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RECOGNITION (STEP 1) OCCURS WHEN AN ENTITY CONCLUDES THAT A TAX POSITION, BASED SOLELY ON ITS TECHNICAL MERITS, IS MORE LIKELY THAN NOT TO BE SUSTAINED UPON EXAMINATION. IN STEP 2 (MEASUREMENT), THE TAX BENEFIT IS MEASURED AS THE LARGEST AMOUNT OF BENEFIT, DETERMINED ON A CUMULATIVE PROBABILITY BASIS, THAT IS MORE LIKELY THAN NOT TO BE REALIZED UPON ULTIMATE SETTLEMENT. DURING THE YEARS FROM 2007 TO 2010, WHICH REPRESENT THE YEARS MANAGEMENT CONSIDERS TO BE OPEN FOR EXAMINATION BY TAXING AUTHORITIES, MANAGEMENT DID NOT IDENTIFY THE EXISTENCE OF ANY UNCERTAIN TAX POSITIONS. ACCORDINGLY, ALL TAX POSITIONS ARE RECOGNIZED AND MEASURED AT THEIR FULL BENEFIT IN THE CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS. true EMPLOYEE BENEFIT RESEARCH INSTITUTE 1100 13TH STREET NW 378 WASHINGTON DC 20006 521190398 501(C)(3) 32500 SUSTAINING PARTNER CONTRIBUTION AMERICAN RED CROSS 211 W ARMOUR BLVD KANSAS CITY MO 64111 530196605 501(C)(3) 96085 HAITI EARTHQUAKE/PAKISTAN FLOOD RELIEF SECURITIES AND EXCHANGE COMMISSION HISTORICAL SOCI 1101 PENNSYLVANIA AVENUE NW WASHINGTON DC 20004 522213646 501(c)(3) 25000 AWARDS DINNER CONTRIBUTION APPLESEED FOUNDATION INC 727 15TH STREET 11TH FLOOR WASHINGTON DC 20005 521835698 501(C)(3) 15000 AWARDS DINNER CONTRIBUTION AUTISM SPEAKS 1 EAST 33RD STREET 4TH FLOOR NEW YORK NY 10016 202329938 501(c)(3) 15000 AWARDS DINNER CONTRIBUTION JUMPSTART COALITION FOR PERSONAL LITERACY 919 18TH STREET NW 300 WASHINGTON DC 20006 522031287 501(C)(3) 10000 AWARDS DINNER CONTRIBUTION DOCTORS WITHOUT BORDERS PO BOX 5030 HAGERSTOWN MD 21741 133433452 501(C)(3) 8003 HAITI EARTHQUAKE/PAKISTAN FLOOD RELIEF IONA COLLEGE 715 NORTH AVENUE NEW ROCHELLE NY 10801 133508093 501(C)(3) 6000 AWARDS DINNER CONTRIBUTION CATHOLIC RELIEF SERVICES PO BOX 17090 BALTIMORE MD 21203 135563422 501(C)(3) 5465 HAITI EARTHQUAKE/PAKISTAN FLOOD RELIEF CLINTON BUSH HAITI FUND C/O COMMUNITIES FOUNDATION OF TEXAS 5500 CARUTH HAVEN LANE DALLAS TX 75222 311580204 501(C)(3) 5311 HAITI EARTHQUAKE RELIEF 10 0 Form 990, Schedule I Description of Organization's Procedures for Monitoring the Use of Grants FINRA REGULATION CONTRIBUTED A TOTAL OF $32,500 IN 2010 TO THE EMPLOYEE BENEFIT RESEARCH INSTITUTE EDUCATION AND RESEARCH FUND (EBRI-ERF), A SEPARATE CORPORATE 501(C)(3) AFFILIATE FOR THE EMPLOYEE BENEFIT RESEARCH INSTITUTE, OF WHICH FINRA FOUNDATION BOARD MEMBER, DALLAS SALISBURY, IS PRESIDENT AND CEO. THIS INCLUDES $7,500 IN SUPPORT OF THE EBRI RETIREMENT CONFIDENCE SURVEY FOR 2011, AND $25,000 TOWARDS ANNUAL PARTNERSHIP IN THE AMERICAN SAVINGS AND EDUCATION COUNCIL WHICH THE EMPLOYEE BENEFIT RESEARCH INSTITUTE ADMINISTERS. VOLUNTARY DISCLOSURE FOR APPLESEED FOUNDATION CONTRIBUTION DURING 2010 RICHARD G. KETCHUM, FINRA CEO, SERVED AS A BOARD MEMBER OF THE APPLESEED FOUNDATION. OVERSIGHT AND RECORDKEEPING OF CONTRIBUTIONS SCHEDULE I, PART I, LINE 2 CHARITABLE CONTRIBUTIONS ARE REVIEWED AND APPROVED BY THE APPROPRIATE BUSINESS UNIT HEAD (OR THEIR DESIGNEE). THE ORGANIZATION MAINTAINS ADEQUATE RECORDS TO SUBSTANTIATE THE AMOUNT AND THE PURPOSE OF THE CHARITABLE CONTRIBUTIONS. 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IN DETERMINING SALARIES AND INCENTIVE PAY, THE COMMITTEE RELIED ON A THIRD-PARTY COMPENSATION STUDY PERFORMED BY MERCER, INC. THAT COMPARED FINRA EXECUTIVES TO INDUSTRY BENCHMARKING DATA. OTHER REPORTABLE COMPENSATION (COLUMN B(III)) IS LARGELY COMPOSED OF RETIREMENT VESTING AND/OR PAYOUT EVENTS FROM NON-QUALIFIED PLANS, AS WELL AS SEVERANCE OR SEPARATION PAYMENTS, IF APPLICABLE. FINRA OFFERS TWO NON-QUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS. 1) FINRA'S SUPPLEMENTAL DEFINED BENEFIT PLAN IS A NON-QUALIFIED DEFINED BENEFIT PLAN THAT IS PROVIDED TO MEMBERS OF A SELECT GROUP OF MANAGEMENT OR HIGHLY COMPENSATED EMPLOYEES SUCH AS THOSE DESCRIBED UNDER 201(2), 301(A)(3), AND 401(A)(1) OF ERISA. IT IS A FINRA FUNDED PLAN THAT VESTS AT SPECIFIED AGE AND SERVICE MILESTONES. THIS PLAN WAS CLOSED TO NEW ENTRANTS AS OF 12/31/05. 2) FINRA'S SUPPLEMENTAL DEFINED CONTRIBUTION PLAN IS A NON-QUALIFIED PLAN THAT IS OPEN TO VICE PRESIDENTS AND ABOVE WITH AN ANNUAL BASE PAY ABOVE THE QUALIFIED LIMIT. IT IS ONLY OPEN TO THOSE NOT PARTICIPATING IN THE CLOSED NON-QUALIFIED DEFINED BENEFIT PLAN DESCRIBED ABOVE. IT IS A FINRA FUNDED PLAN WITH A 3 YEAR VESTING CYCLE WITH ANNUAL VESTING BEGINNING AT AGE 62. ADDITIONAL INFORMATION CONCERNING FINRA'S RETIREMENT PLANS AND OTHER PARTICIPANTS IS PROVIDED BELOW. SCHEDULE J, PART I, LINE 1 FIRST CLASS OR CHARTER TRAVEL: THE NEXT CABIN ABOVE ECONOMY IS ALLOWED FOR INTERNATIONAL TRAVEL TO AND FROM THE U.S. INCLUDING CANADA AND MEXICO, WHERE THE FLIGHT TIME IS OVER FOUR HOURS DIRECT. IT IS ALSO ALLOWED FOR ALL TRAVEL FROM THE U.S. MAINLAND TO HAWAII, AND FOR FLIGHTS WITHIN EUROPE THAT ARE OVER FOUR HOURS IN DURATION. OTHERWISE, ECONOMY CLASS IS REQUIRED. TRAVEL FOR COMPANIONS: IN LIEU OF A WEEKEND TRIP HOME, A COMPANION MAY FLY TO MEET AN EMPLOYEE ON AN EXTENDED STAY AT HIS OR HER WORK LOCATION. AIRLINE TICKETS FOR WEEKEND COMPANIONS MUST BE FOR DOMESTIC FLIGHTS, AND MUST BE PURCHASED WITH A PERSONAL CREDIT CARD. THE EMPLOYEE WILL RECEIVE REIMBURSEMENT NOT TO EXCEED WHAT THE COST OF A TICKET TO FLY THE EMPLOYEE HOME FOR THE WEEKEND WOULD HAVE BEEN. FINRA WILL NOT REIMBURSE EMPLOYEES FOR COMPANION TRAVEL TO INTERNATIONAL LOCATIONS. THE REIMBURSEMENT AMOUNT WILL BE A TAXABLE FRINGE BENEFIT TO THE EMPLOYEE, AND THE EMPLOYEE IS RESPONSIBLE FOR ALL TAXES. COMPANION WEEKEND TRAVEL MUST BE APPROVED BY THE EMPLOYEE'S DEPARTMENT DIRECTOR AND THE MANAGER OF CORPORATE TRAVEL SERVICES BEFORE THE TRIP. WHEN COMPANIONS ARE INVITED ON BEHALF OF FINRA, FINRA REGULATION, AND FINRA DISPUTE RESOLUTION TO BOARD MEETINGS, THEIR AIRFARE IS REIMBURSABLE. TAX INDEMNIFICATION: GIFTS TO EMPLOYEES ARE CONSIDERED TAXABLE COMPENSATION UNDER THE INTERNAL REVENUE CODE. THE FAIR MARKET VALUE OF THE GIFT TO THE EMPLOYEE WILL BE INCLUDED AS WAGES ON THE EMPLOYEE'S W-2. IN GENERAL, IT IS FINRA'S PRACTICE TO "GROSS UP," OR ADJUST THE WAGES AND TAXES SO THAT THE TAX EFFECT OF RECEIVING A GIFT IS NEUTRAL TO THE EMPLOYEE. IT IS ALSO FINRA'S PRACTICE TO "GROSS-UP" EMPLOYEE RELOCATION EXPENSES, AS WELL AS FOOD AND LODGING EXPENSES INCURRED AS PART OF THE EXECUTIVE HEALTH PLAN. HEALTH AND CLUB DUES: AS PART OF ITS WELLNESS PROGRAM, FINRA OFFERS SUBSIDIZED GYM MEMBERSHIPS TO EMPLOYEES OF FINRA AND SUBSIDIARIES AT CERTAIN LOCATIONS. ALSO, THE CEO'S CONTRACT PROVIDES FOR UP TO A MAXIMUM AMOUNT OF $20,000 EACH CALENDAR YEAR FOR ADMISSION FEES, DUES, AND HOUSE CHARGES OF ONE CLUB IN EACH OF THE NEW YORK CITY AND WASHINGTON, D.C. METROPOLITAN AREAS TO BE USED FOR BUSINESS PURPOSES. EXECUTIVE HEALTH PLAN: THE EXECUTIVE HEALTH PLAN IS AVAILABLE TO FINRA STAFF AT A LEVEL OF EXECUTIVE VICE PRESIDENT AND ABOVE AND OTHER EMPLOYEES AS DESIGNATED BY THE CEO. THE EXECUTIVE HEALTH PLAN COVERS PROCEDURES RELATED TO THE DIAGNOSIS AND PREVENTION OF A MEDICAL CONDITION(S). THE FINRA EXECUTIVE HEALTH PLAN PROVIDES FOR ONE ASSESSMENT PER YEAR. PERSONAL SERVICES: THE CEO'S CONTRACT PROVIDES FOR A CAR AND DRIVER IN BOTH NEW YORK CITY, NEW YORK AND WASHINGTON, D.C. TO BE USED FOR BUSINESS PURPOSES. THESE SERVICES, WHICH ARE USED PRINCIPALLY BY THE CEO, ARE USED BY OTHER FINRA EMPLOYEES FOR BUSINESS PURPOSES WHEN AVAILABLE. THE CEO'S CONTRACT ALSO PROVIDES FOR COSTS INCURRED RELATED TO PERSONAL FINANCIAL AND TAX COUNSELING, UP TO $20,000 PER CALENDAR YEAR, AS WELL AS SPOUSAL TRAVEL FOR CERTAIN BUSINESS-RELATED EVENTS. SUPPLEMENTAL COMPENSATION INFORMATION SCHEDULE J, PART I, LINES 4A AND 4B 4A) IN CONNECTION WITH ROBERT C. ERRICO'S SEPARATION FROM FINRA, HE WAS PAID $203,102 IN 2010. LINE 4B) FINRA OFFERS TWO NON-QUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS. ANNUAL INCREASES IN BENEFIT VALUE, CLIFF VESTING EVENTS, AND PAYOUT DIFFERENTIALS ARE TAXABLE IN THE YEAR IN WHICH THEY OCCUR AND ARE REPORTED IN COLUMN B(III) OF SCHEDULE J, PART II. UNVESTED BENEFIT AND CONTRIBUTION ACCRUALS ARE TAX DEFERRED AND ARE REPORTED IN COLUMN C OF SCHEDULE J, PART II. 1) FINRA'S SUPPLEMENTAL DEFINED BENEFIT PLAN IS A NON-QUALIFIED DEFINED BENEFIT PLAN THAT IS PROVIDED TO MEMBERS OF A SELECT GROUP OF MANAGEMENT OR HIGHLY COMPENSATED EMPLOYEES SUCH AS THOSE DESCRIBED UNDER 201(2), 301(A)(3), AND 401(A)(1) OF ERISA. IT IS A FINRA FUNDED PLAN THAT VESTS AT SPECIFIED AGE AND SERVICE MILESTONES. THIS PLAN WAS CLOSED TO NEW ENTRANTS AS OF 12/31/05. PARTICIPANTS IN THE NON-QUALIFIED DEFINED BENEFIT PLAN THAT HAD AN INCREMENTAL INCREASE IN PRESENT VALUE OF PARTICIPANT BENEFIT VALUE FROM PRIOR YEAR INCLUDE: T. GRANT CALLERY - $3,122 JAMES J. CUMMINGS - $3,135 DEREK W. LINDEN - $775,044.00 (CLIFF) STEPHEN LUPARELLO - $62,740 MARC MENCHEL - $256,521 CARLOTTA A. ROMANO - $451,802 (CLIFF) DANIEL M. SIBEARS - $10,134 PARTICIPANTS IN THE SUPPLEMENTAL NON-QUALIFIED DEFINED BENEFIT PLAN THAT HAD A GROSS TAXABLE PAYOUT INCLUDE: ROBERT C. ERRICO - $1,500,693 2) FINRA'S SUPPLEMENTAL DEFINED CONTRIBUTION PLAN IS A NON-QUALIFIED PLAN THAT IS OPEN TO VICE PRESIDENTS AND ABOVE WITH AN ANNUAL BASE PAY ABOVE THE QUALIFIED LIMIT. IT IS ONLY OPEN TO THOSE NOT PARTICIPATING IN THE CLOSED NON-QUALIFIED DEFINED BENEFIT PLAN DESCRIBED ABOVE. IT IS A FINRA FUNDED PLAN WITH A 3 YEAR VESTING CYCLE WITH ANNUAL VESTING BEGINNING AT AGE 62. PARTICIPANTS IN THE SUPPLEMENTAL NON-QUALIFIED DEFINED CONTRIBUTION PLAN WITH CONTRIBUTIONS VESTING IN 2010 INCLUDE: MARCIA E. ASQUITH - $137,929 SUSAN F. AXELROD - $176,576 STEPHEN M. SCHOENEMAN - $174,043 MICHAEL G. RUFINO - $173,396 GRACE B. VOGEL - $317,258 WILLIAM J. WOLLMAN - $151,103 VOLUNTARY COMPENSATION DISCLOSURES: JAMES D. WEDDLE WAS A VOLUNTEER BOARD MEMBER IN 2010 AND DID NOT RECEIVE COMPENSATION FOR HIS SERVICES. NYSE EURONEXTNYSE REGULATION SCHEDULE L, PART V 32112111 SCHEDULE L, PART V false EDWARD JONES SCHEDULE L, PART V 23493222 SCHEDULE L, PART V false LPL FINANCIAL SCHEDULE L, PART V 14610929 SCHEDULE L, PART V false UVEST FINANCIAL SERVICES GROUP SCHEDULE L, PART V 1190707 SCHEDULE L, PART V false STERNE AGEE FINANCIAL SERVICES SCHEDULE L, PART V 702232 SCHEDULE L, PART V false STERNE AGEE LEACH INC SCHEDULE L, PART V 350285 SCHEDULE L, PART V false BUSINESS TRANSACTIONS INVOLVING INTERESTED PARTIES SCHEDULE L, PART IV FINRA'S BYLAWS DO NOT CLASSIFY DIRECTORS AS INDEPENDENT OR NOT INDEPENDENT. AS A SELF-REGULATORY ORGANIZATION, BOARD MEMBERS ARE CLASSIFIED AS "PUBLIC" OR "INDUSTRY" AND A MAJORITY OF THE BOARD MUST ALWAYS MEET THE "PUBLIC" DEFINITION. ADDITIONALLY, ANY TRANSACTIONS WITH COMPANIES THAT EMPLOY A BOARD MEMBER, OR FOR WHICH A BOARD MEMBER MAY SERVE AS A MEMBER OF ITS DIRECTORATE, INCLUDING THOSE LISTED BELOW, WERE CONDUCTED IN THE ORDINARY COURSE OF BUSINESS AND DO NOT REFLECT SPECIAL ARRANGEMENTS BETWEEN INTERESTED PARTIES. HOWEVER, THE IRS DEFINITION OF AN INDEPENDENT VOTING MEMBER OF A GOVERNING BODY IS SPECIFIC TO THE FORM 990, AND APPLIES A CIRCUMSTANCES-BASED APPROACH FOCUSING ON COMPENSATION AS AN EMPLOYEE, COMPENSATION AS AN INDEPENDENT CONTRACTOR (EXCLUSIVE OF REASONABLE COMPENSATION FOR SERVING ON THE BOARD), AND A DOLLAR THRESHOLD FOR PAYMENTS MADE TO OR RECEIVED FROM ANOTHER ORGANIZATION IN THE ORDINARY COURSE OF BUSINESS. PLEASE SEE PAGE 19 OF THE 2010 FORM 990 INSTRUCTIONS FOR THE COMPLETE IRS DEFINITION. ELLYN L. BROWN IS A MEMBER OF THE BOARDS OF NYSE EURONEXT AND NYSE REGULATION, AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. NYSE RELATED ORGANIZATIONS PAID FINRA REGULATION $30,406,261 IN REGULATORY FEES. FINRA REGULATION PAID NYSE RELATED ORGANIZATIONS $1,418,850 FOR TRANSITION AND SUPPORT SERVICES AND $287,000 FOR PASS-THROUGH FINES COLLECTED BY FINRA REGULATION AND REMITTED TO NYSE. MARK S. CASADY IS THE CHAIRMAN AND CEO OF LPL FINANCIAL AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. LPL FINANCIAL PAID FINRA REGULATION $14,610,929 FOR REGULATORY SERVICES. MARK S. CASADY IS A MEMBER OF THE BOARD OF UVEST FINANCIAL SERVICES GROUP AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. UVEST FINANCIAL SERVICES GROUP IS A WHOLLY OWNED SUBSIDIARY OF LPL FINANCIAL OF WHICH MARK S. CASADY IS THE CHAIRMAN AND CEO. UVEST FINANCIAL SERVICES PAID FINRA REGULATION $1,190,707 FOR REGULATORY SERVICES. JAMES F. DUFFY WAS INTERIM CEO AND A MEMBER OF THE BOARD OF NYSE REGULATION, INC., AND DURING 2010 WAS A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. NYSE RELATED ORGANIZATIONS PAID FINRA REGULATION $30,406,261 FOR REGULATORY SERVICES. FINRA REGULATION PAID NYSE RELATED ORGANIZATIONS $1,418,850 FOR TRANSITION AND SUPPORT SERVICES AND $287,000 FOR PASS-THROUGH FINES COLLECTED BY FINRA REGULATION AND REMITTED TO NYSE. W. DENNIS FERGUSON IS A PRINCIPAL OF STERNE AGEE FINANCIAL SERVICES AND IS A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. STERNE AGEE FINANCIAL SERVICES PAID FINRA REGULATION $350,285 FOR REGULATORY SERVICES. W. DENNIS FERGUSON IS THE DIRECTOR OF CLEARING FOR STERNE, AGEE & LEACH, INC. AND IS A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. STERNE, AGEE & LEACH, INC. PAID FINRA REGULATION $702,232 FOR REGULATORY SERVICES. DR. SHIRLEY ANN JACKSON IS CHAIRMAN OF NYSE REGULATION, INC., WAS A MEMBER OF THE BOARD OF NYSE EURONEXT DURING 2010, AND IS A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. NYSE RELATED ORGANIZATIONS PAID FINRA REGULATION $30,406,261 FOR REGULATORY SERVICES. FINRA REGULATION PAID NYSE RELATED ORGANIZATIONS $1,418,850 FOR TRANSITION AND SUPPORT SERVICES AND $287,000 FOR PASS-THROUGH FINES COLLECTED BY FINRA REGULATION AND REMITTED TO NYSE. RICHARD S. PECHTER IS A MEMBER OF THE BOARD OF NYSE REGULATION, INC., AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. NYSE RELATED ORGANIZATIONS PAID FINRA REGULATION $30,406,261 FOR REGULATORY SERVICES. FINRA REGULATION PAID NYSE RELATED ORGANIZATIONS $1,418,850 FOR TRANSITION AND SUPPORT SERVICES AND $287,000 FOR PASS-THROUGH FINES COLLECTED BY FINRA REGULATION AND REMITTED TO NYSE. JOHN W. SCHMIDLIN IS A MEMBER OF THE BOARD OF NYSE REGULATION, INC., AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. NYSE RELATED ORGANIZATIONS PAID FINRA REGULATION $30,406,261 FOR REGULATORY SERVICES. FINRA REGULATION PAID NYSE RELATED ORGANIZATIONS $1,418,850 FOR TRANSITION AND SUPPORT SERVICES AND $287,000 FOR PASS-THROUGH FINES COLLECTED BY FINRA REGULATION AND REMITTED TO NYSE. JAMES D. WEDDLE IS MANAGING PARTNER OF EDWARD JONES AND A MEMBER OF THE FINRA REGULATORY POLICY COMMITTEE. EDWARD JONES PAID FINRA REGULATION $23,493,222 FOR REGULATORY SERVICES. VOLUNTARY DISCLOSURE FOR FINANCIAL INFORMATION THE FINANCIAL INFORMATION INCLUDED IN THE FORM 990 IS PRESENTED ON A STAND-ALONE BASIS WITH ALL SIGNIFICANT INTERCOMPANY RECEIVABLE AND PAYABLE AMOUNTS ELIMINATED AND DOES NOT REPRESENT THE CONSOLIDATED RESULTS FOR FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. (FINRA) AND ITS SUBSIDIARIES. THE FINANCIAL INFORMATION PRESENTED REFLECTS ESTIMATES OF OVERHEAD ALLOCATIONS. THE 2010 FORM 990 SHOULD BE READ IN CONNECTION WITH THE 2010 FINRA ANNUAL FINANCIAL REPORT WHICH IS AVAILABLE ON WWW.FINRA.ORG. SEE ALSO SEPARATE 2010 FORM 990S FOR RELATED ENTITIES, INCLUDING FINRA, FINRA DISPUTE RESOLUTION, INC., AND FINRA INVESTOR EDUCATION FOUNDATION. ORGANIZATION ACHIEVEMENTS OR PROGRAM SERVICES FORM 990, PART III, LINE 4 FINRA IS THE LARGEST INDEPENDENT REGULATOR FOR ALL SECURITIES FIRMS DOING BUSINESS WITH THE PUBLIC IN THE UNITED STATES. THROUGH FINRA REGULATION, FINRA OVERSEES NEARLY 4,600 BROKERAGE FIRMS, ABOUT 163,000 BRANCH OFFICES AND APPROXIMATELY 631,000 REGISTERED SECURITIES REPRESENTATIVES. FINRA IS DEDICATED TO INVESTOR PROTECTION AND MARKET INTEGRITY THROUGH EFFECTIVE AND EFFICIENT REGULATION OF THE SECURITIES INDUSTRY. 4A) MARKET REGULATION FINRA'S MARKET REGULATION DEPARTMENT OVERSEES AND REGULATES OVER-THE-COUNTER TRADING OF EXCHANGE-LISTED AND NON-EXCHANGE-LISTED SECURITIES FOR COMPLIANCE WITH FINRA RULES AND FEDERAL SECURITIES LAWS. MARKET REGULATION ALSO PROVIDES REGULATORY SERVICES TO NASDAQ OMX, NASDAQ OMX PHLX, NASDAQ OMX BX, NYSE, NYSE AMEX, NYSE ARCA, BATS, THE INTERNATIONAL SECURITIES EXCHANGE AND DIRECT EDGE. IN ADDITION, THIS AREA IS RESPONSIBLE FOR INSIDER-TRADING SURVEILLANCE FOR ALL NASDAQ-, NYSE- AND NYSE AMEX- LISTED ISSUES ACROSS ALL U.S. EXCHANGES, AS WELL AS CERTAIN TRADING RULES THAT ARE COMMON BETWEEN FINRA AND OTHER MARKETS. MARKET REGULATION ALSO REGULATES TRADING IN CORPORATE AND MUNICIPAL DEBT INSTRUMENTS, AND EXAMINES MARKET-MAKING AND TRADING FIRMS TO ASSESS COMPLIANCE WITH EXCHANGES' AND FINRA TRADING RULES AND FEDERAL SECURITIES LAWS. 4B) MEMBER REGULATION FINRA'S MEMBER REGULATION DEPARTMENT HAS A COMPREHENSIVE EXAMINATION PROGRAM WITH DEDICATED RESOURCES OF MORE THAN 1,100 EMPLOYEES. STAFF FROM FINRA MEMBER REGULATION CONDUCT REGULAR EXAMINATIONS ON A SCHEDULE THAT IS ESTABLISHED BASED ON A RISK-PROFILE MODEL. IN ADDITION, MEMBER REGULATION CONDUCTS TARGETED EXAMINATIONS BASED ON INVESTOR COMPLAINTS, REFERRALS FROM OTHER FINRA DEPARTMENTS, TERMINATIONS OF BROKERAGE EMPLOYEES FOR CAUSE, ARBITRATIONS AND REFERRALS FROM OTHER REGULATORS. MEMBER REGULATION ALSO DETERMINES EXAMINATION PRIORITIES AND CONDUCTS SPECIAL "SWEEPS" TO TARGET ISSUES OF IMMEDIATE CONCERN. IN 2010, FINRA MEMBER REGULATION CONDUCTED ALMOST 2,500 REGULAR EXAMINATIONS AND NEARLY 7,300 TARGETED AND SWEEP EXAMINATIONS. 4C) ENFORCEMENT FEDERAL LAW GIVES FINRA THE AUTHORITY TO DISCIPLINE SECURITIES FIRMS AND INDIVIDUALS IN THE SECURITIES INDUSTRY WHO VIOLATE THE FEDERAL SECURITIES LAWS AND RULES AS WELL AS FINRA AND MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB) RULES. THROUGH ITS ENFORCEMENT AND MARKET REGULATION DEPARTMENTS, FINRA BRINGS DISCIPLINARY ACTIONS AGAINST FIRMS AND THEIR EMPLOYEES THAT MAY RESULT IN SANCTIONS INCLUDING CENSURES, FINES, SUSPENSIONS AND, IN EGREGIOUS CASES, EXPULSION OR BARS FROM THE INDUSTRY. IN APPROPRIATE CASES, FINRA WILL REQUIRE FIRMS TO PROVIDE RESTITUTION TO HARMED INVESTORS AND OFTEN IMPOSES OTHER CONDITIONS ON A FIRM'S BUSINESS TO PREVENT REPEATED WRONGDOING. IN 2010, FINRA EXPELLED OR SUSPENDED 15 FIRMS, BARRED 288 INDIVIDUALS FROM THE INDUSTRY AND SUSPENDED 428 OTHERS. 4D) REGISTRATION AND DISCLOSURE ANY PERSON ENGAGED IN THE SECURITIES BUSINESS OF THE FIRM INCLUDING PARTNERS, OFFICERS, DIRECTORS, BRANCH MANAGERS, DEPARTMENT SUPERVISORS AND SALESPERSONS MUST REGISTER WITH FINRA. THROUGH ITS REGISTRATION AND DISCLOSURE DEPARTMENT, FINRA OPERATES WEB CRD, THE CENTRAL LICENSING AND REGISTRATION SYSTEM FOR THE U.S. SECURITIES INDUSTRY AND ITS REGULATORS. IT CONTAINS THE REGISTRATION RECORDS OF MORE THAN 4,600 REGISTERED BROKER-DEALERS AND MORE THAN 25,000 INVESTMENT ADVISERS, AND THE QUALIFICATION, EMPLOYMENT, AND DISCLOSURE HISTORIES OF MORE THAN 631,000 ACTIVE REGISTERED INDIVIDUALS, MAKING IT THE WORLD'S LARGEST AND MOST SOPHISTICATED ONLINE REGISTRATION AND REPORTING SYSTEM. BUSINESS AND FAMILY RELATIONSHIPS FORM 990, PART VI, LINE 2 THE FOLLOWING FINRA REGULATORY POLICY COMMITTEE MEMBERS ALSO SERVE TOGETHER AS MEMBERS OF THE BOARD OF NYSE REGULATION: JAMES F. DUFFY (ALSO INTERIM CEO OF NYSE REGULATION THROUGH JULY 2010) ELLYN L. BROWN (ALSO NYSE EURONEXT) DR. SHIRLEY ANN JACKSON (ALSO NYSE EURONEXT) RICHARD S. PECHTER JOHN W. SCHMIDLIN DESCRIPTION OF CLASSES OF MEMBERS OR STOCKHOLDERS FORM 990, PART VI, LINE 6 FINRA IS THE SOLE NOT-FOR-PROFIT STOCKHOLDER OF FINRA REGULATION, INC. DESCRIPTION OF CLASSES OF PERSONS AND THE NATURE OF THEIR RIGHTS FORM 990, PART VI, LINE 7A FINRA, THE SOLE NOT-FOR-PROFIT STOCKHOLDER, ELECTS ALL MEMBERS OF THE GOVERNING BODY. CLASSES OF PERSONS, DECISIONS REQUIRING APPROVAL & TYPE OF VOTING RIGHTS FORM 990, PART VI, LINE 7B FINRA, THE SOLE NOT-FOR-PROFIT STOCKHOLDER, RETAINS THE FOLLOWING AUTHORITY AND FUNCTIONS: 1) TO EXERCISE OVERALL RESPONSIBILITY FOR ENSURING THAT THE ASSOCIATION'S STATUTORY AND SELF-REGULATORY OBLIGATIONS AND FUNCTIONS ARE FULFILLED. 2) TO DELEGATE AUTHORITY TO THE SUBSIDIARIES TO TAKE ACTIONS ON BEHALF OF THE ASSOCIATION. 3) TO ELECT THE SUBSIDIARY BOARDS OF DIRECTORS. 4) TO REVIEW THE RULEMAKING AND DISCIPLINARY DECISIONS OF THE SUBSIDIARIES. 5) TO COORDINATE ACTIONS OF THE SUBSIDIARY BOARDS AS NECESSARY. 6) TO RESOLVE ANY DISPUTES AMONG THE SUBSIDIARIES. 7) TO ADMINISTER COMMON OVERHEAD AND TECHNOLOGY OF THE SUBSIDIARIES. 8) TO ADMINISTER THE OFFICE OF INTERNAL REVIEW AS PROVIDED IN THE ASSOCIATION'S BY-LAWS. 9) TO MANAGE EXTERNAL ASSOCIATION RELATIONS ON MAJOR POLICY ISSUES. 10) TO DIRECT THE SUBSIDIARIES TO TAKE ACTION NECESSARY TO EFFECTUATE THE PURPOSES AND FUNCTIONS OF THE ASSOCIATION. 11) TO TAKE ACTION AB INITIO IN AN AREA OF RESPONSIBILITY DELEGATED TO SUBSIDIARIES. FORM 990 REVIEW PROCESS FORM 990, PART VI, LINE 11 THE FORM 990 WAS REVIEWED BY SENIOR MANAGEMENT AT VARIOUS STEPS THROUGHOUT THE PREPARATION CYCLE. THE AUDIT AND MANAGEMENT COMPENSATION COMMITTEES REVIEWED AND APPROVED THE ORGANIZATION'S 2010 FORM 990 ON SEPTEMBER 21, 2011. THE BOARD WAS PROVIDED ACCESS TO THE FINAL FORM 990 FOR REVIEW (VIA A WEBSITE FOR BOARD MEMBERS ONLY) PRIOR TO FILING. ENFORCEMENT OF CONFLICT OF INTEREST POLICY FORM 990, PART VI, LINE 12C THE ORGANIZATION HAS WRITTEN CONFLICT OF INTEREST POLICIES FOR BOARD MEMBERS AND EMPLOYEES. THE WRITTEN CONFLICT OF INTEREST POLICY FOR BOARD MEMBERS REQUIRES INITIAL DISCLOSURE OF INTERESTS THAT COULD GIVE RISE TO CONFLICTS AS WELL AS ANNUAL DISCLOSURE BY THE SAME BOARD MEMBERS. ADDITIONALLY, THE WRITTEN POLICY CONTAINS AN ONGOING OBLIGATION OF BOARD MEMBERS TO DISCLOSE POTENTIAL CONFLICTS OF INTEREST AS THEY ARISE. EMPLOYEES ARE REQUIRED TO CERTIFY ANNUALLY AS TO THEIR COMPLIANCE WITH THE WRITTEN POLICY. THE WRITTEN POLICY CONTAINS AN ONGOING OBLIGATION FOR EMPLOYEES TO INFORM FINRA OF ALL BROKERAGE ACCOUNTS IN WHICH THEY HAVE AN INTEREST AND TO ARRANGE FOR FINRA TO RECEIVE DUPLICATE ACCOUNT STATEMENTS. FINRA REVIEWS TRANSACTIONS IN EMPLOYEES' BROKERAGE ACCOUNTS TO ENSURE COMPLIANCE WITH FINRA'S INVESTMENT RESTRICTIONS. AMONG OTHER THINGS, THESE RESTRICTIONS PROHIBIT EMPLOYEES FROM HAVING AN INTEREST IN A BROKER-DEALER OR ENTITY THAT DERIVES 10% OR MORE OF ITS REVENUE, NET OF INTEREST EXPENSE, FROM BROKER-DEALER SUBSIDIARIES OR AFFILIATES. A LIST OF PROHIBITED COMPANIES IS POSTED ON FINRA'S CORPORATE INTRANET. FINRA'S DEPARTMENT HEADS HAVE ACCESS TO SEVERAL ONLINE REPORTS THAT HELP THEM AVOID ASSIGNING AN EMPLOYEE TO WORK ON A PROJECT THAT WOULD GIVE RISE TO A CONFLICT. FOR INSTANCE, A MANAGER CAN DETERMINE WHETHER AN EMPLOYEE'S STOCK HOLDINGS WOULD CONFLICT WITH A PROPOSED FINRA ASSIGNMENT (E.G., ASSIGNING AN EMPLOYEE TO NEGOTIATE A CONTRACT WITH A VENDOR IN WHICH THE EMPLOYEE HAS A SIGNIFICANT STOCK POSITION). EMPLOYEES ARE REGULARLY REMINDED OF THE RESOURCES THAT ARE AVAILABLE WHEN THEY ARE UNSURE WHAT TO DO. IN ADDITION TO TALKING TO DEPARTMENTAL MANAGEMENT, EMPLOYEES CAN DISCUSS CONFLICT-RELATED CONCERNS WITH FINRA'S OFFICE OF GENERAL COUNSEL OR ETHICS MANAGER. IF THEY ARE UNCOMFORTABLE DISCLOSING AN ISSUE AND DISCLOSING THEIR IDENTITY, THEY CAN USE FINRA'S 24-HOUR ETHICSPOINT HOTLINE TO POSE QUESTIONS OR REPORT CONCERNS. COMMUNICATIONS MADE THROUGH ETHICSPOINT ARE CONFIDENTIAL AND, IF THE EMPLOYEE WISHES, ANONYMOUS. FINRA'S WHISTLEBLOWER POLICY FORBIDS RETALIATION AGAINST EMPLOYEES WHO REPORT SUSPECTED MISCONDUCT IN GOOD FAITH, EVEN IF THE REPORT ULTIMATELY PROVES TO BE ERRONEOUS. PROCESS TO DETERMINE COMPENSATION OF TOP OFFICIALS, OFFICERS & KEY EMP. FORM 990, PART VI, LINES 15A AND 15B THE MANAGEMENT COMPENSATION COMMITTEE OF THE FINRA BOARD OF GOVERNORS (THE "COMPENSATION COMMITTEE") IS RESPONSIBLE FOR SETTING PAY FOR EXECUTIVES OF FINRA AND SUBSIDIARIES WHOSE TOTAL COMPENSATION, INCLUDING INCENTIVE COMPENSATION, MAY EXCEED $1 MILLION. THE COMMITTEE IS COMPRISED OF FOUR NON-EMPLOYEE, NON-SECURITIES INDUSTRY MEMBERS OF THE BOARD OF GOVERNORS. THE COMMITTEE MET ON NOVEMBER 18, 2009, JANUARY 27, 2010, AND AGAIN ON FEBRUARY 9, 2010 TO ESTABLISH INCENTIVE COMPENSATION ATTRIBUTABLE TO THE PERFORMANCE OF SERVICES DURING CALENDAR YEAR 2009 AND TO ESTABLISH BASE SALARIES FOR CALENDAR YEAR 2010. THE COMMITTEE ENGAGED MERCER, INC. ("MERCER"), A THIRD-PARTY COMPENSATION CONSULTANT, TO PREPARE A COMPENSATION STUDY FOR REVIEW AT THESE MEETINGS. THE COMPENSATION STUDY INCLUDED THE COMPENSATION LEVELS DURING 2009 FOR ALL OF THE EXECUTIVES UNDER CONSIDERATION AS WELL AS COMPETITIVE COMPENSATION INFORMATION FOR EXECUTIVES EMPLOYED BY A MIX OF PUBLIC AND PRIVATE FINANCIAL INSTITUTIONS, INCLUDING BROKERAGE/BANKING FIRMS, SECURITIES EXCHANGES AND REGULATORS, THAT MERCER BELIEVED TO BE APPROPRIATE FOR COMPARISON PURPOSES TO FINRA. THE COMMITTEE'S MINUTES OF THE NOVEMBER 18, 2009, JANUARY 27, 2010, AND FEBRUARY 9, 2010 MEETINGS WERE REVIEWED AND APPROVED AS ACCURATE AND COMPLETE FOLLOWING THE COMMITTEE'S APPROVAL OF THE SENIOR EXECUTIVE COMPENSATION PACKAGES. THE FULL BOARD FURTHER APPROVED THE 2009 INCENTIVE COMPENSATION OF THE CEO AT ITS TELEPHONIC MEETING ON FEBRUARY 10, 2010. ALL COMPENSATION COMMITTEE MEMBERS VOTED FOR THE PROPOSED LEVEL OF EXECUTIVE COMPENSATION. PUBLIC AVAILABILITY OF GOVERNING DOCUMENTS, CONFLICT OF INTEREST POLICY, AND FINANCIAL STATEMENTS FORM 990, PART VI, LINE 19 THE ORGANIZATION MAKES ITS GOVERNING DOCUMENTS AND THE FINRA CONSOLIDATED AUDITED FINANCIAL STATEMENTS AVAILABLE UPON REQUEST. ESTIMATED AVERAGE HOURS PER WEEK FORM 990, PART VII, COLUMN B - ESTIMATED AVERAGE PER WEEK THE OFFICERS / KEY EMPLOYEES LISTED IN FORM 990, PART VII, DEVOTE AN AVERAGE TOTAL OF 60 HOURS PER WEEK TO THE FILING ORGANIZATION AND ANY OR ALL OF THE FOLLOWING RELATED ORGANIZATIONS: FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. FINRA DISPUTE RESOLUTION, INC., AND FINRA INVESTOR EDUCATION FOUNDATION. OTHER CHANGES IN NET ASSETS OR FUND BALANCES FORM 990, PART XI, LINE 5 OTHER CHANGES IN NET ASSETS OR FUND BALANCES PRIMARILY RELATE TO ANY OR ALL OF THE FOLLOWING: CHANGES IN NET INCOME/(LOSS), UNRECOGNIZED EMPLOYEE BENEFIT PLAN AMOUNTS AND UNREALIZED GAIN/(L0SS) ON INVESTMENTS. FOR ADDITIONAL INFORMATION PLEASE SEE THE FINRA 2010 ANNUAL FINANCIAL REPORT WHICH IS AVAILABLE ON WWW.FINRA.ORG. 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