When a member intends to add a line of business, FINRA has shown that this type of expansion is often a significant event that impacts the firm’s supervisory and compliance infrastructure, personnel, and finances. When such an impact occurs, FINRA staff is required to verify that the member continues to meet each of the membership criteria identified in Rule 1014. However, FINRA recognizes that any proposed new business line’s characterization as a “material change in business operations” ultimately depends on assessing all relevant facts and circumstances. Certain proposed new business lines, such as market-making, underwriting, and acting as a dealer for the first time, will invariably constitute a material change in business operations.
FINRA NTM 00-73
In NTM 00-73, FINRA has provided more guidance in the rules about the types of “material changes in business operations” that will require a member to file an application for approval with FINRA. FINRA has listed the items below as the relevant facts and circumstances to determine if a proposed business line is a material change in business operations.
- The nature of the proposed expansion.
- The relationship, if any, between the proposed new business line and the firm’s existing business.
- The effect the proposed expansion is likely to have on the firm’s capital.
- The qualifications and experience of the firm’s personnel.
- The degree to which the firm’s existing financial, operational, supervisory, and compliance systems can accommodate the proposed new business line and other relevant factors considered under NTM 00-73.
For more information on related to this topic, check out our 1017 Change in Membership blog now.
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