[Federal Register Volume 77, Number 46 (Thursday, March 8, 2012)]
[Notices]
[Pages 14052-14054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5631]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66508; File No. SR-FINRA-2012-018]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend NASD
Rules 1012 (General Provisions) and 1017 (Application for Approval of
Change in Ownership, Control, or Business Operations) To Adopt New
Standardized Electronic Form CMA
March 2, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 28, 2012, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend NASD Rules 1012 (General Provisions)
and 1017 (Application for Approval of Change in Ownership, Control, or
Business Operations) to adopt new standardized electronic Form CMA.
The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASD Rule 1017 (Application for Approval of Change in Ownership,
Control, or Business Operations) provides parameters for certain
changes in a member's ownership, control, or business operations that
would require a continuing membership application. Among other things,
those changes include a merger of a member with another member, a
direct or indirect acquisition by a member of another member, a change
in 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 a material
change in business operations as defined in NASD Rule 1011(k)
(``material change in business operations'').\3\ Currently, NASD Rule
1017 does not require an applicant seeking approval of a change of
ownership, control, or business operations (``continuing membership
applicant'' or ``applicant'') to submit a standardized form as part of
its continuing membership application and provides little detail
regarding an application's required contents. Instead, each applicant
is responsible for determining the contents of its continuing
membership application. This often results in information deficiencies,
which in turn, creates unnecessary delays in efficiently processing the
applications. NASD Rule 1017 also generally requires a continuing
membership application to be filed in the district office in which an
applicant's principal place of business is located. Additionally, NASD
Rule 1012 (General Provisions) provides that, unless otherwise
prescribed by FINRA, applicants may submit continuing membership
applications via first-class mail, overnight courier, or hand-delivery
(or facsimile upon agreement by FINRA and the applicant).
---------------------------------------------------------------------------
\3\ NASD Rule 1011(k) defines a ``material change in business
operations'' as including, but not limited to: (1) Removing or
modifying a membership agreement restriction; (2) market making,
underwriting, or acting as a dealer for the first time; and (3)
adding business activities that require a higher minimum net capital
under SEA Rule 15c3-1.
---------------------------------------------------------------------------
This manner of submitting a continuing membership application
reduces the overall efficiency of the process and also creates
unnecessary delays in properly forwarding information within FINRA,
such as in conveying information to and from the centralized Membership
Application Program Group formed in January 2011. To address these
deficiencies, the proposed rule change amends NASD Rule 1012 to require
continuing membership applicants to file an application in the manner
prescribed in Rule 1017. In addition, the proposed rule change amends
NASD Rule 1017(b) to require continuing membership applicants to file
an application in the manner prescribed by FINRA with the Department of
Member Regulation (``the Department'') and to include the completed
Form CMA as part of the contents of a continuing membership
application.
New Form CMA will provide continuing membership applicants with the
benefits of a streamlined application process that new member
applicants currently experience via the standardized online Form NMA
and is intended to significantly reducing administrative delays that
exists in today's manual application processes.
New Form CMA is structured similarly to revisions proposed for Form
NMA with adjustments in the content of
[[Page 14053]]
new Form CMA based on the differing nature of the application types.\4\
As with revised Form NMA, new Form CMA will seek to elicit information
from applicants in a manner consistent with the standards of admission,
contained in NASD Rule 1014, against which NASD Rule 1017 requires each
application to be evaluated. Additionally, the structure and guidance
provided by new Form CMA is designed to obtain the basic information
needed for all applicants with embedded flexibility to allow for
variations based on the particular application type being submitted.
---------------------------------------------------------------------------
\4\ See SR-FINRA-2012-017 (proposed rule change to restructure
the content of existing Form NMA to, among other things, make the
requested information and documentation more consistent with the
standards in NASD Rule 1014 (Department Decision)).
---------------------------------------------------------------------------
Also, new Form CMA, as with the revised Form NMA, will pre-populate
certain fields with information provided to FINRA in other submissions
(e.g., Central Registration Depository (CRD[supreg]) entitlement forms
and Form BD) or otherwise available to FINRA from CRD records (e.g.
continuing education status), thereby minimizing the time necessary for
applicants to complete the new form.\5\ In addition, new Form CMA will
include a number of optional information request fields that can be
used by applicants to provide additional information if and when it is
applicable to the applicant's proposed change. The optional field
approach is intended to provide flexibility for the significant level
of variation seen in members' structures, business lines, and proposed
changes.
---------------------------------------------------------------------------
\5\ See id.
---------------------------------------------------------------------------
Below is a synopsis of the content of new Form CMA, by standard:
Standard 1 (Overview of the Applicant):
This standard seeks certain applicant overview information (e.g.,
details of the proposed business change, verification of current
business activities, new business lines added, supervisors for new
business lines, identification of other persons associated with the
proposed business change).
Standard 2 (Licenses and Registrations):
This standard consists of information requests regarding the
continuing membership applicant's licenses and registrations that will
be affected by the proposed business change (e.g., changes to required
licenses and registrations, new or continuing registration or
examination waivers, new or continuing two-principal requirement
waiver, new or continuing Securities Information Center exemption,
other self-regulatory organization (``SRO'') registrations and/or
withdrawals from other SRO registrations, new non-registered officers,
directors, or control persons).
Standard 3 (Compliance With Securities Laws, Just and
Equitable Principles of Trade):
This standard consists of specific requests for information (e.g.,
disciplinary history) and documentation (e.g., state or federal orders
or decrees, statements of claims, cancelled checks for payment of
arbitration awards, proofs of settlement, settlement agreements) that
FINRA considers necessary for the applicant to demonstrate compliance
with the requirements of this standard.
Standard 4 (Contractual and Business Relationships):
This standard includes the information requests regarding a
continuing membership applicant's contractual and business
relationships (e.g., description of contractual arrangements, expense
sharing agreements, financing arrangements, fidelity bonds or fidelity
bond applications, support and service agreements).
Standard 5 (Facilities):
This standard consists of information requests regarding a
continuing membership applicant's facilities (e.g., material changes to
facilities or locations, departmental information barriers, space
sharing arrangements, lease and/or sub-lease agreements).
Standard 6 (Communications and Operational Systems):
This standard includes information requests regarding a continuing
membership applicant's communications and operational systems (e.g.,
communications and operational systems changes, supervision
arrangements of multiple locations, business continuity plan documents,
information relating to the applicant's use of social media sites).
Standard 7 (Maintaining Adequate Net Capital):
This standard includes information regarding an applicant's net
capital requirements (e.g., information on the nature and source of
capital, additional funding plans, minimum net capital requirements,
future funding sources).
Standard 8 (Financial Controls):
This standard seeks information regarding a continuing membership
applicant's financial controls (e.g., information regarding changes to
the applicant's registered financial and operations principal
(``FINOP''), impact of proposed business change on financial controls).
Standard 9 (Written Procedures):
This standard seeks information regarding a continuing membership
applicant's written procedures (e.g., impact of proposed change on
written supervisory procedures (``WSP''), WSP checklist, sample reports
to support supervision and financial controls).
Standard 10 (Supervisory Structure):
This standard seeks information regarding a continuing membership
applicant's supervisory structure (e.g., changes to supervisory or
management personnel, information regarding supervisors' experience and
duties, chief compliance officer experience, non-FINOP outside business
activities notifications).
Standard 11 (Books and Records):
This standard seeks information regarding a continuing membership
applicant's books and records (e.g., impact of potential business
change on applicant's recordkeeping systems and recordkeeping service
providers, sample books and records relating to new business
activities).
Standard 12 (Continuing Education):
This standard seeks information regarding a continuing membership
applicant's continuing education (``CE'') obligations (e.g., changes to
the applicant's CE program, revised CE training needs assessment and
written training plan).
FINRA worked closely with an industry task force, comprised of
seven representatives from small and large firms, several of whom also
act as consultants, during the development of the new Form CMA. Among
other things, the task force's input assisted FINRA to make changes
intended to reduce applicants' administrative burden when completing
Form CMA. Overall, FINRA believes that the new Form CMA will facilitate
more effective and efficient application processing for the applicants.
FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be 180 days following
publication of the Regulatory Notice announcing Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\6\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
[[Page 14054]]
public interest. The proposed rule change amends NASD Rules 1012 and
1017 to adopt a new standardized electronic form, Form CMA, to be used
by all continuing membership applicants as part of their continuing
membership applications. Form CMA elicits information from applicants
in a manner consistent with the standards of admission contained in
NASD Rule 1014, against which continuing membership applications are
evaluated. FINRA believes that new Form CMA will reduce applicants'
administrative burden and ensure a more streamlined and efficient
continuing membership application process for both FINRA and
applicants.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2012-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2012-018. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-FINRA-2012-018 and should be
submitted on or before March 29, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \7\
---------------------------------------------------------------------------
\7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5631 Filed 3-7-12; 8:45 am]
BILLING CODE 8011-01-P