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  • Plan of Allocation and Delegation of Functions by FINRA to Subsidiaries

    • I. FINRA, Inc.

      FINRA, Inc. (referenced as "FINRA"), the Registered Section 15A Association, is the parent company of FINRA Regulation, Inc. (referenced individually as "FINRA Regulation") and FINRA CAT, LLC (referenced individually as "FINRA CAT") (referenced collectively as the "Subsidiaries"). The term "Association" shall refer to FINRA and the Subsidiaries 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 FINRA—FINRA shall have ultimate responsibility for the rules and regulations of the Association and its operation and administration. As set forth below in Sections II.A. and III, FINRA has delegated certain authority and functions to its Subsidiaries. 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 the Subsidiaries. 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 the Subsidiaries to take actions on behalf of FINRA.
      3. To elect the FINRA Regulation Board of Directors and to select the FINRA CAT Board of Managers.
      4. To review the rulemaking and disciplinary decisions of FINRA Regulation (See Section II.B. below).
      5. To administer common overhead and technology of the Subsidiaries.
      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 the Subsidiaries 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 or to FINRA CAT in Section III, subject to applicable provisions of the National Market System Plan Governing the Consolidated Audit Trail ("CAT NMS Plan")..
      10. To resolve any disputes among the Subsidiaries.
      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 Subsidiaries
      Notwithstanding the delegation of authority to the Subsidiaries, as set forth in Sections II.A. and III below, the staff, books, records, and premises of the Subsidiaries are the staff, books, records, and premises of FINRA subject to oversight pursuant to the Act, and all officers, directors, employees, and agents of the Subsidiaries are officers, directors, employees, and agents of FINRA for purposes of the Act, subject to applicable provisions of the CAT NMS Plan.
      Amended by SR-FINRA-2019-015 eff. Apr. 24, 2019.
      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

    • III. FINRA CAT, LLC

      Delegation of Functions and Authority:

      A. Subject to Section I.B.9., FINRA hereby delegates to FINRA CAT and FINRA CAT assumes the following responsibilities and functions as a registered securities association:
      1. To act as a Plan Processor in accordance with SEC Rule 613 and the provisions of the CAT NMS Plan.
      2. To create, operate and maintain the consolidated audit trail (“CAT”) and central repository pursuant to Rule 613 and the provisions of the CAT NMS Plan.
      3. To develop and implement policies, procedures, and control structures related to the CAT System.
      4. To ensure the effective management and operation of the CAT.
      5. To ensure the accuracy of the consolidation of the CAT Data reported to the Central Repository.
      B. The responsibilities and functions delegated by FINRA to FINRA CAT include, but are not limited to, those specified in Section A. All action taken pursuant to authority delegated pursuant to Section A shall be taken in accordance with the terms of the CAT NMS Plan and SEC Rule 613, and in consultation with the CAT NMS Plan Operating Committee, as applicable.
      C. Capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed to them in the CAT NMS Plan.
      Adopted by SR-FINRA-2019-015 eff. Apr. 24, 2019.