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99-102 NASD Announces Changes To Regulation T And SEC Rule 15c3-3 Extension Request Reason Codes

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INFORMATIONAL

Reg T And SEC Rule 15c3-3 Reason Codes

Effective Date: February 7, 2000

SUGGESTED ROUTING

KEY TOPICS

Legal & Compliance
Operations
Senior Management
Regulation T
SEC Rule 15c3-3

The Suggested Routing function is meant to aid the reader of this document. Each NASD member firm should consider the appropriate distribution in the context of its own organizational structure.

Executive Summary

The National Association of Securities Dealers, Inc. (NASD®) is making several changes to its Extension Request Reason Codes regarding Federal Reserve Board Regulation T and Securities and Exchange Commission (SEC) Rule 15c3-3. The changes include adding codes and aligning some NASD codes with New York Stock Exchange (NYSE) codes; the changes will take effect on February 7, 2000.

The charts in Attachment A outline the reason codes and the changes.

Questions/Further Information

Questions regarding this Notice to Members may be directed to Susan DeMando, Regional Compliance Supervisor, Member Regulation, NASD Regulation, Inc. (NASD RegulationSM) at (202) 728-8411.

Background

The Federal Reserve Board's Regulation T and SEC Rule 15c3-3 provide for the possibility of extensions where investors have not promptly met their obligations relative to a securities transaction.

Regulation T pertains to an investor's obligation when a security is purchased. Specifically, an investor is given a maximum of five business days to pay for securities purchased in a cash or margin account. If payment due exceeds $1,000 and is not received by the end of this time period, the broker/dealer must either liquidate the position or apply for and receive an extension from its designated examining authority.

SEC Rule 15c3-3 pertains to a customer's obligation when securities are sold, other than short sales. SEC Rule 15c3-3 requires that if a security sold long has not been delivered within 10 business days after the settlement date, the broker/dealer must either buy the customer in or apply for and receive an extension from its designated examining authority.

Clearing firms are reminded of their obligations under the Net Capital Rule relative to Regulation T and outstanding deposits and/or margin as described in SEC Rule 15c3-1 (c)(2)(iv)(B). In addition, should a customer fail to meet his/her responsibilities to deliver a security and that failure results in a clearing firm fail-to-deliver, the Net Capital Rule requires charges under certain conditions. These charges are outlined in SEC Rule 15c3-1 (c)(2)(ix).

Key Features

Following are key features of the current reason codes and some changes:

  • Under Regulation T, we are adding reason code 001 ("contacting customer"). This reason code is available one time only for a given trade date and is available for a maximum of seven calendar days. If a customer needs an additional extension related to that trade date, the firm will have to select a new reason code. The reason code can be used starting February 7, 2000.


  • Regulation T reason code 021 ("other") may only be assigned by NASD staff. A member firm may not input "other" as a valid reason code. A firm needing a Regulation T extension for reasons other than those provided for in reason codes 001-009, 012, 014, 0151, 017-020 will need to request and receive NASD approval and input of the code "other". To facilitate such a request, a firm must contact their District Office. The use of reason code 021 will be allowed only in extreme and unavoidable circumstances.


  • Rule 15c3-3 reason code 050 ("other") may only be assigned by NASD staff. A member firm may not input "other" as a valid reason code. A firm needing a Rule 15c3-3 extension for reasons other than those provided for in reason codes 040-045, 047-049 and 0522 will need to request and receive NASD approval and input of the code "other". To facilitate such a request, a firm must contact their District Office. The use of reason code 050 will be allowed only in extreme and unavoidable circumstances.


  • For Regulation T extensions, a customer will still be limited to a maximum of five request dates per rolling 12-month period for certain reason codes. For Rule 15c3-3 extensions, a customer will be permitted nine (increased from the current five) request dates per rolling 12-month period.


Endnotes

1 Regulation T reason code 016 ("Acts of God") may also only be used by NASD. However, it is not a reason code that can be applied on an individual customer basis. Acts of God are limited to regional difficulties like earthquake, flood, etc.; when granted, this reason code applies to affected customers in a geographic area, not to individual customers.

2 SEC Rule 15c3-3 reason codes 046 ("Strike or Christmas") and 051 ("Acts of God") are only assigned by NASD and can not be requested on behalf of an individual customer.


Attachment A

Regulation T Extension Request Reason Codes
Reason Code Reason Text Days Permitted Limit of 5 per Customer Limit per Reason Code Final Reason Code NASD Only Business Or Calendar Days
001 Contacting Customer 7 Y 1 N N C
002 Check Is In The Mail 7 Y 1 Y N C
003 Authorization To Transfer Funds 7 Y 1 Y N C
004 Awaiting Collateral 7 Y 1 Y N C
005 Rcpt Of Sec Sold Offset Purchase 7 Y 1 Y N C
006 Legal Documents 7 Y 2 Y N C
007 Unacceptable Check 7 Y 1 Y N C
008 Foreign Sec. Settle. 7 Y 1 Y N B
009 Customer Ill 7 Y 2 Y N C
012 COD-DK-Outside U.S. 7 N 1 Y N C
014 COD-DK-In U.S. 2 N 1 Y N B
015 COD-Fail-35 Days 14 N 2 Y N C
016 Acts Of God 14 N 0 N Y C
017 Coming From Another Broker 14 N 2 Y N C
018 Death In Family 14 Y 1 Y N C
019 Awaiting Appt Of Executor 14 Y 2 Y N C
020 Transfer cash to another a/c 0 N 1 N N C
021 Other 14 N 1 N Y C

SEC Rule 15c3-3 Extension Request Reason Codes
Reason Code Reason Text Days Permitted Limit of 9 per Customer Limit per Reason Code Final Reason Code NASD Only Business Or Calendar Days
040 Security In Transit 14 N 2 Y N C
041 Death Of Seller 14 Y 2 Y N C
042 Can't Buy In, Sec Short Supply 14 N 5 Y N C
043 Dividend Sold Before Payable Date 14 Y 2 Y N C
044 Still In Foreign Deposit 14 Y 2 Y N C
045 Sec Exchange Or Merger 14 Y 2 Y N C
046 Strike or Xmas 14 N 0 N Y C
047 Coming From Another Broker 14 N 2 Y N C
048 Customer III Or Hospitalized 14 Y 2 Y N C
049 Lost Certificate 30 N 5 N N C
050 Other 14 N 0 N Y C
051 Acts Of God 14 N 0 N Y C
052 Foreign Settlements 10 N 2 Y N C

These Regulation T and SEC Rule 15c3-3 reason codes have been changed.
NASD Code Old Description
Reg-T Codes
New Description
Reg-T Codes
021 Confirm sent to wrong address Other
  15c3-3 Codes 15c3-3 Codes
050 Lost Certificate: Customer
(Combined into 049 Lost Certificate)
Other
052 Other Foreign Settlements

These Regulation T and SEC Rule 15c3-3 reason codes have been added.
NASD Code Description
Reg-T Codes
008 Foreign Security Settlement
020 Transfer Cash to Another Account
  15c3-3 Codes
046 Strike or Christmas

These Regulation T reason codes have been deleted.
NASD Code Description
022 Corrected Confirm Requested
023 Duplicate Confirm Requested
024 Cust Out Of Town-No Return Dt
025 Cust Out Of Town-Return Dt
026 Bank In Receivership
027 Cust Away On Business-Ret Dt
028 Confirm Sent To Wrong Address

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