[Federal Register Volume 77, Number 51 (Thursday, March 15, 2012)]
[Notices]
[Pages 15445-15447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-6233]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66555; File No. SR-FINRA-2012-017]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Online Form NMA, the Standardized 
Membership Application Form Applicants Must File Pursuant to NASD Rule 
1013 (New Member Application and Interview)

March 9, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 5, 2012, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    FINRA is proposing to amend online Form NMA, the standardized 
membership application form applicants must file pursuant to NASD Rule 
1013 (New Member Application and Interview) as part of their new 
membership application.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to NASD Rule 1012 (General Provisions) and NASD Rule 1013 
(New Member Application and Interview), each applicant for FINRA 
membership must complete and electronically file the standardized 
online Form NMA as part of its new member application. The standardized 
online Form NMA was implemented several years ago to streamline the new 
member application process and to assist applicants in compiling a 
complete application package by identifying and organizing the 
information and supporting documentation required by NASD Rule 1013 
into eight major sections: (1) Section I (General Information); (2) 
Section II (Business Lines); (3) Section III (Personnel); (4) Section 
IV (Net Capital and Sources of Funding); (5) Section V (Contractual and 
Business Arrangements); (6) Section VI (Policies and Procedures); (7) 
Section VII (Facilities); and (8) Section VIII (Recordkeeping).
    Prior to FINRA's adoption of Form NMA, applicants would submit 
inadequate or incomplete new member applications that were subject to 
rejection pursuant to NASD Rule 1013(a)(3) as not substantially 
complete.\4\
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    \4\ See Securities Exchange Act Release No. 53564 (March 29, 
2006), 71 FR 16847 (April 4, 2006) (SR-NASD-2006-038) (Order 
Approving File No. SR-NASD-2006-038); NASD Notice to Members 06-16 
(April 2006) (NASD Amends Rule 1013 to Adopt a Standardized 
Application Form (Form NMA) to be Used by All New Member 
Applicants); see also Securities Exchange Act Release No. 55412 
(March 7, 2007), 72 FR 11414 (March 13, 2007) (Order Approving File 
No. SR-NASD-2007-015); NASD Notice to Members 07-20 (May 2007) (NASD 
Amends Rules 1012 and 1013 to Require Applicants for Membership to 
Submit Applications Using Online Form NMA).
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    FINRA is now proposing to revise Form NMA to further streamline the 
new member application process and to organize Form NMA according to 
the 12 standards for membership enumerated in NASD Rule 1014 
(Department Decision) and further detailed below.\5\ The revisions also 
seek to group information requests on specific topics that currently 
are located throughout existing Form NMA, as well as reduce current 
duplicative information requests in Form NMA. Additionally, revised 
Form NMA provides the following new user-friendly features intended to 
reduce the administrative burden placed on applicants:
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    \5\ While NASD Rule 1014 sets forth 14 standards for membership, 
Form NMA does not elicit specific information from the applicant 
regarding standards 13 (FINRA does not possess information 
indicating that the applicant may circumvent the federal securities 
laws or FINRA rules) or 14 (the application is consistent with the 
federal securities laws and FINRA rules). See NASD Rule 1014(a)(13) 
and (14).
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    <bullet> Information fields, included in standards 1, 2, 8, and 12, 
that are pre-populated with information previously provided by 
applicants to FINRA in other submissions (e.g., Central Registration 
Depository (``CRD''[supreg]) entitlement forms and Form BD) or 
otherwise available to FINRA from CRD records (e.g., continuing 
education status), thereby minimizing the time necessary for applicants 
to complete the new form;
    <bullet> Information fields, included in standards 2, 3, 5, 6, 8, 
and 12, requesting information that applicants are currently required 
to provide during FINRA's review of the new member application that 
were not included in current Form NMA but rather obtained during 
application review through requests from FINRA for additional 
information. These information fields, which were added based on 
industry and staff feedback on existing Form NMA and the new member 
application process should reduce the need for extensive follow-up 
during the review process which currently results in processing delays; 
and
    <bullet> Information fields, included in all standards except 
standard 9, allowing applicants to provide additional information, if 
applicable to their proposed business activities, structures, or 
circumstances.
    Below is a synopsis of the content of revised Form NMA, by 
standard, and its nexus to existing Form NMA:
    <bullet> Standard 1 (Overview of the Applicant):
    This standard seeks certain applicant overview information 
currently contained primarily in Sections I (General Information) and 
VII (Facilities) of existing Form NMA (e.g., formation information, 
identification of

[[Page 15446]]

business activities, types of customers (and/or counterparties), 
owners, officers, directors, and control persons, validation of 
clearing arrangements).
    <bullet> Standard 2 (Licenses and Registrations):
    This standard consists of information requests regarding licenses 
and registrations (e.g., required licenses and registrations, two-
principal requirement waiver, Securities Information Center exemption, 
other self-regulatory organization registrations) currently contained 
primarily in Sections I and III (Personnel) of existing Form NMA as 
well as incorporating additional information requests (e.g., intent to 
claim exemptions from registration or seek examination waivers for 
personnel).
    <bullet> Standard 3 (Compliance With Securities Laws, Just and 
Equitable Principles of Trade):
    This standard consists of specific requests for information (e.g., 
disciplinary history) contained in Sections I and III of existing Form 
NMA that FINRA considers necessary for the applicant to demonstrate 
compliance with the requirements of this standard in the revised Form 
NMA and also incorporates additional information requests (e.g., state 
or federal orders or decrees, statements of claims, settlement 
agreements).
    <bullet> Standard 4 (Contractual and Business Relationships):
    This standard includes the information requests regarding an 
applicant's contractual and business relationships currently contained 
in Sections I, IV (Net Capital and Sources of Funding) and V 
(Contractual and Business Arrangements) of existing Form NMA (e.g., 
description of contractual arrangements, expense sharing agreements, 
financing arrangements, fidelity bonds or fidelity bond applications, 
support and service agreements, auditor information).
    <bullet> Standard 5 (Facilities):
    This standard consists of information requests regarding an 
applicant's facilities primarily contained in Section VII of existing 
Form NMA (e.g., space sharing arrangements, leasing or sub-leasing 
arrangements). This standard also incorporates requests for additional 
information (e.g., authorizations to sublet, deeds of ownership).
    <bullet> Standard 6 (Communications and Operational Systems):
    This standard includes information requests regarding an 
applicant's communications and operational systems currently in 
Sections VI (Policies and Procedures) and VII of existing Form NMA 
(e.g., communications and operational systems descriptions, supervision 
arrangements of multiple locations, business continuity plan 
documents). The standard also incorporates requests for additional 
information (e.g., information relating to the use of social media 
sites).
    <bullet> Standard 7 (Maintaining Adequate Net Capital):
    This standard includes information regarding an applicant's net 
capital requirements currently requested primarily in Section IV of 
existing Form NMA (e.g., information on the nature and source of 
capital, additional funding plans, minimum net capital requirements, 
future funding sources).
    <bullet> Standard 8 (Financial Controls):
    This standard seeks information regarding an applicant's financial 
controls currently requested primarily in Sections I, III, and VI of 
existing Form NMA (e.g., information regarding the FINOP's experience, 
financial controls, FINOP outside business activity notification) as 
well as incorporates requests for additional information (e.g., net 
capital deficiency plans).
    <bullet> Standard 9 (Written Procedures):
    This standard seeks information regarding an applicant's written 
procedures currently requested in Sections III, VI, and VIII 
(Recordkeeping System) of existing Form NMA (e.g., written supervisory 
procedures (``WSP''), WSP checklist, sample reports to support 
supervision and financial controls, heightened supervisory procedures 
attestation).
    <bullet> Standard 10 (Supervisory Structure):
    This standard seeks information regarding an applicant's 
supervisory structure currently requested in Sections I and III of the 
existing Form NMA (e.g., information regarding supervisors' experience 
and duties, chief compliance officers' experience, non-FINOP outside 
business activities notifications).
    <bullet> Standard 11 (Books and Records):
    This standard seeks information regarding an applicant's books and 
records currently requested primarily in Section VIII of existing Form 
NMA (e.g., recordkeeping system, sample books and records, 
recordkeeping service providers).
    <bullet> Standard 12 (Continuing Education):
    This standard seeks information regarding an applicant's continuing 
education (``CE'') obligations currently requested in Section VI of 
existing Form NMA (e.g., firm element owner identification, CE 
checklist, CE needs assessment) as well as incorporates additional 
requests for information (e.g., information regarding the applicant's 
CE deficiency mitigation plan).
    FINRA worked closely with an industry task force, comprised of 
seven representatives from small and large firms, several of whom also 
act as consultants, during the development of revised Form NMA.\6\ 
Among other things, the task force's input assisted FINRA to make 
changes intended to reduce applicants' administrative burden when 
completing Form NMA. Overall, FINRA believes that revised Form NMA will 
facilitate more effective and efficient application processing for 
applicants.
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    \6\ The task force also assisted FINRA in creating a new online 
Form CMA for continuing member applicants. See SR-FINRA-2012-018 
(February 28, 2012) (proposed rule change amending NASD Rules 1012 
and 1017 to adopt a new standardized online Form CMA).
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date for the revised Form NMA will be 
July 23, 2012.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. The proposed change restructures the content of 
existing Form NMA to make the requested information and documentation 
more consistent with the standards in NASD Rule 1014 against which they 
are evaluated and elicits information that applicants are currently 
required to provide during FINRA's review of the new member 
application. FINRA believes that revised Form NMA will reduce new 
member applicants' administrative burden and ensure a more streamlined 
and efficient membership application process for both FINRA and 
applicants.
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    \7\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

[[Page 15447]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5220273e377f313d3f3f373c2621122137317c353d24"><span class="__cf_email__" data-cfemail="e290978e87cf818d8f8f878c9691a2918781cc858d94">[email protected]</span></a>. Please include 
File Number SR-FINRA-2012-017 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2012-017. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2012-017 and should be 
submitted on or before April 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6233 Filed 3-14-12; 8:45 am]
BILLING CODE 8011-01-P


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