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  • Incorporated NYSE Rule Interpretations

    • Rule 311 Formation and Approval of Member Organizations

      (b)
      (5) OFFICERS
      /01 Reserved.
      /02 Reserved.
      /03 Reserved.
      /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 Reserved.
      /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.


      Amendment.
      Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
      Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.
      Amended by SR-FINRA-2017-007 eff. Oct. 1, 2018.

      Selected Notices: 08-57, 08-64, 17-30.

    • 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.

      Capital Problems

      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.

      Liquidity Problems

      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.

      Recordkeeping Problems

      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.

      Reputation Problems

      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.


      Amendment.
      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, and
      2) 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 entity2
      f. 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.3
      2. 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; and
      2. 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, and
      d. 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.