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Checklists for Mandatory Materiality Consultations Under Rules 1017(a)(6) and 1017(a)(7)

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Checklist for Mandatory Materiality Consultations Under Rule 1017(a)(6)

A member must submit a letter requesting a materiality consultation for specified changes in ownership, control, or business operations, including business expansions, involving a defined “covered pending arbitration claim,” unpaid arbitration award or unpaid settlement related to an arbitration.  Such letter must be submitted through FINRA Gateway®, under the Materiality Consultation section.1 There is no fee associated with a mandatory materiality consultation.

The following checklist is intended to assist a member firm when it is required to submit a materiality consultation under Rule 1017(a)(6) for these circumstances:

  • A member firm seeks to engage in any direct or indirect acquisition or transfer of a member’s assets or any asset, business or line of operation where the transferring member or an associated person of the transferring member has a covered pending arbitration claim,2 an unpaid arbitration award or unpaid settlement related to an arbitration, and such member is not otherwise required to file Form CMA; or
  • A member firm seeks to add one or more associated persons involved in sales as described in IM-1011-2, and one or more of those associated persons has a covered pending arbitration claim,3 an unpaid arbitration award or unpaid settlement related to an arbitration, and such member is not otherwise required to file Form CMA.

Additional information and documentation may be requested once the Membership Application Program Group (MAP Group) has had an opportunity to review the member firm’s letter along with any additional information and documentation provided with the letter.


Firm Contact Information

☐ Firm Name

☐ Firm Contact Person—Full Name; E-mail Address; Phone Number

☐ Firm Mailing Address—Company Name; Street Address; City; State; Zip Code


Identify the Event for Which you are Seeking a Mandatory Materiality Consultation

☐ Any direct or indirect acquisition or transfer of a member’s assets or any asset, business or line of operation, where the transferring member or an associated person of the transferring member has a covered pending arbitration claim, an unpaid arbitration award or unpaid settlement related to an arbitration (Rule 1017(a)(6)(A); Rule 1011(c)(2))

☐ The addition of one or more associated persons involved in sales as described in IM-1011-2, and one or more of those associated persons has a covered pending arbitration claim, an unpaid arbitration award or unpaid settlement related to an arbitration (Rule 1017(a)(6)(B); Rule 1011(c)(1))


Information or Documentation to be Included in the Written Submission

(Note: Failing to provide the information or documentation described below may result in prolonging the review of the terms of the materiality consultation, the materiality consultation being rejected, or the determination that a CMA is required)

Any direct or indirect acquisition or transfer of a member’s assets or any asset, business or line of operation, where the transferring member or an associated person of the transferring member has a covered pending arbitration claim, an unpaid arbitration award or unpaid settlement related to an arbitration (Rule 1017(a)(6)(A); Rule 1011(c)(2)).4

☐ Provide the name and CRD number of the transferring firm, and the name and CRD number of the acquiring firm.

☐ Provide a copy of the documents governing the transaction (e.g., asset purchase agreement).

☐ Provide a description of the assets and business line(s) of operation that will be transferred.

☐ Provide a description of how the assets will be acquired or transferred.

☐ Provide a description of whether the transferring firm has a covered pending arbitration claim, unpaid arbitration award or unpaid settlement related to an arbitration.

☐ Indicate whether the transferring firm plans to file Form BDW (Uniform Application for Broker-Dealer Withdrawal).

NOTE: Filing Form BDW may require a CMA.  Please review Rule 1017(a)(3).

☐ Provide the name, title and CRD number of each associated person of the transferring firm who has a covered pending arbitration claim, an unpaid arbitration award or unpaid settlement related to an arbitration.

☐ Indicate whether any of the associated persons of the transferring firm with a covered pending arbitration claim, unpaid arbitration award or unpaid settlement related to an arbitration will become associated with the acquiring firm; if so, provide the name, title and CRD number of each such person.

☐ Provide a detailed rationale explaining why the firm believes a CMA is not required.

The addition of one or more associated persons involved in sales as described in IM-1011-2, and one or more of those associated persons has a covered pending arbitration claim, an unpaid arbitration award or unpaid settlement related to an arbitration (Rule 1017(a)(6)(B); Rule 1011(c)(1))

☐ For each associated person, provide the name, CRD number, and anticipated job functions and responsibilities at the receiving firm.

☐ Provide a detailed rationale explaining why the firm believes a CMA is not required.


Supplemental Documentation and Information Pertaining to:

Payment of Unpaid Arbitration Awards, Other Adjudicated Customer Awards, Unpaid Arbitration Settlements or Pending Arbitration Claims

☐ Arbitration Case Information—Names of claimant(s) and respondent(s); CRD number; claim number; description of the award, settlement or claim.

☐ Legal Opinion—Did the firm obtain a written opinion from an independent, reputable U.S. licensed counsel knowledgeable as to the value of such arbitration claims and any other documentation?  If so, please provide the written assessment.

☐  Amount Set Aside—Specify the dollar amount that the firm has set aside or anticipates setting aside to account for the award, settlement or claim.

☐  Supporting Evidence for Payment—Provide evidence to support how the firm will provide for payment of the award, settlement or claim (e.g., escrow agreement, insurance coverage, clearing deposit, a guarantee, a reserve fund or the retention of proceeds from as asset transfer) and that the funds will be used to satisfy the award, settlement or claim.  If the firm does not have evidence as noted above, please so state.

☐  Employment of Associated Person—Indicate whether the associated person(s) named in the arbitration matter is still employed by the firm.  If so, please indicate the associated person’s job functions or responsibilities (e.g., registered representative, principal; if a principal, provide the business lines or products the principal is responsible for supervising).

☐  Heightened Supervision—Indicate whether the associated person(s) named in the arbitration claim is subject to heightened supervision.  If so, identify the person(s) that will be on heightened supervision, describe the parameters of the heightened supervision, including but not limited to, the name, and title and CRD number of the immediate supervisor.


1. For technical assistance, please contact the FINRA Gateway Call Center at (301) 869-6699.

2. Rule 1011(c)(2) defines “covered pending arbitration claim” to mean “An investment-related, consumer initiated claim filed against the transferring member or its Associated Persons in any arbitration forum that is unresolved; and whose claim amount (individually or, if there is more than one claim, in the aggregate) exceeds the transferring member’s excess net capital.”

3. Rule 1011(c)(1) defines “covered pending arbitration claim” to mean “An investment-related, consumer initiated claim filed against the Associated Person in any arbitration forum that is unresolved; and whose claim amount (individually or, if there is more than one claim, in the aggregate) exceeds the hiring member's excess net capital.”

4. Note that pursuant to Rule 1017(a)(3), a CMA is required for approval where a member seeks to effect an acquisition or transfer of 25 percent or more in the aggregate of the member’s assets or any asset, business line of operation that generates revenues composing 25 percent or more in the aggregate of the member’s earnings measured on a rolling 36-month basis, unless both the seller and acquirer are members of the New York Stock Exchange, Inc.


Checklist for Mandatory Materiality Consultations Under Rule 1017(a)(7)

Under Rule 1017(a)(7), a member must submit a letter requesting a materiality consultation whenever a natural person seeking to become an owner,1 control person,2 principal or registered person of the member firm has, in the prior five years, one or more defined "final criminal matters" or two or more "specified risk events"3 and the member is not otherwise required to file a Continuing Membership Application (Form CMA).4

Such letter must be submitted through FINRA Gateway®, under the Materiality Consultation section.5 There is no fee associated with a mandatory materiality consultation.

The following checklist is intended to assist a member firm when it is required to submit a materiality consultation under Rule 1017(a)(7).


Information or Documentation to be Included in the Written Submission

(Note: Failing to provide the information or documentation described below may result in prolonging the review of the terms of the materiality consultation, the materiality consultation being rejected, or the determination that a continuing membership application (CMA) is required)

☐ Firm Name

☐ Firm Contact Person—Full Name; E-mail Address; Phone Number

☐ Firm Mailing Address—Company Name; Street Address; City; State; Zip Code

☐ For each relevant individual, provide the name, CRD number, anticipated role (e.g., owner, indirect owner, RR, principal, etc.) and all proposed responsibilities/activities at the Firm.

☐ Provide a detailed summary of the individual’s “final criminal matters” and “specified risk events,” including whether they are customer-related, and/or represent discrete actions or are based on the same underlying conduct.

☐ Provide a description of any other matters relating to the subject person, such as disciplinary actions taken by FINRA or other industry authorities, adverse examination findings, customer complaints, pending or unadjudicated matters, terminations for cause or other incidents that could indicate a threat to public investors.

☐ Provide a detailed rationale explaining why the firm believes a CMA is not required. In addition to addressing the aforementioned items, such rationale should include, but is not limited to:

  • the disciplinary history, experience and background of the proposed supervisors, if applicable;
  • the disciplinary history, supervisory practices, standards, systems and internal controls of the member firm, and whether they are reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules;
  • whether the member firm employs or intends to employ in any capacity multiple persons with one or more "final criminal matters" or two or more "specified risk events" in the prior five years; and
  • how the firm intends to address any other potential investor protection concerns raised by seeking to make this person an owner, control person, principal or registered person of the member firm.


Outcome/Resolution

NOTE: Additional information and documentation may be requested once the Membership Application Program Group (MAP Group) has had an opportunity to review the member firm's letter along with any additional information and documentation provided with the letter. Once the review is complete, FINRA will issue its decision:

☐ If FINRA determines the change is not material—Staff will issue a decision noting same; the member firm may proceed with the change. 

☐ If FINRA determines the change is material, thus requiring a CMA—Staff will issue a decision noting same, wherein FINRA would instruct the member firm to file a Form CMA if it intends to proceed with such change. The member firm may not proceed with the change unless and until FINRA approves the application.


1. Rule 1017(a)(7) defines "owner," for purposes of Rule 1017(a)(7), to have the same meaning as "direct owner" and "indirect owner" on the Uniform Application for Broker-Dealer Registration (Form BD), Schedules A and B, as amended from time to time.

2. Rule 1017(a)(7) defines "control person" to mean a person who would have "control" as defined on Form BD, as amended from time to time.

3. See Rule 1011(h) (defining "final criminal matter") and Rule 1011(p) (defining "specified risk event"). The definitions of "final criminal matter" and "specified risk events" are based on criminal events, arbitration awards, civil judgments, arbitration settlements, civil litigation settlements, civil judicial actions, and regulatory actions, as described in the definitions, that are disclosed, or are or were required to be disclosed, on the "Uniform Registration Forms." See Rule 1011(r) (defining "Uniform Registration Forms" to include Form BD, the Uniform Application for Securities Industry Registration or Transfer (Form U4), the Uniform Termination Notice of Securities Industry Registration (Form U5), and the Uniform Disciplinary Action Reporting Form (Form U6)).

4. Rule 1017(a)(7) does not apply when the member is required to file an application or written request for relief pursuant to Rule 9522 (Initiation of Eligibility Proceeding; Member Regulation Consideration; and Requirements for an Interim Plan of Heightened Supervision) for approval of the same contemplated association.

5. For technical assistance, please contact the FINRA Gateway Call Center at (301) 869-6699.