View Whole SectionText only Print Print Manager Link
Previous Next
  Versions
(2 versions)
 
Up to Dec 14 2010Dec 15 2010 onwards

Rule 387 COD Orders

This rule is no longer applicable.

/01 Coding

Pursuant to paragraph (a)(1) of the Rule, unless the transaction is exempt from the provisions of paragraph (a)(5), the member organization must receive from the customer prior to or at the time of accepting the order the following Institutional Delivery (ID) coding information: the customers' agent bank number, the customers' custodian client account number at the agent bank, and institution number, where appropriate.
/02 Order Ticket

The reference in paragraph (a)(2) of the Rule requires that the order ticket be marked as a collect on delivery of (COD) or payment on delivery (POD) transaction, when appropriate. It is not necessary to use COD or POD as the designating symbols, so long as whatever symbols used to designate the orders are readily understood by all affected parties in the organization to reflect that the order is COD or POD.
/03 Confirmations

It should be noted that a confirmation generated through an institutional delivery system may or may not relieve a member organization from either NYSE or SEC requirements regarding the furnishing of confirmations of transactions to customers. Member organizations are responsible for determining and complying with such requirements.
/04 Agreement

Regarding paragraph (a)(4) of the Rule, while a written agreement with the customer is preferable, an oral agreement will be acceptable providing that the member organization has documented the oral agreement in memorandum form. The written agreement can be set forth in a new account form so long as the customer signs the new account form.
/05 New Issues

New issues are subject to Rule 387 as of the date they become depository eligible.
/06 Broker to Broker Transactions

For broker to broker COD or POD transactions, NYSE Rule 133 shall apply. In the event that the provisions of Rule 133 are not followed, then the provisions of Rule 387 shall apply. However, this should not be construed to mean that a choice can be made between following the provisions of Rule 133 or Rule 387. For broker to broker transactions, Rule 133 supercedes Rule 387. However, when one broker is a customer of another broker, Rule 387 applies.
/07 Physical Deliveries

Member organizations must not accept or make physical deliveries when settling eligible transactions subject to Rule 387. Where settlement within an Institutional Delivery system is not possible, book entry settlement via Deliver Orders (DO's) or Receive Orders (RO's) within a securities depository is required. However, the Exchange expects that book entry settlement within an ID system (PDQ) will be the norm.
/08 Sinking Funds and/or Dividend Reinvestments

Eligible sinking funds and/or dividend reinvestment transactions must be confirmed, acknowledged and book entry settled through the facilities of a registered securities depository.
/09 Introducing Brokers

Introducing brokers who clear their customer accounts on a fully disclosed or omnibus basis through a depository participant member organization are subject to Rule 387. The introducing broker is deemed to be an indirect depository participant because of his relationship with his clearing broker.
/10 Foreign Currency Settlement

Transactions settling in foreign currencies, even though they may settle within the United States, are not subject to the provisions of paragraph (a)(5) of Rule 387.
/11 Alternatives to Rule 387

If a customer who is not exempt from the Rule elects not to utilize the facilities of a registered securities depository for the confirmation, acknowledgement and book entry settlement of depository eligible transactions, the member organization must deny that customer the COD/POD privilege. The customer must then trade on a regular cash account basis.
/12 Extension Guidelines for Accounts Preparing for Participation in an Institutional Delivery System

Member organizations may continue to extend the COD/POD privilege after January 1, 1983, to non-exempt customers who are not participating in an institutional delivery system of a securities depository, but who are in the process of making the necessary arrangements to do so in order to meet the requirements of the Rule, provided that:
1) for domestic accounts: within fifteen (15) business days after the first COD/POD transaction, the customer provides the member organization his custodian client number, agent bank number and institution number, where appropriate, obtained from his agent bank or a written notice from a securities depository indicating that the customer or his agent has signed a letter of intent to participate in that depository's institutional delivery system, specifying the date of expected participation;
2) for foreign accounts: within thirty (30) business days after the first COD/POD transaction, the customer provides the member organization his custodian client account number, agent bank number and institution number, where appropriate, obtained from his agent bank or a written notice from a securities depository indicating that the customer or his agent has signed a letter of intent to participate in that depository's institutional delivery system, specifying the date of expected participation.
For both of the above situations, the customer's account must be fully coded and prepared for institutional delivery participation by the agreed upon participation date. The COD/POD privilege must be denied to any such account not in participation by the agreed upon date. The Depository Trust Company has instituted a Letter of Intent program. See DTC Important Notices pertaining to the Letter of Intent program.
/13 Indirect Bank Participation in a Securities Depository

It is the Exchange's view that Rule 387 should be applied in every case where the entity that is acting as agent for a customer is, in effect, a department, division or related entity or an otherwise direct or indirect depository user. There is no exemption for specialized departments, affiliates, parent, sister or subsidiary corporations of depository participants. In addition, member organizations are reminded that they must not accept or make physical deliveries through a registered clearing agency or over-the window when settling transactions which are subject to Rule 387.
/14 Foreign Customers and/or Foreign Broker/Dealers

Eligible transactions of foreign customers and/or broker/dealers trading with or through NYSE member organizations are subject to Rule 387 if the transaction settles in the United States through the services of a bank participating in a securities depository.
/15 Customer COD/POD Accounts

If any eligible transactions in a customer's account at a member organization settle through a direct or indirect depository participant, all eligible transactions in the account must settle through a securities depository.
/16 American Depository Receipts (ADR's)

When a European customer of an NYSE member organization, in an arbitrage transaction, purchases bearer shares in Europe and simultaneously sells depository eligible ADR's through the NYSE member organization, it may take two or six weeks to convert the bearer shares to registered ADR's. However, since the transaction settles in the United States and is not covered by an exemption, it is subject to Rule 387.
/17 Thin Issues

In instances where a member organization acting on standing instructions from an issuer buys a large block of the issuer's preferred stock for retirement, the transaction may take six months to complete if the stock is a thin issue. The member organization may either make partial delivery or go short. This type of transaction is subject to Rule 387 if the member organization and the customer or its agent are direct or indirect depository participants.
/18 Related Rules

See Regulation T, Section 220.8 (b)(2) and NYSE Rule 430 (Partial Delivery of Securities to Customers on COD Purchases) for additional requirements and procedures covering COD/POD transactions.

Previous Next