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Changes of Ownership or Control

FINRA Rule 1017 requires advance notice—but not prior approval—of changes of ownership or control in the form of a Continuing Membership Application. Form CMA must be filed at least 30 days prior to making such a change to give FINRA an opportunity to conduct a preliminary analysis of the change based on FINRA Rule 1014.

A firm may affect the change before the final, written decision is issued, but the FINRA MAP Group may impose interim restrictions that would remain in effect until the application is decided. In the event of a denial, lapse or withdrawal of the application, the new owners (if the transaction has been consummated) may not conduct business.

Firms also are required to file an application and obtain prior approval of mergers and acquisitions, as specified in Rule 1017. Rule 1017(a)(3) requires an application and approval prior to the sale or transfer of 25 percent or more of a firm’s assets or any asset, business line or operation that generates revenues of 25 percent or greater of the selling firm’s earnings over a rolling 36-month period. The 36-month period is measured backwards from the date the application is initially filed (see Notice to Members 04-10 for more information).

Additionally, Rule 1017 is not limited to changes that occur all at once. The rule is triggered when the change, whether in increments or otherwise, results in one person or entity owning or controlling 25 percent or more of the equity or partnership capital of the firm for the first time.

Checklist for Organizational Change: Mergers, Acquisitions and Successions

If your firm is undergoing an organizational change, it may affect the ways in which you interact with FINRA, such as your membership application and system-related privileges. To ensure a smoother transition, we have compiled a checklist of steps to consider.

Note: A proposed or projected transaction closing date in the future, but within the next 12 months, should not delay or alter the CMA review process. Applicants have the burden to update all application information as it changes. Applicants should be aware that delays on their part in producing information due to "closing" issues may, in turn, delay FINRA's review of the application.