Category Archives: NASD Rules

FAQ – Is registration under the Securities Exchange Act of 1934 required before a security can be admitted to trading on The NASDAQ Stock Market?

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FAQ – Is registration under the Securities Exchange Act of 1934 required before a security can be admitted to trading on The NASDAQ Stock Market?

Yes. A security approved for listing by NASDAQ must be registered under Section 12(b) of the Securities Exchange Act of 1934 before it can be listed on The NASDAQ Stock Market. Exchange Act registration is required even though the applicant may have previously registered all or part of the securities under the Securities Act of 1933. A security which has already been registered under Section 12(g) of the Exchange Act, or has recently been the subject of a public offering registered under the Securities Act, can usually be registered under Section 12(b) by using SEC Form 8-A. If an applicant does not have a class of securities registered under the Exchange Act Section 12(g), filing of a SEC Form 10 may be required.
For companies that were listed on NASDAQ prior to it becoming a national securities exchange on August 1, 2006, the SEC and other regulators granted NASDAQ’s request to allow it to apply on behalf of its listed companies for registration under Section 12(b) of the Exchange Act. A copy of the SEC’s order granting this request can be found here.

1010. Electronic Filing Requirements for Uniform Forms

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1010. Electronic Filing Requirements for Uniform Forms

(a) Filing Requirement
Except as provided in NASD Rule 1013(a)(2), all forms required to be filed by Article IV, Sections 17, and 8, and Article V, Sections 2 and 3, of the FINRA By-Laws shall be filed through an electronic process or such other processFINRA may prescribe to the Central Registration Depository.
(b) Supervisory Requirements
(1) In order to comply with the supervisory procedures requirement in NASD Rule 3010, each member shall identify a registered principal(s) or corporate officer(s) who has a position of authority over registration functions, to be responsible for supervising the electronic filing of appropriate forms pursuant to this Rule.
(2) The registered principal(s) or corporate officer(s) who has or have the responsibility to review and approve the forms filed pursuant to this Rule shall be required to acknowledge, electronically, that he is filing this information on behalf of the member and the member’s associated persons.
(c) Form U4 Filing Requirements
(1) Except as provided in paragraphs (c)(2) and (c)(3) below, every initial and transfer electronic Form U4 filing and any amendments to the disclosure information on Form U4 shall be based on a manually signed Form U4 provided to the member or applicant for membership by the person on whose behalf the Form U4 is being filed. As part of the member’s recordkeeping requirements, it shall retain the person’s manually signed Form U4 or amendments to the disclosure information on Form U4 in accordance with SEA Rule 17a-4(e)(1) and make themavailable promptly upon regulatory request. An applicant for membership also shall retain in accordance with SEA Rule 17a-4(e)(1) every manually signed Form U4 it receives during the application process and make them available promptly upon regulatory request.
(2) A member may file electronically amendments to the disclosure information on Form U4 without obtaining the subject associated person’s manual signature on the form, provided that the member shall use reasonable efforts to:

(A) provide the associated person with a copy of the amended disclosure information prior to filing; and
(B) obtain the associated person’s written acknowledgment (which may be electronic) prior to filing that the information has been received and reviewed. As part of the member’s recordkeeping requirements, the member shall retain this acknowledgment in accordance with SEA Rule 17a-4(e)(1) and make it available promptly upon regulatory request.
(3) In the event a member is not able to obtain an associated person’s manual signature or written acknowledgement of amended disclosure information on Form U4 prior to filing of such information pursuant to paragraph (c)(1) or (2), the member is obligated to file the disclosure information as to which it has knowledge in accordance with Article V, Section 2 of the FINRA By-Laws. The member shall use reasonable efforts to provide the associated person with a copy of the amended disclosure information that was filed.
(4) A member may file electronically amendments to administrative data on Form U4 without obtaining the subject associated person’s signature on the form. The member shall use reasonable efforts to provide the associated person with a copy of the amended administrative information that was filed.
(d) Fingerprint Information
Upon filing an electronic Form U4 on behalf of a person applying for registration, a member shall promptly submitfingerprint information for that person. FINRA may make a registration effective pending receipt of the fingerprint information. If a member fails to submit the fingerprint information within 30 days after FINRA receives the electronic Form U4, the person’s registration shall be deemed inactive. In such case, FINRA shall notify the member that the person must immediately cease all activities requiring registration and is prohibited from performing any duties and functioning in any capacity requiring registration. FINRA shall administratively terminate a registration that is inactive for a period of two years. A person whose registration is administratively terminated may reactivate the registration only by reapplying for registration and meeting the qualification requirements of the applicable provisions of the NASD Rule 1020 Series and the NASD Rule 1030 Series. Upon application and a showing of good cause, FINRA may extend the 30-day period.
(e) Form U5 Filing Requirements
Initial filings and amendments of Form U5 shall be submitted electronically. As part of the member’s recordkeeping requirements, it shall retain such records for a period of not less than three years, the first two years in an easily accessible place, in accordance with SEA Rule 17a-4, and make such records available promptly upon regulatory request.

• • • Supplementary Material: ————–

.01 Delegation of Electronic Filing Functions. The designated registered principal(s) or corporate officer(s) required by paragraph (b)(1) to supervise the member’s electronic filings may delegate to an associated person (who need not be registered) the electronic filing of the member’s appropriate forms via Web CRD. The registered principal(s) or corporate officer(s) responsible for supervising the member’s electronic filings may also delegate to the associated person making the electronic filings the requirement in paragraph (b)(2) to acknowledge, electronically, that he is making the filing on behalf of the member and the member’s associated persons. However, the registered principal(s) or corporate officer(s) may not delegate any of the supervision, review, and approval responsibilities mandated in paragraphs (b)(1) and (2) and shall take reasonable and appropriate action to ensure that all delegated electronic filing functions are properly executed and supervised.

.02 Third-Party Agreements. A member may enter into an agreement with a third party pursuant to which the third party agrees to file the required forms electronically on behalf of the member and the member’s associated persons. Notwithstanding the existence of such an agreement, the member remains responsible for complying with the requirements of this Rule.

.03 Filing of Amendments Involving Disclosure Information. In the event a member is not able to obtain an associated person’s manual signature or written acknowledgement of amended disclosure information on that person’s Form U4 prior to filing of such amendment reflecting the information pursuant to paragraph (c)(3) (examples of reasons why a member may not be able to obtain the manual signature or written acknowledgement may include, but are not limited to, the associated person refuses to acknowledge such information, is on active military service or otherwise is unavailable during the period provided for filing of such amendments under Article V of the FINRA By-Laws), the member shall enter “Representative Refused to Sign/Acknowledge” or “Representative Not Available” or a substantially similar entry in the electronic Form U4 field for the associated person’s signature.

.04 Filing of Amendments Involving Administrative Information. For purposes of paragraph (c)(4) of the Rule, administrative data includes such items as the addition of state or self-regulatory organization registrations, exam scheduling, and updates to residential, business and personal history.

1013. New Member Application and Interview

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1013. New Member Application and Interview

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(a) Filing of Application
(1) How to File
An Applicant for FINRA membership shall file its application in the manner prescribed by FINRA with the Department of Member Regulation (“the Department”). An Applicant shall submit an application that includes:

(A) Form NMA;
(B) an original signed and notarized paper Form BD, with applicable schedules;
(C) an original FINRA-approved fingerprint card for each Associated Person who will be subject to SEC Rule 17f-2;
(D) a new member assessment report;
(E) a detailed business plan that adequately and comprehensively describes all material aspects of the business that will be, or are reasonably anticipated to be, performed at and after the initiation of business operations, including future business expansion plans, if any, and includes:

(i) a trial balance, balance sheet, supporting schedules, and computation of net capital, each of which has been prepared as of a date that is within 30 days before the filing date of the application;
(ii) a monthly projection of income and expenses, with a supporting rationale, for the first twelve months of operations;
(iii) an organizational chart;
(iv) the intended location of the Applicant’s principal place of business and all other offices, if any, whether or not such offices would be required to be registered under NASD Rules, and the names of the persons who will be in charge of each office;
(v) a list of the types of securities to be offered and sold and the types of retail or institutional customers to be solicited;
(vi) a description of the methods and media to be employed to develop a customer base and to offer and sell products and services to customers, including the use of the Internet, telephone solicitations, seminars, or mailings;
(vii) a description of the business facilities and a copy of any proposed or final lease;
(viii) the number of markets to be made, if any, the type and volatility of the products, and the anticipated maximum inventory positions;
(ix) any plan to enter into contractual commitments, such as underwritings or other securities-related activities;
(x) any plan to distribute or maintain securities products in proprietary positions, and the risks, volatility, degree of liquidity, and speculative nature of the products;
(xi) any other activity that the Applicant may engage in that reasonably could have a material impact on net capital within the first twelve months of business operations; and
(xii) a description of the communications and operational systems the Applicant will employ to conduct business with customers or other members and the plans and procedures the Applicant will employ to ensure business continuity, including: system capacity to handle the anticipated level of usage; contingency plans in the event of systems or other technological or communications problems or failures that may impede customer usage or firm order entry or execution; system redundancies; disaster recovery plans; system security; disclosures to be made to potential and existing customers who may use such systems; and supervisory or customer protection measures that may apply to customer use of, or access to, such systems;
(F) a copy of any decision or order by a federal or state authority or self-regulatory organization taking permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person;
(G) a list of all Associated Persons;
(H) documentation of any of the following events, unless the event has been reported to the Central Registration Depository:

(i) a regulatory action against or investigation of the Applicant or an Associated Person by the Commission, the Commodity Futures Trading Commission, a federal, state, or foreign regulatory agency, or a self-regulatory organization that is pending, adjudicated, or settled;
(ii) an investment-related civil action for damages or an injunction against the Applicant or an Associated Person that is pending, adjudicated, or settled;
(iii) an investment-related customer complaint or arbitration that is required to be reported on Form U4;
(iv) a criminal action (other than a minor traffic violation) against the Applicant or an Associated Person that is pending, adjudicated, or that has resulted in a guilty or no contest plea; and
(v) a copy of any document evidencing a termination for cause or a permitted resignation after investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or an industry standard of conduct;
(I) a description of any remedial action, such as special training, continuing education requirements, or heightened supervision, imposed on an Associated Person by a state or federal authority or self-regulatory organization;
(J) a written acknowledgment that heightened supervisory procedures and special educational programs may be required pursuant to Notice to Members 97-19 for an Associated Person whose record reflects disciplinary actions or sales practice events;
(K) a copy of final or proposed contracts with banks, clearing entities, or service bureaus, and a general description of any other final or proposed contracts;
(L) a description of the nature and source of Applicant’s capital with supporting documentation, including a list of all persons or entities that have contributed or plan to contribute financing to the Applicant’s business, the terms and conditions of such financing arrangements, the risk to net capital presented by the Applicant’s proposed business activities, and any arrangement for additional capital should a business need arise;
(M) a description of the financial controls to be employed by the Applicant;
(N) a description of the Applicant’s supervisory system and a copy of its written supervisory procedures, internal operating procedures (including operational and internal controls), internal inspections plan, written approval process, and qualifications investigations required by Rule 3010;
(O) a description of the number, experience, and qualifications of supervisors and principals and the number, experience, and qualifications of persons to be supervised by such personnel, the other responsibilities of the supervisors and principals with the Applicant, their full-time or part-time status, any business activities that the supervisors or principals may engage in outside of their association with the Applicant, the hours per week devoted to such activities, and an explanation of how a part-time supervisor or principal will be able to discharge his or her designated functions on a part-time basis;
(P) a description of Applicant’s proposed recordkeeping system;
(Q) a copy of the Applicant’s written training plan to comply with Firm Element continuing education requirements described in Rule 1120(b), including the name of the Associated Person responsible for implementation; and
(R) a FINRA Entitlement Program Agreement and Terms of Use and a FINRA Member Firm Account Administrator Entitlement Form.
(2) Uniform Registration Forms
Upon approval of the Applicant’s FINRA Member Firm Account Administrator Entitlement Form, the Applicant shall submit its Forms U4 for each Associated Person who is required to be registered under NASD Rules, any amendments to its Forms BD or U4, and any Form U5 electronically via Web CRD.
(3) Rejection of Application That Is Not Substantially Complete
If the Department determines within 30 days after the filing of an application that the application is not substantially complete, the Department may reject the application and deem it not to have been filed. In such case, within the 30 day period, the Department shall serve a written notice on the Applicant of the Department’s determination and the reasons therefor. FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to continue to seek membership, the Applicant shall submit a new application under this Rule and fee pursuant to Schedule A to the FINRA By-Laws.
(4) Request For Additional Documents Or Information
Within 30 days after the filing of an application, the Department shall serve an initial request for any additional information or documents necessary to render a decision on the application. The Department may serve subsequent requests for additional information or documents at any time during the membership application process.
Unless otherwise agreed by the Department and the Applicant, the Applicant shall file any additional information and documents with the Department within 60 days after service of the Department’s initial request and 30 days after service of any subsequent request.
(5) Withdrawal of Application
If an Applicant withdraws an application within 30 days after filing the application, FINRA shall refund the application fee, less $500, which shall be retained by FINRA as a processing fee. If the Applicant determines to again seek membership, the Applicant shall submit a new application under this Rule and fee pursuant toSchedule A to the FINRA By-Laws.
(b) Membership Interview
(1) Requirement for Interview
Before the Department serves its decision on an application for new membership in FINRA, the Department shall conduct a membership interview with a representative or representatives of the Applicant.
(2) Service of Notice
At least seven days before the membership interview, the Department shall serve on the Applicant a written notice that specifies the date and time of the interview and the representative or representatives of the Applicant who are required to participate in the interview. The Department shall serve the notice by facsimile or overnight courier. The Applicant and the Department may agree to a shorter or longer period for notice or a different method of service under this subparagraph.
(3) Time
Unless the Department directs otherwise for good cause shown, a membership interview shall be scheduled to occur within 90 days after the filing of an application or within 60 days after the filing of all additional information or documents requested, whichever is later.
(4) Place
Unless the Department and the Applicant otherwise agree, the membership interview shall be conducted in the district office for the district in which the Applicant has or intends to have its principal place of business.
(5) Updated Financial Documents
On or before the date of the membership interview, the Applicant shall file an updated trial balance, balance sheet, supporting schedules, and computation of net capital. The Applicant shall prepare such documents as of a date that is within 45 days before the date of the membership interview, unless the Applicant and the Department agree on a longer period. The Applicant shall promptly notify the Department in writing of any material adverse change in its financial condition that occurs before a decision constituting final action of FINRA is served on the Applicant.
(6) Review of Standards for Admission
During the membership interview, the Department shall review the application and the standards for admission to membership with the Applicant’s representative or representatives.
(7) Information From Other Sources
During the membership interview, the Department shall provide to the Applicant’s representative or representatives any information or document that the Department has obtained from the Central Registration Depository or a source other than the Applicant and upon which the Department intends to base its decision under Rule 1014. If the Department receives such information or document after the membership interview or decides to base its decision on such information after the membership interview, the Department shall promptly serve the information or document and an explanation thereof on the Applicant.

1010. Membership Proceedings

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1010. Membership Proceedings

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