not be deemed to be in violation of the provisions of Section 4.3 requiring that the number of Public Directors exceed the number of Industry Directors by virtue of such vacancy and no violation of the provisions of Section 4.3 regarding the number of Small Firm, Mid-Size Firm, and Large Firm Governors shall be deemed to have occurred.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Filling of Vacancies

            Sec. 4.8  If a Director position becomes vacant, whether because of death, disability, disqualification, removal, or resignation, the Nominating Committee shall nominate, and the FINRA Board shall, by majority vote, cause the election of a person satisfying the qualifications for the directorship as provided in Section 4.3 to fill such vacancy, except that if the remaining term of office for the vacant Director position is not more than six months, no replacement shall be required.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Quorum and Voting

            Sec. 4.9  (a) At all meetings of the Board, unless otherwise set forth in these By-Laws or required by law, a quorum for the transaction of business shall consist of a majority of the Board, including not less than 50 percent of the Public Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting until a quorum is present.
            (b) The vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Regulation

            Sec. 4.10  The Board may adopt such rules, regulations, and requirements for the conduct of the business and management of FINRA Regulation not inconsistent with the law, the Restated Certificate of Incorporation, these By-Laws, the Delegation Plan, the Rules of the Corporation, or the By-Laws of FINRA, as the Board may deem proper. A Director shall, in the performance of such Director's duties, be fully protected in relying in good faith upon the books of account or reports made to FINRA Regulation by any of its officers, by an independent certified public accountant, by an appraiser selected with reasonable care by the Board or any committee of the Board or by any agent of FINRA Regulation, or in relying in good faith upon other records of FINRA Regulation.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notices: 09-39, 16-04.

          • Meetings

            Sec. 4.11  (a) An annual meeting of the Board shall be held for the purpose of organization, election of officers, and transaction of any other business. If such meeting is held promptly after and at the place specified for the annual meeting of the stockholder, no notice of the annual meeting of the Board need be given. Otherwise, such annual meeting shall be held at such time and place as may be specified in a notice given in accordance with Section 4.12.
            (b) Regular meetings of the Board may be held at such time and place, within or without the State of Delaware, as determined from time to time by the Board. After such determination has been made, notice shall be given in accordance with Section 4.12.
            (c) Special meetings of the Board may be called by the Chair of the Board or by at least one-third of the Directors then in office. Notice of any special meeting of the Board shall be given to each Director in accordance with Section 4.12.
            (d) A Director or member of any committee appointed by the Board may participate in a meeting of the Board or of such committee through the use of a conference telephone or similar communications equipment by means of which all persons participating in the meeting may hear one another, and such participation in a meeting shall constitute presence in person at such meeting for all purposes.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Notice of Meetings; Waiver of Notice

            Sec. 4.12  (a) Notice of any meeting of the Board shall be deemed to be duly given to a Director if: (i) mailed to the address last made known in writing to FINRA Regulation by such Director as the address to which such notices are to be sent, at least seven days before the day on which such meeting is to be held; (ii) sent to the Director at such address by electronic transmission not later than the day before the day on which such meeting is to be held; or (iii) delivered to the Director personally or orally, by telephone or otherwise, not later than the day before the day on which such meeting is to be held. Each notice shall state the time and place of the meeting and the purpose(s) thereof.
            (b) Notice of any meeting of the Board need not be given to any Director if waived by that Director in writing or by electronic transmission whether before or after the holding of such meeting, or if such Director is present at such meeting, subject to Article XII, Section 12.3(b).
            (c) Any meeting of the Board shall be a legal meeting without any prior notice if all Directors then in office shall be present thereat, subject to Article XII, Section 12.3(b) of these By-Laws.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Committees

            Sec. 4.13  (a) The Board may, by resolution or resolutions adopted by a majority of the whole Board, appoint one or more committees. Except as herein provided, vacancies in membership of any committee shall be filled by the vote of a majority of the whole Board. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member. Members of a committee shall hold office for such period as may be fixed by a resolution adopted by a majority of the whole Board. Any member of a committee may be removed from such committee only after a majority vote of the whole Board, after appropriate notice, for refusal, failure, neglect, or inability to discharge such member's duties.
            (b) The Board may, by resolution or resolutions adopted by a majority of the whole Board, delegate to one or more committees the power and authority to act on behalf of the Board in carrying out the functions and authority delegated to FINRA Regulation by FINRA under the Delegation Plan. Such delegations shall be in conformance with applicable law, the Restated Certificate of Incorporation, these By-Laws, and the Delegation Plan. Action taken by a committee pursuant to such delegated authority shall be subject to review, ratification, or rejection by the Board. In all other matters, the Board may, by resolution or resolutions adopted by a majority of the whole Board, delegate to one or more committees that consist solely of one or more Directors the power and authority to act on behalf of the Board in the management of the business and affairs of FINRA Regulation to the extent permitted by law and not inconsistent with the Delegation Plan. A committee, to the extent permitted by law and provided in the resolution or resolutions creating such committee, may authorize the seal of FINRA Regulation to be affixed to all papers that may require it.
            (c) Except as otherwise permitted by applicable law, no committee shall have the power or authority of the Board with regard to: amending the Restated Certificate of Incorporation or the By-Laws of FINRA Regulation; adopting an agreement of merger or consolidation; recommending to the stockholder the sale, lease, or exchange of all or substantially all FINRA Regulation's property and assets; or recommending to the stockholder a dissolution of FINRA Regulation or a revocation of a dissolution. Unless the resolution of the Board expressly so provides, no committee shall have the power or authority to authorize the issuance of stock.
            (d) Each committee may adopt its own rules of procedure and may meet at stated times or on such notice as such committee may determine. Each committee shall keep regular minutes of its proceedings and report the same to the Board when required.
            (e) Unless otherwise provided by these By-Laws, a majority of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of such committee present at a meeting at which a quorum is present shall be an act of such committee.
            (f) The Board may appoint an Executive Committee, which shall, to the fullest extent permitted by Delaware law and other applicable law, have and be permitted to exercise all the powers and authority of the Board in the management of the business and affairs of FINRA Regulation between meetings of the Board, and which may authorize the seal of FINRA Regulation to be affixed to all papers that may require it. The Executive Committee shall consist of three or four Directors. The number of Public Directors shall exceed the number of Industry Directors. An Executive Committee member shall hold office for a term of one year. At all meetings of the Executive Committee, a quorum for the transaction of business shall consist of a majority of the Executive Committee, including not less than 50 percent of the Public Directors. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present.
            (g) The Board may appoint a Finance Committee. The Finance Committee shall advise the Board with respect to the oversight of the financial operations and conditions of FINRA Regulation, including recommendations for FINRA Regulation's annual operating and capital budgets and proposed changes to the rates and fees charged by FINRA Regulation. The Finance Committee shall consist of three or four Directors. A Finance Committee member shall hold office for a term of one year.
            (h) Upon request of the Secretary of FINRA Regulation, each prospective committee member who is not a Director shall provide to the Secretary such information as is reasonably necessary to serve as the basis for a determination of the prospective committee member's classification as an Industry, Non-Industry or Public Member. The Secretary of FINRA Regulation shall certify to the Board each prospective committee member's classification. Such committee members shall update the information submitted under this Section at least annually and upon request of the Secretary of FINRA Regulation, and shall report immediately to the Secretary any change in such classification.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-2001-57 eff. Sept. 12, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Conflicts of Interest; Contracts and Transactions Involving Directors

            Sec. 4.14  (a) A Director or a National Adjudicatory Council or committee member shall not directly or indirectly participate in any adjudication of the interests of any party if that Director or National Adjudicatory Council or committee member has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In any such case, the Director or National Adjudicatory Council or committee member shall recuse himself or herself or shall be disqualified in accordance with the Rules of the Corporation.
            (b) No contract or transaction between FINRA Regulation and one or more of its Directors or officers, or between FINRA Regulation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason if: (i) the material facts pertaining to such Director's or officer's relationship or interest and the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors; (ii) the material facts are disclosed or become known to the Board or committee after the contract or transaction is entered into, and the Board or committee in good faith ratifies the contract or transaction by the affirmative vote of a majority of the disinterested Directors; or (iii) the material facts pertaining to the Director's or officer's relationship or interest and the contract or transaction are disclosed or are known to the stockholder entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholder. Only disinterested Directors may be counted in determining the presence of a quorum at the portion of a meeting of the Board or of a committee that authorizes the contract or transaction. This subsection shall not apply to a contract or transaction between FINRA Regulation and FINRA.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-2006-104 eff. Dec. 20, 2006.
            Amended by SR-NASD-2006-135 eff. Dec. 20, 2006.
            Amended by SR-NASD-2004-110 eff. Dec. 31, 2004.
            Amended by SR-NASD-98-56 eff. Oct. 30, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39, 16-04.

          • Action Without Meeting

            Sec. 4.15  Any action required or permitted to be taken at a meeting of the Board or of a committee may be taken without a meeting if all Directors or all members of such committee, as the case may be, consent thereto in accordance with applicable law.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Communication of Views Regarding Contested Election or Nomination

            Sec. 4.16  (a) FINRA Regulation, the Board, any committee, the National Adjudicatory Council, and FINRA Regulation staff shall not take any position publicly or with a FINRA member or person associated with or employed by a member with respect to any candidate in a contested election or nomination held pursuant to these By-Laws or the FINRA By-Laws. A Director, committee member (other than the Nominating Committee) or National Adjudicatory Council member may communicate his or her views with respect to a candidate if such Director or committee or National Adjudicatory Council member acts solely in his or her individual capacity and disclaims any intention to communicate in any official capacity on behalf of FINRA Regulation, the Board, the National Adjudicatory Council, or any committee (other than the Nominating Committee). Except as provided herein, any candidate and his or her representatives may communicate support for the candidate to a member or person associated with or employed by a member.
            (b) In a contested election, the Nominating Committee may support its nominee by sending to members eligible to vote up to two mailings of materials in support of its nominees in lieu of mailings sent by its candidates pursuant to these By-Laws. In addition to such mailings, in the event of mailings or other communications to members by or on behalf of a candidate by petition in a contested election, the Nominating Committee may respond in-kind, but shall not take a position unresponsive to the contesting candidate's communications.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE V NATIONAL ADJUDICATORY COUNCIL

          • Authority

            Sec. 5.1  The National Adjudicatory Council may be authorized to act for the FINRA Board in a manner consistent with these By-Laws, the Rules of the Corporation, and the Delegation Plan with respect to an appeal or review of a disciplinary proceeding, a statutory disqualification proceeding, or a membership proceeding; a review of an offer of settlement, a letter of acceptance, waiver, and consent, and a minor rule violation plan letter; the exercise of exemptive authority; and such other proceedings or actions authorized by the Rules of the Corporation. The National Adjudicatory Council also shall consider and make recommendations to the FINRA Board on policy and rule changes relating to the business and sales practices of FINRA members and associated persons and enforcement policies, including policies with respect to fines and other sanctions. The FINRA Board may delegate such other powers and duties to the National Adjudicatory Council as the FINRA Board deems appropriate in a manner not inconsistent with the Delegation Plan.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Number of Members and Qualifications

            Sec. 5.2  (a) The National Adjudicatory Council shall consist of 15 members. The number of Non-Industry Members, including at least three Public Members, shall exceed the number of Industry Members. Industry Members shall include two Small Firm NAC Members, one Mid-Size Firm NAC Member, two Large Firm NAC Members, and two at-large Industry Members. The at-large Industry Members shall be appointed to the NAC without being designated as Small, Mid-Size, or Large Firm NAC Members.
            (b) The incumbent National Adjudicatory Council shall elect a Chair and a Vice Chair from among the members serving during the following term. The Chair and Vice Chair shall have such powers and duties as may be determined from time to time by the National Adjudicatory Council. The FINRA Board, by resolution adopted by a majority of Governors then in office, may remove the Chair or Vice Chair from such position at any time for refusal, failure, neglect, or inability to discharge his or her duties.
            Amended by SR-FINRA-2016-014 eff. Aug. 11, 2016.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2007-023 eff. July 30, 2007.
            Amended by SR-NASD-99-36 eff. Aug. 4, 1999.
            Amended by SR-NASD-98-36 eff. July 15, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 16-27

          • Appointments

            Sec. 5.3  The FINRA Board shall appoint a National Adjudicatory Council and all its members. The at-large Industry and Non-Industry Members of the NAC shall be appointed by the FINRA Board from candidates recommended by the Nominating Committee. The Small Firm, Mid-Size Firm and Large Firm NAC Members also shall be appointed by the FINRA Board from candidates recommended by the Nominating Committee, but in the event of a contested election, the Small Firm, Mid-Size Firm and Large Firm NAC Members shall be elected by the membership by a plurality of the votes of the members entitled to vote for such category in accordance with the provisions of these By-Laws and thereafter appointed by the FINRA Board.

            Adopted by SR-FINRA-2008-046 eff. Nov. 6, 2008.

          • Nomination Process

            Sec. 5.4  The Secretary of the Corporation shall collect from each nominee for the office of member of the National Adjudicatory Council such information as is reasonably necessary to serve as the basis for a determination of the nominee's classification as an Industry, Small Firm, Mid-Size Firm, Large Firm, Non-Industry, or Public Member, and the Secretary shall certify to the Nominating Committee each nominee's classification. After appointment to the National Adjudicatory Council, each member shall update such information at least annually and upon request of the Secretary, and shall report immediately to the Secretary any change in such classification.
            Renumbered from Sec. 5.3 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-98-36 eff. July 15, 1998.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Rejection of Nominating Committee Nominee

            Sec. 5.5  If the FINRA Board rejects the nominee of the Nominating Committee, the Nominating Committee shall repeat the nomination procedures in Sections 5.2 though 5.4. The FINRA Board may not reject Small Firm, Mid-Size Firm and Large Firm NAC Members elected in accordance with the provisions of Article VI.
            Adopted by SR-FINRA-2008-046 eff. Nov. 6, 2008.

          • Term of Office

            Sec. 5.6  (a) After a transitional period beginning in January 2017 and ending in December 2019, during which members may be appointed to terms of office necessary to achieve the requirements of Section 5.6(b) of this Article, each National Adjudicatory Council member shall hold office for a term of four years or until a successor is duly appointed and qualified, except in the event of earlier termination from office by reason of death, resignation, removal, disqualification, or other reason.
            (b) The NAC shall be divided into four classes, as equal in number as practicable, with terms of office that commence and expire on a staggered, annual basis.
            (c) No member may serve consecutive terms, except that if a member is appointed to fill a term of less than one year, such member may serve a single four year term following the expiration of such member's initial term.
            Amended by SR-FINRA-2016-014 eff. Aug. 11, 2016.
            Renumbered from Sec. 5.4 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2001-74 eff. Oct. 17, 2001.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 16-27

          • Resignation

            Sec. 5.7  A member of the National Adjudicatory Council may resign at any time upon written notice of resignation to the FINRA Board. Any such resignation shall take effect at the time specified therein, or if the time is not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.
            Renumbered from Sec. 5.5 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Removal

            Sec. 5.8  Any or all of the members of the National Adjudicatory Council may be removed from office at any time for refusal, failure, neglect, or inability to discharge the duties of such office by majority vote of the FINRA Board.
            Renumbered from Sec. 5.6 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Disqualification

            Sec. 5.9  Notwithstanding Section 5.6, the term of office of a National Adjudicatory Council member shall terminate immediately upon a determination by the FINRA Board, by a majority vote, that: (a) the member no longer satisfies the classification (Industry, Non-Industry, or Public member) for which the member was appointed or elected; and (b) the member's continued service as such would violate the compositional requirements of the National Adjudicatory Council set forth in Section 5.2. If the term of office of a National Adjudicatory Council member terminates under this Section, and the remaining term of office of such member at the time of termination is not more than six months, during the period of vacancy the National Adjudicatory Council shall not be deemed to be in violation of the compositional requirements of Section 5.2 by virtue of such vacancy.
            Renumbered from Sec. 5.7 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Filling of Vacancies

            Sec. 5.10  If a position on the National Adjudicatory Council becomes vacant, whether because of death, disability, disqualification, removal, or resignation, the Nominating Committee shall nominate, and the FINRA Board shall appoint a person satisfying the classification (Industry, Non-Industry, or Public) for the position as provided in Section 5.2(a) to fill such vacancy, except that if the remaining term of office for the vacant position is not more than six months, no replacement shall be required and no violation of the compositional requirements of Section 5.2 shall be deemed to have occurred. For any vacancy of a seat on the National Adjudicatory Council for which the remaining term of office is more than six months, such vacancy shall be filled in accordance with Articles V and VI of these By-Laws, and, during this process, no violation of the compositional requirements of Section 5.2 shall be deemed to have occurred.
            Renumbered from Sec. 5.8 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Quorum and Voting

            Sec. 5.11  At all meetings of the National Adjudicatory Council, a quorum for the transaction of business shall consist of a majority of the National Adjudicatory Council, including not less than 50 percent of the Non-Industry members. In the absence of a quorum, a majority of the members present may adjourn the meeting until a quorum is present.
            Renumbered from Sec. 5.9 by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Meetings

            Sec. 5.12  The members of the National Adjudicatory Council may participate in a meeting through the use of a conference telephone or similar communications equipment by means of which all persons participating in the meeting may hear one another, and such participation in a meeting shall constitute presence in person at such meeting for all purposes.
            Renumbered from Sec. 5.10 by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Review Subcommittee

            Sec. 5.13  The National Adjudicatory Council shall appoint a Review Subcommittee to determine whether disciplinary and membership proceedings decisions should be called for review by the National Adjudicatory Council under the Rules of the Corporation and to perform any other function authorized by the Rules of the Corporation. The Review Subcommittee shall be composed of no fewer than two and no more than four members of the National Adjudicatory Council. The number of Non-Industry Members shall equal or exceed the number of Industry Members. At all meetings of the Review Subcommittee, a quorum for the transaction of business shall consist of not less than 50 percent of the members of the Review Subcommittee, including not less than 50 percent of the Non-Industry Members.
            Renumbered from Sec. 5.11 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE VI SELECTION OF SMALL FIRM, MID-SIZE FIRM AND LARGE FIRM INDUSTRY MEMBERS OF THE NATIONAL ADJUDICATORY COUNCIL

          • Identification of Candidates

            Sec. 6.1  The Nominating Committee shall nominate one or more candidates for appointment by the FINRA Board for any open Small Firm, Mid-Size Firm and Large Firm Industry Member seats on the National Adjudicatory Council.
            Renumbered from Sec. 6.11 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Designation of Additional Candidates

            Sec. 6.2  The Corporation shall notify the members of the names of each nominee selected by the Nominating Committee for open National Adjudicatory Council seats that are Small Firm, Mid-Size Firm, and Large Firm seats, the qualifications of the nominee, and such other information regarding each nominee as the Nominating Committee deems pertinent. A person who has not been so nominated may be included on a ballot for an election to fill an open Small Firm, Mid-Size Firm or Large Firm seat on the National Adjudicatory Council if: (a) within 45 days after the date of such notice, such person presents to the Secretary of the Corporation (i) in the case of petitions solely in support of such person, petitions in support of his or her nomination duly executed by three percent of the members entitled to vote (based on firm size classification) for such nominee’s election, and no such member shall endorse more than one such nominee, or (ii) in the case of petitions in support of more than one person, petitions in support of the nominations of such persons duly executed by ten percent of the members entitled to vote (based on firm size classification) for such nominees’ election; and (b) the Secretary certifies that (i) the petitions are duly executed by the Executive Representatives of the requisite number of members entitled to vote for such nominee’s/nominees’ election, and (ii) the person(s) satisfies/satisfy the classification (Large Firm, Mid-Size Firm or Small Firm) of the National Adjudicatory Council seat to be filled, based on such information provided by the person(s) as is reasonably necessary to make the certification. Only an Executive Representative may sign a petition on behalf of a FINRA member. The Secretary shall not unreasonably withhold or delay the certification. Upon certification, the election shall be deemed a contested election with respect to the NAC seat for which the nomination relates
            Renumbered from Sec. 6.13 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • List of FINRA Members Eligible to Vote

            Sec. 6.3  (a) The Secretary of the Corporation shall mail a list of all FINRA members eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws and the names of their Executive Representatives to the additional candidate immediately following receipt of the additional candidate's notice by the Secretary of the Corporation.
            (b) A FINRA member that meets the firm size classification (Small Firm, Mid-Size Firm, or Large Firm) of the open seat on the NAC shall be eligible to cast one vote on the nomination through the FINRA member's Executive Representative.
            Renumbered from Sec. 6.14 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Uncontested Nomination

            Sec. 6.4  If the Nominating Committee proposes one candidate for nomination and no additional candidate is proposed for nomination pursuant to Section 6.2, the Nominating Committee shall nominate its candidate to the FINRA Board.
            Renumbered from Sec. 6.16 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Notice of Contested Nomination

            Sec. 6.5  If the Nominating Committee proposes more than one candidate for nomination for an open Industry Member seat, or if an additional candidate is proposed for nomination pursuant to Section 6.2, the Secretary of the Corporation shall send a written notice to the Executive Representatives of the FINRA members eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws announcing the names of the candidates and describing contested nomination procedures.
            Renumbered from Sec. 6.17 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Administrative Support

            Sec. 6.6  The Secretary of the Corporation shall provide administrative support to all candidates by sending to FINRA members eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws up to two mailings of materials prepared by the candidates. The Corporation shall pay the postage for the mailings. If a candidate wants such mailings sent, the candidate shall prepare such material on the candidate’s personal stationery. The material shall state that it represents the opinion of the candidate. The candidate shall provide a copy of such material for each member eligible to vote in the size classification of the open seat on the NAC. A candidate proposed for nomination by the Nominating Committee may identify himself or herself as such in his or her materials. Any candidate may send additional mailings to FINRA members at the candidate’s own expense. Except as provided in these By-Laws, FINRA Regulation, the Board, the Nominating Committee, any other committee, the National Adjudicatory Council, and FINRA Regulation staff shall not provide any other administrative support to a candidate for the nomination under this Article or any candidate in a contested election conducted under Article VII of the FINRA By-Laws.
            Renumbered from Sec. 6.18 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ballots

            Sec. 6.7  With the assistance of the Secretary of the Corporation and an Independent Agent, the Nominating Committee shall prepare a ballot with the name or names of its candidate and any additional candidates proposed for nomination pursuant to Section 6.2. The ballot shall list the candidates in alphabetical order and shall identify the candidate or candidates proposed for nomination by the Nominating Committee. The Secretary of the Corporation shall send a ballot to the Executive Representative of each FINRA member eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws. Instructions on the ballot shall direct the Executive Representative to return the ballot to the Independent Agent and state that the ballot must be postmarked or otherwise delivered on or before the return date specified on the ballot. The return date specified on the ballot shall be no fewer than 30 and no more than 45 days after the date of mailing or other delivery of the ballot.
            Amended by SR-FINRA-2016-014 eff. Aug. 11, 2016.
            Renumbered from Sec. 6.19 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 16-27

          • Vote Qualification List

            Sec. 6.8  Eligibility to vote on a nomination shall be based on FINRA’s membership records as of a date designated by the Secretary of the Corporation that is not more than 30 days before the date of mailing of the ballot. The Secretary of the Corporation shall prepare a list of FINRA members eligible to vote in the election and the names of their Executive Representatives, which shall be used for vote qualification purposes, and shall provide the list to the candidates.
            Renumbered from Sec. 6.20 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ballots Returned As Undelivered

            Sec. 6.9  The Independent Agent shall investigate any ballot returned undelivered and shall determine whether it was sent to the FINRA member's address of record. If incorrectly addressed, the Independent Agent shall send a new ballot to the FINRA member's address of record.
            Amended by SR-FINRA-2016-014 eff. Aug. 11, 2016.
            Renumbered from Sec. 6.21 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 16-27

          • General Procedures for Qualification and Accounting of Ballots

            Sec. 6.10  After the close of the voting period, the Independent Agent shall tabulate the ballots and notify the Secretary of the Corporation of the voting results for each National Adjudicatory position subject to election within 14 calendar days after the return date specified on the ballot pursuant to Section 6.7.
            Amended by SR-FINRA-2016-014 eff. Aug. 11, 2016.
            Renumbered from Sec. 6.22 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 16-27

          • Ballots Set Aside

            Sec. 6.11  The Independent Agent shall set aside a ballot if: (a) the ballot is received from a FINRA member eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws and the ballot is signed by a person who is not the Executive Representative listed on the vote qualification list prepared under Section 6.8, and the Secretary of the Corporation has not received proper notice of a change in Executive Representative pursuant to the FINRA By-Laws; or (b) two or more properly executed ballots are received from a FINRA member eligible to vote based on the firm size classifications (Small Firm, Mid-Size Firm, or Large Firm) defined in these By-Laws. If the Independent Agent determines that the ballots set aside are material to the outcome of the nomination, the Secretary of the Corporation and the Independent Agent shall make reasonable efforts to resolve each ballot set aside. With respect to a ballot not signed by an Executive Representative of record, the Secretary of the Corporation shall contact the FINRA member to request that the FINRA member send proper written notice of any change in Executive Representative by facsimile so that the ballot may be counted. With respect to multiple ballots from any FINRA member, the Independent Agent shall contact the Executive Representative of the FINRA member to obtain the FINRA member's vote. The Secretary of the Corporation shall keep a list of FINRA members that reported their ballot was lost or not received and that were provided with a duplicate ballot. The Secretary of the Corporation shall provide the list to the Independent Agent and, upon request, to the candidates.
            Renumbered from Sec. 6.23 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Invalid Ballots

            Sec. 6.12  The Independent Agent shall declare a ballot invalid if one or more of the following conditions exists:
            (a) the ballot is not signed by the Executive Representative (unless Section 6.11 applies);
            (b) a vote is not indicated on the ballot; or
            (c) a vote for more than one candidate is indicated on the ballot.
            Renumbered from Sec. 6.24 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Certification of Nomination

            Sec. 6.13  Under the direction of the Secretary of the Corporation or the Secretary’s designee, the Independent Agent shall count the votes received for each candidate. The candidate receiving the largest number of votes cast by FINRA members eligible to vote based on the firm size classifications (Small Firm, Mid- Size Firm, or Large Firm) defined in these By-Laws shall be declared the nominee and the Nominating Committee shall nominate such candidate to the FINRA Board. In the event of a tie, there shall be a run-off vote for the nomination. The Nominating Committee shall send a written certification of the nomination results to the FINRA Board. The certification shall state the number of votes received by each candidate and the number of ballots set aside.
            Renumbered from Sec. 6.25 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Extension of Time and Additional Procedures

            Sec. 6.14  The Secretary of the Corporation may extend a time period under this Article for good cause shown. In extraordinary circumstances, the Secretary of the Corporation, with the approval of the Executive Committee or the FINRA Board, may adopt additional procedures for nominations under this Article.
            Renumbered from Sec. 6.27 and amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE VII OFFICERS, AGENTS, AND EMPLOYEES

          • Officers

            Sec. 7.1  The Board shall elect the officers of FINRA Regulation, which shall include a President, a Secretary, and such other executive or administrative officers as it shall deem necessary or advisable, including, but not limited to: Executive Vice President, Senior Vice President, Vice President, General Counsel, and Treasurer of FINRA Regulation. All such officers shall have such titles, powers, and duties, and shall be entitled to such compensation, as shall be determined from time to time by the Board. The terms of office of such officers shall be at the pleasure of the Board, which by affirmative vote of a majority of the Board, may remove any such officer at any time. One person may hold the offices and perform the duties of any two or more of said offices, except the offices and duties of President and Vice President or of President and Secretary. None of the officers, except the President, need be Directors of FINRA Regulation.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Absence of the President

            Sec. 7.2  In the case of the absence or inability to act of the President of FINRA Regulation, or in the case of a vacancy in such office, the Board may appoint its Chair or such other person as it may designate to act as such officer pro tem, who shall assume all the functions and discharge all the duties of the President.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Agents and Employees

            Sec. 7.3  In addition to the officers, FINRA Regulation may employ such agents and employees as the Board may deem necessary or advisable, each of whom shall hold office for such period and exercise such authority and perform such duties as the Board, the President, or any officer designated by the Board may from time to time determine. Agents and employees of FINRA Regulation shall be under the supervision and control of the officers of the FINRA Regulation, unless the Board, by resolution, provides that an agent or employee shall be under the supervision and control of the Board.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Delegation of Duties of Officers

            Sec. 7.4  The Board may delegate the duties and powers of any officer of FINRA Regulation to any other officer or to any Director for a specified period of time and for any reason that the Board may deem sufficient.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Resignation and Removal of Officers

            Sec. 7.5  (a) Any officer may resign at any time upon written notice of resignation to the Board, the President, or the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein. The acceptance of a resignation shall not be necessary to make the resignation effective.
            (b) Any officer of FINRA Regulation may be removed, with or without cause, by resolution adopted by a majority of the Directors then in office at any regular or special meeting of the Board or by a written consent signed by all of the Directors then in office. Such removal shall be without prejudice to the contractual rights of the affected officer, if any, with FINRA Regulation.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Bond

            Sec. 7.6  FINRA Regulation may secure the fidelity of any or all of its officers, agents, or employees by bond or otherwise.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE VIII DISTRICT COMMITTEES

          • Establishment of Districts and Regions

            Sec. 8.1  The Board shall establish boundaries for districts within the United States to assist FINRA Regulation in administering its affairs in a manner that is consistent with applicable law, the Restated Certificate of Incorporation, these By-Laws, the Delegation Plan, and the Rules of the Corporation. The Board may organize the districts into regions to promote efficiency and sound administration. It may make changes from time to time in the number or boundaries of the districts or regions as it deems necessary or appropriate. The Board shall prescribe such policies and procedures as are necessary or appropriate to address the implementation of a new district or region configuration in the event of a change in the number or boundaries of the districts or regions. Schedule A to these By-Laws identifies the districts, their territorial boundaries and respective regions as currently established by the Board.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Composition of District Committees

            Sec. 8.2  (a) A district created under Section 8.1 shall elect a District Committee pursuant to this Article. A District Committee shall consist of no fewer than five and no more than 20 members, unless otherwise provided by resolution of the Board. Subject to the limitation set forth in the immediately preceding sentence, the authorized number of members of a District Committee shall be determined from time to time by the Board; provided, however, that no decrease in the authorized number of members of a District Committee shall shorten the term of office of any member thereof. Each District Committee member shall: (1) be associated with a FINRA member eligible to vote in the district for District Committee elections and registered in the capacity of a branch manager or principal or denoted as a corporate officer of the FINRA member; (2) work primarily from such FINRA member's principal office or a branch office that is located within the district where the member serves on a District Committee; and (3) represent and be directly elected by the applicable classification of FINRA members based on the size of the firm with which he or she is associated: Small Firm, Mid-Size Firm, or Large Firm as defined in these By-Laws. The Board shall determine the composition of District Committees based on firm size classifications (Small Firm, Mid-Size Firm, or Large Firm), taking into account the composition of the membership and the Board. Members of the District Committees shall serve as panelists in disciplinary proceedings in accordance with the Rules of the Corporation. The District Committees shall consider and recommend policies and rule changes to the Board. The District Committees shall endeavor to educate FINRA members and other brokers and dealers in their respective districts as to the objects, purposes, and work of FINRA and FINRA Regulation in order to foster FINRA members' interest and cooperation.
            (b) A member of a District Committee may resign at any time upon giving Notice to the District Director. Any such resignation shall take effect upon receipt of such Notice or at any later time specified therein, provided that notice of resignation at a later date may be made immediately effective at the discretion of the Chief Executive Officer or his or her designee. The acceptance of such resignation shall not be necessary to make such resignation effective.
            (c) In the event of the refusal, failure, neglect, or inability of a member of a District Committee to discharge his or her duties, or for any cause affecting the best interests of FINRA Regulation, the sufficiency of which shall be decided by the District Committee, the District Committee may remove the member by the affirmative vote of two-thirds of the members of the District Committee then in office and declare the District Committee member's position vacant. The District Committee shall notify the District Committee member of his or her removal within seven days after the vote. A District Committee member who is removed may submit a written appeal of the removal to the Board within 30 days after the date he or she is notified of the removal. The Board may affirm, reverse, or modify the determination of the District Committee. A vote of a majority of the Directors then in office shall be required to reverse or modify the action of the District Committee.
            (d) In the event of a vacancy in a District Committee resulting from death, resignation, removal, or other cause, the Chief Executive Officer or his or her designee shall determine whether such vacancy shall be filled prior to the next regularly scheduled election of District Committee members. In the event the Chief Executive Officer or his or her designee determines that a vacancy on a District Committee should be filled, the vacancy shall be filled pursuant to Section 8.4.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2005-086 eff. July 5, 2005.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Term of Office of District Committee Members

            Sec. 8.3  Each regularly elected member of a District Committee shall hold office for a "full term" which is the later of three years or until a successor is elected and qualified. Notwithstanding the term of office for a regularly elected District Committee member, such member's term shall terminate sooner upon the member's death, resignation, or removal. There is no limit on the number of terms that may be served by a member of a District Committee, except that a District Committee member may not serve two full terms consecutively.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Filling of Vacancies on District Committees

            Sec. 8.4  In the event of a vacancy on a District Committee prior to the expiration of the District Committee member's term of office, and where the Chief Executive Officer or his or her designee determines, pursuant to Section 8.2(d), that such vacancy should be filled, or in the event of a newly created membership on a District Committee by virtue of an increase in the authorized number of members thereof, the District Committee shall appoint by majority vote an individual who meets the qualification requirements of Section 8.2(a), including meeting the requirement of representing the applicable firm size classification (Small Firm, Mid-Size Firm, or Large Firm) to fill the vacancy or newly created membership. If the District Committee is unable to identify or appoint an individual meeting the requirement of representing the applicable firm size classification, it may appoint for that vacancy an individual who otherwise meets the qualification requirements of Section 8.2(a) associated with a firm having another firm size classification. The appointment by the District Committee shall be effective until the next regularly scheduled election, and until such District Committee member's successor is elected and qualified. Following the next regularly scheduled election, in the event of a vacancy, the newly elected District Committee member shall serve only the duration of the departed District Committee member's term, and in the event of a newly created membership, the newly elected District Committee member shall serve only the duration of the term for such class of membership.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Meetings of District Committees

            Sec. 8.5  Meetings of a District Committee shall be held jointly with the other District Committees in its region, as identified in Schedule A to these By-Laws, at such times and places, upon such notice, and in accordance with such procedures as the Chief Executive Officer or his or her designee in his or her discretion may determine. A quorum of a District Committee shall consist of a majority of its members, and any action taken by a majority present at any meeting at which a quorum is present, except as otherwise provided in these By-Laws, shall constitute the action of the Committee. Any or all members of a District Committee may participate in any such meeting by means of conference telephone or other communications equipment by means of which all participants can communicate with each other, and such participation shall constitute presence in person at the meeting. Action by a District Committee may be taken by consent in writing or by electronic transmission in lieu of a meeting, in which case any action taken by a majority of the Committee shall constitute the action of the Committee.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Expenses of District Committees

            Sec. 8.6  Funds to meet the regular expenses of each District Committee shall be provided by the Board, and all such expenses shall be subject to the approval of the Board.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Solicitation of Candidates and Secretary's Notice to FINRA Members

            Sec. 8.7  The Secretary of FINRA Regulation shall give a Notice of the upcoming election to FINRA members and the Executive Representatives of FINRA members describing the election procedures and stating that FINRA members may submit names of District Committee member candidates for consideration to the Secretary of FINRA Regulation.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Self-Nomination of Candidates and Vacancy Appointments

            Sec. 8.8  (a) An individual who meets the qualification requirements of Section 8.2(a) wishing to be considered for election to the District Committee shall deliver a written Notice to the Secretary of FINRA Regulation within 30 calendar days after the Secretary of FINRA Regulation gives the Notice of the upcoming elections pursuant to Section 8.7. The Secretary of FINRA Regulation shall make a written record of the time and date of the receipt of each Notice from a qualified individual, and designate that individual as a candidate.
            (b) In the event that no candidate is designated for a particular District Committee vacancy, the Chief Executive Officer or his or her designee shall appoint an individual who meets the qualification requirements of Section 8.2(a), including representing the applicable firm size classification (Small Firm, Mid-Size Firm or Large Firm), to fill that vacancy for a full term. If the Chief Executive Office or his or her designee is unable to identify or appoint an individual meeting the requirement of representing the applicable firm size classification, he or she may appoint for that vacancy an individual who otherwise meets the qualification requirements of Section 8.2(a) associated with a firm having another firm size classification.
            Adopted by SR-FINRA-2011-011 eff. April 28, 2011.

          • FINRA Members Eligible to Vote

            Sec. 8.9  A FINRA member that has its principal office or one or more registered branch offices in the district shall be eligible to cast one vote through the FINRA member's Executive Representative for each position representing its firm size classification (Small Firm, Mid-Size Firm, or Large Firm) on the District Committee to be filled in the election.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Administrative Support

            Sec. 8.10  The Secretary of FINRA Regulation shall provide administrative support to all candidates, according to procedures published by the Secretary. Any candidate may also send communications to FINRA members eligible to vote in the district based on the firm size classification (Small Firm, Mid-Size Firm, or Large Firm) at the candidate's own expense, provided that such communications clearly state that they represent the opinions of the candidate. Except as provided in this Article, FINRA Regulation, the Board, any committee, and FINRA Regulation staff shall not provide any other administrative support to a candidate in the election.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ballots

            Sec. 8.11  The Secretary of FINRA Regulation shall send a ballot to the Executive Representative of each FINRA member eligible to vote in the district. The ballot shall list the candidates for each position subject to election in alphabetical order. Instructions on the ballot shall direct the Executive Representative to return the ballot to the Independent Agent and state that the ballot must be postmarked or otherwise delivered on or before the return date specified on the ballot. The return date specified on the ballot shall be no fewer than 20 and no more than 30 days after the date of mailing or other delivery of the ballot.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Vote Qualification List

            Sec. 8.12  Eligibility to vote in a district election shall be based on FINRA's membership records as of a date selected by the Secretary of FINRA Regulation that is not more than 30 days before the date of mailing of the ballot. The Secretary of FINRA Regulation shall prepare a list of FINRA members in each firm size classification (Small Firm, Mid-Size Firm, or Large Firm) eligible to vote in the district, their mailing addresses, and their Executive Representatives, which shall be used for vote qualification purposes, and shall provide the applicable list to candidates upon request.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ballots Returned As Undelivered

            Sec. 8.13  The Independent Agent shall investigate any ballot returned undelivered and shall determine whether it was sent to the FINRA member's address of record. If incorrectly addressed, the Independent Agent shall send a new ballot to the address of record.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • General Procedures for Qualification and Accounting of Ballots

            Sec. 8.14  After the close of the voting period, the Independent Agent shall tabulate the ballots and notify the Secretary of FINRA Regulation of the voting results for each District Committee position subject to election within 14 calendar days after the return date specified on the ballot pursuant to Section 8.11.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Ballots Set Aside

            Sec. 8.15  The Independent Agent shall set aside a ballot if: (a) the ballot is received from a FINRA member eligible to vote in the district and the ballot is signed by a person who is not the Executive Representative listed on the vote qualification list prepared under Section 8.12, and the Secretary of FINRA has not received proper notice of a change in Executive Representative pursuant to the FINRA By-Laws; or (b) if two or more properly executed ballots are received from a FINRA member eligible to vote in the district. If the Independent Agent determines that the ballots set aside are material to the outcome of the election, the Secretary of FINRA Regulation and the Independent Agent shall make reasonable efforts to resolve each ballot set aside. With respect to a ballot not signed by an Executive Representative of record, the Secretary of FINRA Regulation shall contact the FINRA member to request that the FINRA member send written notice of any change in Executive Representative to a FINRA designated system or by facsimile so that the ballot may be counted. With respect to multiple ballots from a FINRA member, the Independent Agent shall contact the Executive Representative of the FINRA member to obtain the FINRA member's vote. The Secretary of FINRA Regulation shall keep a list of FINRA members that reported their ballot was lost or not received and that were provided with a duplicate ballot. The Secretary of FINRA Regulation shall provide the list to the Independent Agent and, upon request, to the candidates.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Invalid Ballots

            Sec. 8.16  The Independent Agent shall declare a ballot invalid if one or more of the following conditions exist:
            (a) the ballot is not signed by the Executive Representative (unless Section 8.15 applies);
            (b) a vote is not indicated on the ballot; or
            (c) the ballot indicates votes for more than one candidate per position subject to election.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Election Results

            Sec. 8.17  The Independent Agent shall count the votes received for each candidate in a district. The candidates for the office of member of the District Committee receiving the largest number of votes cast by FINRA members eligible to vote in the district for the office shall be declared elected such that the number and firm size classification (Small Firm, Mid-Size Firm, or Large Firm) of candidates declared elected corresponds to the number and firm size classification of positions on the District Committee subject to election. In the event of a tie, there shall be a run-off election. The Secretary of FINRA Regulation shall notify the Board of the election results. The notification shall state the number of votes received by each candidate in each firm size classification and the number of ballots set aside.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Extensions of Time and Additional Procedures

            Sec. 8.18  The Secretary of FINRA Regulation may extend a time period under this Article for good cause shown. In extraordinary circumstances, the Secretary of FINRA Regulation, with the approval of the Executive Committee or the Board, may adopt additional procedures for elections under this Article.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Definitions

            Sec. 8.19  (a) When used in Article VIII of these By-Laws, the term "Notice" means a notice in writing or by electronic transmission.
            (b) For purposes of this Article VIII, any Notice by FINRA Regulation, the Secretary of FINRA Regulation, or the District Director given by electronic transmission shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the person entitled to notice has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the person entitled to notice has consented to receive notice; (3) if by a posting on an electronic network when the person entitled to notice has consented to receive notice in this manner, together with separate notice to the person entitled to notice of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission when the person entitled to notice has consented to receive notice in this manner, when directed to the person entitled to notice. For purposes of this Article VIII, if mailed, any such Notice by FINRA Regulation, the Secretary of FINRA Regulation, or the District Director shall be deemed given when deposited in the United States mail, postage prepaid, directed to the person entitled to notice at such person's address as it appears on the records of FINRA Regulation.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2011-011 eff. April 28, 2011.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-2003-55 eff. Feb. 1, 2004.

            Selected Notice: 16-04

        • ARTICLE IX COMPENSATION

          • Compensation of Board, Council, and Committee Members

            Sec. 9.1  The Board may provide for reasonable compensation of the Chair of the Board, the Directors, National Adjudicatory Council members, and the members of any committee of the Board or any District Committee. The Board may also provide for reimbursement of reasonable expenses incurred by such persons in connection with the business of FINRA Regulation.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE X INDEMNIFICATION

          • Indemnification of Directors, Officers, Employees, Agents, National Adjudicatory Council and Committee Members

            Sec. 10.1  (a) FINRA Regulation shall indemnify, and hold harmless, to the fullest extent permitted by Delaware law as it presently exists or may thereafter be amended, any person (and the heirs, executors, and administrators of such person) who, by reason of the fact that he or she is or was a Director, officer, or employee of FINRA Regulation or a National Adjudicatory Council or committee member, or is or was a Director, officer, or employee of FINRA Regulation who is or was serving at the request of FINRA Regulation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, is or was a party, or is threatened to be made a party to:
            (i) any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of FINRA Regulation) against expenses (including attorneys' fees and disbursements), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with any such action, suit, or proceeding; or
            (ii) any threatened, pending, or completed action or suit by or in the right of FINRA Regulation to procure a judgment in its favor against expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit.
            (b) FINRA Regulation shall advance expenses (including attorneys' fees and disbursements) to persons described in subsection (a); provided, however, that the payment of expenses incurred by such person in advance of the final disposition of the matter shall be conditioned upon receipt of a written undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Section or otherwise.
            (c) FINRA Regulation may, in its discretion, indemnify and hold harmless, to the fullest extent permitted by Delaware law as it presently exists or may thereafter be amended, any person (and the heirs, executors, and administrators of such persons) who, by reason of the fact that he or she is or was an agent of FINRA Regulation or is or was an agent of FINRA Regulation who is or was serving at the request of FINRA Regulation as a director, officer, employee, or agent of another corporation, partnership, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, was or is a party, or is threatened to be made a party to any action or proceeding described in subsection (a).
            (d) FINRA Regulation may, in its discretion, pay the expenses (including attorneys' fees and disbursements) reasonably and actually incurred by an agent in defending any action, suit, or proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by such person in advance of the final disposition of the matter shall be conditioned upon receipt of a written undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Section or otherwise.
            (e) Notwithstanding the foregoing or any other provision of these By-Laws, no advance shall be made by FINRA Regulation to an agent or non-officer employee if a determination is reasonably and promptly made by the Board by a majority vote of those Directors who have not been named parties to the action, even though less than a quorum, or, if there are no such Directors or if such Directors so direct, by independent legal counsel, that, based upon the facts known to the Board or such counsel at the time such determination is made: (1) the person seeking advancement of expenses (i) acted in bad faith, or (ii) did not act in a manner that he or she reasonably believed to be in or not opposed to the best interests of FINRA Regulation; (2) with respect to any criminal proceeding, such person believed or had reasonable cause to believe that his or her conduct was unlawful; or (3) such person deliberately breached his or her duty to FINRA Regulation.
            (f) The indemnification provided by this Section in a specific case shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, National Adjudicatory Council or committee member, employee, or agent and shall inure to the benefit of such person's heirs, executors, and administrators.
            (g) Notwithstanding the foregoing, but subject to subsection (j), FINRA Regulation shall be required to indemnify any person identified in subsection (a) in connection with a proceeding (or part thereof) initiated by such person only if the initiation of such proceeding (or part thereof) by such person was authorized by the Board.
            (h) FINRA Regulation's obligation, if any, to indemnify or advance expenses to any person who is or was serving at its request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity shall be reduced by any amount such person may collect as indemnification or advancement from such other corporation, partnership, joint venture, trust, enterprise, or non-profit entity.
            (i) Any repeal or modification of the foregoing provisions of this Section shall not adversely affect any right or protection hereunder of any person respecting any act or omission occurring prior to the time of such repeal or modification.
            (j) If a claim for indemnification or advancement of expenses under this Article is not paid in full within 60 days after a written claim therefor by an indemnified person has been received by FINRA Regulation, the indemnified person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, FINRA Regulation shall have the burden of proving that the indemnified person is not entitled to the requested indemnification or advancement of expenses under Delaware law.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Indemnification Insurance

            Sec. 10.2  FINRA Regulation shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, National Adjudicatory Council or committee member, employee, or agent of FINRA Regulation, or is or was serving at the request of FINRA Regulation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not FINRA Regulation would have the power to indemnify such person against such liability hereunder.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XI CAPITAL STOCK

          • Sole Stockholder

            Sec. 11.1  FINRA shall be the sole stockholder of the capital stock of FINRA Regulation.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Certificates

            Sec. 11.2  The stockholder shall be entitled to a certificate or certificates in such form as shall be approved by the Board, certifying the number of shares of capital stock in FINRA Regulation owned by the stockholder.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Signatures

            Sec. 11.3  (a) Certificates representing shares of capital stock of FINRA Regulation shall be signed in the name of FINRA Regulation by two officers with one being the President or a Vice President, and the other being the Secretary or the Treasurer. Such certificates may be sealed with the corporate seal of FINRA Regulation or a facsimile thereof.
            (b) Any signature on the stock certificate may be a facsimile. In the event that any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a stock certificate shall cease to be such officer, transfer agent, or registrar before such certificate is issued, such certificate may be issued by FINRA Regulation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.
            Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notices: 09-39, 16-04.

          • Stock Ledger

            Sec. 11.4  (a) A record of all certificates representing capital stock issued by FINRA Regulation shall be kept by the Secretary or any other officer, employee, or agent designated by the Board. Such record shall show the name and address of the person, firm, or corporation in which certificates representing capital stock are registered, the number of shares represented by each such certificate, the date of each such certificate, and in the case of certificates that have been canceled, the date of cancellation thereof.
            (b) FINRA Regulation shall be entitled to treat the holder of record of shares of capital stock as shown on the stock ledger as the owner thereof and as the person entitled to vote such shares and to receive notice of meetings, and for all other purposes. Except as otherwise required by applicable law, FINRA Regulation shall not be bound to recognize any equitable or other claim to or interest in any share of capital stock on the part of any other person, whether or not FINRA Regulation shall have express or other notice thereof.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Transfers of Stock

            Sec. 11.5  (a) The Board may make such rules and regulations as it may deem expedient, not inconsistent with law, the Restated Certificate of Incorporation, or these By-Laws, concerning the issuance, transfer, and registration of shares of capital stock of FINRA Regulation. The Board may appoint, or authorize any principal officer to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates representing capital stock to bear the signature or signatures of any of them.
            (b) Transfers of capital stock shall be made on the books of FINRA Regulation only upon delivery to FINRA Regulation or its transfer agent of: (i) a written direction of the registered holder named in the certificate or such holder's attorney lawfully constituted in writing; (ii) the certificate representing the shares of capital stock being transferred; and (iii) a written assignment of the shares of capital stock evidenced thereby.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Cancellation

            Sec. 11.6  Each certificate representing capital stock surrendered to FINRA Regulation for exchange or transfer shall be canceled and no new certificate or certificates shall be issued in exchange for any existing certificate other than pursuant to Section 11.7 until such existing certificate shall have been canceled.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Lost, Stolen, Destroyed, and Mutilated Certificates

            Sec. 11.7  In the event that any certificate representing shares of capital stock of FINRA Regulation shall be mutilated, FINRA Regulation shall issue a new certificate in place of such mutilated certificate. In the event that any such certificate shall be lost, stolen, or destroyed FINRA Regulation may, in the discretion of the Board or a committee appointed thereby with power so to act, issue a new certificate representing shares of capital stock in the place of any such lost, stolen, or destroyed certificate. The applicant for any substituted certificate or certificates shall surrender any mutilated certificate or, in the case of any lost, stolen, or destroyed certificate, furnish satisfactory proof of such loss, theft, or destruction of such certificate and of the ownership thereof. The Board or such committee may, in its discretion, require the owner of a lost or destroyed certificate, or such owner's representatives, to furnish to FINRA Regulation a bond with an acceptable surety or sureties and in such sum as shall be sufficient to indemnify FINRA Regulation against any claim that may be made against it on account of the lost, stolen, or destroyed certificate or the issuance of such new certificate. A new certificate may be issued without requiring a bond when, in the judgment of the Board, it is proper to do so.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Fixing of Record Date

            Sec. 11.8  The Board may fix a record date in accordance with Delaware law.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XII MISCELLANEOUS PROVISIONS

          • Corporate Seal

            Sec. 12.1  The seal of FINRA Regulation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board, the name of FINRA Regulation, the year of its incorporation, and the words "Corporate Seal" and "Delaware." The seal may be used by causing it to be affixed or impressed, or a facsimile thereof may be reproduced or otherwise used in such manner as the Board may determine.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Fiscal Year

            Sec. 12.2  The fiscal year of FINRA Regulation shall begin on the first day of January in each year, or such other month as the Board may determine by resolution.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Waiver of Notice

            Sec. 12.3  (a) Whenever notice is required to be given by law, the Restated Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholder, Directors, or members of a committee of Directors need be specified in any written waiver of notice.
            (b) Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
            Amended by SR-FINRA-2009-020 eff. Aug. 20, 2009.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

            Selected Notice: 09-39.

          • Execution of Instruments, Contracts, Etc.

            Sec. 12.4  (a) All checks, drafts, bills of exchange, notes, or other obligations or orders for the payment of money shall be signed in the name of FINRA Regulation by such officer or officers or person or persons as the Board, or a duly authorized committee thereof, may from time to time designate. Except as otherwise provided by law, the Board, any committee given specific authority in the premises by the Board, or any committee given authority to exercise generally the powers of the Board during intervals between meetings of the Board, may authorize any officer, employee, or agent, in the name of and on behalf of FINRA Regulation, to enter into or execute and deliver deeds, bonds, mortgages, contracts, and other obligations or instruments, and such authority may be general or confined to specific instances.
            (b) All applications, written instruments, and papers required by any department of the United States Government or by any state, county, municipal, or other governmental authority, may be executed in the name of FINRA Regulation by any principal officer or subordinate officer of FINRA Regulation, or, to the extent designated for such purpose from time to time by the Board, by an employee or agent of FINRA Regulation. Such designation may contain the power to substitute, in the discretion of the person named, one or more other persons.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Form of Records

            Sec. 12.5  Any records maintained by FINRA Regulation in the regular course of business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, magnetic tape, computer disk, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • ARTICLE XIII AMENDMENTS; EMERGENCY BY-LAWS

          • By Stockholder

            Sec. 13.1  These By-Laws may be altered, amended, or repealed, or new By-Laws may be adopted, at any meeting of the stockholder, provided that, in the case of a special meeting, notice that an amendment is to be considered and acted upon shall be inserted in the notice or waiver of notice of said meeting.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • By Directors

            Sec. 13.2  To the extent permitted by the Restated Certificate of Incorporation, these By-Laws may be altered, amended, or repealed, or new By-Laws may be adopted, at any regular or special meeting of the Board.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

          • Emergency By-Laws

            Sec. 13.3  The Board may adopt emergency By-Laws subject to repeal or change by action of the stockholder that shall, notwithstanding any different provision of law, the Restated Certificate of Incorporation, or these By-Laws, be operative during any emergency resulting from any nuclear or atomic disaster, an attack on the United States or on a locality in which FINRA Regulation conducts its business or customarily holds meetings of the Board or stockholder, any catastrophe, or other emergency condition, as a result of which a quorum of the Board or a committee thereof cannot readily be convened for action. Such emergency By-Laws may make any provision that may be practicable and necessary under the circumstances of the emergency.
            Amended by SR-FINRA-2008-046 eff. Nov. 6, 2008.
            Amended by SR-NASD-97-71 eff. Jan. 15, 1998.

        • Schedule A to the FINRA Regulation By-Laws

          The number and territorial boundaries of the several districts and their respective regions, established as provided in Article VIII, Section 8.1, are as follows:
          Districts
          District No. 1 State of Hawaii; in the State of California, the Counties of Monterey, San Benito, Fresno and Inyo, and the remainder of the State North or West of such Counties; and in the State of Nevada, the Counties of Esmeralda and Nye, and the remainder of the State North or West of such Counties.
          District No. 2 In the State of California, that part of the State South or East of the Counties of Monterey, San Benito, Fresno and Inyo; and, in the State of Nevada, that part of the State South or East of the Counties of Esmeralda and Nye, and all Pacific possessions and territories of the United States.
          District No. 3 States of Alaska, Arizona, Colorado, Idaho, Montana, New Mexico, Oregon, Utah, Washington and Wyoming.
          District No. 4 States of Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
          District No. 5 States of Alabama, Arkansas, Louisiana, Mississippi, Oklahoma and Tennessee.
          District No. 6 State of Texas.
          District No. 7 States of Florida, Georgia, North Carolina, and South Carolina, Puerto Rico and the Virgin Islands.
          District No. 8 States of Illinois, Indiana, Kentucky, Michigan, Ohio and Wisconsin.
          District No. 9 The District of Columbia, and the States of Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia, and New York (except for the five Boroughs of New York City and the Counties of Nassau and Suffolk).
          District No. 10 In the State of New York, the five Boroughs of New York City and the Counties of Nassau and Suffolk.
          District No. 11 States of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.
          Regions
          Midwest Region: Districts 4 and 8
          New York Region: District 10
          North Region: Districts 9 and 11
          South Region: Districts 5, 6 and 7
          West Region: Districts 1, 2 and 3
          Amended by SR-FINRA-2011-011 eff. April 28, 2011.
          Adopted by SR-FINRA-2009-020 eff. Aug. 20, 2009.

          Selected Notice: 09-39.

    • FINRA Rules

      • 0100. GENERAL STANDARDS

        • 0110. Adoption of Rules

          The Rules are adopted pursuant to Article VII, Section 1, of the FINRA By-Laws.

          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.

          Selected Notice: 08-57.

        • 0120. Effective Date

          The Rules shall become effective as provided in Article XI, Section 1, of the FINRA By-Laws.
          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.
          Amended by SR-NASD-98-86 eff. Nov. 19, 1998.

        • 0130. Interpretation

          The Rules shall be interpreted in light of the purposes sought to be achieved by the Rules and to further FINRA's regulatory programs.

          Cross Reference–

          Resolution under Article XI, Section 1, of the By-Laws: Interpretations and Explanations

          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.

          Selected Notice: 08-57.

        • 0140. Applicability

          (a) The Rules shall apply to all members and persons associated with a member. Persons associated with a member shall have the same duties and obligations as a member under the Rules.
          (b) A member or person associated with a member, who has been expelled, canceled or revoked from membership or from registration, or who has been barred from being associated with all members, shall cease to have any privileges of membership or registration. A member or person associated with a member who has been suspended from membership or registration shall also cease to have any privileges of membership or registration other than those under the Code of Procedure as set forth in the Rule 9000 Series or insurance programs sponsored by FINRA. In neither case shall such a member or person associated with a member be entitled to recover any admission fees, dues, assessments or other charges paid to FINRA.
          (c) A member or person associated with a member who has been suspended from membership or from registration shall be considered as a non-member during the period of suspension for purposes of applying the provisions of the Rules which govern dealings between members and non-members. However, such member or person associated with a member shall have all of the obligations imposed by the Rules.

          Cross Reference–

          Rule 8311, Effect of a Suspension, Revocation or Bar

          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.
          Amended by SR-NASD-95-39 eff. Aug. 20, 1996.

          Selected Notices: 87-53, 88-96, 08-57.

        • 0150. Application of Rules to Exempted Securities Except Municipal Securities

          (a) For purposes of this Rule, the terms "exempted securities" and "municipal securities" shall have the meanings specified in Sections 3(a)(12) and 3(a)(29) of the Exchange Act, respectively.
          (b) The Rules are not intended to be, and shall not be construed as, rules concerning transactions in municipal securities.
          (c) Unless otherwise indicated within a particular Rule, the following FINRA and NASD rules are applicable to transactions in, and business activities relating to, exempted securities, except municipal securities, conducted by members and associated persons: FINRA Rules 2010, 2020, 2060, 2111, 2122, 2150, 2210, 2211, 2212, 2261, 2268, 2269, 2320(g), 3110, 3220, 3270, 3280, 4120, 4130, 4210, 4311, 4330, 4360, 4510 Series, 4530, 5160, 5210, 5220, 5230, 5310, 5340, 8110, 8120, 8210, 8310, 8311, 8312, 8320, 8330 and 9552; NASD Rules 2340, 2510, 3050 and 3140.
          (d) FINRA Rule 2121 is applicable to transactions in, and business activities relating to, exempted securities that are government securities.
          Amended by SR-FINRA-2016-036 eff. Sep. 30, 2016.
          Amended by SR-FINRA-2016-004 eff. Feb. 10, 2016.
          Amended by SR-FINRA-2015-033 eff. Dec. 14, 2015.
          Amended by SR-FINRA-2015-030 eff. Sept. 21, 2015.
          Amended by SR-FINRA-2014-045 eff. Dec. 1, 2014.
          Amended by SR-FINRA-2014-049 eff. Nov. 21, 2014.
          Amended by SR-FINRA-2014-016 eff. May 1, 2014.
          Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
          Amended by SR-FINRA-2012-027 eff. July 9, 2012.
          Amended by SR-FINRA-2011-052 eff. May 31, 2012.
          Amended by SR-FINRA-2011-065 eff. Jan. 1, 2012.
          Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
          Amended by SR-FINRA-2011-030 eff. Aug. 1, 2011.
          Amended by SR-FINRA-2011-024 eff. July 1, 2011.
          Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
          Amended by SR-FINRA-2010-023 eff. June 14, 2010.
          Amended by SR-FINRA-2010-010 eff. April 19, 2010.
          Amended by SR-FINRA-2010-002 eff. Feb. 15, 2010.
          Amended by SR-FINRA-2010-002 eff. Feb. 8, 2010.
          Amended by SR-FINRA-2009-078 eff. Dec. 14, 2009.
          Amended by SR-FINRA-2009-062 eff. Oct. 19, 2009.
          Amended by SR-FINRA-2008-057 eff. Dec. 15, 2008.
          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.
          Amended by SR-NASD-2003-110 eff. June 28, 2004.
          Adopted by SR-NASD-2000-38 eff. Oct. 28, 2001.

          Selected Notices: 01-63, 04-36, 08-57, 12-13, 16-03.

        • 0151. Coordination with the MSRB

          (a) FINRA will request guidance from the MSRB in interpretation of the rules of the MSRB. FINRA also will provide information to the MSRB about the enforcement actions and examinations pertaining to municipal securities brokers, municipal securities dealers, and municipal advisors conducted by FINRA regarding the Exchange Act and the rules and regulations thereunder and the rules of the MSRB, so that the MSRB may: (1) assist in such enforcement actions and examinations; and (2) evaluate the ongoing effectiveness of the rules of the MSRB.
          Adopted by SR-FINRA-2016-004 eff. Feb. 10, 2016.

        • 0160. Definitions

          (a) The terms used in the Rules, if defined in the FINRA By-Laws, shall have the meaning as defined in the FINRA By-Laws, unless a term is defined differently in a Rule, or unless the context of the term within a Rule requires a different meaning.
          (b) When used in the Rules, unless the context otherwise requires:
          (1) "By-Laws"
          The term "By-Laws" means the By-Laws of the Corporation or the FINRA By-Laws.
          (2) "Code of Procedure"
          The term "Code of Procedure" means the procedural rules contained in the Rule 9000 Series.
          (3) "Completion of the Transaction"
          The term "completion of the transaction" means:
          (A) In the case of a customer who purchases a security through or from a member, except as provided in subparagraph (B), the time when such customer pays the member any part of the purchase price, or, if payment is effected by a bookkeeping entry, the time when such bookkeeping entry is made by the member for any part of the purchase price;
          (B) In the case of a customer who purchases a security through or from a member and who makes payment therefor prior to the time when payment is requested or notification is given that payment is due, the time when such member delivers, or credits such delivery of, the security to or into the account of such customer;
          (C) In the case of a customer who sells a security through or to a member, except as provided in subparagraph (D), if any security is not in the custody of the member at the time of sale, the time when the security is delivered to the member, and if the security is in the custody of the member at the time of sale, the earlier of when the member transfers the security from the account of such customer or the closing date of the transaction;
          (D) In the case of a customer who sells a security through or to a member and who delivers such security to such member prior to the time when delivery is requested or notification is given that delivery is due, the time when such member makes payment to or into the account of such customer.
          (4) "Customer"
          The term "customer" shall not include a broker or dealer.
          (5) "Exchange Act" or "SEA"
          The term "Exchange Act" or "SEA" means the Securities Exchange Act of 1934, as amended.
          (6) "FINRA"
          The term "FINRA" means, collectively, FINRA, Inc. and FINRA Regulation, Inc.
          (7) "FINRA Regulation"
          The term "FINRA Regulation" means FINRA Regulation, Inc.
          (8) "Investment Advisers Act"
          The term "Investment Advisers Act" means the Investment Advisers Act of 1940, as amended.
          (9) "Investment Company Act"
          The term "Investment Company Act" means the Investment Company Act of 1940, as amended.
          (10) "Member"
          The term "member" means any individual, partnership, corporation or other legal entity admitted to membership in FINRA under the provisions of Articles III and IV of the FINRA By-Laws.
          (11) "Office of Dispute Resolution"
          The term "Office of Dispute Resolution" means the office within FINRA Regulation that assumes the responsibilities and functions relating to dispute resolution programs including, but not limited to, the arbitration, mediation, or other resolution of disputes among and between members, associated persons and customers.
          (12) "Person"
          The term "person" shall include any natural person, partnership, corporation, association, or other legal entity.
          (13) "SEC"
          The term "SEC" means the Securities and Exchange Commission.
          (14) "Securities Act"
          The term "Securities Act" means the Securities Act of 1933, as amended.
          (15) "Selling Group"
          The term "selling group" means any group formed in connection with a public offering, to distribute all or part of an issue of securities by sales made directly to the public by or through members of such selling group, under an agreement which imposes no financial commitment on the members of such group to purchase any such securities except as they may elect to do so.
          (16) "Selling Syndicate"
          The term "selling syndicate" means any syndicate formed in connection with a public offering, to distribute all or part of an issue of securities by sales made directly to the public by or through participants in such syndicate under an agreement which imposes a financial commitment upon participants in such syndicate to purchase any such securities.
          (17) "State"
          The term "State" shall mean any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States.
          Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
          Amended by SR-FINRA-2011-043 eff. Feb. 21, 2012.
          Amended by SR-FINRA-2010-029 eff. Feb. 8, 2011.
          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.
          Amended by SR-NASD-2006-104 eff. March 5, 2007.
          Amended by SR-NASD-2003-75 eff. July 9, 2003.
          Amended by SR-NASD-99-21 eff. July 9, 2000.
          Amended by SR-NASD-98-57 eff. March 26, 1999.
          Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
          Amended by SR-NASD-97-28 eff. Aug. 7, 1997.

          Selected Notices: 08-57, 10-47, 12-04, 16-04.

        • 0170. Delegation, Authority and Access

          (a) The Financial Industry Regulatory Authority, Inc. delegates to FINRA Regulation, Inc. (hereinafter "FINRA Regulation") the authority to act on behalf of FINRA as set forth in a Plan of Allocation and Delegation adopted by the Board of Governors and approved by the SEC pursuant to its authority under the Exchange Act.
          (b) Notwithstanding any delegation of authority to FINRA Regulation pursuant to this Rule, the staff, books, records and premises of FINRA Regulation are the staff, books, records and premises of FINRA subject to oversight pursuant to the Exchange Act, and all officers, directors, employees and agents of FINRA Regulation are the officers, directors, employees and agents of FINRA for purposes of the Exchange Act.
          Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
          Amended by SR-FINRA-2008-026 eff. Dec. 15, 2008.
          Amended by SR-NASD-2006-104 eff. March 5, 2007.
          Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
          Adopted by SR-NASD-96-16 eff. Apr. 11, 1996.

          Selected Notices: 08-57, 16-04.

        • 0180. Application of Rules to Security-Based Swaps

          (a) The Rules shall not apply to members' activities and positions with respect to security-based swaps, except for the following:
          (1) FINRA Rule 2010;
          (2) FINRA Rule 2020;
          (3) FINRA Rule 3310; and
          (4) FINRA Rule 4240.
          (b) The following Rules shall apply to members' activities and positions with respect to security-based swaps only to the extent they would have applied as of July 15, 2011:
          (1) NASD Rule 3110 and all successor FINRA Rules to such NASD Rule;
          (2) the FINRA Rule 4500 Series; and
          (3) the FINRA Rule 4100 Series.
          (c) The following Rules shall apply as necessary to effectuate members' compliance with paragraphs (a) and (b) of this Rule:
          (1) the FINRA Rule 0100 Series;
          (2) the NASD Rule 1000 Series and all successor FINRA Rules to such NASD Rule Series;
          (3) the FINRA Rule 1000 and 1100 Series;
          (4) NASD Rules 3010 and 3012 and IM-3010-1 and all successor FINRA Rules to such NASD Rules and Interpretive Material;
          (5) FINRA Rule 3130;
          (6) the FINRA Rule 8000 Series; and
          (7) the FINRA Rule 9000 Series.
          (d) This Rule shall expire on February 12, 2018.

          • • • Supplementary Material: --------------

          .01 Definition of Security-Based Swaps. For purposes of this Rule, "security-based swap" shall be as defined pursuant to Exchange Act Section 3(a)(68) and the rules and guidance of the SEC or its staff.

          Amended by SR-FINRA-2017-001 eff. Feb. 11, 2017.
          Amended by SR-FINRA-2016-001 eff. Feb. 11, 2016.
          Amended by SR-FINRA-2015-001 eff. Feb. 11, 2015.
          Amended by SR-FINRA-2014-001 eff. Feb. 11, 2014.
          Amended by SR-FINRA-2013-019 eff. July 17, 2013.
          Amended by SR-FINRA-2012-056 eff. Dec. 12, 2012.
          Amended by SR-FINRA-2012-004 eff. Jan. 13, 2012.
          Adopted by SR-FINRA-2011-033 eff. July 8, 2011.

        • 0190. Effective Date of Revocation, Cancellation, Expulsion, Suspension or Resignation

          (a) A member shall be considered as a non-member of FINRA from the effective date of any order or notice from FINRA or the SEC issuing a revocation, cancellation, expulsion or suspension of its membership. In the case of suspension, a member shall be automatically reinstated to membership in FINRA at the termination of the suspension period.
          (b) A member shall be considered as a non-member of FINRA from the date of acceptance by FINRA of any resignation of such member.
          Adopted by SR-FINRA-2014-037 eff. Aug. 24, 2015.

          Selected Notice: 15-07.

      • 1000. MEMBER APPLICATION AND ASSOCIATED PERSON REGISTRATION

        • 1010. Electronic Filing Requirements for Uniform Forms

          (a) Filing Requirement
          Except as provided in NASD Rule 1013(a)(2), all forms required to be filed by Article IV, Sections 1, 7, and 8, and Article V, Sections 2 and 3, of the FINRA By-Laws shall be filed through an electronic process or such other process FINRA may prescribe to the Central Registration Depository.
          (b) Supervisory Requirements
          (1) In order to comply with the supervisory procedures requirement in Rule 3110, each member shall identify a registered principal(s) or corporate officer(s) who has a position of authority over registration functions, to be responsible for supervising the electronic filing of appropriate forms pursuant to this Rule.
          (2) The registered principal(s) or corporate officer(s) who has or have the responsibility to review and approve the forms filed pursuant to this Rule shall be required to acknowledge, electronically, that he is filing this information on behalf of the member and the member's associated persons.
          (c) Form U4 Filing Requirements
          (1) Except as provided in paragraphs (c)(2) and (c)(3) below, every initial and transfer electronic Form U4 filing and any amendments to the disclosure information on Form U4 shall be based on a manually signed Form U4 provided to the member or applicant for membership by the person on whose behalf the Form U4 is being filed. As part of the member's recordkeeping requirements, it shall retain the person's manually signed Form U4 or amendments to the disclosure information on Form U4 in accordance with SEA Rule 17a-4(e)(1) and make them available promptly upon regulatory request. An applicant for membership also shall retain in accordance with SEA Rule 17a-4(e)(1) every manually signed Form U4 it receives during the application process and make them available promptly upon regulatory request.
          (2) A member may file electronically amendments to the disclosure information on Form U4 without obtaining the subject associated person's manual signature on the form, provided that the member shall use reasonable efforts to:
          (A) provide the associated person with a copy of the amended disclosure information prior to filing; and
          (B) obtain the associated person's written acknowledgment (which may be electronic) prior to filing that the information has been received and reviewed. As part of the member's recordkeeping requirements, the member shall retain this acknowledgment in accordance with SEA Rule 17a-4(e)(1) and make it available promptly upon regulatory request.
          (3) In the event a member is not able to obtain an associated person's manual signature or written acknowledgement of amended disclosure information on Form U4 prior to filing of such information pursuant to paragraph (c)(1) or (2), the member is obligated to file the disclosure information as to which it has knowledge in accordance with Article V, Section 2 of the FINRA By-Laws. The member shall use reasonable efforts to provide the associated person with a copy of the amended disclosure information that was filed.
          (4) A member may file electronically amendments to administrative data on Form U4 without obtaining the subject associated person's signature on the form. The member shall use reasonable efforts to provide the associated person with a copy of the amended administrative information that was filed.
          (d) Fingerprint Information
          Upon filing an electronic Form U4 on behalf of a person applying for registration, a member shall promptly submit fingerprint information for that person. FINRA may make a registration effective pending receipt of the fingerprint information. If a member fails to submit the fingerprint information within 30 days after FINRA receives the electronic Form U4, the person's registration shall be deemed inactive. In such case, FINRA shall notify the member that the person must immediately cease all activities requiring registration and is prohibited from performing any duties and functioning in any capacity requiring registration. FINRA shall administratively terminate a registration that is inactive for a period of two years. A person whose registration is administratively terminated may reactivate the registration only by reapplying for registration and meeting the qualification requirements of the applicable provisions of the NASD Rule 1020 Series and the NASD Rule 1030 Series. Upon application and a showing of good cause, FINRA may extend the 30-day period.
          (e) Form U5 Filing Requirements
          Initial filings and amendments of Form U5 shall be submitted electronically. As part of the member's recordkeeping requirements, it shall retain such records for a period of not less than three years, the first two years in an easily accessible place, in accordance with SEA Rule 17a-4, and make such records available promptly upon regulatory request.

          • • • Supplementary Material: --------------

          .01 Delegation of Electronic Filing Functions. The designated registered principal(s) or corporate officer(s) required by paragraph (b)(1) to supervise the member's electronic filings may delegate to an associated person (who need not be registered) the electronic filing of the member's appropriate forms via Web CRD. The registered principal(s) or corporate officer(s) responsible for supervising the member's electronic filings may also delegate to the associated person making the electronic filings the requirement in paragraph (b)(2) to acknowledge, electronically, that he is making the filing on behalf of the member and the member's associated persons. However, the registered principal(s) or corporate officer(s) may not delegate any of the supervision, review, and approval responsibilities mandated in paragraphs (b)(1) and (2) and shall take reasonable and appropriate action to ensure that all delegated electronic filing functions are properly executed and supervised.

          .02 Third-Party Agreements. A member may enter into an agreement with a third party pursuant to which the third party agrees to file the required forms electronically on behalf of the member and the member's associated persons. Notwithstanding the existence of such an agreement, the member remains responsible for complying with the requirements of this Rule.

          .03 Filing of Amendments Involving Disclosure Information. In the event a member is not able to obtain an associated person's manual signature or written acknowledgement of amended disclosure information on that person's Form U4 prior to filing of such amendment reflecting the information pursuant to paragraph (c)(3) (examples of reasons why a member may not be able to obtain the manual signature or written acknowledgement may include, but are not limited to, the associated person refuses to acknowledge such information, is on active military service or otherwise is unavailable during the period provided for filing of such amendments under Article V of the FINRA By-Laws), the member shall enter "Representative Refused to Sign/Acknowledge" or "Representative Not Available" or a substantially similar entry in the electronic Form U4 field for the associated person's signature.

          .04 Filing of Amendments Involving Administrative Information. For purposes of paragraph (c)(4) of the Rule, administrative data includes such items as the addition of state or self-regulatory organization registrations, exam scheduling, and updates to residential, business and personal history.

          Amended by SR-FINRA-2014-045 eff. Dec. 1, 2014.
          Amended by SR-FINRA-2009-019 eff. July 27, 2009.
          Amended by SR-NASD-2003-136 eff. Aug. 28, 2003.
          Amended by SR-NASD-99-67 eff. Nov. 15, 2000.
          Amended and implemented by SR-NASD-99-28 eff. Aug. 16, 1999.
          Adopted by SR-NASD-96-21 on July 15, 1996.

          Selected Notices: 99-56, 99-63, 00-73, 09-40.

        • 1100. MEMBER APPLICATION

          • 1120. Member Application Process

            • 1122. Filing of Misleading Information as to Membership or Registration

              No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.
              Amended by SR-FINRA-2009-009 eff. Aug. 17, 2009.

              Selected Notice: 09-33.

        • 1200. REGISTRATION AND QUALIFICATION

          • 1230. Registration Categories

            (a) Definition of Principal and Principal Registration Categories
            (1) through (11) Reserved.
            (b) Definition of Representative and Representative Registration Categories
            (1) through (5) Reserved.
            (6) Operations Professional
            (A) Covered Persons
            Each of the following persons shall be required to register with FINRA as an Operations Professional:
            (i) Senior management with direct responsibility over the covered functions in paragraph (b)(6)(B) of this Rule;
            (ii) Any person designated by senior management specified in paragraph (b)(6)(A)(i) of this Rule as a supervisor, manager or other person responsible for approving or authorizing work, including work of other persons, in direct furtherance of each of the covered functions in paragraph (b)(6)(B) of this Rule, as applicable, provided that there is sufficient designation of such persons by senior management to address each of the applicable covered functions; and
            (iii) Persons with the authority or discretion materially to commit a member's capital in direct furtherance of the covered functions in paragraph (b)(6)(B) of this Rule or to commit a member to any material contract or agreement (written or oral) in direct furtherance of the covered functions in paragraph (b)(6)(B) of this Rule.
            (B) Covered Functions
            (i) Client on-boarding (customer account data and document maintenance);
            (ii) Collection, maintenance, re-investment (i.e., sweeps) and disbursement of funds;
            (iii) Receipt and delivery of securities and funds, account transfers;
            (iv) Bank, custody, depository and firm account management and reconciliation;
            (v) Settlement, fail control, buy ins, segregation, possession and control;
            (vi) Trade confirmation and account statements;
            (vii) Margin;
            (viii) Stock loan/securities lending;
            (ix) Prime brokerage (services to other broker-dealers and financial institutions);
            (x) Approval of pricing models used for valuations;
            (xi) Financial control, including general ledger and treasury;
            (xii) Contributing to the process of preparing and filing financial regulatory reports;
            (xiii) Defining and approving business requirements for sales and trading systems and any other systems related to the covered functions, and validation that these systems meet such business requirements;
            (xiv) Defining and approving business security requirements and policies for information technology, including, but not limited to, systems and data, in connection with the covered functions;
            (xv) Defining and approving information entitlement policies in connection with the covered functions; and
            (xvi) Posting entries to a member's books and records in connection with the covered functions to ensure integrity and compliance with the federal securities laws and regulations and FINRA rules.
            (C) Qualification Examination
            Subject to the exception in paragraph (b)(6)(D) of this Rule, any person who is required to register as an Operations Professional shall pass the Operations Professional qualification examination before such registration may become effective.
            (D) Exception
            (i) Any person who is registered with FINRA as an Investment Company Products/Variable Contracts Representative, General Securities Representative, United Kingdom Securities Representative or Canada Securities Representative, Registered Options Principal, General Securities Sales Supervisor, Compliance Officer, Supervisory Analyst, General Securities Principal, Investment Company Products/Variable Products Principal, Financial and Operations Principal, Introducing Broker-Dealer Financial and Operations Principal, Municipal Fund Securities Limited Principal or Municipal Securities Principal, and any person who has been registered in one of these categories within the two years immediately prior to registering as an Operations Professional, shall be qualified to register as an Operations Professional without passing the Operations Professional qualification examination, provided that such registration is not revoked pursuant to Rules 8310 or 8320, suspended or otherwise deemed inactive.
            (ii) The staff may accept as an alternative to the Operations Professional qualification examination requirement in paragraph (b)(6)(C) of this Rule any domestic or foreign qualification if it determines that acceptance of such alternative qualification is consistent with the purposes of this Rule, the protection of investors, and the public interest.
            (E) Implementation
            (i) Any person who is required to register as an Operations Professional as of October 17, 2011 shall request registration as an Operations Professional via Form U4 in CRD within 60 days after October 17, 2011. Any person who is required to register as an Operations Professional as of October 17, 2011 and must pass the Operations Professional qualification examination (or an eligible qualification examination listed in paragraph (b)(6)(D) of this Rule) to qualify for Operations Professional registration shall be allowed a period of 12 months beginning on October 17, 2011 to pass such qualifying examination, during which time such person may function as an Operations Professional.
            (ii) Any person who is required to register as an Operations Professional from October 18, 2011 through December 16, 2011 shall register as an Operations Professional and, if applicable, pass the Operations Professional qualification examination (or an eligible qualification examination listed in paragraph (b)(6)(D) of this Rule) prior to engaging in any activities that would require such registration; provided, however, any such person who must pass the Operations Professional qualification examination (or an eligible qualification examination listed in paragraph (b)(6)(D) of this Rule) to qualify for Operations Professional registration shall be allowed until April 14, 2012 to pass such qualifying examination, during which time such person may function as an Operations Professional.
            (iii) Any person who is required to register as an Operations Professional on or after December 17, 2011 shall register as an Operations Professional and, if applicable, pass the Operations Professional qualification examination (or an eligible qualification examination listed in paragraph (b)(6)(D) of this Rule) prior to engaging in any activities that would require such registration; provided, however, any such person who must pass the Operations Professional qualification examination (or an eligible qualification examination listed in paragraph (b)(6)(D) of this Rule) to qualify for Operations Professional registration shall be allowed a period of 120 days beginning on the date such person requests Operations Professional registration to pass such qualifying examination, during which time such person may function as an Operations Professional.
            (7) through (14) Reserved.

            • • • Supplementary Material: --------------

            .01 through .05 Reserved.

            .06 Scope of Operations Professional Requirement. Any person whose activities are limited to performing a function ancillary to a covered function in paragraph (b)(6)(B) of this Rule, or whose function is to serve a role that can be viewed as supportive of or advisory to the performance of a covered function in paragraph (b)(6)(B) of this Rule (e.g., internal audit, legal or compliance personnel who review but do not have primary responsibility for any covered function), or who engages solely in clerical or ministerial activities in a covered function in paragraph (b)(6)(B) of this Rule shall not be required to register as an Operations Professional pursuant to paragraph (b)(6)(A) of this Rule. For the purpose of Rule 1230(b)(6)(A)(iii), the determination as to what constitutes “materially” or “material” is based on a member's pre-established spending guidelines and risk management policies.

            An employee of a foreign broker-dealer whose activities, relating to a transaction in foreign securities on behalf of a customer of a member, are limited to facilitating the clearance and settlement of the transaction shall not be required to register as an Operations Professional pursuant to paragraph (b)(6)(A) of this Rule where:

            (1) the member sending the order for a transaction in foreign securities on behalf of the customer to the foreign broker-dealer is not a direct participant of the applicable foreign clearing system; and
            (2) in executing such order in the foreign market, the foreign broker-dealer accepts the member's customer's instructions to settle the transaction in foreign securities on a DVP/RVP basis through the foreign clearing system and settle directly with a custodian for the customer.

            .07 Reserved.

            Amended by SR-FINRA-2011-060 eff. Oct. 17, 2011.
            Amended by SR-FINRA-2011-040 eff. Oct. 17, 2011.
            Adopted by SR-FINRA-2011-013 eff. Oct. 17, 2011.

            Selected Notice: 11-33.

          • 1250. Continuing Education Requirements

            This Rule prescribes requirements regarding the continuing education of certain registered persons subsequent to their initial qualification and registration with FINRA. The requirements shall consist of a Regulatory Element and a Firm Element as set forth below.
            (a) Regulatory Element
            (1) Requirements
            No member shall permit any registered person to continue to, and no registered person shall continue to, perform duties as a registered person unless such person has complied with the requirements of paragraph (a) hereof.
            Each registered person shall complete the Regulatory Element on the occurrence of their second registration anniversary date and every three years thereafter, or as otherwise prescribed by FINRA. On each occasion, the Regulatory Element must be completed within 120 days after the person's registration anniversary date. A person's initial registration date, also known as the "base date," shall establish the cycle of anniversary dates for purposes of this Rule. The content of the Regulatory Element shall be determined by FINRA and shall be appropriate to either the registered representative or principal status of persons subject to the Rule.
            (2) Failure to Complete
            Unless otherwise determined by FINRA, any registered persons who have not completed the Regulatory Element within the prescribed time frames will have their registrations deemed inactive until such time as the requirements of the program have been satisfied. Any person whose registration has been deemed inactive under this Rule shall cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring registration. A registration that is inactive for a period of two years will be administratively terminated. A person whose registration is so terminated may reactivate the registration only by reapplying for registration and meeting the qualification requirements of the applicable provisions of Rule 1230(b)(6) and the NASD Rule 1020 and 1030 Series. FINRA may, upon application and a showing of good cause, allow for additional time for a registered person to satisfy the program requirements.
            (3) Disciplinary Actions
            Unless otherwise determined by FINRA, a registered person will be required to retake the Regulatory Element and satisfy all of its requirements in the event such person:
            (A) is subject to any statutory disqualification as defined in Section 3(a)(39) of the Exchange Act;
            (B) is subject to suspension or to the imposition of a fine of $5,000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule or standard of conduct of any securities governmental agency, securities self-regulatory organization, or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or
            (C) is ordered as a sanction in a disciplinary action to retake the Regulatory Element by any securities governmental agency or self-regulatory organization.
            The retaking of the Regulatory Element shall commence with participation within 120 days of the registered person becoming subject to the statutory disqualification, in the case of (A) above, or the disciplinary action becoming final, in the case of (B) and (C) above. The date of the disciplinary action shall be treated as such person's new base date with FINRA.
            (4) Reassociation in a Registered Capacity
            Any registered person who has terminated association with a member and who has, within two years of the date of termination, become reassociated in a registered capacity with a member shall participate in the Regulatory Element at such intervals that may apply (second anniversary and every three years thereafter) based on the initial registration anniversary date rather than based on the date of reassociation in a registered capacity.
            (5) Definition of Registered Person
            For purposes of this Rule, the term "registered person" means any person registered with FINRA as a representative, principal, assistant representative or research analyst pursuant to Rule 1230(b)(6) and the NASD Rule 1020, 1030, 1040, 1050 and 1110 Series.
            (6) Delivery of the Regulatory Element
            The continuing education Regulatory Element program will be administered through Web-based delivery or such other technological manner and format as specified by FINRA.
            (7) Regulatory Element Contact Person
            Each member shall designate and identify to FINRA (by name and e-mail address) an individual or individuals responsible for receiving e-mail notifications provided via the Central Registration Depository regarding when a registered person is approaching the end of his or her Regulatory Element time frame and when a registered person is deemed inactive due to failure to complete the requirements of the Regulatory Element program. Each member shall identify, review, and, if necessary, update the information regarding its Regulatory Element contact person(s) in the manner prescribed by Rule 4517.
            (b) Firm Element
            (1) Persons Subject to the Firm Element
            The requirements of this subparagraph shall apply to any person registered with a member who has direct contact with customers in the conduct of the member's securities sales, trading and investment banking activities, any person registered as an operations professional pursuant to Rule 1230(b)(6) or a research analyst pursuant to NASD Rule 1050, and to the immediate supervisors of such persons (collectively, "covered registered persons"). "Customer" shall mean any natural person and any organization, other than another broker or dealer, executing securities transactions with or through or receiving investment banking services from a member.
            (2) Standards for the Firm Element
            (A) Each member must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skill, and professionalism. At a minimum, each member shall at least annually evaluate and prioritize its training needs and develop a written training plan. The plan must take into consideration the member's size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element. If a member's analysis establishes the need for supervisory training for persons with supervisory responsibilities, such training must be included in the member's training plan.
            (B) Minimum Standards for Training Programs — Programs used to implement a member's training plan must be appropriate for the business of the member and, at a minimum must cover the following matters concerning securities products, services, and strategies offered by the member:
            (i) General investment features and associated risk factors;
            (ii) Suitability and sales practice considerations;
            (iii) Applicable regulatory requirements; and
            (iv) With respect to registered research analysts and their immediate supervisors, training in ethics, professional responsibility and the requirements of Rule 2241.
            (C) Administration of Continuing Education Program — A member must administer its continuing education programs in accordance with its annual evaluation and written plan and must maintain records documenting the content of the programs and completion of the programs by covered registered persons.
            (3) Participation in the Firm Element
            Covered registered persons included in a member's plan must take all appropriate and reasonable steps to participate in continuing education programs as required by the member.
            (4) Specific Training Requirements
            FINRA may require a member, individually or as part of a larger group, to provide specific training to its covered registered persons in such areas as FINRA deems appropriate. Such a requirement may stipulate the class of covered registered persons for which it is applicable, the time period in which the requirement must be satisfied and, where appropriate, the actual training content.
            Amended by SR-FINRA-2015-050 eff. Dec. 24, 2015.
            Amended by SR-FINRA-2015-015 eff. Oct. 1, 2015.
            Amended by SR-FINRA-2015-004 eff. Feb. 12, 2015.
            Amended by SR-FINRA-2011-013 eff. Oct. 17, 2011.
            Amended by SR-NASD-2007-034 eff. Dec. 31, 2007.
            Amended by SR-NASD-2004-098 eff. April 4, 2005.
            Amended by SR-NASD-2003-183 eff. April 16, 2004.
            Amended by SR-NASD-2002-154 eff. July 29, 2003.
            Amended by SR-NASD-2000-64 eff. March 11, 2001.
            Amended by SR-NASD-98-03 eff. July 1, 1998.
            Amended by SR-NASD-95-22 eff. July 1, 1995.
            Adopted by SR-NASD-94-72 eff. July 1, 1995.

            Selected Notices: 94-59, 95-13, 95-35, 96-27, 98-23, 01-14, 03-44, 04-22, 05-20, 07-42, 11-33, 15-28.

      • 2000. DUTIES AND CONFLICTS

        • 2010. Standards of Commercial Honor and Principles of Trade

          A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
          Cross References–

          1122, Filing of Misleading Information as to Membership or Registration
          IM-1000-3, Failure to Register Personnel
          2111, Suitability
          2121.01, Mark-Up Policy
          2342, "Breakpoint" Sales
          5130, Restrictions on the Purchase and Sale of Initial Equity Public Offerings
          5210, Publication of Transactions and Quotations
          5220, Offers at stated Prices
          5270, Front Running of Block Transactions
          5320. Prohibition Against Trading Ahead of Customer Orders
          IM-10100, Failure to Act Under Provisions of Code of Arbitration Procedure
          IM-11110, Refusal to Abide by Rulings of the Committee

          Amended by SR-FINRA-2008-028 eff. Dec. 15, 2008.
          Amended by SR-NASD-2005-087 eff. Aug. 1, 2006

          Selected Notices: 96-44, 08-57.

        • 2020. Use of Manipulative, Deceptive or Other Fraudulent Devices

          No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.
          Cross References–

          2111, Suitability
          5210, Publication of Transactions and Quotations

          Amended by SR-FINRA-2008-028 eff. Dec. 15, 2008.

          Selected Notice: 08-57.

        • 2030. Engaging in Distribution and Solicitation Activities with Government Entities

          (a) Limitation on Distribution and Solicitation Activities
          No covered member shall engage in distribution or solicitation activities for compensation with a government entity on behalf of an investment adviser that provides or is seeking to provide investment advisory services to such government entity within two years after a contribution to an official of the government entity is made by the covered member or a covered associate (including a person who becomes a covered associate within two years after the contribution is made).
          (b) Prohibition on Soliciting and Coordinating Contributions
          No covered member or covered associate may solicit or coordinate any person or political action committee to make any:
          (1) Contribution to an official of a government entity in respect of which the covered member is engaging in, or seeking to engage in, distribution or solicitation activities on behalf of an investment adviser; or
          (2) Payment to a political party of a state or locality of a government entity with which the covered member is engaging in, or seeking to engage in, distribution or solicitation activities on behalf of an investment adviser.
          (c) Exceptions
          (1) De minimis Exception
          Paragraph (a) shall not apply to contributions made by a covered associate that is a natural person, to officials for whom the covered associate was entitled to vote at the time of the contributions and which in the aggregate do not exceed $350 to any one official, per election, or to officials for whom the covered associate was not entitled to vote at the time of the contributions and which in the aggregate do not exceed $150 to any one official, per election.
          (2) Exception for Certain New Covered Associates
          The prohibitions of paragraph (a) shall not apply to a covered member as a result of a contribution made by a natural person more than six months prior to becoming a covered associate of the covered member unless such person, after becoming a covered associate, engages in, or seeks to engage in, distribution or solicitation activities with a government entity on behalf of the covered member.
          (3) Exception for Certain Returned Contributions
          (A) A covered member that is prohibited from engaging in distribution or solicitation activities with a government entity pursuant to paragraph (a) as a result of a contribution made by a covered associate is excepted from such prohibition, subject to subparagraphs (B) and (C) below, upon satisfaction of the following requirements:
          (i) The covered member must have discovered the contribution that resulted in the prohibition within four months of the date of such contribution;
          (ii) Such contribution must not have exceeded $350; and
          (iii) The contributor must obtain a return of the contribution within 60 calendar days of the date of discovery of such contribution by the covered member.
          (B) In any calendar year, a covered member that has reported on its annual Schedule I to Form X-17A-5 that it has more than 150 registered persons is entitled to no more than three exceptions pursuant to subparagraph (A), and a covered member that has reported on its annual Schedule I to Form X-17A-5 that it has 150 or fewer registered persons is entitled to no more than two exceptions pursuant to subparagraph (A).
          (C) A covered member may not rely on the exception provided in subparagraph (A) more than once with respect to contributions by the same covered associate of the covered member regardless of time period.
          (d) Prohibitions as Applied to Covered Investment Pools
          For purposes of this Rule:
          (1) A covered member that engages in distribution or solicitation activities with a government entity on behalf of a covered investment pool in which a government entity invests or is solicited to invest shall be treated as though that covered member was engaging in or seeking to engage in distribution or solicitation activities with the government entity on behalf of the investment adviser to the covered investment pool directly; and
          (2) An investment adviser to a covered investment pool in which a government entity invests or is solicited to invest shall be treated as though that investment adviser were providing or seeking to provide investment advisory services directly to the government entity.
          (e) Further Prohibitions
          It shall be a violation of this Rule for any covered member or any of its covered associates to do anything indirectly that, if done directly, would result in a violation of this Rule.
          (f) Exemptions
          FINRA, upon application, may conditionally or unconditionally exempt a covered member from the prohibition described in paragraph (a). In determining whether to grant an exemption, FINRA shall consider, among other factors:
          (1) Whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this Rule;
          (2) Whether the covered member:
          (A) Before the contribution resulting in the prohibition was made, adopted and implemented policies and procedures reasonably designed to prevent violations of this Rule;
          (B) Prior to or at the time the contribution that resulted in such prohibition was made, had no actual knowledge of the contribution; and
          (C) After learning of the contribution:
          (i) Has taken all available steps to cause the contributor involved in making the contribution that resulted in such prohibition to obtain a return of the contribution; and
          (ii) Has taken such other remedial or preventive measures as may be appropriate under the circumstances;
          (3) Whether, at the time of the contribution, the contributor was a covered associate or otherwise an associated person of the covered member, or was seeking to become an associated person, or covered associate of the covered member;
          (4) The timing and amount of the contribution that resulted in the prohibition;
          (5) The nature of the election (e.g., federal, state or local); and
          (6) The contributor's apparent intent or motive in making the contribution that resulted in the prohibition, as evidenced by the facts and circumstances surrounding such contribution.
          (g) Definitions
          For purposes of this Rule:
          (1) "Contribution" means any gift, subscription, loan, advance, or deposit of money or anything of value made for:
          (A) The purpose of influencing any election for federal, state or local office;
          (B) Payment of debt incurred in connection with any such election; or
          (C) Transition or inaugural expenses of the successful candidate for state or local office.
          (2) "Covered associate" means:
          (A) Any general partner, managing member or executive officer of a covered member, or other individual with a similar status or function;
          (B) Any associated person of a covered member who engages in distribution or solicitation activities with a government entity for such covered member;
          (C) Any associated person of a covered member who supervises, directly or indirectly, the government entity distribution or solicitation activities of a person in subparagraph (B) above; and
          (D) Any political action committee controlled by a covered member or a covered associate.
          (3) "Covered investment pool" means:
          (A) Any investment company registered under the Investment Company Act that is an investment option of a plan or program of a government entity; or
          (B) Any company that would be an investment company under Section 3(a) of the Investment Company Act but for the exclusion provided from that definition by either Section 3(c)(1), 3(c)(7) or 3(c)(11) of that Act.
          (4) "Covered member" means any member except when that member is engaging in activities that would cause the member to be a municipal advisor as defined in Exchange Act Section 15B(e)(4), SEA Rule 15Ba1-1(d)(1) through (4) and other rules and regulations thereunder;
          (5) "Executive officer of a covered member" means:
          (A) The president;
          (B) Any vice president in charge of a principal business unit, division or function (such as sales, administration or finance);
          (C) Any other officer of the covered member who performs a policy-making function; or
          (D) Any other person who performs similar policy-making functions for the covered member.
          (6) "Government entity" means any state or political subdivision of a state, including:
          (A) Any agency, authority or instrumentality of the state or political subdivision;
          (B) A pool of assets sponsored or established by the state or political subdivision or any agency, authority or instrumentality thereof, including but not limited to a defined benefit plan as defined in Section 414(j) of the Internal Revenue Code, or a state general fund;
          (C) A plan or program of a government entity; and
          (D) Officers, agents or employees of the state or political subdivision or any agency, authority or instrumentality thereof, acting in their official capacity.
          (7) "Investment adviser" means any investment adviser registered (or required to be registered) with the Commission, or unregistered in reliance on the exemption available under Section 203(b)(3) of the Investment Advisers Act, or that is an exempt reporting adviser, as defined in Rule 204-4(a) of that Act.
          (8) "Official" means any person (including any election committee for the person) who was, at the time of the contribution, an incumbent, candidate or successful candidate for elective office of a government entity, if the office:
          (A) Is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a government entity; or
          (B) Has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a government entity.
          (9) "Payment" means any gift, subscription, loan, advance or deposit of money or anything of value.
          (10) "Plan or program of a government entity" means any participant-directed investment program or plan sponsored or established by a state or political subdivision or any agency, authority or instrumentality thereof, including but not limited to a qualified tuition plan authorized by Section 529 of the Internal Revenue Code, a retirement plan authorized by Section 403(b) or 457 of the Internal Revenue Code, or any similar program or plan.
          (11) "Solicit" means:
          (A) With respect to investment advisory services, to communicate, directly or indirectly, for the purpose of obtaining or retaining a client for, or referring a client to, an investment adviser; and
          (B) With respect to a contribution or payment, to communicate, directly or indirectly, for the purpose of obtaining or arranging a contribution or payment.
          Adopted by SR-FINRA-2015-056 eff. Aug. 20, 2017.

          Selected Notice: 16-40

        • 2040. Payments to Unregistered Persons

          (a) General
          No member or associated person shall, directly or indirectly, pay any compensation, fees, concessions, discounts, commissions or other allowances to:
          (1) any person that is not registered as a broker-dealer under Section 15(a) of the Exchange Act but, by reason of receipt of any such payments and the activities related thereto, is required to be so registered under applicable federal securities laws and SEA rules and regulations; or
          (2) any appropriately registered associated person unless such payment complies with all applicable federal securities laws, FINRA rules and SEA rules and regulations.
          (b) Retiring Representatives
          (1) A member may pay continuing commissions to a retiring registered representative of the member, after he or she ceases to be associated with such member, that are derived from accounts held for continuing customers of the retiring registered representative regardless of whether customer funds or securities are added to the accounts during the period of retirement, provided that:
          (A) a bona fide contract between the member and the retiring registered representative providing for the payments was entered into in good faith while the person was a registered representative of the member and such contract, among other things, prohibits the retiring registered representative from soliciting new business, opening new accounts, or servicing the accounts generating the continuing commission payments; and
          (B) the arrangement complies with applicable federal securities laws, SEA rules and regulations.
          (2) The term "retiring registered representative," as used in this Rule shall mean an individual who retires from a member (including as a result of a total disability) and leaves the securities industry. In the case of death of the retiring registered representative, the retiring registered representative's beneficiary designated in the written contract or the retiring registered representative's estate if no beneficiary is so designated may be the beneficiary of the respective member's agreement with the deceased representative.
          (c) Nonregistered Foreign Finders
          A member may pay to a nonregistered foreign person (the “finder”) transaction-related compensation based upon the business of customers the finder directs to the member if the following conditions are met:
          (1) the member has assured itself that the finder who will receive the compensation is not required to register in the United States as a broker-dealer nor is subject to a disqualification as defined in Article III, Section 4 of FINRA's By-Laws, and has further assured itself that the compensation arrangement does not violate applicable foreign law;
          (2) the finder is a foreign national (not a U.S. citizen) or foreign entity domiciled abroad;
          (3) the customers are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad transacting business in either foreign or U.S. securities;
          (4) customers receive a descriptive document, similar to that required by Rule 206(4)-3(b) of the Investment Advisers Act, that discloses what compensation is being paid to finders;
          (5) customers provide written acknowledgment to the member of the existence of the compensation arrangement and such acknowledgment is retained and made available for inspection by FINRA;
          (6) records reflecting payments to finders are maintained on the member's books, and actual agreements between the member and the finder are available for inspection by FINRA; and
          (7) the confirmation of each transaction indicates that a referral or finders fee is being paid pursuant to an agreement.

          • • • Supplementary Material: --------------

          .01 Reasonable Support for Determination of Compliance with Section 15(a) of the Exchange Act. For purposes of Rule 2040, FINRA expects members to determine that their proposed activities would not require the recipient of the payments to register as a broker-dealer and to reasonably support such determination. Members that are uncertain as to whether an unregistered person may be required to be registered under Section 15(a) of the Exchange Act by reason of receiving payments from the member can derive support for their determination by, among other things, (1) reasonably relying on previously published releases, no-action letters or interpretations from the Commission or Commission staff that apply to their facts and circumstances; (2) seeking a no-action letter from the Commission staff; or (3) obtaining a legal opinion from independent, reputable U.S. licensed counsel knowledgeable in the area. The member's determination must be reasonable under the circumstances and should be reviewed periodically if payments to the unregistered person are ongoing in nature. In addition, a member must maintain books and records that reflect the member's determination.

          Amended by SR-FINRA-2014-037 eff. Aug. 24, 2015.
          Adopted by SR-NASD-94-51 eff. Feb. 15, 1995 (Paragraph (c)).

          Selected Notices: 95-37, 15-07.

        • 2060. Use of Information Obtained in Fiduciary Capacity

          A member who in the capacity of paying agent, transfer agent, trustee, or in any other similar capacity, has received information as to the ownership of securities, shall under no circumstances make use of such information for the purpose of soliciting purchases, sales or exchanges except at the request and on behalf of the issuer.

          Cross Reference–

          Rule 2150. Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts

          Amended by SR-FINRA-2009-067 eff. Feb. 15, 2010.

          Selected Notice: 09-72.

        • 2070. Transactions Involving FINRA Employees

          (a) When a member has actual notice that a FINRA employee has a financial interest in, or controls trading in, an account, the member shall promptly obtain and implement an instruction from the employee directing the member to provide duplicate account statements to FINRA.
          (b) Members shall not directly or indirectly make any loan of money or securities to any FINRA employee. However, this prohibition does not apply to loans made in the context of disclosed, routine banking and brokerage agreements, or loans that are clearly motivated by a personal or family relationship.
          (c) Notwithstanding the annual dollar limitation set forth in Rule 3220(a), members shall not directly or indirectly give, or permit to be given, anything above nominal value to any FINRA employee who has responsibility for a regulatory matter involving the member. For purposes of this paragraph, the term "regulatory matter" includes, but is not limited to, examinations, disciplinary proceedings, membership applications and dispute-resolution proceedings.
          Amended by SR-FINRA-2008-027 eff. Dec. 15, 2008.
          Adopted by SR-NASD-00-58 eff. Nov. 17, 2000.

          Selected Notice: 08-57.

        • 2080. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System

          (a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
          (b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
          (1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings that:
          (A) the claim, allegation or information is factually impossible or clearly erroneous;
          (B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
          (C) the claim, allegation or information is false.
          (2) If the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name FINRA as a party if it determines that:
          (A) the expungement relief and accompanying findings on which it is based are meritorious; and
          (B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.
          (c) For purposes of this Rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4") in effect at the time of issuance of the subject expungement order.
          Amended by SR-FINRA-2009-016 eff. Aug. 17, 2009.
          Amended by SR-NASD-2003-200 eff. April 12, 2004.
          Adopted by SR-NASD-2002-168 eff. April 12, 2004.

          Selected Notice: 04-16, 09-33.

          • 2081. Prohibited Conditions Relating to Expungement of Customer Dispute

            No member or associated person shall condition or seek to condition settlement of a dispute with a customer on, or to otherwise compensate the customer for, the customer's agreement to consent to, or not to oppose, the member's or associated person's request to expunge such customer dispute information from the CRD system.
            Adopted by SR-FINRA-2014-020 eff. July 30, 2014.

            Selected Notice: 14-31

        • 2090. Know Your Customer

          Every member shall use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.

          • • • Supplementary Material: --------------

          .01 Essential Facts. For purposes of this Rule, facts "essential" to "knowing the customer" are those required to (a) effectively service the customer's account, (b) act in accordance with any special handling instructions for the account, (c) understand the authority of each person acting on behalf of the customer, and (d) comply with applicable laws, regulations, and rules.

          Adopted by SR-FINRA-2010-039 and amended by SR-FINRA-2011-016 eff. July 9, 2012.

          Selected Notices: 11-02, 11-25, 12-25.

        • 2100. TRANSACTIONS WITH CUSTOMERS

          • 2110. Recommendations

            • 2111. Suitability

              (a) A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile. A customer's investment profile includes, but is not limited to, the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.
              (b) A member or associated person fulfills the customer-specific suitability obligation for an institutional account, as defined in Rule 4512(c), if (1) the member or associated person has a reasonable basis to believe that the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities and (2) the institutional customer affirmatively indicates that it is exercising independent judgment in evaluating the member's or associated person's recommendations. Where an institutional customer has delegated decisionmaking authority to an agent, such as an investment adviser or a bank trust department, these factors shall be applied to the agent.

              • • • Supplementary Material: --------------

              .01 General Principles. Implicit in all member and associated person relationships with customers and others is the fundamental responsibility for fair dealing. Sales efforts must therefore be undertaken only on a basis that can be judged as being within the ethical standards of FINRA rules, with particular emphasis on the requirement to deal fairly with the public. The suitability rule is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct.

              .02 Disclaimers. A member or associated person cannot disclaim any responsibilities under the suitability rule.

              .03 Recommended Strategies. The phrase "investment strategy involving a security or securities" used in this Rule is to be interpreted broadly and would include, among other things, an explicit recommendation to hold a security or securities. However, the following communications are excluded from the coverage of Rule 2111 as long as they do not include (standing alone or in combination with other communications) a recommendation of a particular security or securities:

              (a) General financial and investment information, including (i) basic investment concepts, such as risk and return, diversification, dollar cost averaging, compounded return, and tax deferred investment, (ii) historic differences in the return of asset classes (e.g., equities, bonds, or cash) based on standard market indices, (iii) effects of inflation, (iv) estimates of future retirement income needs, and (v) assessment of a customer's investment profile;
              (b) Descriptive information about an employer-sponsored retirement or benefit plan, participation in the plan, the benefits of plan participation, and the investment options available under the plan;
              (c) Asset allocation models that are (i) based on generally accepted investment theory, (ii) accompanied by disclosures of all material facts and assumptions that may affect a reasonable investor's assessment of the asset allocation model or any report generated by such model, and (iii) in compliance with Rule 2214 (Requirements for the Use of Investment Analysis Tools) if the asset allocation model is an "investment analysis tool" covered by Rule 2214; and
              (d) Interactive investment materials that incorporate the above.

              .04 Customer's Investment Profile. A member or associated person shall make a recommendation covered by this Rule only if, among other things, the member or associated person has sufficient information about the customer to have a reasonable basis to believe that the recommendation is suitable for that customer. The factors delineated in Rule 2111(a) regarding a customer's investment profile generally are relevant to a determination regarding whether a recommendation is suitable for a particular customer, although the level of importance of each factor may vary depending on the facts and circumstances of the particular case. A member or associated person shall use reasonable diligence to obtain and analyze all of the factors delineated in Rule 2111(a) unless the member or associated person has a reasonable basis to believe, documented with specificity, that one or more of the factors are not relevant components of a customer's investment profile in light of the facts and circumstances of the particular case.

              .05 Components of Suitability Obligations. Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability.

              (a) The reasonable-basis obligation requires a member or associated person to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. In general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the member's or associated person's familiarity with the security or investment strategy. A member's or associated person's reasonable diligence must provide the member or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy. The lack of such an understanding when recommending a security or strategy violates the suitability rule.
              (b) The customer-specific obligation requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer's investment profile, as delineated in Rule 2111(a).
              (c) Quantitative suitability requires a member or associated person who has actual or de facto control over a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer's investment profile, as delineated in Rule 2111(a). No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer's account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.

              .06 Customer's Financial Ability. Rule 2111 prohibits a member or associated person from recommending a transaction or investment strategy involving a security or securities or the continuing purchase of a security or securities or use of an investment strategy involving a security or securities unless the member or associated person has a reasonable basis to believe that the customer has the financial ability to meet such a commitment.

              .07 Institutional Investor Exemption. Rule 2111(b) provides an exemption to customer-specific suitability regarding institutional investors if the conditions delineated in that paragraph are satisfied. With respect to having to indicate affirmatively that it is exercising independent judgment in evaluating the member's or associated person's recommendations, an institutional customer may indicate that it is exercising independent judgment on a trade-by-trade basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions for its account.

              Amended by SR-FINRA-2014-016 eff. May 1, 2014.
              Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
              Adopted by SR-FINRA-2010-039 and amended by SR-FINRA-2011-016 and SR-FINRA-2012-027 eff. July 9, 2012.

              Selected Notices: 11-02, 11-25, 12-25, 12-55.

            • 2114. Recommendations to Customers in OTC Equity Securities

              Preliminary Note: The requirements of this Rule are in addition to other existing member obligations under FINRA rules and the federal securities laws, including obligations to determine suitability of particular securities transactions with customers and to have a reasonable basis for any recommendation made to a customer. This Rule is not intended to act or operate as a presumption or as a safe harbor for purposes of determining suitability or for any other legal obligation or requirement imposed under FINRA rules and the federal securities laws.
              (a) Review Requirement
              No member or person associated with a member shall recommend that a customer purchase or sell short any OTC Equity Security, unless the member has reviewed the current financial statements of the issuer, current material business information about the issuer, and made a determination that such information, and any other information available, provides a reasonable basis under the circumstances for making the recommendation.
              (b) Definitions
              (1) For purposes of this Rule, the term "current financial statements" shall include:
              (A) For issuers that are not foreign private issuers,
              (i) a balance sheet as of a date less than 15 months before the date of the recommendation;
              (ii) a statement of profit and loss for the 12 months preceding the date of the balance sheet;
              (iii) if the balance sheet is not as of a date less than 6 months before the date of the recommendation, additional statements of profit and loss for the period from the date of the balance sheet to a date less than 6 months before the date of the recommendation;
              (iv) publicly available financial statements and other financial reports filed during the 12 months preceding the date of the recommendation and up to the date of the recommendation with the issuer's principal financial or securities regulatory authority in its home jurisdiction, including the SEC, foreign regulatory authorities, and bank and insurance regulators; and
              (v) all publicly available financial information filed with the SEC during the 12 months preceding the date of the recommendation contained in registration statements or SEC Regulation A filings.
              (B) For foreign private issuers,
              (i) a balance sheet as of a date less than 18 months before the date of the recommendation;
              (ii) a statement of profit and loss for the 12 months preceding the date of the balance sheet;
              (iii) if the balance sheet is not as of a date less than 9 months before the date of the recommendation, additional statements of profit and loss for the period from the date of the balance sheet to a date less than 9 months before the date of the recommendation, if any such statements have been prepared by the issuer; and
              (iv) publicly available financial statements and other financial reports filed during the 12 months preceding the date of the recommendation and up to the date of the recommendation with the issuer's principal financial or securities regulatory authority in its home jurisdiction, including the SEC, foreign regulatory authorities, and bank and insurance regulators.
              (2) For purposes of this Rule, the term "current material business information" shall include information that is ascertainable through the reasonable exercise of professional diligence and that a reasonable person would take into account in reaching an investment decision.
              (3) For purposes of this Rule, the term "OTC Equity Security" shall have the meaning described in Rule 6420.
              (c) Compliance Requirements
              (1) A member shall designate a registered person to conduct the review required by this Rule. In making such designation, the member must ensure that:
              (A) Either the person is registered as a General Securities Principal or General Securities Sales Supervisor, or the designated person's conduct in complying with the provisions of this Rule is appropriately supervised by a General Securities Principal or General Securities Sales Supervisor; and
              (B) Such designated person has the requisite skills, background and knowledge to conduct the review required under this Rule.
              (2) The member shall document the information reviewed, the date of the review, and the name of the person performing the review of the required information. In the event that the person designated to perform the review is not registered as a General Securities Principal or General Securities Sales Supervisor, the member shall also document the name of the General Securities Principal or General Securities Sales Supervisor who supervised the designated person.
              (d) Additional Review Requirement for Delinquent Filers
              If an issuer has not made current filings required by the issuer's principal financial or securities regulatory authority in its home jurisdiction, including the SEC, foreign regulatory authorities, or bank and insurance regulators, such review must include an inquiry into the circumstances concerning the failure to make current filings, and a determination, based on all the facts and circumstances, that the recommendation is appropriate under the circumstances. Such a determination must be made in writing and maintained by the member.
              (e) Exemptions
              (1) The requirements of this Rule shall not apply to:
              (A) Transactions that meet the requirements of Rule 504 of SEC Regulation D and transactions with an issuer not involving any public offering pursuant to Section 4(2) of the Securities Act;
              (B) Transactions with or for an account that qualifies as an "institutional account" under Rule 4512(c) or with a customer that is a "qualified institutional buyer" under Securities Act Rule 144A or "qualified purchaser" under Section 2(a)(51) of the Investment Company Act;
              (C) Transactions in an issuer's securities if the issuer has at least $50 million in total assets and $10 million in shareholder's equity as stated in the issuer's most recent audited current financial statements, as defined in this Rule;
              (D) Transactions in securities of a bank as defined in Section 3(a)(6) of the Exchange Act and/or insurance company subject to regulation by a state or federal bank or insurance regulatory authority; or
              (E) A security that has a bid price, as published in a quotation medium, of at least $50 per share. If the security is a unit composed of one or more securities, the bid price of the unit divided by the number of shares of the unit that are not warrants, options, rights, or similar securities must be at least $50.
              (2) Pursuant to the Rule 9600 Series, FINRA, for good cause shown after taking into consideration all relevant factors, may exempt any person, security or transaction, or any class or classes of persons, securities or transactions, either unconditionally or on specified terms, from any or all of the requirements of this Rule if it determines that such exemption is consistent with the purpose of this Rule, the protection of investors, and the public interest.
              Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
              Amended by SR-FINRA-2008-055 and SR-FINRA-2009-033 eff. June 15, 2009.
              Adopted by SR-NASD-99-04 eff. Oct. 30, 2002.

              Selected Notices: 02-66, 09-20.

          • 2120. Commissions, Mark Ups and Charges

            • 2121. Fair Prices and Commissions

              In securities transactions, whether in "listed" or "unlisted" securities, if a member buys for his own account from his customer, or sells for his own account to his customer, he shall buy or sell at a price which is fair, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense involved, and the fact that he is entitled to a profit; and if he acts as agent for his customer in any such transaction, he shall not charge his customer more than a fair commission or service charge, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense of executing the order and the value of any service he may have rendered by reason of his experience in and knowledge of such security and the market therefor.

              • • • Supplementary Material: --------------

              .01 Mark-Up Policy

              The question of fair mark-ups or spreads is one which has been raised from the earliest days of the National Association of Securities Dealers ("Association"). No definitive answer can be given and no interpretation can be all-inclusive for the obvious reason that what might be considered fair in one transaction could be unfair in another transaction because of different circumstances. In 1943, the Association's Board adopted what has become known as the "5% Policy" to be applied to transactions executed for customers. It was based upon studies demonstrating that the large majority of customer transactions were effected at a mark-up of 5% or less. The Policy has been reviewed by the Board of Governors on numerous occasions and each time the Board has reaffirmed the philosophy expressed in 1943. Pursuant thereto, and in accordance with Article VII, Section 1(a)(ii) of the By-Laws, the Board adopted the following interpretation.

              It shall be deemed a violation of Rule 2010 and Rule 2121 for a member to enter into any transaction with a customer in any security at any price not reasonably related to the current market price of the security or to charge a commission which is not reasonable.

              (a) General Considerations
              Since the adoption of the "5% Policy" the Board has determined that:
              (1) The "5% Policy" is a guide, not a rule.
              (2) A member may not justify mark-ups on the basis of expenses which are excessive.
              (3) The mark-up over the prevailing market price is the significant spread from the point of view of fairness of dealings with customers in principal transactions. In the absence of other bona fide evidence of the prevailing market, a member's own contemporaneous cost is the best indication of the prevailing market price of a security.
              (4) A mark-up pattern of 5% or even less may be considered unfair or unreasonable under the "5% Policy."
              (5) Determination of the fairness of mark-ups must be based on a consideration of all the relevant factors, of which the percentage of mark-up is only one.
              (b) Relevant Factors
              Some of the factors which the Board believes that members and the Association's committees should take into consideration in determining the fairness of a mark-up are as follows:
              (1) The Type of Security Involved
              Some securities customarily carry a higher mark-up than others. For example, a higher percentage of mark-up customarily applies to a common stock transaction than to a bond transaction of the same size. Likewise, a higher percentage applies to sales of units of direct participation programs and condominium securities than to sales of common stock.
              (2) The Availability of the Security in the Market
              In the case of an inactive security the effort and cost of buying or selling the security, or any other unusual circumstances connected with its acquisition or sale, may have a bearing on the amount of mark-up justified.
              (3) The Price of the Security
              While there is no direct correlation, the percentage of mark-up or rate of commission generally increases as the price of the security decreases. Even where the amount of money is substantial, transactions in lower priced securities may require more handling and expense and may warrant a wider spread.
              (4) The Amount of Money Involved in a Transaction
              A transaction which involves a small amount of money may warrant a higher percentage of mark-up to cover the expenses of handling.
              (5) Disclosure
              Any disclosure to the customer, before the transaction is effected, of information which would indicate (A) the amount of commission charged in an agency transaction or (B) mark-up made in a principal transaction is a factor to be considered. Disclosure itself, however, does not justify a commission or mark-up which is unfair or excessive in light of all other relevant circumstances.
              (6) The Pattern of Mark-Ups
              While each transaction must meet the test of fairness, the Board believes that particular attention should be given to the pattern of a member's mark-ups.
              (7) The Nature of the Member's Business
              The Board is aware of the differences in the services and facilities which are needed by, and provided for, customers of members. If not excessive, the cost of providing such services and facilities, particularly when they are of a continuing nature, may properly be considered in determining the fairness of a member's mark-ups.
              (c) Transactions to Which the Policy is Applicable
                  The Policy applies to all securities, whether oil royalties or any other security, in the following types of transactions:
              (1) A transaction in which a member buys a security to fill an order for the same security previously received from a customer. This transaction would include the so-called "riskless" or "simultaneous" transaction.
              (2) A transaction in which the member sells a security to a customer from inventory. In such a case the amount of the mark-up would be determined on the basis of the mark-up over the bona fide representative current market. The amount of profit or loss to the member from market appreciation or depreciation before, or after, the date of the transaction with the customer would not ordinarily enter into the determination of the amount or fairness of the mark-up.
              (3) A transaction in which a member purchases a security from a customer. The price paid to the customer or the mark-down applied by the member must be reasonably related to the prevailing market price of the security.
              (4) A transaction in which the member acts as agent. In such a case, the commission charged the customer must be fair in light of all relevant circumstances.
              (5) Transactions wherein a customer sells securities to, or through, a broker/dealer, the proceeds from which are utilized to pay for other securities purchased from, or through, the broker/dealer at or about the same time. In such instances, the mark-up shall be computed in the same way as if the customer had purchased for cash and in computing the mark-up there shall be included any profit or commission realized by the dealer on the securities being liquidated, the proceeds of which are used to pay for securities being purchased.
              (d) Transactions to Which the Policy is Not Applicable
              The Mark-Up Policy is not applicable to the sale of securities where a prospectus or offering circular is required to be delivered and the securities are sold at the specific public offering price.

              .02 Additional Mark-Up Policy For Transactions in Debt Securities, Except Municipal Securities1

              (a) Scope
              Supplementary Material .01 to Rule 2121 applies to debt securities transactions, and this Supplementary Material .02 supplements the guidance provided in Supplementary Material .01.
              (b) Prevailing Market Price
              (1) A dealer that is acting in a principal capacity in a transaction with a customer and is charging a mark-up or mark-down must mark-up or mark-down the transaction from the prevailing market price. Presumptively for purposes of this Supplementary Material .02, the prevailing market price for a debt security is established by referring to the dealer's contemporaneous cost as incurred, or contemporaneous proceeds as obtained, consistent with FINRA pricing rules. (See, e.g., Rule 5310).
              (2) When the dealer is selling the security to a customer, countervailing evidence of the prevailing market price may be considered only where the dealer made no contemporaneous purchases in the security or can show that in the particular circumstances the dealer's contemporaneous cost is not indicative of the prevailing market price. When the dealer is buying the security from a customer, countervailing evidence of the prevailing market price may be considered only where the dealer made no contemporaneous sales in the security or can show that in the particular circumstances the dealer's contemporaneous proceeds are not indicative of the prevailing market price.
              (3) A dealer's cost is considered contemporaneous if the transaction occurs close enough in time to the subject transaction that it would reasonably be expected to reflect the current market price for the security. (Where a mark-down is being calculated, a dealer's proceeds would be considered contemporaneous if the transaction from which the proceeds result occurs close enough in time to the subject transaction that such proceeds would reasonably be expected to reflect the current market price for the security.)
              (4) A dealer that effects a transaction in debt securities with a customer and identifies the prevailing market price using a measure other than the dealer's own contemporaneous cost (or, in a mark-down, the dealer's own proceeds) must be prepared to provide evidence that is sufficient to overcome the presumption that the dealer's contemporaneous cost (or, the dealer's proceeds) provides the best measure of the prevailing market price. A dealer may be able to show that its contemporaneous cost is (or proceeds are) not indicative of prevailing market price, and thus overcome the presumption, in instances where (i) interest rates changed after the dealer's contemporaneous transaction to a degree that such change would reasonably cause a change in debt securities pricing; (ii) the credit quality of the debt security changed significantly after the dealer's contemporaneous transaction; or (iii) news was issued or otherwise distributed and known to the marketplace that had an effect on the perceived value of the debt security after the dealer's contemporaneous transaction.
              (5) In instances where the dealer has established that the dealer's cost is (or, in a mark-down, proceeds are) no longer contemporaneous, or where the dealer has presented evidence that is sufficient to overcome the presumption that the dealer's contemporaneous cost (or proceeds) provides the best measure of the prevailing market price, such as those instances described in (b)(4)(i), (ii) and (iii), a member must consider, in the order listed, the following types of pricing information to determine prevailing market price:
              (A) Prices of any contemporaneous inter-dealer transactions in the security in question;
              (B) In the absence of transactions described in (A), prices of contemporaneous dealer purchases (sales) in the security in question from (to) institutional accounts with which any dealer regularly effects transactions in the same security; or
              (C) In the absence of transactions described in (A) and (B), for actively traded securities, contemporaneous bid (offer) quotations for the security in question made through an inter-dealer mechanism, through which transactions generally occur at the displayed quotations.
              (A member may consider a succeeding category of pricing information only when the prior category does not generate relevant pricing information (e.g., a member may consider pricing information under (B) only after the member has determined, after applying (A), that there are no contemporaneous inter-dealer transactions in the same security).) In reviewing the pricing information available within each category, the relative weight, for purposes of identifying prevailing market price, of such information (i.e., either a particular transaction price, or, in (C) above, a particular quotation) depends on the facts and circumstances of the comparison transaction or quotation (i.e., such as whether the dealer in the comparison transaction was on the same side of the market as the dealer is in the subject transaction and timeliness of the information).
              (6) In the event that, in particular circumstances, the above factors are not available, other factors that may be taken into consideration for the purpose of establishing the price from which a customer mark-up (mark-down) may be calculated, include but are not limited to:
              •   Prices of contemporaneous inter-dealer transactions in a “similar” security, as defined below, or prices of contemporaneous dealer purchase (sale) transactions in a “similar” security with institutional accounts with which any dealer regularly effects transactions in the “similar” security with respect to customer mark-ups (mark-downs);
              •   Yields calculated from prices of contemporaneous inter-dealer transactions in "similar" securities;
              •   Yields calculated from prices of contemporaneous dealer purchase (sale) transactions with institutional accounts with which any dealer regularly effects transactions in "similar" securities with respect to customer mark-ups (mark-downs); and
              •   Yields calculated from validated contemporaneous inter-dealer bid (offer) quotations in "similar" securities for customer mark-ups (mark-downs).
              The relative weight, for purposes of identifying prevailing market price, of the pricing information obtained from the factors set forth above depends on the facts and circumstances surrounding the comparison transaction (i.e., whether the dealer in the comparison transaction was on the same side of the market as the dealer is in the subject transaction, timeliness of the information, and, with respect to the final factor listed above, the relative spread of the quotations in the similar security to the quotations in the subject security).
              (7) Finally, if information concerning the prevailing market price of the subject security cannot be obtained by applying any of the above factors, FINRA or its members may consider as a factor in assessing the prevailing market price of a debt security the prices or yields derived from economic models (e.g., discounted cash flow models) that take into account measures such as credit quality, interest rates, industry sector, time to maturity, call provisions and any other embedded options, coupon rate, and face value; and consider all applicable pricing terms and conventions (e.g., coupon frequency and accrual methods). Such models currently may be in use by bond dealers or may be specifically developed by regulators for surveillance purposes.
              (8) Because the ultimate evidentiary issue is the prevailing market price, isolated transactions or isolated quotations generally will have little or no weight or relevance in establishing prevailing market price. For example, in considering yields of “similar” securities, except in extraordinary circumstances, members may not rely exclusively on isolated transactions or a limited number of transactions that are not fairly representative of the yields of transactions in “similar” securities taken as a whole.
              (9) "Customer," for purposes of Rule 2121, Supplementary Material .01 to Rule 2121 and this Supplementary Material .02, shall not include a qualified institutional buyer ("QIB") as defined in Rule 144A under the Securities Act of 1933 that is purchasing or selling a non-investment grade debt security when the dealer has determined, after considering the factors set forth in Rule 2111(b), that the QIB has the capacity to evaluate independently the investment risk and in fact is exercising independent judgment in deciding to enter into the transaction. For purposes of Rule 2121, Supplementary Material .01 to Rule 2121 and this Supplementary Material .02, "non-investment grade debt security" means a debt security that: (i) if rated by only one nationally recognized statistical rating organization ("NRSRO"), is rated lower than one of the four highest generic rating categories; (ii) if rated by more than one NRSRO, is rated lower than one of the four highest generic rating categories by any of the NRSROs; or (iii) if unrated, either was analyzed as a non-investment grade debt security by the dealer and the dealer retains credit evaluation documentation and demonstrates to FINRA (using credit evaluation or other demonstrable criteria) that the credit quality of the security is, in fact, equivalent to a non-investment grade debt security, or was initially offered and sold and continues to be offered and sold pursuant to an exemption from registration under the Securities Act of 1933.
              (c) "Similar" Securities
              (1) A "similar" security should be sufficiently similar to the subject security that it would serve as a reasonable alternative investment to the investor. At a minimum, the security or securities should be sufficiently similar that a market yield for the subject security can be fairly estimated from the yields of the "similar" security or securities. Where a security has several components, appropriate consideration may also be given to the prices or yields of the various components of the security.
              (2) The degree to which a security is "similar," as that term is used in this Supplementary Material .02, to the subject security may be determined by factors that include but are not limited to the following:
              (A) Credit quality considerations, such as whether the security is issued by the same or similar entity, bears the same or similar credit rating, or is supported by a similarly strong guarantee or collateral as the subject security (to the extent securities of other issuers are designated as “similar” securities, significant recent information of either issuer that is not yet incorporated in credit ratings should be considered (e.g., changes to ratings outlooks));
              (B) The extent to which the spread (i.e., the spread over U.S. Treasury securities of a similar duration) at which the “similar” security trades is comparable to the spread at which the subject security trades;
              (C) General structural characteristics and provisions of the issue, such as coupon, maturity, duration, complexity or uniqueness of the structure, callability, the likelihood that the security will be called, tendered or exchanged, and other embedded options, as compared with the characteristics of the subject security; and
              (D) Technical factors such as the size of the issue, the float and recent turnover of the issue, and legal restrictions on transferability as compared with the subject security.
              (3) When a debt security's value and pricing is based substantially on, and is highly dependent on, the particular circumstances of the issuer, including creditworthiness and the ability and willingness of the issuer to meet the specific obligations of the security, in most cases other securities will not be sufficiently similar, and therefore, other securities may not be used to establish the prevailing market price.

              1 The Interpretation does not apply to transactions in municipal securities. Single terms in parentheses within sentences, such as the terms “(sale)” and “(to)” in the phrase, “contemporaneous dealer purchase (sale) transactions with institutional accounts,” refer to scenarios where a member is charging a customer a mark-down.

              Amended by SR-FINRA-2014-023 eff. May 9, 2014.
              Amended by SR-NASD-2006-005 eff. June 13, 2008.
              Amended by SR-NASD-2003-141 eff. July 5, 2007.
              Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
              Adopted eff. Oct. 31, 1943, see SEC Release No. 3574 (June 1, 1944) and SEC Release No. 3623 (Nov. 25, 1944).

              Selected Notices to Members: 75-65, 89-20, 91-69, 92-16, 93-81, 94-62, 07-28, 08-36.

            • 2122. Charges for Services Performed

              Charges, if any, for services performed, including, but not limited to, miscellaneous services such as collection of monies due for principal, dividends, or interest; exchange or transfer of securities; appraisals, safe-keeping or custody of securities, and other services shall be reasonable and not unfairly discriminatory among customers.
              Amended by SR-FINRA-2014-049 eff. Nov. 21, 2014.

            • 2124. Net Transactions with Customers

              (a) Prior to executing a transaction for or with a customer on a "net" basis as defined in paragraph (e) below, a member must provide disclosure to and obtain consent from the customer as provided in this Rule.
              (b) With respect to non-institutional customers, the member must obtain the customer's written consent on an order-by-order basis prior to executing a transaction for or with the customer on a "net" basis and such consent must evidence the customer's understanding of the terms and conditions of the order.
              (c) With respect to institutional customers, a member must obtain the customer's consent prior to executing a transaction for or with the customer on a "net" basis in accordance with one of the following methods:
              (1) a negative consent letter that clearly discloses to the institutional customer in writing the terms and conditions for handling the customer order(s) and provides the institutional customer with a meaningful opportunity to object to the execution of transactions on a net basis. If the customer does not object, then the member may reasonably conclude that the institutional customer has consented to the member trading on a "net" basis with the customer and the member may rely on such letter for all or a portion of the customer's orders (as instructed by the customer) pursuant to this Rule;
              (2) oral disclosure to and consent from the customer on an order-by-order basis. Such oral disclosure and consent must clearly explain the terms and conditions for handling the customer order and provide the institutional customer with a meaningful opportunity to object to the execution of the transaction on a net basis. The member also must document, on an order-by-order basis, the customer's understanding of the terms and conditions of the order and the customer's consent; or
              (3) written consent on an order-by-order basis prior to executing a transaction for or with the customer on a "net" basis and such consent must evidence the customer's understanding of the terms and conditions of the order.
              (d) For those customers that have granted trading discretion to a fiduciary (e.g. an investment adviser), a member is permitted to obtain the consent required under this Rule from the fiduciary. If the fiduciary meets the definition of "institutional customer" in paragraph (e), the member may meet the disclosure and consent requirements under this Rule in the same manner permitted for institutional customers.
              (e) For purposes of this Rule:
              (1) "institutional customer" shall mean a customer whose account qualifies as an "institutional account" under Rule 4512(c); and
              (2) "net" transaction shall mean a principal transaction in which a market maker, after having received an order to buy (sell) an equity security, purchases (sells) the equity security at one price (from (to) another broker-dealer or another customer) and then sells to (buys from) the customer at a different price.
              (f) Members must retain and preserve all documentation relating to consent obtained pursuant to this Rule in accordance with Rule 4511.
              Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
              Amended by SR-FINRA-2009-036 eff. Dec. 14, 2009.
              Adopted by SR-NASD-2004-135 eff. Oct. 2, 2006.

              Selected Notices: 06-47, 09-60.

          • 2130. Approval Procedures for Day-Trading Accounts

            (a) No member that is promoting a day-trading strategy, directly or indirectly, shall open an account for or on behalf of a non-institutional customer, unless, prior to opening the account, the member has furnished to the customer the risk disclosure statement set forth in Rule 2270 and has:
            (1) approved the customer's account for a day-trading strategy in accordance with the procedures set forth in paragraph (b) and prepared a record setting forth the basis on which the member has approved the customer's account; or
            (2) received from the customer a written agreement that the customer does not intend to use the account for the purpose of engaging in a day-trading strategy, except that the member may not rely on such agreement if the member knows that the customer intends to use the account for the purpose of engaging in a day-trading strategy.
            (b) In order to approve a customer's account for a day-trading strategy, a member shall have reasonable grounds for believing that the day-trading strategy is appropriate for the customer. In making this determination, the member shall exercise reasonable diligence to ascertain the essential facts relative to the customer, including:
            (1) Investment objectives;
            (2) Investment and trading experience and knowledge (e.g., number of years, size, frequency and type of transactions);
            (3) Financial situation, including: estimated annual income from all sources, estimated net worth (exclusive of family residence), and estimated liquid net worth (cash, securities, other);
            (4) Tax status;
            (5) Employment status (name of employer, self-employed or retired);
            (6) Marital status and number of dependents; and
            (7) Age.
            (c) If a member that is promoting a day-trading strategy opens an account for a non-institutional customer in reliance on a written agreement from the customer pursuant to paragraph (a)(2) and, following the opening of the account, knows that the customer is using the account for a day-trading strategy, then the member shall be required to approve the customer's account for a day-trading strategy in accordance with paragraph (a)(1) as soon as practicable, but in no event later than 10 days following the date that such member knows that the customer is using the account for such a strategy.
            (d) Any record or written statement prepared or obtained by a member pursuant to this Rule shall be preserved in accordance with Rule 4511.
            (e) For purposes of this Rule, the following terms shall have the meanings specified below:
            (1) "Day-trading strategy" means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.
            (2) "Non-institutional customer" means a customer that does not qualify as an "institutional account" under Rule 4512(c).

            • • • Supplementary Material: ------------------

            .01 Promoting a Day-Trading Strategy.

            (a) A member shall be deemed to be "promoting a day-trading strategy" if it affirmatively endorses a "day-trading strategy," as defined in paragraph (e) of this Rule, through advertising, its Web site, trading seminars or direct outreach programs. For example, a member generally shall be deemed to be "promoting a day-trading strategy" if its retail communications address the benefits of day trading, rapid-fire trading, or momentum trading, or encourage persons to trade or profit like a professional trader. A member also shall be deemed to be "promoting a day-trading strategy" if it promotes its day-trading services through a third party. Moreover, the fact that many of a member's customers are engaging in a day-trading strategy will be relevant in determining whether a member has promoted itself in this way.
            (b) A member shall not be deemed to be "promoting a day-trading strategy" solely by its engaging in the following activities: (1) promoting efficient execution services or lower execution costs based on multiple trades; (2) providing general investment research or advertising the high quality or prompt availability of such general research; and (3) having a Web site that provides general financial information or news or that allows the multiple entry of intra-day purchases and sales of the same securities.

            .02 Review by FINRA's Advertising Regulation Department. A member may submit its retail communications to FINRA's Advertising Regulation Department for review and guidance on whether the content of the retail communications constitutes "promoting a day-trading strategy" for purposes of this Rule.

            .03 Additional Rules Regarding Day Trading. Members should be aware that, in addition to general rules that may apply, FINRA has additional rules that specifically address day trading. See, e.g., Rule 2270 (Day-Trading Risk Disclosure Statement); Rule 4210(f)(8)(B) (Margin Requirements) regarding special margin requirements for day trading.

            Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
            Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
            Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
            Amended by SR-FINRA-2009-059 eff. Feb. 15, 2010.
            Adopted by SR-NASD-99-41 eff. Oct. 16, 2000.

            Selected Notices: 00-62, 09-72.

          • 2140. Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes

            No member or person associated with a member shall interfere with a customer's request to transfer his or her account in connection with the change in employment of the customer's registered representative where the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this Rule shall affect the operation of Rule 11870.
            Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
            Amended by SR-FINRA-2008-052 eff. June 15, 2009.
            Adopted by SR-NASD-2001-095 eff. Dec. 21, 2001.

            Selected Notices: 02-07, 09-20.

          • 2150. Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts

            (a) Improper Use
            No member or person associated with a member shall make improper use of a customer's securities or funds.
            (b) Prohibition Against Guarantees
            No member or person associated with a member shall guarantee a customer against loss in connection with any securities transaction or in any securities account of such customer.
            (c) Sharing in Accounts; Extent Permissible
            (1)(A) Except as provided in paragraph (c)(2), no member or person associated with a member shall share directly or indirectly in the profits or losses in any account of a customer carried by the member or any other member; provided, however, that a member or person associated with a member may share in the profits or losses in such an account if:
            (i) such person associated with a member obtains prior written authorization from the member employing the associated person;
            (ii) such member or person associated with a member obtains prior written authorization from the customer; and
            (iii) such member or person associated with a member shares in the profits or losses in any account of such customer only in direct proportion to the financial contributions made to such account by either the member or person associated with a member.
            (B) Exempt from the direct proportionate share limitation of paragraph (c)(1)(A)(iii) are accounts of the immediate family of such member or person associated with a member. For purposes of this Rule, the term "immediate family" shall include parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the member or person associated with a member otherwise contributes directly or indirectly.
            (2) Notwithstanding the prohibition of paragraph (c)(1), a member or person associated with a member that is acting as an investment adviser may receive compensation based on a share in profits or gains in an account if:
            (A) such person associated with a member seeking such compensation obtains prior written authorization from the member employing the associated person;
            (B) such member or person associated with a member seeking such compensation obtains prior written authorization from the customer; and
            (C) all of the conditions in Rule 205-3 of the Investment Advisers Act (as the same may be amended from time to time) are satisfied.

            • • • Supplementary Material: --------------

            .01 Inapplicability of Rule to Certain Guarantees. For purposes of paragraph (b) of this Rule, a "guarantee" that is extended to all holders of a particular security by an issuer as part of that security generally would not be subject to the prohibition against guarantees.
            .02 Permissible Reimbursement by Member of Certain Losses. Nothing in this Rule shall preclude a member, but not an associated person of the member, from determining on an after-the-fact basis, to reimburse a customer for transaction losses; provided, however, that the member shall comply with all reporting requirements that may be applicable to such payment. For example, if the payment can reasonably be construed as a settlement, the member shall report the payment as a settlement under the applicable reporting requirement(s). In addition, nothing in this Rule shall preclude a member, but not an associated person of the member, from correcting a bona fide error. This Supplementary Material .02 does not apply to an associated person of a member because of the concern that any such payment may conceal individual misconduct.
            .03 Record Retention. For purposes of paragraph (c) of this Rule, members shall preserve the required written authorization(s) for at least six years after the date the account is closed.
            .04 Applicability of Other Rules to Sharing Arrangements. Members and associated persons should be aware that participation in a sharing arrangement permitted under paragraph (c) of this Rule does not affect the applicability of other FINRA rules, including paragraph (b) of this Rule, FINRA Rules 3270 and 3280, and NASD Rule 3050, to such sharing arrangement.
            Amended by SR-FINRA-2015-030 eff. Sept. 21, 2015.
            Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
            Amended by SR-FINRA-2009-014 eff. Dec. 14, 2009.
            Amended by SR-NASD-2002-180 eff. May 12, 2003.
            Amended by SR-NASD-99-42 eff. April 21, 2001.
            Amended by SR-NASD-87-9 eff. May 23, 1988.
            Amended by SR-NASD-84-33 eff. Feb. 7, 1985.

            Selected Notices: 83-74, 86-74, 88-55, 01-24, 03-21, 09-60.

          • 2165. Financial Exploitation of Specified Adults

            (a) Definitions
            (1) For purposes of this Rule, the term “Specified Adult” shall mean: (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
            (2) For purposes of this Rule, the term “Account” shall mean any account of a member for which a Specified Adult has the authority to transact business.
            (3) For purposes of this Rule, the term “Trusted Contact Person” shall mean the person who may be contacted about the Specified Adult's Account in accordance with Rule 4512.
            (4) For purposes of this Rule, the term “financial exploitation” means:
            (A) the wrongful or unauthorized taking, withholding, appropriation, or use of a Specified Adult's funds or securities; or
            (B) any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority regarding a Specified Adult, to:
            (i) obtain control, through deception, intimidation or undue influence, over the Specified Adult's money, assets or property; or
            (ii) convert the Specified Adult's money, assets or property.
            (b) Temporary Hold on Disbursements
            (1) A member may place a temporary hold on a disbursement of funds or securities from the Account of a Specified Adult if:
            (A) The member reasonably believes that financial exploitation of the Specified Adult has occurred, is occurring, has been attempted, or will be attempted; and
            (B) The member, not later than two business days after the date that the member first placed the temporary hold on the disbursement of funds or securities, provides notification orally or in writing, which may be electronic, of the temporary hold and the reason for the temporary hold to:
            (i) all parties authorized to transact business on the Account, unless a party is unavailable or the member reasonably believes that the party has engaged, is engaged, or will engage in the financial exploitation of the Specified Adult; and
            (ii) the Trusted Contact Person(s), unless the Trusted Contact Person is unavailable or the member reasonably believes that the Trusted Contact Person(s) has engaged, is engaged, or will engage in the financial exploitation of the Specified Adult; and
            (C) The member immediately initiates an internal review of the facts and circumstances that caused the member to reasonably believe that the financial exploitation of the Specified Adult has occurred, is occurring, has been attempted, or will be attempted.
            (2) The temporary hold authorized by this Rule will expire not later than 15 business days after the date that the member first placed the temporary hold on the disbursement of funds or securities, unless otherwise terminated or extended by a state regulator or agency of competent jurisdiction or a court of competent jurisdiction, or extended pursuant to paragraph (b)(3) of this Rule.
            (3) Provided that the member's internal review of the facts and circumstances under paragraph (b)(1)(C) of this Rule supports the member's reasonable belief that the financial exploitation of the Specified Adult has occurred, is occurring, has been attempted, or will be attempted, the temporary hold authorized by this Rule may be extended by the member for no longer than 10 business days following the date authorized by paragraph (b)(2) of this Rule, unless otherwise terminated or extended by a state regulator or agency of competent jurisdiction or a court of competent jurisdiction.
            (c) Supervision
            (1) In addition to the general supervisory and recordkeeping requirements of Rules 3110, 3120, 3130, 3150, and Rule 4510 Series, a member relying on this Rule shall establish and maintain written supervisory procedures reasonably designed to achieve compliance with this Rule, including, but not limited to, procedures related to the identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.
            (2) A member's written supervisory procedures also shall identify the title of each person authorized to place, terminate or extend a temporary hold on behalf of the member pursuant to this Rule. Any such person shall be an associated person of the member who serves in a supervisory, compliance or legal capacity for the member.
            (d) Record Retention
            Members shall retain records related to compliance with this Rule, which shall be readily available to FINRA, upon request. The retained records shall include records of: (1) request(s) for disbursement that may constitute financial exploitation of a Specified Adult and the resulting temporary hold; (2) the finding of a reasonable belief that financial exploitation has occurred, is occurring, has been attempted, or will be attempted underlying the decision to place a temporary hold on a disbursement; (3) the name and title of the associated person that authorized the temporary hold on a disbursement; (4) notification(s) to the relevant parties pursuant to paragraph (b)(1)(B) of this Rule; and (5) the internal review of the facts and circumstances pursuant to paragraph (b)(1)(C) of this Rule.

            • • • Supplementary Material: --------------

            .01 Applicability of Rule. This Rule provides members and their associated persons with a safe harbor from FINRA Rules 2010, 2150 and 11870 when members exercise discretion in placing temporary holds on disbursements of funds or securities from the Accounts of Specified Adults consistent with the requirements of this Rule. This Rule does not require members to place temporary holds on disbursements of funds or securities from the Accounts of Specified Adults.

            .02 Training. A member relying on this Rule must develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of this Rule.

            .03 Reasonable Belief of Mental or Physical Impairment. A member's reasonable belief that a natural person age 18 and older has a mental or physical impairment that renders the individual unable to protect his or her own interests may be based on the facts and circumstances observed in the member's business relationship with the natural person.

            Adopted by SR-FINRA-2016-039 eff. Feb. 5, 2018.

        • 2200. COMMUNICATIONS AND DISCLOSURES

          • 2210. Communications with the Public

            (a) Definitions
            For purposes of this Rule and any interpretation thereof:
            (1) “Communications” consist of correspondence, retail communications and institutional communications.
            (2) “Correspondence” means any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
            (3) “Institutional communication” means any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a member's internal communications.
            (4) “Institutional investor” means any:
            (A) person described in Rule 4512(c), regardless of whether the person has an account with a member;
            (B) governmental entity or subdivision thereof;
            (C) employee benefit plan, or multiple employee benefit plans offered to employees of the same employer, that meet the requirements of Section 403(b) or Section 457 of the Internal Revenue Code and in the aggregate have at least 100 participants, but does not include any participant of such plans;
            (D) qualified plan, as defined in Section 3(a)(12)(C) of the Exchange Act, or multiple qualified plans offered to employees of the same employer, that in the aggregate have at least 100 participants, but does not include any participant of such plans;
            (E) member or registered person of such a member; and
            (F) person acting solely on behalf of any such institutional investor.
            No member may treat a communication as having been distributed to an institutional investor if the member has reason to believe that the communication or any excerpt thereof will be forwarded or made available to any retail investor.
            (5) “Retail communication” means any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.
            (6) “Retail investor” means any person other than an institutional investor, regardless of whether the person has an account with a member.
            (b) Approval, Review and Recordkeeping
            (1) Retail Communications
            (A) An appropriately qualified registered principal of the member must approve each retail communication before the earlier of its use or filing with FINRA's Advertising Regulation Department ("Department").
            (B) The requirements of paragraph (b)(1)(A) may be met by a Supervisory Analyst approved pursuant to NYSE Rule 344 with respect to: (i) research reports on debt and equity securities as described in Rules 2241(a)(11) and 2242(a)(3); (ii) retail communications as described in Rules 2241(a)(11)(A) and 2242(a)(3)(A); and (iii) other research communications, provided that the Supervisory Analyst has technical expertise in the particular product area. A Supervisory Analyst may not approve a retail communication that requires a separate registration unless the Supervisory Analyst also has such other registration.
            (C) The requirements of paragraph (b)(1)(A) shall not apply with regard to any retail communication if, at the time that a member intends to publish or distribute it:
            (i) another member has filed it with the Department and has received a letter from the Department stating that it appears to be consistent with applicable standards; and
            (ii) the member using it in reliance upon this subparagraph has not materially altered it and will not use it in a manner that is inconsistent with the conditions of the Department's letter.
            (D) The requirements of paragraph (b)(1)(A) shall not apply with regard to the following retail communications, provided that the member supervises and reviews such communications in the same manner as required for supervising and reviewing correspondence pursuant to Rules 3110(b) and 3110.06 through .09:
            (i) any retail communication that is excepted from the definition of "research report" pursuant to Rule 2241(a)(11)(A) or "debt research report" under Rule 2242(a)(3)(A), unless the communication makes any financial or investment recommendation;
            (ii) any retail communication that is posted on an online interactive electronic forum; and
            (iii) any retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member.
            (E) Pursuant to the Rule 9600 Series, FINRA may conditionally or unconditionally grant an exemption from paragraph (b)(1)(A) for good cause shown after taking into consideration all relevant factors, to the extent such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.
            (F) Notwithstanding any other provision of this Rule, an appropriately qualified principal must approve a communication prior to a member filing the communication with the Department.
            (2) Correspondence
            All correspondence is subject to the supervision and review requirements of Rules 3110(b) and 3110.06 through .09.
            (3) Institutional Communications
            Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by an appropriately qualified registered principal of institutional communications used by the member and its associated persons. Such procedures must be reasonably designed to ensure that institutional communications comply with applicable standards. When such procedures do not require review of all institutional communications prior to first use or distribution, they must include provision for the education and training of associated persons as to the firm's procedures governing institutional communications, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to FINRA upon request.
            (4) Recordkeeping
            (A) Members must maintain all retail communications and institutional communications for the retention period required by SEA Rule 17a-4(b) and in a format and media that comply with SEA Rule 17a-4. The records must include:
            (i) a copy of the communication and the dates of first and (if applicable) last use of such communication;
            (ii) the name of any registered principal who approved the communication and the date that approval was given;
            (iii) in the case of a retail communication or an institutional communication that is not approved prior to first use by a registered principal, the name of the person who prepared or distributed the communication;
            (iv) information concerning the source of any statistical table, chart, graph or other illustration used in the communication;
            (v) for any retail communication for which principal approval is not required pursuant to paragraph (b)(1)(C), the name of the member that filed the retail communication with the Department, and a copy of the corresponding review letter from the Department; and
            (vi) for any retail communication that includes or incorporates a performance ranking or performance comparison of a registered investment company, a copy of the ranking or performance used in the retail communication.
            (B) Members must maintain all correspondence in accordance with the record-keeping requirements of Rules 3110.09 and 4511.
            (c) Filing Requirements and Review Procedures
            (1) Requirement for Certain Members to File Retail Communications Prior to First Use
            (A) For a period of one year beginning on the date reflected in the Central Registration Depository (CRD®) system as the date that FINRA membership became effective, the member must file with the Department at least 10 business days prior to first use any retail communication that is published or used in any electronic or other public media, including any generally accessible website, newspaper, magazine or other periodical, radio, television, telephone or audio recording, video display, signs or billboards, motion pictures, or telephone directories (other than routine listings). To the extent any retail communication that is subject to this filing requirement is a free writing prospectus that has been filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii), the member may file such retail communication within 10 business days of first use rather than at least 10 business days prior to first use.
            (B) Notwithstanding the foregoing provisions, if the Department determines that a member has departed from the standards of this Rule, it may require that such member file all communications, or the portion of such member's communications that is related to any specific types or classes of securities or services, with the Department at least 10 business days prior to first use. The Department will notify the member in writing of the types of communications to be filed and the length of time such requirement is to be in effect. Any filing requirement imposed under this subparagraph will take effect 21 calendar days after service of the written notice, during which time the member may request a hearing under Rules 9551 and 9559.
            (2) Requirement to File Certain Retail Communications Prior to First Use
            At least 10 business days prior to first use or publication (or such shorter period as the Department may allow), a member must file the following retail communications with the Department and withhold them from publication or circulation until any changes specified by the Department have been made:
            (A) Retail communications concerning registered investment companies (including mutual funds, exchange-traded funds, variable insurance products, closed-end funds and unit investment trusts) that include or incorporate performance rankings or performance comparisons of the investment company with other investment companies when the ranking or comparison category is not generally published or is the creation, either directly or indirectly, of the investment company, its underwriter or an affiliate. Such filings must include a copy of the data on which the ranking or comparison is based.
            (B) Retail communications concerning security futures. The requirements of this paragraph (c)(2)(B) shall not be applicable to:
            (i) retail communications concerning security futures that are submitted to another self-regulatory organization having comparable standards pertaining to such retail communications; and
            (ii) retail communications in which the only reference to security futures is contained in a listing of the services of a member.
            (3) Requirement to File Certain Retail Communications
            Within 10 business days of first use or publication, a member must file the following communications with the Department:
            (A) Retail communications that promote or recommend a specific registered investment company or family of registered investment companies (including mutual funds, exchange-traded funds, variable insurance products, closed-end funds, and unit investment trusts) not included within the requirements of paragraphs(c)(1) or (c)(2).
            (B) Retail communications concerning public direct participation programs (as defined in Rule 2310).
            (C) Retail communications concerning collateralized mortgage obligations registered under the Securities Act.
            (D) Retail communications concerning any security that is registered under the Securities Act and that is derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency, not included within the requirements of paragraphs (c)(1), (c)(2) or subparagraphs (A) through (C) of paragraph (c)(3).
            (4) Filing of Television or Video Retail Communications
            If a member has filed a draft version or "story board" of a television or video retail communication pursuant to a filing requirement, then the member also must file the final filmed version within 10 business days of first use or broadcast.
            (5) Date of First Use and Approval Information
            A member must provide with each filing the actual or anticipated date of first use, the name, title and Central Registration Depository (CRD®) number of the registered principal who approved the retail communication, and the date that the approval was given.
            (6) Spot-Check Procedures
            In addition to the foregoing requirements, each member's written (including electronic) communications may be subject to a spot-check procedure. Upon written request from the Department, each member must submit the material requested in a spot-check procedure within the time frame specified by the Department.
            (7) Exclusions from Filing Requirements
            The following communications are excluded from the filing requirements of paragraphs (c)(1) through (c)(4):
            (A) Retail communications that previously have been filed with the Department and that are to be used without material change.
            (B) Retail communications that are based on templates that were previously filed with the Department the changes to which are limited to:
            (i) updates of more recent statistical or other non-narrative information; and
            (ii) non-predictive narrative information that describes market events during the period covered by the communication or factual changes in portfolio composition or is sourced from a registered investment company's regulatory documents filed with the SEC.
            (C) Retail communications that do not make any financial or investment recommendation or otherwise promote a product or service of the member.
            (D) Retail communications that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker.
            (E) Retail communications that do no more than identify the member or offer a specific security at a stated price.
            (F) Prospectuses, preliminary prospectuses, fund profiles, offering circulars, annual or semi-annual reports and similar documents that have been filed with the SEC or any state in compliance with applicable requirements, similar offering documents concerning securities offerings that are exempt from SEC and state registration requirements, and free writing prospectuses that are exempt from filing with the SEC, except that an investment company prospectus published pursuant to Securities Act Rule 482 and a free writing prospectus that is required to be filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii) will not be considered a prospectus for purposes of this exclusion.
            (G) Retail communications prepared in accordance with Section 2(a)(10)(b) of the Securities Act, as amended, or any rule thereunder, such as Rule 134, and announcements as a matter of record that a member has participated in a private placement, unless the retail communications are related to publicly offered direct participation programs or securities issued by registered investment companies.
            (H) Press releases that are made available only to members of the media.
            (I) Any reprint or excerpt of any article or report issued by a publisher (“reprint”), provided that:
            (i) the publisher is not an affiliate of the member using the reprint or any underwriter or issuer of a security mentioned in the reprint that the member is promoting;
            (ii) neither the member using the reprint nor any underwriter or issuer of a security mentioned in the reprint has commissioned the reprinted article or report; and
            (iii) the member using the reprint has not materially altered its contents except as necessary to make the reprint consistent with applicable regulatory standards or to correct factual errors.
            (J) Correspondence.
            (K) Institutional communications.
            (L) Communications that refer to types of investments solely as part of a listing of products or services offered by the member.
            (M) Retail communications that are posted on an online interactive electronic forum.
            (N) Press releases issued by closed-end investment companies that are listed on the New York Stock Exchange (NYSE) pursuant to section 202.06 of the NYSE Listed Company Manual (or any successor provision).
            (O) Research reports as defined in Rule 2241 that concern only securities that are listed on a national securities exchange, other than research reports required to be filed with the Commission pursuant to Section 24(b) of the Investment Company Act.
            (8) Communications Deemed Filed with FINRA
            Although the communications described in paragraphs (c)(7)(H) through (K) are excluded from the foregoing filing requirements, investment company communications described in those paragraphs shall be deemed filed with FINRA for purposes of Section 24(b) of the Investment Company Act and Rule 24b-3 thereunder.
            (9) Filing Exemptions
            (A) Pursuant to the Rule 9600 Series, FINRA may exempt a member from the pre-use filing requirements of paragraph (c)(1)(A) for good cause shown.
            (B) Pursuant to the Rule 9600 Series, FINRA may conditionally or unconditionally grant an exemption from paragraph (c)(3) for good cause shown after taking into consideration all relevant factors, to the extent such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.
            (d) Content Standards
            (1) General Standards
            (A) All member communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.
            (B) No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.
            (C) Information may be placed in a legend or footnote only in the event that such placement would not inhibit an investor's understanding of the communication.
            (D) Members must ensure that statements are clear and not misleading within the context in which they are made, and that they provide balanced treatment of risks and potential benefits. Communications must be consistent with the risks of fluctuating prices and the uncertainty of dividends, rates of return and yield inherent to investments.
            (E) Members must consider the nature of the audience to which the communication will be directed and must provide details and explanations appropriate to the audience.
            (F) Communications may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast; provided, however, that this paragraph (d)(1)(F) does not prohibit:
            (i) A hypothetical illustration of mathematical principles, provided that it does not predict or project the performance of an investment or investment strategy;
            (ii) An investment analysis tool, or a written report produced by an investment analysis tool, that meets the requirements of Rule 2214; and
            (iii) A price target contained in a research report on debt or equity securities, provided that the price target has a reasonable basis, the report discloses the valuation methods used to determine the price target, and the price target is accompanied by disclosure concerning the risks that may impede achievement of the price target.
            (2) Comparisons
            Any comparison in retail communications between investments or services must disclose all material differences between them, including (as applicable) investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features.
            (3) Disclosure of Member's Name
            All retail communications and correspondence must:
            (A) prominently disclose the name of the member, or the name under which the member's broker-dealer business primarily is conducted as disclosed on the member's Form BD, and may also include a fictional name by which the member is commonly recognized or which is required by any state or jurisdiction;
            (B) reflect any relationship between the member and any non-member or individual who is also named; and
            (C) if it includes other names, reflect which products or services are being offered by the member.
            This paragraph (d)(3) does not apply to so-called "blind" advertisements used to recruit personnel.
            (4) Tax Considerations
            (A) In retail communications and correspondence, references to tax-free or tax-exempt income must indicate which income taxes apply, or which do not, unless income is free from all applicable taxes. If income from an investment company investing in municipal bonds is subject to state or local income taxes, this fact must be stated, or the illustration must otherwise make it clear that income is free only from federal income tax.
            (B) Communications may not characterize income or investment returns as tax-free or exempt from income tax when tax liability is merely postponed or deferred, such as when taxes are payable upon redemption.
            (C) A comparative illustration of the mathematical principles of tax-deferred versus taxable compounding must meet the following requirements:
            (i) The illustration must depict both the taxable investment and the tax-deferred investment using identical investment amounts and identical assumed gross investment rates of return, which may not exceed 10 percent per annum.
            (ii) The illustration must use and identify actual federal income tax rates.
            (iii) The illustration may reflect an actual state income tax rate, provided that the communication prominently discloses that the illustration is applicable only to investors that reside in the identified state.
            (iv) Tax rates used in an illustration that is intended for a target audience must reasonably reflect its tax bracket or brackets as well as the tax character of capital gains and ordinary income.
            (v) If the illustration covers the payout period for an investment, the illustration must reflect the impact of taxes during this period.
            (vi) The illustration may not assume an unreasonable period of tax deferral.
            (vii) The illustration must disclose, as applicable:
            a. the degree of risk in the investment's assumed rate of return, including a statement that the assumed rate of return is not guaranteed;
            b. the possible effects of investment losses on the relative advantage of the taxable versus the tax-deferred investments;
            c. the extent to which tax rates on capital gains and dividends would affect the taxable investment's return;
            d. the fact that ordinary income tax rates will apply to withdrawals from a tax-deferred investment;
            e. its underlying assumptions;
            f. the potential impact resulting from federal or state tax penalties (e.g., for early withdrawals or use on non-qualified expenses); and
            g. that an investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors.
            (5) Disclosure of Fees, Expenses and Standardized Performance
            (A) Retail communications and correspondence that present non-money market fund open-end management investment company performance data as permitted by Securities Act Rule 482 and Rule 34b-1 under the Investment Company Act must disclose:
            (i) the standardized performance information mandated by Securities Act Rule 482 and Rule 34b-1 under the Investment Company Act; and
            (ii) to the extent applicable:
            a. the maximum sales charge imposed on purchases or the maximum deferred sales charge, as stated in the investment company's prospectus current as of the date of distribution or submission for publication of a communication; and
            b. the total annual fund operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the investment company's prospectus described in paragraph (d)(5)(A)(ii)(a).
            (B) All of the information required by paragraph (d)(5)(A) must be set forth prominently, and in any print advertisement, in a prominent text box that contains only the required information and, at the member's option, comparative performance and fee data and disclosures required by Securities Act Rule 482 and Rule 34b-1 under the Investment Company Act.
            (6) Testimonials
            (A) If any testimonial in a communication concerns a technical aspect of investing, the person making the testimonial must have the knowledge and experience to form a valid opinion.
            (B) Retail communications or correspondence providing any testimonial concerning the investment advice or investment performance of a member or its products must prominently disclose the following:
            (i) The fact that the testimonial may not be representative of the experience of other customers.
            (ii) The fact that the testimonial is no guarantee of future performance or success.
            (iii) If more than $100 in value is paid for the testimonial, the fact that it is a paid testimonial.
            (7) Recommendations
            (A) Retail communications that include a recommendation of securities must have a reasonable basis for the recommendation and must disclose, if applicable, the following:
            (i) that at the time the communication was published or distributed, the member was making a market in the security being recommended, or in the underlying security if the recommended security is an option or security future, or that the member or associated persons will sell to or buy from customers on a principal basis;
            (ii) that the member or any associated person that is directly and materially involved in the preparation of the content of the communication has a financial interest in any of the securities of the issuer whose securities are recommended, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), unless the extent of the financial interest is nominal; and
            (iii) that the member was manager or co-manager of a public offering of any securities of the issuer whose securities are recommended within the past 12 months.
            (B) A member must provide, or offer to furnish upon request, available investment information supporting the recommendation. When a member recommends a corporate equity security, the member must provide the price at the time the recommendation is made.
            (C) A retail communication or correspondence may not refer, directly or indirectly, to past specific recommendations of the member that were or would have been profitable to any person; provided, however, that a retail communication or correspondence may set out or offer to furnish a list of all recommendations as to the same type, kind, grade or classification of securities made by the member within the immediately preceding period of not less than one year, if the communication or list:
            (i) states the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date; and
            (ii) contains the following cautionary legend, which must appear prominently within the communication or list: “it should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.”
            (D)(i) This paragraph (d)(7) does not apply to any communication that meets the definition of "research report" for purposes of Rule 2241 or that meets the definition of "debt research report" for purposes of Rule 2242, and includes all of the . . . disclosures required by . . . Rule 2241 or 2242, as applicable.
            (ii) Paragraphs (d)(7)(A) and (d)(7)(C) do not apply to any communication that recommends only registered investment companies or variable insurance products; provided, however, that such communications must have a reasonable basis for the recommendation.
            (8) BrokerCheck
            (A) Each of a member's websites must include a readily apparent reference and hyperlink to BrokerCheck on:
            (i) the initial webpage that the member intends to be viewed by retail investors; and
            (ii) any other webpage that includes a professional profile of one or more registered persons who conduct business with retail investors.
            (B) The requirements of subparagraph (A) shall not apply to:
            (i) a member that does not provide products or services to retail investors; and
            (ii) a directory or list of registered persons limited to names and contact information.
            (9) Prospectuses Filed with the SEC
            Prospectuses, preliminary prospectuses, fund profiles and similar documents that have been filed with the SEC and free writing prospectuses that are exempt from filing with the SEC are not subject to the standards of this paragraph (d); provided, however, that the standards of this paragraph (d) shall apply to an investment company prospectus published pursuant to Securities Act Rule 482 and a free writing prospectus that is required to be filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii).
            (e) Limitations on Use of FINRA's Name and Any Other Corporate Name Owned by FINRA
            Members may indicate FINRA membership in conformity with Article XV, Section 2 of the FINRA By-Laws in one or more of the following ways:
            (1) in any communication that complies with the applicable standards of this Rule and neither states nor implies that FINRA, or any other corporate name or facility owned by FINRA, or any other regulatory organization endorses, indemnifies, or guarantees the member's business practices, selling methods, the class or type of securities offered, or any specific security, and provided further that any reference to the Department's review of a communication is limited to either “Reviewed by FINRA” or “FINRA Reviewed”;
            (2) in a confirmation statement for an over-the-counter transaction that states: "This transaction has been executed in conformity with the FINRA Uniform Practice Code"; and
            (3) on a member's website, provided that the member provides a hyperlink to FINRA's internet home page, www.finra.org, in close proximity to the member's indication of FINRA membership. A member is not required to provide more than one such hyperlink on its website. If the member's website contains more than one indication of FINRA membership, the member may elect to provide any one hyperlink in close proximity to any reference reasonably designed to draw the public's attention to FINRA membership. This provision also shall apply to an internet website relating to the member's investment banking or securities business maintained by or on behalf of any person associated with a member.
            (f) Public Appearances
            (1) When sponsoring or participating in a seminar, forum, radio or television interview, or when otherwise engaged in public appearances or speaking activities that are unscripted and do not constitute retail communications, institutional communications or correspondence (“public appearance”), persons associated with members must follow the standards of paragraph (d)(1).
            (2) If an associated person recommends a security in a public appearance, the associated person must have a reasonable basis for the recommendation. The associated person also must disclose, as applicable:
            (A) that the associated person has a financial interest in any of the securities of the issuer whose securities are recommended, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), unless the extent of the financial interest is nominal; and
            (B) any other actual, material conflict of interest of the associated person or member of which the associated person knows or has reason to know at the time of the public appearance.
            (3) Each member shall establish written procedures that are appropriate to its business, size, structure, and customers to supervise its associated persons' public appearances. Such procedures must provide for the education and training of associated persons who make public appearances as to the firm's procedures, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to FINRA upon request.
            (4) Any scripts, slides, handouts or other written (including electronic) materials used in connection with public appearances are considered communications for purposes of this Rule, and members must comply with all applicable provisions of this Rule based on those communications' audience, content and use.
            (5) Paragraph (f)(2) does not apply to any public appearance by a research analyst for purposes of Rule 2241 or by a debt research analyst for purposes of Rule 2242 that includes all of the . . . disclosures required by . . . Rule 2241 or 2242, as applicable. Paragraph (f)(2) also does not apply to a recommendation of investment company securities or variable insurance products; provided, however, that the associated person must have a reasonable basis for the recommendation.
            (g) Violation of Other Rules
            Any violation by a member of any rule of the SEC, the Securities Investor Protection Corporation or the Municipal Securities Rulemaking Board applicable to member communications will be deemed a violation of this Rule 2210.
            Amended by SR-FINRA-2016-018 eff. Jan. 9, 2017.
            Amended by SR-FINRA-2016-021 eff. July 16, 2016.
            Amended by SR-FINRA-2015-022 eff. June 6, 2016.
            Amended by SR-FINRA-2015-050. eff. Dec. 24, 2015.
            Amended by SR-FINRA-2014-045 eff. Dec. 1, 2014.
            Amended by SR-FINRA-2014-012 eff. July 11, 2014.
            Amended by SR-FINRA-2011-035 and SR-FINRA-2013-001 eff. Feb. 4, 2013.
            Amended by SR-FINRA-2008-044 eff. Feb. 5, 2009.
            Amended by SR-FINRA-2007-020 eff. March 26, 2008.
            Amended by SR-FINRA-2007-014 eff. Nov. 17, 2007.
            Amended by SR-NASD-2006-073 eff. July 7, 2007.
            Amended by SR-NASD-2007-042 eff. June 27, 2007 (Implementation date of IM-2210-4 (3) is Oct 31, 2007).
            Amended by SR-NASD-2004-043 eff. April 1, 2007.
            Amended by SR-NASD-2006-105 eff. Sept. 7, 2006.
            Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
            Amended by SR-NASD-2004-123 eff. Aug. 10, 2004.
            Amended by SR-NASD-2003-110 eff. June 28, 2004.
            Amended by SR-NASD-2000-12 and SR-NASD-2003-94 eff. Nov. 3, 2003.
            Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
            Amended by SR-NASD-98-32 eff. April 1, 2000.
            Amended by SR-NASD-98-57 eff. March 26, 1999.
            Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
            Amended by SR-NASD-98-29 eff. Nov. 16, 1998.
            Amended by SR-NASD-98-28 eff. July 15, 1998.
            Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
            Amended by SR-NASD-97-33 eff. May 9, 1997.
            Amended by SR-NASD-95-39 eff. Aug. 20, 1996.
            Amended by SR-NASD-95-12 eff. Aug. 9, 1995.
            Amended by SR-NASD-93-66 eff. Mar. 17, 1994.
            Amended by SR-NASD-92-53 eff. July 1, 1993.
            Amended eff. Aug. 2, 1983; June 5, 1987; July 1, 1988; Nov. 28, 1988; June 26, 1990; Mar. 27, 1991; Sept. 13, 1991; Nov. 16, 1992.

            Selected Notices: 98-83, 99-16, 00-15, 00-22, 03-38, 04-36, 04-64, 06-48, 07-02, 07-47, 09-10, 12-29, 14-30, 15-50, 16-41.

          • 2211. Communications with the Public About Variable Life Insurance and Variable Annuities

            The standards governing communications with the public are set forth in Rule 2210. In addition to those standards, the following guidelines must be considered in preparing retail communications and correspondence, as defined in Rule 2210, about variable life insurance and variable annuities.
            (a) General Considerations
            (1) Product Identification
            In order to assure that investors understand exactly what security is being discussed, retail communications and correspondence must clearly describe the product as either a variable life insurance policy or a variable annuity, as applicable. Member firms may use proprietary names in addition to this description. In cases where the proprietary name includes a description of the type of security being offered, there is no requirement to include a generalized description. For example, if the material includes a name such as the "XYZ Variable Life Insurance Policy," it is not necessary to include a statement indicating that the security is a variable life insurance policy. Considering the significant differences between mutual funds and variable products, the presentation must not represent or imply that the product being offered or its underlying account is a mutual fund.
            (2) Liquidity
            Considering that variable life insurance and variable annuities frequently involve substantial charges and/or tax penalties for early withdrawals, there must be no representation or implication that these are short-term, liquid investments. Presentations regarding liquidity or ease of access to investment values must be balanced by clear language describing the negative impact of early redemptions. Examples of this negative impact may be the payment of contingent deferred sales loads and tax penalties, and the fact that the investor may receive less than the original invested amount. With respect to variable life insurance, discussions of loans and withdrawals must explain their impact on cash values and death benefits.
            (3) Claims About Guarantees
            Insurance companies issuing variable life insurance and variable annuities provide a number of specific guarantees. For example, an insurance company may guarantee a minimum death benefit for a variable life insurance policy or the company may guarantee a schedule of payments to a variable annuity owner. Variable life insurance policies and variable annuities may also offer a fixed investment account which is guaranteed by the insurance company. The relative safety resulting from such a guarantee must not be overemphasized or exaggerated as it depends on the claims-paying ability of the issuing insurance company. There must be no representation or implication that a guarantee applies to the investment return or principal value of the separate account. Similarly, it must not be represented or implied that an insurance company's financial ratings apply to the separate account.
            (b) Specific Considerations
            (1) Fund Performance Predating Inclusion in the Variable Product
            In order to show how an existing fund would have performed had it been an investment option within a variable life insurance policy or variable annuity, retail communications and correspondence may contain the fund's historical performance that predates its inclusion in the policy or annuity. Such performance may only be used provided that no significant changes occurred to the fund at the time or after it became part of the variable product. However, retail communications and correspondence may not include the performance of an existing fund for the purposes of promoting investment in a similar, but new, investment option (i.e., clone fund or model fund) available in a variable contract. The presentation of historical performance must conform to applicable FINRA and SEC standards. Particular attention must be given to including all elements of return and deducting applicable charges and expenses.
            (2) Product Comparisons
            A comparison of investment products may be used provided the comparison complies with applicable requirements set forth under Rule 2210. Particular attention must be paid to the specific standards regarding "comparisons" set forth in Rule 2210(d)(2).
            (3) Use of Rankings
            A ranking which reflects the relative performance of the separate account or the underlying investment option may be included in retail communications provided its use is consistent with the standards contained in Rule 2212.
            (4) Discussions Regarding Insurance and Investment Features of Variable Life Insurance
            Retail communications and correspondence on behalf of single premium variable life insurance may emphasize the investment features of the product provided an adequate explanation of the life insurance features is given. Such communications for other types of variable life insurance must provide a balanced discussion of these features.
            (5) Hypothetical Illustrations of Rates of Return in Variable Life Insurance Retail Communications and Correspondence
            (A)(i) Hypothetical illustrations using assumed rates of return may be used to demonstrate the way a variable life insurance policy operates. The illustrations show how the performance of the underlying investment accounts could affect the policy cash value and death benefit. These illustrations may not be used to project or predict investment results as such forecasts are strictly prohibited by the Rules. The methodology and format of hypothetical illustrations must be modeled after the required illustrations in the prospectus.
            (ii) An illustration may use any combination of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate. Although the maximum assumed rate of 12% may be acceptable, members are urged to assure that the maximum rate illustrated is reasonable considering market conditions and the available investment options. The purpose of the required 0% rate of return is to demonstrate how a lack of growth in the underlying investment accounts may affect policy values and to reinforce the hypothetical nature of the illustration.
            (iii) The illustrations must reflect the maximum (guaranteed) mortality and expense charges associated with the policy for each assumed rate of return. Current charges may be illustrated in addition to the maximum charges.
            (iv) Preceding any illustration there must be a prominent explanation that the purpose of the illustration is to show how the performance of the underlying investment accounts could affect the policy cash value and death benefit. The explanation must also state that the illustration is hypothetical and may not be used to project or predict investment results.
            (B) In retail communications and correspondence which include hypothetical illustrations, member firms may provide a personalized illustration which reflects factors relating to the individual customer's circumstances. A personalized illustration may not contain a rate of return greater than 12% and must follow all of the standards set forth in subparagraph (A), above.
            (C) In general, it is inappropriate to compare a variable life insurance policy with another product based on hypothetical performance as this type of presentation goes beyond the singular purpose of illustrating how the performance of the underlying investment accounts could affect the policy cash value and death benefit. It is permissible, however, to use a hypothetical illustration in order to compare a variable life insurance policy to a term policy with the difference in cost invested in a side product. The sole purpose of this type of illustration would be to demonstrate the concept of tax-deferred growth as a result of investing in the variable product. The following conditions must be met in order to make this type of comparison balanced and complete:
            (i) the comparative illustration must be accompanied by an illustration which reflects the standards outlined in subparagraph (A), above;
            (ii) the rate of return used in the comparative illustration must be no greater than 12%;
            (iii) the rate of return assumed for the side product and the variable life policy must be the same;
            (iv) the same fees deducted from the required prospectus illustration must be deducted from the comparative illustration;
            (v) the side product must be illustrated using gross values which do not reflect the deduction of any fees; and,
            (vi) the side product must not be identified or characterized as any specific investment or investment type.
            Amended by SR-FINRA-2016-036 eff. Sep. 30, 2016.
            Amended by SR-NASD-2004-176 eff. Jan. 1, 2005.
            Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
            Adopted by SR-NASD-94-02 eff. Mar. 21, 1994.

            Selected Notice: 03-38.

          • 2212. Use of Investment Companies Rankings in Retail Communications

            (a) Definition of "Ranking Entity"
            For purposes of this Rule, the term "Ranking Entity" refers to any entity that provides general information about investment companies to the public, that is independent of the investment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company a ranking.
            (b) General Prohibition
            Members may not use investment company rankings in any retail communication other than (1) rankings created and published by Ranking Entities or (2) rankings created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity. Rankings in retail communications also must conform to the following requirements.
            (c) Required Disclosures
            (1) Headlines/Prominent Statements
            A headline or other prominent statement must not state or imply that an investment company or investment company family is the best performer in a category unless it is actually ranked first in the category.
            (2) Required Prominent Disclosure
            All retail communications containing an investment company ranking must disclose prominently:
            (A) the name of the category (e.g., growth);
            (B) the number of investment companies or, if applicable, investment company families, in the category;
            (C) the name of the Ranking Entity and, if applicable, the fact that the investment company or an affiliate created the category or subcategory;
            (D) the length of the period (or the first day of the period) and its ending date; and
            (E) criteria on which the ranking is based (e.g., total return, risk-adjusted performance).
            (3) Other Required Disclosure
            All retail communications containing an investment company ranking also must disclose:
            (A) the fact that past performance is no guarantee of future results;
            (B) for investment companies that assess front-end sales loads, whether the ranking takes those loads into account;
            (C) if the ranking is based on total return or the current SEC standardized yield, and fees have been waived or expenses advanced during the period on which the ranking is based, and the waiver or advancement had a material effect on the total return or yield for that period, a statement to that effect;
            (D) the publisher of the ranking data (e.g., "ABC Magazine, June 2011"); and
            (E) if the ranking consists of a symbol (e.g., a star system) rather than a number, the meaning of the symbol (e.g., a four-star ranking indicates that the fund is in the top 30% of all investment companies).
            (d) Time Periods
            (1) Current Rankings
            Any investment company ranking included in a retail communication must be, at a minimum, current to the most recent calendar quarter ended prior to use or submission for publication. If no ranking that meets this requirement is available from the Ranking Entity, then a member may only use the most current ranking available from the Ranking Entity unless use of the most current ranking would be misleading, in which case no ranking from the Ranking Entity may be used.
            (2) Rankings Time Periods; Use of Yield Rankings
            Except for money market mutual funds:
            (A) retail communications may not present any ranking that covers a period of less than one year, unless the ranking is based on yield;
            (B) an investment company ranking based on total return must be accompanied by rankings based on total return for a one year period for investment companies in existence for at least one year; one and five year periods for investment companies in existence for at least five years; and one, five and ten year periods for investment companies in existence for at least ten years supplied by the same Ranking Entity, relating to the same investment category, and based on the same time period; provided that, if rankings for such one, five and ten year time periods are not published by the Ranking Entity, then rankings representing short, medium and long term performance must be provided in place of rankings for the required time periods; and
            (C) an investment company ranking based on yield may be based only on the current SEC standardized yield and must be accompanied by total return rankings for the time periods specified in paragraph (d)(2)(B).
            (e) Categories
            (1) The choice of category (including a subcategory of a broader category) on which the investment company ranking is based must be one that provides a sound basis for evaluating the performance of the investment company.
            (2) An investment company ranking must be based only on (A) a published category or subcategory created by a Ranking Entity or (B) a category or subcategory created by an investment company or an investment company affiliate, but based on the performance measurements of a Ranking Entity.
            (3) Retail communications must not use any category or subcategory that is based upon the asset size of an investment company or investment company family, whether or not it has been created by a Ranking Entity.
            (f) Multiple Class/Two-Tier Funds
            Investment company rankings for more than one class of investment company with the same portfolio must be accompanied by prominent disclosure of the fact that the investment companies or classes have a common portfolio and different expense structures.
            (g) Investment Company Families
            Retail communications may contain rankings of investment company families, provided that these rankings comply with this Rule, and further provided that no retail communication for an individual investment company may provide a ranking of an investment company family unless it also prominently discloses the various rankings for the individual investment company supplied by the same Ranking Entity, as described in paragraph (d)(2)(B). For purposes of this Rule, the term "investment company family" means any two or more registered investment companies or series thereof that hold themselves out to investors as related companies for purposes of investment and investor services.
            (h) Independently Prepared Reprints
            This Rule shall not apply to any reprint or excerpt of any article or report that is excluded from the FINRA Advertising Regulation Department filing requirements pursuant to Rule 2210(c)(7)(I).
            Amended by SR-FINRA-2011-035 eff. Feb. 4, 2013.
            Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
            Amended by SR-NASD-96-39 eff. Mar. 5, 1997.
            Adopted by SR-NASD-93-69 eff. July 12, 1994.

            Selected Notices: 86-41, 92-59, 93-18, 93-73, 93-76, 93-85, 93-87, 94-16, 94-25, 94-36, 94-60, 95-49, 95-74, 95-80, 12-29.

          • 2213. Requirements for the Use of Bond Mutual Fund Volatility Ratings

            (a) Definition of Bond Mutual Fund Volatility Ratings
            For purposes of this Rule and any interpretation thereof, the term "bond mutual fund volatility rating" is a description issued by an independent third party relating to the sensitivity of the net asset value of a portfolio of an open-end management investment company that invests in debt securities to changes in market conditions and the general economy, and is based on an evaluation of objective factors, including the credit quality of the fund's individual portfolio holdings, the market price volatility of the portfolio, the fund's performance, and specific risks, such as interest rate risk, prepayment risk, and currency risk.
            (b) Prohibitions on Use
            Members and persons associated with a member may distribute a retail communication that includes a bond mutual fund volatility rating only when the following requirements are satisfied:
            (1) The rating does not identify or describe volatility as a "risk" rating.
            (2) The retail communication incorporates the most recently available rating and reflects information that, at a minimum, is current to the most recently completed calendar quarter ended prior to use.
            (3) The criteria and methodology used to determine the rating must be based exclusively on objective, quantifiable factors. The rating and the disclosure that accompanies the rating must be clear, concise, and understandable.
            (4) The retail communication conforms to the disclosure requirements described in paragraph (c).
            (5) The entity that issued the rating provides detailed disclosure on its rating methodology to investors through a toll-free telephone number, a website, or both.
            (c) Disclosure Requirements
            (1) The following disclosures shall be provided with respect to each bond mutual fund volatility rating:
            (A) the name of the entity that issued the rating;
            (B) the most current rating and date of the current rating;
            (C) a link to, or website address for, a website that includes the criteria and methodologies used to determine the rating;
            (D) a description of the rating in narrative form, containing the following disclosures:
            (i) a statement that there is no standard method for assigning ratings;
            (ii) whether consideration was paid in connection with obtaining the issuance of the rating;
            (iii) a description of the types of risks the rating measures (e.g., short-term volatility); and
            (iv) a statement that there is no guarantee that the fund will continue to have the same rating or perform in the future as rated.
            Amended by SR-FINRA-2016-018 eff. Jan. 9, 2017.
            Amended by SR-FINRA-2011-035 eff. Feb. 4, 2013.
            Amended by SR-NASD-2005-117 eff. Dec. 27, 2005.
            Amended by SR-NASD-2005-104 eff. Aug. 31, 2005.
            Amended by SR-NASD-2003-126 eff. Aug. 31, 2003.
            Amended by SR-NASD-2001-49 eff. August 10, 2001.
            Adopted by SR-NASD-97-89 eff. Feb. 29, 2000.

            Selected Notices: 96-84, 00-17, 00-23, 12-29, 16-41.

          • 2214. Requirements for the Use of Investment Analysis Tools

            (a) General Considerations
            This Rule provides a limited exception to Rule 2210(d)(1)(F). No member may imply that FINRA endorses or approves the use of any investment analysis tool or any recommendation based on such a tool. A member that offers or intends to offer an investment analysis tool under this Rule (whether customers use the member's tool independently or with assistance from the member) must provide FINRA's Advertising Regulation Department ("Department") access to the investment analysis tool upon request.
            (b) Definition
            For purposes of this Rule and any interpretation thereof, an "investment analysis tool" is an interactive technological tool that produces simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.
            (c) Use of Investment Analysis Tools and Related Written Reports and Retail Communications
            A member may provide an investment analysis tool (whether customers use the member's tool independently or with assistance from the member), written reports indicating the results generated by such tool and related retail communications only if the tool, written report or related retail communication:
            (1) describes the criteria and methodology used, including the investment analysis tool's limitations and key assumptions;
            (2) explains that results may vary with each use and over time;
            (3) if applicable, describes the universe of investments considered in the analysis, explains how the tool determines which securities to select, discloses if the tool favors certain securities and, if so, explains the reason for the selectivity, and states that other investments not considered may have characteristics similar or superior to those being analyzed; and
            (4) displays the following additional disclosure: "IMPORTANT: The projections or other information generated by [name of investment analysis tool] regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results."
            (d) Disclosures
            The disclosures and other required information discussed in paragraph (c) must be clear and prominent and must be in written (which may be electronic) narrative form.

            • • • Supplementary Material: --------------

            .01 Relationship to Rule 2210(d)(1)(F). Rule 2210(d)(1)(F) states that “[c]ommunications may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast.” This Rule allows member firms to offer investment analysis tools (whether customers use the member's tool independently or with assistance from the member), written reports indicating the results generated by such tools and related retail communications in certain circumstances. Rule 2210(d)(1)(F) does not prohibit, and this Rule does not apply to, hypothetical illustrations of mathematical principles that do not predict or project the performance of an investment or investment strategy.

            .02 Advertising Regulation Department Requests. A member subject to this Rule must provide any supplemental information requested by the Department. The Department may require that the member modify the investment analysis tool, written-report template, or retail communication. The Department also may require that the member not offer or continue to offer or use the tool, written-report template, or retail communication until all changes specified by the Department have been made by the member.

            .03 Material Changes to Disclosures. After the Department has reviewed the investment analysis tool, written-report template, or retail communication, a member must notify the Department and provide additional access to the tool and re-file any template, or retail communication if it makes a material change to the presentation of information or disclosures as required by paragraphs (c) and (d).

            .04 Investment Analysis Tools Used with Institutional Investors. A member that offers an investment analysis tool exclusively to “institutional investors,” as defined in Rule 2210(a)(4), is not subject to the post-use access and filing requirement in paragraph (a) of this Rule if the communications relating to or produced by the tool meet the criteria for “institutional communication,” as defined in Rule 2210(a)(3). A member that intends to make the tool available to, or that intends to use the tool or any related report with, any “retail investor,” as defined in Rule 2210(a)(6) (such as an employee benefit plan participant or a retail broker-dealer customer), will be subject to the filing and access requirements, however.

            .05 Compliance with Other Applicable Laws and Rules. As in all cases, a member's compliance with this Rule does not mean that the member is acting in conformity with other applicable laws and rules. A member that offers an investment analysis tool under this Rule (whether customers use the member's tool independently or with assistance from the member) is responsible for ensuring that use of the investment analysis tool and all recommendations based on the investment analysis tool (whether made via the automated tool or a written report) comply, as applicable, with FINRA's suitability rule (Rule 2111), the other provisions of Rule 2210 (including, but not limited to, the principles of fair dealing and good faith, the prohibition on exaggerated, unwarranted or misleading statements or claims, and any other applicable filing requirements for retail communications), the federal securities laws (including, but not limited to, the antifraud provisions), the SEC rules (including, but not limited to, Securities Act Rule 156) and other FINRA rules.

            .06 Incidental References to Investment Analysis Tools. A retail communication that contains only an incidental reference to an investment analysis tool (e.g., a brochure that merely mentions a member's tool as one of the services offered by the member) need not include the disclosures required by this Rule and would not need to be filed with the Department, unless otherwise required by the other provisions of Rule 2210. A retail communication that refers to an investment analysis tool in more detail but does not provide access to the tool or the results generated by the tool must provide the disclosures required by paragraphs (c)(2) and (c)(4), but may exclude the disclosures required by paragraphs (c)(1) and (c)(3).

            .07 Investment Analysis Tools that Favor Certain Securities. The disclosure required by paragraph (c)(3) must indicate, among other things, whether the investment analysis tool searches, analyzes or in any way favors certain securities within the universe of securities considered based on revenue received by the member in connection with the sale of those securities or based on relationships or understandings between the member and the entity that created the investment analysis tool. The disclosure also must indicate whether the investment analysis tool is limited to searching, analyzing or in any way favoring securities in which the member makes a market, serves as underwriter, or has any other direct or indirect interest. Members are not required to provide a “negative” disclosure (i.e., a disclosure indicating that the tool does not favor certain securities).

            Amended by SR-FINRA-2016-018 eff. Jan. 9, 2017.
            Amended by SR-FINRA-2014-012 eff. July 11, 2014.
            Amended by SR-FINRA-2011-035 and SR-FINRA-2013-001 eff. Feb. 4, 2013.
            Amended by SR-NASD-2006-105 eff. Sept. 7, 2006.
            Adopted by SR-NASD-2003-13 eff. Feb. 15, 2005.

            Selected Notices: 04-86, 12-29, 14-30, 16-41.

          • 2215. Communications with the Public Regarding Security Futures

            (a) FINRA Filing Requirements
            (1) As set forth in paragraph (c)(2) of Rule 2210, a member must submit all retail communications concerning security futures to FINRA's Advertising Regulation Department at least 10 business days prior to first use.
            (2) The requirements of this paragraph (a) shall not be applicable to:
            (A) retail communications concerning security futures that are submitted to another self-regulatory organization having comparable standards pertaining to such retail communications, and
            (B) retail communications in which the only reference to security futures is contained in a listing of the services of a member.
            (b) Standards Applicable to Security Futures Communications
            (1) Communications Used Prior to Delivery of the Security Futures Risk Disclosure Statements
            (A) All communications concerning security futures shall be accompanied or preceded by the security futures risk disclosure statement unless they meet the following requirements:
            (i) Such communications must be limited to general descriptions of the security futures being offered.
            (ii) Such communications must contain contact information for obtaining a copy of the security futures risk disclosure statement.
            (iii) Such communications must not contain recommendations or past or projected performance figures, including annualized rates of return, or names of specific securities.
            (B) Communications concerning security futures that meet the requirements of paragraphs (b)(1)(A)(i) through (iii) may have the following characteristics:
            (i) the text of the communication may contain a brief description of security futures, including a statement that identifies registered clearing agencies for security futures. The text may also contain a brief description of the general attributes and method of operation of the securities exchange or notice-registered securities exchange on which such security futures are traded, including a discussion of how a security future is priced;
            (ii) the communication may include any statement required by any state law or administrative authority; and
            (iii) advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics may be used, provided such material is not misleading.
            (2) General Standards
            (A) No member or associated person of a member shall distribute or make available any communication concerning a security future that:
            (i) contains any statement suggesting the certain availability of a secondary market for security futures;
            (ii) fails to reflect the special risks attendant to security futures transactions and the complexities of certain security futures investment strategies;
            (iii) fails to include a warning to the effect that security futures are not suitable for all investors or contains suggestions to the contrary; or
            (iv) fails to include a statement that supporting documentation for any claims (including any claims made on behalf of security futures programs or the security futures expertise of sales persons), comparisons, recommendations, statistics or other technical data, will be supplied upon request.
            (B) Paragraphs (b)(2)(A)(iii) and (b)(2)(A)(iv) do not apply to institutional communications as defined in Rule 2210(a)(3).
            (C) Any statement referring to the potential opportunities or advantages presented by security futures must be balanced by a statement of the corresponding risks. The risk statement must reflect the same degree of specificity as the statement of opportunities, and must avoid broad generalities.
            (3) Projections
            Notwithstanding the provisions of Rule 2210(d)(1)(F), security futures communications may contain projected performance figures (including projected annualized rates of return), provided that:
            (A) all such communications must be accompanied or preceded by the security futures risk disclosure statement;
            (B) no suggestion of certainty of future performance is made;
            (C) parameters relating to such performance figures are clearly established;
            (D) all relevant costs, including commissions, fees, and interest charges (as applicable) are disclosed and reflected in the projections;
            (E) such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation;
            (F) all material assumptions made in such calculations are clearly identified;
            (G) the risks involved in the proposed transactions are disclosed; and
            (H) in communications relating to annualized rates of return, that such returns are not based upon any less than a 60-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.
            (4) Historical Performance
            Security futures communications may feature records and statistics that portray the performance of past recommendations or of actual transactions, provided that:
            (A) all such communications must be accompanied or preceded by the security futures risk disclosure statement;
            (B) any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe" that can be fully isolated and circumscribed and that covers at least the most recent 12-month period;
            (C) such communications include the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the communications are limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request;
            (D) all relevant costs, including commissions, fees, and daily margin obligations (as applicable) are disclosed and reflected in the performance;
            (E) whenever such communications contain annualized rates of return, all material assumptions used in the process of annualization are disclosed;
            (F) an indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g., comparison to an index) is valid;
            (G) such communications state that the results presented should not and cannot be viewed as an indicator of future performance; and
            (H) a principal qualified to supervise security futures activities determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.
            (c) Security Futures Programs
            In communications regarding a security futures program (i.e., an investment plan employing the systematic use of one or more security futures strategies), the cumulative history or unproven nature of the program and its underlying assumptions must be disclosed.
            (d) Standard Forms of Worksheets
            Such worksheets must be uniform within a member. If a member has adopted a standard form of worksheet for a particular security futures strategy, nonstandard worksheets for that strategy may not be used.
            (e) Recordkeeping
            Communications that portray performance of past recommendations or actual transactions and completed worksheets shall be kept at a place easily accessible to the sales office for the accounts or customers involved.
            Amended by SR-FINRA-2011-035 eff. Feb. 4, 2013.
            Amended by SR-NASD-2000-12 eff. Nov. 3, 2003.
            Adopted by SR-NASD-2002-40 eff. Oct. 15, 2002.

            Selected Notice: 12-29.

          • 2216. Communications with the Public About Collateralized Mortgage Obligations (CMOs)

            (a) Definition
            For purposes of this Rule, the term "collateralized mortgage obligation" (CMO) refers to a multi-class debt instrument backed by a pool of mortgage pass-through securities or mortgage loans, including real estate mortgage investment conduits (REMICs) as defined in the Tax Reform Act of 1986.
            (b) Disclosure Standards and Required Educational Material
            (1) Disclosure Standards
            All retail communications and correspondence concerning CMOs:
            (A) must include within the name of the product the term "Collateralized Mortgage Obligation";
            (B) may not compare CMOs to any other investment vehicle, including a bank certificate of deposit;
            (C) must disclose, as applicable, that a government agency backing applies only to the face value of the CMO and not to any premium paid; and
            (D) must disclose that a CMO's yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in current interest rates.
            (2) Required Educational Material
            Before the sale of a CMO to any person other than an institutional investor, as defined in Rule 2210(a)(4), a member must offer to the person educational material that includes the following:
            (A) a discussion of:
            (i) characteristics and risks of CMOs including credit quality, prepayment rates and average lives, interest rates (including their effect on value and prepayment rates), tax considerations, minimum investments, transaction costs and liquidity;
            (ii) the structure of a CMO, including the various types of tranches that may be issued and the rights and risks pertaining to each (including the fact that two CMOs with the same underlying collateral may be prepaid at different rates and may have different price volatility); and
            (iii) the relationship between mortgage loans and mortgage securities;
            (B) questions an investor should ask before investing; and
            (C) a glossary of terms.
            (c) Promotion of Specific CMOs
            In addition to the standards set forth above, retail communications and correspondence that promote a specific security or contain yield information must conform to the standards set forth below. An example of a compliant communication appears at the end of this Rule.
            (1) The retail communication or correspondence must present the following disclosure sections with equal prominence. The information in Sections 1 and 2 must be included. The information in Section 3 is optional; therefore, the member may elect to include any, all or none of this information. The information in Section 4 may be tailored to the member's preferred signature.
            Section 1 Title — Collateralized Mortgage Obligations
            Coupon Rate
            Anticipated Yield/Average Life
            Specific Tranche — Number & Class
            Final Maturity Date
            Underlying Collateral
            Section 2 Disclosure Statement:
            "The yield and average life shown above consider prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life. Please contact your representative for information on CMOs and how they react to different market conditions."
            Section 3 Product Features (Optional):
            Minimum Denominations
            Rating Disclosure
            Agency/Government Backing
            Income Payment Structure
            Generic Description of Tranche (e.g., PAC, Companion)
            Yield to Maturity of CMOs Offered at Par
            Section 4 Company Information:
            Name, Memberships
            Address
            Telephone Number
            Representative's Name
            (2) Additional Conditions
            The following conditions must also be met:
            (A) All figures in Section 1 must be in equal type size.
            (B) The disclosure language in Section 2 may not be altered and must be given equal prominence with the information in Section 1.
            (C) The prepayment assumption used to determine the yield and average life must either be obtained from a nationally recognized service or the member must be able to justify the assumption used. A copy of either the service's listing for the CMO or the member's justification must be attached to the copy of the communication that is maintained in the member's advertising files in order to verify that the prepayment scenario is reasonable.
            (D) Any sales charge that the member intends to impose must be reflected in the anticipated yield.
            (E) The communication must include language stating that the security is "offered subject to prior sale and price change." This language may be included in any one of the four sections.
            (F) If the security is an accrual bond that does not currently distribute principal and interest payments, then Section 1 must include this information.
            (3) Radio/Television Advertisements
            (A) The following oral disclaimer must precede any radio or television advertisement in lieu of the Title information set forth in Section 1:
            "The following is an advertisement for Collateralized Mortgage Obligations. Contact your representative for information on CMOs and how they react to different market conditions."
            (B) Radio or television advertisements must contain the following oral disclosure statement in lieu of the legend set forth in Section 2:
            "The yield and average life reflect prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life."
            (4) Standardized CMO Communication Example
            Collateralized Mortgage Obligations
            7.50% Coupon
            7.75% Anticipated Yield to 22-Year Average Life
            FNMA 9532X, Final Maturity March 2023
            Collateral 100% FNMA 7.50%
            The yield and average life shown above reflect prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life. Please contact your representative for information on CMOs and how they react to different market conditions.
            $5,000 Minimum
            Income Paid Monthly
            Implied Rating/Volatility Rating
            Principal and Interest Payments Backed by FNMA
            PAC Bond
            Offered subject to prior sale and price change.
            Call Mary Representative at (800)555-1234
            Your Company Securities, Inc., Member SIPC
            123 Main Street
            Anytown, State 12121
            Amended by SR-FINRA-2011-035 eff. Feb. 4, 2013.
            Adopted by SR-NASD-2000-12 eff. Nov. 3, 2003.

            Selected Notice: 12-29.

          • 2220. Options Communications

            (a) Definitions
            For purposes of this Rule and any interpretation thereof:
            (1) "Options communications" consist of:
            (A) "Correspondence." Any "Correspondence" as defined in Rule 2210(a)(2) concerning options.
            (B) "Institutional Communication." Any "Institutional Communication" as defined in Rule 2210(a)(3) concerning options.
            (C) "Retail Communication." Any "Retail Communication" as defined in Rule 2210(a)(5) concerning options including worksheet templates.
            (2) "Standardized option" means any option contract issued, or subject to issuance, by The Options Clearing Corporation, that has standardized terms for the strike price, expiration date, and amount of the underlying security, and is traded on a national securities exchange registered pursuant to Section 6(a) of the Exchange Act.
            (3) "Option" as defined in Rule 2360(a).
            (4) "Options disclosure document" has the same meaning as the term "disclosure document" as defined in Rule 2360(a).
            (b) Approval by a Registered Options Principal and Recordkeeping
            (1) Retail Communications. All retail communications (except completed worksheets) issued by a member concerning options shall be approved in advance by a Registered Options Principal designated by the member's written supervisory procedures.
            (2) Correspondence. Correspondence need not be approved by a Registered Options Principal prior to use. All correspondence is subject to the supervision and review requirements of Rules 3110(b) and 3110.06 through .09.
            (3) Institutional Communications. Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by a Registered Options Principal of institutional communications used by the member and its registered representatives as described in Rule 2210(b)(3).
            (4) Copies of the options communications shall be retained by the member in accordance with SEA Rule 17a-4. The names of the persons who prepared the options communications, the names of the persons who approved the options communications, and the source of any recommendations contained therein, shall be retained by the member and be kept in the form and for the time period required for options communications by SEA Rule 17a-4.
            (c) FINRA Approval Requirements and Review Procedures
            (1) In addition to the approval required by paragraph (b) of this Rule, all retail communications issued by a member concerning standardized options used prior to delivery of the applicable current options disclosure document or prospectus shall be submitted to the Advertising Regulation Department of FINRA (the "Department") at least ten calendar days prior to use (or such shorter period as the Department may allow in particular instances) for approval and, if changed or expressly disapproved by the Department, shall be withheld from circulation until any changes specified by the Department have been made or, in the event of disapproval, until such options communication has been resubmitted for, and has received, Department approval.
            (2)(A) Notwithstanding the foregoing provision, the Department, upon review of a member's options communications, and after determining that the member has departed from the standards of this Rule, may require that such member file some or all options communications or the portions of such member's communications that are related to options with the Department, at least ten calendar days prior to use.
            (B) The Department shall notify the member in writing of the types of options communications to be filed and the length of time such requirement is to be in effect. The requirement shall not exceed one year, however, and shall not take effect until 21 calendar days after service of the written notice, during which time the member may request a hearing under Rules 9551 and 9559.
            (3) In addition to the foregoing requirements, every member's options communications shall be subject to a routine spot-check procedure. Upon written request from the Department, each member shall promptly submit the communications requested. Members will not be required to submit communications under this procedure that have been previously submitted pursuant to one of the foregoing requirements.
            (4) The requirements of this paragraph (c) shall not be applicable to:
            (A) options communications submitted to another self-regulatory organization having comparable standards pertaining to such communications;
            (B) communications in which the only reference to options is contained in a listing of the services of the member;
            (C) the options disclosure document; and
            (D) the prospectus.
            (d) Standards Applicable to Communications
            (1) Communications Regarding Standardized Options used Prior to Delivery of Options Disclosure Document
            (A) Options communications regarding standardized options exempted under Securities Act Rule 238 used prior to options disclosure document delivery:
            (i) must be limited to general descriptions of the options being discussed. The text may also contain a brief description of options, including a statement that identifies registered clearing agencies for options and a brief description of the general attributes and method of operation of the exchanges on which such options are traded, including a discussion of how an option is priced;
            (ii) must contain contact information for obtaining a copy of the options disclosure document;
            (iii) must not contain recommendations or past or projected performance figures, including annualized rates of return, or names of specific securities;
            (iv) may include any statement required by any state law or administrative authority; and
            (v) may include advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics, provided such material is not misleading.
            (B) Options communications regarding options not exempted under Securities Act Rule 238 used prior to delivery of a prospectus that meets the requirements of Section 10(a) of the Securities Act must conform to Securities Act Rule 134 or 134a, as applicable.
            (2) General Standards
            (A) No member or associated person of the member shall use any options communications which:
            (i) contains any untrue statement or omission of a material fact or is otherwise false or misleading;
            (ii) contains promises of specific results, exaggerated or unwarranted claims, opinions for which there is no reasonable basis or forecasts of future events which are unwarranted or which are not clearly labeled as forecasts;
            (iii) contains cautionary statements or caveats that are not legible, are misleading, or are inconsistent with the content of the material;
            (iv) would constitute a prospectus as that term is defined in the Securities Act, unless it meets the requirements of Section 10 of the Securities Act;
            (v) contains statements suggesting the certain availability of a secondary market for options;
            (vi) fails to reflect the risks attendant to options transactions and the complexities of certain options investment strategies;
            (vii) fails to include a warning to the effect that options are not suitable for all investors or contains suggestions to the contrary; or
            (viii) fails to include a statement that supporting documentation for any claims (including any claims made on behalf of options programs or the options expertise of sales persons), comparison, recommendations, statistics, or other technical data, will be supplied upon request.
            (B) Subparagraphs (vii) and (viii) above shall not apply to institutional communications as defined in paragraph (a) of this Rule.
            (C) Any statement in any options communications referring to the potential opportunities or advantages presented by options shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities must be avoided.
            (3) Projections
            Options communications may contain projected performance figures (including projected annualized rates of return) provided that:
            (A) all such communications regarding standardized options are accompanied or preceded by the options disclosure document;
            (B) no suggestion of certainty of future performance is made;
            (C) parameters relating to such performance figures are clearly established (e.g., to indicate exercise price of option, purchase price of the underlying stock and its market price, option premium, anticipated dividends, etc.);
            (D) all relevant costs, including commissions, fees, and interest charges (as applicable ) are disclosed and reflected in the projections;
            (E) such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation;
            (F) all material assumptions made in such calculations are clearly identified (e.g., "assume option expires," "assume option unexercised," "assume option exercised," etc.);
            (G) the risks involved in the proposed transactions are also disclosed; and
            (H) in communications relating to annualized rates of return, that such returns are not based upon any less than a 60-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.
            (4) Historical Performance
            Options communications may feature records and statistics that portray the performance of past recommendations or of actual transactions, provided that:
            (A) all such communications regarding standardized options are accompanied or preceded by the options disclosure document;
            (B) any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe" that can be fully isolated and circumscribed and that covers at least the most recent 12-month period;
            (C) such communications include the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the communications are limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request;
            (D) all relevant costs, including commissions, fees, and daily margin obligations (as applicable) are disclosed and reflected in the performance;
            (E) whenever such communications contain annualized rates of return, all material assumptions used in the process of annualization are disclosed;
            (F) an indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g., comparison to an index) is valid;
            (G) such communications state that the results presented should not and cannot be viewed as an indicator of future performance; and
            (H) a Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.
            (5) Options Programs
            In communications regarding an options program (i.e., an investment plan employing the systematic use of one or more options strategies), the cumulative history or unproven nature of the program and its underlying assumptions shall be disclosed.
            (6) Violation of Other Rules
            Any violation by a member or associated person of any rule or requirement of the SEC or any rule of the Securities Investor Protection Corporation applicable to member communications concerning options will be deemed a violation of this Rule 2220.

            Amended by SR-FINRA-2014-045 eff. Dec. 1, 2014.
            Amended by SR-FINRA-2013-001 eff. Feb. 4, 2013.
            Amended by SR-FINRA-2009-036 eff. Dec. 14, 2009.
            Amended by SR-FINRA-2008-013 eff. March 4, 2009.
            Amended by SR-FINRA-2007-035 eff. June 23, 2008.
            Amended by SR-NASD-2003-110 eff. June 28, 2004.
            Amended by SR-NASD-98-57 eff. March 26, 1999.
            Adopted eff. Sept. 13, 1991.

            Selected Notices: 85-69, 86-68, 87-24, 87-43, 88-20, 88-52, 88-65, 89-11, 91-26, 91-62, 92-56, 99-16, 04-36, 08-28, 08-73, 09-60.

          • 2230. Customer Account Statements and Confirmations

            • 2232. Customer Confirmations

              (a) A member shall, at or before the completion of any transaction in any security effected for or with an account of a customer, give or send to such customer written notification ("confirmation") in conformity with the requirements of SEA Rule 10b-10.
              (b) A confirmation given or sent pursuant to this Rule shall further disclose:
              (1) with respect to any transaction in any NMS stock, as defined in Rule 600 of SEC Regulation NMS, or any security subject to the reporting requirements of the FINRA Rule 6600 Series, other than direct participation programs as defined in FINRA Rule 6420, the settlement date of the transaction; and
              (2) with respect to any transaction in a callable equity security, that:
              (A) the security is a callable equity security; and
              (B) a customer may contact the member for more information concerning the security.
              Adopted by SR-FINRA-2009-058 eff. June 17, 2011; amended by SR-FINRA-2010-066 eff. June 17, 2011.

              Selected Notice: 10-62.

          • 2240. CONFLICTS OF INTEREST

            • 2241. Research Analysts and Research Reports

              (a) Definitions
              For purposes of this Rule, the following terms shall be defined as provided.
              (1) "Emerging Growth Company" has the same meaning as in Section 3(a)(80) of the Exchange Act.
              (2) "Equity security" has the same meaning as defined in Section 3(a)(11) of the Exchange Act.
              (3) "Independent third-party research report" means a third-party research report, in respect of which the person producing the report:
              (A) has no affiliation or business or contractual relationship with the distributing member or that member's affiliates that is reasonably likely to inform the content of its research reports; and
              (B) makes content determinations without any input from the distributing member or that member's affiliates.
              (4) "Investment banking department" means any department or division, whether or not identified as such, that performs any investment banking service on behalf of a member.
              (5) "Investment banking services" include, without limitation, acting as an underwriter, participating in a selling group in an offering for the issuer or otherwise acting in furtherance of a public offering of the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital or equity lines of credit or serving as placement agent for the issuer or otherwise acting in furtherance of a private offering of the issuer.
              (6) "Member of a research analyst's household" means any individual whose principal residence is the same as the research analyst's principal residence. This term does not include an unrelated person who shares the same residence as a research analyst, provided that the research analyst and unrelated person are financially independent of one another.
              (7) "Public appearance" means any participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons or before one or more representatives of the media, a radio, television or print media interview, or the writing of a print media article, in which a research analyst makes a recommendation or offers an opinion concerning an equity security. This term does not include a password protected Webcast, conference call or similar event with 15 or more existing customers, provided that all of the event participants previously received the most current research report or other documentation that contains the required applicable disclosures, and that the research analyst appearing at the event corrects and updates during the event any disclosures in the research report that are inaccurate, misleading or no longer applicable.
              (8) "Research analyst" means an associated person who is primarily responsible for, and any associated person who reports directly or indirectly to a research analyst in connection with, the preparation of the substance of a research report, whether or not any such person has the job title of "research analyst."
              (9) "Research analyst account" means any account in which a research analyst or member of the research analyst's household has a financial interest, or over which such analyst has discretion or control. This term shall not include an investment company registered under the Investment Company Act over which the research analyst or a member of the research analyst's household has discretion or control, provided that the research analyst or member of the research analyst's household has no financial interest in such investment company, other than a performance or management fee. The term also shall not include a "blind trust" account that is controlled by a person other than the research analyst or member of the research analyst's household where neither the research analyst nor a member of the research analyst's household knows of the account's investments or investment transactions.
              (10) "Research department" means any department or division, whether or not identified as such, that is principally responsible for preparing the substance of a research report on behalf of a member.
              (11) "Research report" means any written (including electronic) communication that includes an analysis of equity securities of individual companies or industries (other than an open-end registered investment company that is not listed or traded on an exchange) and that provides information reasonably sufficient upon which to base an investment decision. This term does not include:
              (A) communications that are limited to the following:
              (i) discussions of broad-based indices;
              (ii) commentaries on economic, political or market conditions;
              (iii) technical analyses concerning the demand and supply for a sector, index or industry based on trading volume and price;
              (iv) statistical summaries of multiple companies' financial data, including listings of current ratings;
              (v) recommendations regarding increasing or decreasing holdings in particular industries or sectors;
              (vi) notices of ratings or price target changes, provided that the member simultaneously directs the readers of the notice to the most recent research report on the subject company that includes all current applicable disclosures required by this Rule and that such research report does not contain materially misleading disclosures, including disclosures that are outdated or no longer applicable; or
              (B) the following communications, even if they include an analysis of an individual equity security and information reasonably sufficient upon which to base an investment decision:
              (i) any communication distributed to fewer than 15 persons;
              (ii) periodic reports or other communications prepared for investment company shareholders or discretionary investment account clients that discuss individual securities in the context of a fund's or account's past performance or the basis for previously made discretionary investment decisions; or
              (iii) internal communications that are not given to current or prospective customers;
              (C) communications that constitute statutory prospectuses that are filed as part of a registration statement; and
              (D) communications that constitute private placement memoranda and comparable offering-related documents prepared in connection with investment banking services transactions, other than those that purport to be research.
              (12) "Sales and trading personnel" includes persons in any department or division, whether or not identified as such, who perform any sales or trading service on behalf of a member.
              (13) "Subject company" means the company whose equity securities are the subject of a research report or public appearance.
              (14) "Third-party research report" means a research report that is produced by a person other than the member.
              (b) Identifying and Managing Conflicts of Interest
              (1) A member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to:
              (A) the preparation, content and distribution of research reports;
              (B) public appearances by research analysts; and
              (C) the interaction between research analysts and those outside of the research department, including investment banking and sales and trading personnel, subject companies and customers.
              (2) A member's written policies and procedures must be reasonably designed to promote objective and reliable research that reflects the truly held opinions of research analysts and to prevent the use of research reports or research analysts to manipulate or condition the market or favor the interests of the member or a current or prospective customer or class of customers. Such policies and procedures must:
              (A) prohibit prepublication review, clearance or approval of research reports by persons engaged in investment banking services activities and restrict or prohibit such review, clearance or approval by other persons not directly responsible for the preparation, content and distribution of research reports, other than legal and compliance personnel;
              (B) restrict or limit input by the investment banking department into research coverage decisions to ensure that research management independently makes all final decisions regarding the research coverage plan;
              (C) prohibit persons engaged in investment banking activities from supervision or control of research analysts, including influence or control over research analyst compensation evaluation and determination;
              (D) limit determination of the research department budget to senior management, excluding senior management engaged in investment banking services activities;
              (E) prohibit compensation based upon specific investment banking services transactions or contributions to a member's investment banking services activities;
              (F) require that the compensation of a research analyst who is primarily responsible for preparation of the substance of a research report be reviewed and approved at least annually by a committee that reports to a member's board of directors, or if the member has no board of directors, a senior executive officer of the member. This committee may not have representation from the member's investment banking department and must consider the following factors when reviewing a research analyst's compensation, if applicable:
              (i) the research analyst's individual performance, including the analyst's productivity and the quality of the analyst's research;
              (ii) the correlation between the research analyst's recommendations and the performance of the recommended securities; and
              (iii) the overall ratings received from clients, sales force and peers independent of the member's investment banking department, and other independent ratings services.
              The committee must document the basis upon which each such research analyst's compensation was established;
              (G) establish information barriers or other institutional safeguards reasonably designed to ensure that research analysts are insulated from the review, pressure or oversight by persons engaged in investment banking services activities or other persons, including sales and trading personnel, who might be biased in their judgment or supervision;
              (H) prohibit direct or indirect retaliation or threat of retaliation against research analysts employed by the member or its affiliates by persons engaged in investment banking services activities or other employees as the result of an adverse, negative, or otherwise unfavorable research report or public appearance written or made by the research analyst that may adversely affect the member's present or prospective business interests;
              (I) define periods during which the member must not publish or otherwise distribute research reports, and research analysts must not make public appearances, relating to the issuer:
              (i) of a minimum of 10 days following the date of an initial public offering if the member has participated as an underwriter or dealer in the initial public offering; or
              (ii) of a minimum of three days following the date of a secondary offering if the member has acted as a manager or co-manager of that offering.
              This subparagraph (I) shall not apply to the publication or distribution of a research report or a public appearance following an initial public offering or secondary offering of the securities of an Emerging Growth Company;
              (iii) Subparagraphs (I)(i) and (ii) shall not prevent a member from publishing or otherwise distributing a research report, or prevent a research analyst from making a public appearance, concerning the effects of significant news or a significant event on the subject company within such 10- and three-day periods, and provided further that legal or compliance personnel authorize publication of that research report before it is issued or authorize the public appearance before it is made. Subparagraph (ii) will not prevent a member from publishing or otherwise distributing a research report pursuant to Securities Act Rule 139 regarding a subject company with "actively-traded securities," as defined in Rule 101(c)(1) of SEC Regulation M, and will not prevent a research analyst from making a public appearance concerning such a company.
              (J) restrict or limit research analyst account trading in securities, any derivatives of such securities and funds whose performance is materially dependent upon the performance of securities covered by the research analyst, including:
              (i) ensuring that research analyst accounts, supervisors of research analysts and associated persons with the ability to influence the content of research reports do not benefit in their trading from knowledge of the content or timing of a research report before the intended recipients of such research have had a reasonable opportunity to act on the information in the research report;
              (ii) providing that no research analyst account may purchase or sell any security or any option on or derivative of such security in a manner inconsistent with the research analyst's recommendation as reflected in the most recent research report published by the member, and defining financial hardship circumstances, if any (e.g., unanticipated significant change in the personal financial circumstances of the beneficial owner of the research analyst account), in which the member will permit a research analyst account to trade in a manner inconsistent with such research analyst's most recently published recommendation; and
              (iii) prohibiting a research analyst account from purchasing or receiving any security before an issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows;
              (K) prohibit explicit or implicit promises of favorable research, a particular research rating or recommendation or specific research content as inducement for the receipt of business or compensation;
              (L) restrict or limit activities by research analysts that can reasonably be expected to compromise their objectivity, including prohibiting:
              (i) participation in pitches and other solicitations of investment banking services transactions; and
              (ii) participation in road shows and other marketing on behalf of an issuer related to an investment banking services transaction;
              (M) prohibit investment banking department personnel from directly or indirectly:
              (i) directing a research analyst to engage in sales or marketing efforts related to an investment banking services transaction; and
              (ii) directing a research analyst to engage in any communication with a current or prospective customer about an investment banking services transaction; and
              (N) prohibit prepublication review of a research report by a subject company for purposes other than verification of facts.
              (c) Content and Disclosure in Research Reports
              (1) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that:
              (A) purported facts in its research reports are based on reliable information; and
              (B) any recommendation, rating or price target has a reasonable basis and is accompanied by a clear explanation of any valuation method used and a fair presentation of the risks that may impede achievement of the recommendation, rating or price target.
              (2) A member that employs a rating system must clearly define in each research report the meaning of each rating in the system, including the time horizon and any benchmarks on which a rating is based. The definition of each rating must be consistent with its plain meaning.
              (A) Irrespective of the rating system a member employs, a member must include in each research report that includes a rating the percentage of all securities rated by the member to which the member would assign a "buy," "hold" or "sell" rating.
              (B) A member must disclose in each research report the percentage of subject companies within each of the "buy," "hold" and "sell" categories for which the member has provided investment banking services within the previous 12 months.
              (C) The information required in paragraphs (c)(2)(A) and (B) must be current as of the end of the most recent calendar quarter or the second most recent calendar quarter if the publication date of the research report is less than 15 calendar days after the most recent calendar quarter.
              (3) If a research report contains either a rating or price target for a subject company's security, and the member has assigned a rating or price target to such security for at least one year, the research report must include a line graph of the security's daily closing prices for the period that the member has assigned any rating or price target or for a three-year period, whichever is shorter. The graph must:
              (A) indicate the dates on which the member assigned or changed each rating or price target;
              (B) depict each rating or price target assigned or changed on those dates; and
              (C) be current as of the end of the most recent calendar quarter (or the second most recent calendar quarter if the publication date of the research report is less than 15 calendar days after the most recent calendar quarter).
              (4) A member must disclose in any research report at the time of publication or distribution of the report:
              (A) if the research analyst or a member of the research analyst's household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
              (B) if the research analyst has received compensation based upon (among other factors) the member's investment banking revenues;
              (C) if the member or any of its affiliates:
              (i) managed or co-managed a public offering of securities for the subject company in the past 12 months;
              (ii) received compensation for investment banking services from the subject company in the past 12 months; or
              (iii) expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months;
              (D) if, as of the end of the month immediately preceding the date of publication or distribution of a research report (or the end of the second most recent month if the publication or distribution date is less than 30 calendar days after the end of the most recent month), the member or its affiliates have received from the subject company any compensation for products or services other than investment banking services in the previous 12 months;
              (E) if the subject company is, or over the 12-month period preceding the date of publication or distribution of the research report has been, a client of the member, and if so, the types of services provided to the issuer. Such services, if applicable, shall be identified as either investment banking services, non-investment banking securities-related services or non-securities services;
              (F) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
              (G) if the member was making a market in the securities of the subject company at the time of publication or distribution of the research report;
              (H) if the research analyst received any compensation from the subject company in the previous 12 months; and
              (I) any other material conflict of interest of the research analyst or member that the research analyst or an associated person of the member with the ability to influence the content of a research report knows or has reason to know at the time of the publication or distribution of a research report.
              (5) A member or research analyst will not be required to make a disclosure required by paragraph (c)(4) to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking transactions.
              (6) The disclosures required by this paragraph (c) must be presented on the front page of research reports or the front page must refer to the page on which the disclosures are found. Electronic research reports may provide a hyperlink directly to the required disclosures. All disclosures and references to disclosures required by this Rule must be clear, comprehensive and prominent.
              (7) A member that distributes a research report covering six or more subject companies (a "compendium report") may direct the reader in a clear manner as to where the reader may obtain applicable current disclosures required by this paragraph (c). Electronic compendium reports may include a hyperlink directly to the required disclosures. Paper-based compendium reports must provide either a toll free number to call or a postal address to request the required disclosures and may also include a web address where the disclosures can be found.
              (d) Disclosure in Public Appearances
              (1) A research analyst must disclose in public appearances:
              (A) if the research analyst or a member of the research analyst's household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
              (B) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
              (C) if, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
              (D) if the research analyst received any compensation from the subject company in the previous 12 months;
              (E) if, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst; or
              (F) any other material conflict of interest of the research analyst or member that the research analyst knows or has reason to know at the time of the public appearance.
              (2) A member or research analyst will not be required to make a disclosure required by this paragraph (d) to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking transactions of the subject company.
              (3) Members must maintain records of public appearances by research analysts sufficient to demonstrate compliance by those research analysts with the applicable disclosure requirements in this paragraph (d). Such records must be maintained for at least three years from the date of the public appearance.
              (e) Disclosure Required by Other Provisions
              In addition to the disclosures required by paragraphs (c) and (d), members and research analysts must comply with all applicable disclosure provisions of FINRA Rule 2210 and the federal securities laws.
              (f) Termination of Coverage
              A member must promptly notify its customers if it intends to terminate coverage of a subject company. Such notice must be made using the member's ordinary means to disseminate research reports on the subject company to its various customers. The notice must be accompanied by a final research report, comparable in scope and detail to prior research reports, and include a final recommendation or rating. If impracticable to provide a final research report, recommendation or rating, a member must disclose to its customers its reason for terminating coverage.
              (g) Distribution of Member Research Reports
              A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that a research report is not distributed selectively to internal trading personnel or a particular customer or class of customers in advance of other customers that the member has previously determined are entitled to receive the research report.
              (h) Distribution of Third-Party Research Reports
              (1) Subject to paragraph (h)(5), a registered principal or supervisory analyst approved pursuant to Incorporated NYSE Rule 344 must review for compliance with the applicable provisions of paragraph (h) and approve by signature or initial all third-party research reports distributed by a member.
              (2) A member may not distribute third-party research if it knows or has reason to know such research is not objective or reliable.
              (3) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that any third-party research it distributes contains no untrue statement of material fact and is otherwise not false or misleading. For the purposes of this paragraph (h)(3) only, a member's obligation to review a third-party research report extends to any untrue statement of material fact or any false or misleading information that:
              (A) should be known from reading the report; or
              (B) is known based on information otherwise possessed by the member.
              (4) A member must accompany any third-party research report it distributes with, or provide a web address that directs a recipient to, disclosure of any material conflict of interest that can reasonably be expected to have influenced the choice of a third-party research provider or the subject company of a third-party research report, including the disclosures required by paragraphs (c)(4)(C), (c)(4)(F), (c)(4)(G) and (c)(4)(I) of this Rule.
              (5) A member shall not be required to review a third-party research report to determine compliance with paragraph (h)(3) if such research report is an independent third-party research report.
              (6) A member shall not be considered to have distributed a third-party research report for the purposes of paragraph (h)(4) where the research is an independent third-party research report and is made available by a member (a) upon request; (b) through a member-maintained website; or (c) to a customer in connection with a solicited order in which the registered representative has informed the customer, during the solicitation, of the availability of independent research on the solicited equity security and the customer requests such independent research.
              (7) A member must ensure that a third-party research report is clearly labeled as such and that there is no confusion on the part of the recipient as to the person or entity that prepared the research report.
              (i) Exemption for Members with Limited Investment Banking Activity
              The provisions of paragraphs (b)(2)(A), (B), (C), (D), (F) and (G) shall not apply to members that over the previous three years, on average per year, have participated in 10 or fewer investment banking services transactions as manager or co-manager and generated $5 million or less in gross investment banking revenues from those transactions; provided, however, that with respect to paragraph (b)(2)(G), such members must establish information barriers or other institutional safeguards reasonably designed to ensure that research analysts are insulated from pressure by persons engaged in investment banking services activities or other persons, including sales and trading personnel, who might be biased in their judgment or supervision. For the purposes of this paragraph (i), the term "investment banking services transactions" include the underwriting of both corporate debt and equity securities but not municipal securities. Members that qualify for this exemption must maintain records sufficient to establish eligibility for the exemption and also maintain for at least three years any communication that, but for this exemption, would be subject to paragraphs (b)(2)(A), (B), (C), (D), (F) and (G).
              (j) Exemption for Good Cause
              Pursuant to the Rule 9600 Series, FINRA may in exceptional and unusual circumstances, conditionally or unconditionally grant an exemption from any requirement of this Rule for good cause shown after taking into account all relevant factors, to the extent such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.

              • • • Supplementary Material: --------------

              .01 Efforts to Solicit Investment Banking Business

              (a) FINRA interprets paragraph (b)(2)(L)(i) to prohibit in pitch materials any information about a member's research capacity in a manner that suggests, directly or indirectly, that the member might provide favorable research coverage. For example, FINRA would consider the publication in a pitch book or related materials of an analyst's industry ranking to imply the potential outcome of future research because of the manner in which such rankings are compiled. On the other hand, a member would be permitted to include in the pitch materials the fact of coverage and the name of the research analyst because such information alone does not imply favorable coverage.
              Members must consider whether the facts and circumstances of any solicitation or engagement would warrant disclosure under Section 17(b) of the Securities Act.
              (b) Paragraph (b)(2)(L)(i) shall not prevent a research analyst from attending a pitch meeting in connection with an initial public offering of an Emerging Growth Company that also is attended by investment banking personnel; provided, however, that a research analyst may not engage in otherwise prohibited conduct in such meetings, including efforts to solicit investment banking business.

              .02 Joint Due Diligence. FINRA interprets paragraph (b)(1)(C) to prohibit the performance of joint due diligence (i.e., confirming the adequacy of disclosure in offering or other disclosure documents for a transaction) by the research analyst in the presence of investment banking department personnel prior to the selection by the issuer of the underwriters for the investment banking services transaction.

              .03 Restrictions on Communications with Customers and Internal Personnel

              (a) Consistent with the requirements of paragraph (b)(2)(M) of this Rule, no research analyst may engage in any communication with a current or prospective customer in the presence of investment banking department personnel or company management about an investment banking services transaction.
              (b) FINRA interprets paragraph (b)(1)(C) of this Rule to require that any written or oral communication by a research analyst with a current or prospective customer or internal personnel related to an investment banking services transaction must be fair, balanced and not misleading, taking into consideration the overall context in which the communication is made.

              .04 Disclosure of Non-Investment Banking Services Compensation. A member may satisfy the disclosure requirement in paragraph (c)(4)(D) with respect to receipt of non-investment banking services compensation by an affiliate by implementing policies and procedures reasonably designed to prevent the research analyst and associated persons of the member with the ability to influence the content of research reports from directly or indirectly receiving information from the affiliate as to whether the affiliate received such compensation. However, a member must disclose receipt of non-investment banking services compensation by its affiliates from the subject company in the past 12 months when the research analyst or an associated person with the ability to influence the content of a research report has actual knowledge that an affiliate received such compensation during that time period.

              .05 Submission of Sections of a Draft Research Reports for Factual Review. Consistent with the requirements of paragraphs (b)(2)(A) and (b)(2)(N), sections of a draft research report may be provided to non-investment banking personnel or to the subject company for factual review so long as:

              (a) the sections of the report submitted do not contain the research summary, the research rating or the price target;
              (b) a complete draft of the report is provided to legal or compliance personnel before sections of the report are submitted to non-investment banking personnel or the subject company; and
              (c) if, after submitting sections of the report to non-investment banking personnel or the subject company, the research department intends to change the proposed rating or price target, it must first provide written justification to, and receive written authorization from, legal or compliance personnel for the change. The member must retain copies of any draft and the final version of such report for three years after publication.

              .06 Beneficial Ownership of Equity Securities. With respect to paragraphs (c)(4)(F) and (d)(1)(B), beneficial ownership of any class of common equity securities shall be computed in accordance with the same standards used to compute ownership for purposes of the reporting requirements under Section 13(d) of the Exchange Act.

              .07 Distribution of Member Research Products. With respect to paragraph (g), a member may provide different research products and services to different classes of customers. For example, a member may offer one research product for those with a long-term investment horizon ("investor research") and a different research product for those customers with a short-term investment horizon ("trading research"). These products may lead to different recommendations or ratings, provided that each is consistent with the meaning of the member's ratings system for each respective product. However, a member may not differentiate a research product based on the timing of receipt of a recommendation, rating or other potentially market moving information, nor may a member label a research product with substantially the same content as a different product as a means to allow certain customers to trade in advance of other customers. In addition, a member that provides different research products and services for different customers must inform its other customers that its alternative research products and services may reach different conclusions or recommendations that could impact the price of the equity security. Thus, for example, a member that offers trading research must inform its investment research customers that its trading research product may contain different recommendations or ratings that could result in short-term price movements contrary to the recommendation in its investment research.

              .08 Ability to Influence the Content of a Research Report. For the purposes of this Rule, an associated person with the ability to influence the content of a research report is an associated person who is required to review the content of the research report or has exercised authority to review or change the research report prior to publication or distribution. This term does not include legal or compliance personnel who may review a research report for compliance purposes but are not authorized to dictate a particular recommendation, rating or price target.

              .09 Obligations of Persons Associated with a Member. Consistent with Rule 0140, persons associated with a member must comply with such member's written policies and procedures as established pursuant to this Rule 2241. In addition, consistent with Rule 0140, it shall be a violation of this Rule for an associated person to engage in the restricted or prohibited conduct to be addressed through the establishment, maintenance and enforcement of policies and procedures required by this Rule or related Supplementary Material.

              .10 Divesting Research Analyst Holdings. With respect to paragraph (b)(2)(J)(ii), FINRA shall not consider a research analyst account to have traded in a manner inconsistent with a research analyst's recommendation where a member has instituted a policy that prohibits any research analyst from holding securities, or options on or derivatives of such securities, of the companies in the research analyst's coverage universe; provided that the member establishes a reasonable plan to liquidate such holdings consistent with the principles in paragraph (b)(2)(J)(i) and such plan is approved by the member's legal or compliance department.

              Adopted by SR-FINRA-2014-047 eff. Sept. 25, 2015 and Dec. 24, 2015.

              Selected Notice: 15-30.

            • 2242. Debt Research Analysts and Debt Research Reports

              (a) Definitions
              For purposes of this Rule, the following terms shall be defined as provided.
              (1) "Debt research analyst" means an associated person who is primarily responsible for, and any associated person who reports directly or indirectly to a debt research analyst in connection with, the preparation of the substance of a debt research report, whether or not any such person has the job title of "research analyst."
              (2) "Debt research analyst account" means any account in which a debt research analyst or member of the debt research analyst's household has a financial interest, or over which such analyst has discretion or control. This term shall not include an investment company registered under the Investment Company Act over which the debt research analyst or a member of the debt research analyst's household has discretion or control, provided that the debt research analyst or member of a debt research analyst's household has no financial interest in such investment company, other than a performance or management fee. The term also shall not include a "blind trust" account that is controlled by a person other than the debt research analyst or member of the debt research analyst's household where neither the debt research analyst nor a member of the debt research analyst's household knows of the account's investments or investment transactions.
              (3) "Debt research report" means any written (including electronic) communication that includes an analysis of a debt security or an issuer of a debt security and that provides information reasonably sufficient upon which to base an investment decision, excluding communications that solely constitute an equity research report as defined in Rule 2241(a)(11). In general, this term shall not include:
              (A) communications that are limited to the following, if they do not include an analysis of, or recommend or rate, individual debt securities or issuers:
              (i) discussions of broad-based indices;
              (ii) commentaries on economic, political or market conditions;
              (iii) commentaries on or analyses of particular types of debt securities or characteristics of debt securities;
              (iv) technical analyses concerning the demand and supply for a sector, index or industry based on trading volume and price;
              (v) recommendations regarding increasing or decreasing holdings in particular industries or sectors or types of debt securities; or
              (vi) notices of ratings or price target changes, provided that the member simultaneously directs the readers of the notice to the most recent debt research report on the subject company that includes all current applicable disclosures required by this Rule and that such debt research report does not contain materially misleading disclosure, including disclosures that are outdated or no longer applicable;
              (B) the following communications, even if they include an analysis of an individual debt security or issuer and information reasonably sufficient upon which to base an investment decision:
              (i) statistical summaries of multiple companies' financial data, including listings of current ratings that do not include an analysis of individual companies' data;
              (ii) an analysis prepared for a specific person or a limited group of fewer than 15 persons;
              (iii) periodic reports or other communications prepared for investment company shareholders or discretionary investment account clients that discuss individual debt securities in the context of a fund's or account's past performance or the basis for previously made discretionary investment decisions; or
              (iv) internal communications that are not given to current or prospective customers;
              (C) communications that constitute statutory prospectuses that are filed as part of the registration statement; and
              (D) communications that constitute private placement memoranda and comparable offering-related documents prepared in connection with investment banking services transactions, other than those that purport to be research.
              (4) "Debt security" means any "security" as defined in Section 3(a)(10) of the Exchange Act, except for any "equity security" as defined in Section 3(a)(11) of the Exchange Act, any "municipal security" as defined in Section 3(a)(29) of the Exchange Act, any "security-based swap" as defined in Section 3(a)(68) of the Exchange Act, and any "U.S. Treasury Security" as defined in paragraph (p) of Rule 6710.
              (5) "Debt trader" means a person, with respect to transactions in debt securities, who is engaged in proprietary trading or the execution of transactions on an agency basis.
              (6) "Independent third-party debt research report" means a third-party debt research report, in respect of which the person producing the report:
              (A) has no affiliation or business or contractual relationship with the distributing member or that member's affiliates that is reasonably likely to inform the content of its research reports; and
              (B) makes content determinations without any input from the distributing member or that member's affiliates.
              (7) "Institutional investor" means any person that satisfies the requirements of paragraph (j)(1)(A) or (B) of this Rule.
              (8) "Investment banking department" means any department or division, whether or not identified as such, that performs any investment banking service on behalf of a member.
              (9) "Investment banking services" include, without limitation, acting as an underwriter, participating in a selling group in an offering for the issuer or otherwise acting in furtherance of a public offering of the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital or equity lines of credit or serving as placement agent for the issuer or otherwise acting in furtherance of a private offering of the issuer.
              (10) "Member of a debt research analyst's household" means any individual whose principal residence is the same as the debt research analyst's principal residence. This term shall not include an unrelated person who shares the same residence as a debt research analyst, provided that the debt research analyst and unrelated person are financially independent of one another.
              (11) "Public appearance" means any participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons or before one or more representatives of the media, a radio, television or print media interview, or the writing of a print media article, in which a debt research analyst makes a recommendation or offers an opinion concerning a debt security or an issuer of a debt security. This term shall not include a password protected Webcast, conference call or similar event with 15 or more existing customers, provided that all of the event participants previously received the most current debt research report or other documentation that contains the required applicable disclosures, and that the debt research analyst appearing at the event corrects and updates during the event any disclosures in the debt research report that are inaccurate, misleading or no longer applicable.
              (12) "Qualified institutional buyer" has the same meaning as under Rule 144A of the Securities Act.
              (13) "Retail investor" means any person other than an institutional investor.
              (14) "Research department" means any department or division, whether or not identified as such, that is principally responsible for preparing the substance of a debt research report on behalf of a member.
              (15) "Sales and trading personnel" includes persons in any department or division, whether or not identified as such, who perform any sales or trading service on behalf of a member.
              (16) "Subject company" means the issuer whose debt securities are the subject of a debt research report or a public appearance.
              (17) "Third-party debt research report" means a debt research report that is produced by a person or entity other than the member.
              (b) Identifying and Managing Conflicts of Interest
              (1) A member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to:
              (A) the preparation, content and distribution of debt research reports;
              (B) public appearances by debt research analysts; and
              (C) the interaction between debt research analysts and those outside of the research department, including investment banking department personnel, sales and trading personnel, principal trading personnel, subject companies and customers;
              (2) A member's written policies and procedures must be reasonably designed to promote objective and reliable debt research that reflects the truly held opinions of debt research analysts and to prevent the use of debt research reports or debt research analysts to manipulate or condition the market or favor the interests of the member or a current or prospective customer or class of customers. Such policies and procedures must:
              (A) prohibit prepublication review, clearance or approval of debt research reports by:
              (i) investment banking personnel;
              (ii) principal trading personnel; and
              (iii) sales and trading personnel;
              (B) restrict or prohibit prepublication review, clearance or approval of debt research reports by other persons not directly responsible for the preparation, content and distribution of debt research reports, other than legal and compliance personnel;
              (C) restrict or limit input by investment banking department, sales and trading and principal trading personnel into debt research coverage decisions to ensure that research management independently makes all final decisions regarding the research coverage plan;
              (D) limit supervision of a debt research analyst to persons not engaged in:
              (i) investment banking services transactions (such persons shall also be precluded from input into the compensation of debt research analysts);
              (ii) principal trading activities (such persons shall also be precluded from input into the compensation of debt research analysts); or
              (iii) sales and trading;
              (E) limit determination of the debt research department budget to senior management, excluding senior management engaged in investment banking services or principal trading activities, and without regard to specific revenues or results derived from investment banking. Revenues and results of the firm as a whole, however, may be considered in determining the debt research department budget and allocation of debt research department expenses. Nothing in this provision shall require a member to prohibit any personnel from providing to senior management input regarding the demand for and quality of debt research, including product trends and customer interests;
              (F) prohibit compensation based upon specific investment banking services or specific trading transactions or contributions to a member's investment banking services or principal trading activities;
              (G) require that the compensation of a debt research analyst who is primarily responsible for the substance of a research report be reviewed and approved at least annually by a committee that reports to a member's board of directors, or if the member has no board of directors, a senior executive officer of the member. This committee may not have representation from investment banking personnel or persons engaged in principal trading activities and must consider the following factors when reviewing a debt research analyst's compensation, if applicable:
              (i) the debt research analyst's individual performance, including the analyst's productivity and the quality of the debt research analyst's research; and
              (ii) the overall ratings received from customers and peers (independent of the member's investment banking department and persons engaged in principal trading activities) and other independent ratings services.
              Sales and trading personnel, but not personnel engaged in principal trading activities, may provide input to debt research management into the evaluation of the debt research analyst in order to convey customer feedback; provided, however, that final compensation determinations must be made by research management, subject to review and approval by the committee described in this subparagraph (G).
              The committee must document the basis upon which each such research analyst's compensation was established, including any input from sales and trading;
              (H) establish information barriers or other institutional safeguards reasonably designed to ensure that debt research analysts are insulated from the review, pressure or oversight by persons engaged in:
              (i) investment banking services;
              (ii) principal trading or sales and trading activities; and
              (iii) other persons who might be biased in their judgment or supervision;
              (I) prohibit direct or indirect retaliation or threat of retaliation against debt research analysts by any employee of the member as the result of an adverse, negative, or otherwise unfavorable debt research report or public appearance written or made by the debt research analyst that may adversely affect the member's present or prospective business interests;
              (J) restrict or limit debt research analyst account trading in securities, any derivatives of such securities and any fund whose performance is materially dependent upon the performance of securities covered by the debt research analyst, including:
              (i) ensuring that debt research analyst accounts, supervisors of debt research analysts and associated persons with the ability to influence the content of debt research reports do not benefit in their trading from knowledge of the content or timing of a debt research report before the intended recipients of such debt research have had a reasonable opportunity to act on the information in the debt research report; and
              (ii) providing that no debt research analyst account may purchase or sell any security or any option on or derivative of such security in a manner inconsistent with the research analyst's recommendation as reflected in the most recent debt research report published by the member, and defining financial hardship circumstances, if any (e.g., unanticipated significant change in the personal financial circumstances of the beneficial owner of the research analyst account), in which the member will permit a debt research analyst account to trade in a manner inconsistent with such research analyst's most recently published recommendation;
              (K) prohibit explicit or implicit promises of favorable debt research, a particular debt research rating or recommendation or specific debt research content as inducement for the receipt of business or compensation;
              (L) restrict or limit activities by debt research analysts that can reasonably be expected to compromise their objectivity, including prohibiting:
              (i) participation in pitches and other solicitations of investment banking services transactions; and
              (ii) participation in road shows and other marketing on behalf of an issuer related to an investment banking services transaction;
              (M) prohibit investment banking department personnel from directly or indirectly:
              (i) directing a debt research analyst to engage in sales or marketing efforts related to an investment banking services transaction; and
              (ii) directing a debt research analyst to engage in any communication with a current or prospective customer about an investment banking services transaction;
              (N) prohibit prepublication review of a debt research report by a subject company for purposes other than verification of facts.
              (c) Content and Disclosure in Debt Research Reports
              (1) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that:
              (A) purported facts in its debt research reports are based on reliable information; and
              (B) any recommendation or rating has a reasonable basis and is accompanied by a clear explanation of any valuation method used and a fair presentation of the risks that may impede achievement of the recommendation or rating.
              (2) A member that employs a rating system must clearly define in each debt research report the meaning of each rating in the system, including the time horizon and any benchmarks on which a rating is based. The definition of each rating must be consistent with its plain meaning.
              (A) Irrespective of the rating system a member employs, a member must include in each debt research report limited to the analysis of an issuer of a debt security that includes a rating of the subject company the percentage of all subject companies rated by the member to which the member would assign a "buy," "hold" or "sell" rating.
              (B) A member must disclose in each debt research report the percentage of subject companies within each of the "buy," "hold" and "sell" categories for which the member has provided investment banking services within the previous 12 months.
              (C) The information required in paragraphs (c)(2)(A) and (B) of this Rule must be current as of the end of the most recent calendar quarter or the second most recent calendar quarter if the publication date of the debt research report is less than 15 calendar days after the most recent calendar quarter.
              (3) If a debt research report limited to the analysis of an issuer of a debt security contains a rating for the subject company, and the member has assigned a rating to such subject company for at least one year, the debt research report must show each date on which a member has assigned a rating and the rating assigned on such date. The member must include this information for the period that the member has assigned any rating or for a three-year period, whichever is shorter.
              (4) A member must disclose in any debt research report at the time of publication or distribution of the report:
              (A) if the debt research analyst or a member of the debt research analyst's household has a financial interest in the debt or equity securities of the subject company (including, without limitation, any option, right, warrant, future, long or short position), and the nature of such interest;
              (B) if the debt research analyst has received compensation based upon (among other factors) the member's investment banking, sales and trading or principal trading revenues;
              (C) if the member or any of its affiliates:
              (i) managed or co-managed a public offering of securities for the subject company in the past 12 months;
              (ii) received compensation for investment banking services from the subject company in the past 12 months; or
              (iii) expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months;
              (D) if, as of the end of the month immediately preceding the date of publication or distribution of a debt research report (or the end of the second most recent month if the publication date is less than 30 calendar days after the end of the most recent month) the member or its affiliates have received from the subject company any compensation for products or services other than investment banking services in the previous 12 months;
              (E) if the subject company is, or over the 12-month period preceding the date of publication or distribution of the debt research report has been, a client of the member, and if so, the types of services provided to the issuer. Such services, if applicable, shall be identified as either investment banking services, non-investment banking securities-related services or non-securities services;
              (F) if the member trades or may trade as principal in the debt securities (or in related derivatives) that are the subject of the debt research report;
              (G) if the debt research analyst received any compensation from the subject company in the previous 12 months; and
              (H) any other material conflict of interest of the debt research analyst or member that the debt research analyst or an associated person of the member with the ability to influence the content of a debt research report knows or has reason to know at the time of the publication or distribution of a debt research report.
              (5) A member or debt research analyst will not be required to make a disclosure required by paragraph (c)(4) of this Rule to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking transactions.
              (6) Except as provided in subparagraph (7), the disclosures required by this paragraph (c) must be presented on the front page of debt research reports or the front page must refer to the page on which the disclosures are found. Electronic debt research reports may provide a hyperlink directly to the required disclosures. All disclosures and references to disclosures required by this Rule must be clear, comprehensive and prominent.
              (7) A member that distributes a debt research report covering six or more subject companies (a "compendium report") may direct the reader in a clear manner as to where the reader may obtain applicable current disclosures required by this paragraph (c). Electronic compendium reports must include a hyperlink to the required disclosures. Paper-based compendium reports must provide either a toll-free number to call or a postal address to request the required disclosures and also may include a web address of the member where the disclosures can be found.
              (d) Disclosure in Public Appearances
              (1) A debt research analyst must disclose in public appearances:
              (A) if the debt research analyst or a member of the debt research analyst's household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
              (B) if, to the extent the debt research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
              (C) if the debt research analyst received any compensation from the subject company in the previous 12 months;
              (D) if, to the extent the debt research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the debt research report, was, a client of the member. In such cases, the debt research analyst also must disclose the types of services provided to the subject company, if known by the debt research analyst; or
              (E) any other material conflict of interest of the debt research analyst or member that the debt research analyst knows or has reason to know at the time of the public appearance.
              (2) A member or debt research analyst will not be required to make a disclosure required by this paragraph (d) to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking transactions.
              (3) Members must maintain records of public appearances by debt research analysts sufficient to demonstrate compliance by those debt research analysts with the applicable disclosure requirements in this paragraph (d). Such records must be maintained for at least three years from the date of the public appearance.
              (e) Disclosure Required by Other Provisions
              In addition to the disclosures required by paragraphs (c) and (d) of this Rule, members and debt research analysts must comply with all applicable disclosure provisions of Rule 2210 and the federal securities laws.
              (f) Distribution of Member Research Reports
              A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that a debt research report is not distributed selectively to trading personnel or a particular customer or class of customers in advance of other customers that the member has previously determined are entitled to receive the debt research report.
              (g) Distribution of Third-Party Debt Research Reports
              (1) A member may not distribute third-party debt research if it knows or has reason to know such research is not objective or reliable.
              (2) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that any third-party debt research report it distributes contains no untrue statement of material fact and is otherwise not false or misleading. For the purposes of this paragraph (g)(2) only, a member's obligation to review a third-party debt research report extends to any untrue statement of material fact or any false or misleading information that:
              (A) should be known from reading the debt research report; or
              (B) is known based on information otherwise possessed by the member.
              (3) A member must accompany any third-party debt research report it distributes with, or provide a web address that directs a recipient to, disclosure of any material conflict of interest that can reasonably be expected to have influenced the choice of a third-party debt research report provider or the subject company of a third-party debt research report, including the disclosures required by paragraphs (c)(4)(C), (c)(4)(F) and (c)(4)(H) of this Rule.
              (4) A member shall not be required to review a third-party debt research report to determine compliance with paragraph (g)(2) of this Rule if such debt research report is an independent third-party debt research report.
              (5) A member shall not be considered to have distributed a third-party debt research report for the purposes of paragraph (g)(3) where the research is an independent third-party debt research report and made available by a member (a) upon request; (b) through a member-maintained website; or (c) to a customer in connection with a solicited order in which the registered representative has informed the customer, during the solicitation, of the availability of independent debt research on the solicited debt security and the customer requests such independent debt research.
              (6) A member must ensure that a third-party debt research report is clearly labeled as such and that there is no confusion on the part of the recipient as to the person or entity that prepared the debt research report.
              (h) Exemption for Members with Limited Investment Banking Activity
              The provisions of paragraphs (b)(2)(A)(i), (b)(2)(B), (b)(2)(C) (with respect to investment banking), (b)(2)(D)(i), (b)(2)(E) (with respect to investment banking), (b)(2)(G) and (b)(2)(H)(i) and (iii) of this Rule shall not apply to members that over the previous three years, on average per year, have participated in 10 or fewer investment banking services transactions as manager or co-manager and generated $5 million or less in gross investment banking revenues from those transactions; provided, however, that with respect to paragraph (b)(2)(H)(i) and (iii) of this Rule, such members must establish information barriers or other institutional safeguards reasonably designed to ensure debt research analysts are insulated from pressure by persons engaged in investment banking services activities or other persons, including persons engaged in principal trading or sales and trading activities, who might be biased in their judgment or supervision. For the purposes of this paragraph (h), the term "investment banking services transactions" includes the underwriting of both corporate debt and equity securities but not municipal securities. Members that qualify for this exemption must maintain records sufficient to establish eligibility for the exemption and also maintain for at least three years any communication that, but for this exemption, would be subject to paragraphs (b)(2)(A)(i), (b)(2)(B), (b)(2)(C), (b)(2)(D)(i), (b)(2)(E), (b)(2)(G) and (b)(2)(H)(i) and (iii) of this Rule.
              (i) Exemption for Limited Principal Trading Activity
              The provisions of paragraphs (b)(2)(A)(ii) and (iii), (b)(2)(B), (b)(2)(C) (with respect to sales and trading and principal trading), (b)(2)(D)(ii) and (iii), (b)(2)(E) (with respect to principal trading), (b)(2)(G) and (b)(2)(H)(ii) and (iii) of this Rule shall not apply to members where (1) in absolute value on an annual basis, the member's trading gains or losses on principal trades in debt securities are $15 million or less over the previous three years, on average per year; and (2) the member employs fewer than 10 debt traders; provided, however, that with respect to paragraph (b)(2)(H)(ii) and (iii) of this Rule, such members must establish information barriers or other institutional safeguards reasonably designed to ensure debt research analysts are insulated from pressure by persons engaged in principal trading or sales and trading activities or other persons who might be biased in their judgment or supervision. Members that qualify for this exemption must maintain records sufficient to establish eligibility for the exemption and also maintain for at least three years any communication that, but for this exemption, would be subject to paragraphs (b)(2)(A)(ii) and (iii), (b)(2)(B), (b)(2)(C), (b)(2)(D)(ii) and (iii), (b)(2)(E), (b)(2)(G) and (b)(2)(H)(ii) and (iii) of this Rule.
              (j) Exemption for Debt Research Reports Provided to Institutional Investors
              (1) Except as provided in paragraphs (j)(2) and (j)(3) of this Rule, the provisions of this Rule shall not apply to the distribution of a debt research report to:
              (A) A qualified institutional buyer where, pursuant to Rule 2111(b):
              (i) the member or associated person has a reasonable basis to believe that the qualified institutional buyer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a debt security or debt securities; and
              (ii) such qualified institutional buyer has affirmatively indicated that it is exercising independent judgment in evaluating the member's recommendations pursuant to Rule 2111 and such affirmation covers transactions in debt securities; so long as the member has provided written disclosure to the qualified institutional buyer that the member may provide debt research reports that are intended for institutional investors and that are not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. If the qualified institutional buyer does not contact the member to request that such institutional debt research not be provided, the member may reasonably conclude that the qualified institutional buyer has consented to receiving debt institutional research reports; or
              (B) a person that meets the definition of "institutional account" in Rule 4512(c); provided that such person, prior to receipt of a debt research report, has affirmatively notified the member in writing that it wishes to receive institutional debt research and forego treatment as a retail investor for the purposes of this Rule.
              (2) Notwithstanding paragraph (j)(1) of this Rule, a member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest described in paragraphs (b)(2)(A)(i), (b)(2)(H) (with respect to pressuring), (b)(2)(I), (b)(2)(K), (b)(2)(L), (b)(2)(M), (b)(2)(N) and Supplementary Material .02(a) of this Rule.
              (3) Notwithstanding paragraph (j)(1) of this Rule, a member that distributes third-party debt research reports to institutional investors pursuant to this exemption must establish, maintain and enforce written policies and procedures reasonably designed to comply with paragraphs (g)(1), (g)(2), (g)(4) and (g)(6) of this Rule.
              (4) Debt research reports provided to institutional investors pursuant to this exemption ("institutional debt research") must disclose prominently on the first page that:
              (A) "This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors."
              (B) If applicable, "The views expressed in this report may differ from the views offered in [Firm's] debt research reports prepared for retail investors."
              (C) If applicable, "This report may not be independent of [Firm's] proprietary interests. [Firm] trades the securities covered in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to the recommendation(s) offered in this report."
              (5) Notwithstanding paragraph (j)(4) of this Rule, a member that distributes third-party debt research reports to institutional investors pursuant to this exemption must disclose prominently the disclosures required by paragraphs (j)(4)(A) and (j)(4)(C) of this Rule.
              (6) A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that institutional debt research is made available only to eligible institutional investors. A member may not rely on this exemption with respect to a debt research report that the member has reason to believe will be redistributed to a retail investor.
              (7) This paragraph (j) does not relieve a member of its obligations to comply with the antifraud provisions of the federal securities laws and FINRA rules.
              (k) Exemption for Good Cause
              Pursuant to the Rule 9600 Series, FINRA may in exceptional and unusual circumstances, conditionally or unconditionally grant an exemption from any requirement of this Rule for good cause shown after taking into account all relevant factors, to the extent such exemption is consistent with the purposes of the Rule, the protection of investors, and the public interest.

              • • • Supplementary Material: --------------

              .01 Efforts to Solicit Investment Banking Business. FINRA interprets paragraph (b)(2)(L)(i) of this Rule to prohibit in pitch materials any information about a member's debt research capacity in a manner that suggests, directly or indirectly, that the member might provide favorable debt research coverage. For example, FINRA would consider the publication in a pitch book or related materials of an analyst's industry ranking to imply the potential outcome of future research because of the manner in which such rankings are compiled. On the other hand, a member would be permitted to include in the pitch materials the fact of coverage and the name of the debt research analyst because such information alone does not imply favorable coverage. Members must consider whether the facts and circumstances of any solicitation or engagement would warrant disclosure under Section 17(b) of the Securities Act.

              .02 Restrictions on Communications with Customers and Internal Personnel

              (a) Consistent with the requirements of paragraph (b)(2)(M) of this Rule, no debt research analyst may engage in any communication with a current or prospective customer in the presence of investment banking department personnel or company management about an investment banking services transaction.
              (b) FINRA interprets paragraph (b)(1)(C) of this Rule to, among other things, require that any written or oral communication by a debt research analyst with a current or prospective customer or internal personnel related to an investment banking services transaction must be fair, balanced and not misleading, taking into consideration the overall context in which the communication is made.

              .03 Information Barriers between Research Analysts and Trading Desk Personnel

              (a) FINRA interprets paragraph (b)(1)(C) of this Rule to, among other things, require members to establish, maintain and enforce written policies and procedures reasonably designed to prohibit:
              (1) Sales and trading and principal trading personnel attempting to influence a debt research analyst's opinion or views for the purpose of benefiting the trading position of the firm, a customer or a class of customers; and
              (2) Debt research analysts identifying or recommending specific potential trading transactions to sales and trading or principal trading personnel that are inconsistent with such debt research analyst's currently published debt research reports, or disclosing the timing of, or material investment conclusions in, a pending debt research report.
              (b) The following communications between debt research analysts and sales and trading or principal trading personnel are permitted:
              (1) Sales and trading and principal trading personnel may communicate customers' interests to a debt research analyst, so long as the debt research analyst does not respond by publishing debt research for the purpose of benefiting the trading position of the firm, a customer or a class of customers;
              (2) Debt research analysts may provide customized analysis, recommendations or trade ideas to sales and trading and principal trading personnel and customers, provided that any such communications are not inconsistent with the analyst's currently published or pending debt research, and that any subsequently published debt research is not for the purpose of benefiting the trading position of the firm, a customer or a class of customers;
              (3) Sales and trading and principal trading personnel may seek the views of debt research analysts regarding the creditworthiness of the issuer of a debt security and other information regarding an issuer of a debt security that is reasonably related to the price/performance of the debt security, so long as, with respect to any covered issuer, such information is consistent with the debt research analyst's published debt research report and consistent in nature with the types of communications that a debt research analyst might have with customers. In determining what is consistent with the debt research analyst's published debt research, a member may consider the context, including that the investment objectives or time horizons being discussed differ from those underlying the debt research analyst's published views; and
              (4) Debt research analysts may seek information from sales and trading and principal trading personnel regarding a particular bond instrument, current prices, spreads, liquidity and similar market information relevant to the debt research analyst's valuation of a particular debt security.
              (c) Communications between debt research analysts and sales and trading or principal trading personnel that are not related to sales and trading, principal trading or debt research activities may take place without restriction, unless otherwise prohibited.

              .04 Disclosure of Compensation Received by Affiliates. A member may satisfy the disclosure requirement in paragraph (c)(4)(D) of this Rule with respect to receipt of non-investment banking services compensation by an affiliate by implementing written policies and procedures reasonably designed to prevent the debt research analyst and associated persons of the member with the ability to influence the content of debt research reports from directly or indirectly receiving information from the affiliate as to whether the affiliate received such compensation. In addition, a member may satisfy the disclosure requirement in paragraph (c)(4)(C) of this Rule with respect to the receipt of investment banking compensation from a foreign sovereign by a non-U.S. affiliate of the member by implementing written policies and procedures reasonably designed to prevent the debt research analyst and associated persons of the member with the ability to influence the content of debt research reports from directly or indirectly receiving information from the non-U.S. affiliate as to whether such non-U.S. affiliate received or expects to receive such compensation from the foreign sovereign. However, a member must disclose compensation received by its affiliates from the subject company (including any foreign sovereign) in the past 12 months when the debt research analyst or an associated person with the ability to influence the content of a debt research report has actual knowledge that an affiliate received such compensation during that time period.

              .05 Submission of Sections of a Draft Research Report for Factual Review.

              Consistent with the requirements of paragraphs (b)(2)(B) and (N) of this Rule, sections of a draft debt research report may be provided to non-investment banking personnel, non-principal trading personnel, non-sales and trading personnel or to the subject company for factual review, if:

              (a) the sections of the draft debt research report submitted do not contain the research summary, recommendation or rating;
              (b) a complete draft of the debt research report is provided to legal or compliance personnel before sections of the report are submitted to non-investment banking personnel, non-principal trading personnel, non-sales and trading personnel or the subject company; and
              (c) if, after submitting sections of the draft debt research report to non-investment banking personnel, non-principal trading personnel, non-sales and trading personnel or the subject company, the research department intends to change the proposed rating or recommendation, it must first provide written justification to, and receive written authorization from, legal or compliance personnel for the change. The member must retain copies of any draft and the final version of such debt research report for three years after publication.

              .06 Distribution of Member Research Products. With respect to paragraph (f) of this Rule, a member may provide different debt research products and services to different classes of customers. For example, a member may offer one debt research product for those with a long-term investment horizon ("investor research") and a different debt research product for those customers with a short-term investment horizon ("trading research"). These products may lead to different recommendations or ratings, provided that each is consistent with the meaning of the member's ratings system for each respective product. However, a member may not differentiate a debt research product based on the timing of receipt of a recommendation, rating or other potentially market moving information, nor may a member label a debt research product with substantially the same content as a different debt research product as a means to allow certain customers to trade in advance of other customers. In addition, a member that provides different debt research products and services for different customers must inform its other customers that receive a research product that its alternative debt research products and services may reach different conclusions or recommendations that could impact the price of the debt security. Thus, for example, a member that offers trading research must inform its investment research customers that its trading research product may contain different recommendations or ratings that could result in short-term price movements contrary to the recommendation in its investment research.

              .07 Ability to Influence the Content of a Debt Research Report. For the purposes of this Rule, an associated person with the ability to influence the content of a debt research report is an associated person who is required to review the content of the debt research report or has exercised authority to review or change the debt research report prior to publication or distribution. This term does not include legal or compliance personnel who may review a debt research report for compliance purposes but are not authorized to dictate a particular recommendation or rating.

              .08 Obligations of Persons Associated with a Member. Consistent with Rule 0140, persons associated with a member must comply with such member's written policies and procedures as established pursuant to this Rule. In addition, consistent with Rule 0140, it shall be a violation of this Rule for an associated person to engage in the restricted or prohibited conduct to be addressed through the establishment, maintenance and enforcement of written policies and procedures required by this Rule or related Supplementary Material.

              .09 Joint Due Diligence. FINRA interprets paragraph (b)(1)(C) to prohibit the performance of joint due diligence (i.e., confirming the adequacy of disclosure in offering or other disclosure documents for a transaction) by the debt research analyst in the presence of investment banking department personnel prior to the selection by the issuer of the underwriters for the investment banking services transaction.

              .10 Divesting Research Analyst Holdings. With respect to paragraph (b)(2)(J)(ii), FINRA shall not consider a research analyst account to have traded in a manner inconsistent with a research analyst's recommendation where a member has instituted a policy that prohibits any research analyst from holding securities, or options on or derivatives of such securities, of the companies in the research analyst's coverage universe; provided that the member establishes a reasonable plan to liquidate such holdings consistent with the principles in paragraph (b)(2)(J)(i) and such plan is approved by the member's legal or compliance department.

              .11 Distribution of Institutional Debt Research During Transition Period. A member may distribute institutional debt research to any person that meets the definition of "institutional account" in Rule 4512(c), other than a natural person, for a period of up to one-year after July 16, 2015 ("the transition period"). After the transition period, a member must have obtained the necessary consent in either paragraph (j)(1)(A) or (j)(1)(B) to distribute institutional debt research to a person. Natural persons that qualify as an institutional account under Rule 4512(c) must provide affirmative written consent to receive institutional debt research during the year transition period and thereafter. This Supplementary Material .11 shall automatically sunset at the end of the transition period.

              .12 Distribution of Institutional Debt Research to Non-U.S. Investors. The requirements of paragraphs (j)(1)(A) and (B) of this Rule shall not apply to the distribution of an institutional debt research report by a non-U.S. affiliate of a member to a non-U.S. investor, provided that:

              (a) The non-U.S. investor is not a customer of the member;
              (b) The non-U.S. investor is a customer of the non-U.S. affiliate of the member; and
              (c) The non-U.S. affiliate of the member has a reasonable basis to believe that the customer meets the definition of “institutional account” in Rule 4512(c).

              .13 Distribution of Institutional Debt Research for Informational Purposes

              (a) A member may distribute institutional debt research reports to the persons described in paragraph (c) of this Supplementary Material .13 for informational purposes unrelated to investing in debt securities, provided that the member does not distribute the reports prior to their publication and the member has disclosed that:
              (1) The member may provide the recipient debt research reports that were prepared for institutional investors and are not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors; and
              (2) The institutional debt research reports would be provided only for informational purposes and not for the purpose of making an investment decision related to debt securities.
              (b) If the person receiving institutional debt research pursuant to this Supplementary Material .13 does not contact the member to request that such institutional debt research not be provided, the member may reasonably conclude that the person has consented to receiving debt institutional research according to the terms of this Supplementary Material .13.
              (c) Institutional debt research may be distributed for informational purposes unrelated to investing in debt securities pursuant to this Supplementary Material .13 to:
              (1) Regulators for regulatory purposes;
              (2) Academics for academic purposes;
              (3) Issuers for the purpose of enhancing knowledge of their industry and competitors and market and economic factors; and
              (4) Media organizations for news gathering purposes.

              .14 Public Appearances by Research Analysts. A member or debt research analyst will not be required to make a disclosure required by paragraph (d) of this Rule where attendance at the public appearance is limited to institutional investors eligible to receive institutional debt research pursuant to paragraph (j) of this Rule. Members must maintain records of public appearances by debt research analysts sufficient to demonstrate that attendance at the public appearance was limited to institutional investors eligible to receive institutional debt research pursuant to paragraph (j) of this Rule. Such records must be maintained for at least three years from the date of the public appearance.

              Amended by SR-FINRA-2016-017 eff. July 16, 2016;
              Adopted by SR-FINRA-2014-048, SR-FINRA-2016-008, and SR-FINRA-2016-013 eff. July 16, 2016.

              Selected Notice: 15-31

          • 2250. Proxy Materials

            • 2251. Processing and Forwarding of Proxy and Other Issuer-Related Materials

              (a) A member shall process and forward promptly all information as required by this Rule and applicable SEC rules regarding a security to the beneficial owner (or the beneficial owner's designated investment adviser) if the member carries the account in which the security is held for the beneficial owner and the security is registered in a name other than the name of the beneficial owner.
              (1) Equity Securities
              For an equity security, the member, subject to paragraph (e) of this Rule and applicable SEC rules, shall process and forward:
              (A) all proxy material, as provided in paragraph (c) of this Rule, that is furnished to the member by the issuer of the securities or a stockholder of such issuer; and
              (B) all annual reports, information statements and other material sent to stockholders that are furnished to the member by the issuer of the securities.
              (2) Debt Securities
              For a debt security other than a municipal security, the member, subject to paragraph (e) of this Rule and applicable SEC rules, shall make reasonable efforts to process and forward any communication, document, or collection of documents pertaining to the issue that:
              (A) was prepared by or on behalf of, the issuer, or was prepared by or on behalf of, the trustee of the specific issue of the security; and
              (B) contains material information about such issue including, but not limited to, notices concerning monetary or technical defaults, financial reports, information statements, and material event notices.
              (b) No member shall give a proxy to vote stock that is registered in its name, except as required or permitted under the provisions of paragraphs (c) or (d) of this Rule, unless such member is the beneficial owner of such stock.
              (c)(1) Whenever an issuer or stockholder of such issuer soliciting proxies shall, subject to paragraph (e) of this Rule and applicable SEC rules, timely furnish to a member:
              (A) sufficient copies of all soliciting material that such person is sending to registered holders, and
              (B) satisfactory assurance that he or she will reimburse such member for all out-of-pocket expenses, including reasonable clerical expenses incurred by such member in connection with such solicitation, such member shall process and transmit promptly to each beneficial owner of stock of such issuer (or the beneficial owner's designated investment adviser) that is in its possession or control and registered in a name other than the name of the beneficial owner, all such material furnished. Such material shall include a signed proxy indicating the number of shares held for such beneficial owner and bearing a symbol identifying the proxy with proxy records maintained by the member, and a letter informing the beneficial owner (or the beneficial owner's designated investment adviser) of the time limit and necessity for completing the proxy form and processing and forwarding it to the person soliciting proxies prior to the expiration of the time limit in order for the shares to be represented at the meeting. A member shall furnish a copy of the symbols to the person soliciting the proxies and shall also retain a copy thereof pursuant to the provisions of SEA Rule 17a-4.
              (2) Notwithstanding the provisions of paragraph (c)(1) of this Rule, a member may give a proxy to vote any stock pursuant to the rules of any national securities exchange of which it is a member provided that the records of the member clearly indicate the procedure it is following.
              (3) This paragraph (c) shall not apply to beneficial owners residing outside of the United States, although members may voluntarily comply with the provisions hereof in respect to such persons if they so desire.
              (d)(1) A member may give a proxy to vote any stock registered in its name if such member holds such stock as executor, administrator, guardian, trustee, or in a similar representative or fiduciary capacity with authority to vote.
              (2) A member that has in its possession or within its control stock registered in the name of another member and that desires to process and transmit signed proxies pur