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  • NASD® Rules

    • MEMBERSHIP AND REGISTRATION RULES (1000)

      • 1000. MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS

        • 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.

        • 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.

    • 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.