Proposed Rule2018 | 2017 | 2016 | 2015 | 2014 | Show more years
Although NFA needed to amend many rules to implement ORS, its essential features are primarily contained in Rule 801, which governs the use of ORS and contains its security provisions. Because of Rule 801's significance, it's provisions are described first. The description of the changes to the other rules follow.
Rule 801(a) requires mandatory electronic filing of virtually all registration forms through ORS. FCMs, IBs, CPOs, CTAs (collectively, "firms"), FBs and FTs and applicants for registration in those categories must electronically file their applications, amendments and withdrawal requests. In addition, firms must also file the applications, amendments and withdrawal notices3 for their APs and individual principals. APs and individual principals must electronically verify the information in the application after the firm files it.4 They will use a temporary user ID and password that NFA provides to the firm during the electronic application process. Applicants and registrants are not required to maintain copies of their electronic filings in either electronic or hardcopy format.
Access to ORS will be limited to authenticated users possessing a user ID and password. Users are responsible for maintaining the confidentiality of their user ID and password and any filings made with their user ID are deemed to have been made by them. Firms may authorize any individual to perform any electronic registration activity on their behalf. FBs and FTs may authorize other individuals to file amendments for them but not applications. Firms, FBs or FTs are deemed to have made any filing that an authorized individual makes for the them. APs and principals may not authorize anyone else to file electronic verifications of application information for them and they are deemed to have made any verification filed using their temporary user ID and password.
To obtain access to ORS, a firm will request and NFA will provide a security manager user ID and password for the individual whom the firm designates. Similarly, FBs and FTs will file applications to establish themselves as security managers. They may not designate anyone else to act as their security manager because the security manager will inherently have the authority to file applications. Once the firm's security manager obtains his or her user ID and password, using a tool in ORS, the security manager will authorize any other individuals who will conduct registration activity on the firm's behalf. The security manager will also specify what types of registration activities each individual may conduct. These include viewing registration data, entering data into electronic forms and filing amendments, filing applications and acting as a security manager. NFA will assign user IDs and passwords for each user that the security manager establishes and will limit their activities as designated.
Users will only be able to perform registration activities on behalf of the firm that authorizes them. If more than one firm authorizes a user to perform registration activity, the user will have different user IDs and passwords for each firm. FCMs that guarantee IBs will have inherent authority to perform registration activities on behalf of their guaranteed IBs. No user will be able to access the non-public information of any individuals or firms that have not authorized the user to act on their behalf.
When a user makes an electronic filing, ORS will logically associate the user ID with that filing and maintain that information in the ORS database. When registration information is changed, ORS will store the prior information in audit tables, and NFA will be able to retrieve that information if necessary.
Firms, FBs and FTs who authorize others to perform electronic registration activities on their behalf must produce those individuals to testify in court, Commission, NFA and exchange proceedings concerning the authentication, accuracy or integrity of electronic filings. In addition, to prevent abuse of ORS and to protect the integrity of the data, the Rule provides that NFA may disable the user ID of any individual who violates the Rule or procedures NFA adopts to implement the Rule.
Most of the definitions have not changed from the existing rule but a few new definitions have been added to enable the electronic filing process. Rule 101(a), Acknowledgement of Conditioned Registration, provides for an electronic acknowledgement that a sponsor makes when it files an application to sponsor an AP whose registration will be subject to conditions. It also includes a hardcopy Supplemental Sponsor Certification Statement ("SSCS") if a hardcopy SSCS is required by a Commission or NFA order imposing conditions.
Rules 101(i)-(n) provide that a form includes the entire form or the portions of the form that NFA requires to be filed.5 This will allow the filing of "short" versions of the forms in appropriate circumstances. The most common example is when a person is already registered and is seeking an additional registration.6 Rather than require the applicant to file a complete application, only information germane to the new registration sought will be required. For example, if a firm's principal applies for registration as an AP of that firm, the application will request only additional information needed to obtain AP registration such as the proficiency requirements the applicant intends to satisfy. In addition, a firm that is filing a Form 8-T for an individual principal whom it also sponsors as an AP will not need to file "full" Form 8-T. It will not answer questions about disciplinary matters that occurred during the principal's tenure with the firm since this would duplicate information that the firm is already obligated to file as an amendment to the individual's Form 8-R.
Rule 201 reflects that NFA is adopting registration processing rules for FBs and FTs.
Rule 202 provides that NFA will provide electronic notices of registration activity unless written notice is specifically required. Instead of the numerous hardcopy letters that NFA currently uses to provide required notices, NFA will generate electronic notices. These notices will appear on ORS web pages that the firms, FBs and FTs will access.
Rule 203(a)(9) provides for an annual records maintenance fee rather than an annual update fee. As explained below, the annual update process has been eliminated. The existing Rule 203(a)(12) establishing the amount of the late ethics training fee has been eliminated.
Rule 204(a)(2)(A) specifies that each firm must have at least one individual principal affiliated with it. Rule 204(a)(2)(B) requires individual principals to electronically verify the Form 8-R filed by the firm for the principal. Rule 204(a)(2)(C) provides that if the individual principal is already registered, the fingerprint card, fee and verification requirements do not apply. Rule 204(a)(4) provides for registration of FCMs and IBs that are registered brokers or dealers upon the filing of a written notice.7
Rule 204(d) no longer provides for an annual update process. Since all applications will be electronically filed, it was not logical to continue sending a hardcopy version of the application for firms to annually review, update and return to NFA. Instead, NFA will remind firms on an annual basis of their continuing obligation to review and maintain their registration information in an accurate and complete manner. In addition, NFA will annually issue an invoice for a records maintenance fee that must be paid or the firm will be deemed to have requested withdrawal of its registration.
Rule 205 is new and is patterned on the Commission's processing rules for FBs and FTs, modified for the electronic process. Rule 205(a)(1)(B) provides that if the FB or FT applicant is already registered, the fingerprint card and fee requirements do not apply. No special provisions for the use of Form 3-R are included for FBs or FTs who are adding or switching categories. Instead, "short"' versions of the Form 8-R will be used to accomplish this.
Rule 206 governs the registration of APs not already registered as an AP of another sponsor. Rule 206(a)(1)(B) requires the AP applicant to verify the information in the Form 8-R that the sponsor files. Rule 206(a)(2) provides that if the AP applicant is already registered, the fingerprint card, fee and verification requirements do not apply. Rule 206(b) has been changed to apply to conditioned APs whose new sponsor files a Written Acknowledgement of Conditioned Registration.8
The process for obtaining AP registration with multiple sponsors ("multiple affiliations") under Rule 207 has been substantially changed. Rule 207(a) permits individuals to have multiple affiliations if they are already pending, have TLs or are registered with another sponsor. To do so, they must file a Form 8-R, and since they already have a current status as an AP with another sponsor, this will be a "short" version and there is no fingerprint card, fee or verification requirement. Rule 207(b)(1) provides that upon the filing of the Form 8-R by the new sponsor, the applicant will be registered as an AP of the new sponsor if the applicant is already registered with another sponsor and satisfies applicable proficiency requirements. If the applicant is not registered with the other sponsor, the applicant will be pending with the new sponsor or may obtain a TL if the applicant meets the requirements of Rule 301 (the general TL requirements for APs).
Rule 207(b)(2) provides that NFA will notify any sponsor with whom the AP applicant is already affiliated as an AP of the application with the new sponsor. Rule 207(c) specifies that each existing sponsor that receives the notice will be jointly and severally liable for the AP's activities with respect to common customers. The existing sponsor does not need to affirmatively agree to the multiple affiliation in advance and no sponsor needs to file certifications agreeing to their joint and several liability. If an existing sponsor does not want to sponsor an AP with multiple affiliations, it must file a Form 8-T.
Rule 208 remains largely unchanged, but does now specify that the firm must file a Form 3-R only if it adds an entity as a principal after the firm has filed its application for registration. If the new principal is an individual, the firm does not file a Form 3-R but must file a Form 8-R and meet the other filing requirements applicable under Rule 204(a)(2) to individual principals.
Rule 209(a) clarifies that fingerprint cards are not required in connection with an individual's application if NFA has received a report from the FBI within the 90 days prior to the application being filed. Rule 209(c) allows a sponsor that is a registered broker or dealer to represent in the Form 8-R filed for an individual that within the prior 90 days it has filed the individual's fingerprints with the National Association of Securities Dealers, Inc. in connection with an application to be a General Securities Representative.
Rule 210(a) applies to firms, FBs and FTs. It also allows a firm to report a change in form of organization by filing a Form 3-R, in which case the newly formed organization is liable for all the obligations of the pre-existing organization. The Rule prohibits firms from filing a Form 3-R to report a change in the form of organization to or from a sole proprietorship. In such instances, the newly formed organization or the sole proprietor, as applicable, must file a Form 7-R and the pre-existing registrant must request withdrawal from registration. This prohibition recognizes that business entities are legally distinct entities from the individuals who operate and own them and that business entities may not simply report that they have transformed themselves into individuals or vice-versa.
Rule 210(c) applies to APs and principals. Although the Rule requires the sponsor to actually file the Form 3-R, the obligation to maintain their registration information in an accurate and current manner remains with the AP or principal. The AP or principal must notify the sponsor of any inaccuracy or deficiency and provide the sponsor with the information necessary to correct it. The sponsor is obligated to correct any inaccuracy or deficiency in its APs' or principals' registration of which it is or should be aware.
Rules 211-214 contain few changes except those needed to make them consistent with ORS. For example, Rule 213 requires the registrant to keep any address provided in the Form 7-R or Form 8-R current for two years. This will include email addresses as well as traditional mailing addresses. Rule 214 provides that the Form 8-T must include the reason for termination or failure to become affiliated only if required. This reflects the fact that the firm will not be requested to provide a reason unless it is notifying NFA that, for example, an individual who was both a principal and an AP of the firm has been terminated in both capacities. Rule 215, which provided for late fees and suspensions for registrants who had not met ethics training suspensions, is eliminated.
The provisions of Rule 301(a) and (b) allow NFA to grant TLs online to eligible AP applicants upon the filing of the application but before NFA receives certain additional filings. Rule 301(d) provides that the TL will be terminated if, within 20 days after the application is filed, NFA does not receive required fingerprint cards, fees, evidence of satisfaction of proficiency requirements or electronic verification of the application information. In addition, the ORS processing logic mimics NFA's existing policies regarding issuance of TLs. ORS will not grant TLs online to applicants who have disciplinary information that NFA must review before deciding whether to issue a TL.
Unlike AP TLs, Rule 302 requires that the guaranteed IB ("GIB") make all required filings for itself and its principals before a TL can be issued. This will avoid any potential harm to customers that could develop if the GIB's TL was terminated because NFA did not receive all of its or its principals' required filings. As is in the current rules, Rule 302(a)(4) requires all of the GIB's individual principals to meet the eligibility requirements for a TL as an AP or FB. Rule 302(a)(3) specifies that at least one of the GIB's principals must be an AP applicant of the GIB or a FB. Rule 302(a)(5) requires each principal of the GIB who is also applying to be an AP must satisfy the applicable proficiency requirements or a registered FB.
Rule 303 eliminates the current restriction that FBs who receive TLs may only trade for their own accounts except under very limited circumstances. Instead it recognizes that the issuance of a TL represents a judgment that the FB applicant is presumptively fit for registration and should, like presumptively fit APs or GIBs, be able to engage in the full scope of activity that registration will permit.
The Rule also does not contain the provisions that allowed for issuance of a TL that allowed a FB moving to another exchange to act as a FB. These provisions are no longer necessary because the Rule permits all TL'd FBs to act as FBs and NFA can issue a normal FB TL within the same time period as the transfer TL.
Rule 303(a) continues to require that FB and FT applicants file the Form 8-R and that NFA receive the fingerprint cards, fees and evidence of exchange trading privileges before NFA issues a TL. The Rule does not provide for online FB/FT TLs because, in reality, NFA could rarely issue them. To be eligible for a TL, FB and FT applicants must have been granted trading privileges. Based on NFA's experience in processing FB and FT applications, FB and FT applicants, especially new applicants, almost never receive trading privileges before applying for registration. In fact, NFA almost always receives their fingerprint cards and fees before an exchange grants them trading privileges. Consequently, NFA believes that it is appropriate to maintain the existing FB and FT TL eligibility rules.
The proficiency requirement rules have been amended to reflect NFA's current practices and to eliminate the current certification requirements for satisfying the proficiency requirements through alternatives to the Series 3 examination. The rules provide that an individual satisfies the proficiency requirement associated with a particular exam if the individual has passed it within the two years prior to filing the application. Similarly, a new exam is not required if the applicant passed the exam more than two years prior to filing application and since it was passed, there has not been a period of two consecutive years during which the individual has not been either registered or an approved principal. The limitations contained in Rules 401(b)(1) and (2), (c)(3) and (4), (d)(3) and (4) replace the existing certifications that the individual will limit their activities accordingly. Similarly, Rule 401(f) contains the sponsor's supervisory obligations that appear in the existing certifications that a sponsor makes.
Rule 509(b) is amended to clarify that individuals may sponsor conditioned FBs and must meet the eligibility requirements.
The change to Rule 601 adds the filing requirements for FBs and FTs.
Rule 701(a)(1) contains technical changes to reflect that documents will no longer be attached to applications or other forms but may be filed separately and that correspondence may be electronic or hardcopy. ORS will provide the ability to obtain hardcopy versions of electronic filings. Firms, FBs and FTs, exchanges, the SEC and the Commission will be able to obtain hardcopies online through a Printable Forms page in ORS. Firms, FBs and FTs will be able to print copies of their filings. Firms will also be able to print copies of filings related to their current APs and principals. The exchanges, Commission and SEC will be able to print copies of any electronic filings. All other requests for registration records will continue to be made to NFA.
Rule 802 provides that the electronic filing of a form constitutes the applicant's, registrant's, principal's or sponsor's certifications, representations, agreements and acknowledgements that the Rules require.
Bylaw 301(a)(iii) is new and requires that each NFA Member have at least one individual associated with it who is registered as an AP. This will ensure that all Members have at least one AP/principal. Bylaw 301(c) incorporates the definition of principal under the Rules. Bylaw 301(f) contains provisions that are analogous to the provisions of Rule 801 and, similar to Rule 802, provides that the electronic filing constitutes the making of the applicable certifications, representations, acknowledgements and agreements.
1 This letter and ORS refers to Form 8-T as a withdrawal notice or notice of withdrawal.