FINRA Manual: Contents
Incorporated NYSE Rule Interpretations
Rule 10 "Registered Representative"/01 Persons Not Required To Be Registered
Persons associated with a member organization whose functions are solely and exclusively clerical or ministerial will not be required to register with the Exchange. Examples of persons not required to register include wire operators, (i.e., member organization order room personnel who deal exclusively and on a non-discretionary basis with other personnel of the same organization), customer service personnel who do not take orders directly from the public and who take note of customer inquiries and seek to administratively resolve them, as well as certain other operations, administrative and support personnel.
Rule 311 Formation and Approval of Member Organizations(b)(5) OFFICERS/01 Principal Executives
Principal executives must satisfy any and all examination requirements necessary to perform their assigned functions. Candidates for such positions must also have work experience and background commensurate with their responsibilities. The Exchange may request information with respect to the experience of anyone appointed or elected to such positions./02 Examination Requirements for Chief Financial Officers ("CFO") and Chief Operations Officers ("COO")
A person designated CFO or COO pursuant to /01 of this Interpretation must pass the Financial and Operations Principal Qualification Examination ("Series 27") unless designated CFO or COO of an introducing member organization, in which case such person must pass either the Series 27 Examination or the Introducing Broker/Dealer Financial and Operations Principal Qualification Examination ("Series 28")./03 Dual Designation of CFO and COO
If a member organization's activities are limited to introducing customers' accounts and such organization does not hold funds or securities, an individual, who must be either Series 27 or Series 28 qualified, may be designated as both CFO and COO. Member organizations must use due diligence to reasonably assess the supervisory adequacy of such arrangements pursuant to Rule 342. The Exchange must be notified promptly of any such dual designations./06 Limitations on Principal Executives
Principal Executives may be part-time employees, subject to the prior approval of the member organization pursuant to Rule 346(e).(f) PRINCIPAL PLACE OF BUSINESS/01 Criteria
In order to satisfy the rule's requirement that a member organization's principal place of business be maintained within the U.S., at least the following must be located within the U.S., at a definite and manned physical location which is adequate to serve as the site for Exchange inspection of the organization:a) Assets of customers who are citizens or residents of the U.S. and assets associated with transactions effected in the U.S., except for: (1) funds which are ordinarily held in branch offices or in transit, and (2) securities which are held as provided for in SEA Rule 15c3-3(c).
To the extent that the broker-dealer introduces customer accounts on a fully disclosed basis to a carrying firm which is located in the U. S., such customer assets may be located at the carrying firm.b) Books and records customarily maintained by brokers and dealers at their principal place of business and sufficient to permit the Exchange to conduct its inspection of the member organization.
The utilization of a clearing broker, a bank, or a service bureau which prepares or maintains the member organizations' books and records in accordance with SEA Rules 17a-3 and 17a-4 would satisfy this criterion if such broker, bank or bureau is located in the U.S., and the records would be readily accessible to the Exchange.c) Member organization capital sufficient to meet applicable capital requirements.d) All allied members, qualified and authorized to perform Rule 342 functions.e) Clearance, settlement and securities handling operations which pertain to securities transactions effected in the U.S., to the extent that such operations are maintained by the broker-dealer.f) Operations pertaining to foreign securities transactions effected on behalf of customers who are citizens or residents of the U.S., to the extent that such operations are customarily maintained by a broker-dealer at a principal place of business.(g) MINIMUM OF ACTIVE PARTNERS IN MEMBER ORGANIZATIONS — USE OF MEMBER ORGANIZATION NAME/01 Carrying Accounts
To carry customer accounts a member firm must have at least two general partners who are natural persons actively engaged in the organization's business.
The purpose of this requirement is to avert a situation in which the death or disassociation of a sole general partner could result in a delay in servicing customers' accounts, in the street-side settlement of open contractual commitments or otherwise interfere in the conduct of the firm's business to the detriment of the public interest and investor confidence./02 Divisions of Member Organizations — Names
Divisions that are not separate legal entities may not be identified by the use of such words as "Company", "Corporation" or "Incorporation", which connote separate entities. Persons staffing such divisions should not have the title of "President", which indicates a separate entity. The titles, "Vice President" or "Assistant Vice President" are satisfactory when used in a context which does not convey the existence of authority on behalf of the member organization not, in fact, possessed by that individual.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.
Selected Notices: 08-57, 08-64.
Rule 344 Research Analysts and Supervisory Analysts/01 Research Analysts
Research Analyst candidates shall qualify by taking the Research Analyst Qualification Examination (“Series 86/87”). For purposes of this interpretation, the term “research analyst” is defined in Rule 344.10. The Series 86 covers security analysis and valuation of equity securities. The Series 87 covers pertinent rules and regulations of the self-regulatory organizations, and the SEC.
The General Securities Registered Representative Examination (“Series 7”) qualification is a prerequisite for any Research Analyst candidate prior to taking either Part I (“Series 86”) or Part II (“Series 87”) of the Research Analyst Qualification Examination.
Alternatively, the United Kingdom Limited Registered Representative (“Series 17”) Examination and the Canadian Limited Registered Representative (“Series 37/38”) Examination will also serve as prerequisites to taking either Part I or Part II of the Research Analyst Qualification Examination.
In satisfying the Series 7, Series 17 or Series 37/38 examination prerequisite, Research Analyst candidates will not be required to complete the four-month training period required of Registered Representative candidates nor do they have to be approved by the Exchange pursuant to Rule 345.15/02.
Candidates that have failed either Part I or II of the Research Analyst Qualification Examination must wait 30 days before re-taking either part of the examination.
Successful completion of Levels I and II of the Charter Financial Analyst (“CFA”) Examination administered by the CFA Institute allows a Research Analyst candidate to request an exemption from Part I (“Series 86”) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (“Series 86”), a candidate will be qualified as a Research Analyst after passing Part II (“Series 87”) and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).
Successful completion of Levels I and II of the Chartered Market Technician Program (“CMT”) administered by the Market Technician Association (“MTA”) allows a Research Analyst candidate who prepares only technical research reports to request an exemption from Part I (“Series 86”) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (“Series 86”), a candidate will be qualified as a Research Analyst only after passing Part II (“Series 87”) and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).
To qualify for a CFA or CMT exemption a Research Analyst candidate must have: (i) completed the CFA Level II or CMT Level II within two years of application for registration or (ii) functioned as a research analyst continuously since having passed the CFA Level II or CMT Level II. Applicants that have completed the CFA Level II or CMT Level II that do not meet criteria (i) or (ii) may where good cause is shown based upon previous related employment experience make a written request to the Exchange for an exemption.
A technical research report is a research report as defined in Rule 472.10(2) that is based solely on stock price movement and trading volume and not on the subject company’s financial information, business prospects, contact with the subject company’s management, or the valuation of a subject company’s securities./02 Foreign Research Analysts
The requirement to register as a research analyst pursuant to NYSE Rule 344.10 shall not apply to an associated person who: (1) is an employee of a non-member foreign affiliate of a member organization (“foreign research analyst”), (2) resides outside the United States and (3) contributes, partially or entirely, to the preparation of globallybranded or foreign affiliate research reports but does not contribute to the preparation of a member organization’s research, including a mixedteam report, that is not globally-branded, provided that the following conditions are satisfied:
Member organizations that publish or otherwise distribute globallybranded research reports partially or entirely prepared by a foreign research analyst must subject such research to pre-use review and approval by a supervisory analyst in accordance with NYSE Rule 344.11 or by a registered principal in accordance with NASD Rule 1022(a)(5). In addition, the member organization must ensure that such research reports comply with NYSE Rule 472, as applicable.
In publishing or otherwise distributing globally-branded research reports partially or entirely prepared by a foreign research analyst, a member organization must prominently disclose:(1) each affiliate contributing to the research report;(2) the names of the foreign research analysts employed by each contributing affiliate;(3) that such research analysts are not registered/qualified as research analysts with the NYSE and/or NASD; and(4) that such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.The disclosures required by this Rule must be presented on the front page of the research report or the front page must refer to the page on which the disclosures can be found. In electronic research reports, a member may hyperlink to the disclosures. References and disclosures must be clear, comprehensive and prominent.Record Keeping
Member organizations must establish and maintain records that identify those individuals who have availed themselves of this exemption, the basis for such exemption, and evidence of compliance with the conditions of the exemption. Failure to establish and maintain such records shall create an inference of a violation of NYSE Rule 344.
Member organizations must also establish and maintain records that evidence compliance with the applicable content, disclosure and supervision provisions of NYSE Rule 472. Member organizations must maintain these records in accordance with the supervisory requirements of NYSE Rule 342, and in addition to such requirement, the failure to establish and maintain such records shall create an inference of a violation of the applicable content, disclosure and supervision provisions of NYSE Rule 472.
Application of the Federal Securities Laws, Rules and Regulations and Self-Regulatory Organization Rules
The foregoing shall not affect the obligation of any person or broker-dealer, including a foreign broker-dealer, to comply with the applicable provisions of the federal securities laws, rules and regulations and any self-regulatory organization rules.
Effect of Exemption on Associated Person Status
The fact that a foreign research analyst avails himself of this exemption shall not be probative of whether that individual is an associated person of the member organization for other purposes, including whether the foreign research analyst is subject to the NYSE 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Globally-Branded Research Report
A globally-branded research report refers to the use of a single marketing identity that encompasses the member organization and one or more of its affiliates.
Mixed-Team Research Report
A mixed-team research report refers to any member organization research report that is not globally-branded and includes a contribution by a research analyst who is not an associated person of the member organization.
For the purposes of this exemption, the term affiliate shall mean a person that directly or indirectly controls, is controlled by, or is under common control with, a member organization./03 Supervisory Analysts
Supervisory Analyst candidates shall qualify by taking and passing the Supervisory Analyst (“Series 16”) Examination.
Appropriate experience for a candidate for Supervisory Analyst means having at least three years prior experience within the immediately preceding six years involving securities or financial analysis.
Examples of appropriate experience may include the following:• Equity or Fixed Income Research Analyst;• Credit Analyst for a securities rating agency;• Supervising preparation of materials prepared by financial/securities analysts;• Financial analytical experience gained at banks, insurance companies or other financial institutions;• Academic experience relating to the financial/securities markets/industry.Director of Research
A person having the title of “Director of Research” need not be a supervisory analyst as defined by the Rule so long as he/she does not approve research reports. If, however, such a person is in charge of registered representatives, he/she must qualify as a supervisory person under Rule 342.13./04 Exemptions
Successful completion of the CFA Level I Examination administered by the CFA Institute (in lieu of completion of Levels, I, II and III for a full CFA designation) will suffice to allow a Supervisory Analyst candidate to qualify by taking Part I of the Series 16 Qualification Examination.
Amended by SR-FINRA-2007-010 eff. Apr. 7, 2008;
Amended by SR-FINRA-2008-012 eff. Apr. 3, 2008.
Rule 345 Employees — Registration, Approval, Records(a) REGISTRATION/01 Exceptions
Registration is not required for personnel performing the mechanical function of recording an order and passing it along the usual communication channels, telephoning reports of executions or reading quotations when the person handling the account is unavailable. This interpretation does not include registered trainees or transfers awaiting Exchange approval. It is restricted to employees who:• Are deemed capable and qualified by a member organization or allied member for these responsibilities.• Are specifically authorized to accept orders.• Are familiar with the normal size of orders in the account.• Are closely supervised by the person servicing the account.
(Also see Rule 10/01, page 2910)/02 "Independent Contractors"
The establishment of "independent contractor" status between a natural person registered with and qualified by the Exchange and a member organization is permitted only if it does not in any way compromise such person's characterization and treatment as an "employee" of their associated member organization for purposes of the Rules of the Exchange. Though not an exhaustive list, the following regulatory requirements must be fulfilled by a member organization that enters into an arrangement with any person asserting independent contractor status:1. The member organization must directly supervise and control all activities effected on its behalf by independent contractors to the same degree and extent that it is required to regulate the activities of all other persons registered with such member organization, consistent with Rule 342 and all other applicable Exchange rules, for example:a) The member organization must ensure that any dual employment arrangement involving an independent contractor complies with Exchange Rule 346.b) The member organization must ensure that: the independent contractor is covered by the organization's fidelity insurance bond; such person is not subject to a "statutory disqualification" (as defined in Section 3(a)(39) of the Securities Exchange Act of 1934); and that he or she is in compliance with applicable state Blue Sky provisions.c) The member organization must ensure that notification of the initiation and cessation of independent contractor status and other required amendments be appropriately evidenced on Form U4 or Form U5, as applicable.2. The member organization
smust obtain the written concurrence of each individual asserting independent contractor status that he or she will be subject to the direct, detailed supervision, control and discipline of the member organization, and will be bound by the relevant rules, standards and guidelines of the member organization. Further, the prospective independent contractor must attest that he or she will be deemed an employee of the member organization and, as such, will be fully subject to the jurisdiction of the Exchange. The Exchange is a third-party beneficiary of any such attestation. The "Consent to Jurisdiction" form, included below, must be used for this purpose.
"Consent to Jurisdiction" forms executed pursuant to this Interpretation are not required to be submitted to, or approved by, the Exchange. However, all such forms must be maintained together with the corresponding executed independent contractor agreement and must be promptly provided to the Exchange upon request.
This Interpretation does not permit the incorporation of registered representatives nor does it permit the assertion of independent contractor status by any principal executive of a member organization.
CONSENT TO JURISDICTION
In consideration of my application as a "registered person" associated with ______________________________, I agree that:(a) I am and shall remain subject to the direct, detailed supervision, control and discipline of _____________________ with respect to any and all activities engaged in by me related to the securities business, and any other business engaged in by _____________________, and agree to be bound by the relevant, rules, standards and guidelines of _____________________ regarding duties and responsibilities governing my conduct.(b) For all purposes of the Rules of New York Stock Exchange LLC (the "Exchange") I shall be deemed to be an employee of ____________________________ . I am and shall remain fully subject to the jurisdiction of the Exchange and to the Rules of the Exchange presently obtaining or as they shall from time to time be amended, including, but not by way of limitation, all penalties, prohibitions or limitations provided for therein, as they apply to an "employee" of a member organization of the Exchange, and I shall at all times conduct myself in accordance with said Rules._______________________________
Signature of Employee
Name of Employee
Social Security Number
Full Name of Member Organization and Address of Branch Office/03 Registered Persons Who Volunteer or Are Called to Active Military Duty
The Exchange will grant specific relief to registered employees of member organizations who volunteer or are called into active military duty. Such registered employees will be placed in a specifically designated "inactive" status upon notification to the Exchange of their volunteering or military call-up. However, such employees will remain registered with the Exchange, and, therefore are eligible to receive transaction-based compensation. Since such employees are "inactive," they may not perform any of the duties performed by a registered representative. However, his or her member organization may make arrangements with another registered representative of the member organization to have the accounts of such registered person serviced and to provide for a sharing of the commissions such accounts generate.
Further, member organizations shall be waived from remitting to the Exchange the annual maintenance fees for such registered employees as prescribed in Rule 345.14.
Such registered employees who volunteer or are called into active military duty shall receive a deferment from the Regulatory Element and Firm Element of the Continuing Education Program as prescribed in Exchange Rule 345A. Continuing Education requirements will be reinstated upon the registered person's return from active military duty.
Dual member organizations of the NYSE and NASD should notify the NASD of their registered employees who volunteer or are called into active military duty by mailing or faxing to the CRD/Public Disclosure Department of the NASD a letter (on firm letterhead) identifying the name and CRD number of the registered person called into active duty, the name and CRD number of the firm, or firms, with whom such person is associated, and a copy of the official call-up notification.
NYSE-only member organizations should notify the Exchange of their registered employees who volunteer or are called into active duty by mailing or faxing to the Exchange's Qualifications and Registrations Department, a letter (on firm letterhead) identifying the name and CRD number of person(s) who volunteer or are called into active duty, the name and CRD number of the firm, or firms, with whom such person is associated, and a copy of the official call-up notification.(b) OFFICERS/01 Application
All persons having titles that imply authority and responsibility over sales personnel must be qualified as supervisory persons. See Rule 342.13/01./02 Officers of Division within Member Organizations
See Rule 311(h)/02/03 Officers of Partnerships
The Exchange does not object to member partnerships designating certain employees as officers, provided the title makes clear the employee's status by defining the specific area of responsibility, e.g., Vice President, Research Department./04 Persons Previously Approved in Other Capacities
Applicants applying for officer status (See also Rule 345(b)) who are currently registered with the Exchange through the Central Registration Depository ("CRD") in another capacity, will be required to file only page 1 of Form U4 by checking the "officer" box under the "Registration Category" section of the form. The CRD will process this information and post it to the CRD record..11 Reserved..12 APPLICATIONS/01 Updating Form U4
Information contained on Form U4 must be kept current. Instructions on Form U4 require that a registered person ensure that the information contained in Form U4 is updated and amended as necessary. In this regard, member organizations have an obligation to ensure that amended forms are submitted to the Exchange in a timely manner..15 QUALIFICATIONS/01 Examination Waivers
Where good cause is shown, the examination requirement for a candidate for registration may be waived at the discretion of the Exchange. The Exchange will review requests for waivers in light of several factors including length and type of previous employment and the requirements of other self- regulatory organizations.
In addition, registered representative candidates who meet one of the following conditions may request a waiver of the examination requirements.• A former NYSE registered representative who terminated his or her association as such within the last two years, from the date of termination.• A former NYSE registered representative who within the last ten years has been continuously employed full-time in a general securities business./02 Categories of Registration
Registered representative candidates may sit for the Series 7 exam at the first available examination session after they have become employed. Member organizations are reminded that trainees may not perform the functions of a registered representative until approved by the Exchange. (Also see Rule 345(a)/01, page 3450.)
Limited registration candidates are those whose activities are limited solely to the solicitation or handling of the sale or purchase of instruments such as investment company securities and variable contracts, insurance premium funding programs, direct participation programs and municipal securities. Limited purpose registered representative candidates must qualify by passing a qualification examination acceptable to the Exchange.
Limited registration for floor members and floor clerks would permit floor members and floor clerks who have successfully completed the Series 7A examination module to conduct a public business which is limited to accepting orders directly from professional customers for execution on the trading floor. The Floor Member ("Series 15") Examination and the Trading Assistant ("Series 25") Examination are prerequisites for the Series 7A Examination for floor members and floor clerks, respectively.
A professional customer includes a bank, trust company, insurance company, investment trust, state or political subdivision thereof, charitable or nonprofit educational institution regulated under the laws of the United States, or any state, or pension or profit sharing plan subject to ERISA or of an agency of the United States or of a state or political subdivision thereof or any person who has a net worth of at least $45 million of which $40 million are financial assets.
For purposes of the definition of professional customer, the term "person" shall mean the same as that term is defined in Rule 2, except that it shall not include natural persons.
Registered options representative: Each registered representative who transacts any business with the public in options contracts shall qualify as a "Registered Options Representative" by passing the Series 7 examination.
Securities lending representatives and their direct supervisors are not subject to training or examination requirements. Securities lending representatives and their direct supervisors must, however, file a Form U4 and sign a code of ethics agreement (addendum to Form U4).
See Rule 345.10 for definitions of the term "securities lending representative.".18 FILING WITH AGENT/01 Properly Authorized Agent
The "Properly Authorized Agent" is the Central Registration Depository ("CRD") until otherwise noted. Required filings under this Rule 345, where appropriate, may be made with the properly authorized agent.
Amended by SR-FINRA-2014-037 eff. Aug. 24, 2015.
Amended by SR-FINRA-2014-038 eff. July 1, 2015.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 15-07.
Rule 375 Missing the Market/01 Customer Contact and "As of" Reports
When a member organization has "missed the market" on a customer order, the customer should be contacted, informed of the circumstances, and given the choice of having the order filled at the price prevailing "as of" the time the market was missed or executed at the present market price.
If the customer elects to have the order filled at the "as of" price, the member organization may• effect the transaction for the customer's account on the Floor and make a cash price adjustment; or• fill the customer's order from the firm's error account.The customer's confirmation shall carry the legend "as of" (date).
Rule 401 Business Conduct/01 Trading Against Firm Recommendations
Reserved./02 Private Sales
Reserved./03 Conversions, Acquisitions and Changes in Business Activities
Member organizations are expected to notify the Exchange when planning important organizational or operational changes, such as mergers with or acquisitions of other broker/dealers or the acquisition of a significant electronic data processing system conversion or a change in business activity involving the addition of new product lines such as municipal bonds, government securities, options or commodities, etc. By discussing these proposals with the Exchange well in advance of implementation, member organizations will have the benefit of the Exchange's insight and experience which may serve to aid in avoiding financial and operational problems./04 Early Reporting of Developing Problems
Exchange and SEC regulations presently require member organizations to give certain "early warning" notices when conditions fall outside of specified parameters. However, it has been our experience that in many cases an earlier informal notice can help resolve the difficulty before any formal notification would be required. The Exchange, therefore, expects notification from a member organization immediately upon discovery of any existing or impending condition(s) which it reasonably believes could lead to capital, liquidity or operational problems or impairment of record-keeping, clearance or control functions.
A list of the kind of potential problems on which early notification is expected follows. It should be realized that this list is not intended to be all inclusive and that your coordinator may be of further assistance with regard to situations not specifically covered.
Concentrations in securities or commodities positions, commitments or other contingencies wherein adverse results could reasonably be expected to create a loss or net capital deduction that would result in a violation of the net capital requirements.
Accruals of expenses, deficits in customers' or brokers' accounts, liabilities, "Don't Know" trades, short security positions and similar items for which adequate reserves have not been provided and which, individually or in the aggregate, could have a material adverse effect on net capital.
An acceleration clause or other default provision in a loan or subordinated loan agreement is expected to or has become operative.
Reserve Requirements Problems
Any condition that could result in a material failure to make a required deposit or cause a deficiency in the balance on deposit in the Special Reserve Bank Account for the Exclusive Benefit of Customers as required under SEA Rule 15c3-3.
Any problem with liquidity, profitability or a cash or other asset shortage which could materially inhibit a broker or dealer from promptly meeting its obligations to customers, other broker/dealers or creditors.
Impending circumstances which cause or might cause a bank to call its loans or to refuse to carry the firm's accounts in a normal fashion.
Developing situations which cause or might cause a clearing corporation to limit the firm to cash settlements.
Impending or actual inability to complete daily deliveries without the creation of deficit conditions pursuant to possession and control requirements under SEA Rule 15c3-3 for customers' securities.
Any situation which may materially impair accurate maintenance of the member organization's Books and Records or the ability to account for possession or control of securities or commodities. This could be a computer breakdown, service agency problems, loss of key personnel, systems conversions, continuous inability to complete daily activities because of volume or personnel difficulties or similar reasons.
Loss of confidence in a broker-dealer may cause immediate returns of stock loans, refusals to trade or buy- ins by other broker-dealers, calling of bank loans or tightening of collateral requirements, customer account delivery requests and eventual profit deterioration.
Reputation may be impaired either by direct events such as announcements of disciplinary actions or litigation against a member organization, or by indirect unfavorable developments such as personal bankruptcies or criminal prosecution of key personnel, or financial problems of other associated organizations for whom the member organization has no legal responsibility.
Amended by SR-FINRA-2008-028 eff. Dec. 15, 2008.
Selected Notice: 08-57.
Rule 408 Discretionary Power in Customers' Accounts/01 Automatic Money Market Fund Redemptions
Member organizations that establish an automatic money market fund redemption program for customers having both a securities and money fund account, wherein the customer may elect to have securities purchases paid for via an automatic liquidation of fund shares, will not be required to obtain a customer's written authorization provided that:1) written notice is sent to applicable customers which informs them of the existence of such programs and sets forth the procedures to be followed in order to participate in the program or to elect not to do so, and2) such written notice outlines the specific procedures followed by the member organization in effecting automatic redemptions including the steps a customer must take to override the automatic redemption procedure in any specific purchase transaction.It should be noted that this interpretation applies only to an established money market fund redemption program and should not be construed to permit member organizations or their associated persons to execute transactions in other types of securities without specified authorization from a customer./02 Identification of Discretionary Orders
A member organization will be deemed in compliance with the Rule 408(b) requirement that every order entered on a discretionary basis must be identified as discretionary on the order at the time of entry, if it assigns a specific series of numbers or symbols to its discretionary accounts. All orders entered for such accounts will be considered "identified as discretionary" by the account numbers or symbols unless "DNE" (Discretion Not Exercised) is marked on the order tickets.
A member organization's written statement of supervisory procedures and compliance manual should reflect such allocation of specific series of numbers or symbols as being assigned to discretionary accounts if such a system is used.
Rule 409 Statements of Accounts to Customers(a)/01 Reserved./02 Information to be Disclosed
Statements of accounts to customers must clearly and prominently disclose on the front of the statement:1. the identity of the introducing and carrying organization and their respective phone numbers for service1;2. that the carrying organization is a member of SIPC;3. the opening and closing balances for the account./03 Use of Third Party Agents
Prior to utilizing a "third party agent" to prepare and/or transmit statements of accounts to customers, a member organization shall represent/undertake in writing to the Exchange that:1. The third party is acting as agent for the member organization;2. the member organization retains responsibility for compliance with Rule 409(a);3. the member organization has developed procedures/controls for reviewing and testing the accuracy of statements of accounts prepared and/or transmitted by the third party agent;4. the member organization will retain copies of statements of accounts prepared and/or transmitted by the third party agent in accordance with applicable books and records requirements.Allocation of responsibilities for preparation and/or transmissions of statements to any person other than a carrying organization pursuant to an agreement approved by the Exchange in accordance with Rule 382 (Carrying Agreements) shall be deemed to be utilization of a "third party agent."
An introducing organization that is a provider of services included in a member organization's statements of accounts may not function as a "third party agent" and may not itself prepare and/or transmit such statements./04 Assets Externally Held and Included on Statements Solely as a Service to Customers
Where a statement of account includes assets as to which the member organization does not have fiduciary responsibility, does not have access to and which are not included on the member organization's books and records, such assets must be clearly and distinguishably separated on the statement. It must be clearly indicated on the statement that such externally held assets: are included on the statement solely as a courtesy to the customer, information (including valuation) is derived from the customer or other external source for which the member organization is not responsible, and are not covered by SIPC./05 Use of Logos, Trademarks, etc.
Where the logo, trademark or other similar identification of a person (other than the carrying or introducing organization) appears on a customer account statement, the identity of such person(s) and the relationship to the introducing, carrying or other organization included on the statement must be provided and may not be utilized in a manner which is misleading or causes customer confusion./06 Use of Summary Statements
Where a member organization carrying a customer's account and another person(s) who separately offers financial related products/services to the same customer (e.g. mutual fund sales/custodial services, banking products/services, insurance products/services, securities products/services, etc.) seek to jointly formulate and/or distribute their respective customer account statements together with a statement summarizing or combing assets held in different accounts ("summary statement"), the Exchange will require:1. That the summary statement:a. indicate that the "summary statement" is provided for informational purposes and includes assets held at different entities;b. identify each entity from which information is provided or assets being held are included, their relationship with each other (e.g., parent, subsidiary or affiliated organization), and their respective functions (introducing/carrying brokerage firms, fund distributor, banking/insurance product providers, etc.);c. clearly distinguish between assets held by each entity by use of columns, coloring or other distinct form of demarcation;d. identify the customer's account number at each entity2;e. provide a telephone number for customer service at each entity2f. disclose which entity carries each of the different assets or categories of assets included on the summary;g. identify each entity that is a member of SIPC.32. To the extent that the summary statement aggregates the values of the various accounts summarized or portions thereof, such aggregation shall be recognizable as having been arithmetically derived from the separately stated totals or their components.3. That the beginning and end of each separate statement (e.g., summary, brokerage, mutual fund, banking, insurance, etc.) be clearly distinguishable by color, pagination or other distinct form of demarcation.4. That there be a written agreement between the carrying organization and each other person jointly formulating and/or distributing its respective customer account statements attesting that each such person has developed procedures/controls for reviewing and testing the accuracy of the information included on its respective statements.5. That the summary statement shall comply with Rule 409 and all interpretations thereof.(b)/01 Standards For Holding Mail For Foreign Customers — Rule 409(b)(2) Waivers
The Exchange will consider written requests from member organizations for the implementation of policies and procedures for the holding of confirmations, statements and broker-dealer financial statements ("communications") for foreign customers. Requests for waivers under Rule 409(b) must include the following representations:1. that the member organization will obtain not less frequently than annually and will retain (in accordance with SEA Rule 17a-4(b)) a written statement from the customer who has requested such waiver, that it is not feasible for such customer to make alternative arrangements for the regular receipt of these communications and that by reason of inefficient local mail services or unstable political climates, the customer requests that such material temporarily be held on behalf of such customer at the premises of the member organization; and2. that the member organization has written procedures in place for the holding of mail that include, at a minimum, that:a. frequent supervisory review be conducted of any account for which waivers for transmissions of communications have been obtained, with special attention given to discretionary accounts.b. an annual review of the organization's system shall be conducted by the compliance/internal audit department or by the person(s) assigned or delegated such responsibility pursuant to Rule 342 (independent of the branch office) — such review should encompass a reasonable sampling of account documentation and account activity,c. a log of such communications will be maintained at the branch or (principal) sales office servicing the account, which will note the date of direct transmittal of such communications to the customer and where sent, andd. the member organization will endeavor to promptly communicate (orally) the substance of the communications directly to the customer and that a written record is kept of all meetings and conversations, etc., with the customer. Communications will be furnished to the customer at the earliest possible meeting.Each foreign customer for whom mail is held is required to state, in writing, that it is not feasible to make alternative arrangements for the regular receipt of the mail. In this regard, member organizations shall represent to the Exchange that it will take steps to determine that the foreign customer has no other U.S. location reasonably available for receipt of the communications. In making that determination, member organizations may rely on the customer's statement unless the member or member organization is on notice of facts to the contrary.
Foreign customer accounts for which mail is held require frequent supervisory review by the member organization, i.e., a higher level of supervision and monitoring than is accorded other accounts. Additionally, the annual review conducted by the compliance/internal audit department (or other person(s) delegated such responsibility) must include a determination as to whether all the foreign customer communications are retained pursuant to written customer instructions.
The foreign customer communications held in accordance with a waiver under 409(b)(2) shall be made available to the customer for review at all times and at no special cost.
1 The SEC has stated that under the Securities Exchange Act Rule 15c3-1(a)(2)(iv), certain carrying firms must issue customer account statements, and the account statements must contain the name and telephone number of a person at the carrying firm who the customer can contact with inquiries regarding the account (See SEA Release No. 34-31511, dated November 24, 1992). The phone number of the carrying organization may appear on the back of the statement. If it does, it must be in "bold" or "highlighted" letters.
2 If the client's account number and the customer service telephone number at each entity are included on their respective account statements, such information need not be included on the summary statement.
3 See, e.g., SIPC Bylaws (Article II) for possible ways to identify SIPC membership by using SIPC statements or symbols.
Amended by SR-FINRA-2011-024 eff. Aug. 1, 2011.
Amended by SR-FINRA-2010-061 eff. Aug. 1, 2011.
Selected Notice: 11-26.
Rule 435(5) Circulation of Rumors/01 Responsibility of Personnel
Rule 435, which prohibits the circulation of rumors, extends personal responsibility for its observation to all member organization personnel. Those who service accounts, those who are handling the member organization's long distance wires and those on the trading desks must in particular exercise a high degree of individual responsibility as their conversations are less likely to receive the same degree of supervisory oversight as written messages.