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  • NASD Rules

    • MEMBERSHIP AND REGISTRATION RULES (1000)

      • 1000. MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS

        • IM-1000-2. Status of Persons Serving in the Armed Forces of the United States

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          (a) Inactive Status of Currently Registered Persons
          (1) A registered person of a member who volunteers for or is called into active duty in the Armed Forces of the United States shall be placed, after proper notification to NASD, upon inactive status and need not be re-registered by such member upon his or her return to active employment with the member. Such a person will remain eligible to receive transaction-related compensation, including continuing commissions, because he or she remains registered with a member of NASD. The employing member also may allow such a person to enter into an arrangement with another registered person of the member to take over and service the person's accounts and to share transaction-related compensation based upon the business generated by such accounts. However, since such persons are inactive, they may not perform any of the duties performed by a registered person.

          (2) A registered person who is placed on inactive status pursuant to this paragraph (a) shall not be included within the definition of "Personnel" for purposes of the dues or assessments as provided in Article VI of the NASD By-Laws.

          (3) A registered person who is placed on inactive status pursuant to this paragraph (a) shall not be required to complete either of the Regulatory or Firm Elements of the continuing education requirements set forth in Rule 1120 during the pendency of such inactive status.
          (4) The relief provided in subparagraphs (a)(1), (a)(2), and (a)(3) shall be available to a registered person who is placed on inactive status pursuant to this paragraph (a) during the period that such a person remains registered with the member with which he or she was registered at the beginning of active duty in the Armed Forces of the United States, regardless of whether the person returns to active employment with another member upon completion of his or her active duty in the Armed Forces of the United States.
          (5) The relief described in this paragraph (a) will be provided only to a person registered with a member and only while the person remains on active military duty.
          (b) Inactive Status of Sole Proprietorships
          (1) A member that is a sole proprietor who temporarily closes his or her business by reason of volunteering for or being called into active duty in the Armed Forces of the United States, shall be placed, after proper notification to NASD, on inactive status while the member remains on active military duty.
          (2) A sole proprietor member placed on inactive status as set forth in this paragraph (b) shall not be required to pay dues or assessments during the pendency of such inactive status and shall not be required to pay an admission fee upon return to active participation in the investment banking and securities business.
          (3) The relief described in this paragraph (b) will be provided only to a sole proprietor member and only while the person remains on active military duty.
          (c) Status of Formerly Registered Persons
          (1) If a person who is currently not registered with a member volunteers for or is called into active duty in the Armed Forces of the United States at any time within two years after the date the person ceases to be registered with a member, NASD will defer the lapse of registration requirements set forth in Rules 1021(c), 1031(c), and 1041(c) (i.e., toll the two-year expiration provisions for qualification examination requirements). NASD will defer the lapse of registration requirements commencing on the date the person begins actively serving in the Armed Forces of the United States, provided that NASD is properly notified of the person's period of active military service within 90 days following his or her completion of active service or upon his or her re-registration with a member, whichever occurs first. The deferral will terminate 90 days following the person's completion of active service in the Armed Forces of the United States. Accordingly, if such person does not re-register with a member within 90 days following his or her completion of active service in the Armed Forces of the United States, the amount of time in which the person must become re-registered with a member without being subject to the qualification examination requirements shall consist of the standard two-year period provided in Rules 1021(c), 1031(c), and 1041(c) reduced by the period of time between the person's termination of registration and beginning of active service in the Armed Forces of the United States.
          (2) If a person placed upon inactive status while serving in the Armed Forces of the United States ceases to be registered with a member, NASD will defer the lapse of registration requirements set forth in Rules 1021(c), 1031(c), and 1041(c) (i.e., toll the two-year expiration provisions for qualification examination requirements) during the pendency of his or her active service in the Armed Forces of the United States. NASD will defer the lapse of registration requirements based on existing information in the Central Registration Depository, provided that NASD is properly notified of the person's period of active military service within two years following his or her completion of active service or upon his or her re-registration with a member, whichever occurs first. The deferral will terminate 90 days following the person's completion of active service in the Armed Forces of the United States. Accordingly, if such person does not re-register with a member within 90 days following his or her completion of active service in the Armed Forces of the United States, the amount of time in which the person must become re-registered with a member without being subject to the qualification examination requirements shall consist of the standard two-year period provided in Rules 1021(c), 1031(c), and 1041(c).
          Amended by SR-NASD-2005-135 eff. Mar. 27, 2006.
          Amended by SR-NASD-2005-134 eff. Nov. 15, 2005.
          Amended by SR-NASD-2002-03 eff. Jan. 7, 2002.

          Selected Notices: 02-12, 06-08.

        • IM-1000-3. Failure to Register Personnel

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          The failure of any member to register an employee, who should be so registered, as a Registered Representative may be deemed to be conduct inconsistent with just and equitable principles of trade and when discovered may be sufficient cause for appropriate disciplinary action.

        • 1010. Membership Proceedings

          • 1011. Definitions

            Unless otherwise provided, terms used in the Rule 1010 Series shall have the meaning as defined in Rule 0120.
            (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 NASD 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 NASD 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 NASD 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 SEC 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 1010 Series.
            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 ten registered representatives in the first six months with an additional ten registered representatives in the next year); in such case, FINRA has specifically considered the firm's expansion plans and approved them.
              The safe harbor is not available to any member that has disciplinary history. For purposes of this Interpretation, "disciplinary history" means a finding of a violation by the member or a principal of the member in the past five years by the Securities and Exchange Commission, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: violations of the types enumerated in Section 15(b)(4)(E) of the Securities Exchange Act of 1934; Section 15(c) of the Securities Exchange Act of 1934; Section 17(a) of the Securities Act of 1933; SEC Rules 10b-5 and 15g-1 through 15g-9; NASD Rules 2110 (only if the finding of a violation is for unauthorized trading, churning, conversion, material misrepresentations or omissions to a customer, front-running, trading ahead of research reports or excessive markups), 2120, 2310, 2330, 2440, 3010 (failure to supervise only), 3310, and 3330; and MSRB Rules G-19, G-30, and G-37(b) & (c).
              For those firms to which the safe harbor is available, the following types of expansions are presumed not to be a material change in business operations and therefore do not require a Rule 1017 application. For any expansion beyond these limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule 1017. Expansions in each area are measured on a rolling 12-month basis; members are required to keep records of increases in personnel, offices, and markets to determine whether they are within the safe harbor.
              "Associated Persons involved in sales" includes all Associated Persons, whether or not registered, who are involved in sales activities with public customers, including sales assistants and cold callers, but excludes clerical, back office, and trading personnel who are not involved in sales activities.
              Number of Associated Persons Involved in Sales Safe Harbor — Increase Permitted Within One Year Period Without Rule 1017 Application
              1–10 10 persons
              11 or more 10 persons or a 30 percent increase, whichever is greater

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

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

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

              Selected Notice: 00-73, 06-56.

          • 1012. General Provisions

            (a) Filing by Applicant or Service by FINRA
            (1) An Applicant for membership shall file an application in the manner prescribed in Rule 1013, including the timely submission of an application fee pursuant to Schedule A to the FINRA By-Laws.
            (2) An Applicant seeking approval of a change of ownership, control, or business operations shall file an application in the manner prescribed in Rule 1017, including the timely submission of an application fee pursuant to Schedule A to the FINRA By-Laws.
            (3) Except where FINRA has otherwise prescribed an electronic or alternative filing process, an Applicant may file an application or any document or information requested under the Rule 1010 Series by first-class mail, overnight courier, or hand delivery. If the Department and the Applicant agree, the Applicant also may file a requested document or information by facsimile.
            (4) FINRA shall serve a notice or decision issued under the Rule 1010 Series by first-class mail on the Applicant or its counsel, unless a Rule specifies a different method of service.
            (5) For purposes of the Rule 1010 Series, service by FINRA or filing by an Applicant shall be deemed complete as follows:
            (A) Service or filing by first-class mail shall be deemed complete on the date of postmark;
            (B) Service or filing by overnight courier shall be deemed complete on the date of delivery to the overnight courier as specified in the airbill;
            (C) Service or filing by hand delivery shall be deemed complete on the date of receipt as evidenced by a date stamp;
            (D) Service or filing by facsimile shall be deemed complete on the date specified in the document and on the written confirmation of transmission; and
            (E) Filing by an electronic system shall be deemed complete on the date specified on the confirmation page generated by the electronic filing system.
            (b) Lapse of Application
            (1) Absent a showing of good cause, an application filed under Rule 1013 or 1017 shall lapse if an Applicant fails to:
            (A) respond fully within 60 days after service of an initial written request for information or documents under Rule 1013, within 30 days after service of an initial written request for information or documents under Rule 1017, within 30 days after service of a subsequent written request for information or documents under Rule 1013 or 1017, or within such other time period agreed to by the Department and the Applicant;
            (B) appear at or otherwise participate in a scheduled membership interview pursuant to Rule 1013(b) or 1017(f); or
            (C) file an executed membership agreement under Rule 1014(d) or Rule 1017(g)(4) within 25 days after service of the agreement, or within such other period agreed to by the Department and the Applicant.
            (2) If an Applicant wishes to continue to seek membership or approval of a change in ownership, control, or business operations, then the Applicant shall be required to submit a new application in the manner prescribed in Rule 1013 or 1017, respectively, including the timely submission of an application fee pursuant to Schedule A to the FINRA By-Laws. FINRA shall not refund any fee for a lapsed application.
            (c) Ex Parte Communications
            (1) The prohibitions against ex parte communications shall become effective when FINRA staff has knowledge that an Applicant intends to file a written request for review by the National Adjudicatory Council under Rule 1015.
            (2) Unless on notice and opportunity for an Applicant and Interested FINRA Staff to participate, or to the extent required for the disposition of ex parte matters as authorized by NASD Rules:

            (A) an Applicant, a counsel or representative of an Applicant, or an Interested FINRA Staff shall not make or knowingly cause to be made an ex parte communication relevant to the merits of a membership proceeding under the Rule 1010 Series to a Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or a FINRA employee who is participating or advising in a decision of such a person with respect to that proceeding; and
            (B) a Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or a FINRA employee who is participating or advising in the decision of such a person with respect to a membership proceeding shall not make or knowingly cause to be made to an Applicant, a counsel or representative of the Applicant, or an Interested FINRA Staff an ex parte communication relevant to the merits of that proceeding.
            (3) A Governor, a member of the National Adjudicatory Council or a Subcommittee thereof, or a FINRA employee participating or advising in the decision of such a person, who receives, makes, or knowingly causes to be made a communication prohibited by this paragraph shall place in the record of the membership proceeding:

            (A) all such written communications;
            (B) memoranda stating the substance of all such oral communications; and
            (C) all written responses and memoranda stating the substance of all oral responses to all such communications.
            (d) Recusal or Disqualification
            A Governor or a member of the National Adjudicatory Council or a Subcommittee thereof shall not participate in a matter governed by the Rule 1010 Series as to which that person has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In such a case, the person shall recuse himself or shall be disqualified as follows:
            (1) The Chair of the FINRA Board shall have authority to direct the disqualification of a Governor, and a majority of the Governors of the FINRA Board excluding the Chair shall have authority to direct the disqualification of the Chair of the FINRA Board.
            (2) The Chair of the National Adjudicatory Council shall have authority to direct the disqualification of a member of the National Adjudicatory Council or a member of a Subcommittee appointed pursuant to Rule 1015, and the Vice Chair of the National Adjudicatory Council shall have authority to direct the disqualification of the Chair of the National Adjudicatory Council.
            (e) Computation of Time
            (1) Calendar Day
            In the Rule 1010 Series, "day" means calendar day.
            (2) Formula
            In computing a period of time under the Rule 1010 Series, the day of the act, event, default, or lapse from which the period of time designated begins to run shall not be included. The last day of the period so computed shall be included unless it is a Saturday, Sunday, or Federal holiday, in which event the period runs until the end of the next day that is not a Saturday, Sunday, or Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays shall be excluded from the computation when the period prescribed is ten days or less.
            Amended by SR-FINRA-2012-018 and SR-FINRA-2012-036 eff. Aug. 27, 2012.
            Amended by SR-FINRA-2012-031 eff. July 23, 2012.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Amended by SR-NASD-2007-015 eff. May 7, 2007.
            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.
            Adopted by SR-NASD-82-24 eff. July 20, 1984.

            Selected Notices: 00-73, 07-20, 12-32, 12-33.

          • 1013. New Member Application and Interview

            (a) Filing of Application
            (1) How to File
            An Applicant for FINRA membership shall file its application in the manner prescribed by FINRA with the Department of Member Regulation ("the Department"). An Applicant shall submit an application that includes:
            (A) Form NMA;
            (B) an original signed and notarized paper Form BD, with applicable schedules;
            (C) an original FINRA-approved fingerprint card for each Associated Person who will be subject to SEC Rule 17f-2;
            (D) a new member assessment report;
            (E) a detailed business plan that adequately and comprehensively describes all material aspects of the business that will be, or are reasonably anticipated to be, performed at and after the initiation of business operations, including future business expansion plans, if any, and includes:
            (i) a trial balance, balance sheet, supporting schedules, and computation of net capital, each of which has been prepared as of a date that is within 30 days before the filing date of the application;
            (ii) a monthly projection of income and expenses, with a supporting rationale, for the first twelve months of operations;
            (iii) an organizational chart;
            (iv) the intended location of the Applicant's principal place of business and all other offices, if any, whether or not such offices would be required to be registered under NASD Rules, and the names of the persons who will be in charge of each office;
            (v) a list of the types of securities to be offered and sold and the types of retail or institutional customers to be solicited;
            (vi) a description of the methods and media to be employed to develop a customer base and to offer and sell products and services to customers, including the use of the Internet, telephone solicitations, seminars, or mailings;
            (vii) a description of the business facilities and a copy of any proposed or final lease;
            (viii) the number of markets to be made, if any, the type and volatility of the products, and the anticipated maximum inventory positions;
            (ix) any plan to enter into contractual commitments, such as underwritings or other securities-related activities;
            (x) any plan to distribute or maintain securities products in proprietary positions, and the risks, volatility, degree of liquidity, and speculative nature of the products;
            (xi) any other activity that the Applicant may engage in that reasonably could have a material impact on net capital within the first twelve months of business operations; and
            (xii) a description of the communications and operational systems the Applicant will employ to conduct business with customers or other members and the plans and procedures the Applicant will employ to ensure business continuity, including: system capacity to handle the anticipated level of usage; contingency plans in the event of systems or other technological or communications problems or failures that may impede customer usage or firm order entry or execution; system redundancies; disaster recovery plans; system security; disclosures to be made to potential and existing customers who may use such systems; and supervisory or customer protection measures that may apply to customer use of, or access to, such systems;
            (F) a copy of any decision or order by a federal or state authority or self-regulatory organization taking permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person;
            (G) a list of all Associated Persons;
            (H) documentation of any of the following events, unless the event has been reported to the Central Registration Depository:
            (i) a regulatory action against or investigation of the Applicant or an Associated Person by the Commission, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization that is pending, adjudicated, or settled;
            (ii) an investment-related civil action for damages or an injunction against the Applicant or an Associated Person that is pending, adjudicated, or settled;
            (iii) an investment-related customer complaint or arbitration that is required to be reported on Form U4;
            (iv) a criminal action (other than a minor traffic violation) against the Applicant or an Associated Person that is pending, adjudicated, or that has resulted in a guilty or no contest plea; and
            (v) a copy of any document evidencing a termination for cause or a permitted resignation after investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or an industry standard of conduct;
            (I) a description of any remedial action, such as special training, continuing education requirements, or heightened supervision, imposed on an Associated Person by a state or federal authority or self-regulatory organization;
            (J) a written acknowledgment that heightened supervisory procedures and special educational programs may be required pursuant to Notice to Members 97-19 for an Associated Person whose record reflects disciplinary actions or sales practice events;
            (K) a copy of final or proposed contracts with banks, clearing entities, or service bureaus, and a general description of any other final or proposed contracts;
            (L) a description of the nature and source of Applicant's capital with supporting documentation, including a list of all persons or entities that have contributed or plan to contribute financing to the Applicant's business, the terms and conditions of such financing arrangements, the risk to net capital presented by the Applicant's proposed business activities, and any arrangement for additional capital should a business need arise;
            (M) a description of the financial controls to be employed by the Applicant;
            (N) a description of the Applicant's supervisory system and a copy of its written supervisory procedures, internal operating procedures (including operational and internal controls), internal inspections plan, written approval process, and qualifications investigations required by Rule 3010;
            (O) a description of the number, experience, and qualifications of supervisors and principals and the number, experience, and qualifications of persons to be supervised by such personnel, the other responsibilities of the supervisors and principals with the Applicant, their full-time or part-time status, any business activities that the supervisors or principals may engage in outside of their association with the Applicant, the hours per week devoted to such activities, and an explanation of how a part-time supervisor or principal will be able to discharge his or her designated functions on a part-time basis;
            (P) a description of Applicant's proposed recordkeeping system;
            (Q) a copy of the Applicant's written training plan to comply with Firm Element continuing education requirements described in Rule 1120(b), including the name of the Associated Person responsible for implementation; and
            (R) a FINRA Entitlement Program Agreement and Terms of Use and a FINRA Member Firm Account Administrator Entitlement Form.
            (2) Uniform Registration Forms
            Upon approval of the Applicant's FINRA Member Firm Account Administrator Entitlement Form, the Applicant shall submit its Forms U4 for each Associated Person who is required to be registered under NASD Rules, any amendments to its Forms BD or U4, and any Form U5 electronically via Web CRD.
            (3) Rejection of Application That Is Not Substantially Complete
            If the Department determines within 30 days after the filing of an application that the application is not substantially complete, the Department may reject the application and deem it not to have been filed. In such case, within the 30 day period, the Department shall serve a written notice on the Applicant of the Department's determination and the reasons therefor. FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to continue to seek membership, the Applicant shall submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws.
            (4) Request For Additional Documents Or Information
            Within 30 days after the filing of an application, the Department shall serve an initial request for any additional information or documents necessary to render a decision on the application. The Department may serve subsequent requests for additional information or documents at any time during the membership application process.
            Unless otherwise agreed by the Department and the Applicant, the Applicant shall file any additional information and documents with the Department within 60 days after service of the Department's initial request and 30 days after service of any subsequent request.
            (5) Withdrawal of Application
            If an Applicant withdraws an application within 30 days after filing the application, FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to again seek membership, the Applicant shall submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws.
            (b) Membership Interview
            (1) Requirement for Interview
            Before the Department serves its decision on an application for new membership in FINRA, the Department shall conduct a membership interview with a representative or representatives of the Applicant.
            (2) Service of Notice
            At least seven days before the membership interview, the Department shall serve on the Applicant a written notice that specifies the date and time of the interview and the representative or representatives of the Applicant who are required to participate in the interview. The Department shall serve the notice by facsimile or overnight courier. The Applicant and the Department may agree to a shorter or longer period for notice or a different method of service under this subparagraph.
            (3) Time
            Unless the Department directs otherwise for good cause shown, a membership interview shall be scheduled to occur within 90 days after the filing of an application or within 60 days after the filing of all additional information or documents requested, whichever is later.
            (4) Place
            Unless the Department and the Applicant otherwise agree, the membership interview shall be conducted in the district office for the district in which the Applicant has or intends to have its principal place of business.
            (5) Updated Financial Documents
            On or before the date of the membership interview, the Applicant shall file an updated trial balance, balance sheet, supporting schedules, and computation of net capital. The Applicant shall prepare such documents as of a date that is within 45 days before the date of the membership interview, unless the Applicant and the Department agree on a longer period. The Applicant shall promptly notify the Department in writing of any material adverse change in its financial condition that occurs before a decision constituting final action of FINRA is served on the Applicant.
            (6) Review of Standards for Admission
            During the membership interview, the Department shall review the application and the standards for admission to membership with the Applicant's representative or representatives.
            (7) Information From Other Sources
            During the membership interview, the Department shall provide to the Applicant's representative or representatives any information or document that the Department has obtained from the Central Registration Depository or a source other than the Applicant and upon which the Department intends to base its decision under Rule 1014. If the Department receives such information or document after the membership interview or decides to base its decision on such information after the membership interview, the Department shall promptly serve the information or document and an explanation thereof on the Applicant.
            Amended by SR-FINRA-2013-015 eff. Feb. 5, 2013.
            Amended by SR-FINRA-2012-031 eff. July 23, 2012.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Amended by SR-NASD-2007-015 eff. May 7, 2007.
            Amended by SR-NASD-2006-038 eff. May 20, 2006.
            Amended by SR-NASD-2003-136 eff. Aug. 28, 2003.
            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.
            Adopted by SR-NASD-82-24 eff. July 20, 1984.

            Selected Notices: 00-73, 06-16, 07-20, 12-32, 13-11.

            • IM-1013-1. Membership Waive-In Process for Certain New York Stock Exchange Member Organizations

              This Interpretive Material sets forth a membership waive-in process for certain New York Stock Exchange ("NYSE") member organizations to become members of FINRA as part of the consolidation of the member firm regulatory functions of NASD and NYSE Regulation, Inc. ("NYSE Regulation"). It applies to firms that, as of July 25, 2007, (1) are approved NYSE member organizations or (2) have submitted an application to become an NYSE member organization and are subsequently approved for NYSE membership (together "NYSE-only member organizations"), provided that such firms were not also NASD members as of July 30, 2007. Such firms are eligible to automatically become FINRA members and to automatically register all associated persons whose registrations are approved with NYSE in registration categories recognized by FINRA upon submission to FINRA's Member Regulation Department ("the Department") of a signed waive-in membership application ("Waive-In Application") with the following information:
              (1) General company information, including Central Registration Depository (CRD®) Number and contact person.
              (2) An attestation that all information on the applicant's CRD form, as of the date of submission of the Waive-In Application is accurate and complete and fully reflects all aspects of the applicant's current business, including, but not limited to, ownership structure, management, product lines and disclosures.
              (3) The identity of the firm's Executive Representative.
              (4) Completed and signed Entitlement Forms.
              (5) A signed FINRA Membership Agreement.
              (6) Representations that the NYSE applicant's Uniform Application for Broker-Dealer Registration (Form BD) will be amended as needed to keep current and accurate; that all individual and entity registrations with FINRA will be kept current; and that all information and statements contained in the Waive-In Application are current, true and complete.
              The Department shall review the Waive-In Application within three (3) business days of receipt and, if complete, issue a letter notifying the applicant that it has been approved for membership. The Membership Agreement shall become effective on the date of such notification letter.
              Firms admitted pursuant to this Interpretive Material shall be subject to the FINRA By-Laws and Schedules to By-Laws, including Schedule A, the consolidated FINRA rules and the NYSE rules incorporated by FINRA, provided that their securities business is limited to floor brokerage on the NYSE, or routing away to other markets orders that are ancillary to their core floor business under NYSE Rule 70.40 ("permitted floor activities"). If an NYSE-only member organization admitted pursuant to this Interpretive Material seeks to expand its business operations to include any activities other than the permitted floor activities, such firm must apply for and receive approval to engage in such business activity pursuant to NASD Rule 1017. Upon approval of such business expansion, the firm shall be subject to all NASD rules, in addition to the consolidated FINRA rules and those NYSE rules incorporated by FINRA.
              Pursuant to IM-Section 4(b)(1) and (e) to Schedule A of the FINRA By-Laws, a firm applying to waive in for membership pursuant to this Interpretive Material shall not be assessed certain registration and application fees set forth in Sections 4(b)(1) and (e) to Schedule A of the FINRA By-Laws.
              Amended by SR-FINRA-2008-022 eff. Dec. 15, 2008.
              Adopted by SR-NASD-2007-056 eff. Oct 12, 2007.

              Selected Notice: 08-57.

            • IM-1013-2. Membership Waive-In Process for Certain NYSE Alternext US LLC Member Organizations

              This Interpretive Material sets forth a membership waive-in process for certain NYSE Alternext US LLC ("NYSE Alternext") member organizations to become members of FINRA as part of the acquisition by NYSE Euronext of the Amex Membership Corporation. It applies to any NYSE Alternext member organization that (i) holds a valid 86 Trinity Permit as of the date such firm transfers its equities operations to the NYSE Alternext Trading Systems and (ii) is not currently a FINRA member. Such firms are eligible to automatically become FINRA members and to automatically register all associated persons whose registrations are approved with NYSE Alternext in registration categories recognized by FINRA upon submission to FINRA's Member Regulation Department ("the Department") of a signed waive-in membership application ("Waive-In Application") with the following information:
              (1) General company information, including Central Registration Depository (CRD®) Number and contact person;
              (2) An attestation that all information on the applicant's® form, as of the date of submission of the Waive-In Application, is accurate and complete and fully reflects all aspects of the applicant's current business, including, but not limited to, ownership structure, management, product lines and disclosures;
              (3) The identity of the firm's Executive Representative;
              (4) Completed and signed Entitlement Forms (unless previously submitted);
              (5) A signed FINRA Membership Agreement; and
              (6) Representations that the NYSE Alternext applicant's Uniform Application for Broker-Dealer Registration (Form BD) will be amended as needed to keep current and accurate; that all individual and entity registrations with FINRA will be kept current; and that all information and statements contained in the Waive-In Application are current, true and complete.
              The Department shall review the Waive-In Application within three (3) business days of receipt and, if complete, issue a letter notifying the applicant that it has been approved for membership. The Membership Agreement shall become effective on the date of such notification letter.
              Firms admitted pursuant to this Interpretive Material shall be member organizations of both NYSE and NYSE Alternext and as such are subject to the consolidated FINRA rules (provided that firms admitted to FINRA membership under IM-1013-1 also are subject to the consolidated FINRA rules), the NYSE rules incorporated by FINRA, the FINRA By-Laws and Schedules to By-Laws, including Schedule A, and the NASD Rule 8000 and Rule 9000 Series, provided that their NYSE or NYSE Alternext securities business is limited to floor-based activities in either NYSE-traded or NYSE Alternext-traded securities, or routing away to other markets orders that are ancillary to their core NYSE or NYSE Alternext floor business under NYSE Rule 70.40 or NYSE Alternext Equities Rule 70.40 ("permitted floor activities"). If a firm admitted pursuant to this Interpretive Material seeks to expand its business operations to include any activities other than the permitted floor activities or makes changes to its securities business that would otherwise require FINRA membership, such firm must apply for and receive approval to engage in such business activity pursuant to NASD Rule 1017. Upon approval of such business expansion, the firm shall be subject to all NASD rules, in addition to the consolidated FINRA rules and those NYSE rules incorporated by FINRA.
              Pursuant to IM-Section 4(b)(1) and (e) to Schedule A of the FINRA By-Laws, a firm applying to waive in for membership pursuant to this Interpretive Material shall not be assessed certain registration and application fees set forth in Sections 4(b)(1) and (e) to Schedule A of the FINRA By-Laws.
              Adopted by SR-FINRA-2008-043 eff. Oct. 1, 2008.

          • 1014. Department Decision

            (a) Standards for Admission
            After considering the application, the membership interview, other information and documents provided by the Applicant, other information and documents obtained by the Department, and the public interest and the protection of investors, the Department shall determine whether the Applicant meets each of the following standards:
            (1) The application and all supporting documents are complete and accurate.
            (2) The Applicant and its Associated Persons have all licenses and registrations required by state and federal authorities and self-regulatory organizations.
            (3) The Applicant and its Associated Persons are capable of complying with the federal securities laws, the rules and regulations thereunder, and NASD Rules, including observing high standards of commercial honor and just and equitable principles of trade. In determining whether this standard is met, the Department shall take into consideration whether:
            (A) a state or federal authority or self-regulatory organization has taken permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person;
            (B) an Applicant's or Associated Person's record reflects a sales practice event, a pending arbitration, or a pending private civil action;
            (C) an Applicant or Associated Person is the subject of a pending, adjudicated, or settled regulatory action or investigation by the Commission, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization; an adjudicated, or settled investment-related private civil action for damages or an injunction; or a criminal action (other than a minor traffic violation) that is pending, adjudicated, or that has resulted in a guilty or no contest plea or an Applicant, its control persons, principals, registered representatives, other Associated Persons, any lender of 5% or more of the Applicant's net capital, and any other member with respect to which these persons were a control person or a 5% lender of its net capital is subject to unpaid arbitration awards, other adjudicated customer awards, or unpaid arbitration settlements;
            (D) an Associated Person was terminated for cause or permitted to resign after an investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or industry standard of conduct;
            (E) a state or federal authority or self-regulatory organization has imposed a remedial action, such as special training, continuing education requirements, or heightened supervision, on an Associated Person; and
            (F) a state or federal authority or self-regulatory organization has provided information indicating that the Applicant or an Associated Person otherwise poses a threat to public investors.
            (4) The Applicant has established all contractual or other arrangements and business relationships with banks, clearing corporations, service bureaus, or others necessary to:
            (A) initiate the operations described in the Applicant's business plan, considering the nature and scope of operations and the number of personnel; and
            (B) comply with the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (5) The Applicant has or has adequate plans to obtain facilities that are sufficient to:
            (A) initiate the operations described in the Applicant's business plan, considering the nature and scope of operations and the number of personnel; and
            (B) comply with the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (6) The communications and operational systems that the Applicant intends to employ for the purpose of conducting business with customers and other members are adequate and provide reasonably for business continuity in each area set forth in Rule 1013(a)(2)(E)(xii);
            (7) The Applicant is capable of maintaining a level of net capital in excess of the minimum net capital requirements set forth in SEC Rule 15c3-1 adequate to support the Applicant's intended business operations on a continuing basis, based on information filed under Rule 1013(b)(5). The Department may impose a reasonably determined higher net capital requirement for the initiation of operations after considering:
            (A) the amount of net capital sufficient to avoid early warning level reporting requirements, such as SEC Rule 17a-11;
            (B) the amount of capital necessary to meet expenses net of revenues for at least twelve months, based on reliable projections agreed to by the Applicant and the Department;
            (C) any planned market making activities, the number of markets to be made, the type and volatility of products, and the anticipated maximum inventory positions;
            (D) any plan to enter into other contractual commitments, such as underwritings or other securities-related activities;
            (E) any plan to distribute or maintain securities products in proprietary positions, and the risks, volatility, degree of liquidity, and speculative nature of the products; and
            (F) any other activity that the Applicant will engage in that reasonably could have a material impact on net capital within the first twelve months of business operations.
            (8) The Applicant has financial controls to ensure compliance with the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (9) The Applicant has compliance, supervisory, operational, and internal control practices and standards that are consistent with practices and standards regularly employed in the investment banking or securities business, taking into account the nature and scope of Applicant's proposed business.
            (10) The Applicant has a supervisory system, including written supervisory procedures, internal operating procedures (including operational and internal controls), and compliance procedures designed to prevent and detect, to the extent practicable, violations of the federal securities laws, the rules and regulations thereunder, and NASD Rules. In evaluating the adequacy of a supervisory system, the Department shall consider the overall nature and scope of the Applicant's intended business operations and shall consider whether:
            (A) the number, location, experience, and qualifications of supervisory personnel are adequate in light of the number, location, experience, and qualifications of persons to be supervised; the Central Registration Depository record or other disciplinary history of supervisory personnel and persons to be supervised; and the number and locations of the offices that the Applicant intends to open and the nature and scope of business to be conducted at each office;
            (B) the Applicant has identified specific Associated Persons to supervise and discharge each of the functions in the Applicant's business plan, and to supervise each of the Applicant's intended offices, whether or not such offices are required to be registered under NASD Rules;
            (C) the Applicant has identified the functions to be performed by each Associated Person and has adopted procedures to assure the registration with FINRA and applicable states of all persons whose functions are subject to such registration requirements;
            (D) each Associated Person identified in the business plan to discharge a supervisory function has at least one year of direct experience or two years of related experience in the subject area to be supervised;
            (E) the Applicant will solicit retail or institutional business;
            (F) the Applicant will recommend securities to customers;
            (G) the location or part-time status of a supervisor or principal will affect such person's ability to be an effective supervisor;
            (H) the Applicant should be required to place one or more Associated Persons under heightened supervision pursuant to Notice to Members 97-19;
            (I) any remedial action, such as special training or continuing education requirements or heightened supervision, has been imposed on an Associated Person by a state or federal authority or self-regulatory organization; and
            (J) any other condition that will have a material impact on the Applicant's ability to detect and prevent violations of the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (11) The Applicant has a recordkeeping system that enables Applicant to comply with federal, state, and self-regulatory organization recordkeeping requirements and a staff that is sufficient in qualifications and number to prepare and preserve required records.
            (12) The Applicant has completed a training needs assessment and has a written training plan that complies with the continuing education requirements imposed by the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (13) FINRA does not possess any information indicating that the Applicant may circumvent, evade, or otherwise avoid compliance with the federal securities laws, the rules and regulations thereunder, or NASD Rules.
            (14) The application and all supporting documents otherwise are consistent with the federal securities laws, the rules and regulations thereunder, and NASD Rules.
            (b) Granting or Denying Application
            (1) In reviewing an application for membership, the Department shall consider whether the Applicant and its Associated Persons meet each of the standards in paragraph (a). Where the Department determines that the Applicant or its Associated Persons are the subject of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E), a presumption exists that the application should be denied. The Applicant may overcome the presumption by demonstrating that it can meet each of the standards in paragraph (a), notwithstanding the existence of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E).
            (2) If the Department determines that the Applicant meets each of the standards in paragraph (a), the Department shall grant the application for membership.
            (3) If the Department determines that the Applicant does not meet one or more of the standards in paragraph (a) in whole or in part, the Department shall:
            (A) grant the application subject to one or more restrictions reasonably designed to address a specific financial, operational, supervisory, disciplinary, investor protection, or other regulatory concern based on the standards for admission in Rule 1014(a); or
            (B) deny the application.
            (c) Decision
            (1) Time
            The Department shall serve a written decision on the membership application within 30 days after the conclusion of the membership interview or after the filing of additional information or documents, whichever is later.
            (2) Content
            If the Department denies the application, the decision shall explain in detail the reason for denial, referencing the applicable standard or standards in paragraph (a). If the Department grants the application subject to restrictions, the decision shall explain in detail the reason for each restriction, referencing the applicable standard or standards in paragraph (a) upon which the restriction is based and identify the specific financial, operational, supervisory, disciplinary, investor protection, or other regulatory concern that the restriction is designed to address and the manner in which the restriction is reasonably designed to address the concern.
            (3) Failure to Serve Decision
            If the Department fails to serve a decision within 180 days after the filing of an application or such later date as the Department and the Applicant have agreed in writing, the Applicant may file a written request with the FINRA Board requesting that the FINRA Board direct the Department to serve a decision. Within seven days after the filing of such a request, the FINRA Board shall direct the Department to serve its written decision immediately or to show good cause for an extension of time. If the Department shows good cause for an extension of time, the FINRA Board may extend the 180 day time limit by not more than 90 days.
            (d) Submission of Membership Agreement
            If the Department grants an application, with or without restriction, the Applicant's approval for membership shall be contingent upon the Applicant's filing of an executed written membership agreement, satisfactory to the Department, undertaking to:
            (1) abide by any restriction specified in the Department's decision; and
            (2) obtain the Department's approval of a change in ownership, control, or business operations pursuant to Rule 1017, including the modification or removal of a membership agreement restriction.
            The Applicant shall not waive the right to file a written request for review under Rule 1015 by executing a membership agreement under this paragraph.
            (e) Service and Effectiveness of Decision
            The Department shall serve its decision and the membership agreement on the Applicant in accordance with Rule 1012. The decision shall become effective upon service and shall remain in effect during the pendency of any review until a decision constituting final action of FINRA is issued under Rule 1015 or 1016, unless otherwise directed by the National Adjudicatory Council, the FINRA Board, or the Commission.
            (f) Effectiveness of Restriction
            A restriction imposed under this Rule shall remain in effect and bind the Applicant and all successors to the ownership or control of the Applicant unless:
            (1) removed or modified by a decision constituting final action of FINRA issued under Rule 1015, 1016, or 1017;
            (2) stayed by the National Adjudicatory Council, the FINRA Board, or the Commission.
            (g) Final Action
            Unless the Applicant files a written request for a review under Rule 1015, the Department's decision shall constitute final action by FINRA.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Amended by SR-NASD-2006-038 eff. May 20, 2006
            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.

            Selected Notices: 00-73, 04-10, 06-16.

          • 1015. Review by National Adjudicatory Council

            (a) Initiation of Review by Applicant
            Within 25 days after service of a decision under Rule 1014 or 1017, an Applicant may file a written request for review with the National Adjudicatory Council. A request for review shall state with specificity why the Applicant believes that the Department's decision is inconsistent with the membership standards set forth in Rule 1014, or otherwise should be set aside, and state whether a hearing is requested. The Applicant simultaneously shall file by first-class mail a copy of the request to the district office where the Applicant filed its application.
            (b) Transmission of Documents
            Within ten days after the filing of a request for review, the Department shall:
            (1) transmit to the National Adjudicatory Council copies of all documents that were considered in connection with the Department's decision and an index to the documents; and
            (2) serve on the Applicant a copy of such documents (other than those documents originally submitted by Applicant) and a copy of the index.
            (c) Membership Application Docket
            The Department shall promptly record in FINRA's membership application docket each request for review filed with the National Adjudicatory Council under this Rule and each material subsequent event, filing, and change in the status of a membership proceeding.
            (d) Appointment of Subcommittee
            The National Adjudicatory Council or the Review Subcommittee defined in Rule 9120 shall appoint a Subcommittee to participate in the review. The Subcommittee shall be composed of two or more persons who shall be current or past members of the National Adjudicatory Council or former Directors or Governors.
            (e) Powers of Subcommittee
            If a hearing is requested, the Subcommittee shall conduct the hearing. If a hearing is not requested, the Subcommittee may serve a notice directing that a hearing be held. If a hearing is not requested or directed, the Subcommittee shall conduct its review on the basis of the record developed before the Department and any written submissions made by the Applicant or the Department in connection with the request for review.
            (f) Hearing
            (1) Notice
            If a hearing is requested or directed, the hearing shall be held within 45 days after the filing of the request with the National Adjudicatory Council or service of the notice by the Subcommittee. The National Adjudicatory Council shall serve written notice of the date and time of the hearing to the Applicant by facsimile or overnight courier not later than 14 days before the hearing.
            (2) Counsel
            The Applicant and the Department may be represented by counsel at a hearing conducted pursuant to this Rule.
            (3) Evidence
            Formal rules of evidence shall not apply to a hearing under this Rule. Not later than five days before the hearing, the Applicant and the Department shall exchange copies of their proposed hearing exhibits and witness lists and provide copies of the same to the National Adjudicatory Council. If the Applicant or the Department fails to provide copies of its proposed hearing exhibits or witness list within such time, the Subcommittee shall exclude the evidence or witnesses from the proceeding, unless the Subcommittee determines that good cause is shown for failure to comply with the production date set forth in this subparagraph.
            (4) Transcript
            The hearing shall be recorded and a transcript prepared by a court reporter. A transcript of the hearing shall be available for purchase from the court reporter at prescribed rates. The Applicant, the Department, or a witness may seek to correct the transcript. A proposed correction of the transcript shall be submitted to the Subcommittee within a reasonable period of time prescribed by the Subcommittee. Upon notice to the Applicant and the Department, the Subcommittee may direct the correction to the transcript as requested or sua sponte.
            (g) Additional Information, Briefs
            At any time during its consideration, the Subcommittee or the National Adjudicatory Council may direct the Applicant or the Department to file additional information or briefs. Any additional information or brief filed shall be provided to all parties before the National Adjudicatory Council renders its decision.
            (h) Abandonment of Request for Review
            If an Applicant fails to specify the grounds for its request for review under Rule 1015(a)(1), appear at a hearing for which it has notice, or file information or briefs as directed, the National Adjudicatory Council or the Review Subcommittee may dismiss the request for review as abandoned, and the decision of the Department shall become the final action of FINRA. Upon a showing of good cause, the National Adjudicatory Council or the Review Subcommittee may withdraw a dismissal entered pursuant to this paragraph.
            (i) Subcommittee Recommendation
            The Subcommittee shall present a recommended decision in writing to the National Adjudicatory Council within 60 days after the date of the hearing held pursuant to paragraph (f), and not later than seven days before the meeting of the National Adjudicatory Council at which the membership proceeding shall be considered.
            (j) Decision
            (1) Proposed Written Decision
            After considering all matters presented in the review and the Subcommittee's recommended written decision, the National Adjudicatory Council may affirm, modify, or reverse the Department's decision or remand the membership proceeding with instructions. The National Adjudicatory Council shall prepare a proposed written decision pursuant to subparagraph (2).
            (2) Contents
            The decision shall include:
            (A) a description of the Department's decision, including its rationale;
            (B) a description of the principal issues raised in the review;
            (C) a summary of the evidence on each issue; and
            (D) a statement whether the Department's decision is affirmed, modified, or reversed, and a rationale therefor that references the applicable standards in Rule 1014.
            (3) Issuance of Decision After Expiration of Call for Review Periods
            The National Adjudicatory Council shall provide its proposed written decision to the FINRA Board. The FINRA Board may call the membership proceeding for review pursuant to Rule 1016. If the FINRA Board does not call the membership proceeding for review, the proposed written decision of the National Adjudicatory Council shall become final. The National Adjudicatory Council shall serve the Applicant with a written notice specifying the date on which the call for review period expired and stating that the final written decision will be served within 15 days after such date. The National Adjudicatory Council shall serve its final written decision within 15 days after the date on which the call for review period expired. The decision shall constitute the final action of FINRA for purposes of SEC Rule 19d-3, unless the National Adjudicatory Council remands the membership proceeding.
            (4) Failure to Issue Decision
            If the National Adjudicatory Council fails to serve its final written decision within the time prescribed in subparagraph (3), the Applicant may file a written request with the FINRA Board requesting that the FINRA Board direct the National Adjudicatory Council to serve its decision immediately or to show good cause for an extension of time. Within seven days after the filing of such a request, the FINRA Board shall direct the National Adjudicatory Council to serve its written decision immediately or to show good cause for an extension of time. If the National Adjudicatory Council shows good cause for an extension of time, the FINRA Board may extend the 15 day time limit by not more than 15 days.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Amended by SR-NASD-99-67 eff. Nov. 15, 2000.
            Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
            Amended by SR-NASD-99-15 eff. Dec. 31, 1999.
            Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
            Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
            Adopted by SR-NASD-90-54 eff. Jan. 9, 1991.

            Selected Notices: 00-56, 00-73.

          • 1016. Discretionary Review by FINRA Board

            (a) Call For Review By Governor
            A Governor may call a membership proceeding for review by the FINRA Board if the call for review is made within the period prescribed in paragraph (b).
            (b) 15 Day Period; Waiver
            A Governor shall make his or her call for review at the next meeting of the FINRA Board that is at least 15 days after the date on which the FINRA Board receives the proposed written decision of the National Adjudicatory Council. By unanimous vote of the FINRA Board, the FINRA Board may shorten the period to less than 15 days. By an affirmative vote of the majority of the FINRA Board then in office, the FINRA Board may, during the 15 day period, vote to extend the period to more than 15 days.
            (c) Review At Next Meeting
            If a Governor calls a membership proceeding for review within the time prescribed in paragraph (b), the FINRA Board shall review the membership proceeding not later than the next meeting of the FINRA Board. The FINRA Board may order the Applicant and the Department to file briefs in connection with review proceedings pursuant to this paragraph.
            (d) Decision of FINRA Board, Including Remand
            After review, the FINRA Board may affirm, modify, or reverse the proposed written decision of the National Adjudicatory Council. Alternatively, the FINRA Board may remand the membership proceeding with instructions. The FINRA Board shall prepare a written decision that includes all of the elements described in Rule 1015(j)(2).
            (e) Issuance of Decision
            The FINRA Board shall serve its written decision on the Applicant within 15 days after the meeting at which it conducted its review. The decision shall constitute the final action of FINRA for purposes of SEC Rule 19d-3, unless the FINRA Board remands the membership proceeding.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Amended by SR-NASDR-99-67 eff. Nov. 15, 2000.
            Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
            Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

          • 1017. Application for Approval of Change in Ownership, Control, or Business Operations

            (a) Events Requiring Application
            A member shall file an application for approval of any of the following changes to its ownership, control, or business operations:
            (1) a merger of the member with another member, unless both are members of the New York Stock Exchange, Inc. or the surviving entity will continue to be a member of the New York Stock Exchange, Inc.;
            (2) a direct or indirect acquisition by the member of another member, unless the acquiring member is a member of the New York Stock Exchange, Inc.;
            (3) direct or indirect acquisitions or transfers of 25% or more in the aggregate of the member's assets or any asset, business or line of operation that generates revenues comprising 25% or more in the aggregate of the member's earnings measured on a rolling 36-month basis, unless both the seller and acquirer are members of the New York Stock Exchange, Inc.;
            (4) a change in the equity ownership or partnership capital of the member that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity or partnership capital; or
            (5) a material change in business operations as defined in Rule 1011(k).
            (b) Filing and Content of Application
            (1) The member shall file the application in the manner prescribed by FINRA with the Department of Member Regulation ("the Department").
            (2) An applicant shall submit an application that includes a Form CMA including a detailed description of the change in ownership, control, or business operations.

            (A) If the application requests approval of a change in ownership or control, the application also shall include the names of the new owners, their percentage of ownership, and the sources of their funding for the purchase and recapitalization of the member.
            (B) If the application requests the removal or modification of a membership agreement restriction, the application also shall:

            (i) present facts showing that the circumstances that gave rise to the restriction have changed; and
            (ii) state with specificity why the restriction should be modified or removed in light of the standards set forth in Rule 1014 and the articulated rationale for the imposition of the restriction.
            (C) If the application requests approval of an increase in Associated Persons involved in sales, offices, or markets made, the application shall set forth the increases in such areas during the preceding 12 months.
            (c) Effecting Change and Imposition of Interim Restrictions
            (1) A member shall file an application for approval of a change in ownership or control at least 30 days prior to such change. A member may effect a change in ownership or control prior to the conclusion of the proceeding, but the Department may place new interim restrictions on the member based on the standards in Rule 1014, pending final Department action.
            (2) A member may file an application to remove or modify a membership agreement restriction at any time. An existing restriction shall remain in effect during the pendency of the proceeding.
            (3) A member may file an application for approval of a material change in business operations, other than the modification or removal of a restriction, at any time, but the member may not effect such change until the conclusion of the proceeding, unless the Department and the member otherwise agree.
            (d) Rejection Of Application That Is Not Substantially Complete
            If the Department determines within 30 days after the filing of an application that the application is not substantially complete, the Department shall reject the application and deem it not to have been filed. In such case, within the 30 day period, the Department shall serve a written notice on the Applicant of the Department's determination and the reasons therefor. FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to continue to apply for approval of a change in ownership, control, or business operations, the Applicant shall submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws.
            (e) Request for Additional Documents and Information
            Within 30 days after the filing of an application, the Department shall serve a request for any additional information or documents necessary to render a decision on the application. The Department may request additional information or documents at any time during the application process. Unless otherwise agreed to by the Department and the Applicant, the Applicant shall file such additional information or documents with the Department within 30 days after the Department's request.
            (f) Withdrawal of Application
            If an Applicant withdraws an application within 30 days after filing the application, FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to again apply for approval of a change in ownership, control, or business operations, the Applicant shall submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws.
            (g) Membership Interview
            (1) The Department may require the Applicant to participate in a membership interview within 30 days after the filing of the application, or if the Department requests additional information or documents, within 30 days after the filing of the additional information or documents by the Applicant.
            (2) At least seven days before the membership interview, the Department shall serve on the Applicant a written notice that specifies the date and time of the interview and persons who are required to participate in the interview. The Department shall serve the notice by facsimile or overnight courier. The Applicant and the Department may agree to a shorter or longer period for notice or a different method of service.
            (3) Unless the Department and the Applicant otherwise agree, the membership interview shall be conducted in the district office for the district in which the Applicant has its principal place of business.
            (4) During the membership interview, the Department shall review the application and the considerations for the Department's decision set forth in paragraph (g)(1) with the Applicant's representative or representatives. The Department shall provide to the Applicant's representative or representatives any information or document that the Department has obtained from the Central Registration Depository or a source other than the Applicant and upon which the Department intends to base its decision under paragraph (g). If the Department receives such information or document after the membership interview or decides to base its decision on such information after the membership interview, the Department shall promptly serve the information or document and an explanation thereof on the Applicant.
            (h) Department Decision
            (1) The Department shall consider the application, the membership interview, other information and documents provided by the Applicant or obtained by the Department, the public interest, and the protection of investors. In rendering a decision on an application submitted under Rule 1017(a), the Department shall consider whether the Applicant and its Associated Persons meet each of the standards in Rule 1014(a). Where the Department determines that the Applicant or its Associated Person are the subject of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E), a presumption exists that the application should be denied. The Applicant may overcome the presumption by demonstrating that it can meet each of the standards in Rule 1014 (a), notwithstanding the existence of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E).

            (A) In rendering a decision on an application for approval of a change in ownership or control, or an application for approval of a material change in business operations that does not involve modification or removal of a membership agreement restriction, the Department shall determine if the Applicant would continue to meet the standards in Rule 1014(a) upon approval of the application.
            (B) In rendering a decision on an application requesting the modification or removal of a membership agreement restriction, the Department shall consider whether maintenance of the restriction is appropriate in light of:

            (i) the standards set forth in Rule 1014;
            (ii) the circumstances that gave rise to the imposition of the restriction;
            (iii) the Applicant's operations since the restriction was imposed;
            (iv) any change in ownership or control or supervisors and principals; and
            (v) any new evidence submitted in connection with the application.
            (2) The Department shall serve a written decision on the application within 30 days after the conclusion of the membership interview or the filing of additional information or documents, whichever is later. If the Department does not require the Applicant to participate in a membership interview or request additional information or documents, the Department shall serve a written decision within 45 days after the filing of the application under paragraph (a). The decision shall state whether the application is granted or denied in whole or in part, and shall provide a rationale for the Department's decision, referencing the applicable standard in Rule 1014.
            (3) If the Department fails to serve a decision within 180 days after filing of an application or such later date as the Department and the Applicant have agreed in writing, the Applicant may file a written request with the FINRA Board requesting that the FINRA Board direct the Department to issue a decision. Within seven days after the filing of such a request, the FINRA Board shall direct the Department to issue a written decision immediately or to show good cause for an extension of time. If the Department shows good cause for an extension of time, the FINRA Board may extend the time limit for issuing a decision by not more than 30 days.
            (4) If the Department approves an application under this Rule in whole or part, the Department may require an Applicant to file an executed membership agreement.
            (i) Service and Effectiveness of Decision
            The Department shall serve its decision on the Applicant in accordance with Rule 1012. The decision shall become effective upon service and shall remain in effect during the pendency of any review until a decision constituting final action of FINRA is issued under Rule 1015 or 1016, unless otherwise directed by the National Adjudicatory Council, the FINRA Board, or the Commission.
            (j) Request for Review; Final Action
            An Applicant may file a written request for review of the Department's decision with the National Adjudicatory Council pursuant to Rule 1015. The procedures set forth in Rule 1015 shall apply to such review, and the National Adjudicatory Council's decision shall be subject to discretionary review by the FINRA Board pursuant to Rule 1016. If the Applicant does not file a request for a review, the Department's decision shall constitute final action by FINRA.
            (k) Removal or Modification of Restriction on Department's Initiative
            The Department shall modify or remove a restriction on its own initiative if the Department determines such action is appropriate in light of the considerations set forth in paragraph (g)(1). The Department shall notify the member in writing of the Department's determination and inform the member that it may apply for further modification or removal of a restriction by filing an application under paragraph (a).
            (l) Lapse or Denial of Application for Approval of Change in Ownership
            If an application for approval of a change in ownership lapses, or is denied and all appeals are exhausted or waived, the member shall, no more than 60 days after the lapse or exhaustion or waiver of appeal:
            (1) submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws;
            (2) unwind the transaction; or
            (3) file a Form BDW.
            For the protection of investors, the Department may shorten the 60-day period. For good cause shown by the member, the Department may lengthen the 60-day period. The Department shall serve written notice on the Applicant of any change in the 60-day period and the reasons therefor. During the 60-day or other imposed period, the Department may continue to place interim restrictions on the member for the protection of investors.
            Amended by SR-FINRA-2013-015 eff. Feb. 5. 2013.
            Amended by SR-FINRA-2012-018 and SR-FINRA-2012-036 eff. Aug. 27, 2012.
            Amended by SR-FINRA-2012-031 eff. July 23, 2012.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            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.
            Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

            Selected Notices: 00-73, 04-10, 12-32, 12-33, 13-11.

          • 1018. Reserved

             

          • 1019. Application to Commission for Review

            A person aggrieved by final action of FINRA under the Rule 1010 Series may apply for review by the Commission pursuant to Section 19(d)(2) of the Act. The filing of an application for review shall not stay the effectiveness of a decision constituting final action of FINRA, unless the Commission otherwise orders.
            Amended by SR-FINRA-2008-008 eff. June 26, 2008.
            Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

            Selected Notices: 91-11, 92-2, 94-22.

        • 1020. Registration of Principals

          • 1021. Registration Requirements

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) All Principals Must Be Registered
            All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as principals shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1022. Before their registration can become effective, they shall pass a Qualification Examination for Principals appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a principal registration with NASD for any person (1) who is no longer active in the member's investment banking or securities business, (2) who is no longer functioning as a principal, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c). A member shall not make application for the registration of any person as principal where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a principal of a person who performs legal, compliance, internal audit, back-office operations, or similar responsibilities for the member or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.
            (b) Definition of Principal
            Persons associated with a member, enumerated in subparagraphs (1) through (5) hereafter, who are actively engaged in the management of the member's investment banking or securities business, including supervision, solicitation, conduct of business or the training of persons associated with a member for any of these functions are designated as principals. Such persons shall include:
            (1) Sole Proprietors
            (2) Officers
            (3) Partners
            (4) Managers of Offices of Supervisory Jurisdiction, and
            (5) Directors of Corporations.
            (c) Requirements for Examination on Lapse of Registration
            Any person whose registration has been revoked pursuant to Rule 8310 or whose most recent registration as a principal has been terminated for a period of two or more years immediately preceding the date of receipt by the Association of a new application shall be required to pass a Qualification Examination for Principals appropriate to the category of registration as specified in Rule 1022 hereof.
            (d) Application for Principal Status
            (1) Any person associated with a member as a Registered Representative whose duties are changed by the member so as to require registration in any principal classification shall be allowed a period of 90 calendar days following the change in his duties during which to pass the appropriate Qualification Examination for Principals. Upon elevation, the member shall submit to NASD an amended "Uniform Application for Securities Industry Registration or Transfer" and the applicable fees. In no event may a person function as a Principal beyond the initial 90 calendar day period following the change in his duties without having successfully passed the appropriate Qualification Examination.
            (2) Any person not presently associated with a member as a Registered Representative seeking registration as a Principal shall submit the appropriate application for registration and the required registration and examination fees. Such person shall be allowed a period of ninety days after all applicable prerequisites are fulfilled to pass the appropriate Qualification Examination for Principals. In no event may a person previously unregistered in any capacity applying for principal status function as a Principal until fully qualified.
            (e) Requirement of Two Registered Principals for Members
            (1) An NASD member, except a sole proprietorship, shall have at least two officers or partners who are registered as principals with respect to each aspect of the member's investment banking and securities business pursuant to the applicable provisions of Rule 1022. This requirement applies to persons seeking admission as members and existing members.
            (2) Pursuant to the Rule 9600 Series, The Association may waive the provisions of subparagraph (1) in situations that indicate conclusively that only one person associated with an applicant for membership should be required to register as a principal.
            (3) In addition to the provisions of subparagraph (1) above, an applicant for membership, if the nature of its business so requires, shall have at least one person qualified for registration pursuant to Rule 1022(b), (c) and (f).
            Amended by SR-NASD-2003-24 eff. March 3, 2003.
            Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
            Amended by SR-NASD-89-53 eff. Aug. 28, 1990.
            Amended by SR-NASD-89-15 eff. June 8, 1989.
            Amended by SR-NASD-78-16 eff. May 30, 1979.

            Selected Notice: 03-20.

          • 1022. Categories of Principal Registration

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) General Securities Principal
            (1) Each person associated with a member who is included within the definition of principal in Rule 1021, and each person designated as a Chief Compliance Officer on Schedule A of Form BD, shall be required to register with the Association as a General Securities Principal and shall pass an appropriate Qualification Examination before such registration may become effective unless such person's activities are so limited as to qualify such person for one or more of the limited categories of principal registration specified hereafter. A person whose activities in the investment banking or securities business are so limited is not, however, precluded from attempting to become qualified for registration as a General Securities Principal, and if qualified, may become so registered.
            (A) Subject to paragraphs (a)(1)(B), (a)(2), (a)(5) and (a)(6), each person seeking to register and qualify as a General Securities Principal must, prior to or concurrent with such registration, become registered, pursuant to the Rule 1030 Series, either as a General Securities Representative or a Limited Representative—Corporate Securities.
            (B) A person seeking to register and qualify as a General Securities Principal who will have supervisory responsibility over investment banking activities described in NASD Rule 1032(i)(1) must, prior to or concurrent with such registration, become registered as a Limited Representative—Investment Banking.
            (C) A person who has been designated as a Chief Compliance Officer on Schedule A of Form BD for at least two years immediately prior to January 1, 2002, and who has not been subject within the last ten years to any statutory disqualification as defined in Section 3(a)(39) of the Act; a suspension; or 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 shall be required to register as a General Securities Principal, but shall be exempt from the requirement to pass the appropriate Qualification Examination. If such person has acted as a Chief Compliance Officer for a member whose business is limited to the solicitation, purchase and/or sale of "government securities," as that term is defined in Section 3(a)(42)(A) of the Act, or the activities described in Rule 1022(d)(1)(A) or Rule 1022(e)(2), he or she shall be exempt from the requirement to pass the appropriate Qualification Examination only if he or she registers as a Government Securities Principal, or a Limited Principal pursuant to Rules 1022(d) or Rule 1022(e), as the case may be, and restricts his or her activities as required by such registration category. A Chief Compliance Officer who is subject to the Qualification Examination requirement shall be allowed a period of 90 calendar days following January 1, 2002, within which to pass the appropriate Qualification Examination for Principals.
            (2) A Limited Representative—Corporate Securities seeking registration as General Securities Principal who will have supervisory responsibility over the conduct of business in investment company and variable contracts products and/or direct participation programs as defined herein must, prior to or concurrent with registration as a General Securities principal, become registered pursuant to the Rule 1030 Series hereof, as a Limited Representative—Investment Company and Variable Contracts Products and/or a Limited Representative—Direct Participation Programs.
            (3) Except as provided in Rule 1021(c), a person who was registered with NASD as a Principal, shall not be required to pass a Qualification Examination for General Securities Principal and shall be qualified as a General Securities Principal.
            (4) A person registered solely as a General Securities Principal shall not be qualified to function as a Limited Principal—Financial and Operations; Limited Principal—Registered Options and Security Futures; Limited Principal—General Securities Sales Supervisor; Municipal Securities Principal; or Municipal Fund Securities Limited Principal, unless that person is also qualified and registered as such.
            (5) A person registered solely as a General Securities Principal shall not be qualified to supervise the conduct of a "research analyst" as defined in Rule 1050, or a supervisory analyst qualified pursuant to Rule 344 of the New York Stock Exchange who approves research reports on equity securities as permitted by Rule 2210(b)(1), unless such principal has passed a Qualification Examination as specified by the Board of Governors.
            (6)
            (A) Each person associated with a member who is included within the definition of principal in Rule 1021 and who will have supervisory responsibility over the securities trading activities described in Rule 1032(f)(1) shall become qualified and registered as a Securities Trader Principal. To qualify for registration as a Securities Trader Principal, such person shall become qualified and registered as a Securities Trader under Rule 1032(f) and pass the General Securities Principal qualification examination. A person who is qualified and registered as a Securities Trader Principal under this subparagraph (A) may only have supervisory responsibility over the activities specified in Rule 1032(f)(1), unless such person is separately qualified and registered in another appropriate principal registration category, such as the General Securities Principal registration category.
            (B) A person who is registered as a General Securities Principal shall not be qualified to supervise the trading activities described in Rule 1032(f)(1), unless such person has also become qualified and registered as a Securities Trader under Rule 1032(f) by passing the Securities Trader qualification examination and become registered as a Securities Trader Principal.
            (b) Limited Principal—Financial and Operations
            (1) Every member of the Association, that is operating pursuant to the provisions of SEC Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8), shall designate as Limited Principal—Financial and Operations those persons associated with it, at least one of whom shall be its chief financial officer, who performs the duties described in subparagraph (2) hereof. Each person associated with a member who performs such duties shall be required to register as a Limited Principal—Financial and Operations with the Association and shall pass an appropriate Qualification Examination before such registration may become effective.
            (2) The term "Limited Principal—Financial and Operations" shall mean a person associated with a member whose duties include:
            (A) final approval and responsibility for the accuracy of financial reports submitted to any duly established securities industry regulatory body;
            (B) final preparation of such reports;
            (C) supervision of individuals who assist in the preparation of such reports;
            (D) supervision of and responsibility for individuals who are involved in the actual maintenance of the member's books and records from which such reports are derived;
            (E) supervision and/or performance of the member's responsibilities under all financial responsibility rules promulgated pursuant to the provisions of the Act;
            (F) overall supervision of and responsibility for the individuals who are involved in the administration and maintenance of the member's back office operations; or
            (G) any other matter involving the financial and operational management of the member.
            (3) A person registered solely as a Limited Principal—Financial and Operations shall not be qualified to function in a principal capacity with responsibility over any area of business activity not described in subparagraph (2) hereof.
            (c) Limited Principal—Introducing Broker/Dealer Financial and Operations
            (1) Every member of the Association, that is subject to the requirements of SEC Rule 15c3-1, other than a member operating pursuant to SEC Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8) in which case paragraph (b) shall apply, shall designate as Limited Principal—Introducing Broker/Dealer Financial and Operations those persons associated with it, at least one of whom shall be its chief financial officer, who perform the duties described in subparagraph (2) hereof. Each person associated with a member who performs such duties shall be required to register as a Limited Principal—Introducing Broker/Dealer Financial and Operations with the Association and shall pass an appropriate Qualification Examination before such registration may become effective.
            (2) The term "Limited Principal—Introducing Broker/Dealer Financial and Operations" shall mean a person associated with a member whose duties include:
            (A) final approval and responsibilities for the accuracy of financial reports submitted to any duly established securities industry regulatory body;
            (B) final preparation of such reports;
            (C) supervision of individuals who assist in the preparation of such reports;
            (D) supervision of and responsibility for individuals who are involved in the actual maintenance of the member's books and records from which such reports are derived;
            (E) supervision and/or performance of the member's responsibilities under all financial responsibility rules promulgated pursuant to the provisions of the Act;
            (F) overall supervision of and responsibility for the individuals who are involved in the administration and maintenance of the member's back office operations; or
            (G) any other matter involving the financial and operational management of the member.
            (3) Except as provided in Rule 1021(c), a person designated pursuant to the provisions of subparagraph (1) hereof, shall not be required to take the Limited Principal—Introducing Broker/Dealer Financial and Operations Examination and shall be qualified for registration as a Limited Principal—Introducing Broker/Dealer Financial and Operations if such a person is qualified to be registered or is registered as a Limited Principal—Financial and Operations as defined in paragraph (b)(2) hereof.
            (4) A person registered solely as a Limited Principal—Introducing Broker/Dealer Financial and Operations shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in subparagraph (2), hereof. Such person shall not be qualified to function in a principal capacity at a member unless such member operates under subparagraph (1), hereof.
            (d) Limited Principal—Investment Company and Variable Contracts Products
            (1) Each person associated with a member who is included within the definition of principal in Rule 1021, may register with the Association as a Limited Principal—Investment Company and Variable Contracts Products if:
            (A) his activities in the investment banking and securities business are limited to the solicitation, purchase and/or sale of:
            (i) redeemable securities of companies registered pursuant to the Investment Company Act of 1940;
            (ii) securities of closed-end companies registered pursuant to the Investment Company Act of 1940 during the period of original distribution only; and,
            (iii) variable contracts and insurance premium funding programs and other contracts issued by an insurance company except contracts which are exempt securities pursuant to Section 3(a)(8) of the Securities Act of 1933;
            (B) he is registered, pursuant to Rule 1030 Series, as either a General Securities Representative or a Limited Representative—Investment Company and Variable Contracts Products; and
            (C) he passes an appropriate Qualification Examination for Limited Principal—Investment Company and Variable Contracts Products.
            (2) A person registered solely as a Limited Principal—Investment Company and Variable Contracts Products shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in subparagraph (1) hereof.
            (e) Limited Principal—Direct Participation Programs
            (1) Each person associated with a member who is included within the definition of principal in Rule 1021 may register with the Association as a Limited Principal—Direct Participation Program if:
            (A) his activities in the investment banking and securities business are limited solely to the equity interests in or the debt of direct participation programs as defined in subparagraph (2) hereof;
            (B) he is registered pursuant to the Rule 1030 Series, as either a General Securities Representative or a Limited Representative—Direct Participation Programs; and
            (C) he passes an appropriate Qualification Examination for Limited Principal—Direct Participation Programs.
            (2) For purposes of the Rule 1000 Series, "direct participation programs" shall mean programs that provide for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. Excluded from this definition are real estate investment trusts, tax qualified pension and profit sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code (Code) and individual retirement plans under Section 408 of the Code, tax sheltered annuities pursuant to the provisions of Section 403(b) of the Code and any company including separate accounts registered pursuant to the Investment Company Act of 1940. Also excluded from this definition is any program that is listed on a national securities exchange or any program for which an application for listing on a national securities exchange has been made.
            (3) A person registered solely as a Limited Principal—Direct Participation Programs shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in subparagraph (1) hereof.
            (f) Limited Principal—Registered Options and Security Futures
            (1) Every member of NASD that is engaged in, or that intends to engage in transactions in security futures or options with the public shall have at least one Registered Options and Security Futures Principal who shall have satisfied the requirements of this subparagraph. Every person engaged in the supervision of options and security futures sales practices, including a person designated pursuant to Rule 3010(a)(2) shall be registered as a Registered Options and Security Futures Principal.
            (2) Each person required by subparagraph (f)(1) to be a Registered Options and Security Futures Principal shall pass the appropriate Qualification Examination for Registered Options and Security Futures Principal, or an equivalent examination acceptable to the Association, for the purpose of demonstrating an adequate knowledge of options and security futures trading generally, the Rules of the Association applicable to trading of option and security futures contracts and the rules of registered clearing agencies for options and security futures, and be registered as such before engaging in the duties or accepting the responsibilities of a Registered Options and Security Futures Principal.
            (3) Each person required to register and qualify as a Registered Options and Security Futures Principal must, prior to or concurrent with such registration, be or become qualified pursuant to the Rule 1030 Series, as either a General Securities Representative or a Limited Representative—Corporate Securities and a Registered Options and Security Futures Representative.
            (4) A person registered solely as a Registered Options and Security Futures Principal shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in subparagraph (1).
            (5) Any person who is registered with NASD as a Registered Options and Security Futures Principal, or who becomes registered as a Registered Options and Security Futures Principal, must complete a firm-element continuing education program that addresses security futures and a principal's responsibilities for security futures before such person can supervise security futures activities.
            (g) Limited Principal—General Securities Sales Supervisor
            (1) Each person associated with a member who is included in the definition of principal in Rule 1021 may register with the Association as a Limited Principal—General Securities Sales Supervisor if:
            (A) his supervisory responsibilities in the investment banking and securities business are limited to the securities sales activities of a member, including the training of sales and sales supervisory personnel and the maintenance of records of original entry and/or ledger accounts of the member required to be maintained in branch offices by SEC record keeping rules;
            (B) he is registered pursuant to the Rule 1030 series as a General Securities Representative; and
            (C) he is qualified to be so registered by passing an appropriate examination.
            (2) A person registered in this category solely on the basis of having passed the Qualification Examination for Limited Principal—General Securities Sales Supervisor shall NOT be qualified to:
            (A) function in a principal capacity with responsibility over any area of business activity not prescribed in subparagraph (1);
            (B) be included for purposes of the principal numerical requirements of Rule 1021(e)(1); or
            (C) perform for a member any or all of the following activities:
            (i) supervision of the origination and structuring of underwritings;
            (ii) supervision of market making commitments;
            (iii) supervision of the custody of firm or customer funds or securities for purposes of SEC Rule 15c3-3; or
            (iv) supervision of overall compliance with financial responsibility rules for broker-dealers promulgated pursuant to the provisions of the Act.
            (3) Any person who is registered with NASD as a Limited Principal—General Securities Sales Supervisor, or who becomes registered as a Limited Principal—General Securities Sales Supervisor, must complete a firm-element continuing education program that addresses security futures and a principal's responsibilities for security futures before such person can supervise security futures activities.
            (h) Limited Principal—Government Securities
            (1) All persons associated with a member not previously registered as a principal who are to function as government securities principals shall be registered as such with NASD.
            (2) Each person associated with a member must be registered as a Limited Principal—Government Securities if such person is:
            (A) engaged in the management or supervision of the member's government securities business, including:
            (i) underwriting, trading or sales of government securities;
            (ii) financial advisory or consultant services for issuers in connection with the issuance of government securities;
            (iii) research or investment advice, other than general economic information or advice, with respect to government securities in connection with the activities described in (i) and (ii) above;
            (iv) activities other than those specifically described above that involve communication, directly or indirectly, with public investors in government securities in connection with the activities described in (i) and (ii) above; or
            (B) responsible for supervision of:
            (i) the processing and clearance activities with respect to government securities; or
            (ii) the maintenance of records involving any of the activities described in paragraph (2)(A) above.
            (3) Notification of Principal Status
            A member shall promptly notify NASD when an individual not previously registered with the member as a principal assumes the duties of a principal on the form designated by the Board accompanied by the applicable fees.
            Amended by SR-FINRA-2015-017 eff. Jan. 4, 2016.
            Amended by SR-FINRA-2015-052 eff. Dec. 31, 2015.
            Amended by SR-FINRA-2013-014 eff. Feb. 4, 2013.
            Amended by SR-FINRA-2012-055 eff. Dec. 31, 2012.
            Amended by SR-FINRA-2009-092 eff. Dec. 31, 2009.
            Amended by SR-FINRA-2009-006 eff. Nov. 2, 2009.
            Amended by SR-FINRA-2007-035 eff. June 23, 2008.
            Amended by SR-NASD-2006-118 eff. Nov. 15, 2006.
            Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
            Amended by SR-NASD-2004-078 eff. Aug. 2, 2005.
            Amended by SR-NASD-2003-24 eff. March 3, 2003.
            Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
            Amended by SR-NASD-99-46 eff. Jan 1, 2002.
            Amended by SR-NASD-2000-77 eff. Sept. 17, 2001.
            Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
            Amended by SR-NASD-95-39 eff. Aug 20, 1996.
            Amended by SR-NASD-91-65 eff. Mar. 4, 1992.
            Amended by SR-NASD-89-24 eff. Aug. 24, 1989.
            Amended by SR-NASD-88-27 eff. Aug. 25, 1988.
            Amended by SR-NASD-84-30 eff. Jan. 23, 1985.
            Amended by SR-NASD-81-13 eff. Dec. 7, 1981.
            Amended by SR-NASD-80-01 eff. June 26, 1980.
            Amended by SR-NASD-78-16 eff. May 30, 1979.
            Amended by SR-NASD-77-23 eff. Nov. 15, 1978.

            Selected Notices: 01-51, 01-52, 03-20, 04-81, 08-28, 09-41, 15-45.

            • IM-1022-1. Limited Principal—Registered Options and Security Futures

              SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

              Members having a single Registered Options and Security Futures Principal are required promptly to notify the Association in the event such person is terminated, resigns, becomes incapacitated or is otherwise unable to perform the duties of an Options and Security Futures Principal.
              Following receipt of such notification, the Association will require members to agree, in writing, to refrain from engaging in any options- or security futures-related activities that would necessitate the prior or subsequent approval of an Options and Security Futures Principal including, among other things, the opening of new options or security futures accounts or the execution of discretionary orders for option or security futures contracts until such time as a new Registered Options and Security Futures Principal has been qualified.
              Members failing to qualify a new Registered Options and Security Futures Principal within two weeks following the loss of their sole Registered Options and Security Futures Principal, or by the earliest available date for administration of the Registered Options and Security Futures Principal examination, whichever is longer, shall be required to cease doing an options and security futures business; provided, however, they may effect closing transactions in options and offsetting transactions in security futures to reduce or eliminate existing open options security futures positions in their own account as well as the accounts of their customers.
              Amended by SR-NASD-2003-24 eff. March 3, 2003.
              Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
              Adopted by SR-NASD-79-15 eff. Feb. 22, 1980.

              Selected Notice: 03-20.

            • IM-1022-2. Limited Principal—General Securities Sales Supervisor

              SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

              Limited Principal—General Securities Sales Supervisor is an alternate category of registration designed to lessen the qualification burdens on principals of general securities firms who supervise sales. Without this category of limited registration, such principals could be required to separately qualify pursuant to the rules of the NASD, MSRB, NYSE and the options exchanges. While persons may continue to separately qualify with all relevant self-regulatory organizations, the Limited Principal—General Securities Sales Supervisor Examination permits qualification as a supervisor of sales of all securities by one examination. Persons registered as Limited Principals—General Securities Sales Supervisor may also qualify in any other category of principal registration. Persons who are already qualified in one or more categories of principal registration may supervise sales activities of all securities by also qualifying as Limited Principals—General Securities Sales Supervisor.
              Functions that may be performed by Limited Principals—General Securities Sales Supervisors. Any person required to be registered as a principal who supervises sales activities in corporate, municipal and option securities, investment company products, variable contracts, direct participation programs, and security futures may be registered solely as a Limited Principal—General Securities Sales Supervisor. In addition to branch office managers, other persons such as regional and national sales managers may also be registered solely as Limited Principals—General Securities Sales Supervisor as long as they supervise only sales activities. Qualification as a General Securities Representative is a prerequisite for registration as a Limited Principal—General Securities Sales Supervisor.
              Functions that may not be performed by Limited Principals—General Securities Sales Supervisors. Certain functions may not be performed by persons registered solely as Limited Principal—General Securities Sales Supervisor. These include supervisory responsibility for the origination and structuring of underwritings, market-making, custody of firm or customer funds or securities for purposes of SEC Rule 15c3-3 and overall compliance with financial responsibility rules for broker-dealers. Persons responsible for any of these activities are still required to qualify in the appropriate categories of principal registration. Moreover, persons qualified only as Limited Principals—General Securities Sales Supervisor are not included for purposes of the two principal requirements of Rule 1021(e)(1).
              Amended by SR-FINRA-2013-014 eff. Feb. 4, 2013.
              Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
              Amended by SR-NASD-99-46 eff. Jan 1, 2002.
              Amended by SR-NASD-2000-77 eff. Sept. 17, 2001.
              Amended eff. May 30, 1979; Feb. 28, 1980; May 15, 1980; Aug. 1, 1980; June 1, 1981; Dec. 7, 1981; July 26, 1984; May 20, 1988; Aug. 25, 1988; July 17, 1989; Aug. 24, 1989; Jan. 4, 1990; Aug. 28, 1990; Mar. 11, 1992.

              Selected Notice: 92-20, 01-52.

        • 1030. Registration of Representatives



          Cross References–

          IM-2420-2, Continuing Commissions Policy
          Rule 8311, Effect of Suspension, Revocation or Bar

          • 1031. Registration Requirements

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) All Representatives Must Be Registered
            All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1032. Before their registration can become effective, they shall pass a Qualification Examination for Representatives appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a representative registration with NASD for any person (1) who is no longer active in the member's investment banking or securities business, (2) who is no longer functioning as a representative, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c). A member shall not make application for the registration of any person as representative where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a representative of a person who performs legal, compliance, internal audit, back-office operations, or similar responsibilities for the member, or a person who performs administrative support functions for registered personnel, or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.
            (b) Definition of Representative
            Persons associated with a member, including assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.
            (c) Requirement for Examination on Lapse of Registration
            Any person whose registration has been revoked pursuant to Rule 8310 or whose most recent registration as a representative or principal has been terminated for a period of two (2) or more years immediately preceding the date of receipt by the Association of a new application shall be required to pass a Qualification Examination for Representatives appropriate to the category of registration as specified in Rule 1032.

            Cross Reference–

            Rule 8311, Effect of Suspension, Revocation, or Bar

            Amended by SR-NASD-2003-24 eff. March 3, 2003.
            Amended by SR-NASD-89-53 eff. Aug. 28, 1990.
            Amended by SR-NASD-89-15 eff. June 8, 1989.
            Amended by SR-NASD-80-01 eff. June 26, 1980.

          • 1032. Categories of Representative Registration

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) General Securities Representative
            (1) Each person associated with a member who is included within the definition of a Representative in Rule 1031, shall be required to register with the Association as a General Securities Representative and shall pass an appropriate Qualification Examination before such registration may become effective unless his activities are so limited as to qualify him for one or more of the limited categories of representative registration specified hereafter. A person whose activities in the investment banking or securities business are so limited is not, however, precluded from attempting to become qualified for registration as a General Securities Representative, and if qualified, may become so registered.
            (2) Except as provided in Rule 1031(c):
            (A) A person who is registered with the Association as a General Securities Representative, or who becomes registered as a General Securities Representative, must complete a firm-element continuing education program that addresses security futures products before such person can act as a General Securities Representative with regard to security futures products.
            (B) A person who is authorized or approved to conduct business in accordance with the requirements of The Financial Services Authority and having passed the Modified General Securities Representative Qualification Examination shall be qualified to be registered as a General Securities Representative except that such person's activities in the investment banking or securities business may not involve the solicitation, purchase and/or sale of municipal securities as defined in Section 3(a)(29) of the Act.
            (C) A person presently registered and in good standing as a representative with any Canada stock exchange, or with a securities regulator of any Canadian Province or Territory, or with the Investment Dealers Association of Canada, and who has completed the training course of the Canadian Securities Institute, and who has passed the Canada Module of the General Securities Registered Representative Examination, shall be qualified to be registered as a General Securities Representative except that such person's activities may not involve the solicitation, purchase and/or sale of municipal securities as defined in Section 3(a)(29) of the Act.
            (D) A person presently registered and in good standing as a representative with any Japan stock exchange, or with any Japan Securities Dealers Association, and who has passed the Japan Module of the General Securities Registered Representative Examination, shall be qualified to be registered as a General Securities Representative except that such person's activities may not involve the solicitation, purchase and/or sale of municipal securities as defined in Section 3(a)(29) of the Act.
            (3) A person registered as a General Securities Representative shall not be qualified to function as a Registered Options and Security Futures Representative unless he or she is also qualified and registered as such pursuant to the provisions of paragraph (d).
            (b) Limited Representative—Investment Company and Variable Contracts Products
            (1) Each person associated with a member who is included within the definition of a representative in Rule 1031 may register with the Association as a Limited Representative—Investment Company and Variable Contracts Products if:
            (A) his activities in the investment banking or securities business are limited solely to those activities enumerated in Rule 1022(d)(1), and
            (B) he passes an appropriate Qualification Examination for Limited Representative—Investment Company and Variable Contracts Products.
            (2) A person qualified solely as a Limited Representative—Investment Company and Variable Contracts Products shall not be qualified to function as a representative in any area not described in paragraph (b)(1)(A) hereof.
            (c) Limited Representative—Direct Participation Programs
            (1) Each person associated with a member who is included within the definition of a representative in Rule 1031 may register with the Association as a Limited Representative—Direct Participation Programs if:
            (A) his activities in the investment banking or securities business are limited solely to the solicitation, purchase and/or sale of equity interests in or debt of direct participation programs as defined in Rule 1022(e)(2), and
            (B) he passes an appropriate Qualification Examination for Limited Representative—Direct Participation Programs.
            (2) A person qualified solely as a Limited Representative—Direct Participation Programs shall not be qualified to function in any area not described in subparagraph (1) hereof.
            (d) Limited Representative—Options and Security Futures
            (1) Each person associated with a member who is included within the definition of a representative as defined in Rule 1031 may register with the Association as a Limited Representative—Options and Security Futures if:
            (A) such person's activities in the investment banking or securities business of the member involve the solicitation or sale of option or security futures contracts, including option contracts on government securities as that term is defined in Section 3(a)(42)(D) of the Act, for the account of a broker, dealer or public customer; and
            (B) such person passes an appropriate qualification examination for Limited Representative—Options and Security Futures.
            (2) Each person seeking to register and qualify as a Limited Representative—Options and Security Futures must, concurrent with or before such registration may become effective, become registered pursuant to the Rule 1032 Series, either as a Limited Representative—Corporate Securities or Limited Representative—Government Securities.
            (3) A person registered as a Limited Representative—Options and Security Futures shall not be qualified to function in any area not described in subparagraph (1)(A) hereof.
            (4) Any person who is registered with the Association as a Limited Representative—Options and Security Futures, or who becomes registered as a Limited Representative—Options and Security Futures, must complete a firm-element continuing education program that addresses security futures before such person can act as a Limited Representative—Options and Security Futures with regard to security futures products.
            (e) Limited Representative—Corporate Securities
            (1) Each person associated with a member who is included within the definition of a representative in Rule 1031 may register with the Association as a Limited Representative—Corporate Securities if:
            (A) Such person's activities in the investment banking or securities business involve the solicitation, purchase, and/or sale of a "security," as that term is defined in Section 3(a)(10) of the Act, and do not include such activities with respect to the following securities unless such person is separately qualified and registered in the category or categories of registration related to these securities:
            (i) Municipal securities as defined in Section 3(a)(29) of the Act;
            (ii) Option securities as defined in Rule 2860;
            (iii) Redeemable securities of companies registered pursuant to the Investment Company Act of 1940, except for money market funds;
            (iv) Variable contracts of insurance companies registered pursuant to the Securities Act of 1933; and/or
            (v) Direct Participation Programs as defined in Rule 1022(e)(1)(A).
            (B) Such person passes an appropriate qualification examination for Limited Representative—Corporate Securities.
            (2) A person qualified solely as a Limited Representative—Corporate Securities shall not be qualified to function in any area not prescribed by subparagraph (1) hereof.
            (f) Securities Trader
            (1) Each person associated with a member must register with the Association as a Securities Trader if such person is:
            (A) included within the definition of representative, as defined in Rule 1031 and, with respect to transactions in equity, preferred or convertible debt securities effected otherwise than on a securities exchange, such person is engaged in proprietary trading, the execution of transactions on an agency basis, or the direct supervision of such activities, other than any person associated with a member whose trading activities are conducted principally on behalf of an investment company that is registered with the Commission pursuant to the Investment Company Act of 1940 and that controls, is controlled by or is under common control, with the member; or
            (B) (i) primarily responsible for the design, development or significant modification of an algorithmic trading strategy relating to equity, preferred or convertible debt securities; or (ii) responsible for the day-to-day supervision or direction of such activities. An "algorithmic trading strategy" is an automated system that generates or routes orders (or order-related messages) but shall not include an automated system that solely routes orders received in their entirety to a market center.
            (2) Before registration as a Securities Trader as defined in subparagraph (1) hereof may become effective, an applicant must . . . pass the Securities Trader qualification examination.
            (3) A person registered as a Securities Trader shall not be qualified to function in any other registration category, unless he or she is also qualified and registered in such other registration category.
            (g) Limited Representative—Government Securities
            (1) Each person associated with a member who is included within the definition of a representative as defined in Rule 1031 may register with the Association as a Limited Representative—Government Securities if:
            (A) such person's activities in the investment banking or securities business involve the solicitation, purchase or sale of "government securities," as that term is defined in Section 3(a)(42)(A) through (C) of the Act, for the account of a broker, dealer or public customer, and
            (B) such person passes an appropriate qualification examination for Limited Representative—Government Securities.
            (2) A person registered solely as a Limited Representative—Government Securities shall not be qualified to function in any area not described in subparagraph (1)(A) hereof.
            (h) Limited Representative—Private Securities Offerings
            (1) Each person associated with a member who is included within the definition of a representative as defined in Rule 1031 may register with the Association as a Limited Representative—Private Securities Offerings if:
            (A) such person's activities in the investment banking and securities business involve effecting sales as part of a primary offering of securities not involving a public offering, pursuant to Section 3(b), 4(2) or 4(6) of the Securities Act of 1933 and the rules and regulations thereunder, provided, however, that such person shall not effect sales of municipal or government securities, or equity interests in or the debt of direct participation programs as defined in Rule 1022(e)(2); and
            (B) subject to subparagraph (2) hereof, such person passes an appropriate qualification examination for Limited Representative—Private Securities Offerings.
            (2) The Association shall, upon such evidence as the Association determines to be appropriate, deem any person who while employed by a bank, engaged in effecting sales of private securities offerings as described in subparagraph (1)(A) hereof, during the period from May 12, 1999 to November 12, 1999, as qualified to register as a Limited Representative—Private Securities Offerings without the need to pass the qualification examination required by subparagraph (1)(B) hereof.
            (3) A person registered as a Limited Representative—Private Securities Offerings shall not be qualified to function in any area not described in subparagraph (1)(A) hereof.
            (i) Limited Representative—Investment Banking
            (1) Each person associated with a member who is included within the definition of a representative as defined in NASD Rule 1031 shall be required to register with FINRA as a Limited Representative—Investment Banking and pass a qualification examination as specified by the Board of Governors if such person's activities involve:
            (A) advising on or facilitating debt or equity securities offerings through a private placement or a public offering, including but not limited to origination, underwriting, marketing, structuring, syndication, and pricing of such securities and managing the allocation and stabilization activities of such offerings, or
            (B) advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions, including but not limited to rendering a fairness, solvency or similar opinion.
            (2) Notwithstanding the foregoing, an associated person shall not be required to register as a Limited Representative—Investment Banking if such person's activities described in paragraph (i)(1) are limited to:
            (A) advising on or facilitating the placement of direct participation program securities as defined in NASD Rule 1022(e)(2);
            (B) effecting private securities offerings as defined in paragraph (h)(1)(A); or
            (C) retail or institutional sales and trading activities.
            (3) An associated person who participates in a new employee training program conducted by a member shall not be required to register as a Limited Representative—Investment Banking for a period of up to six months from the time the associated person first engages within the program in activities described in paragraphs (i)(1)(A) or (B), but in no event more than two years after commencing participation in the training program. This exception is conditioned upon the member maintaining records that:
            (A) evidence the existence and details of the training program, including but not limited to its scope, length, eligible participants and administrator; and
            (B) identify those participants whose activities otherwise would require registration as a Limited Representative—Investment Banking and the date on which each participant commenced such activities.
            (4) Any person qualified solely as a Limited Representative—Investment Banking shall not be qualified to function in any area not described in paragraph (i)(1) hereof, unless such person is separately qualified and registered in the appropriate category or categories of registration.
            (5) Any person who was registered with FINRA as a Limited Representative—Corporate Securities or General Securities Representative (including persons who passed the UK (Series 17) or Canada (Series 37/38) Modules of the Series 7) prior to November 2, 2009, shall be qualified to be registered as a Limited Representative—Investment Banking without first passing the qualification examination set forth in paragraph (i)(1), provided that such person requests registration as a Limited Representative—Investment Banking within the time period prescribed by FINRA.
            Amended by SR-FINRA-2016-007 eff. Jan. 30, 2017.
            Amended by SR-FINRA-2015-017 eff. Jan. 4, 2016.
            Amended by SR-FINRA-2015-052 eff. Dec. 31, 2015.
            Amended by SR-FINRA-2012-055 eff. Dec. 31, 2012.
            Amended by SR-FINRA-2009-092 eff. Dec. 31, 2009.
            Amended by SR-FINRA-2009-006 eff. Nov. 2, 2009.
            Amended by SR-NASD-2006-118 eff. Nov. 15, 2006.
            Amended by SR-NASD-2003-24 eff. March 3, 2003.
            Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
            Amended by SR-NASD-2000-69 eff. May 12, 2001.
            Amended by SR-NASD-2000-25 eff. April 26, 2000.
            Amended by SR-NASD-98-43 eff. June 12, 1998.
            Amended by SR-NASD-97-23 eff. April 1, 1998.
            Amended by SR-NASD-97-21 eff. April 1, 1998.
            Amended by SR-NASD-96-13 eff. Apr. 12, 1996.
            Amended by SR-NASD-96-04 eff. Feb. 9, 1996.
            Amended by SR-NASD-91-65 eff. Mar. 4, 1992.
            Amended by SR-NASD-90-46 eff. Aug. 28, 1990.
            Amended by SR-NASD-88-27 eff. Aug. 25, 1988.
            Amended by SR-NASD-80-01 eff. June 26, 1980.

            Selected Notices: 87-76, 88-38, 88-49, 88-50, 89-49, 89-78, 90-69, 92-20, 96-26, 00-27, 01-39, 03-20, 06-63, 09-41, 15-45, 16-21.

        • 1040. Registration of Assistant Representatives and Proctors

          • 1041. Registration Requirements for Assistant Representatives

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) All Assistant Representatives — Order Processing Must Be Registered
            All persons associated with a member who are to function as Assistant Representatives — Order Processing shall be registered with the Association. Before their registrations can become effective, they shall pass a Qualification Examination for Assistant Representatives — Order Processing as specified by the Board of Governors.
            (b) Definition of Assistant Representative — Order Processing
            Persons associated with a member who accept unsolicited customer orders for submission for execution by the member are designated as Assistant Representatives — Order Processing.
            (c) Requirement for Examination on Lapse of Registration
            Any persons whose most recent registration as an Assistant Representative — Order Processing has been terminated for a period of two (2) or more years immediately preceding the date of receipt by the Association of a new application shall be required to pass a Qualification Examination for Assistant Representative — Order Processing.
            Amended by SR-NASD-2002-110 eff. Dec. 2, 2002.
            Amended by SR-NASD-88-26 eff. June 12, 1989.

            Selected Notice: 02-77.

          • 1042. Restrictions for Assistant Representatives

            SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

            (a) Prohibited Activities
            An Assistant Representative — Order Processing may not solicit transactions or new accounts on behalf of the member, render investment advice, make recommendations to customers regarding the appropriateness of securities transactions, or effect transactions in securities markets on behalf of the member. Persons registered in this category may not be registered concurrently in any other capacity.
            (b) Compensation
            Members may only compensate Assistant Representatives — Order Processing on an hourly wage or salaried basis and may not in any way, directly or indirectly, relate their compensation to the number or size of transactions effected for customers. This provision shall not prohibit persons registered in this capacity from receiving bonuses or other compensation based on a member's profit sharing plan or similar arrangement.
            (c) Supervision
            The activities of Assistant Representatives — Order Processing may only be conducted at a business location of the member that is under the direct supervision of an appropriately registered principal.
            Amended by SR-NASD-2002-110 eff. Dec. 2, 2002.
            Amended by SR-NASD-88-26 eff. June 12, 1989.

            Selected Notice: 02-77.

        • 1050. Registration of Research Analysts

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          (a) All persons associated with a member who are to function as research analysts shall be registered with FINRA. Before registration as a Research Analyst can become effective, an applicant shall:

          (1) be registered pursuant to NASD Rule 1032 as a General Securities Representative; and

          (2) pass a Qualification Examination for Research Analysts as specified by the Board of Governors.

          (b) For the purposes of this Rule 1050, "research analyst" shall mean an associated person whose primary job function is to provide investment research and who is primarily responsible for the preparation of the substance of a research report or whose name appears on a research report.

          (c) Upon written request pursuant to the FINRA Rule 9600 Series, FINRA will grant a waiver from the analytical portion of the Research Analyst Qualification Examination (Series 86) upon verification that the applicant has:
          (1) passed Levels I and II of the Chartered Financial Analyst ("CFA") Examination; or
          (2) passed Levels I and II of the Chartered Market Technician ("CMT") Examination, if the applicant functions as a research analyst who prepares only technical research reports as defined in paragraph (e); and
          (3) either functioned as a research analyst continuously since having passed the Level II CFA or CMT examination or applied for registration as a research analyst within two years of having passed the Level II CFA or CMT examination.

          (d) An applicant who has been granted an exemption pursuant to paragraph (c) still must become registered as a General Securities Representative and then complete the regulatory portion of the Research Analyst Qualification Examination (Series 87) before that applicant can be registered as a Research Analyst.
          (e) For the purposes of paragraph (c)(2), a "technical research report" shall mean a research report, as that term is defined in FINRA Rule 2241(a), that is based solely on stock price movement and trading volume and not on a subject company's financial information, business prospects, contact with subject company's management, or the valuation of a subject company's securities.
          (f) The requirements of paragraph (a) shall not apply to an associated person who:
          (1) is an employee of a non-member foreign affiliate of a member ("foreign research analyst"),
          (2) resides outside the United States, and
          (3) contributes, partially or entirely, to the preparation of globally branded or foreign affiliate research reports but does not contribute to the preparation of a member's research, including a mixed-team report, that is not globally branded.
          Provided that the following conditions are satisfied:
          (A) A member that publishes or otherwise distributes globally branded research reports partially or entirely prepared by a foreign research analyst must subject such research to pre-use review and approval by a registered principal in accordance with NASD Rule 1022(a)(5) or a supervisory analyst pursuant to NYSE Rule 344.11. In addition, the member must ensure that such research reports comply with FINRA Rule 2241, as applicable.
          (B) In publishing or otherwise distributing globally branded research reports partially or entirely prepared by a foreign research analyst, a member must prominently disclose:
          (i) each affiliate contributing to the research report;
          (ii) the names of the foreign research analysts employed by each contributing affiliate;
          (iii) that such research analysts are not registered/qualified as research analysts with FINRA; and
          (iv) that such research analysts may not be associated persons of the member and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
          (C) The disclosures required by paragraph (f)(3)(B) of this Rule must be presented on the front page of the research report or the front page must refer to the page on which the disclosures can be found. In electronic research reports, a member may hyperlink to the disclosures. References and disclosures must be clear, comprehensive and prominent.
          (D) Members must establish and maintain records that identify those individuals who have availed themselves of this exemption, the basis for such exemption, and evidence of compliance with the conditions of the exemption. Failure to establish and maintain such records shall create an inference of a violation of Rule 1050. Members must also establish and maintain records that evidence compliance with the applicable content, disclosure and supervision provisions of FINRA Rule 2241. Members must maintain these records in accordance with the supervisory requirements of NASD Rule 3010, and in addition to such requirement, the failure to establish and maintain such records shall create an inference of a violation of the applicable content, disclosure and supervision provisions of FINRA Rule 2241.
          (E) Nothing in paragraph (f) of this Rule shall affect the obligation of any person or broker-dealer, including a foreign broker-dealer, to comply with the applicable provisions of the federal securities laws, rules and regulations and any self-regulatory organization rules.
          (F) The fact that a foreign research analyst avails himself of the exemption in paragraph (f) shall not be probative of whether that individual is an associated person of the member for other purposes, including whether the foreign research analyst is subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
          (G) A member that distributes non-member foreign affiliate research reports that are clearly and prominently labeled as such must comply with the third-party research report requirements in FINRA Rule 2241(h).
          (H) For the purposes of the exemption in paragraph (f), the terms "affiliate," "globally branded research report" and "mixed-team research report" shall have the following meanings:
          (i) "Affiliate" shall mean a person that directly or indirectly controls, is controlled by, or is under common control with, a member.
          (ii) "Globally branded research report" refers to the use of a single marketing identity that encompasses the member and one or more of its affiliates.
          (iii) "Mixed-team research report" refers to any member research report that is not globally branded and includes a contribution by a research analyst who is not an associated person of the member.
          Amended by SR-FINRA-2015-047 eff. Sept. 25, 2015.
          Amended by SR-FINRA-2007-010 eff. April 7, 2008.
          Amended by SR-NASD-2005-043 eff. April 1, 2005.
          Amended by SR-NASD-2005-022 eff. Feb. 4, 2005.
          Amended by SR-NASD-2004-020 eff. March 30, 2004.
          Amended by SR-NASD-2004-010 eff. Jan. 16, 2004.
          Adopted by SR-NASD-2002-154 eff. July 29, 2003.

          Selected Notices: 03-44, 15-30.

        • 1060. Persons Exempt from Registration

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          (a) The following persons associated with a member are not required to be registered with the Association:

          (1) persons associated with a member whose functions are solely and exclusively clerical or ministerial;

          (2) persons associated with a member who are not actively engaged in the investment banking or securities business;

          (3) persons associated with a member whose functions are related solely and exclusively to the member's need for nominal corporate officers or for capital participation; and

          (4) persons associated with a member whose functions are related solely and exclusively to:

          (A) effecting transactions on the floor of a national securities exchange and who are registered as floor members with such exchange;

          (B) transactions in municipal securities;

          (C) transactions in commodities; or

          (D) transactions in security futures, provided that any such person is registered with a registered futures association.

          Amended by SR-FINRA-2014-037 eff. Aug. 24, 2015.
          Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
          Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
          Amended by SR-NASD-95-39 eff. Aug. 20, 1996.
          Amended by SR-NASD-94-51 eff. Feb. 15, 1995.
          Amended by SR-NASD-88-12 eff. Nov. 2, 1988.
          Amended by SR-NASD-80-01 eff. June 26, 1980.

          Selected Notices: 95-37, 15-07.

        • 1070. Qualification Examinations and Waiver of Requirements

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          (a) Qualification Examinations specified in this Rule 1000 Series shall consist of a series of questions based upon topics contained in study outlines provided by the Association, a list of which is available from the Qualifications & Examination Department.

          (b) Examinations shall be given at such times and places and under such conditions as shall be prescribed by the Board of Governors and shall be graded according to the procedure prescribed by the Board.

          (c) Examination results shall be reported to member firms and may be accompanied by an analysis of the candidate's performance on the examination. Passing scores assigned to each examination series shall be determined by the Board of Governors, or its designee.

          (d) Pursuant to the Rule 9600 Series, NASD may, in exceptional cases and where good cause is shown, waive the applicable Qualification Examination and accept other standards as evidence of an applicant's qualifications for registration. Advanced age or physical infirmity will not individually of themselves constitute sufficient grounds to waive a Qualification Examination. Experience in fields ancillary to the investment banking or securities business may constitute sufficient grounds to waive a Qualification Examination.

          (e) Any person associated with a member who fails to pass a qualification examination prescribed by the Association shall be permitted to take the examination again after either a period of 30 calendar days has elapsed from the date of the prior examination or the next administration of an examination administered on a monthly basis, except that any person who fails to pass an examination three or more times in succession shall be prohibited from again taking such examination either until a period of 180 calendar days has elapsed from the date of such person's last attempt to pass the examination or until the sixth subsequent administration of an examination administered on a monthly basis.

          Amended by SR-NASD-2003-24 eff. March 3, 2003.
          Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
          Amended by SR-NASD-89-14 eff. June 8, 1989.

          Selected Notices: 89-52, 90-1, 03-20, 08-67.

        • 1080. Confidentiality of Examinations

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          NASD considers all of its Qualification Examinations to be highly confidential. The removal from an examination center, reproduction, disclosure, receipt from or passing to any person, or use for study purposes of any portion of such Qualification Examination, whether of a present or past series, or any other use which would compromise the effectiveness of the Examinations and the use in any manner and at any time of the questions or answers to the Examinations are prohibited and are deemed to be a violation of Rule 2110. An applicant cannot receive assistance while taking the examination. Each applicant shall certify to the Board that no assistance was given to or received by him during the examination.
          Amended by SR-NASD-2003-24 eff. March 3, 2003.
          Amended eff. July 26, 1984; June 12, 1989.
          Adopted eff. Sept. 1, 1972.

          Selected Notice: 03-20.

        • 1090. Foreign Members

          A member which does not maintain an office in the United States responsible for preparing and maintaining financial and other reports required to be filed with the Commission and the Association must:

          (a) prepare all such reports, and maintain a general ledger chart of account and any description thereof, in English and U.S. dollars;
          (b) reimburse the Association 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;

          (c) ensure the availability of an individual fluent in English and knowledgeable in securities and financial matters to assist representatives of the Association during examinations; and

          (d) utilize, either directly or indirectly, the services of a broker/dealer registered with the Commission, a bank or a clearing agency registered with the Commission located in the United States in clearing all transactions involving members of the Association, except where both parties to a transaction agree otherwise.

          Adopted by SR-NASD-82-17 eff. Apr. 11, 1983.

        • 1100. Foreign Associates

          SR-FINRA-2017-007 has been approved by the SEC. Effective October 1, 2018, this rule will no longer be applicable. Please consult the appropriate FINRA rule.

          (a) All persons associated with a member who are designated as Foreign Associates shall be required to be registered but shall be exempt from the requirement to pass a Qualification Examination. Persons associated with a member shall be designated as Foreign Associates if they meet the following criteria:

          (1) They are not citizens, nationals, or residents of the United States or any of its territories or possessions;

          (2) They will conduct all of their securities activities in areas outside the jurisdiction of the United States and they will not engage in any securities activities with or for any citizen, national or resident of the United States.

          (b) Prior to the time the exemption provided for in paragraph (a) hereof may become effective, the member desiring to employ any such person must file with NASD a "Uniform Application for Securities Industry Registration or Transfer" for each such person and must certify that such person meets the criteria of paragraph (a), as well as that:

          (1) Such person is not subject to any of the prohibitions to registration with the Association contained in Article III, Section 4 of the By-Laws of the Association;

          (2) Service of process for any proceeding instituted by the Association in respect to such person may be sent to an address designated by the member.

          (c) In the event of the termination of the employment of a Foreign Associate, the member must notify the Association immediately by filing a notice of termination as required by Article V, Section 3 of the By-Laws.

          Cross References–

          Schedule A, Resolution: Fees for Registered Representatives
          IM-1000-1, Filing of Misleading Information as to Membership or Registration

          Amended by SR-NASD-2003-24 eff. March 3, 2003.
          Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
          Amended by SR-NASD-94-51 eff. Feb. 15, 1995.

          Selected Notices: 83-72, 85-48, 88-24, 94-6, 95-37, 03-20.

        • 1110. Reserved

          SR-FINRA-2017-007 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.

          SR-NASD-2003-24 removed Rule 1113 eff. Mar. 3, 2003.
          SR-NASD-2003-24 replaced Rule 1111 with Rule 1022(h) eff. Mar. 3, 2003.
          SR-NASD-97-23 replaced Rule 1112 with Rule 1032(g) eff. April 1, 1998.
          Rule Series originally adopted by SR-NASD-88-12 eff. Nov. 2, 1988.

          Selected Notice: 03-20.

    • CONDUCT RULES (2000–3000)

      • 2000. BUSINESS CONDUCT

        • 2300. TRANSACTIONS WITH CUSTOMERS

          • 2340. Customer Account Statements

            (a) General
            Except as otherwise provided by paragraph (b), each general securities member shall, with a frequency of not less than once every calendar quarter, send a statement of account ("account statement") containing a description of any securities positions, money balances, or account activity to each customer whose account had a security position, money balance, or account activity during the period since the last such statement was sent to the customer. In addition, each general securities member shall include in the account statement a statement that advises the customer to report promptly any inaccuracy or discrepancy in that person's account to his or her brokerage firm. (In cases where the customer's account is serviced by both an introducing and clearing firm, each general securities member must include in the advisory a reference that such reports be made to both firms.) Such statement also shall advise the customer that any oral communications should be re-confirmed in writing to further protect the customer's rights, including rights under the Securities Investor Protection Act (SIPA).
            (b) Delivery Versus Payment/Receive Versus Payment (DVP/RVP) Accounts
            Quarterly account statements need not be sent to a customer pursuant to paragraph (a) of this Rule if:
            (1) the customer's account is carried solely for the purpose of execution on a DVP/RVP basis;
            (2) all transactions effected for the account are done on a DVP/RVP basis in conformity with Rule 11860;
            (3) the account does not show security or money positions at the end of the quarter (provided, however that positions of a temporary nature, such as those arising from fails to receive or deliver, errors, questioned trades, dividend or bond interest entries and other similar transactions, shall not be deemed security or money positions for the purpose of this paragraph (b));
            (4) the customer consents to the suspension of such statements in writing. The member must maintain such consents in a manner consistent with Rule 3110 and SEC Rule 17a-4;
            (5) the member undertakes to provide any particular statement or statements to the customer promptly upon request; and
            (6) the member undertakes to promptly reinstate the delivery of such statements to the customer upon request.
            Nothing in this Rule shall be seen to qualify or condition the obligations of a member under SEC Rule 15c3-2 concerning quarterly notices of free credit balances on statements.
            (c) DPP and Unlisted REIT Securities
            A general securities member shall include in a customer account statement a per share estimated value of a direct participation program (DPP) or unlisted real estate investment trust (REIT) security, developed in a manner reasonably designed to ensure that the per share estimated value is reliable, and the disclosures in paragraph (c)(2) as applicable.
            (1) For purposes of this paragraph (c), a per share estimated value for a DPP or REIT security will be deemed to have been developed in a manner reasonably designed to ensure that it is reliable if the member uses one of the following per share estimated value methodologies.
            (A) Net Investment
            At any time before 150 days following the second anniversary of breaking escrow, the member may include a per share estimated value reflecting the “net investment” disclosed in the issuer's most recent periodic or current report (“Issuer Report”). “Net investment” shall be based on the “amount available for investment” percentage in the “Estimated Use of Proceeds” section of the offering prospectus or, where “amount available for investment” is not provided, another equivalent disclosure that reflects the estimated percentage deduction from the aggregate dollar amount of securities registered for sale to the public of sales commissions, dealer manager fees, and estimated issuer offering and organization expenses. When the issuer provides a range of amounts available for investment, the member may use the maximum offering percentage unless the member has reason to believe that such percentage is unreliable, in which case the member shall use the minimum offering percentage.
            (B) Appraised Value
            At any time, the member may include a per share estimated value reflecting an appraised valuation disclosed in the Issuer Report, which, in the case of DPPs subject to the Investment Company Act of 1940 (“1940 Act”), shall be consistent with the valuation requirements of the 1940 Act and the rules thereunder or, in the case of all other DPPs and REITs, shall be:
            (i) based on valuations of the assets and liabilities of the DPP or REIT performed at least annually, by, or with the material assistance or confirmation of, a third-party valuation expert or service; and
            (ii) derived from a methodology that conforms to standard industry practice.
            (2) Disclosures
            (A) An account statement that provides a "net investment" per share estimated value for a DPP or REIT security under paragraph (c)(1)(A) shall disclose, if applicable, prominently and in proximity to disclosure of distributions and the per share estimated value the following statements: "IMPORTANT—Part of your distribution includes a return of capital. Any distribution that represents a return of capital reduces the estimated per share value shown on your account statement."
            (B) Any account statement that provides a per share estimated value for a DPP or REIT security shall disclose that the DPP or REIT securities are not listed on a national securities exchange, are generally illiquid and that, even if a customer is able to sell the securities, the price received may be less than the per share estimated value provided in the account statement.
            (d) Definitions
            For purposes of this Rule, the following terms will have the stated meanings:
            (1) "account activity" includes, but is not limited to, purchases, sales, interest credits or debits, charges or credits, dividend payments, transfer activity, securities receipts or deliveries, and/or journal entries relating to securities or funds in the possession or control of the member.
            (2) a "general securities member" refers to any member that conducts a general securities business and is required to calculate its net capital pursuant to the provisions of SEC Rule 15c3-1(a). Notwithstanding the foregoing definition, a member that does not carry customer accounts and does not hold customer funds or securities is exempt from the provisions of this section.
            (3) "direct participation program" or "direct participation program security" refers to the publicly issued equity securities of a direct participation program as defined in FINRA Rule 2310 (including limited liability companies), but does not include securities listed on a national securities exchange or any program registered as a commodity pool with the Commodity Futures Trading Commission.
            (4) "real estate investment trust" or "real estate investment trust security" refers to the publicly issued equity securities of a real estate investment trust as defined in Section 856 of the Internal Revenue Code, but does not include securities listed on a national securities exchange.
            (5) "annual report" means the most recent annual report of the DPP or REIT distributed to investors pursuant Section 13(a) of the Act.
            (6) a "DVP/RVP account" is an arrangement whereby payment for securities purchased is made to the selling customer's agent and/or delivery of securities sold is made to the buying customer's agent in exchange for payment at time of settlement, usually in the form of cash.
            (e) Exemptions
            Pursuant to the Rule 9600 Series, NASD may exempt any member from the provisions of this Rule for good cause shown.
            Amended by SR-FINRA-2014-006 eff. April 11, 2016.
            Amended by SR-NASD-2004-171 eff. May 31, 2007.
            Amended by SR-NASD-2006-128 eff. Dec. 5, 2006.
            Amended by SR-NASD-2006-066 eff. Nov. 22, 2006.
            Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
            Amended by SR-NASD-2003-36 eff. March 12, 2003.
            Amended by SR-NASD-2000-13 eff. April 16, 2001.
            Adopted by SR-NASD-92-29 eff. Jan. 31, 1993.

            Selected Notices: 92-30, 92-60, 94-96, 97-14, 01-08, 06-60, 06-68, 06-72, 15-02.

        • 2500. SPECIAL ACCOUNTS

          • 2510. Discretionary Accounts

            (a) Excessive Transactions
            No member shall effect with or for any customer's account in respect to which such member or his agent or employee is vested with any discretionary power any transactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account.
            (b) Authorization and Acceptance of Account
            No member or registered representative shall exercise any discretionary power in a customer's account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member, as evidenced in writing by the member or the partner, officer or manager, duly designated by the member, in accordance with Rule 3010.
            (c) Approval and Review of Transactions
            The member or the person duly designated shall approve promptly in writing each discretionary order entered and shall review all discretionary accounts at frequent intervals in order to detect and prevent transactions which are excessive in size or frequency in view of the financial resources and character of the account.
            (d) Exceptions
            This Rule shall not apply to:
            (1) discretion as to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed, except that the authority to exercise time and price discretion will be considered to be in effect only until the end of the business day on which the customer granted such discretion, absent a specific, written contrary indication signed and dated by the customer. This limitation shall not apply to time and price discretion exercised in an institutional account, as defined in Rule 3110(c)(4), pursuant to valid Good-Till-Cancelled instructions issued on a "not-held" basis. Any exercise of time and price discretion must be reflected on the order ticket;
            (2) bulk exchanges at net asset value of money market mutual funds ("funds") utilizing negative response letters provided:
            (A) The bulk exchange is limited to situations involving mergers and acquisitions of funds, changes of clearing members and exchanges of funds used in sweep accounts;
            (B) The negative response letter contains a tabular comparison of the nature and amount of the fees charged by each fund;
            (C) The negative response letter contains a comparative description of the investment objectives of each fund and a prospectus of the fund to be purchased; and
            (D) The negative response feature will not be activated until at least 30 days after the date on which the letter was mailed.
            Amended by SR-NASD-2002-162 and SR-NASD-2004-116 eff. Jan. 31, 2005.
            Amended by SR-NASD-92-14 eff. Dec. 10, 1992.

            Selected Notices: 75-33, 76-30, 91-39, 91-80, 92-25, 93-1, 04-71.

      • 3000. RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS, EMPLOYEES, AND OTHERS' EMPLOYEES

        • 3100. BOOKS AND RECORDS, AND FINANCIAL CONDITION

          • 3140. Approval of Change in Exempt Status Under SEC Rule 15c3-3

            (a) Application — For the purposes of this Rule, the term "member" shall be limited to any member of the Association who is subject to SEC Rule 15c3-3 and is not designated to another self-regulatory organization by the Commission for financial responsibility pursuant to Section 17 of the Act and SEC Rule 17d-1 promulgated thereunder. Further, the term shall not be applicable to any member that is subject to Section 402.2(c) of the rules of the Treasury Department.

            (b) A member operating pursuant to any exemptive provision as contained in subparagraph (k) of SEC Rule 15c3-3 under the Act (Rule 15c3-3), shall not change its method of doing business in a manner which will change its exemptive status from that governed by subparagraph (k)(1) or (k)(2)(ii) to that governed by subparagraph (k)(2)(i); or from subparagraph (k)(1), (k)(2)(i) or (k)(2)(ii) to a fully computing firm that is subject to all provisions of Rule 15c3-3; or commence operations that will disqualify it for continued exemption under Rule 15c3-3 without first having obtained the prior written approval of the Association.

            (c) In making the determination as to whether to approve, deny in whole or in part an application made pursuant to paragraph (b), the Association staff shall consider among other things the type of business in which the member is engaged, the training, experience and qualifications of persons associated with the member, the member's procedures for safeguarding customer funds and securities, the member's overall financial and operational condition and any other information deemed relevant in the particular circumstances and the time these measures would remain in effect.

            Cross Reference–

            Rule 2261, Disclosure of Financial Condition
            Amended by SR-NASD-99-76 eff. Sept. 11, 2000
            Amended by SR-NASD-95-39 eff. Oct. 10, 1996
            Adopted eff. Nov. 7, 1985

            Selected Notice: 00-56.

          • 3150. Reporting Requirements for Clearing Firms

            (a) Each member that is a clearing firm or self-clearing firm shall be required to report to NASD in such format as NASD may require, prescribed data pertaining to the member and any member broker-dealer for which it clears. A clearing firm or self-clearing firm may enter into an agreement with a third party pursuant to which the third party agrees to fulfill the obligations of a clearing firm or self-clearing firm under this Rule. Notwithstanding the existence of such an agreement, each clearing firm or self-clearing firm remains responsible for complying with the requirements of this Rule.
            (b) Each member that is a clearing firm is required to report prescribed data to NASD under this Rule in such a manner as to enable NASD to distinguish between data pertaining to all proprietary and customer accounts of an introducing member and data pertaining to all proprietary and customer accounts of any member for which the introducing member is acting as an intermediary in obtaining clearing services from a clearing firm. The reporting requirements of this paragraph (b) shall apply to the proprietary and customer accounts of members that have established an intermediary clearing arrangement with an introducing member on or after February 20, 2006.
            (c) Pursuant to the Rule 9600 Series, NASD may in exceptional and unusual circumstances, taking into consideration all relevant factors, exempt a member or class of members unconditionally or on specified terms from any or all of the provisions of this Rule that it deems appropriate.
            Amended by SR-NASD-2005-058 eff. Feb. 20, 2006.
            Amended by SR-NASD-2004-014 eff. Feb. 20, 2004.
            Adopted by SR-NASD-2001-19 eff. Dec. 10, 2001.

            Selected Notice: 01-84, 04-24, 05-72.

            • IM-3150. Exemptive Relief

              (a) Upon written request for exemptive relief pursuant to the Rule 9600 Series, NASD generally will grant an exemption from the reporting requirements of Rule 3150 to a self-clearing firm that:

              (1) derives, on an annualized basis, at least 85 percent of its revenue from transactions in fixed income securities;

              (2) conducts an institutional business that settles transactions on an RVP/DVP basis, provided that such exemption from reporting shall apply only with respect to such institutional business unless NASD determines that any other remaining business otherwise qualifies for an exemption under this IM-3150 or is de minimis in nature; or

              (3) does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g., that engages solely in proprietary trading, or that conducts business only with other broker-dealers or any other non-customer counter-parties).

              (b) Upon written request for exemptive relief pursuant to the Rule 9600 Series, NASD also generally will grant an exemption to a clearing firm with respect to one or more of the introducing firms for which it clears if the introducing firm meets one of the above-stated grounds for exemptive relief.

              (c) Any self-clearing firm that, due to a change in the facts pertaining to the operation and nature of its business or the operation and nature of the business of a firm for which it clears, as applicable, no longer qualifies for an exemption previously granted by NASD from the reporting requirements of Rule 3150 must promptly report such change in circumstances to NASD, Department of Member Regulation, and commence compliance with the reporting requirements of Rule 3150.

              Adopted by SR-NASD-2004-014 eff. Feb. 20, 2004.

              Selected Notice: 04-24.