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  • Recently Approved Rule Changes Pending Determination of Effective Date

    • SR-FINRA-2016-047

      • 2341. Investment Company Securities

        (a) Application
        This Rule shall apply exclusively to the activities of members in connection with the securities of companies registered under the Investment Company Act; provided however, that Rule 2320 shall apply, in lieu of this Rule, to members' activities in connection with "variable contracts" as defined therein.

        (b) Definitions

        (1) The terms "affiliated member," "compensation," "cash compensation," "non-cash compensation" and "offeror" as used in paragraph (l) of this Rule shall have the following meanings:

        (A) "Affiliated Member" shall mean a member which, directly or indirectly, controls, is controlled by, or is under common control with a non-member company.

        (B) "Compensation" shall mean cash compensation and non-cash compensation.

        (C) "Cash compensation" shall mean any discount, concession, fee, service fee, commission, asset-based sales charge, loan, override or cash employee benefit received in connection with the sale and distribution of investment company securities.

        (D) "Non-cash compensation" shall mean any form of compensation received in connection with the sale and distribution of investment company securities that is not cash compensation, including but not limited to merchandise, gifts and prizes, travel expenses, meals and lodging.

        (E) "Offeror" shall mean an investment company, an adviser to an investment company, a fund administrator, an underwriter and any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act) of such entities.

        (2) "Brokerage commissions," as used in paragraph (k), shall not be limited to commissions on agency transactions but shall include underwriting discounts or concessions and fees paid to members in connection with tender offers.

        (3) "Covered account," as used in paragraph (k), shall mean (A) any other investment company or other account managed by the investment adviser of such investment company, or (B) any other account from which brokerage commissions are received or expected as a result of the request or direction of any principal underwriter of such investment company or of any affiliated person (as defined in the Investment Company Act) of such investment company or of such underwriter, or of any affiliated person of an affiliated person of such investment company.

        (4) "Person" shall mean "person" as defined in the Investment Company Act.

        (5) "Prime rate," as used in paragraph (d), shall mean the most preferential interest rate on corporate loans at large U.S. money center commercial banks.

        (6) "Public offering price" shall mean a public offering price as set forth in the prospectus of the issuing company.

        (7) "Rights of accumulation" as used in paragraph (d), shall mean a scale of reducing sales charges in which the sales charge applicable to the securities being purchased is based upon the aggregate quantity of securities previously purchased or acquired and then owned plus the securities being purchased. The quantity of securities owned shall be based upon:
        (A) The current value of such securities (measured by either net asset value or maximum offering price); or
        (B) Total purchases of such securities at actual offering prices; or
        (C) The higher of the current value or the total purchases of such securities.
        The quantity of securities owned may also include redeemable securities of other registered investment companies having the same principal underwriter.
        (8) "Sales charge" and "sales charges," as used in paragraph (d), shall mean all charges or fees that are paid to finance sales or sales promotion expenses, including front-end, deferred and asset-based sales charges, excluding charges and fees for ministerial, recordkeeping or administrative activities and investment management fees. For purposes of this Rule, members may rely on the sales-related fees and charges disclosed in the prospectus of an investment company.

        (A) An "asset-based sales charge" is a sales charge that is deducted from the net assets of an investment company and does not include a service fee.

        (B) A "deferred sales charge" is any amount properly chargeable to sales or promotional expenses that is paid by a shareholder after purchase but before or upon redemption.

        (C) A "front-end sales charge" is a sales charge that is included in the public offering price of the shares of an investment company.

        (9) "Service fees," as used in paragraph (d), shall mean payments by an investment company for personal service and/or the maintenance of shareholder accounts.

        (10) The terms "underwriter," "principal underwriter," "redeemable security," "periodic payment plan," "open-end company," "closed-end company" and "unit investment trust," shall have the same definitions used in the Investment Company Act.

        (11) A "fund of funds" is an investment company that acquires securities issued by any other investment company registered under the Investment Company Act in excess of the amounts permitted under paragraph (A) of Section 12(d)(1) of the Investment Company Act. An "acquiring company" in a fund of funds is the investment company that purchases or otherwise acquires the securities of another investment company, and an "acquired company" is the investment company whose securities are acquired.

        (12) "Investment companies in a single complex" are any two or more companies that hold themselves out to investors as related companies for purposes of investment and investor services.

        (c) Conditions for Discounts to Dealers
        No member who is an underwriter of the securities of an investment company shall sell any such security to any dealer or broker at any price other than a public offering price unless such sale is in conformance with Rule 2040 and, if the security is issued by an open-end company or by a unit investment trust which invests primarily in securities issued by other investment companies, unless a sales agreement is in effect between the parties as of the date of the transaction, which agreement shall set forth the concessions to be received by the dealer or broker.
        (d) Sales Charge
        No member shall offer or sell the shares of any open-end company, any closed-end company that makes periodic repurchase offers pursuant to Rule 23c-3(b) under the Investment Company Act and offers its shares on a continuous basis pursuant to Rule 415(a)(1)(xi) under the Securities Act, or any "single payment" investment plan issued by a unit investment trust (collectively "investment companies") registered under the Investment Company Act if the sales charges described in the prospectus are excessive. Aggregate sales charges shall be deemed excessive if they do not conform to the following provisions:

        (1) Investment Companies Without an Asset-Based Sales Charge
        (A) Aggregate front-end and deferred sales charges described in the prospectus which may be imposed by an investment company without an asset-based sales charge shall not exceed 8.5% of the offering price.
        (B)(i) Rights of accumulation (cumulative quantity discounts) may be made available to any person in accordance with one of the alternative quantity discount schedules provided in paragraph (d)(1)(C)(i) below, as in effect on the date the right is exercised.
        (ii) If rights of accumulation are not made available on terms at least as favorable as those specified in paragraph (d)(1)(C)(i) the maximum aggregate sales charge shall not exceed 8.0% of offering price.
        (C)(i) Quantity discounts, if offered, shall be made available on single purchases by any person in accordance with one of the following two alternatives:
        a. A maximum aggregate sales charge of 7.75% on purchases of $10,000 or more and a maximum aggregate sales charge of 6.25% on purchases of $25,000 or more; or

        b. A maximum aggregate sales charge of 7.50% on purchases of $15,000 or more and a maximum aggregate sales charge of 6.25% on purchases of $25,000 or more.

        (ii) If quantity discounts are not made available on terms at least as favorable as those specified in paragraph (d)(1)(C)(i) the maximum aggregate sales charge shall not exceed:

        a. 7.75% of offering price if the provisions of paragraphs (d)(1)(B) are met.

        b. 7.25% of offering price if the provisions of paragraph (d)(1)(B) are not met.

        (D) If an investment company without an asset-based sales charge pays a service fee, the maximum aggregate sales charge shall not exceed 7.25% of the offering price.

        (2) Investment Companies with an Asset-Based Sales Charge
        (A) Except as provided in paragraphs (d)(2)(C) and (D), the aggregate asset-based, front-end and deferred sales charges described in the prospectus which may be imposed by an investment company with an asset-based sales charge, if the investment company has adopted a plan under which service fees are paid, shall not exceed 6.25% of total new gross sales (excluding sales from the reinvestment of distributions and exchanges of shares between investment companies in a single complex, between classes of an investment company with multiple classes of shares or between series of a series investment company) plus interest charges on such amount equal to the prime rate plus one percent per annum. The maximum front-end or deferred sales charge resulting from any transaction shall be 6.25% of the amount invested.

        (B) Except as provided in paragraphs (d)(2)(C) and (D), if an investment company with an asset-based sales charge does not pay a service fee, the aggregate asset-based, front-end and deferred sales charges described in the prospectus shall not exceed 7.25% of total new gross sales (excluding sales from the reinvestment of distributions and exchanges of shares between investment companies in a single complex, between classes of an investment company with multiple classes of shares or between series of a series investment company) plus interest charges on such amount equal to the prime rate plus one percent per annum. The maximum front-end or deferred sales charge resulting from any transaction shall be 7.25% of the amount invested.

        (C) The maximum aggregate sales charge on total new gross sales set forth in paragraphs (d)(2)(A) and (B) may be increased by an amount calculated by applying the appropriate percentages of 6.25% or 7.25% to total new gross sales which occurred after an investment company first adopted an asset-based sales charge until July 7, 1993 plus interest charges on such amount equal to the prime rate plus one percent per annum less any front-end, asset-based or deferred sales charges on such sales or net assets resulting from such sales.

        (D) The maximum aggregate sales charges of an investment company in a single complex, a class of shares issued by an investment company with multiple classes of shares or a separate series of a series investment company, may be increased to include sales of exchanged shares provided that such increase is deducted from the maximum aggregate sales charges of the investment company, class or series which redeemed the shares for the purpose of such exchanges.

        (E) No member shall offer or sell the shares of an investment company with an asset-based sales charge if:

        (i) The amount of the asset-based sales charge exceeds .75 of 1% per annum of the average annual net assets of the investment company; or

        (ii) Any deferred sales charges deducted from the proceeds of a redemption after the maximum cap described in paragraphs (d)(2)(A), (B), (C) and (D) hereof, has been attained are not credited to the investment company.

        (3) Fund of Funds
        (A) If neither an acquiring company nor an acquired company in a fund of funds structure has an asset-based sales charge, the maximum aggregate front-end and deferred sales charges that may be imposed by the acquiring company, the acquired company and those companies in combination, shall not exceed the rates provided in paragraph (d)(1).

        (B) Any acquiring company or acquired company in a fund of funds structure that has an asset-based sales charge shall individually comply with the requirements of paragraph (d)(2), provided:

        (i) If the acquiring and acquired companies are in a single complex and the acquired fund has an asset-based sales charge, sales made to the acquiring fund shall be excluded from total gross new sales for purposes of acquired fund's calculations under paragraphs (d)(2)(A) through (d)(2)(D); and

        (ii) If both the acquiring and acquired companies have an asset-based sales charge:

        a. the maximum aggregate asset-based sales charge imposed by the acquiring company, the acquired company and those companies in combination, shall not exceed the rate provided in paragraph (d)(2)(E)(i); and

        b. the maximum aggregate front-end or deferred sales charges shall not exceed 7.25% of the amount invested, or 6.25% if either company pays a service fee.

        (C) The rates described in paragraphs (d)(4) and (d)(5) shall apply to the acquiring company, the acquired company and those companies in combination. The limitations of paragraph (d)(6) shall apply to the acquiring company and the acquired company individually.

        (4) No member or person associated with a member shall, either orally or in writing, describe an investment company as being "no load" or as having "no sales charge" if the investment company has a front-end or deferred sales charge or whose total charges against net assets to provide for sales related expenses and/or service fees exceed .25 of 1% of average net assets per annum.

        (5) No member or person associated with a member shall offer or sell the securities of an investment company if the service fees paid by the investment company, as disclosed in the prospectus, exceed .25 of 1% of its average annual net assets or if a service fee paid by the investment company, as disclosed in the prospectus, to any person who sells its shares exceeds .25 of 1% of the average annual net asset value of such shares.

        (6) No member or person associated with a member shall offer or sell the securities of an investment company if:

        (A) The investment company has a deferred sales charge paid upon redemption that declines over the period of a shareholder's investment ("contingent deferred sales load"), unless the contingent deferred sales load is calculated as if the shares or amounts representing shares not subject to the load are redeemed first, and other shares or amounts representing shares are then redeemed in the order purchased, provided that another order of redemption may be used if such order would result in the redeeming shareholder paying a lower contingent deferred sales load; or

        (B) The investment company has a front-end or deferred sales charge imposed on shares, or amounts representing shares, that are purchased through the reinvestment of dividends, unless the registration statement registering the investment company's securities under the Securities Act became effective prior to April 1, 2000.

        (e) Selling Dividends
        No member shall, in recommending the purchase of investment company securities, state or imply that the purchase of such securities shortly before an ex-dividend date is advantageous to the purchaser, unless there are specific, clearly described tax or other advantages to the purchaser, and no member shall represent that distributions of long-term capital gains by an investment company are or should be viewed as part of the income yield from an investment in such company's securities.

        (f) Withhold Orders
        No member shall withhold placing customers' orders for any investment company security so as to profit as a result of such withholding.
        (g) Purchase for Existing Orders
        No member shall purchase from an underwriter the securities of any open-end company and no member who is an underwriter of such securities shall purchase such securities from the issuer, except (1) for the purpose of covering purchase orders previously received or (2) for its own investment. Nothing herein shall be deemed to prohibit any member from purchasing securities of any investment company specifically designed for short-term investment (e.g., money market fund).

        (h) Refund of Sales Charge
        If any security issued by an open-end company is repurchased by the issuer, or by the underwriter for the account of the issuer, or is tendered for redemption within seven business days after the date of the transaction, (1) the dealer or broker shall forthwith refund to the underwriter the full concession allowed to the dealer or broker on the original sale and (2) the underwriter shall forthwith pay to the issuer the underwriter's share of the sales charge on the original sale by the underwriter and shall also pay to the issuer the refund which it received under paragraph (d)(1) when it receives such refund. The dealer or broker shall be notified by the underwriter of such repurchase or redemption within ten days of the date on which the certificate or written request for redemption is delivered to the underwriter or issuer. If the original sale was made directly to the investor by the principal underwriter, the entire sales charge shall be paid to the issuer by the principal underwriter.

        (i) Purchases as Principal
        No member who is a party to a sales agreement referred to in paragraph (c) shall, as principal, purchase any security issued by an open-end company or unit investment trust from a record holder at a price lower than the bid price next quoted by or for the issuer.

        (j) Repurchase from Dealer
        No member who is a principal underwriter of a security issued by an open-end company or a closed-end company that makes periodic repurchase offers pursuant to Rule 23c-3(b) under the Investment Company Act and offers its shares on a continuous basis pursuant to Rule 415(a)(1)(xi) under the Securities Act shall repurchase such security, either as principal or as agent for the issuer, from a dealer acting as principal who is not a party to a sales agreement with a principal underwriter, nor from any investor, unless such dealer or investor is the record owner of the security so tendered for repurchase. No member who is a principal underwriter shall participate in the offering or in the sale of any such security if the issuer voluntarily redeems or repurchases its securities from a dealer acting as principal who is not a party to such a sales agreement nor from any investor, unless such dealer or investor is the record owner of the security so tendered for repurchase. Nothing in this paragraph shall relate to the compulsory redemption of any security upon presentation to the issuer pursuant to the terms of the security.
        Nothing in this Rule shall prevent any member, whether or not a party to a sales agreement, from selling any such security for the account of a record owner to the underwriter or issuer at the bid price next quoted by or for the issuer and charging the investor to a reasonable charge for handling the transaction, provided that such member discloses to such record owner that direct redemption of the security can be accomplished by the record owner without incurring such charges.

        (k) Execution of Investment Company Portfolio Transactions

        (1) No member shall, directly or indirectly, favor or disfavor the sale or distribution of shares of any particular investment company or group of investment companies on the basis of brokerage commissions received or expected by such member from any source, including such investment company, or any covered account.

        (2) No member shall sell shares of, or act as underwriter for, an investment company, if the member knows or has reason to know that such investment company, or an investment adviser or principal underwriter of the company, has a written or oral agreement or understanding under which the company directs or is expected to direct portfolio securities transactions (or any commission, markup or other remuneration resulting from any such transaction) to a broker or a dealer in consideration for the promotion or sale of shares issued by the company or any other registered investment company.

        (3) No member shall, directly or indirectly, demand or require brokerage commissions or solicit a promise of such commissions from any source as a condition to the sale or distribution of shares of an investment company.

        (4) No member shall, directly or indirectly, offer or promise to another member, brokerage commissions from any source as a condition to the sale or distribution of shares of an investment company and no member shall request or arrange for the direction to any member of a specific amount or percentage of brokerage commissions conditioned upon that member's sales or promise of sales of shares of an investment company.

        (5) No member shall circulate any information regarding the amount or level of brokerage commissions received by the member from any investment company or covered account to other than management personnel who are required, in the overall management of the member's business, to have access to such information.

        (6) No member shall, with respect to such member's activities as underwriter of investment company shares, suggest, encourage, or sponsor any incentive campaign or special sales effort of another member with respect to the shares of any investment company which incentive or sales effort is, to the knowledge or understanding of such underwriter-member, to be based upon, or financed by, brokerage commissions directed or arranged by the underwriter-member.

        (7) No member shall, with respect to such member's retail sales or distribution of investment company shares:

        (A) provide to salesmen, branch managers or other sales personnel any incentive or additional compensation for the sale of shares of specific investment companies based on the amount of brokerage commissions received or expected from any source, including such investment companies or any covered account. Included in this prohibition are bonuses, preferred compensation lists, sales incentive campaign or contests, or any other method of compensation which provides an incentive to sales personnel to favor or disfavor any investment company or group of investment companies based on brokerage commissions;

        (B) recommend specific investment companies to sales personnel, or establish "recommended," "selected," or "preferred" lists of investment companies, regardless of the existence of any special compensation or incentives to favor or disfavor the shares of such company or companies in sales efforts, if such companies are recommended or selected on the basis of brokerage commissions received or expected from any source;

        (C) grant to salesmen, branch managers or other sales personnel any participation in brokerage commissions received by such member from portfolio transactions of an investment company whose shares are sold by such member, or from any covered account, if such commissions are directed by, or identified with, such investment company or any covered account; or

        (D) use sales of shares of any investment company as a factor in negotiating the price of, or the amount of brokerage commissions to be paid on, a portfolio transaction of an investment company or of any covered account, whether such transaction is executed in the over-the-counter market or elsewhere.

        (8) Provided that the member does not violate any of the specific provisions of this paragraph (k), nothing herein shall be deemed to prohibit:

        (A) the execution of portfolio transactions of any investment company or covered account by members who also sell shares of the investment company; or
        (B) a member from compensating its salesmen and managers based on total sales of investment company shares attributable to such salesmen or managers, whether by use of overrides, accounting credits, or other compensation methods, provided that such compensation is not designed to favor or disfavor sales of shares of particular investment companies on a basis prohibited by this paragraph (k).

        (l) Member Compensation
        In connection with the sale and distribution of investment company securities:
        (1) Except as described below, no associated person of a member shall accept any compensation from anyone other than the member with which the person is associated. This requirement will not prohibit arrangements where a non-member company pays compensation directly to associated persons of the member, provided that:

        (A) the arrangement is agreed to by the member;

        (B) the member relies on an appropriate rule, regulation, interpretive release, interpretive letter, or "no-action" letter issued by the SEC or its staff that applies to the specific fact situation of the arrangement;

        (C) the receipt by associated persons of such compensation is treated as compensation received by the member for purposes of FINRA rules; and

        (D) the recordkeeping requirement in paragraph (l)(3) is satisfied.

        (2) No member or person associated with a member shall accept any compensation from an offeror which is in the form of securities of any kind.

        (3) Except for items described in subparagraphs (l)(5)(A) and (B), a member shall maintain records of all compensation received by the member or its associated persons from offerors. The records shall include the names of the offerors, the names of the associated persons, the amount of cash, the nature and, if known, the value of non-cash compensation received.

        (4) No member shall accept any cash compensation from an offeror unless such compensation is described in a current prospectus of the investment company. When special cash compensation arrangements are made available by an offeror to a member, which arrangements are not made available on the same terms to all members who distribute the investment company securities of the offeror, a member shall not enter into such arrangements unless the name of the member and the details of the arrangements are disclosed in the prospectus. Prospectus disclosure requirements shall not apply to cash compensation arrangements between:

        (A) principal underwriters of the same security; and

        (B) the principal underwriter of a security and the sponsor of a unit investment trust which utilizes such security as its underlying investment.

        (5) No member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation, except as provided in this provision. Notwithstanding the provisions of paragraph (l)(1), the following non-cash compensation arrangements are permitted:

        (A) Gifts that do not exceed an annual amount per person fixed periodically by FINRA1 and are not preconditioned on achievement of a sales target.
        (B) An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.

        (C) Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that:

        (i) the recordkeeping requirement in paragraph (l)(3) is satisfied;

        (ii) associated persons obtain the member's prior approval to attend the meeting and attendance by a member's associated persons is not preconditioned by the member on the achievement of a sales target or any other incentives pursuant to a non-cash compensation arrangement permitted by paragraph (l)(5)(D);

        (iii) the location is appropriate to the purpose of the meeting, which shall mean an office of the offeror or the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings;

        (iv) the payment or reimbursement is not applied to the expenses of guests of the associated person; and

        (v) the payment or reimbursement by the offeror is not preconditioned by the offeror on the achievement of a sales target or any other non-cash compensation arrangement permitted by paragraph (l)(5)(D).

        (D) Non-cash compensation arrangements between a member and its associated persons or a non-member company and its sales personnel who are associated persons of an affiliated member, provided that:

        (i) the member's or non-member's non-cash compensation arrangement, if it includes investment company securities, is based on the total production of associated persons with respect to all investment company securities distributed by the member;

        (ii) the non-cash compensation arrangement requires that the credit received for each investment company security is equally weighted;

        (iii) no unaffiliated non-member company or other unaffiliated member directly or indirectly participates in the member's or non-member's organization of a permissible non-cash compensation arrangement; and

        (iv) the recordkeeping requirement in paragraph (l)(3) is satisfied.

        (E) Contributions by a non-member company or other member to a non-cash compensation arrangement between a member and its associated persons, provided that the arrangement meets the criteria in paragraph (l)(5)(D).

        (m) Prompt Payment for Investment Company Shares
        (1) Members (including underwriters) that engage in direct retail transactions for investment company shares shall transmit payments received from customers for such shares, which such members have sold to customers, to payees (i.e., underwriters, investment companies or their designated agents) by (A) the end of the second business day following a receipt of a customer's order to purchase such shares or by (B) the end of one business day following receipt of a customer's payment for such shares, whichever is the later date.

        (2) Members that are underwriters and that engage in wholesale transactions for investment company shares shall transmit payments for investment company shares, which such members have received from other members, to investment company issuers or their designated agents by the end of two business days following receipt of such payments.

        (n) Disclosure of Deferred Sales Charges
        In addition to the requirements for disclosure on written confirmations of transactions contained in Rule 2232, if the transaction involves the purchase of shares of an investment company that imposes a deferred sales charge on redemption, such written confirmation shall also include the following legend: "On selling your shares, you may pay a sales charge. For the charge and other fees, see the prospectus." The legend shall appear on the front of a confirmation and in, at least, 8-point type.


        1 The current annual amount fixed by FINRA is $100.

        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2016-019 eff. July 9, 2016.
        Amended by SR-NASD-2004-027 eff. Feb. 14, 2005.
        Amended by SR-NASD-99-74 eff. June 20, 2000.
        Amended by SR-NASD-98-14 eff. April 1, 2000.
        Amended by SR-NASD-97-35 eff. Jan. 1, 1999.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended by SR-NASD-93-42 eff. Feb. 24, 1994.
        Amended by SR-NASD-90-69 eff. July 7, 1993.
        Amended by SR-NASD-90-56 eff. Oct. 1, 1991.
        Amended by SR-NASD-86-34 eff. Oct. 31, 1988.
        Amended by SR-NASD-84-51 eff. July 10, 1984.
        Amended by SR-NASD-80-21 eff. Mar. 4, 1981.
        Amended by SR-NASD-75-13 eff. May 1, 1976.
        Amended by SEC Release No. 10147 eff. July 15, 1973.
        Amended eff. Feb. 8, 1971.
        Adopted by SEC Release No. 2866 eff. June 1, 1941.

        Selected Notices to Members: 73-42, 75-68, 75-70, 80-07, 80-13, 80-43, 81-08, 84-40, 85-86, 88-96, 89-51, 91-40, 91-68, 92-41, 93-12, 93-52, 93-82, 94-13, 94-14, 94-16, 94-41, 94-67, 95-36, 95-56, 97-48, 97-50, 98-75; 99-55, 99-103, 00-53, 05-04.

      • 11140. Transactions in Securities "Ex-Dividend," "Ex-Rights" or "Ex-Warrants"

        (a) Designation of Ex-Date
        All transactions in securities, except "cash" transactions, shall be "ex-dividend," "ex-rights" or "ex-warrants": (1) on the day specifically designated by the Committee after definitive information concerning the declaration and payment of a dividend or the issuance of rights or warrants has been received at the office of the Committee; or (2) on the day specified as such by the appropriate national securities exchange which has received definitive information in accordance with the provisions of SEA Rule 10b-17 concerning the declaration and payment of a dividend or the issuance of rights or warrants.
        (b) Normal Ex-Dividend, Ex-Warrants Dates

        (1) In respect to cash dividends or distributions, or stock dividends, and the issuance or distribution of warrants, which are less than 25% of the value of the subject security, if the definitive information is received sufficiently in advance of the record date, the date designated as the "ex-dividend date" shall be the first business day preceding the record date if the record date falls on a business day, or the second business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date.

        (2) In respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25% or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date.

        (3) In respect to stock dividends and/or splits relating to American Depository Receipts (ADRs) and foreign securities, the ex-dividend or ex-warrants date shall be designated by the Committee.

        (c) Late Information Re: Ex-Dividend, Ex-Warrants Dates
        If definitive information is not received sufficiently in advance of the record date to permit designation of an ex-dividend or ex-warrants date in accordance with paragraph (b)(1) of this Rule, the date designated shall be the first business day which, in the opinion of the Committee, shall be practical having regard to the circumstances pertaining.
        (d) Normal Ex-Rights Dates
        In respect to transferable rights subscription offerings, if definitive information is received sufficiently in advance of the effective date of the registration statement, the date designated as the ex-rights date shall be the first business day after the effective date of the registration statement.
        (e) Late Information Re: Ex-Rights
        If definitive information is not received sufficiently in advance of the effective date of the registration statement to permit designation of an ex-rights date in accordance with paragraph (d) of this Rule, the date designated shall be the first business day which in the opinion of the Committee shall be practical having regard to the circumstances pertaining.
        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended by SR-NASD-91-13 eff. Nov. 1, 1991.
        Amended eff. Mar. 1, 1979; Mar. 18, 1983; Apr. 11, 1984.

        Selected Notices: 83-69, 84-44, 91-63, 10-49.

      • 11150. Transactions "Ex-Interest" in Bonds Which Are Dealt in "Flat"

        (a) Normal Ex-Interest Dates
        All transactions, except "cash" transactions, in bonds or similar evidences of indebtedness which are traded "flat" shall be "ex-interest" as prescribed by the following provisions:
        (1) On the first business day preceding the record date if the record date falls on a business day.

        (2) On the second business day preceding the record date if the record date falls on a day other than a business day.

        (3) On the second business day preceding the date on which an interest payment is to be made if no record date has been fixed.

        (b) Late Information Re: Ex-Interest Dates
        If notice of payment of interest is not made public sufficiently in advance of the record date or the payment date, as the case may be, to permit the security to be dealt in "ex-interest" in accordance with paragraph (a) of this Rule such security shall be dealt in "ex-interest" on the first business day which, in the opinion of the Committee, shall be practical having regard to the circumstances pertaining.
        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended by SR-NASD-91-13 eff. Nov. 1, 1991.
        Amended eff. Feb. 9, 1968; Mar. 18, 1983.

        Selected Notices: 83-69, 91-63, 10-49.

      • 11210. Sent by Each Party

        (a) Comparisons or Confirmations

        (1) Each party to a transaction, other than a cash transaction, shall send a Uniform Comparison or Confirmation of same on or before the first business day following the date of the transaction.

        (2) Comparisons or confirmations of cash transactions shall be exchanged on the day of the trade.

        (3) Comparisons or confirmations shall be compared upon receipt to ascertain whether any discrepancies exist. If discrepancies do exist, a corrected Uniform Comparison or Confirmation shall be sent by the party in error.

        (4) This Rule shall not be applicable to transactions which clear through the National Securities Clearing Corporation or other clearing organizations registered under the Exchange Act.

        (b) Uniform Comparison or Confirmation
        A properly executed Uniform Comparison or Confirmation must be used for each transaction.*
        (c) "DK" Procedures Using "Don't Know Notices" (FINRA Form No. 101)
        When a party to a transaction sends a comparison or confirmation of a trade, but does not receive a comparison or confirmation or a signed DK, from the contra-member by the close of one business day following the trade date of the transaction, the following procedure may be utilized.
        (1) The confirming member shall send by certified mail, return receipt requested, or messenger, a "Don't Know Notice" on the form prescribed by FINRA to the contra-member in accordance with the directions contained thereon. If the notice is sent by certified mail the returned, signed receipt therefor must be retained by the confirming member and attached to the fourth copy of the "Don't Know Notice." If delivered by messenger, the fourth copy must immediately be dated and manually receipted by, and imprinted with the firm stamp of, the contra-member pursuant to the provisions of paragraph (c)(4) of this Rule, returned to the messenger and thereafter be retained by the confirming member.
        (2)(A) After receipt of the "Don't Know Notice" as specified in paragraph (c)(1) of this Rule, the contra-member shall have two business days after the notice is received to either confirm or DK the transaction in accordance with the provisions of paragraph (c)(2)(B) or (c)(2)(C) of this Rule.
        (B) If the contra-member desires to respond by mail, the second copy of the "Don't Know Notice" previously received shall be executed in accordance with the provisions of paragraph (c)(4) of this Rule and sent to the confirming broker by certified mail, return receipt requested. The notice so returned shall indicate clearly whether the contra-member desires to confirm or DK the transaction. The returned, signed receipt must thereafter be retained by the contra-member.
        (C) If the contra-member desires to respond by messenger, it shall return to the confirming member the second and third copies of the notice which shall indicate clearly whether the contra-member desires to confirm or DK the transaction. The third copy shall be dated and manually receipted by the confirming broker pursuant to the provisions of paragraph (c)(4) of this Rule and immediately be returned to the messenger and thereafter be retained by the contra-member.
        (3) If the confirming member does not receive a response from the contra-member by the close of two business days after receipt by the confirming member of the fourth copy of the "Don't Know Notice" if delivered by messenger, or the post office receipt if delivered by mail, as specified in paragraph (c)(1) of this Rule, such shall constitute a DK and the confirming member shall have no further liability for the trade.
        (4) All "Don't Know Notices" sent by any party pursuant to the provisions of paragraph (c) of this Rule, must be manually signed by a person authorized to pursue further discussions in respect to the transaction on behalf of the signing member. In addition to the manual signature receipt on the third and fourth copies, as required by paragraphs (c)(1) and (c)(2)(C) of this Rule, if delivered by hand, the firm stamp of the contra-member must be imprinted thereon to signify receipt.
        (5) The "Don't Know Notice" form to be used for purposes of complying with this section, may be ordered through any office of FINRA. If the official form is not used, the form which is used must conform in every respect to the official form.
        (d) "DK" Procedure Using Other Forms of Notice
        When a party to a transaction sends comparison or confirmation of a trade, but does not receive a comparison or confirmation or a signed DK, from the contra-member by the close of one business day following the date of the transaction, the following procedure may be utilized in place of that provided in the preceding paragraph (c) of this Rule.
        (1) The confirming member shall provide notice to the contra-member identifying the trade in question by providing the information described in Rule 11220. The notice shall, in addition, contain a request for the contra-member to confirm or "DK" the trade and the name of the individual issuing the notice.
        (2) The confirming member shall record and retain verification of delivery to the contra-member of each notice issued in accordance with paragraph (d)(1) of this Rule.
        (3) The contra-member, on receipt of the notice from the confirming member, shall research the trade in question.
        (4) The contra-member shall then send notice to the confirming member to either confirm or "DK" the trade and shall include the name of the individual issuing the notice.
        (5) If the confirming member does not receive a response in the form of a notice from the contra-member by the close of two business days after receipt of the confirming member's notice, such shall constitute a DK and the confirming member shall have no further liability.
        (6) Both the confirming member and the contra-member shall record and retain verification of the delivery and receipt of each notice issued pursuant to paragraph (d)(4) of this Rule.
        (7) If the trade in question is confirmed by the contra-member pursuant to paragraph (d)(4) of this Rule, settlement shall be completed in the normal manner.
        (8) Notices under this paragraph (d) may be delivered through any communications medium which provides verification of delivery and receipt as required under paragraphs (d)(2) and (d)(6).

        * Specifications for use of the Uniform Comparison are contained in the Final Report of the Banking and Securities Industry Committee entitled "Four Uniform Forms," dated December 22, 1971.


        • • • Supplementary Material: --------------

        .01 Uniform Comparison Form.

        NO. COMPARISON NAME OF MEMBER:
        ADDRESS:
        TELEPHONE
        . . .

        CODES
        ORIGINATOR NO.
        TRANS. NO TR CAP SETT TRADE DATE SETTLEMENT DATE

        IDENTIFICATION NO. CONTRA PARTY C.H. NUMBER SPECIAL DELIVERY INSTRUCTIONS









        WE QUANTITY CUSIP NUMBER SECURITY DESCRIPTION NET AMOUNT







        PRICE
        RESERVED FOR USER'S MONEY DETAIL





        FORM AS SHOWN IS NOT DRAWN TO SCALE

        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended eff. Feb. 9, 1968; Dec. 30, 1968; Mar. 1, 1970; Dec. 1, 1972; amended by SR-NASD-76-6 eff. Jan. 13, 1977; amended by SR-NASD-84-1 eff. Apr. 11, 1984.

        Selected Notices: 84-44, 10-49.

      • 11320. Dates of Delivery

        (a) For "Cash"
        In connection with a transaction for "cash," delivery shall be made at the office of the purchaser on the day of the transaction.
        (b) "Regular Way"
        In connection with a transaction "regular way," delivery shall be made at the office of the purchaser on, but not before, the second business day following the date of the transaction.
        (c) "Seller's Option"
        In connection with a transaction "seller's option," delivery shall be made at the office of the purchaser on the date on which the option expires; except that delivery may be made by the seller on any business day after the second business day following the date of transaction and prior to the expiration of the option, provided the seller delivers at the office of purchaser, on a business day preceding the day of delivery, written notice of intention to deliver.
        (d) "Buyer's Option"
        In connection with a transaction "buyer's option," delivery shall be made at the office of the purchaser on the date on which the option expires.

        (e) Contracts Due on Holidays or Saturdays
        Contracts due on a day other than a business day shall mature on the next business day.
        (f) "Delayed-Delivery"
        In connection with a transaction made for "delayed-delivery," delivery shall be at the office of the purchaser on the date agreed upon at the time for the transaction.
        (g) Prior to Delivery Date
        If in contracts executed pursuant to paragraphs (b), (d) and (h) of this Rule, the seller tenders delivery before the stated time, acceptance shall be at the election of the purchaser, and rejection of such delivery by the purchaser shall be without prejudice to his rights.
        (h) Time and Place of Delivery
        Delivery shall be made at the office of the purchaser between the hours established by rule or practice in the community where such office is located. If the purchaser maintains more than one office, delivery shall be made at the office with which the transaction was effected, unless delivery instructions are provided at the time of the transaction.
        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended by SR-NASD-91-13 eff. Nov. 1, 1991.
        Amended eff. Apr. 11, 1984.

        Selected Notices: 84-44, 10-49.

      • 11620. Computation of Interest

        (a) Interest to be Added to the Dollar Price
        In the settlement of contracts in interest-paying securities other than for "cash," there shall be added to the dollar price interest at the rate specified in the security, which shall be computed up to but not including the second business day following the date of the transaction. In transactions for "cash," interest shall be added to the dollar price at the rate specified in the security up to but not including the date of transaction.
        (b) Basis of Interest
        Interest shall be computed on the basis of a 360-day year, i.e., every calendar month shall be considered to be 1/12 of 360 days; every period from a date in one month to the same date in the following month shall be considered to be 30 days.
        Note: The number of elapsed days should be computed in accordance with the examples given in the following table:

        From 1st to 30th of the same month to be figured as 29 days;
        From 1st to 31st of the same month to be figured as 30 days;
        From 1st to 1st of the following month to be figured as 30 days;
        From 1st to 28th of February to be figured as 27 days;
        From the 23rd of February to the 3rd of March is to be figured as 10 days;
        From the 15th of May to the 6th of June is to be figured as 21 days.
        Where interest is payable on 30th or 31st of the month:

        From 30th or 31st to 1st of the following month to be figured as 1 day;
        From 30th or 31st to 30th of the following month to be figured as 30 days;
        From 30th or 31st to 31st of the following month to be figured as 30 days;
        From 30th or 31st to 1st of second following month to be figured as 1 month, 1 day.
        (c) Securities Traded "and interest"
        When delivery of a security traded "and interest" is made between the record date fixed for the purpose of determining the holder entitled to receive interest and the interest payment date, a deduction equivalent to the full amount of the interest to be paid shall be made on settlement.
        (d) Securities Traded "flat"
        When delivery of a security traded "flat" is made after the record date fixed for the purpose of determining the holder entitled to receive interest, in the settlement of a contract made prior to the date on which the security was traded "ex-interest," a due-bill check for the full amount of the interest to be paid shall accompany the delivery.
        (e) Income Bonds
        Income bonds shall be dealt in "flat" even though such bonds are paying interest, except that where a certain fixed rate is guaranteed in the indenture and provision is made for additional contingent payment, they shall be dealt in "and interest" at the fixed rate guaranteed in the indenture (so long as interest payments at such fixed rate are not in default and no announcement of intention to default has been made).
        (f) Fractions of a Cent
        In all transactions involving the payment of interest, fractions of a cent equalling or exceeding five mills shall be regarded as one cent; fractions of a cent less than five mills shall be disregarded.
        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-94-56 eff. June 7, 1995.
        Amended eff. Jan. 2, 1968; Feb. 9, 1968; Feb. 21, 1969; Mar. 18, 1983.

        Selected Notices: 83-69, 95-36, 10-49.

      • 11810. Buy-In Procedures and Requirements

        (a) A securities contract that has not been completed by the seller according to its terms may be closed by the buyer not sooner than the third business day following the date delivery was due, in accordance with this Rule.

        However, this Rule shall not apply:

        (1) where the contract is subject to the “buy-in” requirements of a national securities exchange or a registered clearing agency, in which case, the requirements of the national securities exchange or registered clearing agency, as applicable, would apply;

        (2) to transactions in securities exempted under Section 3(a)(12) of the Exchange Act;

        (3) to transactions in municipal securities as defined in Section 3(a)(29) of the Exchange Act;

        (4) to transactions in redeemable securities issued by companies registered under the Investment Company Act; provided, however, that this Rule shall apply to secondary market transactions between members in any security issued by a registered investment company classified as a “unit investment trust” under Section 4 of the Investment Company Act. Redemption of securities directly by the trustee of the unit investment trust are not transactions between members for purposes of this subparagraph; and

        (5) to transactions in Direct Participation Program securities as defined in Rule 2310.

        (b) Notice of "Buy-In" and Confirmation of Receipt

        (1) Written notice of "buy-in" shall be delivered to the seller at its office not later than 12:00 noon, Eastern Time (ET), two business days preceding the execution of the proposed "buy-in."

        (2) For purposes of this Rule, written notice shall include an electronic notice through a medium that provides for an immediate return receipt capability. Such electronic media shall include but not be limited to facsimile transmission, a computerized network facility, or the electronic functionality of a registered clearing agency.

        (3) Confirmation of receipt of the “buy-in” notice by the seller shall be maintained with the notice as part of the buyer's books and records.

        (4) If the seller receiving the “buy-in” notice does not accept such “buy-in” notice, it shall send a signed, written response to the buyer stating its rejection with respect thereto by no later than 6:00 p.m. ET on the date of issuance of such notice. If the seller receiving the “buy-in” notice does not send a signed, written response to the buyer stating its rejection of such “buy-in” notice by no later than 6:00 p.m. ET on the date of issuance of the “buy-in” notice, the notice shall be deemed to have been accepted by the seller. However, prior to the proposed effective date of the “buy-in,” the seller has a right to request proof of fail obligation from the buyer and the buyer shall deliver such proof to the seller prior to such date. In no event shall a buyer be entitled to a “buy-in” that exceeds the liability of a seller under an unsettled securities contract because of the failure of the seller to reject a “buy-in” notice as stated in this paragraph (b). A buyer may not execute a “buy-in” notice to such extent the buyer fails to deliver the proof of fail obligation in accordance with the requirements of this paragraph (b).

        (5) Notice shall be redelivered immediately by the receiving party to other parties from which the securities involved are due in the form of a re-transmitted notice. A re-transmitted notice of “buy-in” received by a member shall be delivered to subsequent parties not later than 12 noon ET on the business day preceding the time and date of execution of the proposed buy-in, and the time specified for delivery shall not be prior to the time specified in the original notice.

        Each party receiving a re-transmitted notice shall be subject to paragraphs (b)(3) and (4) of this Rule; provided, however, that with respect to the written response required by paragraph (b)(4), each party receiving the re-transmitted notice must provide such response to the party from which such notice was received.

        (6) When notice of “buy-in,” or re-transmitted notice thereof, is given for less than the full amount of securities due, it shall not be for less than one trading unit.

        (c) Information Contained in "Buy-in" Notice

        Every notice of "buy-in" (including re-transmitted notice thereof) shall state the date that the contract will be closed out, the quantity and contract value of the securities covered by said contract, the settlement date of said contract and any other information deemed necessary to properly identify the contract to be closed out. Such notice shall state further that unless delivery is effected at or before 3:00 p.m. ET on the “effective date” of the “buy-in” notice, the security may be "bought-in" on the date specified for the account of the seller. Each "buy-in" notice shall also state the name and telephone number of the individual authorized to pursue further discussions concerning the buy-in.

        (d) Procedures for Closing of Contracts

        (1)(A) A seller that has received a “buy-in” notice, pursuant to this Rule, or re-transmitted notice thereof, and that has not rejected or stayed the notice as provided by this Rule, shall deliver the securities to the party issuing such notice at or before 3:00 p.m. ET on the “effective date” of the “buy-in” notice unless otherwise agreed to by the issuing party, prior to execution of the “buy-in” and such seller having notified the issuing party that it has physical possession of the securities. If the issuing party, prior to the execution of the “buy-in” pursuant to this Rule, is notified by a seller that some or all of the securities (but not less than one trading unit) are in the seller's physical possession and will be promptly delivered to such member, then the order to “buy-in” shall not be executed with respect to such securities, and the member that has initiated the original order to “buy-in” shall accept and pay for such securities, if delivered promptly. If such securities are not promptly delivered, the seller that has stated that they would be promptly delivered shall be liable for any resulting damages.
        (B) On failure of the seller to effect delivery in accordance with the "buy-in" notice, or to obtain a stay as provided in this Rule, the buyer may close the contract by purchasing all or part of the securities necessary to satisfy the amount requested in the "buy-in" notice. Securities delivered to the buyer by the seller subsequent to the receipt of the "buy-in" notice shall be considered as delivered pursuant to the "buy-in" notice. Delivery of the requisite number of shares, as stated in the "buy-in" notice, or execution of the “buy-in” by the buyer against the seller will also operate to close-out all contracts covered under re-transmitted notices of buy-ins issued pursuant to the original notice of buy-in. However, if a re-transmitted notice is sent by a member prior to the delivery of the requisite number of shares as stated in the “buy-in” notice, or prior to the execution of the “buy-in,” but such notice is not received by the recipient until after the delivery of the shares or execution of the “buy-in,” then the member that sent the notice may, unless otherwise agreed, promptly re-establish, by a new sale, the contract with respect to which such notice was sent. A "buy-in" may be executed by a member from its long position and/or from customers' accounts maintained with such member.

        (C) For transactions where the buyer is a customer (other than another member), upon failure of a clearing corporation to effect delivery in accordance with a buy-in notice, the contract must be closed by purchasing for "cash" in the best available market, or at the option of the buyer for guaranteed delivery, for the account and liability of the party in default all or any part of the securities necessary to complete the contract.

        (D) As provided in paragraphs (d)(1)(A) through (C) of this Rule, members must be prepared to defend the price at which the "buy-in" is executed relative to the current market at the time of the "buy-in."

        (2) Buy-in for unit investment trust securities. Buy-in execution options, in addition to those contained in paragraph (d)(1), may be available when the buyer wishes to buy-in contracts made for unit investment trust securities. The buyer may:

        (A) by mutual agreement, accept from the seller in lieu of the seller's obligation under the original contract (which shall be concurrently canceled) the delivery of unit investment trust securities which are comparable to those originally bought in quantity, quality, yield or price and maturity, with any additional expenses or any additional cost of acquiring such substituted securities being borne by the seller;

        (B) if the buyer's options in paragraph (d)(1) are not available and the buyer and seller cannot agree upon the option in paragraph (d)(2)(A), above, require the seller, for the account and liability of the seller, to repurchase the unit investment trust securities on terms which provide that the seller pay an amount which requires the seller to bear the burden of any change in the market price from the original contract price, with accrued interest. Bearing the burden of any change in the market price from the original contract price means that if the current market price is higher than the original contract price, the buyer may require the seller to repurchase the unit investment trust securities at the current market price and conversely means that if the current market price is lower than the original contract price, the buyer may require the seller to repurchase the unit investment trust securities at the original contract price, with accrued interest.

        (e) "Buy-in" Not Completed

        (1) In the event that a "buy-in" is not completed pursuant to the provisions of paragraph (d) hereof on the day specified in the notice of "buy-in," or as such date may be extended pursuant to the provisions of this Rule, said notice shall expire at the close of business on the day specified in the notice of buy-in.

        (2) When a "buy-in" notice for a reconfirmation eligible security is pending during a reconfirmation and pricing period and one or more members are participating in a reconfirmation and pricing service, such "buy-in" notice shall be canceled. Written notice of cancellation must be received by the non-participating member prior to the original or extended date of execution. Failure to provide such notification may result in an execution. New notice of "buy-in" may be issued no earlier than the first business day following the final reconfirmation and pricing settlement date.

        (f) Delivery by Seller
        Prior to the closing of a contract on which a "buy-in" notice has been given, the buyer shall accept delivery of the securities called for by the contract, provided that in the case of a partial delivery of securities called for by the contract, the portion remaining undelivered at the time the buyer proposes to execute the "buy-in" is not an amount which includes an odd-lot which was not part of the original transaction.
        (g) Securities in Transit
        If prior to the closing of a contract on which a "buy-in" notice has been given, the buyer receives from the seller written or comparable electronic notice stating that the securities, except for those securities due from a depository, are (1) in transfer; (2) in transit; (3) being shipped that day; (4) due from a depository, and giving the certificate numbers of the securities; then the buyer must extend the execution date of the "buy-in" for a period of seven (7) calendar days from the date delivery was due under the "buy-in." Upon request of the seller, an additional extension of seven (7) calendar days may be granted by the Committee due to the circumstances involved.
        (h) Notice of Executed "Buy-In"
        The party executing the "buy-in" shall immediately upon execution, but no later than 6:00 p.m. ET on the date of execution of the buy-in, notify the party for whose account the securities were bought as to the quantity purchased and the price paid. Such notification shall be in written or electronic form having immediate receipt capabilities. If this written media is not available the telephone shall be used for the purpose of same day notification, and written or similar electronic notification having next day receipt capabilities must also be sent out simultaneously. In either case formal confirmation of purchase shall be forwarded to the party entitled to receive the same not later than 9:30 a.m. ET on the following business day after the execution of the "buy-in." Notification of the execution of a "buy-in" shall be given to succeeding parties to which a re-transmitted notice was issued pursuant to paragraph (c) of this Rule using the same procedures stated in this paragraph. If a re-transmitted "buy-in" is executed, it will operate to close out all contracts covered under the re-transmitted notice. Statements of resulting money differences, if any, shall also be provided immediately. Any money difference resulting from the closing of a contract, or from the re-establishment of a contract as provided in this Rule, shall be paid not later than 3:00 p.m. ET on the business day after the settlement date of the executed “buy-in” to the member entitled to receive the same.
        (i) "Close-Out" Under Uniform Practice Code Committee Rulings

        (1) When a national securities exchange makes a ruling that all open contracts with a particular member, which is also a member of FINRA, should be closed-out immediately (or any similar ruling), members may close-out contracts as directed by the exchange.

        (2) Whenever the Uniform Practice Code Committee ascertains that a court has appointed a receiver for any member because of its insolvency or failure to meet its obligations, or whenever the Uniform Practice Code Committee ascertains, based upon evidence before it, that a member cannot meet its obligations as they become due and that such action will be in the public interest, the Uniform Practice Code Committee may, in its discretion, issue notification that all open contracts with the member in question may be closed-out immediately.

        (3) Within the meaning of this paragraph (i), to close-out immediately shall mean that (A) "buy-ins" may be executed without prior notice of intent to "buy-in" and (B) "sell-outs" may be executed without making prior delivery of the securities called for.

        (4) All close-outs executed pursuant to the provisions of this paragraph (i) shall be executed for the account and liability of the member in question. Notification of all close-outs shall immediately be sent to such member pursuant to the confirmation provisions of the Rule 11200 Series at least thirty minutes before such close-out.

        (j) Failure to Deliver and Liability Notice Procedures
        (1)(A) If a contract is for warrants, rights, convertible securities or other securities which (i) have been called for redemption; (ii) are due to expire by their terms; (iii) are the subject of a tender or exchange offer; or (iv) are subject to other expiring events such as a record date for the underlying security and the last day on which the securities must be delivered or surrendered (the expiration date) is the settlement date of the contract or later, the receiving member may deliver a Liability Notice to the delivering member as an alternative to the close-out procedures set forth in paragraphs (b) through (h). When the parties to a contract are both participants in a registered clearing agency that has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver, the transmission of the liability notice must be accomplished through the use of said automated notification service. When the parties to a contract are not both participants in a registered clearing agency that has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver, such notice must be issued using written or comparable electronic media having immediate receipt capabilities, and must be sent as soon as practicable but not later than two hours prior to the cutoff time set forth in the instructions on a specific offer or other event in order to obtain the protection provided by this Rule.

        (B) If the contract is for a deliverable instrument with an exercise provision and the exercise may be accomplished on a daily basis, and the settlement date of the contract to purchase the instrument is on or before the requested exercise date, the receiving member may deliver a Liability Notice to the delivering member no later than 11:00 a.m. ET on the day the exercise is to be effected. Notice may be redelivered immediately to another member but no later than noon ET on the same day. When the parties to a contract are both participants in a registered clearing agency that has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver, the transmission of the liability notice must be accomplished through use of said automated notification service. When the parties to a contract are not both participants in a registered clearing agency that has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver, such notice must be issued using written or comparable electronic media having immediate receipt capabilities. If the contract remains undelivered at expiration, and has not been canceled by mutual consent, the receiving member shall notify the defaulting member of the exact amount of the liability on the next business day.

        (C) In all cases, members must be prepared to document requests for which a Liability Notice is initiated.

        (2) If the delivering member fails to deliver the securities on the expiration date, the delivering member shall be liable for any damages which may accrue thereby. A Liability Notice delivered in accordance with the provisions of this Rule shall serve as notification by the receiving member of the existence of a claim for damages. All claims for such damages shall be made promptly.

        (3) For the purposes of this Rule, the term "expiration date" shall be defined as the latest time and date on which securities must be delivered or surrendered, up to and including the last day of the protect period, if any.

        (4) If the above procedures are not utilized as provided under this Rule, contracts may be "bought-in" without prior notice, after normal delivery hours, on the expiration date. Such buy-in execution shall be for the account and risk of the defaulting member.

        (k) Contracts Made for Cash
        Contracts made for "cash," or made for or amended to include guaranteed delivery on a specified date may be "bought-in" without notice during the normal trading hours on the day following the date delivery is due on the contract; otherwise, the procedures set forth in paragraphs (b) through (g) of this Rule shall apply. In all cases, notification of executed "buy-in" must be provided pursuant to paragraph (h) of this Rule. "Buy-ins" executed in accordance with this paragraph shall be for the account and risk of the defaulting broker-dealer.

        (l) "Buy-In" Desk Required
        Members shall have a "buy-in" section or desk adequately staffed to process and research all "buy-ins" within the required time frames of this Rule.

        (m) Buy-In of Accrued Securities
        Securities in the form of stock, rights or warrants which accrue to a buyer shall be deemed due and deliverable to the buyer on the payable date. Any such securities remaining undelivered at that time shall be subject to the "buy-in" procedures as provided under this Rule.


        • • • Supplementary Material: --------------

        .01 Early Closures of Markets. For purposes of paragraphs (c) and (d)(1)(A) of this Rule, in the event of an announced early closure of the market upon which the security subject to the “buy-in” notice is traded, members may take the action required by such paragraphs not earlier than one hour prior to the announced early closure of such market.

        .02 Securities Delivered by Seller After Execution of “Buy-In.” Where securities have been delivered by the seller after the “buy-in” order has been placed by the party affecting the “buy-in,” the securities may be returned to the seller if the “buy-in” was executed in accordance with this Rule before it could reasonably be cancelled by the initiating party.

        .03 Sample Buy-In Forms.

        (a) Notice of Buy-In

          ................................................................................
          (Member's Name)
         
          ................................................................................
          (Locality and Date)
         
        TO ..................................................................................................................................
         
        RE ..................................................................................................................................
         
        (Quantity and Description of Security)
         
        which is due from you to the undersigned on a contract made on ........... at .............. for settlement
         
        (Date of Contract) (Contract Price)
         
        ....................................................
         
        (Settlement Date)
         
        * * *
         
            We hereby notify you that unless you make delivery of the foregoing security at or before .................. (Time and Date) the security will be bought in for your account and risk pursuant to Rule 11810 in the Uniform Practice Code.
         
        Note: If some or all of the foregoing securities are due you by another member of the Financial Industry Regulatory Authority, Inc. Rule 11810 permits the use of the re-transmitted buy-in.
         
            Buy-In Dept.
          By:
          Phone:


        (b) Notice of Re-transmitted Buy-In

          ................................................................................
          (Member's Name)
         
          ................................................................................
          (Locality and Date)
         
        TO ..................................................................................................................................
         
        RE ..................................................................................................................................
         
        (Quantity and Description of Security)
         
        which is due from you to the undersigned on a contract made on ........... at .............. for settlement on
         
        (Date of Contract) (Contract Price)
         
        ....................................................
         
        (Settlement Date)
         
        * * *
         
            We hereby inform you that a notice of buy-in has been issued with respect to the aforesaid securities and stated that unless delivery was made at or before .................. (Time and date on original buy-in) the securities may be bought in pursuant to Rule 11810 of the Uniform Practice Code.
         
        Note: If some or all of the foregoing securities are due you by another member of the Financial Industry Regulatory Authority, Inc. Rule 11810 also permits you to use the re-transmitted buy-in.
         
          Buy-In Dept.
          By:
          Phone:
        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-2007-035 eff. March 13, 2008.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
        Amended by SR-NASD-95-50 eff. Dec. 28, 1995.
        Amended by SR-NASD-91-61 eff. Mar. 1, 1993.
        Amended by SR-NASD-89-34 eff. Feb 1, 1990.
        Amended by SR-NASD-87-10 eff. June 1, 1989.
        Amended by SR-NASD-84-20 eff. Jan. 1, 1985.
        Amended by SR-NASD-83-8 eff. Oct. 14, 1983.
        Amended by SR-NASD-82-1 eff. Mar. 12, 1982; Mar. 18, 1983.
        Amended eff. Jan. 2, 1968; Feb. 9, 1968; Feb. 21, 1969; Sept. 1, 1969; Mar. 1, 1970; June 1, 1970; Sept. 1, 1970; Aug. 1, 1972; Dec. 1, 1972; May 1, 1973; Jan. 13, 1977; Apr. 7, 1978.

        Selected Notices: 73-39, 82-34, 83-6, 83-69, 84-68, 86-59, 89-44, 89-56, 90-15, 93-17, 96-8, 08-06, 10-49.

      • 11860. COD Orders

        (a) No member shall accept an order from a customer, including foreign customers and/or broker-dealers trading with or through the member, for eligible transactions of such customers that settle in the United States, pursuant to an arrangement whereby payment for securities purchased or delivery of securities sold is to be made to or by an agent of the customer unless all of the following procedures are followed:

        (1) The member shall have received from the customer prior to or at the time of accepting the order, the name and address of the agent and the time and account number of the customer on file with the agent and institution number, where appropriate.

        (2) Each order accepted from the customer pursuant to such an arrangement has noted thereon the fact that it is a payment on delivery (POD) or collect on delivery (COD) transaction.

        (3) The member shall deliver to the customer a confirmation, or all relevant data customarily contained in a confirmation with respect to the execution of the order, in whole or in part, not later than the close of business on the next business day after any such execution.

        (4) The member shall have obtained an agreement from the customer that the customer will furnish its agent instructions with respect to the receipt or delivery of the securities involved in the transaction promptly upon receipt by the customer of each confirmation, or the relevant data as to each execution, relating to such order (even though such execution represents the purchase or sale of only a part of the order), and that in any event the customer will assure that such instructions are delivered to its agent no later than:

        (A) in the case of a purchase by the customer where the agent is to receive the securities against payment (COD), the close of business on the first business day after the date of execution of the trade as to which the particular confirmation relates; or

        (B) in the case of a sale by the customer where the agent is to deliver the securities against payment (POD), the close of business on the first business day after the date of execution of the trade as to which the particular confirmation relates.

        (5) The facilities of a Clearing Agency shall be utilized for the book-entry settlement of all depository eligible transactions except transactions that are to be settled outside the United States. The facilities of either a Clearing Agency or a Qualified Vendor shall be utilized for the electronic confirmation and affirmation of all depository eligible transactions.

        (b) Definitions
        For purposes of this Rule, the following terms shall have the meanings stated below:

        (1) "Clearing Agency" shall mean a clearing agency as defined in Section 3(a)(23) of the Exchange Act that is registered with the SEC pursuant to Section 17A(b)(2) of the Exchange Act or has obtained from the SEC an exemption from registration granted specifically to allow the clearing agency to provide confirmation and affirmation services.

        (2) "Depository eligible transactions" shall mean transactions in those securities for which confirmation, affirmation or book entry settlement can be performed through the facilities of a Clearing Agency. Eligible sinking funds and/or dividends reinvestment transactions must be confirmed, acknowledged and book entry settled through the facilities of a registered securities depository.

        (3) "Qualified Vendor" shall mean a vendor or electronic confirmation and affirmation service that:

        (A) shall, for each transaction subject to this Rule: (i) deliver a trade record to a Clearing Agency in the Clearing Agency's format; (ii) obtain a control number for the trade record from the Clearing Agency; (iii) cross-reference the control number to the confirmation and subsequent affirmation of the trade; and (iv) include the control number when delivering the affirmation of the trade to the Clearing Agency;

        (B) certifies to its customers (i) with respect to its electronic trade confirmation/affirmation system, that it has a capacity requirements evaluation and monitoring process that allows the vendor to formulate current and anticipated estimated capacity requirements; (ii) that its electronic trade confirmation/affirmation system has sufficient capacity to process the specified volume of data that it reasonably anticipates to be entered into its electronic trade confirmation/affirmation system during the upcoming year; (iii) that its electronic trade confirmation/affirmation system has formal contingency procedures, that the entity has followed a formal process of reviewing the likelihood of contingency occurrences, and that the contingency protocols are reviewed, tested and updated on a regular basis; (iv) that its electronic trade confirmation/affirmation system has a process for preventing, detecting, and controlling any potential or actual systems integrity failures, and its procedures designed to protect against security breaches are followed; and (v) that its current assets exceed its current liabilities by at least $500,000;

        (C) when it begins providing such services and annually thereafter, submits an Auditor's Report to the SEC staff which is not deemed unacceptable by the SEC staff;

        (D) notifies the SEC staff immediately in writing of any changes to its confirmation affirmation services that significantly affect or have the potential to significantly affect its electronic trade confirmation/affirmation systems, including without limitation, changes that: (i) affect or potentially affect the capacity or security of its electronic trade confirmation/affirmation system; (ii) rely on new or substantially different technology; or (iii) provide a new service to the Qualified Vendor's electronic trade confirmation/affirmation system;

        (E) immediately notifies the SEC staff in writing if it intends to cease providing services, and supplies supplemental information regarding its electronic trade confirmation/affirmation services as requested by FINRA or SEC staff;

        (F) provides FINRA with copies of any submissions to the SEC staff made pursuant to subparagraphs (C), (D) and (E) above within ten (10) business days of such submissions; and

        (G) A vendor may cease to be qualified if the SEC staff: (i) deems the Auditor's report unacceptable either because it contains any findings of material weaknesses, or for other identified reasons; or (ii) notifies the vendor in writing that it is no longer qualified. If the vendor ceases to be qualified, the member using that vendor shall not be deemed in violation of this Rule if it ceases using such vendor promptly upon receiving notice that the vendor is no longer qualified.

        (4) "Auditor's Report" shall mean a written report that is prepared by competent, independent, external audit personnel in accordance with the standards of the American Institute of Certified Public Accountants and the Information Systems Audit and Control Association and that (i) verifies the certifications contained in paragraph (b)(3)(B) above; (ii) contains a risk analysis of all aspects of the entity's information technology systems, including, without limitation, computer operations, telecommunications, data security, systems development, capacity planning and testing, and contingency planning and testing; and (iii) contains the written response of the entity's management to the information provided pursuant to (i) and (ii) of this paragraph (b)(4).

        Amended by SR-FINRA-2016-047.
        Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
        Amended by SR-NASD-98-20 eff. June 28, 1999.
        Amended by SR-NASD-94-56eff. June 7, 1995.
        Amended eff. Feb. 11, 1988.
        Adopted eff. Nov. 19, 1982.

        Selected Notices: 86-60, 88-3, 95-36, 10-49.

    • SR-FINRA-2010-056

      • 1113. Restriction Pertaining to New Member Applications

        This rule was introduced with the filing of SR-FINRA-2010-056 which has been approved by the SEC. The effective date for this rule has not yet been determined.

        The Department of Member Regulation shall reject an application for membership with FINRA pursuant to NASD Rule 1013 in which either the applicant or an associated person, as defined in Article I of the FINRA By-Laws, is subject to a statutory disqualification, as defined in Article III, Section 4 of the FINRA By-Laws. Any such application as described in this Rule that is approved by virtue of Department of Member Regulation error or applicant error (including, but not limited to, an inadvertent or intentional misstatement or omission by the applicant or associated person) shall be subject to cancellation of membership in accordance with Rule 9555.
        Adopted by SR-FINRA-2010-056.

      • 9521. Purpose and Definitions

        (a) Purpose
        The Rule 9520 Series sets forth procedures for a person to become or remain associated with a member, notwithstanding the existence of a statutory disqualification as defined in Article III, Section 4 of the FINRA By-Laws and for a current member or person associated with a member to obtain relief from the eligibility or qualification requirements of the FINRA By-Laws and FINRA rules. Such actions hereinafter are referred to as "eligibility proceedings."
        (b) Definitions
        (1) The term "Application" means FINRA's Form MC-400 for individuals or Form MC-400A for members, filed with the Department of Registration and Disclosure (“RAD”).
        (2) The term "disqualified member" means a member that is or becomes subject to a disqualification or is otherwise ineligible for membership under Article III, Section 3 of the FINRA By-Laws.
        (3) The term "disqualified person" means an associated person or person seeking to become an associated person who is or becomes subject to a disqualification or is otherwise ineligible for association under Article III, Section 3 of the FINRA By-Laws.
        (4) The term "sponsoring member" means the member that is sponsoring the association or continued association of a disqualified person to be admitted, readmitted, or permitted to continue in association. A sponsoring member, however, may not sponsor the association or continued association of a disqualified person to be admitted, readmitted, or permitted to continue in association if that disqualified person is directly or indirectly the beneficial owner of more than five percent of the sponsoring member.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
        Amended by SR-NASD-97-28 eff. Aug. 7, 1997.

        Selected Notices: 00-56, 08-57.

      • 9522. Initiation of Eligibility Proceeding; Member Regulation Consideration

        (a) Initiation by FINRA
        (1) Issuance of Notice of Disqualification or Ineligibility
        If FINRA staff has reason to believe that a disqualification exists or that a member or person associated with a member otherwise fails to meet the eligibility requirements of FINRA, FINRA staff shall issue a written notice to the member. The notice shall specify the grounds for such disqualification or ineligibility. FINRA staff shall not issue such written notice to members with respect to disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, unless the member is required to file an application pursuant to a Regulatory Notice entitled "Eligibility Proceedings: Amendments to FINRA Rule 9520 Series to Establish Procedures Applicable to Firms and Associated Persons Subject to Certain Statutory Disqualifications" (the "SD Regulatory Notice").
        (2) Notice Regarding a Member
        A notice issued to a disqualified member shall state that the disqualified member may apply for relief by filing an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the membership of the member shall be canceled, unless the Department of Member Regulation grants an extension for good cause shown.
        (3) Notice Regarding an Associated Person
        A notice issued regarding a disqualified person to a member shall state that such member may file an application on behalf of itself and such person or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, within ten business days after service of the notice. If the member fails to file the application or, where appropriate, the written request for relief, within the 10-day period, the registration of the disqualified person shall be revoked, unless the Department of Member Regulation grants an extension for good cause shown.
        (4) Service
        A notice issued under this paragraph (a) shall be served by facsimile or pursuant to Rules 9131 and 9134.
        (b) Obligation of Member to Initiate Proceeding
        (1) A member shall file an application or, in the case of a matter set forth in Rule 9522(e)(1), a written request for relief, with RAD, if the member determines prior to receiving a notice under paragraph (a) that:
        (A) it has become a disqualified member;
        (B) a person associated with such member has become a disqualified person; or
        (C) the member wishes to sponsor the association of a person who is a disqualified person.
        (2) For any disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, a member shall not file an application unless instructed to do so by the SD Regulatory Notice.
        (c) Withdrawal of Application
        A member may withdraw its application or written request for relief prior to a hearing by filing a written notice with RAD pursuant to Rules 9135, 9136, and 9137. A member may withdraw its application after the start of a hearing but prior to the issuance of a decision by the National Adjudicatory Council by filing a written notice with RAD and the Office of General Counsel pursuant to Rules 9135, 9136, and 9137.
        (d) Ex Parte Communications
        The prohibitions against ex parte communications set forth in Rule 9143 shall become effective under the Rule 9520 Series when FINRA staff has initiated the eligibility proceeding and FINRA staff has knowledge that a member intends to file an application or written request for relief pursuant to the Rule 9520 Series.
        (e) Member Regulation Consideration
        (1) Matters that may be Approved by the Department of Member Regulation without the Filing of an Application
        The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve a written request for relief from the eligibility requirements by a disqualified member or a sponsoring member without the filing of an application by such disqualified member or sponsoring member if a disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification:
        (A) a disqualified member or disqualified person is subject to a disqualification based on an injunction that was entered ten or more years prior to the proposed admission or continuance by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, transfer agent, foreign person performing a function substantially equivalent to any of the above, entity or person required to be registered under the Commodity Exchange Act, or any substantially equivalent foreign statute or regulation, or as an affiliated person or employee of any investment company, bank, insurance company, foreign entity substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent foreign statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security.
        (B) a sponsoring member makes a request to change the supervisor of a disqualified person; or
        (C) a disqualified member or sponsoring member is a member of both FINRA and another self-regulatory organization; and:
        (i) the other self-regulatory organization intends to file a Notice under SEA Rule 19h-1 approving the membership continuance of the disqualified member or, in the case of a sponsoring member, the proposed association or continued association of the disqualified person; and
        (ii) the Department of Member Regulation concurs with that determination.
        (2) Matters that may be Approved by the Department of Member Regulation after the Filing of an Application
        The Department of Member Regulation, as it deems consistent with the public interest and the protection of investors, is authorized to approve an application filed by a disqualified member or sponsoring member if the disqualified member or disqualified person is subject to one or more of the following conditions but is not otherwise subject to disqualification (other than a matter set forth in paragraph (e)(1)):
        (A) The disqualified person is already a participant in, a member of, or a person associated with a member of, a self-regulatory organization (other than FINRA), and the terms and conditions of the proposed admission to FINRA are the same in all material respects as those imposed or not disapproved in connection with such person's prior admission or continuance pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication;
        (B) The Department of Member Regulation finds, after reasonable inquiry, that except for the identity of the employer concerned, the terms and conditions of the proposed admission or continuance are the same in all material respects as those imposed or not disapproved in connection with a prior admission or continuance of the disqualified person pursuant to an order of the SEC under SEA Rule 19h-1 or other substantially equivalent written communication, and that there is no intervening conduct or other circumstance that would cause the employment to be inconsistent with the public interest or the protection of investors;
        (C) The disqualification previously was a basis for the institution of an administrative proceeding pursuant to a provision of the federal securities laws, and was considered by the SEC in determining a sanction against such disqualified person in the proceeding; and the SEC concluded in such proceeding that it would not restrict or limit the future securities activities of such disqualified person in the capacity now proposed, or, if it imposed any such restrictions or limitations for a specified time period, such time period has elapsed;
        (D) The disqualification consists of a court order or judgment of injunction or conviction, and such order or judgment:
        (i) expressly includes a provision that, on the basis of such order or judgment, the SEC will not institute a proceeding against such person pursuant to Section 15(b) or 15B of the Exchange Act or that the future securities activities of such persons in the capacity now proposed will not be restricted or limited; or
        (ii) includes such restrictions or limitations for a specified time period and such time period has elapsed;
        (E) The disqualified person's functions are purely clerical and/or ministerial in nature; or
        (F) The disqualification arises from findings or orders specified in Section 15(b)(4)(D), (E), or (H) of the Exchange Act or arises under Section 3(a)(39)(E) of the Exchange Act.
        (3) Rights of Disqualified Member, Sponsoring Member, Disqualified Person, and Department of Member Regulation
        (A) In the event the Department of Member Regulation does not approve a written request for relief from the eligibility requirements pursuant to paragraph (e)(1), the disqualified member or sponsoring member may file an application, and such member shall have the right to proceed under Rule 9523 or 9524, as applicable. The Department of Member Regulation may require a disqualified member or sponsoring member to file an application with RAD, notwithstanding the provisions of paragraph (e)(1).
        (B) In the event the Department of Member Regulation does not approve an application pursuant to paragraph (e)(2), the disqualified member or sponsoring member shall have the right to proceed under Rule 9523 or 9524, as applicable.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-045 eff. June 15, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Amended by SR-NASD-2004-133 eff. March 7, 2005.
        Amended by SR-NASD-2002-02 eff. January 3, 2002.
        Amended by SR-NASD-99-76 eff. Sept. 11, 2000.
        Amended by SR-NASD-98-57 eff. March 26, 1999.
        Amended by SR-NASD-97-81 eff. Jan. 16, 1998.
        Adopted by SR-NASD-97-28 eff. Aug. 7, 1997.

        Selected Notices: 99-16, 00-56, 05-12, 08-57, 09-19.

      • 9523. Acceptance of Member Regulation Recommendations and Supervisory Plans by Consent Pursuant to SEA Rule 19h-1

        (a) With respect to all disqualifications, except those arising solely from findings or orders specified in Section 15(b)(4)(D), (E) or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, after an application is filed, the Department of Member Regulation may recommend the continued membership of a disqualified member or sponsoring member or the association or continuing association of a disqualified person pursuant to a supervisory plan where the disqualified member, sponsoring member, and/or disqualified person, as the case may be, consent to the recommendation and the imposition of the supervisory plan. The disqualified member, sponsoring member, and/or disqualified person, as the case may be, shall execute a letter consenting to the imposition of the supervisory plan.
        (1) If a disqualified member, sponsoring member, and/or disqualified person submitted an executed letter consenting to a supervisory plan, by the submission of such letter, the disqualified member, sponsoring member and/or disqualified person waive:
        (A) the right to a hearing before a Hearing Panel and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or otherwise challenge the validity of the supervisory plan, if the supervisory plan is accepted.
        (B) any right of the disqualified member, sponsoring member, and/or disqualified person to claim bias or prejudgment by the Department of Member Regulation, the General Counsel, the National Adjudicatory Council, or any member of the National Adjudicatory Council, in connection with such person's or body's participation in discussions regarding the terms and conditions of the Department of Member Regulation's recommendation or the supervisory plan, or other consideration of the recommendation or supervisory plan, including acceptance or rejection of such recommendation or supervisory plan; and
        (C) any right of the disqualified member, sponsoring member, and/or disqualified person to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person's or body's participation in discussions regarding the terms and conditions of the recommendation or supervisory plan, or other consideration of the recommendation or supervisory plan, including acceptance or rejection of such recommendation or supervisory plan.
        (2) If a recommendation or supervisory plan is rejected, the disqualified member, sponsoring member, and/or disqualified person shall be bound by the waivers made under paragraph (a)(1) for conduct by persons or bodies occurring during the period beginning on the date the supervisory plan was submitted and ending upon the rejection of the supervisory plan and shall have the right to proceed under this rule and Rule 9524, as applicable.
        (3) If the disqualified member, sponsoring member, and/or disqualified person execute the letter consenting to the supervisory plan, it shall be submitted to the Office of General Counsel by the Department of Member Regulation with a proposed Notice under SEA Rule 19h-1, where required. The Office of General Counsel shall forward the supervisory plan and proposed Notice under SEA Rule 19h-1, if any, to the Chairman of the Statutory Disqualification Committee, acting on behalf of the National Adjudicatory Council. The Chairman of the Statutory Disqualification Committee may accept or reject the recommendation of the Department of Member Regulation and the supervisory plan or refer them to the National Adjudicatory Council for acceptance or rejection by the National Adjudicatory Council.
        (4) If the recommendation and supervisory plan is accepted by the National Adjudicatory Council or the Chairman of the Statutory Disqualification Committee, it shall be deemed final and, where required, the proposed Notice under SEA Rule 19h-1 will be filed by FINRA. If the recommendation and supervisory plan are rejected by the Chairman of the Statutory Disqualification Committee or the National Adjudicatory Council, FINRA may take any other appropriate action with respect to the disqualified member, sponsoring member, and/or disqualified person. If the recommendation and supervisory plan are rejected, the disqualified member, sponsoring member, and/or disqualified person shall not be prejudiced by the execution of the letter consenting to the supervisory plan under this paragraph (a) and the letter may not be introduced into evidence in any proceeding.
        (b) With respect to disqualifications arising solely from findings or orders specified in Section 15(b)(4)(D), (E) or (H) of the Exchange Act or arising under Section 3(a)(39)(E) of the Exchange Act, after an application is filed, in approving an application under Rule 9522(e)(2)(F), the Department of Member Regulation is authorized to accept the continued membership of a disqualified member or sponsoring member or the association or continuing association of a disqualified person pursuant to a supervisory plan where the disqualified member, sponsoring member, and/or disqualified persons, as the case may be, consent to the imposition of the supervisory plan. The disqualified member, sponsoring member, and/or disqualified person, as the case may be, shall execute a letter consenting to the imposition of the supervisory plan. The Department of Member Regulation shall prepare a proposed Notice under SEA Rule 19h-1, where required, and FINRA shall file such Notice.
        (1) If a disqualified member, sponsoring member, and/or disqualified person submitted an executed letter consenting to a supervisory plan, by the submission of such letter, the disqualified member, sponsoring member and/or disqualified person waive:
        (A) the right to a hearing before a Hearing Panel and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or otherwise challenge the validity of the supervisory plan, if the supervisory plan is accepted;
        (B) any right of the disqualified member, sponsoring member, and/or disqualified person to claim bias or prejudgment by the Department of Member Regulation or the General Counsel in connection with such person's or body's participation in discussions regarding the terms and conditions of the Department of Member Regulation's recommended supervisory plan, or other consideration of the supervisory plan, including acceptance or rejection of such recommendation or supervisory plan; and
        (C) any right of the disqualified member, sponsoring member, and/or disqualified person to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person's or body's participation in discussions regarding the terms and conditions of the supervisory plan, or other consideration of the supervisory plan, including acceptance or rejection of such supervisory plan.
        (2) If the supervisory plan is rejected, the disqualified member, sponsoring member, and/or disqualified person shall be bound by the waivers made under paragraph (b)(1) for conduct by persons or bodies occurring during the period beginning on the date the supervisory plan was submitted and ending upon the rejection of the supervisory plan and shall have the right to proceed under Rule 9524.
        Amended by SR-FINRA-2010-056.
        Amended by SR-FINRA-2008-045 eff. June 15, 2009.
        Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
        Adopted by SR-NASD-99-76 eff. Sept. 11, 2000.

        Selected Notices: 00-56, 08-57, 09-19.