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Rule 420. Reports of Borrowings and Subordinate Loans For Capital Purposes

This rule is no longer applicable. Incorporated NYSE Rule 420 has been superseded by FINRA Rule 4110. Please consult the appropriate FINRA Rule.

(a) Subordinated Loans

Before a subordinated loan of cash to a member organization may be considered for net capital purposes under Rule 325 the following documents shall be submitted to and approved by the Exchange:
(1) A signed copy of the subordinated loan agreement on a form prescribed by or acceptable to the Exchange.
(2) An opinion of counsel as required by Rule 313(d).
All such subordinated loans shall meet the requirements of SEC Rule 15c3-1. Appendix D and such other standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member organization.
(b) Secured Demand Notes

Where a person wishes to make securities which are fully paid for and non-assessable available to a member organization in a manner that will increase the organization's net capital under Rule 325, the securities must be pledged as collateral to a secured demand note which is contributed to the member organization pursuant to a secured demand note collateral agreement. Both the form of the secured demand note and the secured demand note collateral agreement shall be approved by the Exchange prior to becoming effective. In order to be approved by the Exchange such notes and agreements:
(1) shall meet the requirements of SEC Rule 15c3-1, Appendix D and such other standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member organization; and
(2) shall be accompanied by an opinion of counsel as required by Rule 313(d).
(c) Capital Borrowings

Each general partner of a member firm shall promptly report to the Exchange any secured or unsecured borrowing of cash or securities regardless of its amount or description where the cash proceeds of such borrowing or the securities borrowed will be contributed to the capital of the member firm under Rule 104.20 or Rule 325.

The Exchange requires that the documents which evidence such borrowings conform to such standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member firm, and that the following documents be submitted to and approved by the Exchange before the cash or securities involved may qualify as capital acceptable for inclusion in the computation of net capital of the member firm under Rule 104.20 or Rule 325:
(1) A signed copy of the note or agreement which must have at least twelve months duration.
(2) A non-recourse letter addressed to the borrower's member firm and signed by the lender.
(3) If more than one borrower is named in the loan instrument, all such borrowers must sign a statement indicating they understand the use of the proceeds of the loan (suggested language available from the Exchange).
The nature of the documents required in (1), (2) and (3) will vary, depending upon whether the lender is an individual, bank, estate, trust, corporation, partnership, etc.
Amendments.
May 21, 1970.
October 16, 1975; effective January 1, 1976.
February 15, 1980.
September 20, 1983.

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