SEC Approves FINRA New Member Restrictions Regarding Disqualified Persons

No Comment

On February 18, 2011, the Securities and Exchange Commission issued Release No. 34-63933, approving FINRA Rule 1113 (Restrictions Pertaining to New Member Applications) and amendments to the FINRA Rule 9520 Series (Eligibility Proceedings) to restrict new applicants’ and certain members’ association with disqualified persons based on the belief that “new member applicant[s] should enter FINRA membership free of the supervisory and operating concerns raised by association with a statutorily disqualified person or being itself subject to a statutory disqualification.”

FINRA Rule 1113 (Restrictions Pertaining to New Member Applications)

FINRA shall reject any application for membership in which either the applicant or an associated person is subject to a statutory disqualification. Further, any approval in error shall be subject to cancellation.

FINRA Rule 9520 Series (Eligibility Proceedings)

The amendments to Rule 9520, which sets forth the eligibility proceedings for membership, would:

  1. remove the ability of new members to sponsor the association of a disqualified person;
  2. clarify that a new member applicant is not eligible to submit an application for relief  if the new member itself is subject to disqualification; and
  3. preclude any member from sponsoring the association the association or continued association of a disqualified person, who is directly or indirectly a beneficial owner or more than 5% of the sponsoring member, to be admitted, readmitted or permitted to continue in association.

Statutory Disqualification – Securities Exchange Act Section 3(a)(39)

A person is subject to a “statutory disqualification” with respect to a membership or participation in, or association with a member of, a self-regulatory organization if such person, among others: (1) has been convicted of certain misdemeanors or any felony criminal convictions within the ten years preceding the date of the filing of an application for membership or participation in, or to become associated with a member of, such SRO; (2) is subject to a temporary or permanent injunction (regardless of its age) issued by a court of competent jurisdiction involving at least one of a broad range of unlawful investment activities; (3) has been expelled or suspended from membership or participation in an SRO; or, (4) is subject to an SEC order denying, suspending, or revoking broker-dealer registration.

Experienced counsel is important in the new membership application phase with FINRA. Our attorneys have not only advised broker-dealers, but also formed and operated national and wholesale broker-dealers. If you have a question regarding about a potential or ongoing membership application, contact Evans & Kob PC for expert legal representation and counsel at info@eklawpc.com.

Link: Broker-Dealer Advisory Services

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Know-Your-Customer and Suitability Obligations ( 30 Jan,2011 )
FINRA Issues Further Guidance on Know Your Customer and Suitability Rule and Extends Effective Date – Regulatory Notice 11-25 ( 19 May,2011 )