The FINRA Continuation of Membership Application (“CMA”) is covered under FINRA Rule 1017 (among others), and is often referred to as a “1017” application. The rule provides that any of the events enumerated in Rule 1017(a) require the filing of an application. Generally, these include: a merger, an acquisition, an asset acquisition, a change in ownership or control or a material change in business operations. For purposes of this discussion, we will focus on a change of ownership or control.
Generally speaking, the change of ownership or control provision of the rule is designed to allow the member to effect the transaction 30 days after filing the application unless FINRA objects (and an objection comes in the form of FINRA interim restrictions). In that case, FINRA must notify the applicant that it is imposing interim restrictions, which may include a prohibition on the member effecting the transaction until the completion of the processing of the application. This process is described in FINRA Rule 1017(c)(1).
The Basis for FINRA Interim Restrictions
When FINRA interim restrictions are involved, it is usually because FINRA has made a preliminary assessment that the applicant may not meet one or more of the standards in FINRA Rule 1014. Absent that view, FINRA interim restrictions generally won’t be imposed. This is not to say that if FINRA does not object that it has approved the transaction. However, based on a review of the details of the proposed transaction, FINRA may leave it to the applicant to determine whether it wants to proceed with the change.
The real risk to the applicant if it proceeds with the transaction prior to receiving FINRA’s approval is that FINRA may, after reviewing all of the material provided with the application, determine not to grant the applicant an approval. If this is the case and the applicant has already effected the transaction, it has limited choices: file a new application, unwind the transaction or file Form BDW and withdraw from FINRA membership. Clearly, this is not a scenario one wants to face.
When filing an application under Rule 1017, it is critical that the applicant consult with a FINRA CMA expert who is experienced in the process. Mitch Atkins, FINRA’s former Senior Vice President and Regional Director has extensive experience with the FINRA CMA process and particularly with FINRA interim restrictions under Rule 1017(c). Contact Mitch Atkins, Principal, FirstMark Regulatory Solutions at 561-948-6511 with your questions about FINRA’s CMA process.
