FINRA Rule 3270 Provides Guidance On Outside Business Activities

FINRA Rule 3270 Provides Guidance On
Outside Business Activities of Associated Persons

As part of the process of developing a new consolidated rulebook, FINRA proposed to adopt NASD Rule 3030 (Outside Business Activities of an Associated Person) as FINRA Rule 3270 (Outside Business Activities of Registered Persons) (the “Proposed Rule”). Pursuant to the requirements of the Securities Exchange Act of 1934, FINRA has obtained an extension until February 2, 2010 for SEC action. That date is upon us, and other than a request for another extension, there is no reason to believe that the Proposed Rule will not be approved and implemented by FINRA.

NASD Rule 3030 currently requires a registered person to provide notice whenever he or she is employed by or accepts any compensation from any person as a result of any outside business activity, other than passive investment, unless he or she has provided prompt written notice to the firm. The Proposed Rule would prohibit any registered person from being an employee, independent contractor, sole proprietor, officer, director or partner of another person, or being compensated, or having the reasonable expectation of compensation, from another person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member.

Modifications to NASD Rule 3030, which are pending final approval, specifies the definition of an outside business activity in great detail. It requires prior written notice instead of prompt written notice and requires notification if the individual receives compensation or expects to receive compensation. These changes will permit firms to distinguish at an earlier point if activity is actually an outside business activity or an outside securities activity thus permitting firms to supervise the activity properly.

As a result, we would recommend that in prepara tion for implementation of the Proposed Rule you begin to adjust your policies and procedures, and begin the process of educating your registered and associated persons on the proposed changes, and the impact the Proposed Rule will have upon your firm and them.

We hope you have found this information helpful. Should you have any additional questions or concerns, please feel free to contact Daniel E. LeGaye or Michael Schaps directly at 281-367-2454, or e-mail, or consult with your legal counsel or third party consultant.

This legal update has been provided to you courtesy of The LeGaye Law Firm, P.C., 2203 Timberloch Drive, Suite 100, The Woodlands, Texas 77380. Visit our web site at The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Not Board Certified by Texas Board of Legal Specialization. Michael Schaps is not licensed to practice law.