SR-FINRA-2023-014

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 published a draft on proposed 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.
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 is now proposing that
– SEC-registered firms that are also members of a national securities exchange and that will be required to register with FINRA upon the effectiveness of the changes to 17 CFR Part 240, § 240.15b9-1 only have to file the enclosed short form application form listed in Exhibit 3 (page 35). Furthermore, these firms would not undergo the typical scrutiny of FINRA, including interviews and the requirement to provide supplementary documentation so as to ensure firms‘ fitness to function as broker-dealers under FINRA supervision.
– eligible firms only have to pay half of the membership application fees outlined in FINRA’s By-Laws, specifically Section 4(e) of Schedule A to the FINRA By-Laws.
To conclude, FINRA notes that eligible firms would have to file the short form at least 120 calendar days prior to the compliance date with the SEC rule changes (which is not set yet). 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.