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  • 1011. Definitions

    Unless otherwise provided, terms used in the Rule 1000 Series shall have the meaning as defined in Rule 0160.
    (a) "Applicant"
    The term "Applicant" means a person that applies for membership in FINRA under Rule 1013 or a member that files an application for approval of a change in ownership, control, or business operations under Rule 1017.
    (b) "Associated Person"
    The term "Associated Person" means: (1) a natural person registered under FINRA rules; or (2) a sole proprietor, or any partner, officer, director, branch manager of the Applicant, or any person occupying a similar status or performing similar functions; (3) any company, government or political subdivision or agency or instrumentality of a government controlled by or controlling the Applicant; (4) any employee of the Applicant, except any person whose functions are solely clerical or ministerial; (5) any person directly or indirectly controlling the Applicant whether or not such person is registered or exempt from registration under the FINRA By-Laws or FINRA rules; (6) any person engaged in investment banking or securities business controlled directly or indirectly by the Applicant whether such person is registered or exempt from registration under the FINRA By-Laws or FINRA rules; or (7) any person who will be or is anticipated to be a person described in (1) through (6) above.
    (c) "Department"
    The term "Department" means the Department of Member Regulation of FINRA.
    (d) "Director"
    The term "Director" means a member of the FINRA Regulation Board.
    (e) "district"
    The term "district" means a district established by the FINRA Regulation Board.
    (f) "district office"
    The term "district office" means an office of FINRA located in a district.
    (g) "FINRA Board"
    The term "FINRA Board" means the Board of Governors of FINRA.
    (h) "FINRA Regulation Board"
    The term "FINRA Regulation Board" means the Board of Directors of FINRA Regulation.
    (i) "Governor"
    The term "Governor" means a member of the FINRA Board.
    (j) "Interested FINRA Staff"
    The term "Interested FINRA Staff" means an employee who directly participates in a decision under Rule 1014 or 1017, an employee who directly supervises an employee with respect to such decision, an employee who conducted an investigation or examination of a member that files an application under Rule 1017, the District Director for the relevant district, and the head of the Department.
    (k) "material change in business operations"
    The term "material change in business operations" includes, but is not limited to:
    (1) removing or modifying a membership agreement restriction;
    (2) market making, underwriting, or acting as a dealer for the first time; and
    (3) adding business activities that require a higher minimum net capital under SEA Rule 15c3-1;
    (l) "principal place of business"
    The term "principal place of business" means the executive office from which the sole proprietor or the officers, partners, or managers of the Applicant direct, control, and coordinate the activities of the Applicant, unless the Department determines that the principal place of business is where: (1) the largest number of Associated Persons of the Applicant are located; or (2) the books and records necessary to provide information and data to operate the business and comply with applicable rules are located.
    (m) "sales practice event"
    The term "sales practice event" means any customer complaint, arbitration, or civil litigation that has been reported to the Central Registration Depository, currently is required to be reported to the Central Registration Depository, or otherwise has been reported to FINRA.
    (n) "Subcommittee"
    The term "Subcommittee" means a subcommittee of the National Adjudicatory Council that is constituted pursuant to Rule 1015 to conduct a review of a Department decision issued under the Rule 1000 Series.
    Amended by SR-FINRA-2019-009 eff. May 8, 2019.
    Amended by SR-FINRA-2008-008 eff. June 26, 2008.
    Amended by SR-NASD-2007-015 eff. May 7, 2007.
    Amended by SR-NASD-2003-07 eff. March 24, 2004.
    Amended by SR-NASD-99-67 eff. Nov. 15, 2000.
    Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
    Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
    Amended by SR-NASD-94-14 eff. July 20, 1994.
    Amended by SR-NASD-91-45 eff. Feb. 1, 1992.
    Adopted by SR-NASD-82-24 eff. July 20, 1984.

    Selected Notice: 04-10, 07-20.

    • IM-1011-1. Safe Harbor for Business Expansions

      This interpretive material concerns the types of business expansions that will not require a member to submit a Rule 1017 application to obtain FINRA's approval of the expansion. This safe harbor applies to: (1) firms that do not have a membership agreement, and (2) firms that have a membership agreement that does not contain a restriction on the factors listed below.
      The safe harbor is not available to a member that has a membership agreement that contains a specific restriction as to one or more of the factors listed below. In that case, the agreement takes precedence because FINRA has determined that a particular restriction should apply as to one or more of the factors, and FINRA has issued a decision with a rationale for that restriction. Similarly, the safe harbor also does not apply if the member has a membership agreement that permits expansion beyond the limits set forth below (e.g., an Applicant requests and obtains approval for 10 registered representatives in the first six months with an additional 10 registered representatives in the next year); in such case, FINRA has specifically considered the firm's expansion plans and approved them.
      The safe harbor is not available to any member that has disciplinary history. For purposes of this Interpretation, "disciplinary history" means a finding of a violation by the member or a principal of the member in the past five years by the SEC, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: violations of the types enumerated in Section 15(b)(4)(E) and Section 15(c) of the Exchange Act; Section 17(a) of the Securities Act; SEA Rules 10b-5 and 15g-1 through 15g-9; FINRA Rules 2010 (only if the finding of a violation is for unauthorized trading, churning, conversion, material misrepresentations or omissions to a customer, frontrunning, trading ahead of research reports or excessive markups), 2020, 2111, 2150, 4330, 3110 (failure to supervise only), 5210, and 5230; and MSRB Rules G-19, G-30, and G-37(b) and (c), and all predecessor NASD rules to such FINRA rules.
      For those firms to which the safe harbor is available, the following types of expansions are presumed not to be a material change in business operations and therefore do not require a Rule 1017 application. For any expansion beyond these limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule 1017. Expansions in each area are measured on a rolling 12-month basis; members are required to keep records of increases in personnel, offices, and markets to determine whether they are within the safe harbor.
      "Associated Persons involved in sales" includes all Associated Persons, whether or not registered, who are involved in sales activities with public customers, including sales assistants and cold callers, but excludes clerical, back office, and trading personnel who are not involved in sales activities.
      Number of Associated Persons Involved in Sales Safe Harbor — Increase Permitted Within One Year Period Without Rule 1017 Application
      1–10 10 persons
      11 or more 10 persons or a 30 percent increase, whichever is greater

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

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

      Amended by SR-FINRA-2019-009 eff. May 8, 2019.
      Amended by SR-FINRA-2008-008 eff. June 26, 2008.
      Amended by SR-NASD-2006-070 eff. Nov. 3, 2006.
      Amended by SR-NASD-99-67 eff. Nov. 15, 2000.
      Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
      Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
      Amended by SR-NASD-94-14 eff. July 20, 1994.
      Amended by SR-NASD-91-45 eff. Feb. 1, 1992.
      Adopted by SR-NASD-82-24 eff. July 20, 1984.

      Selected Notice: 00-73, 06-56.