FINRA Requests Comment on a Proposal Regarding the Rules Governing the New and Continuing Membership Application Process

Summary

FINRA seeks comment on proposed amendments to the NASD Rule 1010 Series (Membership Proceedings) (collectively, the Membership Application Program (MAP) rules). The proposal is the result of FINRA's retrospective review of the MAP rules and processes, and is intended to reduce unnecessary burdens on new and existing firms, while strengthening investor protections. The proposed amendments would replace the NASD Rule 1010 Series with the proposed FINRA Rule 1100 Series (New and Continuing Membership). The proposed amendments would also include additional provisions to address regulatory issues FINRA staff identified and codify existing membership-related interpretations and practices.

A chart detailing the restructuring of the proposed rules and the text of the proposed rules are set forth in Attachments A and B, respectively.

Questions regarding this Notice should be directed to:

Questions concerning the Economic Impact Assessment in this Notice should be directed to:

Action Requested

FINRA encourages all interested parties to comment on the proposal. Comments must be received by October 5, 2018.

Comments must be submitted through one of the following methods:

To help FINRA process comments more efficiently, persons should use only one method to comment.

Important Notes: All comments received in response to this Notice will be made available to the public on the FINRA website. In general, FINRA will post comments as they are received.¹

The proposed rule change must be filed with the Securities and Exchange Commission (SEC or Commission) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (SEA or Exchange Act).²

Background & Discussion

The MAP rules govern the way in which FINRA's Department of Member Regulation, through the Membership Application Program Group (together, the Department), reviews new membership applications (NMAs) and continuing membership applications (CMAs).³ These rules require an applicant to demonstrate its ability to comply with rules and laws including observing high standards of commercial honor and just and equitable principles of trade applicable to its business. The Department evaluates an applicant's financial, operational, supervisory and compliance systems to ensure that each applicant meets the standards set forth in the MAP rules. Among other elements, the MAP rules require consideration of whether an applicant and persons associated with an applicant have disciplinary actions taken against them by FINRA and other industry authorities, customer complaints, adverse arbitrations, pending or unadjudicated matters, civil actions, remedial actions imposed, or other industry-related matters that could pose a threat to public investors. Finally, the MAP rules provide for the administration of the MAP appeal process, setting forth specified time periods for holding hearings and satisfying document production requests, the evidence and testimony that may be considered, and the information that the applicant is required to provide to FINRA.

In Regulatory Notice 15-10 (March 2015), FINRA launched a retrospective review of the MAP rules to assess opportunities to improve their effectiveness and efficiency.⁴ The retrospective review confirmed that while the rules largely have been effective in meeting their intended investor protection objectives, the rules could benefit from some updating and recalibration to better align their investor protection benefits with their economic impacts. Consistent with a number of recommendations by stakeholders⁵ during the retrospective review, FINRA is proposing amendments to the MAP rules to address these and other concerns while maintaining strong investor protections. The proposed amendments to the MAP rules would include the following key changes:

While many of the proposed amendments are technical and administrative in nature, the proposal is responsive to the issues raised during the assessment phase of the retrospective review. The proposal clarifies a number of provisions or terms; amends or deletes provisions that need recalibration or have become outdated; and streamlines the rule and its attendant processes by eliminating or consolidating duplicative provisions and codifying existing Department practices. As a result, FINRA believes the proposal strikes an appropriate balance between maintaining strong investor protections and enhancing the efficiency of the MAP rules and processes.

Structure of the MAP Rules

FINRA proposes to restructure the MAP rules, which currently consist of 11 rules, by organizing them into six distinct areas (See Attachment B):

General Provisions (Proposed FINRA Rule 1110 Series)

The rules contained within the proposed FINRA Rule 1110 Series are intended to address the aspects of the membership process that are common to NMAs and CMAs.

New Membership (Proposed FINRA Rule 1120 Series)

FINRA proposes to adopt a new rule series dedicated to the unique requirements and processes for new membership. The proposed Rule 1120 Series would encompass rules pertaining to membership waive-in, foreign members and the NMA process.

Continuing Membership (Proposed FINRA Rule 1130 Series)

FINRA is proposing to adopt a new rule series dedicated to aspects of FINRA membership that are unique to continuing FINRA membership. The proposed Rule 1130 Series would encompass the rules pertaining to the CMA process, the circumstances that would obviate the filing of a CMA, the materiality consultation process and the safe harbor provision.

Standards for Approval of Application (Proposed FINRA Rule 1140 Series)

NASD Rule 1014 sets forth the standards for admission for an application, the process and timing for granting or denying an application, the timing and content requirements for the Department's decision and submission of a membership agreement, and the effectiveness of restrictions in the membership agreement. The Department evaluates both NMAs and CMAs to determine whether the applicant meets the 14 standards set forth in NASD Rule 1014(a)⁵¹ and for that reason, FINRA is proposing to restructure NASD Rule 1014 for clarity by separating key milestones in the application review process into separate rules housed under the proposed Rule 1140 Series and Rule 1150 Series (Department Decision). The proposed Rule 1140 Series (and the Rule 1150 Series described below) would encompass rules applicable to NMAs and CMAs.

Department Decision (Proposed FINRA Rule 1150 Series)

As noted above, FINRA is proposing to redesignate and amend, as the Rule 1150 Series, the other remaining paragraphs of NASD Rules 1014 concerning the decision-making aspects of an application, such as granting or denying of an application, the presumption to deny an application, the effectiveness of a restriction, the content, service and effectiveness of the Department's decision, and membership agreement. Moreover, NASD Rule 1017, which pertains to CMAs, includes similar concepts and language on the decision-making aspects of a CMA. FINRA believes that redesignating these provisions under a single set of rules would bring more clarity to the review process for both NMAs and CMAs.

Review of Department Decision (Proposed FINRA Rule 1160 Series)

Unlike disciplinary procedures, where FINRA determines when and if to initiate a proceeding, an applicant for new or continuing membership determines when to file an application, and when to initiate a proceeding with the NAC to review the Department's decision on an application.

In general, NASD Rule 1015 (Review by National Adjudicatory Council) permits an applicant to submit a request for review by the NAC of an adverse decision rendered on a NMA or CMA. NASD Rule 1016 (Discretionary Review by FINRA Board) also permits a Governor of the FINRA Board to call for discretionary review of a membership proceeding. Finally, a person aggrieved by final action of FINRA under the NASD Rule 1010 Series may apply to the SEC for appellate review. Collectively, these rules provide for the administration of MAP appeals. Among other things, these rules set forth specified time periods for holding hearings, satisfying document production requests, specify the evidence and testimony that may be considered, and identify information that the applicant must provide to FINRA.

As noted above, FINRA is proposing to incorporate within the proposed Rule 1160 Series, paragraphs (c) and (d) of NASD Rule 1012, which address ex parte communications and recusal or disqualification, respectively, and NASD Rules 1015, 1016 and 1019 (together, the MAP appeal rules). FINRA is also proposing to restructure these provisions by separating key milestones within NASD Rule 1015 into five distinct rules within the proposed Rule 1160 Series to present the MAP appeal process in a more sequential manner:

In addition, FINRA is proposing to amend the provisions to reflect current practices that would align, in large part, with the Rule 9000 Series (Code of Procedure), and update nomenclature to reflect usage consistent with the Rule 9000 Series.⁶⁴

Other Proposed Amendments

Economic Impact Assessment

B. Economic Baseline

The economic baseline for this proposal is the current set of MAP rules, and related guidance and Department practices. To obtain the Department's approval (in whole or part) of an application, an applicant must not only ensure that its application includes the necessary documents and information for the Department to undertake the review, but the applicant must also navigate a series of steps for the review process to proceed in a timely manner under either the regular timeframes described in the current rules or expedited (i.e., Fast Track) timeframes, or risk the Department's rejection or lapse of the application. This proposal would affect all prospective (or new) member firms and existing (or continuing) member firms (and their Associated Persons).

1. Number of Submissions of NMAs, CMAs and Materiality Consultations by Year

As displayed in Figure 1 below, in 2017, the Department received 125 NMAs, 340 CMAs and 407 materiality consultations (known as "MatCons"). Over the past 10 years, from 2008 through 2017, the number of NMAs and CMAs the Department has received has decreased, but the number of MatCons the Department has received has increased. The decrease in the number of CMAs could be due to the increased use of MatCons.



Figure 1: Number of NMA, CMA and MatCon submissions received, on an annual basis, for the period 2008 through 2017.

In general, NMAs are submitted by small firms⁷⁶ or firms without any registered representatives. CMAs are submitted by firms of varying sizes. The number of CMAs submitted by large firms and mid-size firms has remained relatively flat over the past 10 years, and the number of CMAs submitted by small firms has declined. The number of MatCons submitted by large firms has remained relatively flat, number of submissions by mid-size firms has shown a small increase and number of submissions by small firms has shown a substantial increase over the same period. Based on these trends, it is likely that most of the costs and benefits associated with this proposal will accrue to small firms, which account for the majority of all submissions.

2. Department Processing Times

As displayed in Figure 2, the average processing time per submission for all three categories has decreased since 2013 following the introduction of the Fast Track review process. As described further below, the MAP Triage Program and the Fast Track review process have dramatically reduced processing times for all applications and MatCons. During the retrospective review, stakeholders had provided positive feedback on the Fast Track review process.



Figure 2: Average processing time of NMA, CMA and MatCon submissions, on an annual basis, for the period 2008 through 2017.

3. Costs of Compliance with Current MAP Rules and Processes

As part of the retrospective review, a survey sent to all FINRA members provided information about the economic impacts of complying with the current MAP rules and processes.⁷⁷ The costs of compliance included those associated with business interruptions, employing third-party resources (such as outside external professional assistance), internal expenses (such as staff hours, technology and other resources) and application fees. Most notably, the retrospective review revealed that for an NMA that underwent a full review, on average, the costs associated with employing third-party resources and internal costs each represented approximately 35 percent of the total compliance costs. About 20 percent of the costs were attributable to application fees and the remainder to indirect costs, such as business interruption. For an NMA that underwent an expedited review and a CMA that either underwent an expedited review or was subject to regular timeframes as described under the current rules, the greatest source of cost was associated with internal expenses, representing approximately 40 percent of the total compliance costs. For all applications, on average, the application fees accounted for approximately 20 to 33 percent of the total compliance costs.

C. Economic Impacts

The proposed amendments to the MAP rules are designed to make them more concise through restructuring and streamlining, codifying existing guidance and Department practices, and updating terms consistent with other FINRA By-Laws and rules. FINRA believes that these proposed amendments will have a positive impact on the membership application and MatCon processes that will ease burdens on firms without materially diminishing investor protections.

1. Restructuring and Streamlining the MAP Rules

The proposed restructuring and streamlining amendments to the MAP rules would lead to a more concise and efficient MAP process, updated to reflect technological advancements and changes in the industry, and will ultimately benefit the applicant firms, with a potential cost reduction to the investor community. An updated, streamlined set of the MAP rules and attendant processes would ultimately reduce costs for firms, including those associated with third-party resources. Lower direct costs to the application process that accrue to firms may benefit investors to the extent that firms may pass those cost-savings to them. While FINRA does not anticipate any increased risks to investors, periodic reviews of the new processes would help ensure that the changes are working as anticipated.

2. Proposed Codification of Existing Department Practices

Under the proposal, several existing Department practices would be incorporated into the MAP rules, which would positively impact the overall review period for applications and MatCons. Most notably, the proposal would reference the Department's discretion to determine whether an application may be eligible for expedited review and incorporate the MatCon process into the MAP rules.

•   Initial Assessment and Expedited Review

FINRA is proposing to codify existing Department practices that would result in reducing the overall application review period from 180 days to 150 days. This 30-day reduction reflects the success of the MAP Triage Program. Under this Program, the Department conducts an initial assessment of the risk, complexity, regulatory significance, completeness, scale and scope of all applications and other MAP-related matters to determine whether the application or matter is eligible for expedited review, subject to shorter timeframes, or full review, subject to standard timeframes set forth under the MAP rules. During the retrospective review, stakeholders had viewed the expedited review process favorably, indicating that it effectively achieves its intended goal of identifying low-risk and low-complexity matters, and reducing processing times.

Since the program's launch in 2013, the overall processing times for applications and MatCons have decreased. As the program has matured, the number of applications and MatCons eligible for expedited review have significantly increased. As Figure 3 indicates below, in 2013, the number of NMAs, CMAs and MatCons that underwent expedited review was 5, 71 and 182, respectively. In 2017, the number of NMAs, CMAs and MatCons that underwent expedited review increased to 35, 189 and 358, respectively, representing 28 percent of the NMAs, 55 percent of the CMAs and 87 percent of MatCons submitted for Department review. The benefit of the expedited or Fast Track option is a better use of limited staff resources and more efficient handling of ex ante lower risk submissions. The program's impact on reducing the Department's overall review process is clear. As shown in Figure 2 above, in 2017, the overall processing timeframes for NMAs, CMAs and MatCons was 120 days, 63 days and 12 days, respectively.



Figure 3: Number of NMA, CMA and MatCon submissions eligible for Fast Track review, on an annual basis, for the period of 2008 through 2017.

After the Department considers various factors as described in proposed Rule 1112.01, an application may be eligible to undergo Fast Track review. As an option that is provided to the applicant, FINRA believes that a firm is likely to agree to the expedited processing if the incurred cost savings are deemed to be greater than the increased costs (e.g., faster turnaround times for document requests) resulting from the expedited nature of the process. However, some firms may not want to expedite the application, as they will deem that such a process will not provide a net benefit and thus opt to go through the standard processing track. Shortening the timelines could potentially benefit the investor community by enabling the firms to provide services to their customers more quickly. As with the other efficiency improving process changes, risks to investors could arise from the expedited nature of the process, potentially leading to applications being approved that should not have been.

•   MatCon Process

As described above, with a MatCon, a member has the option of seeking guidance from the Department on whether a proposed change in ownership, control or business operations would require a CMA. The MatCon process is voluntary and no fee is assessed, and guidance on this process appears on FINRA's website.⁷⁸ Because this process has existed for several years, FINRA expects that the economic impact that members may sustain as a result of codifying this process to be minimal. Currently, there is no fee assessed for this process, and this would remain so under the proposal. While the proposal would retain the voluntary nature of this process, it would mandate consultation in two instances where there is a request to waive the submission of a CMA under specified circumstances and when an applicant seeks to engage in a specified activity for the first time.⁷⁹ Even with these two instances mandating a member to submit to the MatCon process, the economic impact of codifying this practice would be minimal as members would not be assessed a fee for this option.

3. Proposed Amendments to the MAP Rules Affecting the NMA and CMA Processes

•   Definition of New Term, "Control"

FINRA is proposing to define, for the first time, "control" to apply only to the MAP rules.⁸⁰ FINRA believes that the proposed definition would provide clarity to the control standards under the CMA process set forth under the proposed Rule 1130 Series described above. As the concept of control is entwined in several provisions of the MAP rules, the proposed definition would benefit firms in terms of the constraints and conditions relating to internal organizational structure. This would provide more transparency on the roles and ownership structures of the firms, which would provide additional monitoring capabilities and ultimately decrease potential risks to the investor community. It is possible that firms could strategically allocate ownership percentages to keep certain individuals from meeting the definition, possibly leading to increased risks to customers. However, to mitigate this potential risk, the Department will maintain discretion in defining an individual as a control person. Moreover, the Department will maintain its discretion in aggregating ownership interests when considering the designation of control and control persons, even in cases where Associated Persons meet the de minimis definition per interest.

•   Expansion of Definition of "Sales Practice Event"

Consistent with the prior proposals presented in Notices 10-01 and 13-29, FINRA is proposing to amend the existing definition of "sales practice event" to include an applicant or Associated Person who is subject to a "statutory disqualification" as defined in SEA Section 3(a)(39). This proposed change would be in conjuncture with FINRA's separate initiative on high-risk brokers. FINRA believes that while this potentially imposes a burden on the applicant, it would enhance investor protections.

•   Application Rejection and Application Lapse

Currently, the MAP rules specify the circumstances that will either preclude an applicant from proceeding with the application at the outset (via rejection) or cause the Department to cease its review of the application (via lapse).

With respect to the rejection of an application, FINRA is proposing to eliminate the concept of an application that is "not substantially complete" by shifting the focus to whether an application includes the documents or information necessary for the Department to commence a "meaningful review" and deem the application "filed" for purposes of rendering a decision. As described above, under the proposed rule, the Department would have 15 days in which to make this assessment and should the Department determine that the application is deficient, then the applicant would have five business days to cure the deficiency. The applicant's failure to do so would result in a rejection of the application. Should the applicant wish to submit another application, it would be required to start the process anew thereby incurring additional time and expense.

With respect to a lapsed application, FINRA is proposing to expand the Department's authority to cease reviewing (or lapse) an application where the applicant makes substantial changes to the application well into the review process.⁸¹ The proposed amendment would give the Department the authority to stop reviewing an application where the applicant makes substantial changes to it. The proposed expansion of the Department's authority to lapse an application is intended to discourage applicants from trying to manipulate the Department's decision-making process towards approval by presenting insufficient or incomplete information with the application either at the outset of the review process or while it is well underway. Under the proposed amendment, if the Department views the circumstances as potentially causing the application to lapse, then the applicant would have five business days to remedy the situation. The applicant's failure to do so would result in a lapse of the application and should the applicant wish to submit another application, it would be required to start the process anew thereby incurring additional time and expense.

The aim of these proposed amendments is to provide clarity on the circumstances that may impede the application review process and the consequences of the specified circumstances. While these amendments may result in reduced flexibility and potentially higher initial costs for certain applicants, FINRA believes that overall, these review process safeguards would result in a more efficient and timely process that would ultimately benefit both applicants and the Department in terms of resource allocation. These proposed amendments may also encourage applicants to provide more complete information at the outset of the application review process, which would foster a more efficient MAP process.

•   Standards for Approval of an Application

The MAP rules currently set forth 14 standards for admission. FINRA is proposing amendments to the standards that would reduce the total number of standards to 10 by deleting those that are obsolete and redundant, and consolidating closely related standards. The proposed amendments would likely have some economic impact on applicants without adversely affecting investor protection. The consolidation and elimination of standards may reduce the amount of information collected by minimizing the potential for an applicant having to provide duplicative information without reducing the relevant information the Department would need to review the application against the standards. The proposal also provides the applicant an option to identify any standard that it determines is not applicable to the application, along with sufficient justification for this determination. In such situations, if approved, the applicant would benefit from the reduction in information and documentation required for application. In addition, FINRA is proposing to add a new standard that would codify the Department's existing practice to evaluate whether direct and indirect funding sources present any regulatory concerns such as funding that may be derived from a person subject to a statutory disqualification. Given that FINRA has already been requesting this information from submitting firms, this addition should have minimal impact on firms.

•   Amendments to the Membership Interview Procedures

The proposed amendments will provide more flexibility in the number, timing and location of interviews that are required throughout the application process. The proposed amendments will further eliminate the tie between the conclusion of the interview and when the decision is due. FINRA believes that this will benefit the applicants in terms of potentially reducing the costs associated with the interview process, without incurring any risks to the investor community.

4. Proposed Amendments to the MAP Rules Affecting the CMA Process

•   Waiver of the CMA Filing Requirement

FINRA is proposing to add a new provision that would describe the circumstances that may qualify for a waiver of the CMA filing requirement (e.g., Form BDW, no material change in the operations of the member firm). The proposed provision would provide examples of scenarios that may qualify for a waiver from filing a CMA and provide clarity on the waiver process, providing firms more clarity regarding the CMA submission process and when a waiver could be appropriately requested. Moreover, the proposed amendments could lead to greater future utilization of the CMA waiver request process, which would reduce the costs and resources firms incur throughout the CMA process without material diminution of investor protections.

•   Pending Qualifications for Associated Persons

FINRA is proposing to add a new provision to the MAP rules that would permit the Department, at its discretion, to approve a CMA where one or more Associated Persons have applied for, but not acquired, all licenses and registrations required by federal and state authorities, and SROs, subject to specified conditions.⁸² This proposed provision would lend members some flexibility in obtaining the requisite licenses and registrations within 90 days of CMA approval.⁸³ However, this proposed new provision could increase risks to investors of utilizing the services of unlicensed or unregistered Associated Persons. Once the CMA is approved, there is risk that the unqualified Associated Persons could act in the capacity of a registered person during the pending period in violation of the proposed provision or that the Associated Persons fail to acquire the necessary licenses and registrations within the 90-day period.

Request for Comment

FINRA requests comment on all aspects of the proposal. FINRA requests that commenters provide empirical data or other factual support for their comments wherever possible. FINRA specifically requests comment concerning the following issues.

^1. Persons submitting comments are cautioned that FINRA does not redact or edit personal identifying information, such as names or email addresses, from comment submissions. Persons should submit only information that they wish to make publicly available. See Notice to Members 03-73 (November 2003) (Online Availability of Comments) for more information.

^2.See SEA Section 19 and rules thereunder. After a proposed rule change is filed with the SEC, the proposed rule change generally is published for public comment in the Federal Register. Certain limited types of proposed rule changes take effect upon filing with the SEC. See SEA Section 19(b)(3) and SEA Rule 19b-4.

^3. An applicant is required to submit its application for new or continuing membership using Form NMA or Form CMA, respectively. FINRA expects to make conforming amendments to the standardized forms.

^4. FINRA has previously sought comment on prior proposals to amend the MAP rules. See Regulatory Notices 10-01 (January 2010) (Notice 10-01) and 13-29 (September 2013) (Notice 13-29). Where applicable, the proposed amendments presented therein that have been carried over into this proposal are noted.

^5. The term "stakeholder" is used to describe those entities, organizations and persons who may be impacted by or otherwise have an interest in the MAP rules and this proposal.

^6. In 2013, the Department launched the MAP Triage Program to speed approval of non-complex applications. Under this program, the Department evaluates applications to determine whether the matter is eligible for expedited (or Fast Track) review, subject to shorter timeframes, or full review, subject to standard timeframes set forth under the MAP rules. During the retrospective review, stakeholders had provided positive feedback on the Fast Track review process, indicating that it effectively reduced processing times for low risk matters. In fact, the Triage Program and the Fast Track process have dramatically reduced processing times for all applications. In 2012, before the existence of the Triage Program and the Fast Track review process, the average processing time for an NMA was 213 days; in 2017, 117 days. For a CMA, the average processingtime in 2012 was 134 days; in 2017, 61 days. In 2017, the average processing time for a CMA that underwent Fast Track review was 34 days. For a materiality consultation, the average processingtime in 2012 was 67 days and in 2017, 11 days.

^7. This definition of "Associated Person" only applies to the MAP rules. For other FINRA rules, the FINRA By-Laws definition of "associated person of a member" applies. FINRA By-Laws Article 1(rr) defines a "person associated with a member" or "associated person of a member" as: "(1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member[.]"

^8. These proposed amendments to the definition remain substantively unchanged from the language presented in Notice 13-29 for public comment.

^9. This term was first presented in Notice 10-01. In response to commenters' concerns, the term was revised and presented in Notice 13-29 for comment. The proposed definition presented herein differs from the definition proposed in Notice 13-29.

^10.See FINRA By-Laws, Art. I(h): "'controlling' shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity[.]"

^11. Contained within Form BD (Uniform Application For Broker-Dealer Registration) is an "Explanation of Terms," which defines "control" as follows:

CONTROL—The power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. Any person that (i) is a director, general partner or officer exercising executive responsibility (or having similar status or functions); (ii) directly or indirectly has the right to vote 25% or more of a class of a voting security or has the power to sell or direct the sale of 25% or more of a class of voting securities; or (iii) in the case of a partnership, has the right to receive upon dissolution, or has contributed, 25% or more of the capital, is presumed to control that company. (This definition is used solely for the purpose of Form BD.)

FINRA notes that the proposed factors establishing the presumption of control are well-established as they appear, in varying degrees of similarity, in other definitions of "control." See, e.g., Form U4's "Explanation of Terms" and the New York Stock Exchange (NYSE) and NYSE American membership application for FINRA member firms.

^12.See also the "Explanation of Terms" for Form BD and Form BR (Uniform Branch Office Registration Form), each defining a "person" to mean "[a]n individual, partnership, corporation, trust, or other organization."

^13. This proposed amendment remains unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^14. 15 U.S.C. 78c(a)(39).

^15. This update would align with Article IV, Section 1(a) to the FINRA By-Laws which provides, in part, that an "Application for membership in [FINRA], properly signed by the applicant, shall be made to [FINRA] via electronic process or such other process as [FINRA] may prescribe[.]"

^16.See Securities Exchange Act Release No. 43157 (August 15, 2000), 65 FR 51377 (August 23, 2000) (Order Approving File No. SR-NASD-99-67) (stating in part, "if an application is so deficient upon submission that the Department staff cannot begin processing (e.g., it is missing major components of the application, such as written supervisory procedures or a business plan), the Department staff may reject the application.").

^17. The concept of "meaningful review" is not new. See Notice to Members 00-73 (October 2000) (providing, "if an application is so deficient upon initial submission that the staff cannot begin conducting a meaningful review, then the staff may reject the application and deem it to not have been filed."). See also What to Expect After you Apply as a New Broker-Dealer Firm (stating, "[a]n application is considered substantially complete if it provides sufficient information allowing the staff to conduct a meaningful review.").

^18.See NASD Rules 1014(c)(3) and 1017(h)(3).

^19. For example, an applicant may add a business line or change key personnel as the review period is well underway or approaching completion.

^20.See The Membership Interview.

^21. FINRA is proposing to delete subparagraphs (b)(5), (b)(6) and (b)(7) under NASD Rule 1013, which address topics pertaining to financial condition, the standards for admissions and other information, as these provisions would be addressed in the proposed supplementary material.

^22.Rule 1210.01, which becomes effective on October 1, 2018, is the successor to NASD Rule 1021(e). See Securities Exchange Act Release No. 81098 (July 7, 2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-FINRA-2017-007). NASD Rule 1021(e)(1) currently requires that a member (new or existing), except a sole proprietorship, have a minimum of two registered principals with respect to each aspect of the member's investment banking and securities business pursuant to the applicable provisions of NASD Rule 1022. NASD Rule 1021(e)(2) provides that, pursuant to the Rule 9600 Series, FINRA may waive the two-principal requirement in situations that indicate conclusively that only one person associated with an applicant for membership should be required to register as a principal. NASD Rule 1021(e) (3) provides that an applicant for membership, if the nature of its business so requires, must also have a Financial and Operations Principal (or an Introducing Broker-Dealer Financial and Operations Principal) and a Registered Options Principal.

^23.See Standard 2 in Forms NMA and CMA.

^24.See supra note 22. The Rule 9600 Series (Procedures for Exemptions) sets forth the procedures under which a member and its associated person(s) may seek exemptive relief from the rules enumerated in Rule 9610(a). Among those rules is NASD Rule 1021, which governs qualification examinations and waiver of requirements. Under Rule 9610, a member seeking relief from NASD Rule 1021 (or Rule 1210, effective on October 1, 2018) outside of the new or continuing membership process, is required to file a written application with the appropriate department or staff of FINRA. Such application must contain the information specified under Rule 9610(b).

^25. Forms NMA and CMA direct the applicant to provide a detailed explanation that demonstrates the reason(s)for the exemption and a contingency plan for situations where the sole General Securities Principal becomes unavailable to carry out his or her responsibilities. The Forms include a place for an applicant to indicate whether it is seeking a waiver or seeking to maintain a waiver already in place of the two-principal requirement under NASD Rule 1021, the predecessor to Rule 1210.01.

^26. The proposed rule would retain the language specifying that NYSE and NYSE American member organizations would be subject to the FINRA By-Laws and Schedules to the By-Laws, including Schedule A, the consolidated FINRA rules and the NYSE rules incorporated by FINRA, provided that their respective securities businesses are limited to floor-based activities, or routing away to other markets orders that were ancillary to their core NYSE or NYSE American floor business under NYSE Rule 70.40 or NYSE American Equities Rule 70.40, as applicable.

^27. This proposed amendment remains substantively unchanged from the language presented in Notice 13-29 for public comment.

^28. NASD Rule 1013(a)(1) sets forth a detailed list of items that must be submitted with an NMA. These items include: Form NMA; Form BD; a fingerprint card; a new member assessment report; a business plan; list of Associated Persons; documentation of disciplinary history and certain regulatory, civil, and criminal actions, arbitrations, and customer complaints for the applicant and its Associated Persons; a description of remedial action or heightened supervision imposed on an Associated Person by a state or federal authority or SRO; a written acknowledgment that heightened supervisory procedures may be required for Associated Persons whose records reflect disciplinary actions or sales practice events; a copy of proposed or final contracts with banks, clearing entities, and service bureaus; a description of the nature and source of the applicant's capital; a description of financial controls; a description of the applicant's supervisory system; a description of the number, experience, and qualifications of supervisory personnel; a description of the proposed recordkeeping system; a copy of the applicant's written training plan; and FINRA entitlement forms. Many of these items are duplicated, in varying degrees, in the standards themselves or are referenced in the NMA (or Form NMA) itself.

^29. The actions specified in proposed Rule 1123(a) are also set forth in guidance posted on FINRA. org. As set forth on the website, these actions are subject to review and processing by FINRA's Registration and Disclosure Department. See How to Apply as a New Broker-Dealer Firm.

^30. The proposal to delete the specific items to accompany an application is not without precedent. During the effort to adopt Form CMA, the SEC approved amendments to NASD Rule 1017(b) to delete references to the specific items to accompany a CMA. See Securities Exchange Act Release No. 67082 (May 31, 2012), 77 FR 33539 (June 6, 2012) (Notice of Filing of Amendment No. 1 and Order Approving File No. SR-FINRA-2012-018) (deleting references to a business plan, pro forma financials, organization chart and written supervisory procedures as they would be included as part of Form CMA).

^31.See, e.g., Rule 1017(b)(2)(A) (providing that an application for approval of a change in ownership or control must include "the names of the new owners, their percentage of ownership, and the sources of their funding for the purchase and recapitalization of the member.").

^32. This proposed amendment remains substantively unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^33. As a result of this integration, NASD Rule 1017(b) would be deleted in its entirety. FINRA intends to amend Form CMA to conform to the requirements specified under this provision.

^34.See paragraphs (a)(1) through (a)(5), paragraphs (b)(2)(B) and (C), and paragraph (k) of NASD Rule 1017.

^35. FINRA is also proposing to adjust the unit of measure used to review an acquisition, and divestiture or transfer from a rolling 36-month basis to a three-year period immediate preceding the event.

^36. This proposed amendment remains substantively unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^37. This proposed provision remains substantively unchanged from the language presented in Notice 13-29 for public comment.

^38. In Notice 10-01, FINRA had proposed supplementing the term, "material change in business operations," to include "settling or clearing transactions for the Applicant's own business for the first time, settling or clearing transactions for other broker-dealers forthe first time, carrying accounts of customers for the first time, or any change in exemptive status claimed under paragraph (k) of SEA Rule 15c3-3." In Notice 13-29, FINRA had proposed supplementing this term to also include variable life settlement sales to retail customers and retail foreign currency exchange activities consistent with existing guidance. See Regulatory Notice 09-42 (July 2009) (stating, "firms should be aware that expansion into business activities related to variable life settlements constitutes a material change in business operations under NASD Rule 1011(k). Therefore, before engaging in variable life settlements, a firm must first file a [CMA] and receive approval of this change in business operations under NASD Rule 1017."); and Regulatory Notice 08-66 (November 2008) (stating, "firms should also be aware that expansion into retail forex constitutes a material change in business operations under NASD Rule [1011(k)]. Therefore, before engaging in over-the-counter forex business, a firm must first file for and receive approval of change in business operations under NASD Rule 1017."). However, FINRA believes that these activities, among others, would be better addressed in the materiality consultation process described below.

^39. FINRA is proposing to delete NASD Rule 3140 in its entirety.

^40. The removal or modification of a membership agreement restriction is also addressed in other paragraphs under NASD Rule 1017. FINRA is proposing to integrate these provisions under proposed Rule 1131(b). See NASD Rule 1017(b) (2)(B) (indicating that an application requesting the removal or modification of a membership agreement restriction must present facts showing that the circumstances that gave rise to the restriction have changed and state with specificity why the restriction should be modified or removed in light of the standards set forth in NASD Rule 1014 and the articulated rationale for the imposition of the restriction); NASD Rule 1017(c)(2) (providing, in part, that "[a] member may file an application to remove or modify a membership agreement restriction at any time."); and NASD Rule 1017(k) (permitting the Department to modify or remove a restriction on its own initiative).

^41. The concept of waiving the CMA filing requirement was presented in Notice 10-01 for public comment. In response to comments, FINRA made some adjustments to the original proposal, which were presented in Notice 13-29. Among the changes was to add another circumstance that may qualify for a waiver of the CMA filing requirement. Upon the member's written request, the Department would consider waiving the CMA filing requirement for a member that was proposing a change in the "percentage of ownership interest, [limited liability company] membership interest, or partnership capital of an Applicant's existing owners or partners resulting in an existing owner or partner owning or controlling 25 percent or more of the ownership interest or partnership and that owner or partner [had] no disclosure or disciplinary issues in the preceding five years." After further consideration, FINRA has found that in practice, this circumstance would require a CMA because such change has raised issues concerning, for example, registration and qualification of that existing owner or partner now owning or controlling 25 percent or more of the ownership interest.

^42. As described below, FINRA is proposing to delete Sections 4(i)(3)(A)(i) and (ii) of Schedule A to the FINRA By-Laws.

^43.See Overview of Materiality Consultation Process. See also Notice to Members 00-73 (October 2000) (stating, in the context of determining whether, based upon all the facts and circumstances, a change that falls outside of the safe harbor limits is material, "[a] member may, but is not required to, contact the District Office to obtain guidance on this issue.") and NASD IM-1011 (stating, "[f]or any expansion beyond these [safe harbor] limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule 1017.").

^44. In separate proposals, FINRA is proposing to mandate materiality consultations under additional circumstances. See Regulatory Notice 18-06 (February 8, 2018) (requesting comment on proposed amendments to the MAP rules to incentivize payment of arbitration awards); and Regulatory Notice 18-16 (April 30, 2018) (requesting comment on proposed rule amendments relating to high-risk brokers and the firms that employ them).

^45.See supra note 38.

^46. NASD IM-1011-1 defines "Associated Persons involved in sales" to include all associated persons, "whether or not registered, who are involved in sales activities with public customers, including sales assistants and cold callers, but excludes clerical, back office, and trading personnel who are not involved in sales activities." FINRA is proposing to redesignate this defined term, with non-substantive changes, to proposed Rule 1111.

^47. For purposes of NASD IM-1011-1, "disciplinary history" means "a finding of a violation by the member or a principal of the member in the past five years by the Securities and Exchange Commission, a self-regulatory organization, or a foreign financial regulatory authority of one or more of the following provisions (or a comparable foreign provision) or rules or regulations thereunder: violations of the types enumerated in Section 15(b)(4)(E) of the Securities Exchange Act of 1934; Section 15(c) of the Securities Exchange Act of 1934; Section 17(a) of the Securities Act of 1933; SEC Rules 10b-5 and 15g-1 through 15g-9; NASD Rules 2110 (only if the finding of a violation is for unauthorized trading, churning, conversion, material misrepresentations or omissions to a customer, front-running, trading ahead of research reports or excessive markups), 2120, 2310, 2330, 2440, 3010 (failure to supervise only), 3310, and 3330; and MSRB Rules G-19, G-30, and G-37(b) & (c)."

^48. The term "disciplinary history" would undergo technical changes to update rule cross-references.

^49. This proposed amendment to the unit of measure would align with the methodology under NASD Rule 1017(b)(2)(C) (providing, "[i]f the application requests approval of an increase in Associated Persons involved in sales, offices, or markets made, the application shall set forth the increases in such areas during the preceding 12 months.").

^50. This proposed amendment remains substantively unchanged from the language presented in Notice 13-29 for public comment.

^51.See NASD Rules 1014(a) and 1017(h).

^52. The concept underlying the proposed amendment was presented in Notices 10-01 and 13-29 for public comment.

^53. This proposed amendment remains unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^54. The proposed amendment concerning fees remains unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^55. This proposed amendment remains substantively unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^56. This proposed amendment remains substantively unchanged from the language presented in Notices 10-01 and 13-29 for public comment.

^57. In Notices 10-01 and 13-29, FINRA proposed to delete Standard 9.

^58. This proposed amendment remains unchanged from the language presented in Notice 13-29 for public comment.

^59.See Regulatory Notice 18-15 (Guidance on Implementing Effective Heightened Supervisory Procedures for Associated Persons with a History of Past Misconduct) (April 30, 2018).

^60. This proposed new standard was previously presented in Notices 10-01 and 13-29 for public comment. The proposed new standard was presented in Notice 13-29 as "[t]he Applicant has fully disclosed and established through documentation satisfactory to FINRA all direct and indirect sources of its funding, and FINRA has determined that such sources of funding are otherwise consistent with the standards set forth in this Rule." The proposed language herein is consistent with Funding Portal Rule 110(a)(10)(D) (providing, "[t]he FP Applicant has fully disclosed and established through documentation all direct and indirect sources of funding.").

^61.See NASD Rule 1014(a)(3)(A), (C), (D) and (E).

^62. In a separate proposal, FINRA is proposing to amend NASD Rules 1014(a) and (b) to specify that a presumption of denial would exist if a new member applicant or its Associated Persons are subject to pending arbitration claims. This presumption of denial for pending arbitration claims would not apply to a continuing membership applicant. See Regulatory Notice 18-06 (February 8, 2018) (requesting comment on proposed amendments to the MAP rules to incentivize payment of arbitration awards).

^63. Currently, this obligation is set forth under NASD Rules 1014(c)(1) and 1017(h)(2).

^64. Most notably, FINRA is proposing to replace "review" with "appeal" to more accurately align with that term as it is used in the Rule 9300 Series (Review of Disciplinary Proceeding by National Adjudicatory Council and FINRA Board; Application for SEC Review). FINRA is also proposing to delete NASD Rule 1015(c), which pertains to the use of a membership application docket because the Department no longer maintains such a docket.

^65. These proposed provisions are derived, in part, from paragraphs (a), (b), and (f) of Rule 9311 (Appeal by Any Party; Cross-Appeal), which pertain to the time to file a notice of appeal, the effect of an appeal, and the withdrawal of a notice of appeal.

^66. These proposed provisions are derived, in part, from paragraph (a) of Rule 9235 (Hearing Officer Authority) and paragraph (a) of Rule 9322 (Extensions of Time, Postponements, Adjournments).

^67. This provision is akin to paragraphs (a) and (b) under Rule 9160 (Recusal or Disqualification).

^68. These proposed provisions are derived, in part, from paragraphs (a) and (b) under Rule 9233 (Hearing Panel or Extended Hearing Panel: Recusal and Disqualification of Hearing Officers), which sets forth the process for a party to move for disqualification of a hearing officer.

^69. NASD Rule 1015(f)(3) also expressly provides that the formal rules of evidence do not apply to MAP appeals. As described below, FINRA is proposing to redesignate the reference to the applicability of the formal rules of evidence to proposed Rule 1165 (Hearing).

^70. The extended timeframe is derived from paragraph (d) under Rule 9251 (Inspection and Copying of Documents in Possession of Staff), which requires production of documentation to occur not later than 21 days after service of a respondent's answer to a complaint filed by FINRA in connection with a disciplinary proceeding. This 21-day timeframe relating to the production of documents is also present under other rules within the Rule 9000 Series such as Rules 9252 (Requests for Information), 9264 (Motion for Summary Disposition), and 9347 (Filing of Papers in National Adjudicatory Council Proceedings).

^71. This provision is derived from subparagraph (a)(5) of Rule 9242 (Pre-hearing Submission).

^72. The proposed criteria are derived from Rule 9263 (Evidence: Admissibility).

^73. The proposed provision is derived from Rule 9262 (Testimony).

^74. FINRA is proposing to redesignate paragraphs (j)(1), (j)(3), and (j)(4) under NASD Rule 1015 to proposed Rule 1166 with no material changes.

^75. The proposed change would also align with Rule 9349 (National Adjudicatory Council Formal Consideration; Decision).

^76. A small firm has at least one and no more than 150 registered persons; a mid-size firm has at least 151 and no more than 499 registered persons; and a large firm has 500 or more registered persons. See Article I of the FINRA By-Laws (defining the terms, "Small Firm," "Mid-Size Firm," and "Large Firm").

^77.See Retrospective Rule Review Report—Membership Application Rules and Processes (March 2016).

^78.See supra note 43 and the accompanying text.

^79.See supra notes 38 and 44, and the accompanying text.

^80. The term "control" is also defined in other FINRA rules. See, e.g., Rules 2360 (Options), 5121 (Public Offerings of Securities with Conflicts of Interest), 5122 (Private Placements of Securities Issued by Members), and 6710 (Definitions).

^81.See supra notes 18 and 19, and the accompanying text.

^82. The conditions would include that all Associated Persons must acquire their required licenses and registrations within 90 days of the date of approval of the CMA; the applicant promptly notifies the Department when such licenses and registrations are acquired; the applicant does not engage in business activities that require a license or registration that has not been acquired; and if all required licenses and registrations are not acquired within the 90-day timeframe, the applicant must cease business operations until all such licenses and registrations have been acquired.

^83. This proposed provision would not apply to an applicant for new membership.

^84. FINRA had also previously proposed defining "affiliate," in slightly different terms, in Notice 10-01.

^85.See Regulatory Notice 18-06 (February 8, 2018) (requesting comment on proposed amendments to the MAP rules to incentivize payment of arbitration awards), and Regulatory Notice 18-16 (April 30, 2018) (requesting comment on proposed rule amendments relating to high-risk brokers and the firms that employ them).

Attachment A

The chart below compares the existing NASD rule numbers against the proposed FINRA rule numbering convention for the MAP rules.

¹ Not yet effective.

² Current FINRA rule number is 1122.

³ Current FINRA rule title is Member Application Process.

Attachment B

Below is the text of the proposed rule change. Proposed new language is underlined; proposed deletions are in brackets.

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Text of Proposed FINRA Rules

(Marked to Show Changes from NASD Rules 1011, IM-1011-1, 1012, 1013, IM-1013-1, IM-1013-2, 1014, 1015, 1016, 1017, 1019, 1090; NASD Rules 1011, IM-1011-1, 1012, 1013, IM-1013-1, IM-1013-2, 1014, 1015, 1016, 1017, 1019, 1090 to be Deleted in their Entirety from the Transitional Rulebook

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[IM-1011-1. Safe Harbor for Business Expansions]

[This interpretive material concerns the types of business expansions that will not require a member to submit a Rule 1017 application to obtain FINRA's approval of the expansion. This safe harbor applies to: (1) firms that do not have a membership agreement, and (2) firms that have a membership agreement that does not contain a restriction on the factors listed below.]

[The safe harbor is not available to a member that has a membership agreement that contains a specific restriction as to one or more of the factors listed below. In that case, the agreement takes precedence because FINRA has determined that a particular restriction should apply as to one or more of the factors, and FINRA has issued a decision with a rationale for that restriction. Similarly, the safe harbor also does not apply if the member has a membership agreement that permits expansion beyond the limits set forth below (e.g., an Applicant requests and obtains approval for ten registered representatives in the first six months with an additional ten registered representatives in the next year); in such case, FINRA has specifically considered the firm's expansion plans and approved them.]

[The term "disciplinary history" redesignated as paragraph (i) under proposed Rule 1111]

[For those firms to which the safe harbor is available, the following types of expansions are presumed not to be a material change in business operations and therefore do not require a Rule 1017 application. For any expansion beyond these limits, a member should contact its district office prior to implementing the change to determine whether the proposed expansion requires an application under Rule 1017. Expansions in each area are measured on a rolling 12-month basis; members are required to keep records of increases in personnel, offices, and markets to determine whether they are within the safe harbor.]

[The term "Associated Persons involved in sales" redesignated as paragraph (d) under proposed Rule 1111]

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•••Supplementary Material:------------------

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[IM-1013-1. Membership Waive-In Process for Certain New York Stock Exchange Member Organizations]

[This Interpretive Material sets forth a membership waive-in process for certain New York Stock Exchange ("NYSE") member organizations to become members of FINRA as part of the consolidation of the member firm regulatory functions of NASD and NYSE Regulation, Inc. ("NYSE Regulation"). It applies to firms that, as of July 25, 2007, (1) are approved NYSE member organizations or (2) have submitted an application to become an NYSE member organization and are subsequently approved for NYSE membership (together "NYSE-only member organizations"), provided that such firms were not also NASD members as of July 30, 2007. Such firms are eligible to automatically become FINRA members and to automatically register all associated persons whose registrations are approved with NYSE in registration categories recognized by FINRA upon submission to FINRA's Member Regulation Department ("the Department") of a signed waive-in membership application ("Waive-In Application") with the following information:]

[The Department shall review the Waive-In Application within three (3) business days of receipt and, if complete, issue a letter notifying the applicant that it has been approved for membership. The Membership Agreement shall become effective on the date of such notification letter.]

[Firms admitted pursuant to this Interpretive Material shall be subject to the FINRA By-Laws and Schedules to By-Laws, including Schedule A, the consolidated FINRA rules and the NYSE rules incorporated by FINRA, provided that their securities business is limited to floor brokerage on the NYSE, or routing away to other markets orders that are ancillary to their core floor business under NYSE Rule 70.40 ("permitted floor activities"). If an NYSE-only member organization admitted pursuant to this Interpretive Material seeks to expand its business operations to include any activities other than the permitted floor activities, such firm must apply for and receive approval to engage in such business activity pursuant to NASD Rule 1017. Upon approval of such business expansion, the firm shall be subject to all NASD rules, in addition to the consolidated FINRA rules and those NYSE rules incorporated by FINRA.]

[Pursuant to IM-Section 4(b)(1) and (e) to Schedule A of the FINRA By-Laws, a firm applying to waive in for membership pursuant to this Interpretive Material shall not be assessed certain registration and application fees set forth in Sections 4(b)(1) and (e) to Schedule A of the FINRA By-Laws.]

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[IM-1013-2. Membership Waive-In Process for Certain NYSE Alternext US LLC Member Organizations]

[This Interpretive Material sets forth a membership waive-in process for certain NYSE Alternext US LLC ("NYSE Alternext") member organizations to become members of FINRA as part of the acquisition by NYSE Euronext of the Amex Membership Corporation. It applies to any NYSE Alternext member organization that (i) holds a valid 86 Trinity Permit as of the date such firm transfers its equities operations to the NYSE Alternext Trading Systems and (ii) is not currently a FINRA member. Such firms are eligible to automatically become FINRA members and to automatically register all associated persons whose registrations are approved with NYSE Alternext in registration categories recognized by FINRA upon submission to FINRA's Member Regulation Department ("the Department") of a signed waive-in membership application ("Waive-In Application") with the following information:]

[The Department shall review the Waive-In Application within three (3) business days of receipt and, if complete, issue a letter notifying the applicant that it has been approved for membership. The Membership Agreement shall become effective on the date of such notification letter.]

[Firms admitted pursuant to this Interpretive Material shall be member organizations of both NYSE and NYSE Alternext and as such are subject to the consolidated FINRA rules (provided that firms admitted to FINRA membership under IM-1013-1 also are subject to the consolidated FINRA rules), the NYSE rules incorporated by FINRA, the FINRA By-Laws and Schedules to By-Laws, including Schedule A, and the NASD Rule 8000 and Rule 9000 Series, provided that their NYSE or NYSE Alternext securities business is limited to floor-based activities in either NYSE-traded or NYSE Alternext-traded securities, or routing away to other markets orders that are ancillary to their core NYSE or NYSE Alternext floor business under NYSE Rule 70.40 or NYSE Alternext Equities Rule 70.40 ("permitted floor activities"). If a firm admitted pursuant to this Interpretive Material seeks to expand its business operations to include any activities other than the permitted floor activities or makes changes to its securities business that would otherwise require FINRA membership, such firm must apply for and receive approval to engage in such business activity pursuant to NASD Rule 1017. Upon approval of such business expansion, the firm shall be subject to all NASD rules, in addition to the consolidated FINRA rules and those NYSE rules incorporated by FINRA.]

[Pursuant to IM-Section 4(b)(1) and (e) to Schedule A of the FINRA By-Laws, a firm applying to waive in for membership pursuant to this Interpretive Material shall not be assessed certain registration and application fees set forth in Sections 4(b)(1) and (e) to Schedule A of the FINRA By-Laws.]

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••• Supplementary Material:..............

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• • • Supplementary Material:..................

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Text of Proposed Changes to Section 4 of Schedule A to the FINRA By-Laws

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SCHEDULE A TO THE BY-LAWS OF THE CORPORATION

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Section 4—Fees

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Text of NASD Rules, Incorporated NYSE Rules and Incorporated NYSE Rule
Interpretations to be Deleted in their Entirety from the Transitional Rulebook

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NASD Rules

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Incorporated NYSE Rules

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[Rule 311. Formation and Approval of Member Organizations]

Entire text deleted.

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[Rule 312. Changes Within Member Organizations]

Entire text deleted.

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[Rule 313. Submission of Partnership Articles—Submission of Corporate Documents]

Entire text deleted.

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[Rule 321. Formation or Acquisition of Subsidiaries]

Entire text deleted.

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Incorporated NYSE Rule Interpretations

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[Rule 311 Formation and Approval of Member Organizations]¹

¹ This version also reflects changes that becomes effective on October 1, 2018. See Securities Exchange Act Release No. 81098 (July 7, 2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-FINRA 2017-007).