SEC Narrows Exemption from FINRA Membership

The SEC adopted amendments to narrow the scope on a broker-dealer exemption from FINRA membership.

The final amendments to Exchange Act Rule 15b9-1 ("Exemption for certain exchange members") will shrink the scope of the broker-dealer exemption from FINRA membership for entities that only trade on exchanges by eliminating the "de minimis allowance" and the proprietary trading exclusion, which was an avenue of income that was not previously subject to the de minimis allowance.

The final amendments will become effective 60 days after publication in the Federal Register. The compliance date will be 365 days after publication in the Federal Register.

Statements

• SEC Chair Gary Gensler. Mr. Gensler stated that the final amendments "modernize a rule that was last meaningfully updated 47 years ago." He said that the final amendments increase cross-market and off-exchange oversight by narrowing the exemption for which broker-dealers do not need to become members of FINRA.
• SEC Commissioner Caroline A. Crenshaw. Ms. Crenshaw said that the final amendments will ensure FINRA has the authority necessary in order to "strengthen the SRO layer of oversight with respect to off-member-exchange securities trading."
• SEC Commissioner Jaime Lizárraga. Mr. Lizárraga said that the final amendments address the increased trading of Treasuries by proprietary trading firms and remedy the lack of transparency created by non-FINRA firms that are otherwise not required to report their trades. He added that the final amendments may result in a "more equitable cost structure for current FINRA members that provide liquidity as compared to non-FINRA members."
• SEC Commissioner Mark T. Uyeda. Mr. Uyeda argued that the final amendments (i) lack evidence in support of the mandatory extension of FINRA membership, (ii) raise serious concerns about the procedural foundation for the rulemaking and (iii) are likely to have negative consequences, including a reduction in liquidity.