FINRA Manual: Contents
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83-56 Fidelity Bonds — Definition of "Employee"; Expiration of Grace Period
TO: All NASD Members and Other Interested Persons
Under the provisions of the NASD fidelity bonding rule (Article III, Section 32, NASD Rules of Fair Practice) all members who are required to be members of the Securities Investor Protection Corporation and who have employees must carry a fidelity bond.
On December 17, 1982, in Notice to Members 82-58, which described the introduction of the group fidelity bond buying program, the Association announced the adoption of an amendment to the fidelity bonding rule (Appendix C - paragraph (e) - page 2109-15, NASD manual) defining the terms "employee" and "employees" for purposes of fidelity bonding.
Briefly, paragraph (e) defines such terms to include most persons (registered or unregistered, full-time or part-time) who are associated with an NASD member, who engage in the investment banking or securities business and who are under the direct or indirect control of the NASD member.
Sole proprietors or sole stockholders of member firms are not deemed to be employees for fidelity bonding purposes nor are Directors or Trustees of member firms who do not engage in activities which fall within the scope of the usual duties of officers or employees.
A definition of "employee" which complies with paragraph (e) was inserted in the "Definitions" section of the bond form used in the group fidelity bond buying program. Consequently, all members who have purchased bonds under the program (over 1,500 to date) carry bonds which comply with the requirements of paragraph (e).
To provide members with sufficient time to bring their bonds into compliance with the new paragraph (e) either by joining the group program or by having their current bonds amended, the Board of Governors granted a grace period of 12 months from December 17, 1982.
The purpose of this notice is to remind those members whose current bonds do not comply with paragraph (e) that the grace period will expire on December 17, 1983.
Members requiring information about the group buying program should contact the Administrator, Marsh & McLennan Inc., 5130 MacArthur Boulevard, Washington, D.C. 20016, Telephone No. (202) 364-1348.
Jordon S. Macklin