FINRA filed with the SEC proposed amendments to NASD Rule 1012 and NASD Rule 1017 (the “Amendments”) to adopt new standardized electronic Form CMA (“Form CMA”). Rule 1017 provides parameters for certain changes in a member’s ownership, control, or business operations that would require a continuing membership application (a “CMA”), and Rule 1012 prescribes certain general provisions related to applications filed with FINRA, including CMAs. FINRA explained that Rule 1017 does not currently require an applicant seeking approval of a change in a member’s ownership, control, or business operations to submit a standardized form as part of its CMA and that the Rule provides little detail regarding required contents of the CMA. Rule 1012 currently permits CMAs to be submitted in paper copies by mail, overnight courier or hand delivery (or by facsimile upon agreement by FINRA and the applicant), and Rule 1017 directs that CMAs be filed in the FINRA District Office where the member has its principal place of business. In proposing the Amendments, FINRA acknowledged that the current process for completing and submitting CMAs results in applications with information deficiencies, inefficiencies in the review process and unnecessary delays in properly forwarding information to the correct people within FINRA. In this regard, FINRA noted that it had formed a centralized Membership Application Program Group within FINRA at the start of 2011.
Rule 1012 and Rule 1017 would be amended to permit the FINRA Department of Member Regulation to designate the manner and format of filing of Form CMA, and Rule 1017 would also require that each application contain a completed Form CMA at the time filed.
Contents of the New Form CMA
Form CMA has been designed to elicit information from applicants based on the standards of admission, contained in NASD Rule 1014, against which all CMAs are evaluated by FINRA. Additionally, Form CMA has been structured with embedded flexibility to allow for variations based on the particular application type being submitted. In this regard, FINRA noted that Form CMA has been designed to provide existing members with a streamlined application process similar to that which applicants for membership currently experience via the standardized online Form NMA. Form CMA has been organized around 12 standards designed to obtain content necessary to evaluate the member based on NASD Rule 1014. The information sought to satisfy the 12 standards of admission includes the following:
Standard 1. Applicant overview information, including details of the proposed business change, verification of current business activities, new business lines and changes in supervisory structure.
Standard 2. Information relating to any effect on the licenses and registrations of the applicant resulting from the proposed changes discussed in the CMA.
Standard 3. The member’s compliance with securities laws, and just and equitable principles of trade. Information reported in response to Standard 3 will include a discussion of, among other things, the applicant’s disciplinary history and applicable litigation.
Standard 4. Contractual or business relationships of the applicant and any changes expected to result.
Standard 5. The facilities of the applicant and any material change in the facilities expected to result.
Standard 6. The communications and operational systems of the applicant, and any expected changes to those systems.
Standard 7. Information regarding the applicant’s net capital requirement, and any impact on the net capital requirement that will result from the changes discussed in the CMA.
Standard 8. Information regarding the applicant’s financial controls, including any change in the financial and operations principal, and the impact of the changes discussed in the CMA on the financial controls.
Standard 9. The applicant’s written supervisory procedures (“WSPs”) and any changes to the WSPs that will result from the changes discussed in the CMA.
Standard 10. The applicant’s supervisory structure, and any changes to the supervisory structure that will result from the changes discussed in the CMA.
Standard 11. Information regarding the applicant’s books and records, including the impact of the changes discussed in the CMA on the books and records.
Standard 12. The applicant’s continuing education program, including any changes in the program that may result from the changes discussed in the CMA.
Request For Comments
Comments on the Amendments are due by March 29, 2012.