1.1 Broker-Dealer Registration, FINRA Membership, and Firm Filings
Key Takeaways
Form BD is the uniform application used for SEC, FINRA and state broker-dealer registration, and FINRA By-Laws Article IV, Section 1(c) requires amendments within 30 days after the firm learns of a change.
A successor firm keeps the predecessor's registration only if it files its own Form BD within 30 days of the succession and the predecessor files Form BDW; that carry-over ends 45 days after the successor's Form BD is filed (Rule 15b1-3).
Form BDW becomes effective on the 60th day after filing unless the SEC sets a different period or institutes proceedings (Rule 15b6-1), and FINRA keeps jurisdiction over a former member for two years.
FINRA must inspect a newly registered member within six months for financial responsibility rules and within twelve months for all other rules (SEC Rule 15b2-2).
Under SEC Rule 15b7-1, a broker-dealer may not effect transactions through any natural person who is not registered or qualified under its SRO's standards.
Function 1 of the Series 26 outline is worth 16 of the 110 scored questions, and its first task is administering the registration of "the broker-dealer and associated persons in the Central Registration Depository (CRD) System." A principal does not need to file Form BD personally, but must know when a filing is required, which form applies, and what happens if the filing is late or misleading. Under FINRA Rule 1122, filing incomplete or inaccurate membership or registration information that could mislead, or failing to correct it after notice, is itself a violation.
Who Must Register and Where
Section 15(a) of the Securities Exchange Act of 1934 makes it unlawful for a broker (a person in the business of effecting securities transactions for the account of others) or a dealer (a person in the business of buying and selling securities for its own account) to use interstate commerce to effect securities transactions unless registered with the SEC. Registration is made on Form BD under SEC Rule 15b1-1, and Form BD is filed electronically through CRD, the registration system operated by FINRA. The same form serves three audiences:
| Regulator | What Form BD accomplishes |
|---|---|
| SEC | Registration as a broker-dealer under Section 15(b) |
| FINRA | Application for membership in the registered national securities association created under Section 15A |
| States | Broker-dealer registration with each state securities administrator where the firm does business |
A registered broker-dealer generally must also be a member of a registered securities association. FINRA is the only such association, which is why almost every retail mutual fund and variable annuity distributor is a FINRA member.
Keeping Form BD Current
SEC Rule 15b3-1 requires a registered broker-dealer to amend Form BD promptly when information becomes inaccurate, and FINRA By-Laws Article IV, Section 1(c) sets the outer limit: amendments must be filed not later than 30 days after the firm learns of the facts. Typical triggers include new officers or direct and indirect owners reported on Schedules A and B, a new main office address, new types of business, and any new disciplinary, criminal, civil or financial disclosure. FINRA Rule 1010 requires these uniform forms to be filed electronically.
Ownership changes deserve special attention. Some changes only require a Form BD amendment, but a change that gives one person or entity 25% or more of the firm's equity, a merger or acquisition, or a material change in business operations requires FINRA approval through a Continuing Membership Application (CMA) under FINRA Rule 1017. Section 12.3 covers the CMA process in detail.
FINRA Membership Obligations
FINRA membership brings By-Law obligations a principal is expected to recognize:
- Executive Representative (Article IV, Section 3). Each member designates one executive representative to vote and act for the firm in FINRA affairs. Rule 4517(b) requires the firm to review and, if necessary, update that designation.
- Contact information (Rule 4517(c)). Required contact information must be updated within 30 days of any change and reviewed within 17 business days after the end of each calendar year.
- Branch registration (Article IV, Section 8). Each branch office must be registered with FINRA, which is done on Form BR. Form BR also reports office closings and changes in the office's supervisor or address.
- New-firm examination. Under SEC Rule 15b2-2, the examining SRO must inspect a newly registered firm within six months of SEC registration for compliance with financial responsibility rules, and within twelve months for compliance with all other rules. The inspection is delayed if the firm has not yet started operations.
Successor Firms and Withdrawal
Successors (Rule 15b1-3). When a new broker-dealer succeeds to and continues the business of a registered firm, the predecessor's registration is deemed to continue for the successor only if the successor files its own Form BD within 30 days after the succession and the predecessor files Form BDW. That bridge lasts only 45 days after the successor files Form BD. If the succession is based solely on a change in the predecessor's date or state of incorporation, form of organization, or partnership composition, the successor may simply amend the predecessor's Form BD within 30 days.
Withdrawal (Rule 15b6-1). A firm leaving the business files Form BDW (Uniform Request for Broker-Dealer Withdrawal) through CRD, after first amending Form BD so the record is accurate. Withdrawal becomes effective on the 60th day after filing unless the firm consents to a longer period, the SEC sets a shorter or longer one, or the SEC institutes proceedings first. Under By-Laws Article IV, Section 6, FINRA retains jurisdiction over a resigned or cancelled member for two years, so a complaint for conduct that occurred during membership may still be filed in that period.
Members, Non-Members, and Qualified Persons
SEC Rule 15b7-1 bars a registered broker-dealer from effecting any securities transaction through a natural person who is not registered or approved under the qualification standards of the firm's SRO. That is the federal hook behind FINRA's registration rules.
Packaged-product rules also distinguish FINRA members from everyone else:
- Rule 2040 prohibits paying transaction-based compensation to any person who would have to register as a broker-dealer to receive it.
- Rule 2341(c) allows a fund underwriter to sell to another dealer at a discount from the public offering price only in conformity with Rule 2040 and under a sales agreement. For open-end funds and fund-of-funds UITs, that agreement must be in effect on the trade date.
- Rule 2320(e) allows a variable contract principal underwriter to sell through another broker-dealer only if that firm is a FINRA member with a selling agreement. The agreement must require the commission to be returned to the insurer if the contract is redeemed within seven business days after the application is accepted.
Firm-Level Filing Summary
| Form or rule | Purpose | Key timing |
|---|---|---|
| Form BD | SEC, FINRA and state registration of the firm | Amend within 30 days of learning of a change |
| Form BD (successor) | Continue a predecessor's business | File within 30 days of succession; bridge ends 45 days after filing |
| Form BDW | Withdraw registration | Effective on the 60th day after filing, absent SEC action |
| Form BR | Register branch offices and report changes | Keep current through CRD |
| Rule 4517 contact data | Executive representative and contacts | Update within 30 days; annual review within 17 business days |
| Rule 15b2-2 | Inspection of a newly registered firm | Within 6 months (financial rules) and 12 months (all rules) |
A newly formed limited liability company succeeds to and continues the entire business of a registered mutual fund distributor that had been a corporation. The only change is the form of organization. What is the most efficient way to carry the registration forward under SEC Rule 15b1-3?
No filing is needed because changes in form of organization are reported only on the next annual FOCUS report
The successor amends the predecessor's Form BD within 30 days after the succession to reflect the change in form of organization
The predecessor files Form BDW, and the successor operates on the predecessor's registration for one year
The successor files a brand-new Form BD and must wait for FINRA's new membership approval before transacting any business
A member files Form BDW to withdraw its broker-dealer registration, and the SEC takes no action. When does the withdrawal ordinarily become effective?
Immediately upon filing through CRD
Two years after filing, when FINRA's retention of jurisdiction ends
On the 60th day after the filing
After 30 days, the same deadline that applies to Form BD amendments
A firm that distributes variable annuities is newly registered with the SEC and began operations immediately. Under SEC Rule 15b2-2, by when must its examining SRO inspect the firm for compliance with financial responsibility rules?
Within 30 days of registration
Within twelve months of registration
Only after the firm's first annual audited report is filed
Within six months of registration
Sections you finish are checked off in the contents.