[Federal Register Volume 78, Number 36 (Friday, February 22, 2013)]
[Notices]
[Pages 12405-12407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04101]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68942; File No. SR-FINRA-2013-015]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Section 4 of Schedule A to the FINRA By-
Laws To Adopt a Waiver Process for the Continuing Membership 
Application Fee and Amend NASD Rules 1013 and 1017 To Provide for a 
Refund of the Application Fee for the Withdrawal of a New Member or 
Continuing Membership Application

February 15, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 5, 2013, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Section 4 of Schedule A to the FINRA 
By-Laws to adopt a waiver process for the continuing membership 
application fee where FINRA determines that the application is 
proposing less significant changes that do not require substantial 
staff review. The proposed rule change also would amend NASD Rules 1013 
(New Member Application and Interview) and 1017 (Application for 
Approval of Change in Ownership, Control, or Business Operations) to 
provide for a refund of the application fee (less a $500 processing 
fee) if a new member applicant or continuing membership applicant 
withdraws an application within 30 days after filing the application.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Effective July 23, 2012, FINRA amended Section 4 of Schedule A to 
its By-Laws to, among other things, assess a new fee for continuing 
membership applications (``CMAs'').\4\ In light of comments raised on 
the CMA fee, FINRA proposes to amend Section 4 of Schedule A to the 
FINRA By-Laws to adopt a waiver process for the CMA fee where FINRA 
determines that the CMA is proposing less significant changes that do 
not require substantial staff review.\5\ The proposed rule change also 
would amend NASD Rules 1013 (New Member Application and Interview) and 
1017 (Application for Approval of Change in Ownership, Control, or 
Business Operations) to refund the requisite application fee (less 
$500, which shall be retained by FINRA as a processing fee) if an 
applicant withdraws a new membership application (``NMA'') or CMA 
within 30 days after filing the application.
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    \4\ See Securities Exchange Act Release No. 67240 (June 22, 
2012), 77 FR 38694 (June 28, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-031). On July 23, 2012, 
FINRA also made available a new Form CMA for optional use by 
continuing membership applicants; applicants were required to use 
Form CMA effective August 27, 2012. See Securities Exchange Act 
Release No. 67484 (July 23, 2012), 77 FR 44298 (July 27, 2012) 
(Notice of Filing and Immediate Effectiveness of SR-FINRA-2012-036).
    \5\ See also Letter from Philip Shaikun, Associate Vice 
President and Associate General Counsel, FINRA, to Elizabeth M. 
Murphy, Secretary, SEC, dated August 3, 2012, in response to 
comments on SR-FINRA-2012-031 (indicating FINRA's intent to consider 
a waiver program for the CMA fee).
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CMA Fee Waiver
    NASD Rule 1017 provides parameters for changes in a member's 
ownership, control, or business operations that would require a CMA,\6\ 
and NASD Rule 1012 (General Provisions) requires an applicant filing a 
CMA to submit an application fee pursuant to Schedule A to the FINRA 
By-Laws. Section 4(i) of Schedule A to the FINRA By-Laws assesses 
applicants a CMA fee ranging from $5,000 to $100,000 depending on the 
number of registered persons associated (or to be associated) with the 
applicant and the type of change in ownership, control, or business 
operations being contemplated (merger, material change, ownership 
change, transfer of assets, or acquisition). For instance, the fee 
structure assesses a member with only one to ten registered persons a 
fee ranging between $5,000 and $7,500, depending on the type of CMA, 
whereas a member with 301 to 500 registered persons is assessed a fee 
ranging between $10,000 and $30,000 depending on the type of CMA. This 
tiered fee structure recognizes that more complex changes and larger 
applicants generally require additional staff resources.
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    \6\ NASD Rule 1017(a) (Events Requiring an Application) requires 
a member to file an application for approval of any of the following 
changes to its ownership, control, or business operations: (1) A 
merger of the member with another member, unless both are members of 
the NYSE or the surviving entity will continue to be a member of the 
NYSE; (2) a direct or indirect acquisition by the member of another 
member, unless the acquiring member is a member of the NYSE; (3) 
direct or indirect acquisitions or transfers of 25 percent or more 
in the aggregate of the member's assets, or any asset, business, or 
line of operation that generates revenues comprising 25 percent or 
more in the aggregate of the member's earnings measured on a rolling 
36-month basis, unless both the seller and the acquirer are members 
of the NYSE; (4) a change in the equity ownership or partnership 
capital of the member that results in one person or entity directly 
or indirectly owning or controlling 25 percent or more of the equity 
or partnership capital; or (5) a material change in business 
operations as defined in NASD Rule 1011(k) (Material Change in 
Business Operations). NASD Rule 1011(k) defines a ``material change 
in business operations'' as including, but not limited to: (1) 
Removing or modifying a membership agreement restriction; (2) market 
making, underwriting, or acting as a dealer for the first time; and 
(3) adding business activities that require a higher minimum net 
capital under SEA [sic] Rule 15c3-1.
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    The proposed rule change would provide FINRA with flexibility to 
grant a waiver of the CMA fee for those applications that propose less 
significant changes to a member firm's

[[Page 12406]]

structure or operations. Specifically, FINRA proposes to amend Section 
4(i) of Schedule A to the FINRA By-Laws to provide that FINRA shall 
waive the CMA fee when FINRA determines that the CMA is proposing less 
significant changes that do not require substantial staff review.
    A CMA qualifying for a fee waiver under this proposed rule change 
may include, for example, a CMA where the proposed change does not make 
any day-to-day changes in the applicant's business activities, 
management, supervision, assets, or liabilities, and the applicant is 
only proposing a change in the: (1) Applicant's legal structure (e.g., 
changing from a corporation to an LLC); (2) equity ownership, 
partnership capital, or other ownership interest in an applicant held 
by a corporate legal structure that is due solely to a reorganization 
of ownership or control of the applicant within the corporate legal 
structure (e.g., reorganizing only to add a holding company to the 
corporate legal structure's ownership or control chain of the 
applicant); or (3) percentage of ownership interest or partnership 
capital of an applicant's existing owners or partners resulting in an 
owner or partner owning or controlling 25 percent or more of the 
ownership interest or partnership and that owner or partner has no 
disclosure or disciplinary issues in the preceding five years.
    In addition, a CMA may qualify for a fee waiver pursuant to the 
proposed rule change if it is filed by an applicant in connection with 
a direct or indirect acquisition or transfer of 25 percent or more in 
the aggregate of the applicant's assets or any asset, business, or line 
of operation that generates revenues composing 25 percent or more in 
the aggregate of the applicant's earnings measured on a rolling 36-
month basis where the applicant also is ceasing operations as a broker 
or dealer (including filing a Form BDW with the SEC). There also must 
be either: (1) No pending or unpaid settled customer related claims 
(including, but not limited to, pending or unpaid settled arbitration 
or litigation actions) against the applicant or any of its associated 
persons; or (2) pending or unpaid settled customer related claims 
(including, but not limited to, pending or unpaid settled arbitration 
or litigation actions) against the applicant or its associated persons, 
but the applicant demonstrates in the CMA its ability to satisfy in 
full any unpaid customer related claim (e.g., sufficient capital or 
escrow funds, proof of adequate insurance for customer related claims).
    The proposed changes in business operations outlined above are 
examples of changes that may qualify for a CMA fee waiver pursuant to 
the proposed rule change.\7\ Other proposed changes in business 
operations also may qualify for a fee waiver pursuant to the proposed 
rule change. FINRA's determination to waive a fee for a particular CMA 
will depend on the individual facts and circumstances.
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    \7\ FINRA expects that the proposed changes in business 
operations outlined above typically will not be significant and will 
not require substantial staff review. However, whether FINRA grants 
a fee waiver under the proposed rule change will depend on the 
individual facts and circumstances of each CMA.
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    An applicant seeking a waiver of the CMA fee would submit its 
request to FINRA's Department of Member Regulation in writing as part 
of the supporting documentation submitted with the applicant's Form 
CMA. Form CMA's Standard 1 (Overview of the Applicants) instructs the 
applicant to attach enumerated types of supporting documents. A waiver 
request would most appropriately be attached in response to the request 
for ``[a]ny other documentation that would be pertinent to FINRA's 
review of this Standard.''
NMA and CMA Fee Refund
    FINRA also proposes to amend NASD Rules 1013 and 1017 to provide 
that if an applicant withdraws a NMA or CMA 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. The proposed rule 
change also clarifies that, if the applicant determines to again seek 
membership or apply for approval of a change in ownership, control, or 
business operations, the applicant must submit a new NMA or CMA (under 
NASD Rule 1013 or NASD Rule 1017, as applicable) and requisite 
application fee pursuant to Schedule A to the FINRA By-Laws.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act in that it would establish 
a waiver process for the CMA fee for those applications that seek less 
significant changes. The proposed rule change also would provide a 
refund (subject to a processing fee) of the requisite application fee 
to an applicant withdrawing a NMA or CMA within 30 days after filing 
the application. Both the CMA fee waiver process and the NMA and CMA 
fee refunds provide relief for new member and continuing membership 
applicants where the demands on FINRA resources are less significant.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The CMA fee waiver process will 
provide FINRA with the flexibility to grant a waiver of the CMA fee for 
those applications that propose less significant changes to a member 
firm's structure or operations. The proposed rule change also would 
provide a refund (subject to a processing fee) of the requisite 
application fee to an applicant withdrawing a NMA or CMA within 30 days 
after filing the application. Accordingly, both the CMA fee waiver 
process and the NMA and CMA fee refunds reduce members' potential 
regulatory costs by providing relief for new member and continuing 
membership applicants where the demands on FINRA resources are less 
significant.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section

[[Page 12407]]

19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    FINRA has requested that the Commission waive the 30-day operative 
delay to permit the proposed rule change to become operative 
immediately. The Commission finds that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because the waiver will enable members submitting applications that 
propose less significant changes to receive an immediate waiver of the 
CMA fees, and would also enable members withdrawing applications to 
receive an immediate refund of certain application fees. Therefore, the 
Commission designates the proposal operative effectively.\11\
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    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2013-015 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2013-015. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2013-015, and should 
be submitted on or before March 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04101 Filed 2-21-13; 8:45 am]
BILLING CODE 8011-01-P