Regulatory Notice 23-19

In view of the upcoming changes to 17 CFR Part 240, § 240.15b9-1 under the Securities Exchange Act of 1934 on registration requirements of broker-dealers with the Financial Industry Regulatory Authority (FINRA) and exemption therefrom as initiated by the Securities and Exchange Commission in August this year (EventID 22724), FINRA has now adopted final Regulatory Notice 23-19 on rule changes to „establish a Short-Form Membership Application Process and Partial Waiver of the New Member Application Fee for Firms that Must Become FINRA Members“ in accordance with the changes to the SEC rule.
FINRA thereby implements the rule changes as proposed in SR-FINRA-2023-014 without any changes.
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To recall, the above noted changes to Rule § 240.15b9-1 under the Securities Exchange Act of 1934 were prompted by an effort to bring more broker-dealers under direct supervision of FINRA so as to enhance investor protection and financial market participant oversight. The SEC thereby narrowed down the proprietary trading exemption for U.S. brokers and dealers to only grant such exemption to firms that are members of a national securities exchange, carry no customer accounts, and perform transactions only that
– „result solely from orders that are routed by a national securities exchange of which the broker or dealer is a member to comply with Rule 611 of Regulation NMS or the Options – Order Protection and Locked/Crossed Market Plan or
– are solely for the purpose of executing the stock leg of a stock-option order.“
All other firms not eligible for the exemption must register with FINRA.
To ease the transition to mandatory FINRA registration, FINRA proposed to require affected firms to file a short form application only (versus the „regular form“ for FINRA registration) and to refrain from requesting interviews and additional information to assess firms‘ fitness as broker-dealers under FINRA supervision. Also, FINRA proposed that such firms only pay half the typical application fee for filing the short form.
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These proposed rule changes have now been adopted. It shall be noted that FINRA requests affected firms to file the short form at least 120 calendar days prior to the compliance date with the SEC rule changes via this e-mail address: ProprietaryTrading@finra.org. Finally, FINRA will also reserve the right to request any additional information from firms – if so needed – to process their applications. And: firms that intend to substantially change the scope of their business in the transition would have to undergo the regular application process.