March 14, 2012
We appreciate the opportunity to comment on the proposed amendments to NASD Rule 1012 and 1017. We have extensive experience with the Change of Membership Application (CMA) process implement by FINRA in 1997. Our firm has represented FINRA member firms in the preparation, processing and completion of CMAs since the original implementation of the requirement. Additionally, we have been involved in enforcement proceedings involving the application and interpretation of Rule 1017.
Rule 1017 has a disproportionate impact on small firms. As currently constructed, Rule 1017 places significant limitations on small firms seeking to expand, grow or merge. The Rule also places significant limitation on small firms seeking to raise capital in a timely fashion. In large part as a result of these limitations the number of FINRA firms that have been forced to close without being able to either raise additional capital or find a strategic partner in the last 3 years has had a devastating effect on small FINRA member firms and the investors that they service. In our experience, FINRA staff has routinely used the 1017 process to delay potential business opportunities for small firms to the detriment of the firms shareholders, employees and clients.
FINRA indicates that the standardized CMA , is intended to significantly reduce administrative delays that exists in todays manual application processes. We believe that the amendments requiring submission of a one size fits all application, once implemented, will have exactly the opposite impact on the vast number of FINRA member firms that are faced with having to submit CMAs. We believe the amount of detail requested in over 45 pages in an electronic application will lead to much greater delays and confusion for most members. It will also significantly increase the administrative burden on small firms.
We urge the Commission to reject the proposed amendments and require FINRA to conduct a more comprehensive review of the CMA process to provide greater flexibility for small firms. We also urge the Commission to require FINRA to review the existing timeframes for approval of 1017 applications. If in fact FINRAs intent is to streamline the process, the Commission should require FINRA to significantly shorten the existing 180 days that FINRA has to approve a CMA to a significantly shorter time period of 60 days.
We believe that a more flexible CMA process and shorter time period for FINRA approval will significantly benefit the investing public.
We appreciate the opportunity submit comments. If you have any questions, please feel free to contact me.