Broker-Dealers: Mergers, Acquisitions, & Successions

In today’s ever morphing environment, business restructures are quite common.  Broker-dealers often undergo mergers, acquisitions, or successions.  And, the restructuring of broker-dealers aren’t simple tasks.  Once a FINRA member firm decides it may want to restructure, there a number of things that should be considered.  FINRA addresses the regulatory considerations a firm should account form related to restructuring in NASD Rule 1017.  Rule 1017 establishes that a FINRA member firm must receive FINRA approval to undergo organizational changes such as mergers, acquisitions, asset transfers, and material changes in business.  A principal from your firm should review Rule 1017 to learn what type of information is needed to seek approval in advance of such an organizational change. Be mindful that the application must be submitted to FINRA 30 days before the change is scheduled to occur.

Another thing to consider is your firm’s Membership Agreement.  The Membership Agreement outlines the firm’s approved business activities.  Depending on the type of restructure, the Membership Agreement may need to be updated.  The firm should also make sure that representatives understand the impact of the reorganization and how it affects the types of business the firm is approved to engage in.  There are a number of filings that the firm may need to submit on Web CRD if it decides to commit to a restructure.  Among others, your firm will likely need to file an amendment to Form BD or perhaps even file a Form BDW.  An amendment to a firm’s Form BD is often required when a firm changes ownership, changes control, adds business lines, or adds branch offices.  On the other hand, Form BDW is required when a firm withdraws from the industry and membership in FINRA.  In the scenario of a restructure, Form BDW would be required if a predecessor firm was withdrawing from the industry.

Does your firm know about the Mass Transfer Program?  If your firm has at least 50 individuals and is involved in an acquisition, assets purchase, consolidation, merger, or succession, then it may qualify for the Mass Transfer Program.   Under this program, representatives will be systematically terminated with the predecessor firm and registered with the successor firm.  This process eliminates the requirement to submit a Form U4, Form U5, and fingerprint cards for each individual representative.

Often times during a restructure, employees may be terminated. Firms should consider who has access to FINRA user accounts such as IARD, FINRA Contact System, Report Center, Order Audit Trail System (OATS), Regulation Filing Applications, Web CRD, and Web Information Request (Web IR).  An account administrator should make sure to remove any individual that no longer should have access to these accounts.

The areas discussed above are by no means exhaustive.  There are many areas a firm should consider that weren’t discussed.  To get a more detailed list of questions to consider, please follow the link to review the Checklist for Changes in Firm Organization.

 

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