Associating
Associating with a member
In this industry, we need to understand the idea of being associated with a broker dealer or similar financial firm. Remember the concept of SROs, Self-Regulatory Organizations. These are organizations under the SEC, and charged by the SEC to oversee their little share of the securities industry. A full list is never going to be tested, there are lots of these in the alphabet soup. You want to know that all exchanges are SROs, including the New York Stock Exchange (NYSE), Chicago Board of Options Exchange (CBOE), Chicago Board of Trade (CBOT), and NASDAQ (any of them). Certain other ones you need to be aware of as well, including: Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB), Options Clearing Corporation (OCC), and National Futures Association (NFA). Those you likely should recognize by name or acronym.
A person associated with a member, or associated person of a member; is any partner, officer, director, branch manager, or similar person affiliated with a broker dealer, any person directly or indirectly controlling, controlled by, or under common control with the said broker dealer, other than those persons purely in administrative, clerical, ministerial, or similar non-securities basis.
A registered representative, a principal, would also be associated persons.
Self Regulatory Organizations (SROs)
FINRA, along with all of the other SROs, are effectively a membership club. If you want to join their club, and get the benefits of membership in their club, you have to follow their rules. They can change those rules, any time they choose. They don’t, but they could, and we have to follow them, or we will not be allowed to join, or if we already have joined we will be kicked out. The primary benefit of being a member firm, is only member firms can get discounts from public offering prices. That is how member firms make their money; they can buy it a little cheaper and then sell it at the public offering price, keeping the difference. The primary benefit of being an associated person, would be able to get commissions and payments from securities work. You can’t pay commissions to non licensed, non registered persons.
FINRA, and the other similar organization, are not going to make rules based on a discriminatory issue; age, race, gender, investment theories. They will establish rules and standards to follow all appropriate regulations and laws, and would certainly include things like the nature of the business of the person, the type of business, the lines of business, and things like that. They may have additional requirements for firms that deal with margin, options, and other more risky types of securities, than firms that only sell mutual funds, a relatively safe and hard to abuse instrument.
Most any person would be eligible to become members of an SRO or similar organization, or to become an associated person of a member firm, provided the corporate person seeking membership is not excluded, nor is the natural person seeking to become an associated person of a member. The primary exclusion are statutory disqualifications, talked about in their own page.
Qualifications and continuing membership
There are basic qualification rules that FINRA, MSRB, and every other SRO and similar organization sets, that no registered broker, dealer, municipal securities broker or dealer, or government securities broker or dealer would be granted membership or allowed to continue membership if they don’t meet. Similarly, natural persons would be denied association if they fail to satisfy the qualification rules FINRA, or whatever SRO they are applying to work with, sets, most notable of which are exams, including the one you are currently studying.
FINRA, or any other SRO or similar, may cancel membership, provided it is appropriate and there is notice and opportunity for a hearing, if the firm becomes ineligible to continue membership, and it may suspend or bar any natural person from affiliation if they too become ineligible. If the member firm continues to be associated with a suspended or barred natural person, that firm could then have its membership canceled. If you get suspended or barred from FINRA, or another similar organization, I don’t care how much you think your firm loves you, they will dump you. Every time. This is why.
Firms may appeal the decision to cancel their membership, or suspension of an associated person by filing with the board and application of relief. The member can file on its own or on behalf of of the associated person. The board uses its discretion, can approve or not, if the board determines it is in the public interest.
Everyone who is applying, for membership themselves, or to be associated with a member, must sign the application and submit via the electronic process. The registrant is agreeing to comply with federal securities laws, the rules and regulations and any appropriate SRO or similar regulatory organization, and must provide reasonable information that FINRA requests. No one who is not eligible, by exclusion or other, will be approved. Every application must be kept current, and updated within 30 days via amendment if anything needs to be amended.
The member firm terminating association with the associated person shall file no later than 30 days after the termination, and shall give notice to FINRA the associated person was terminated. There will be late filing fees if not filed within 30 days. No termination can be completed if there is a complaint against the person, or an action pending against the member. “You can’t quit, if we are firing you” as opposed to “you can’t fire me, I QUIT!” that we may have seen in TV shows.
Any changes to the termination paperwork must also be submitted within 30 days. FINRA will maintain jurisdiction for 2 years after leaving the industry. This helps prevent people from doing bad things, quitting before being discovered, and assuming they are now home free. Any complaints against them, for conduct prior to leaving, would all still be investigated and punished if necessary.