[authors: Robert S. Frenchman, Julian Rainero, and David S. Sieradzki.
The Financial Industry Regulatory Authority (FINRA) has adopted amendments to its new member application (Form NMA) and has also adopted a new electronic continuing membership application (Form CMA). Significantly, FINRA has also introduced a new fee for CMA filings and has also increased the fees that FINRA charges for NMA filings. New Forms NMA and CMA are designed to streamline the application process for both new memberships and changes in a member firm’s ownership, control or business operations. We agree that the new system has the potential to streamline the process, which can take up to 180 days, by requiring more complete applications in the first instance. This should reduce time-consuming follow-up from the FINRA staff. We question, however, the propriety of fees that do not appear in all cases to be related to the actual cost of the services provided by FINRA. Large member firms, in particular, will be asked to pay onerous amounts for CMAs that, in many instances, involve technical changes in ownership.
The new CMA fee ranges from $5,000 to as high as $100,000. FINRA is also increasing the range of fees to file an NMA. NMA fees were previously $3,000 or $5,000 and now range from $7,500 to $60,000. The requirement to use these new forms, as well as to pay the new CMA fee and the increased NMA fee, became effective on July 23, 2012. The changes to Form NMA and the adoption of Form CMA were announced in Regulatory Notice 12-33. The Regulatory Notice contained no mention of any changes to NMA or CMA fees. The rule change implementing the fee changes, SR-FINRA-2012-031, was filed with the SEC for immediate effectiveness on June 22, 2012.1
UPDATE: FINRA has extended the effective date for the required use of the new Form CMA until August 27, 2012. Until then, use of the new Form CMA is permissive. FINRA has not, however, extended the effective date of the amended Form NMA, the increased NMA fee or the new CMA fee, which was July 23, 2012.
Revised Form NMA
Pursuant to NASD rules 1012 and 1013, each applicant for FINRA membership must complete and electronically file the standardized online Form NMA as part of a new membership application. FINRA has revised Form NMA to streamline the membership process and to organize Form NMA according to the twelve standards for membership articulated in NASD rule 1014. Much of the information required in the current Form NMA has carried over to the new form, although there are additional questions and a revised organizational scheme.
Increased NMA Fee
Prior to July 23, 2012, FINRA's By-Laws required new member applicants to pay an application fee of either $3,000 or $5,000, depending on the applicant’s proposed net capital requirements.2 FINRA is implementing a revised NMA fee structure with fees that range from $7,500 to $60,000 (inclusive of the $5,000 fee identified below). The new NMA fee is based upon the number of registered persons proposed to be associated with the applicant at the time that the application is filed. It does not depend on the perceived complexity of the filing, such as the number of business lines or nature of the business(es) in which the applicant proposes to engage. An exception to this method of NMA fee calculation applies to firms proposing to engage in clearing or carrying activities; such firms are assessed an additional $5,000 fee. NASD rule 1012(b) has also been amended to require resubmission of an application that has lapsed along with repayment of the NMA fee.
New Form CMA
FINRA has amended NASD rules 1012 and 1017 to adopt a new standardized electronic Form CMA. Pursuant to NASD rule 1017, certain changes in a member firm’s ownership, control or business operations require a CMA.3 Prior to the implementation of Form CMA, such applications were filed in the form of a letter submission rather than via an electronic form. FINRA has amended NASD rules 1012 and 1017(b) to require that member firms file CMAs electronically with the Department of Member Regulation with a completed Form CMA as part of their application. The new Form CMA, like revised Form NMA, is also structured around the twelve standards for membership articulated in NASD rule 1014. Information required under the Form CMA will vary based on the type of change being proposed by the member firm.
New CMA Fee
Prior to July 23, 2012, there was no fee associated with CMA filings. FINRA has amended NASD rule 1012 to require an applicant seeking approval of a change in ownership, control or business operations pursuant to NASD rule 1017 to include in its application a fee in accordance with Schedule A, Section 4, of the FINRA By-Laws.
CMA fees range from $5,000 to $100,000. The fee is calculated based upon the number of registered persons associated with the applicant and the type of change in ownership, control or business operations being contemplated by the member. If an application involves more than one type of change in business as identified in Schedule A, the CMA fee will be the highest applicable single fee for that size firm according to the schedule. NASD rule 1017(d) is also amended to provide that if a CMA is rejected for being not substantially complete, FINRA will refund the application fee, less a $500 processing fee. Upon resubmission, the member is required to pay the full CMA fee.
Members and potential members should note the changes to the fees that are imposed on NMAs and CMAs. The revised NMA fee represents a substantial increase. The new CMA fee is a significant additional charge that could, in some instances, outweigh the potential benefits of the CMA. While FINRA will refund a large portion of the CMA Fee for a continuing membership application it deems not substantially complete, FINRA will not refund either fee if an application lapses, and will require the applicant to pay again if the applicant then wishes to resubmit its application.
For assistance with any of the issues addressed in this update, please contact any one of the Bracewell & Giuliani attorneys listed on the upper right-hand side of this page.
1 Pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934, as amended, self-regulatory organizations may file for immediate effectiveness rule changes that, among other things, change or establish a due, fee or other charge.
2 See FINRA By-Laws, Schedule A, Section 4(e).
3 See SEC Release No. 34-67082 (May 31, 2012), 77 FR 33539 (June 6, 2012).