FINRA proposes an industry-majority board, shrinking it to a maximum of 20

FINRA has asked the Securities and Exchange Commission to approve a rewrite of its Board of Governors. In a notice dated 10 Nov (Release No. 34-106868, SR-FINRA-2026-024), filed on 2 Nov, FINRA said the proposed rule change “would transition the FINRA Board from a majority of Public Governors to a majority of Industry Governors, while preserving a substantial role for public representatives on the Board—Public Governors would represent from 41.7 to 47.4 percent of the total number of Industry and Public Governors.”

The By-Laws “currently provide for a Board composed of up to 25 Governors, with 10 seats designated for “Industry Governors,” 11 to 14 seats designated for “Public Governors” and one seat reserved for FINRA’s Chief Executive Officer (“CEO”), who is considered neither an Industry Governor nor a Public Governor.” The proposed Board “shall consist of no fewer than 13 nor more than 20 Governors,” made up of seven to 10 Industry Governors, five to nine Public Governors, and the CEO.

The seven elected Industry seats would remain: three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors, with firm size still defined by the number of registered persons (1–150, 151–499, and 500 or more). The three appointed, segment-specific seats — a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor — would be converted to “appointed At Large Industry Governor seats.” An At Large Industry Governor “must qualify as an Industry Governor,” and the number of those seats “would not exceed three.” Public Governors would be “always one or two less than the total number of Industry Governors.” At the minimum (seven Industry and five Public), Public Governors would be 5/12, or 41.7%, of Industry and Public seats; at the maximum of 20 (10 Industry and nine Public), they would be 9/19, or 47.4%. The CEO would remain in a seat that is “neither Industry nor Public.”

How the Board would operate

A quorum would be “a majority of the Board, including not less than 50 percent of the Public Governor members (which is currently required) and 50 percent of the Industry Governor members (which would be a new requirement).” Term limits would move “from two consecutive three-year terms to three consecutive three-year terms,” giving “the possibility that Governors could serve for up to nine years (versus six years currently).”

“The Audit Committee would continue to require a majority of Public Governors and continue to be chaired by a Public Governor, as is the case today.” For other Board committees, the proposal would set minimum Industry and Public representation; “except for the Audit Committee—which must be majority public and have a public Chair—the Board could choose to appoint a committee with a majority of Public Governors, a majority of Industry Governors, or an equal number of Public and Industry Governors.”

FINRA said it was proposing the changes “to modernize FINRA’s governance structure and strengthen FINRA’s self-regulatory model.” It “believes that the proposed rule change would strengthen member engagement, increase access to industry expertise and better position FINRA to protect and serve investors, markets and member firms in an evolving industry and market environment.” It also said the change “would potentially broaden industry representation, including among small firms,” by converting the three appointed segment seats to at-large industry seats.

The notice traces the current public-majority structure to a 1996 NASD By-Law change “to require that the number of non-industry Governors exceed the number of industry Governors,” later implemented “when the By-Laws were last amended in 2007 in connection with the merger of NASD and NYSE Regulation to create FINRA.” FINRA said “several of the factors that supported NASD’s adoption of a majority non-industry Board over 30 years ago are significantly different,” including that “NASD fully divested Nasdaq in 2006, eliminating the market-driven conflicts of interest that had previously existed between NASD’s self-regulatory obligations and the competitive incentives of Nasdaq market makers.”

Approval and timing

This is not immediately effective. Within 45 days of publication of the notice in the Federal Register, or up to 90 days if the Commission so designates, the Commission will “by order approve or disapprove such proposed rule change” or “institute proceedings to determine whether the proposed rule change should be disapproved.” Comments are due 21 days after that Federal Register publication. Written comments “were neither solicited nor received” before the filing.

“If the Commission approves the proposed rule change, the effective date will be the date of filing with the Delaware Secretary of State of an amended and restated Certificate of Incorporation, which is intended to be no later than the commencement of the 2027 Annual Meeting.” FINRA “anticipates that the 2027 Annual Meeting will take place during the third or fourth quarter of 2027.”

Why it matters

Analysis. The practical change is who holds the majority, not whether public governors remain on the Board. They would still occupy a large minority of the Industry-and-Public seats, keep the Audit Committee chair and majority, and still have to make up at least half of a Board quorum. A new, matching floor for Industry Governors in the quorum is added. The elected small-, mid-size and large-firm seats stay; what disappears are the three reserved industry segments, in favour of appointed at-large industry seats that FINRA says could widen the range of business models, including more small firms.

None of that happens unless the SEC approves the filing. The comment period, which starts only once the notice appears in the Federal Register, is the first formal chance for members, investors and other commenters to test FINRA’s claim that the 1996 and 2007 reasons for a public majority have faded, and that a smaller, industry-majority board with the remaining public safeguards would still meet the Act’s fair-representation and investor-protection requirements. If approved, FINRA intends the legal effective date to fall no later than the 2027 annual meeting, which it anticipates in the third or fourth quarter of that year.

What we are watching

• Federal Register publication of SR-FINRA-2026-024, the 21-day comment deadline that follows, and any comment letters.
• Whether the Commission approves, disapproves or opens proceedings within the 45-day (or extended) review period.

Sources

• Release No. 34-106868 (SR-FINRA-2026-024): Notice of Filing of a Proposed Rule Change to Amend the FINRA By-Laws and related documents, U.S. Securities and Exchange Commission, notice dated 10 Nov 2026