BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • Recently Approved Rule Changes Pending Determination of Effective Date

    • SR-FINRA-2018-032

      • 6710. Definitions

        The terms used in this Rule 6700 Series shall have the same meaning as those defined in the FINRA By-Laws and rules unless otherwise specified. For the purposes of this Rule 6700 Series, the following terms have the following meaning:
        (a) "TRACE-Eligible Security" means a debt security that is United States ("U.S.") dollar-denominated and is: (1) issued by a U.S. or foreign private issuer, and, if a "restricted security" as defined in Securities Act Rule 144(a)(3), sold pursuant to Securities Act Rule 144A; (2) issued or guaranteed by an Agency as defined in paragraph (k) or a Government-Sponsored Enterprise as defined in paragraph (n); or (3) a U.S. Treasury Security as defined in paragraph (p). "TRACE-Eligible Security" does not include a debt security that is issued by a foreign sovereign or a Money Market Instrument as defined in paragraph (o).
        (b) "Trade Reporting and Compliance Engine" or "TRACE" means the automated system developed by FINRA that, among other things, accommodates reporting and dissemination of transaction reports where applicable in TRACE-Eligible Securities.
        (c) "Reportable TRACE Transaction" means any transaction in a TRACE-Eligible Security except: (1) a transaction that is not reported as specified in Rule 6730(e); and (2) a sale from an issuer to an underwriter(s) or initial purchaser(s) as part of an offering, except a sale of an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) from a Securitizer as defined in paragraph (s) to any purchaser.
        (d) "Time of Execution" for a transaction in a TRACE-Eligible Security means the time when the Parties to a Transaction agree to all of the terms of the transaction that are sufficient to calculate the dollar price of the trade. The Time of Execution for transactions involving TRACE-Eligible Securities that are trading "when issued" on a yield basis shall be when the yield for the transaction has been agreed to by the Parties to a Transaction. For a transaction in a TRACE-Eligible Security in which the actual yield for the transaction is established by determining the yield from one or more designated securities (e.g., a "benchmark security" such as a U.S. Treasury Security maturing in 5 years, or a combination of such "benchmark securities") and adding the agreed upon "yield spread" (e.g., 150 basis points above the benchmark security), the Time of Execution occurs when the yield has been agreed to by the Parties to a Transaction.
        (e) "Party to a Transaction" means an introducing broker-dealer, if any, an executing broker-dealer, or a customer. "Customer" includes a broker-dealer that is not a FINRA member.
        (f) "TRACE Participant" means any FINRA member that reports transactions to the TRACE system, directly or indirectly.
        (g) "Introducing Broker" means the FINRA member that has been identified in the TRACE system as a Party to a Transaction, but does not execute or clear the transaction.
        (h) "Investment Grade" means a TRACE-Eligible Security that, if rated by only one nationally recognized statistical rating organization ("NRSRO"), is rated in one of the four highest generic rating categories; or if rated by more than one NRSRO, is rated in one of the four highest generic rating categories by all or a majority of such NRSROs; provided that if the NRSROs assign ratings that are evenly divided between (i) the four highest generic ratings and (ii) ratings lower than the four highest generic ratings, FINRA will classify the TRACE-Eligible Security as Non-Investment Grade for purposes of TRACE. If a TRACE-Eligible Security is unrated, for purposes of TRACE, FINRA may classify the TRACE-Eligible Security as an Investment Grade security. FINRA will classify any Agency Debt Security as defined in paragraph (l) as an Investment Grade security for purposes of the dissemination of transaction volume.
        (i) "Non-Investment Grade" means a TRACE-Eligible Security that, if rated by only one NRSRO, is rated lower than one of the four highest generic rating categories; or if rated by more than one NRSRO, is rated lower than one of the four highest generic rating categories by all or a majority of such NRSROs. Except as provided in paragraph (h), if a TRACE-Eligible Security is unrated, FINRA may classify the TRACE-Eligible Security as a Non-Investment Grade security.
        (j) "Split-Rated" means an Investment Grade or a Non-Investment Grade security that is assigned ratings by multiple NRSROs that, for an Investment Grade security, are not in the same generic Investment Grade rating category, or, for a Non-Investment Grade security, are not in the same generic Non-Investment Grade rating category. After determining if a security is Investment Grade or Non-Investment Grade, FINRA will disregard any rating, if the security is Investment Grade, that is Non-Investment Grade, or, if the security is Non-Investment Grade, that is Investment Grade. With respect to an Investment Grade security, if multiple NRSROs assign ratings that are not in the same generic Investment Grade rating category, or, with respect to a Non-Investment Grade security, if multiple NRSROs assign ratings that are not in the same generic Non-Investment Grade rating category, FINRA will classify the TRACE-Eligible Security for purposes of TRACE by the generic rating that a majority or, if no majority, a plurality of the NRSROs assigns the security, provided that (i) if the NRSROs assign ratings that are evenly divided between two generic rating categories, FINRA will classify the TRACE-Eligible Security by the lower of the ratings; or (ii) if each NRSRO assigns a different generic rating, FINRA will classify the TRACE-Eligible Security by the lower or lowest of the ratings.
        (k) "Agency" means a U.S. "executive agency" as defined in 5 U.S.C. 105 that is authorized to issue debt directly or through a related entity, such as a government corporation, or to guarantee the repayment of principal and/or interest of a debt security issued by another entity. The term excludes the U.S. Department of the Treasury ("Treasury") in the exercise of its authority to issue U.S. Treasury Securities as defined in paragraph (p).
        (l) "Agency Debt Security" means a debt security (i) issued or guaranteed by an Agency as defined in paragraph (k); (ii) issued or guaranteed by a Government-Sponsored Enterprise as defined in paragraph (n); or (iii) issued by a trust or other entity that was established or sponsored by a Government-Sponsored Enterprise for the purpose of issuing debt securities, where such enterprise provides collateral to the trust or other entity or retains a material net economic interest in the reference tranches associated with the securities issued by the trust or other entity. The term excludes a U.S. Treasury Security as defined in paragraph (p) and a Securitized Product as defined in paragraph (m), where an Agency or a Government-Sponsored Enterprise is the Securitizer as defined in paragraph (s) (or similar person), or the guarantor of the Securitized Product.
        (m) "Securitized Product" means a security collateralized by any type of financial asset, such as a loan, a lease, a mortgage, or a secured or unsecured receivable, and includes but is not limited to an asset-backed security as defined in Section 3(a)(79)(A) of the Exchange Act, a synthetic asset-backed security, and any residual tranche or interest of any security specified above, which tranche or interest is a debt security for purposes of paragraph (a) and the Rule 6700 Series.
        (n) "Government-Sponsored Enterprise" ("GSE") has the same meaning as defined in 2 U.S.C. 622(8).
        (o) "Money Market Instrument" means, other than a U.S. Treasury Security, a debt security that at issuance has a maturity of one calendar year or less, or, if a discount note issued by an Agency, as defined in paragraph (k), or a Government-Sponsored Enterprise, as defined in paragraph (n), a maturity of one calendar year and one day or less.
        (p) "U.S. Treasury Security" means a security, other than a savings bond, issued by the U.S. Department of the Treasury to fund the operations of the federal government or to retire such outstanding securities. The term "U.S. Treasury Security" also includes separate principal and interest components of a U.S. Treasury Security that has been separated pursuant to the Separate Trading of Registered Interest and Principal of Securities (STRIPS) program operated by the U.S. Department of Treasury.
        (q) "List or Fixed Offering Price Transaction" means a primary market sale transaction sold on the first day of trading of a security, including an Asset-Backed Security as defined in paragraph (cc), but excluding any other Securitized Product as defined in paragraph (m): (i) by a sole underwriter, syndicate manager, syndicate member or selling group member at the published or stated list or fixed offering price, or (ii) in the case of a primary market sale transaction effected pursuant to Securities Act Rule 144A, by an initial purchaser, syndicate manager, syndicate member or selling group member at the published or stated fixed offering price.
        (r) "Takedown Transaction" means a primary market sale transaction sold on the first day of trading of a security, including an Asset-Backed Security as defined in paragraph (cc), but excluding any other Securitized Product as defined in paragraph (m): (i) by a sole underwriter or syndicate manager to a syndicate or selling group member at a discount from the published or stated list or fixed offering price, or (ii) in the case of a primary market sale transaction effected pursuant to Securities Act Rule 144A, by an initial purchaser or syndicate manager to a syndicate or selling group member at a discount from the published or stated fixed offering price.
        (s) "Securitizer" has the same meaning as defined in Section 15G(a)(3) of the Exchange Act.
        (t) "TRACE System Hours" means the hours the TRACE system is open, which are 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern Time on a business day, unless otherwise announced by FINRA.
        (u) "To Be Announced" ("TBA") means a transaction in an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) or an SBA-Backed ABS as defined in paragraph (bb) where the parties agree that the seller will deliver to the buyer a pool or pool(s) of a specified face amount and meeting certain other criteria but the specific pool or pool(s) to be delivered at settlement is not specified at the Time of Execution, and includes TBA transactions "for good delivery" ("GD") and TBA transactions "not for good delivery" ("NGD").
        (v) "Agency Pass-Through Mortgage-Backed Security" means a type of Securitized Product issued in conformity with a program of an Agency as defined in paragraph (k) or a Government-Sponsored Enterprise ("GSE") as defined in paragraph (n), for which the timely payment of principal and interest is guaranteed by the Agency or GSE, representing ownership interest in a pool (or pools) of mortgage loans structured to "pass through" the principal and interest payments to the holders of the security on a pro rata basis.
        (w) "Factor" means the decimal value representing the proportion of the outstanding principal value or remaining face amount of a pool of assets underlying a security to the original principal value or original face amount of such assets.
        (x) "Specified Pool Transaction" means a transaction in an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) or an SBA-Backed ABS as defined in paragraph (bb) requiring the delivery at settlement of a pool or pool(s) that is identified by a unique pool identification number at the Time of Execution.
        (y) "Stipulation Transaction" means a transaction in an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) where, at the Time of Execution, the parties agree that the seller will deliver to the buyer an Agency Pass-Through Mortgage-Backed Security of a specified face amount and coupon from a specified Agency or Government-Sponsored Enterprise program that represents a pool (or pools) of mortgages, at a specified price, and the parties stipulate that the pool or pools to be delivered meet certain conditions.
        (z) "Dollar Roll" means a simultaneous sale and purchase of an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) for different settlement dates, where the initial seller agrees to take delivery, upon settlement of the re-purchase transaction, of the same or substantially similar securities.
        (aa) "Remaining Principal Balance" or "RPB" means, for a Securitized Product backed by a pool of mortgages or other assets that are self-amortizing, the total unpaid principal balance of all such mortgages, or the equivalent remaining value of such self-amortizing assets held in the asset pool, at a specific time, such as the Time of Execution.
        (bb) "SBA-Backed ABS" means a Securitized Product issued in conformity with a program of the Small Business Administration ("SBA"), for which the timely payment of principal and interest is guaranteed by the SBA, representing ownership interest in a pool (or pools) of loans or debentures and structured to "pass through" the principal and interest payments made by the borrowers in such loans or debentures to the holders of the security on a pro rata basis.
        (cc) "Asset-Backed Security" means a type of Securitized Product where the Asset-Backed Security is collateralized by any type of financial asset, such as a consumer or student loan, a lease, or a secured or unsecured receivable, and excludes: (i) a Securitized Product that is backed by residential or commercial mortgage loans, mortgage-backed securities, or other financial assets derivative of mortgage-backed securities; (ii) an SBA-Backed ABS as defined in paragraph (bb) traded To Be Announced ("TBA") as defined in paragraph (u) or in a Specified Pool Transaction as defined in paragraph (x); and (iii) a collateralized debt obligation (“CDO”).
        (dd) "Collateralized Mortgage Obligation" ("CMO") means a type of Securitized Product backed by Agency Pass-Through Mortgage-Backed Securities as defined in paragraph (v), mortgage loans, certificates backed by project loans or construction loans, other types of mortgage-backed securities or assets derivative of mortgage-backed securities, structured in multiple classes or tranches with each class or tranche entitled to receive distributions of principal and/or interest according to the requirements adopted for the specific class or tranche, and includes a real estate mortgage investment conduit ("REMIC").
        (ee) "Non-member Affiliate" means a non-member entity that controls, is controlled by or is under common control with a member. For the purposes of this definition, "control," along with any derivative thereof, means legal, beneficial, or equitable ownership, directly or indirectly, of 25 percent or more of the capital stock (or other ownership interest, if not a corporation) of any entity ordinarily having voting rights. The term "common control" means the same natural person or entity controls two or more entities.
        (ff) “Collateralized Debt Obligation” (“CDO”) means a type of Securitized Product backed by fixed-income assets (such as bonds, receivables on loans, or other debt) or derivatives of these fixed-income assets, structured in multiple classes or tranches with each class or tranche entitled to receive distributions of principal and/or interest in accordance with the requirements adopted for the specific class or tranche. A CDO includes, but is not limited to, a collateralized loan obligation (“CLO”) and a collateralized bond obligation (“CBO”).
        (gg) "Auction" means the bidding process by which the U.S. Department of the Treasury sells marketable securities to the public pursuant to Part 356 of Title 31 of the Code of Federal Regulations.
        (hh) "Auction Transaction" means a transaction in which a member is awarded a U.S. Treasury Security in an Auction.
        (ii) "When-Issued Transaction" means a transaction in a U.S. Treasury Security that is executed before the issuance of the security.

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

        .01 Asset-Backed Security. An Asset-Backed Security as defined in paragraph (cc) shall include, but is not limited to, securities collateralized by the following types of assets and securities: credit card receivables; automobile loans and leases; student loans; aircraft leases; automobile floorplan and wholesale loans; motorcycle loans and leases; recreational vehicle loans; manufactured housing loans; commercial loans; tranches of other Asset-Backed Securities; reinsurance; timeshare obligations; and loans or other financial instruments generating a stream of payments and guaranteed as to principal or interest (or both) by the Small Business Administration (traded other than to be announced ("TBA") as defined in paragraph (u) or in a Specified Pool Transaction as defined in paragraph (x)).

        Amended by SR-FINRA-2018-032.
        Amended by SR-FINRA-2018-020 eff. May 17, 2018.
        Amended by SR-FINRA-2016-046 eff. July 10, 2017.
        Amended by SR-FINRA-2016-027 eff. July 10, 2017.
        Amended by SR-FINRA-2016-023 eff. March 20, 2017.
        Amended by SR-FINRA-2014-050 eff. Nov. 2, 2015.
        Amended by SR-FINRA-2013-046 and SR-FINRA-2015-012 eff. June 1, 2015.
        Amended by SR-FINRA-2012-042 eff. July 22, 2013.
        Amended by SR-FINRA-2012-020 eff. Nov. 12, 2012.
        Amended by SR-FINRA-2012-046 eff. Oct. 11, 2012.
        Amended by SR-FINRA-2011-012 eff. May 16, 2011.
        Amended by SR-FINRA-2009-065 eff. May 16, 2011.
        Amended by SR-FINRA-2011-001 eff. Jan. 4, 2011.
        Amended by SR-FINRA-2009-010 eff. March 1, 2010.
        Amended by SR-FINRA-2009-004 eff. June 15, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Amended by SR-FINRA-2007-007 eff. Dec. 13, 2007.
        Amended by SR-NASD-2006-110 eff. Jan. 9, 2007.
        Amended by SR-NASD-2004-94 eff. Oct. 1, 2004.
        Amended by SR-NASD-2003-182 eff. June 17, 2004.
        Amended by SR-NASD-2002-174 eff. March 3, 2003.
        Amended by SR-NASD-2002-46 eff. July 1, 2002.
        Amended by SR-NASD-2001-91 eff. July 1, 2002.
        Adopted by SR-NASD-99-65 eff. July 1, 2002.

        Selected Notices: 02-76, 04-39, 04-65, 07-18, 07-61, 08-57, 09-24, 09-57, 10-23, 10-55, 11-20, 12-26, 12-48, 12-56, 14-34, 15-14, 16-38, 16-39.

    • SR-FINRA-2018-026

      • 12214. Payment of Arbitrators

        (a) Except as provided in paragraph (b) and in Rule 12800, FINRA will pay the panel an honorarium, as follows:
        (1) $300 to each arbitrator for each hearing session in which he or she participates;
        (2) an additional $125 per day to the chairperson for each hearing on the merits;
        (3) $50 to each arbitrator for travel to a hearing session that is postponed pursuant to Rule 12601;
        (4) $600 to each arbitrator if a hearing session other than a prehearing conference is postponed within 10 days before a scheduled hearing session pursuant to Rules 12601(a)(2) and (b)(2); and
        (5) $100 to each arbitrator scheduled to attend a prehearing conference that is cancelled within three business days of the prehearing conference by agreement of the parties or is requested by one or more parties within three business days of the prehearing conference and granted, pursuant to Rules 12500(d) and 12501(d).
        (b) The Director may authorize a higher or additional honorarium for the use of a foreign hearing location.
        (c) Payment for Deciding Discovery-Related Motions Contested Subpoena Requests, and Contested Orders for Production or Appearance without a Hearing Session
        (1) FINRA will pay each arbitrator an honorarium of $200 to decide a discovery-related motion without a hearing session: (i) a discovery-related motion, (ii) a motion that contains one or more contested subpoena requests or contested orders for production or appearance; or (iii) a motion that contains one or more contested subpoena requests and contested orders for production or appearance. This paragraph does not apply to cases administered under Rule 12800.
        (2) For purposes of paragraph (c)(1):
        i. a discovery-related motion and any replies or other correspondence relating to the motion shall be considered to be a single motion.
        ii. a contested motion requesting the issuance of one or more subpoenas shall include the motion, the draft subpoena(s), a written objection from the party opposing the motion, and any other documents supporting a party's position; and
        iii. a contested motion requesting the issuance of one or more orders for production or appearance shall include the motion, the draft order(s), a written objection from the party opposing the motion, and any other documents supporting a party's position.
        (3) The panel will allocate the cost of the honoraria under paragraph (c)(1) to the parties pursuant to Rule 12902(c).
        (d) Payment for Explained Decisions
        (1) The chairperson who is responsible for writing an explained decision pursuant to Rule 12904(g) will receive an additional honorarium of $400.
        (2) If the panel decides on its own to write an explained decision, then no panel member will receive the additional honorarium of $400.
        Amended by SR-FINRA-2018-026.
        Amended by SR-FINRA-2018-019 eff. Oct. 29, 2018.
        Amended by SR-FINRA-2018-012 eff. Feb. 21, 2018.
        Amended by SR-FINRA-2015-003 eff. July 6, 2015.
        Amended by SR-FINRA-2014-026 eff. Dec. 15, 2014.
        Amended by SR-FINRA-2008-051 eff. Apr. 13, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Paragraph (d) Adopted by SR-NASD-2006-101 eff. April 2, 2007.
        Paragraphs (a) through (c) adopted by SR-NASD-2003-158 eff. April 16, 2007.

        Selected Notice: 07-07, 08-57, 09-16, 14-49, 15-21, 18-33.

      • 13214. Payment of Arbitrators

        (a) Except as provided in paragraph (b), Rule 13800, and Rule 13806(f), FINRA will pay the panel an honorarium, as follows:
        (1) $300 to each arbitrator for each hearing session in which he or she participates;
        (2) an additional $125 per day to the chairperson for each hearing on the merits;
        (3) $50 to each arbitrator for travel to a hearing session that is postponed pursuant to Rule 13601;
        (4) $600 to each arbitrator if a hearing session other than a prehearing conference is postponed within 10 days before a scheduled hearing session pursuant to Rules 13601(a)(2) and (b)(2); and
        (5) $100 to each arbitrator scheduled to attend a prehearing conference that is cancelled within three business days of the prehearing conference by agreement of the parties or is requested by one or more parties within three business days of the prehearing conference and granted, pursuant to Rules 13500(d) and 13501(d).
        (b) The Director may authorize a higher or additional honorarium for the use of a foreign hearing location.
        (c) Payment for Deciding Discovery-Related Motions Contested Subpoena Requests, and Contested Orders for Production or Appearance without a Hearing Session
        (1) FINRA will pay each arbitrator an honorarium of $200 to decide without a hearing session: (i) a discovery-related motion, (ii) a motion that contains one or more contested subpoena requests or contested orders for production or appearance; or (iii) a motion that contains one or more contested subpoena requests and contested orders for production or appearance. This paragraph does not apply to cases administered under Rule 13800 or pursuant to Rule 13806(d)(1).
        (2) For purposes of paragraph (c)(1):
        i. a discovery-related motion and any replies or other correspondence relating to the motion shall be considered to be a single motion.
        ii. a contested motion requesting the issuance of one or more subpoenas shall include the motion, the draft subpoena(s), a written objection from the party opposing the motion, and any other documents supporting a party's position; and
        iii. a contested motion requesting the issuance of one or more orders for production or appearance shall include the motion, the draft order(s), a written objection from the party opposing the motion, and any other documents supporting a party's position.
        (3) The panel will allocate the cost of the honoraria under paragraph (c)(1) to the parties pursuant to Rule 13902(c).
        (d) Payment for Explained Decisions
        (1) The chairperson who is responsible for writing an explained decision pursuant to Rule 13904(g) will receive an additional honorarium of $400.
        (2) If the panel decides on its own to write an explained decision, then no panel member will receive the additional honorarium of $400.
        Amended by SR-FINRA-2018-026.
        Amended by SR-FINRA-2018-019 eff. Oct. 29, 2018.
        Amended by SR-FINRA-2018-012 eff. Feb. 21, 2018.
        Amended by SR-FINRA-2015-003 eff. July 6, 2015.
        Amended by SR-FINRA-2014-026 eff. Dec 15, 2014.
        Amended by SR-FINRA-2009-015 eff. Sep. 14, 2009.
        Amended by SR-FINRA-2008-051 eff. Apr. 13, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Paragraph (d) Adopted by SR-NASD-2006-101 eff. April 2, 2007.
        Paragraphs (a) through (c) adopted by SR-NASD-2003-158 eff. April 16, 2007.

        Selected Notice: 07-07, 08-57, 09-16, 09-48, 14-49, 15-21, 18-33.

    • SR-FINRA-2010-056

      • 1113. Restriction Pertaining to New Member Applications

        This rule was introduced with the filing of SR-FINRA-2010-056 which has been approved by the SEC. The effective date for this rule has not yet been determined.

        The Department of Member Regulation shall reject an application for membership with FINRA pursuant to NASD Rule 1013 in which either the applicant or an associated person, as defined in Article I of the FINRA By-Laws, is subject to a statutory disqualification, as defined in Article III, Section 4 of the FINRA By-Laws. Any such application as described in this Rule that is approved by virtue of Department of Member Regulation error or applicant error (including, but not limited to, an inadvertent or intentional misstatement or omission by the applicant or associated person) shall be subject to cancellation of membership in accordance with Rule 9555.
        Adopted by SR-FINRA-2010-056.

      • 9521. Purpose and Definitions

        (a) Purpose
        The Rule 9520 Series sets forth procedures for a person to become or remain associated with a member, notwithstanding the existence of a statutory disqualification as defined in Article III, Section 4 of the FINRA By-Laws and for a current member or person associated with a member to obtain relief from the eligibility or qualification requirements of the FINRA By-Laws and FINRA rules. Such actions hereinafter are referred to as "eligibility proceedings."
        (b) Definitions
        (1) The term "Application" means FINRA's Form MC-400 for individuals or Form MC-400A for members, filed with the Department of Registration and Disclosure (“RAD”).
        (2) The term "disqualified member" means a member that is or becomes subject to a disqualification or is otherwise ineligible for membership under Article III, Section 3 of the FINRA By-Laws.
        (3) The term "disqualified person" means an associated person or person seeking to become an associated person who is or becomes subject to a disqualification or is otherwise ineligible for association under Article III, Section 3 of the FINRA By-Laws.
        (4) The term "sponsoring member" means the member that is sponsoring the association or continued association of a disqualified person to be admitted, readmitted, or permitted to continue in association. A sponsoring member, however, may not sponsor the association or continued association of a disqualified person to be admitted, readmitted, or permitted to continue in association if that disqualified person is directly or indirectly the beneficial owner of more than five percent of the sponsoring member.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
        Amended by SR-NASD-97-28 eff. Aug. 7, 1997.

        Selected Notices: 00-56, 08-57.

      • 9522. Initiation of Eligibility Proceeding; Member Regulation Consideration

        (a) Initiation by FINRA
        (1) Issuance of Notice of Disqualification or Ineligibility
        If FINRA staff has reason to believe that a disqualification exists or that a member or person associated with a member otherwise fails to meet the eligibility requirements of FINRA, FINRA staff shall issue a written notice to the member. The notice shall specify the grounds for such disqualification or ineligibility. FINRA staff shall not issue such written notice to members with respect to disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, unless the member is required to file an application pursuant to a Regulatory Notice entitled "Eligibility Proceedings: Amendments to FINRA Rule 9520 Series to Establish Procedures Applicable to Firms and Associated Persons Subject to Certain Statutory Disqualifications" (the "SD Regulatory Notice").
        (2) Notice Regarding a Member
        A notice issued to a disqualified member shall state that the disqualified member may apply for relief by filing an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the membership of the member shall be canceled, unless the Department of Member Regulation grants an extension for good cause shown.
        (3) Notice Regarding an Associated Person
        A notice issued regarding a disqualified person to a member shall state that such member may file an application on behalf of itself and such person or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the registration of the disqualified person shall be revoked, unless the Department of Member Regulation grants an extension for good cause shown.
        (4) Service
        A notice issued under this paragraph (a) shall be served by facsimile or pursuant to Rules 9131 and 9134.
        (b) Obligation of Member to Initiate Proceeding
        (1) A member shall file an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, with RAD, if the member determines prior to receiving a notice under paragraph (a) that:
        (A) it has become a disqualified member;
        (B) a person associated with such member has become a disqualified person; or
        (C) the member wishes to sponsor the association of a person who is a disqualified person.
        (2) For any disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, a member shall not file an application unless instructed to do so by the SD Regulatory Notice.
        (c) Withdrawal of Application
        A member may withdraw its application or written request for relief prior to a hearing by filing a written notice with RAD pursuant to Rules 9135, 9136, and 9137. A member may withdraw its application after the start of a hearing but prior to the issuance of a decision by the National Adjudicatory Council by filing a written notice with RAD and the Office of General Counsel pursuant to Rules 9135, 9136, and 9137.
        (d) Ex Parte Communications
        The prohibitions against ex parte communications set forth in Rule 9143 shall become effective under the Rule 9520 Series when FINRA staff has initiated the eligibility proceeding and FINRA staff has knowledge that a member intends to file an application or written request for relief pursuant to the Rule 9520 Series.
        (e) Member Regulation Consideration
        (1) Matters that may be Approved by the Department of Member Regulation without the Filing of an Application
        The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve a written request for relief from the eligibility requirements by a disqualified member or a sponsoring member without the filing of an application by such disqualified member or sponsoring member if a disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification:
        (A) a disqualified member or disqualified person is subject to a disqualification based on an injunction that was entered ten or more years prior to the proposed admission or continuance by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, transfer agent, foreign person performing a function substantially equivalent to any of the above, entity or person required to be registered under the Commodity Exchange Act, or any substantially equivalent foreign statute or regulation, or as an affiliated person or employee of any investment company, bank, insurance company, foreign entity substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent foreign statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security.
        (B) a sponsoring member makes a request to change the supervisor of a disqualified person; or
        (C) a disqualified member or sponsoring member is a member of both FINRA and another self-regulatory organization; and:
        (i) the other self-regulatory organization intends to file a Notice under SEA Rule 19h-1 approving the membership continuance of the disqualified member or, in the case of a sponsoring member, the proposed association or continued association of the disqualified person; and
        (ii) the Department of Member Regulation concurs with that determination.
        (2) Matters that may be Approved by the Department of Member Regulation after the Filing of an Application
        The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve an application filed by a disqualified member or sponsoring member if the disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification (other than a matter set forth in paragraph (e)(1)):
        (A) The disqualified person is already a participant in, a member of, or a person associated with a member of, a self-regulatory organization (other than FINRA), and the terms and conditions of the proposed admission to FINRA are the same in all material respects as those imposed or not disapproved in connection with such person's prior admission or continuance pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication;
        (B) The Department of Member Regulation finds, after reasonable inquiry, that except for the identity of the employer concerned, the terms and conditions of the proposed admission or continuance are the same in all material respects as those imposed or not disapproved in connection with a prior admission or continuance of the disqualified person pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication, and that there is no intervening conduct or other circumstance that would cause the employment to be inconsistent with the public interest or the protection of investors;
        (C) The disqualification previously was a basis for the institution of an administrative proceeding pursuant to a provision of the federal securities laws, and was considered by the SEC in determining a sanction against such disqualified person in the proceeding; and the SEC concluded in such proceeding that it would not restrict or limit the future securities activities of such disqualified person in the capacity now proposed, or, if it imposed any such restrictions or limitations for a specified time period, such time period has elapsed;
        (D) The disqualification consists of a court order or judgment of injunction or conviction, and such order or judgment:
        (i) expressly includes a provision that, on the basis of such order or judgment, the SEC will not institute a proceeding against such person pursuant to Section 15(b) or 15B of the Exchange Act or that the future securities activities of such persons in the capacity now proposed will not be restricted or limited; or
        (ii) includes such restrictions or limitations for a specified time period and such time period has elapsed;
        (E) The disqualified person's functions are purely clerical and/or ministerial in nature; or
        (F) The disqualification arises from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arises under Section 3(a)(39)(E) of the Exchange Act.
        (3) Rights of Disqualified Member, Sponsoring Member, Disqualified Person, and Department of Member Regulation
        (A) In the event the Department of Member Regulation does not approve a written request for relief from the eligibility requirements pursuant to paragraph (e)(1), the disqualified member or sponsoring member may file an application, and such member shall have the right to proceed under Rule 9523 or 9524, as applicable. The Department of Member Regulation may require a disqualified member or sponsoring member to file an application with RAD, notwithstanding the provisions of paragraph (e)(1).
        (B) In the event the Department of Member Regulation does not approve an application pursuant to paragraph (e)(2), the disqualified member or sponsoring member shall have the right to proceed under Rule 9523 or 9524, as applicable.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-045 eff. June 15, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Amended by SR-NASD-2004-133 eff. March 7, 2005.
        Amended by SR-NASD-2002-02 eff. January 3, 2002.
        Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
        Amended by SR-NASD-98-57 eff. March 26, 1999.
        Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
        Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

        Selected Notices: 99-16, 00-56, 05-12, 08-57, 09-19.

      • 9523. Acceptance of Member Regulation Recommendations and Supervisory Plans by Consent Pursuant to SEA Rule 19h-1

        (a) With respect to all disqualifications, except those arising solely from findings or orders specified in Section 15(b)(4)(D), (E) or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, after an application is filed, the Department of Member Regulation may recommend the continued membership of a disqualified member or sponsoring member or the association or continuing association of a disqualified person pursuant to a supervisory plan where the disqualified member, sponsoring member, and/or disqualified person, as the case may be, consent to the recommendation and the imposition of the supervisory plan. The disqualified member, sponsoring member, and/or disqualified person, as the case may be, shall execute a letter consenting to the imposition of the supervisory plan.
        (1) If a disqualified member, sponsoring member, and/or disqualified person submitted an executed letter consenting to a supervisory plan, by the submission of such letter, the disqualified member, sponsoring member and/or disqualified person waive:
        (A) the right to a hearing before a Hearing Panel and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or otherwise challenge the validity of the supervisory plan, if the supervisory plan is accepted.
        (B) any right of the disqualified member, sponsoring member, and/or disqualified person to claim bias or prejudgment by the Department of Member Regulation, the General Counsel, the National Adjudicatory Council, or any member of the National Adjudicatory Council, in connection with such person's or body's participation in discussions regarding the terms and conditions of the Department of Member Regulation's recommendation or the supervisory plan, or other consideration of the recommendation or supervisory plan, including acceptance or rejection of such recommendation or supervisory plan; and
        (C) any right of the disqualified member, sponsoring member, and/or disqualified person to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person's or body's participation in discussions regarding the terms and conditions of the recommendation or supervisory plan, or other consideration of the recommendation or supervisory plan, including acceptance or rejection of such recommendation or supervisory plan.
        (2) If a recommendation or supervisory plan is rejected, the disqualified member, sponsoring member, and/or disqualified person shall be bound by the waivers made under paragraph (a)(1) for conduct by persons or bodies occurring during the period beginning on the date the supervisory plan was submitted and ending upon the rejection of the supervisory plan and shall have the right to proceed under this rule and Rule 9524, as applicable.
        (3) If the disqualified member, sponsoring member, and/or disqualified person execute the letter consenting to the supervisory plan, it shall be submitted to the Office of General Counsel by the Department of Member Regulation with a proposed Notice under SEA Rule 19h-1, where required. The Office of General Counsel shall forward the supervisory plan and proposed Notice under SEA Rule 19h-1, if any, to the Chairman of the Statutory Disqualification Committee, acting on behalf of the National Adjudicatory Council. The Chairman of the Statutory Disqualification Committee may accept or reject the recommendation of the Department of Member Regulation and the supervisory plan or refer them to the National Adjudicatory Council for acceptance or rejection by the National Adjudicatory Council.
        (4) If the recommendation and supervisory plan is accepted by the National Adjudicatory Council or the Chairman of the Statutory Disqualification Committee, it shall be deemed final and, where required, the proposed Notice under SEA Rule 19h-1 will be filed by FINRA. If the recommendation and supervisory plan are rejected by the Chairman of the Statutory Disqualification Committee or the National Adjudicatory Council, FINRA may take any other appropriate action with respect to the disqualified member, sponsoring member, and/or disqualified person. If the recommendation and supervisory plan are rejected, the disqualified member, sponsoring member, and/or disqualified person shall not be prejudiced by the execution of the letter consenting to the supervisory plan under this paragraph (a) and the letter may not be introduced into evidence in any proceeding.
        (b) With respect to disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E) or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, after an application is filed, in approving an application under Rule 9522(e)(2)(F), the Department of Member Regulation is authorized to accept the continued membership of a disqualified member or sponsoring member or the association or continuing association of a disqualified person pursuant to a supervisory plan where the disqualified member, sponsoring member, and/or disqualified persons, as the case may be, consent to the imposition of the supervisory plan. The disqualified member, sponsoring member, and/or disqualified person, as the case may be, shall execute a letter consenting to the imposition of the supervisory plan. The Department of Member Regulation shall prepare a proposed Notice under SEA Rule 19h-1, where required, and FINRA shall file such Notice.
        (1) If a disqualified member, sponsoring member, and/or disqualified person submitted an executed letter consenting to a supervisory plan, by the submission of such letter, the disqualified member, sponsoring member and/or disqualified person waive:
        (A) the right to a hearing before a Hearing Panel and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or otherwise challenge the validity of the supervisory plan, if the supervisory plan is accepted;
        (B) any right of the disqualified member, sponsoring member, and/or disqualified person to claim bias or prejudgment by the Department of Member Regulation or the General Counsel in connection with such person's or body's participation in discussions regarding the terms and conditions of the Department of Member Regulation's recommended supervisory plan, or other consideration of the supervisory plan, including acceptance or rejection of such recommendation or supervisory plan; and
        (C) any right of the disqualified member, sponsoring member, and/or disqualified person to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person's or body's participation in discussions regarding the terms and conditions of the supervisory plan, or other consideration of the supervisory plan, including acceptance or rejection of such supervisory plan.
        (2) If the supervisory plan is rejected, the disqualified member, sponsoring member, and/or disqualified person shall be bound by the waivers made under paragraph (b)(1) for conduct by persons or bodies occurring during the period beginning on the date the supervisory plan was submitted and ending upon the rejection of the supervisory plan and shall have the right to proceed under Rule 9524.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-045 eff. June 15, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Adopted by SR-NASD-99-76 eff. Sept. 11, 2000.

        Selected Notices: 00-56, 08-57, 09-19.