[Federal Register Volume 78, Number 36 (Friday, February 22, 2013)]
[Notices]
[Pages 12405-12407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04101]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68942; File No. SR-FINRA-2013-015]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Section 4 of Schedule A to the FINRA By-
Laws To Adopt a Waiver Process for the Continuing Membership
Application Fee and Amend NASD Rules 1013 and 1017 To Provide for a
Refund of the Application Fee for the Withdrawal of a New Member or
Continuing Membership Application
February 15, 2013.
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 5, 2013, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Section 4 of Schedule A to the FINRA
By-Laws to adopt a waiver process for the continuing membership
application fee where FINRA determines that the application is
proposing less significant changes that do not require substantial
staff review. The proposed rule change also would amend NASD Rules 1013
(New Member Application and Interview) and 1017 (Application for
Approval of Change in Ownership, Control, or Business Operations) to
provide for a refund of the application fee (less a $500 processing
fee) if a new member applicant or continuing membership applicant
withdraws an application within 30 days after filing the application.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Effective July 23, 2012, FINRA amended Section 4 of Schedule A to
its By-Laws to, among other things, assess a new fee for continuing
membership applications (``CMAs'').\4\ In light of comments raised on
the CMA fee, FINRA proposes to amend Section 4 of Schedule A to the
FINRA By-Laws to adopt a waiver process for the CMA fee where FINRA
determines that the CMA is proposing less significant changes that do
not require substantial staff review.\5\ The proposed rule change also
would amend NASD Rules 1013 (New Member Application and Interview) and
1017 (Application for Approval of Change in Ownership, Control, or
Business Operations) to refund the requisite application fee (less
$500, which shall be retained by FINRA as a processing fee) if an
applicant withdraws a new membership application (``NMA'') or CMA
within 30 days after filing the application.
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\4\ See Securities Exchange Act Release No. 67240 (June 22,
2012), 77 FR 38694 (June 28, 2012) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2012-031). On July 23, 2012,
FINRA also made available a new Form CMA for optional use by
continuing membership applicants; applicants were required to use
Form CMA effective August 27, 2012. See Securities Exchange Act
Release No. 67484 (July 23, 2012), 77 FR 44298 (July 27, 2012)
(Notice of Filing and Immediate Effectiveness of SR-FINRA-2012-036).
\5\ See also Letter from Philip Shaikun, Associate Vice
President and Associate General Counsel, FINRA, to Elizabeth M.
Murphy, Secretary, SEC, dated August 3, 2012, in response to
comments on SR-FINRA-2012-031 (indicating FINRA's intent to consider
a waiver program for the CMA fee).
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CMA Fee Waiver
NASD Rule 1017 provides parameters for changes in a member's
ownership, control, or business operations that would require a CMA,\6\
and NASD Rule 1012 (General Provisions) requires an applicant filing a
CMA to submit an application fee pursuant to Schedule A to the FINRA
By-Laws. Section 4(i) of Schedule A to the FINRA By-Laws assesses
applicants a CMA fee ranging from $5,000 to $100,000 depending on the
number of registered persons associated (or to be associated) with the
applicant and the type of change in ownership, control, or business
operations being contemplated (merger, material change, ownership
change, transfer of assets, or acquisition). For instance, the fee
structure assesses a member with only one to ten registered persons a
fee ranging between $5,000 and $7,500, depending on the type of CMA,
whereas a member with 301 to 500 registered persons is assessed a fee
ranging between $10,000 and $30,000 depending on the type of CMA. This
tiered fee structure recognizes that more complex changes and larger
applicants generally require additional staff resources.
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\6\ NASD Rule 1017(a) (Events Requiring an Application) requires
a member to 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 NYSE or the surviving entity will continue to be a member of the
NYSE; (2) a direct or indirect acquisition by the member of another
member, unless the acquiring member is a member of the NYSE; (3)
direct or indirect acquisitions or transfers of 25 percent or more
in the aggregate of the member's assets, or any asset, business, or
line of operation that generates revenues comprising 25 percent or
more in the aggregate of the member's earnings measured on a rolling
36-month basis, unless both the seller and the acquirer are members
of the NYSE; (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 NASD Rule 1011(k) (Material Change in
Business Operations). 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 [sic] Rule 15c3-1.
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The proposed rule change would provide FINRA with flexibility to
grant a waiver of the CMA fee for those applications that propose less
significant changes to a member firm's
[[Page 12406]]
structure or operations. Specifically, FINRA proposes to amend Section
4(i) of Schedule A to the FINRA By-Laws to provide that FINRA shall
waive the CMA fee when FINRA determines that the CMA is proposing less
significant changes that do not require substantial staff review.
A CMA qualifying for a fee waiver under this proposed rule change
may include, for example, a CMA where the proposed change does not make
any day-to-day changes in the applicant's business activities,
management, supervision, assets, or liabilities, and the applicant is
only proposing a change in the: (1) Applicant's legal structure (e.g.,
changing from a corporation to an LLC); (2) equity ownership,
partnership capital, or other ownership interest in an applicant held
by a corporate legal structure that is due solely to a reorganization
of ownership or control of the applicant within the corporate legal
structure (e.g., reorganizing only to add a holding company to the
corporate legal structure's ownership or control chain of the
applicant); or (3) percentage of ownership interest or partnership
capital of an applicant's existing owners or partners resulting in an
owner or partner owning or controlling 25 percent or more of the
ownership interest or partnership and that owner or partner has no
disclosure or disciplinary issues in the preceding five years.
In addition, a CMA may qualify for a fee waiver pursuant to the
proposed rule change if it is filed by an applicant in connection with
a direct or indirect acquisition or transfer of 25 percent or more in
the aggregate of the applicant's assets or any asset, business, or line
of operation that generates revenues composing 25 percent or more in
the aggregate of the applicant's earnings measured on a rolling 36-
month basis where the applicant also is ceasing operations as a broker
or dealer (including filing a Form BDW with the SEC). There also must
be either: (1) No pending or unpaid settled customer related claims
(including, but not limited to, pending or unpaid settled arbitration
or litigation actions) against the applicant or any of its associated
persons; or (2) pending or unpaid settled customer related claims
(including, but not limited to, pending or unpaid settled arbitration
or litigation actions) against the applicant or its associated persons,
but the applicant demonstrates in the CMA its ability to satisfy in
full any unpaid customer related claim (e.g., sufficient capital or
escrow funds, proof of adequate insurance for customer related claims).
The proposed changes in business operations outlined above are
examples of changes that may qualify for a CMA fee waiver pursuant to
the proposed rule change.\7\ Other proposed changes in business
operations also may qualify for a fee waiver pursuant to the proposed
rule change. FINRA's determination to waive a fee for a particular CMA
will depend on the individual facts and circumstances.
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\7\ FINRA expects that the proposed changes in business
operations outlined above typically will not be significant and will
not require substantial staff review. However, whether FINRA grants
a fee waiver under the proposed rule change will depend on the
individual facts and circumstances of each CMA.
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An applicant seeking a waiver of the CMA fee would submit its
request to FINRA's Department of Member Regulation in writing as part
of the supporting documentation submitted with the applicant's Form
CMA. Form CMA's Standard 1 (Overview of the Applicants) instructs the
applicant to attach enumerated types of supporting documents. A waiver
request would most appropriately be attached in response to the request
for ``[a]ny other documentation that would be pertinent to FINRA's
review of this Standard.''
NMA and CMA Fee Refund
FINRA also proposes to amend NASD Rules 1013 and 1017 to provide
that if an applicant withdraws a NMA or CMA 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. The proposed rule
change also clarifies that, if the applicant determines to again seek
membership or apply for approval of a change in ownership, control, or
business operations, the applicant must submit a new NMA or CMA (under
NASD Rule 1013 or NASD Rule 1017, as applicable) and requisite
application fee pursuant to Schedule A to the FINRA By-Laws.
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\8\ 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
public interest. FINRA believes that the proposed rule change is
consistent with Section 15A(b)(6) of the Act in that it would establish
a waiver process for the CMA fee for those applications that seek less
significant changes. The proposed rule change also would provide a
refund (subject to a processing fee) of the requisite application fee
to an applicant withdrawing a NMA or CMA within 30 days after filing
the application. Both the CMA fee waiver process and the NMA and CMA
fee refunds provide relief for new member and continuing membership
applicants where the demands on FINRA resources are less significant.
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\8\ 15 U.S.C. 78o-3(b)(6).
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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. The CMA fee waiver process will
provide FINRA with the flexibility to grant a waiver of the CMA fee for
those applications that propose less significant changes to a member
firm's structure or operations. The proposed rule change also would
provide a refund (subject to a processing fee) of the requisite
application fee to an applicant withdrawing a NMA or CMA within 30 days
after filing the application. Accordingly, both the CMA fee waiver
process and the NMA and CMA fee refunds reduce members' potential
regulatory costs by providing relief for new member and continuing
membership applicants where the demands on FINRA resources are less
significant.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section
[[Page 12407]]
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6).
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FINRA has requested that the Commission waive the 30-day operative
delay to permit the proposed rule change to become operative
immediately. The Commission finds that waiver of the operative delay is
consistent with the protection of investors and the public interest
because the waiver will enable members submitting applications that
propose less significant changes to receive an immediate waiver of the
CMA fees, and would also enable members withdrawing applications to
receive an immediate refund of certain application fees. Therefore, the
Commission designates the proposal operative effectively.\11\
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\11\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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-2013-015 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-2013-015. 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
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at 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 available publicly. All
submissions should refer to File Number SR-FINRA-2013-015, and should
be submitted on or before March 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04101 Filed 2-21-13; 8:45 am]
BILLING CODE 8011-01-P