FINRA Membership and Continuing Membership
Quick Answer
A new broker-dealer (B/D) joins FINRA through a New Member Application (NMA), evaluated against 14 Standards of Admission. Material changes in ownership, control, or operations after membership require a Continuing Membership Application (CMA), filed at least 30 days before the change. FINRA By-Laws Article IV governs membership, including the 2-year retention of jurisdiction that survives a firm's resignation.
Now that you have the entry forms (Form BD), the exit form (Form BDW), and the branch form (Form BR) covered, you need the FINRA-specific membership process that wraps around them. Federal SEC registration alone does not let a firm transact securities business; FINRA's NMA approval and continuing membership rules govern when and how a firm operates as an SRO member.
New Member Application (NMA)
A B/D seeking FINRA membership files Form NMA with FINRA's Membership Application Program (MAP) Group. FINRA evaluates the application against the 14 Standards of Admission:
- Application is complete and accurate
- All required licenses and registrations are obtained
- Applicant is capable of complying with federal securities laws and FINRA rules
- Adequate supervisory system is in place
- Sufficient financial resources (net capital) to operate the proposed business
- Adequate books and records systems
- Reasonable training programs for associated persons
- And eight additional standards covering operations, communications, anti-money-laundering (AML) systems, and continuing operations capability
The applicant bears the burden of demonstrating it meets each standard. FINRA may grant, deny, or condition membership.
Think of it this way: The NMA process is FINRA's gatekeeping check. The SEC has already accepted the firm's Form BD as facially complete; FINRA's job is to verify the firm can actually do what it claims. The 14 Standards walk MAP staff through every operational dimension (financial, supervisory, technological, AML) before the firm is allowed to take customer orders.
Exam Tip: Gotchas
- The applicant bears the burden of proof on every standard. FINRA does not have to show a defect; the firm must affirmatively prove capability. A "tie" goes to denial.
- The financial-resources and operating-capacity standard is heavily tested. Insufficient net capital projections, missing surety bonds, or inadequate clearing arrangements can sink an application even if every other standard is met.
Continuing Membership Application (CMA)
After membership is granted, certain changes require a fresh approval through a Continuing Membership Application (CMA):
| Trigger | What Counts |
|---|---|
| Merger | Combination with another FINRA member |
| Acquisition | Acquisition of another member's assets |
| Equity ownership change of 25% or more | A single person or entity acquires 25% or more of the equity |
| Material change in business operations | Adding new business lines (e.g., starting underwriting, options, market making, or proprietary trading) |
- Filing must occur at least 30 days before the effecting of the change for material business changes
- Prior approval is required before the change takes effect; a firm cannot complete the transaction and then notify FINRA after the fact
Exam Tip: Gotchas
- The 25% equity ownership threshold is a single-person or single-entity test. A pooled investment in which no individual investor holds 25% does not trigger the CMA; a private equity firm acquiring 26% does.
- "Material change in business operations" is broader than it looks. Adding options, opening a new product line, or changing clearing arrangements can all be material. When in doubt, the firm files a Materiality Consultation request before filing the CMA.
- 30 days advance filing applies to material business changes; ownership changes of 25% or more also require advance application and approval. Filing a CMA the day before closing is too late.
FINRA By-Laws Article IV: Membership
Article IV of the FINRA By-Laws is the structural framework around membership. The Series 24 tests several specific topics:
| Topic | Requirement |
|---|---|
| Application for membership | New firms file the New Member Application before transacting securities business |
| Executive Representative | Each member must appoint an executive representative as the primary contact with FINRA |
| Resignation of members | A member withdraws by filing Form BDW; FINRA jurisdiction survives (see retention rule below) |
| Retention of jurisdiction | FINRA retains jurisdiction over a member firm for 2 years after the firm ceases to be a member, for matters involving conduct that occurred during membership |
| Transfer and termination | Material changes in ownership, control, or operations require a Continuing Membership Application |
| Branch-office registration | Each branch office of a member firm must be registered with FINRA |
The Executive Representative appointment is operationally important: this person votes on behalf of the firm in FINRA elections, receives all official FINRA notices, and is the firm's accountable contact for compliance correspondence. The Executive Representative must be a registered principal of the firm.
Exam Tip: Gotchas
- FINRA's 2-year post-resignation jurisdiction is one of the most-tested By-Laws facts. A firm cannot escape FINRA disciplinary authority by filing Form BDW; FINRA can still investigate and sanction conduct that occurred while the firm was a member, for 2 years after termination.
- The 2-year jurisdiction rule also reaches associated persons. Article V of the By-Laws (governing associated persons) contains a parallel retention rule: a registered representative who terminates registration via Form U5 remains under FINRA jurisdiction for 2 years for conduct during registration.
- The Executive Representative is a registered principal, not just any officer. Designating a non-principal as the Executive Representative does not satisfy the requirement.