FINRA Registration Rules
The NASD Rule 1010 Series was designed to create uniform Standards for Admission and access to FINRA for a member firm. These Rules also identify the requirements and review criteria for membership and registration.
The Rules describe milestones, or critical events, associated with the new membership application process. The NASD Rule 1010 Series also addresses milestones associated with applications to remove or modify prior restrictions imposed, as well as applications relating to changes of ownership, control or business operations. As such, the NASD Rule 1010 Series sets forth Standards for Admission that must be continually met throughout a firm's membership. Moreover, the Rules define the responsibilities of the parties involved in the membership application process, and, where appropriate, specify time frames that are attached to the milestones. (See also Membership Rules Reference .)
The USA PATRIOT Act requires financial institutions, including broker-dealers, to have an AML compliance program. Accordingly, FINRA Rule 3310 requires firms to develop and implement a written AML compliance program. The Rule also sets forth minimum standards for broker-dealers' AML compliance programs. The program must be approved in writing by a member of senior management and be reasonably designed to achieve and monitor the member's ongoing compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder. See FINRA's AML Web page for more information.
NASD Rule 1014(a)(10)(D) requires one year of direct or two years of related experience for each person charged with supervision in the subject area they are proposed to supervise. In addition, each principal and registered representative of the firm must take and pass the requisite securities qualification examinations. Upon data entry of the Form U4 by FINRA's Regulatory Review and Disclosure Department, each individual is given a 90-day window to pass all required examinations. Therefore, timely planning and preparation during the application process is necessary in order to meet FINRA's deadlines.
NASD Rule 1021(e) requires each applicant, except a sole proprietorship, to have at least two officers or partners who are registered as principals with respect to each aspect of the member's investment banking and securities business pursuant to the applicable provisions of NASD Rule 1022. Each applicant must employ a minimum of two registered principals and one Financial and Operations Principal (although the applicant can request FINRA to waive the two-principal requirement and employ only one principal, under exceptional circumstances, pursuant to the FINRA Rule 9600 Series).
Adequate funding of the business is another important area to address: the firm must be able to meet the minimum net capital requirements of SEA Rules 15c3-1 and 17a-11 and have sufficient additional funds to meet its planned or future business needs. Clearing firms may impose additional financial requirements on member firms for which they provide services, so the Applicant should contact its clearing firm prior to submitting an application to ensure it can meet the clearing firm's initial and ongoing requirements.
An additional item to consider is order audit trail reporting requirements, which are set forth in the FINRA Rule 7400 Series. This set of Rules, which govern what is known as the Order Audit Trail SystemSM (OATSSM ), requires FINRA member firms that handle orders to buy or sell NMS Stocks and OTC equity securities to develop a means for electronically capturing and reporting to OATS specific data elements related to the handling and execution of orders, including recording all times of these events in hours, minutes and seconds, and to synchronize their business clocks. Compliance with these Rules requires advance planning because special data lines may be required. See the OATS Web Page for more information.
NASD Rule 3150 requires clearing firms to electronically report certain data on behalf of correspondent broker/dealers and all self-clearing firms to report data pertaining to their own businesses. Under the Rule, each member clearing and self-clearing firm must report the prescribed data to FINRA in the format FINRA requires. Members may enter into an agreement with a third party, such as a service bureau, pursuant to which the third party agrees to fulfill the clearing or self-clearing firm's obligations under NASD Rule 3150. Notwithstanding the existence of such an agreement, each member that is a clearing or self-clearing firm will be responsible for complying with the reporting requirements of NASD Rule 3150.