Mergers, Acquisitions and Business Transfers
Firms involved in mergers, acquisitions, asset transfers (which may include but is not limited to registered representatives and customer accounts) and other operational changes must attend to various regulatory and investor-protection obligations.
FINRA encourages firms, and in some cases requires them, to notify their FINRA coordinator when planning these changes. By discussing these proposals well in advance of implementing them, firms may find that it helps them address operational problems. Please see Rule 1017 (a)(3) for more information.
The following changes and transactions will prompt required firm actions, which are described below.
- Mergers and/or acquisitions of other broker-dealers.
- Customers changing firms on their own initiative.
- Registered representatives with an established customer base who bring customer assets along with them when they move from one firm to another.
- Transfers of brokers and/or customers as part of an acquisition of a portion of a business, such as the purchase of a trading desk from another firm.
Please note that this Web page highlights common regulatory concerns. It does not explore all the potential issues that may come up during a merger, acquisition or business transfer.
Firms should review the following areas when planning material business changes, among others.
- Continuing Membership Application (CMA) and Membership Agreement Changes (MAC) - You should assess how your firm’s merger- and transfer-related changes will affect its FINRA membership status. FINRA Rule 1017a requires firms to file a CMA when they seek to materially expand their operations or activities, and a MAC when they seek to modify or remove restrictions imposed in a membership agreement. Learn more about CMA requirements in FINRA’s Continuing Membership Guide.
- Policies and Procedures - When planning organizational or operational changes, firms should review each entity’s policies and procedures. Merging firms should consider a top-to-bottom comparison. A more limited review may be appropriate when a firm acquires a portion of a business from another firm. The revised and/or combined policies and procedures should be comprehensive and fully reflect the new business model.
- Governance - Firms should establish a governance structure for the business composition and organization of the new or modified entity. This should provide a clear roadmap for the review, assessment, approval and escalation of the new firm’s business activities.
- Annual Compliance Certification - A firm’s compliance personnel should play an integral role in developing the overall structure of the post-transition business entity. (Learn more in FINRA Rule 3130.) Interaction with compliance should be sufficiently robust at all stages of the integration process.
- Supervision - Firms must ensure that they have established clear lines of supervision for the post-transition business entity. Properly licensed, supervisory principals must have access to systems and information sufficient to perform their duties.
- Customer Account Transfer - During business transitions, both the releasing (carrying) firm and the receiving firm must coordinate plans to expedite customer account transfers, as required in FINRA Rule 11870. They also must treat customers fairly and protect their interests throughout the transition.
- Books and Records Retention - FINRA encourages firms to fully catalogue and review processes for retaining and retrieving required books and records. Be prepared to maintain legacy database systems to run in parallel with new or combined systems, if necessary, to ensure records remain accessible.
- Communications With the Public - FINRA urges merging firms to develop interim guidelines for referrals or other joint communications during the integration process. These guidelines may address such issues as sharing information with various business partners in the merging entities (e.g., research analysts, investment bankers, trading and sales people).
- Back Office and Operations -You should assess how merger- or transfer-related changes will affect your firm’s financial and operational status. This includes anticipating the effect of a merger or acquisition on net capital with the use of pro forma and reserve capital calculations.
- Systems and Technology -Firms should consider creating a detailed systems migration plan, which can help facilitate a seamless transition to the final infrastructure in a merger or acquisition. FINRA encourages firms to notify us when planning a significant electronic data processing system conversion, including conversions that are part of a business transfer.
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.
- FINRA Rules
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- Temporary Dual FINRA-NYSE Member Rule Series
- FINRA Rules
- FINRA Announces SEC Approval and Effective Date for New Consolidated FINRA Rules Effective Date: December 15, 2008
- Proposed Consolidated FINRA Rules Governing Supervision and Supervisory Controls
- FINRA Reminds Member Firms of Their Obligations Regarding Background Investigations of Prospective Personnel
- SEC Approves Amendments to NASD Rule 11870 and NYSE Rule 412 to Conform with NSCC's ACATS Transfer Cycle Time Frames
- FINRA Clarifies Guidance Relating to SEC Regulation S-P under Notice to Members 07-06 (Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products)
- Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
- NASD Reminds Members of Their Obligations Relating to the Protection of Customer Information
- NASD Recommends Best Practices for Reviewing New Products
- SEC Approves New Chief Executive Officer Compliance Certification and Chief Compliance Officer Designation Requirements
- Impermissible Use of Negative Response Letters for the Transfer of Mutual Funds and Variable Annuities (Changes in Broker-Dealer of Record)
- SEC Approves Rules Requiring Members to Create Business Continuity Plans and Provide Emergency Contact Information
- Use of Negative Response Letters for the Bulk Transfer of Customer Accounts
- SEC Approves NASD Rule Proposal Relating to Operations
- Compliance ToolsIf your firm is undergoing a change in organization due to a merger, acquisition, or succession, it may affect the ways in which you interact with FINRA, such as your membership application and system-related privileges. In order to make your firm's transition easier, we have compiled a checklist of steps to consider when undergoing such a change.August 24, 2016
- Interpretive LetterNASD Rule 2510 - Discretionary Accounts - Use of a negative response process under NASD Rule 2510(d)(2)(D) to designate an alternative money market sweep fund when existing sweep fund closes with inadequate notice.May 15, 2008
- Interpretive LetterNASD Rule 2510 - Discretionary Accounts - Application of NASD Rules 3110, 2510, 2310, and IM 2310-2 to a default IRA account established by plan sponsor in accordance with Department of Labor safe harbor provisions.March 16, 2005
- Interpretive LetterNASD Rule 2510 - Discretionary Accounts - A member may use the negative response process under Rule 2510(d)(2)(A) to effectuate the transfer to another money market fund of customer free credit balances that have been returned to the member by a fund that has been terminated.January 26, 2005
- Interpretive LetterInterpretive Letter to Barry Harris, Banc of America Investment Services, Inc. (Use of Negative Response Letters)Negative response letters may be used to change the broker-dealer of record for customers' "direct application" mutual fund and variable annuity accounts in situations involving the acquisition or merger of a member firm, where the acquiring or surviving entity is the legal successor-in-interest to the member firm.October 20, 2004
- Interpretive LetterNegative response letters may be used for a bulk transfer of customer accounts to a broker-dealer that will provide certain trading services that have been discontinued by member, provided the letters contain the disclosures described in Notice to Members 02-57.May 01, 2003
- Interpretive LetterInterpretive Letter to Marion A. Kashan, London Pacific Securities, Inc. (Use of Negative Response Letters)The use of negative response letters to transfer customers from one introducing broker/dealer to another may conflict with a member's obligation to observe high standards of commercial honor and just and equitable principles of trade.February 03, 2003
- Interpretive LetterApplicability of Rule 2510(d) to the use of negative response letters to transfer customer funds from money market mutual funds to interest bearing bank accounts.February 03, 2003
- Interpretive LetterThe use of negative response letters to transfer customers serviced by "independent contractor" registered representatives from one introducing broker dealer to another may conflict with a member's obligation to observe high standards of commercial honor and just and equitable principles of trade.February 03, 2003