Document ID: SEC-2020-1501-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry RegulatoryAuthority, Inc.
Posted Date: 2020-09-18T04:00Z

[Federal Register Volume 85, Number 182 (Friday, September 18, 2020)]
[Notices]
[Pages 58404-58410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20615]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89867; File No. SR-FINRA-2020-028]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Standardized Membership Application 
Forms--Form NMA and Form CMA--To Conform to Amendments to the 
Membership Application Program Rules as Described in SR-FINRA-2019-030

September 15, 2020.
    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 September 11, 2020, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') 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

[[Page 58405]]

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 Substance 
of the Proposed Rule Change

    FINRA is proposing to (1) amend the standardized membership 
application forms--Form NMA (New Membership Application Form) and Form 
CMA (Continuing Membership Application Form)--required under Rule 1013 
(New Member Application and Interview) and Rule 1017 (Application for 
Approval of Change in Ownership, Control, or Business Operations), 
respectively, to conform to amendments to the Membership Application 
Program (``MAP'') rules \4\ as described in File No. SR-FINRA-2019-030; 
\5\ and (2) make non-substantive and technical changes to Form NMA and 
Form CMA.\6\ The proposed rule change does not make any changes to the 
text of FINRA rules.
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    \4\ The MAP rules consist of Rules 1011 through 1019, which 
reside under the FINRA Rule 1000 Series (Member Application and 
Associated Person Registration).
    \5\ See Securities Exchange Act Release No. 88482 (March 26, 
2020), 85 FR 18299 (April 1, 2020) (Order Approving File No. SR-
FINRA-2019-030). FINRA is separately developing comprehensive 
changes to the MAP rules in connection with the retrospective review 
of this rule set, which will also require conforming amendments to 
the standardized forms. See Regulatory Notice 18-23 (July 2018) 
(``Notice 18-23'') (requesting comment on a proposal regarding the 
MAP rules).
    \6\ Such proposed changes would include updating the rule 
references throughout the forms. For example, FINRA is proposing to 
replace references to ``NASD'' with ``FINRA.''
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    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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
Background
    The MAP rules require an applicant for new or continuing membership 
to file an application that includes a Form NMA or Form CMA, as 
applicable.\7\ Form NMA and Form CMA streamline the new and continuing 
membership application review process by setting forth the documents 
and information an applicant must gather to produce a complete 
application package for FINRA's review.\8\
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    \7\ See Rule 1013(a)(1)(A) and Rule 1017(b)(2).
    \8\ See Securities Exchange Act Release No. 66555 (March 9, 
2012), 77 FR 15445 (March 15, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-017) and Securities Exchange 
Act Release No. 67082 (May 31, 2012), 77 FR 33539 (June 6, 2012) 
(Notice of Filing of Amendment No. 1 and Order Granting Approval of 
File No. SR-FINRA-2012-018 as Modified by Amendment No. 1).
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    In general, Form NMA and Form CMA are organized into sections that 
align with the standards for admission set forth in Rule 1014(a) 
(Standards for Admission). Each section begins with a description of 
the applicable standard in Rule 1014(a), followed by a series of 
questions related to that standard that are intended to help the 
applicant provide the responses needed to demonstrate that it can meet 
each of the standards described under Rule 1014(a), and to facilitate 
FINRA's review of the application.\9\ An applicant is able to provide 
its documents and information by attaching files in various formats 
(e.g., .docx, .pdf, .xlsx) or by entering free form text in text boxes, 
and making selections through screen components such as drop-down menus 
and radio buttons, among others. While both forms are organized by 
standard, the underlying questions, and the documents and information 
that an applicant may need to provide vary based on whether the 
application is for new or continuing membership.\10\
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    \9\ The portions of the forms that are marked with a red 
asterisk require the applicant to provide a response.
    \10\ For example, in Form NMA's Standard 1 section, titled 
``Overview of the Applicant,'' there are questions that focus on 
verifying the business activities the applicant identifies on Form 
BD (Uniform Application For Broker-Dealer Registration). On the 
other hand, the questions grouped in Form CMA's Standard 1 section, 
titled ``Overview of the Applicants,'' focus on understanding the 
circumstances surrounding the contemplated change or event set forth 
under Rule 1017(a) (Events Requiring an Application).
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A. Standard 3 in Form NMA and Form CMA
    Rule 1014(a)(3) (``Standard 3'') is one of the standards for 
admission FINRA must consider in determining whether to approve an NMA 
or CMA. Standard 3 requires FINRA to determine whether an applicant for 
new or continuing membership and its associated persons ``are capable 
of complying with'' the federal securities laws, the rules and 
regulations thereunder, and FINRA rules. Standard 3 sets forth several 
factors, including past and current disciplinary actions and customer 
claims, that FINRA must consider in making that determination. The 
existence of specified factors ``[raises] a question of capacity to 
comply with the federal securities laws and the rules of [FINRA],'' 
which results in a rebuttable presumption to deny the application. Form 
NMA and Form CMA describe the specified factors in Standard 3, as well 
as the specified factors that trigger a rebuttable presumption to deny 
an application.
    In addition, both forms require the applicant to provide a ``yes'' 
or ``no'' answer as to whether the applicant or any of its associated 
persons are subject to any of the specified factors described in 
Standard 3,\11\ and directs the applicant to provide information (e.g., 
subject party, nature of the activity, any findings, any fine, or other 
dispositions) for each factor involving the applicant or its associated 
persons, unless details of a particular factor have been reported to 
the Central Registration Depository (CRD[supreg]).\12\
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    \11\ See Form NMA, Standard 3, Question 1 (within the category 
titled ``Explain how this Standard is met.'') and Form CMA, Standard 
3, Question 1 (within the category titled ``Explain how this 
Standard is met.'').
    \12\ See Form NMA, Standard 3, Question 1 (within the category 
titled ``Explain how this Standard is met.'') and Form CMA, Standard 
3, Question 1 (within the category titled ``Explain how this 
Standard is met.'').
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    The forms require the applicant to explain in detail how, even with 
the existence of any of the specified factors that trigger the 
presumption to deny the application, it is nonetheless capable of 
complying with industry rules, regulation, laws, and observing high 
standards of commercial honor and just and equitable principles of 
trade.\13\ In addition, to the extent that any of the triggering events 
under Standard 3 exist, the forms require the applicant to reference 
any controls or systems put in place and refer to any specific pages or

[[Page 58406]]

sections in the applicant's written supervisory procedures that address 
heightened supervisory requirements.\14\ Finally, the forms give the 
applicant the option of providing any other documentation that would be 
pertinent to FINRA's review of Standard 3.\15\
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    \13\ See Form NMA, Standard 3 (within the category titled 
``Explain how this Standard is met.'') and Form CMA, Standard 3, 
Question 2 (within the category titled ``Explain how this Standard 
is met.'').
    \14\ See Form NMA, Standard 3 (within the category titled 
``Explain how this Standard is met.'') and Form CMA, Standard 3, 
Question 2 (within the category titled ``Explain how this Standard 
is met.'').
    \15\ See Form NMA, Standard 3, Question 3 (within the category 
titled ``Provide supporting documents.'') and Form CMA, Standard 3, 
Question 3 (within the category titled ``Provide supporting 
documents.'').
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B. Recent Amendments to the MAP Rules
    FINRA has amended the MAP rules to create further incentives for 
the timely payment of arbitration awards by preventing an individual 
from switching firms, or a firm from using asset transfers or similar 
transactions, to avoid payment of arbitration awards.\16\ The 
amendments address situations where: (1) A FINRA member firm hires 
individuals with pending arbitration claims, where there are concerns 
about the payment of those claims should they go to award or result in 
a settlement, and the supervision of those individuals; and (2) a 
member firm with substantial arbitration claims seeks to avoid payment 
of the claims should they go to award or result in a settlement by 
shifting its assets, which are typically customer accounts, or its 
managers and owners, to another firm and closing down. The amendments 
become effective on September 14, 2020.\17\
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    \16\ See supra note 5.
    \17\ See Regulatory Notice 20-15 (May 2020).
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    As a result of the amendments to the MAP rules, FINRA is proposing 
to amend Form NMA and Form CMA to: (1) Align the description of 
Standard 3 used in the forms with the amended language in Rule 
1014(a)(3); (2) align the description of the rebuttable presumption to 
deny an application with amended Rules 1014(b)(1) and 1017(i)(1), which 
set forth the Standard 3 factors that trigger the presumption to deny 
an NMA and CMA, respectively; (3) incorporate into Form NMA relevant 
arbitration-related questions that currently appear in Form CMA but not 
in Form NMA, to create consistency between the forms; (4) incorporate 
into Form NMA arbitration-related documentation options that currently 
appear in Form CMA but not in Form NMA to create consistency between 
the forms, and amend these options, as applicable, to conform to new 
IM-1014-1; and (5) make other non-substantive and technical changes 
throughout both standardized forms.
Proposed Amendments to Form NMA and Form CMA
i. Align Description of Standard 3 in Form NMA and Form CMA with 
Amended Rule 1014(a)(3)
    Once an application is deemed filed, FINRA evaluates an applicant's 
financial, operational, supervisory and compliance systems to ensure 
that the applicant meets Standard 3, among other standards. As noted 
above, in determining whether an applicant for new or continuing 
membership and its associated persons are able to meet Standard 3, 
FINRA must consider a variety of factors, such as past and current 
disciplinary actions, in making that determination.
    FINRA is proposing to amend Form NMA and Form CMA such that the 
language to describe Standard 3 reflects the language in Rule 
1014(a)(3), as amended. Specifically, the proposed amendments would 
reflect that the specified factors now appear in eight subparagraphs, 
rather than six.\18\
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    \18\ See generally subparagraphs (A) through (H) under Rule 
1014(a)(3), as amended. The amendments reorganized the factors in 
Rule 1014(a)(3), but did not change the factors substantively.
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ii. Align Description of the Rebuttable Presumption To Deny an 
Application in Form NMA and Form CMA With Amended Rules 1014(b)(1) and 
1017(i)(1), Respectively
    An applicant for new or continuing membership will trigger a 
presumption to deny the application if the applicant or its associated 
persons are subject to certain of the factors specified in Standard 
3.\19\ As amended, Rule 1014(b)(1) creates a presumption to deny an NMA 
where the new member applicant or its associated persons are the 
subject of a pending arbitration claim.\20\
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    \19\ See Rule 1014(b)(1) and Rule 1017(i), which pertain to NMAs 
and CMAs, respectively.
    \20\ This presumption of denial for a pending arbitration claim 
does not apply to an existing member firm filing a CMA.
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    Currently, both forms include a description of the presumption to 
deny an application, referencing the language in Rule 1014(b)(1) prior 
to its amendment.\21\ FINRA is proposing to amend both forms to conform 
to amended Rule 1014(b)(1). For Form NMA, FINRA is proposing to amend 
the form to reflect the new presumption of denial for an NMA where the 
new member applicant or its associated persons are the subject of a 
pending arbitration claim, consistent with amended Rule 1014(b)(1).\22\ 
For Form CMA, FINRA is proposing to amend the form to align with the 
amended rule cross-references in Rule 1017(i)(1).\23\
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    \21\ See Form NMA and Form CMA, Standard 3 (within their 
respective categories titled ``Explain how this Standard is met''): 
``Pursuant to NASD Rule 1014(b)(1), where the history of the 
Applicant or its Associated Persons includes any of the events set 
forth in Rule 1014(a)(3)(A) and (C) through (E), there is a 
presumption that the Application should be denied. The Applicant may 
overcome the presumption of denial by demonstrating that it can meet 
each of the standards for admission in NASD Rule 1014(a), 
notwithstanding the existence of any of the events set forth in NASD 
Rule 1014(a)(3)(A) and (C) through (E). To the extent that any of 
the referenced events exist for the Applicant or its Associated 
Persons, provide a detailed explanation, in light of the existence 
of such events, as to how the Applicant is nonetheless capable of 
complying with industry rules, regulations, laws, and observing high 
standards of commercial honor and just and equitable principles of 
trade. Please reference any controls or systems put in place and 
refer to any specific pages or sections in the Applicant's written 
supervisory procedures that address heightened supervisory 
requirements.*''
    \22\ The proposed change to Form NMA's Standard 3 section would 
read: ``Pursuant to FINRA Rule 1014(b)(1), where the history of the 
Applicant or its Associated Persons includes any of the events set 
forth in Rule 1014(a)(3)(A), (C), (D), (F), (G), and (E) for new 
member applications, there is a presumption that the Application 
should be denied. The Applicant may overcome the presumption of 
denial by demonstrating that it can meet each of the standards for 
admission in FINRA Rule 1014(a), notwithstanding the existence of 
any of the events set forth in FINRA Rule 1014(a)(3)(A), (C), (D), 
(F), (G), and (E) for new member applications. To the extent that 
any of the referenced events exist for the Applicant or its 
Associated Persons, provide a detailed explanation, in light of the 
existence of such events, as to how the Applicant is nonetheless 
capable of complying with industry rules, regulations, laws, and 
observing high standards of commercial honor and just and equitable 
principles of trade. Please reference any controls or systems put in 
place and refer to any specific pages or sections in the Applicant's 
written supervisory procedures that address heightened supervisory 
requirements.* ''
    \23\ The proposed change to Form CMA's Standard 3 section would 
read: ``Pursuant to FINRA Rule 1014(b)(1), where the history of the 
Applicant or its Associated Persons includes any of the events set 
forth in Rule 1014(a)(3)(A), (C), (D), (F), and (G), there is a 
presumption that the Application should be denied. The Applicant may 
overcome the presumption of denial by demonstrating that it can meet 
each of the standards for admission in FINRA Rule 1014(a), 
notwithstanding the existence of any of the events set forth in 
FINRA Rule 1014(a)(3)(A), (C), (D), (F), and (G). To the extent that 
any of the referenced events exist for the Applicant or its 
Associated Persons, provide a detailed explanation, in light of the 
existence of such events, as to how the Applicant is nonetheless 
capable of complying with industry rules, regulations, laws, and 
observing high standards of commercial honor and just and equitable 
principles of trade. Please reference any controls or systems put in 
place and refer to any specific pages or sections in the Applicant's 
written supervisory procedures that address heightened supervisory 
requirements.*''

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[[Page 58407]]

iii. Incorporate Provisions From Form CMA to Form NMA to Require an 
Applicant for New Membership To Explain How Standard 3 is Met
    Form CMA's Standard 3 section contains requirements that FINRA 
believes are relevant to new membership applications, but are not 
currently included in Form NMA.\24\ Accordingly, FINRA is proposing 
amendments that would incorporate these requirements into Form NMA.
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    \24\ See generally Form CMA, Standard 3, Questions 1 and 2 
(within the category titled ``Provide supporting documents'').
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    Specifically, Form CMA directs the applicant to indicate whether it 
or any associated persons have been found to have repeat violations of 
the same federal securities laws or regulations, the rules thereunder, 
or FINRA rules and if so, to identify the nature of the repetitive 
occurrences, the corrective action the applicant has taken to prevent 
future violations, and the specific persons with responsibility for 
supervision in the areas noted with repeat violations or associated 
persons who have been found to have repeat violations.\25\
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    \25\ See Form CMA, Standard 3, Question 3 (within the category 
titled ``Explain how this Standard is met'').
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    In addition, Form CMA directs the applicant to provide details 
regarding any pending arbitration claims or closed or settled 
arbitration matters by providing a summary of each claim, including the 
amounts claimed for pending matters, the current status, and the amount 
of settled matters.\26\ Form CMA directs the applicant to provide a 
statement detailing the treatment of unpaid and pending arbitration 
claims on the applicant's financial statements, and if pending 
arbitration claims are classified as contingent liabilities, the 
applicant should explain its method for calculating their amounts on 
its financial statements, and if such claims are not disclosed on the 
financial statements, an explanation for the nondisclosure.\27\ The 
applicant must also promptly update the information provided in the 
application regarding pending arbitration claims that are awarded, 
settled, or become unpaid before FINRA renders its decision on the 
CMA.\28\
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    \26\ See Form CMA, Standard 3, Question 4.a. (within the 
category titled ``Explain how this Standard is met'').
    \27\ See Form CMA, Standard 3, Question 4.b. (within the 
category titled ``Explain how this Standard is met'').
    \28\ See supra note 27.
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    FINRA is proposing to incorporate these requirements into Form NMA, 
without substantive modification, but would include some clarifying 
language that would also be reflected in Form CMA.\29\ These 
requirements should also apply to an applicant for new membership as 
they are relevant to whether such applicant is ``capable of complying 
with'' applicable federal securities laws and FINRA rules and do not 
impose new requirements beyond the scope of Standard 3, as amended. In 
addition, incorporating these requirements into Form NMA would be 
helpful in providing an applicant for new membership the opportunity to 
address, at the outset of the review process, any repetitive 
occurrences of violative conduct and arbitration-related matters. 
Further, the proposed alignments to Form NMA would improve consistency 
between the two forms.
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    \29\ In the Standard 3 section of Form NMA and Form CMA, 
Question 4.b. (within the category ``Explain how this Standard is 
met'') would read: ``A statement detailing the treatment of unpaid 
and pending arbitration claims on the Applicant's financial 
statements. If pending arbitrations are classified as contingent 
liabilities, the Applicant should explain its method for calculating 
amounts on its financial statements. If pending arbitrations are not 
disclosed on the financial statements, explain why they are not 
disclosed. Additionally, the Applicant must promptly update 
information provided in the Application regarding pending 
arbitration claims that are awarded, settled or become unpaid before 
the Department renders its decision on the Application. The updates 
should include new arbitrations filed, settlements made and awards 
granted against the Applicant.*''
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iv. Incorporate Documentation Options From Form CMA Into Form NMA and 
Amend These Options To Align With New IM-1014-1
    Currently, Form NMA and Form CMA provide, within the category 
titled, ``Provide supporting documents[,]'' that an applicant may 
provide additional documents to evidence its ability to meet Standard 
3. This category of the forms is not marked with a red asterisk, 
indicating that the applicant is not required to provide documents.\30\ 
There are more documentation options in Form CMA than in Form NMA due 
to the underlying distinction between an application for new membership 
and continuing membership. FINRA is proposing to expand Form NMA's 
``Provide supporting documents[,]'' category to include documentation 
options that mirror those described in Form CMA, where appropriate, and 
to modify the documentation options in both forms to align with new IM-
1014-1. With respect to an applicant for new membership, establishing 
documentation options in Form NMA that parallel the options in Form CMA 
would not impose additional obligations upon such applicant; rather, 
incorporating these options into Form NMA would provide an applicant 
for new membership with a clear indication of the documentation that 
such applicant may choose to prepare to demonstrate that it can meet 
Standard 3, as amended. Further, the proposed incorporation of the 
documentation options, including the corresponding changes to align 
with IM-1014-1, would bring consistency between the forms.
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    \30\ See supra note 9 and accompanying text.
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a. Form CMA and Form NMA, Question 1, Providing Supporting Documents
    Form NMA's Question 1 within the category titled ``Provide 
supporting documents'' permits an applicant for new membership to 
provide copies of any state, federal, or other orders, decrees or 
formal actions.\31\ Form CMA's Question 1, within the same category, 
however, permits an applicant for continuing membership to provide 
documentation of any of the events described in Rule 1014(a)(3), unless 
the event has been reported to the CRD system.\32\ FINRA is proposing 
to replace the language in Form NMA's Question 1 with the language in 
Form CMA's Question 1. The proposed change would make this supporting 
documents question in both forms consistent and would help ensure that 
the documents provided are more directly relevant to explaining the 
events, as applicable, under Rule 1014(a)(3).\33\
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    \31\ See Form NMA, Standard 3, Question 1 (within the category 
titled ``Provide supporting documents'').
    \32\ See Form CMA, Standard 3, Question 1 (within the category 
titled ``Provide supporting documents'').
    \33\ The question would read the same as in Form CMA's Question 
1, subject to one technical amendment to change the reference from 
``NASD'' to ``FINRA.''
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b. Form CMA and Form NMA, Question 2, Providing Supporting Documents 
and New IM-1014-1
    Within the ``Providing Supporting Documents'' category, Form NMA's 
Question 2 permits an applicant to provide relevant and supporting 
documents, citing as examples statements of claim or settlement 
agreements.\34\ Form CMA currently sets forth more detailed 
documentation options than Form NMA that an applicant may provide in 
support of Standard 3, but these options are framed in the context of 
an application that involves a transfer of assets without a 
corresponding transfer of associated liabilities, and where there are 
pending

[[Page 58408]]

arbitration claims or closed or settled arbitration matters. They 
include: (1) Evidence that the applicant has satisfied the arbitration 
award in full (e.g., copies of front and back of cancelled checks), and 
in cases of unpaid awards, the applicant is required to pay the awards 
before closing the transaction,\35\ and for matters that have been 
settled, a copy of the settlement documentation and evidence that the 
settlement payments have been made in full; \36\ (2) an opinion from 
counsel and any documentation from the applicant's financial operations 
principal, accountant or auditor that support the applicant's treatment 
of unpaid and pending arbitration or civil litigation claims; \37\ and 
(3) a written ``Arbitration Plan,'' a ``Relationship Statement,'' and a 
``Statement of Future Plans.'' \38\
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    \34\ See Form NMA, Standard 3, Question 2 (within the category 
titled ``Provide supporting documents'').
    \35\ See Form CMA, Standard 3, Question 2.a. (within the 
category titled ``Provide supporting documents'').
    \36\ See Form CMA, Standard 3, Question 2.b. (within the 
category titled ``Provide supporting documents.'').
    \37\ See Form CMA, Standard 3, Question 2.c. (within the 
category titled ``Provide supporting documents'').
    \38\ Currently, Form CMA indicates that an Arbitration Plan 
should include the expected date for concluding the arbitration, the 
method by which the Applicant expects to resolve the arbitrations 
(e.g., mediation, settlement, hearing), and the provision that the 
Applicant will make for payment of awards (e.g., reserve fund, 
retention of proceeds of asset transfer, no provision for payment). 
A Relationship Statement should describe the relationship of the 
firms involved in the transaction; specifically, whether the firms 
are affiliated or have common (direct or indirect) ownership greater 
than five percent, and the plans of key personnel or owners to 
associate with the acquiring firm. A Statement of Future Plans 
should describe the intended use of the proceeds of the transaction 
and future plans in the business of the owners and key personnel. 
See Form CMA, Standard 3, Question 2.d.i., ii., and iii. (within the 
category titled ``Provide supporting documents.'').
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    New IM-1014-1 expressly provides that an applicant may demonstrate 
its ability to satisfy an unpaid arbitration award, other adjudicated 
customer award, unpaid arbitration settlement or a pending arbitration 
claim, through an escrow agreement, insurance coverage, a clearing 
deposit, a guarantee, a reserve fund, or the retention of proceeds from 
an asset transfer, or such other forms of documentation that FINRA may 
determine to be acceptable. In addition, an applicant may provide a 
written opinion of an independent, reputable U.S. licensed counsel 
knowledgeable in the area as to the value of the arbitration claims 
(which might be zero). IM-1014-1 also provides that to overcome the 
presumption to deny the application due to unpaid arbitration awards, 
other adjudicated customer awards, unpaid arbitration settlements, or 
pending arbitration claims, as applicable, the applicant must guarantee 
that any funds used to evidence the applicant's ability to satisfy any 
awards, settlements, or claims will be used for that purpose. Any 
demonstration by an applicant of its ability to satisfy these 
outstanding obligations would be subject to a reasonableness assessment 
by FINRA.
    FINRA is proposing to add to Form NMA the more detailed 
documentation options set forth in Form CMA, but modify the options in 
both forms, as appropriate, to align them with new IM-1014-1. 
Specifically, FINRA is proposing to remove the reference to a specific 
type of business change in Form CMA (i.e., asset transfer); instead, 
Form CMA would direct the applicant to provide additional information 
where the applicant or its associated person is subject to unpaid 
arbitration awards, other adjudicated customer awards, unpaid 
arbitration settlements, or pending arbitration claims. In addition to 
incorporating Form CMA's documentation options relating to evidence 
that the applicant has satisfied an arbitration award or settlement, 
without substantive change, FINRA is proposing to incorporate this 
documentation option into Form NMA.\39\
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    \39\ In the Standard 3 section of Form NMA and Form CMA, the 
proposed question stem in Question 2 (within the category ``Provide 
supporting documents.'') would read: ``To the extent that the 
Applicant or its Associated Person is subject to unpaid arbitration 
awards, other adjudicated customer awards, unpaid arbitration 
settlements, pending arbitration claims, provide the following:''.
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    Further, FINRA is proposing to modify the documentation option in 
Form CMA to specify that an applicant may provide a written opinion of 
counsel from an independent, reputable U.S. licensed counsel 
knowledgeable in the value of the arbitration claims and any other 
documentation developed by the applicant's financial operations 
principal, accountants, or auditors that support the applicant's 
treatment of unpaid and pending arbitration or civil litigation claims. 
FINRA is proposing to incorporate this documentation option into Form 
NMA.\40\
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    \40\ In the Standard 3 section of Form NMA and Form CMA, 
Question 2.c. (within the category ``Provide supporting 
documents.'') would read: ``Written opinion(s) of an independent, 
reputable U.S. licensed counsel knowledgeable in the value of the 
claim(s) and any other documentation developed by the Applicant's 
FinOp Principal, accountants, or auditors that support the 
Applicant's treatment of unpaid and pending arbitration or civil 
litigation claims.''
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    Finally, FINRA is proposing to modify the Arbitration Plan 
requirements in Form CMA to provide that the Arbitration Plan should 
include the provision the applicant will make and guarantee for payment 
of awards, settlements or claims. In addition, the Arbitration Plan 
would include more examples of how an applicant may demonstrate its 
ability to satisfy awards, including through an escrow agreement, 
insurance coverage, clearing deposit or guarantee. In addition to 
incorporating Form CMA's documentation options relating to the 
Relationship Statement and Statement of Future Plans, without 
substantive change, FINRA is also proposing to incorporate the 
Arbitration Plan requirements, as modified, into Form NMA.\41\
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    \41\ In the Standard 3 section of Form NMA and Form CMA, 
Question 2.d.i. (within the category ``Provide supporting 
documents.'') would read: ``The Arbitration Plan should include (i) 
the expected date for concluding the arbitration, (ii) the method by 
which the Applicant expects to resolve the arbitrations (e.g., 
mediation, settlement hearing), and (iii) the provision that the 
Applicant will make and guarantee for payment of awards, settlements 
or claims (e.g., escrow agreement, insurance coverage, clearing 
deposit, guarantee, reserve fund, retention of proceeds of asset 
transfer, no provision for payment.'' See also supra note 38.
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    The proposed changes to Form NMA and Form CMA would conform the 
forms to the amendments to the MAP rules. Incorporating the provisions 
and documentation options, as modified, from Form CMA to Form NMA would 
not impose additional requirements on an applicant for new membership 
beyond the scope of the amended MAP rules; instead, the proposed 
changes would help the applicant prepare to address, as applicable, the 
areas pertaining to meeting Standard 3, as amended. Moreover, the 
proposed changes to these standardized forms would make the forms more 
consistent as to the documents and information FINRA would need to 
determine whether a new or continuing membership applicant would be 
able to meet Standard 3, as amended.
v. Amend Form NMA and Form CMA To Make Other Non-Substantive and 
Technical Changes to Forms
    In 2019, as part of the process of completing a consolidated FINRA 
rulebook, FINRA transferred the remaining legacy NASD rules, without 
substantive change, as FINRA rules in the consolidated FINRA rulebook 
and the remaining Incorporated NYSE Rules and Incorporated NYSE Rule 
Interpretations, without substantive change, in the consolidated FINRA 
rulebook as a separate Temporary Dual FINRA-NYSE Member Rules 
Series.\42\ The rule references in Form NMA and Form CMA still refer to 
NASD rules. FINRA is proposing to amend the forms

[[Page 58409]]

to reflect the correct FINRA rule cross-references, and make other 
technical changes as appropriate.\43\
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    \42\ See Securities Exchange Act Release No. 85589 (April 10, 
2019), 84 FR 15646 (April 16, 2019) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2019-009).
    \43\ For example, Form NMA still refers to a $350 processing fee 
though the NMA processing fee was increased to $500 in 2012. See 
Regulatory Notice 12-32 (June 2012). FINRA is not proposing to 
change this $500 fee at this time.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so that FINRA can implement the proposed rule 
change on September 14, 2020, consistent with the effective date for 
the amendments to the MAP rules.\44\
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    \44\ See Regulatory Notice 20-15 (May 2020).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\45\ 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.
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    \45\ 15 U.S.C. 78o-3(b)(6).
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    The proposed changes to Form NMA and Form CMA will conform the 
forms to the amendments to the MAP rules, as described in File No. SR-
FINRA-2019-030, that are intended to create further incentives for the 
timely payment of customer arbitration awards by preventing an 
individual from switching firms, or a firm from using asset transfers 
or similar transactions, to avoid payment of customer arbitration 
awards. The proposed changes to Form NMA and Form CMA will help ensure 
that applicants for new and continuing membership provide the 
information and documentation to produce a complete application package 
for FINRA's review. In addition, the proposed changes to Form NMA and 
Form CMA will provide more consistency, where applicable, between the 
forms.

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. FINRA's recent amendments to 
the MAP rules necessitate conforming changes to the Standard 3 section 
of Form NMA and Form CMA to reflect the documents and information that 
may be necessary for applicants to demonstrate their ability to meet 
Standard 3, as amended. The proposed conforming changes to the forms 
effectuate the recent amendments to the MAP rules as described in File 
No. SR-FINRA-2019-030. FINRA believes that the proposed conforming 
changes to the forms would not result in new material economic effects. 
FINRA considered and discussed the potential economic impact of the 
recent amendments in File No. SR-FINRA-2019-030, including the burden 
imposed on some applicants to address in the application arbitration-
related questions and documentation options.

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.

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 \46\ and Rule 19b-
4(f)(6) thereunder.\47\
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    \46\ 15 U.S.C. 78s(b)(3)(A).
    \47\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. FINRA has asked the Commission to 
waive the 30-day operative delay so that the proposed rule change 
becomes operative immediately upon filing to help applicants for new 
and continuing membership to provide the information and documentation 
required by the updated MAP Rules.\48\ As noted above, FINRA stated 
that the changes to the Forms CMA and NMA are not new obligations but 
rather reflect rules already approved by the Commission, including 
those changes designed to harmonize the two forms. FINRA seeks waiver 
of the delay so that FINRA can implement the proposed rule change on 
September 14, 2020, consistent with the effective date for the 
amendments to the MAP rules.\49\ The Commission agrees that the 
proposed rule changes would not impose new obligations on broker-
dealers and associated persons but rather are designed to help FINRA 
implement rules that the Commission previously approved.\50\ The 
Commission believes that waiving the 30-day operative delay would help 
eliminate confusion by providing updated forms to reflect current 
requirements to firms and associated persons to use starting on the 
effective date of the previously approved MAP rules. In addition, 
waiving the delay would help FINRA to begin collecting the information 
designed to be captured by the new MAP rules starting on their 
effective date. For these reasons, the Commission believes that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\51\
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    \48\ See supra note 5.
    \49\ Id.
    \50\ Id.
    \51\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2020-028 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2020-028. This 
file number should be included on the

[[Page 58410]]

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 website 
(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 website 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. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2020-028 
and should be submitted on or before October 9, 2020.
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    \52\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20615 Filed 9-17-20; 8:45 am]
BILLING CODE 8011-01-P