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Incorporated NYSE Rules
FINRA is incorporating into its rulebook the rules of New York Stock Exchange LLC ("NYSE") listed below (the "Incorporated NYSE Rules"). The Incorporated NYSE Rules will apply solely to those members of FINRA that are also members of NYSE on or after July 30, 2007 ("Dual Members"), until such time as FINRA adopts a consolidated rulebook applicable to all of its members. The Incorporated NYSE Rules will apply to the same categories of persons to which they apply as of July 30, 2007. In applying the Incorporated NYSE Rules to Dual Members, FINRA also is incorporating the related interpretive positions set forth in the NYSE Rule Interpretations Handbook and NYSE Information Memos.
General Rules (Rules 1–38)
Definitions of Terms (Rules 1–19)
Rule 1. "The Exchange"
The term "the Exchange," when used with reference to the administration of any rule, means the New York Stock Exchange LLC or the officer, employee, person, entity or committee to whom appropriate authority to administer such rule has been delegated by the Exchange.
Unless otherwise indicated in the rule, the terms Board, Board of Directors, Chairman, Chairman of the Board, Chief Executive Officer, or CEO refer to the Board, Board of Directors, Chairman, Chairman of the Board, Chief Executive Officer and CEO of the Exchange.
Amended:
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Rule 2. "Member," "Membership," "Member Firm," etc.
(a) The term "member," when used to denote a natural person approved by the Exchange, means a natural person associated with a member organization who has been approved by the Exchange and designated by such member organization to effect transactions on the floor of the Exchange or any facility thereof.(b)(i) The term "member organization" means a registered broker or dealer (unless exempt pursuant to the Securities Exchange Act of 1934) that is a member of the Financial Industry Regulatory Authority ("FINRA") and approved by the Exchange and authorized to designate an associated natural person to effect transactions on the floor of the Exchange or any facility thereof. This term shall include a natural person so registered, approved and licensed who directly effects transactions on the floor of the Exchange or any facility thereof.(ii) The term "member organization" also includes a registered broker or dealer that is a member of FINRA, which does not own a trading license and agrees to be regulated by the Exchange as a member organization and which the Exchange has agreed to regulate.(iii) The term "member organization" includes "member firm" and "member corporation."(c) The term "approved person" means a person, other than a member, principal executive or employee of a member organization who controls a member organization or is engaged in a securities or kindred business that is controlled by, or under common control with a member or member organization who has been approved by the Exchange as an approved person.(d) The term "person" shall mean a natural person, corporation, limited liability company, partnership, association, joint stock company, trust, fund or any organized group of persons whether incorporated or not.(e) The term "control" means the power to direct or cause the direction of the management or policies of a person whether through ownership of securities, by contract or otherwise. A person shall be presumed to control another person if such person, directly or indirectly,(i) has the right to vote 25 percent or more of the voting securities,(ii) is entitled to receive 25 percent or more of the net profits, or(iii) is a director, general partner or principal executive (or person occupying a similar status or performing similar functions) of the other person.Any person who does not so own voting securities, participate in profits or function as a director, general partner or principal executive of another person shall be presumed not to control such other person. Any presumption may be rebutted by evidence, but shall continue until a determination to the contrary has been made by the Exchange.(f) The term "engaged in a securities or kindred business" shall mean transacting business generally as a broker or dealer in securities, including but not limited to, servicing customer accounts or introducing them to another person.(g) The term "State" shall mean any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States.(i) The term "Designated Market Maker" ("DMM") shall mean an individual member, officer, partner, employee or associated person of a Designated Market Maker Unit who is approved by the Exchange to act in the capacity of a DMM.(j) The term "DMM unit" is a member organization or unit within a member organization that has been approved to act as a DMM unit under Rule 98.Amended:
March 26, 1970;
February 1, 1973;
August 9, 1976;
July 13, 1978;
April 2, 1979;
January 21, 1981;
February 27, 2006, effective March 8, 2006 (NYSE-2005-77),
Amended by FINRA-2007-019 eff. Oct. 12, 2007.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2009-025 eff. Apr. 7, 2009.
Selected Notices: 07-52, 08-64.Rule 2A. Jurisdiction
(a) The Exchange, may, with approval of the Exchange Board of Directors and the NYSE Regulation Board of Directors, adopt, amend or repeal such rules as it may deem necessary or proper, including rules with respect to (i) the making and settling of Exchange Contracts, (ii) the access of members and member organizations and their employees to and the conduct of members, member organizations and their employees upon the floor of the Exchange and their use of Exchange facilities, (iii) insolvency of member organizations, (iv) the formation of member organizations, the continuance thereof and the interests of members, principal executives or other persons therein, (v) the partners, officers, directors, stockholders and employees of member organizations, (vi) the offices of members, principal executives and member organizations, (vii) the business conduct of members, principal executives and member organizations, (viii) the business connections of members, principal executives and member organizations, and their association with or domination by or over corporations or other persons engaged in the securities business, (ix) capital requirements for member organizations, (x) the procedure for arbitration and dispute resolution, (xi) trading licenses and the transfers thereof, (xii) types, terms, conditions and issuance of securities by member organizations and trading in such securities, (xiii) the conduct and procedure for disciplinary hearings and reviews there from, (xiv) the location and use on the floor of the Exchange of such facilities as may be approved by the Exchange to permit members to send orders from the floor to other markets and receive orders on the floor from other markets for the purchase or sale of securities traded on the Exchange, (xv) options and other derivative trading, (xvi) matters related to non-member broker-dealers that choose to be regulated by the Exchange, and (xvii) any other matter relevant to the conduct of the business of a securities exchange and self-regulatory organization.(b) The Exchange may approve applications for the listing of securities and the admission of securities, including securities on a "when issued" or "when distributed" basis, to dealings on the Exchange, and may suspend dealings in such securities and may remove the same from listing.(c) The Exchange shall have general supervision over members, principal executives, member organizations, employees of member organizations and over approved persons in connection with their conduct of the business of member organizations. The Exchange shall have general supervision over other broker-dealers that choose to be regulated by the Exchange. The Exchange may examine into the business conduct and financial condition of members, principal executives, member organizations, employees of member organizations, approved persons and other broker-dealers that choose to be regulated by the Exchange. It shall have supervision over partnership and corporate arrangements and over all offices of such members and member organizations, whether foreign or domestic, and over all persons employed by such members organizations, and other broker-dealers that choose to be regulated by the Exchange and may adopt such rules with respect to the employment, compensation and duties of such employees as it may deem appropriate. It shall have supervision over all matters relating to the collection, dissemination and use of quotations and of reports of prices on the Exchange. It shall have the power to approve or disapprove any connection or means of communication with the floor and may require the discontinuance of any such connection or means of communication. It may disapprove any member acting as a DMM or odd-lot dealer.(d) The Exchange shall adopt such rules as it deems necessary or appropriate for the discipline of members, member organizations, principal executives, approved persons, and registered and non-registered employees of member organizations and over other broker-dealers that choose to be regulated by the Exchange for the violation of the Securities Exchange Act of 1934 (the Act), the rules of the Exchange and for such other offenses as may be set forth in the rules of the Exchange. The Exchange shall also adopt such rules as it deems necessary or appropriate governing the conduct of disciplinary proceedings including disciplinary hearings and reviews thereof. The determination and penalty, if any, of the Board after review shall be final and conclusive, subject to the provisions of the Act.(e) The Exchange shall have jurisdiction after notice and a hearing to discipline members, member organizations, principal executives, approved persons in connection with their conduct of the business of a member organization, and registered or non-registered employees of member organizations and other broker-dealers that choose to be regulated by the Exchange. The Exchange may impose one or more of the following disciplinary sanctions: expulsion, suspension; limitation as to activities, functions, and operations, including the suspension or cancellation of a registration in, or assignment of, one or more stocks, fine, censure, suspension or bar from being associated with any member or member organization, or any other fitting sanction.(f) The Exchange shall have jurisdiction over any and all other functions of its members, member organizations, principal executives and approved persons in connection with the conduct of the business of member organizations, and registered or non-registered employees of members or member organizations and other broker-dealers that choose to be regulated by the Exchange in order for the Exchange to comply with its statutory obligation as a Self Regulatory Organization.Amended:
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2009-025 eff. Apr. 7, 2009.
Selected Notice: 08-64.Rule 2B. No Affiliation between Exchange and any Member Organization
Without prior SEC approval, the Exchange or any entity with which it is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in a member organization. In addition, a member organization shall not be or become an affiliate of the Exchange, or an affiliate of any affiliate of the Exchange; provided, however, that, if a director of an affiliate of a member organization serves as a director of NYSE Euronext, this fact shall not cause such member organization to be an affiliate of the Exchange, or an affiliate of an affiliate of the Exchange. The term affiliate shall have the meaning specified in Rule 12b-2 under the Act. Nothing in this rule shall prohibit a member organization from acquiring or holding an equity interest in NYSE Euronext that is permitted by the ownership limitations contained in the certificate of incorporation of NYSE Euronext.
Amended:
February 27, 2006, effective March 8, 2006 (NYSE-2005-77); February 14, 2007 (NYSE-2006-120).Rule 3. "Security"
The term "security" or "securities" shall have the meaning given those terms in the Securities Exchange Act of 1934, as amended, and the General Rules and Regulations thereunder.
Amended:
March 14, 1977.Rule 4. "Stock"
The term "stock" includes voting trust certificates, certificates of deposit for stocks, rights, warrants, and other securities of a type classified for trading as stocks by the Exchange.
Amended:
March 26, 1970.Rule 5. "Bond"
The term "bond" includes debentures, notes, certificates of deposit for bonds, debentures or notes, and other securities of a type classified for trading as bonds by the Exchange.
Amended:
March 26, 1970.Rule 6. "Floor"
The term "Floor" means the trading Floor of the Exchange and the premises immediately adjacent thereto, such as the various entrances and lobbies of the 11 Wall Street, 18 New Street, 8 Broad Street, 12 Broad Street and 18 Broad Street Buildings, and also means the telephone facilities available in these locations.
Amended:
June 14, 2007 (NYSE-2007-51).Rule 8. "Delivery"
The term "delivery" means the delivery of securities on Exchange contracts, unless otherwise stated.
Rule 9. "Branch Office Manager"
The term "branch office manager" means a registered representative in charge of a branch office.
Rule 10. "Registered Representative"
The term "registered representative" means an employee engaged in the solicitation or handling of accounts or orders for the purchase or sale of securities, or other similar instruments for the accounts of customers of his employer or in the solicitation or handling of business in connection with investment advisory or investment management services furnished on a fee basis by his employer.
Amended:
July 17, 1969;
May 2, 1974;
February 4, 1988.Rule 11. Effect of Definitions
Unless the context requires otherwise, the terms defined in Exchange Rules shall, for all purposes of the Exchange Rules, have the meanings therein specified.
Amended:
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Rule 12. "Business Day"
Except as may be otherwise determined by the Exchange as to particular days, the term "business day" means any day on which the Exchange is open for business: provided, however, on any business day that the banks, transfer agencies and depositories for securities in New York State are closed:
(1) Except for orders containing non-regular way settlement instructions pursuant to Rule 14, deliveries or payments ordinarily due on such a day shall be due on the following business day;(2) such a day shall not be considered as a business day in determining the day for settlement of a contract, the day on which stock shall be quoted ex-dividend or ex-rights, or in computing interest on contracts in bonds or premiums on loans of securities; and(3) the right to mark to the market, to make reclamation, or to close contracts under Rule 284 [¶2284] (other than "cash" contracts made on such a day) shall not be exercised on such a day.For list of holidays on which the Exchange will not be open for business see Rule 51.
Amended:
Amended by SR-FINRA-2009-053 eff. July 30, 2009.
Amended by SR-FINRA-2009-007 eff. Mar. 13, 2009.
January 21, 1954.Dealings and Settlements (Rules 45–299C)
Settlement of Contracts (Rules 175–227)
Rule 176. Delivery Time
Deliveries of securities (except as provided in Rule 177) and except for securities to be delivered pursuant to the rules of a Qualified Clearing Agency shall be due before 11:30 a.m., unless the Exchange shall advance, extend or otherwise direct with respect to the time within which such deliveries shall be due.
Amended:
August 12, 1968;
July 11, 1974;
June 28, 1978.Rule 180. Failure to Deliver
If securities which are to be delivered pursuant to the rules of a registered clearing agency are not so delivered, the contract may be closed as provided in the rules of said registered clearing agency. If not so closed or if there is a failure to deliver securities which are to be delivered pursuant to Rule 176 or Rule 177, and in the absence of any notice or agreement, the contract shall continue without interest until the following business day; but in every such case of non-delivery of securities, the party in default shall be liable for any damages which may accrue thereby. All claims for such damages shall be made promptly.
When the parties to a contract are both participants in a registered clearing agency which has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver and that contract was to be settled through the facilities of said registered clearing agency, the transmission of the liability notification must be accomplished through use of said automated notification service.Amended:
July 11, 1974;
June 28, 1978;
January 19, 2007 (NYSE-2006-57).Closing Contracts (Rules 280–295)
Rule 282. Buy-in Procedures
A contract in securities, except a contract where its close-out is governed by the rules of a Qualified Clearing Agency, which has not been completed by the seller in accordance with its terms, may be closed-out by the buyer (i.e., the initiating member organization) no sooner than three business days after the due date for delivery, pursuant to the following procedures:
(a) An initiating member organization (buyer) may deliver a written "buy-in" notice to the defaulting member organization at or before 12:00 noon ET at least two business days before the proposed execution of a "buy-in" (the buy-in execution date shall be referred to as the "effective date" of the notice). Receipt of delivery to the defaulting member organization, must be maintained with the notice as part of the initiating member organization's books and records.(b) The defaulting member organization receiving the "buy-in" notice must send a signed, written response to the initiating organization stating its position with respect to the resolution of the item no later than 5:00 p.m. ET on the date of issuance of the "buy-in" notice (the "buy-in" notice date).(c) If the "buy-in" notice has not been returned by 5:00 p.m. ET on the "buy-in" notice date, or the "buy-in" notice is returned as "DK'd," or the "buy-in" notice is returned with the indication that the contract is known but that delivery cannot be made, a "buy-in" shall be executed on the "effective date" by the initiating member organization by purchasing all or part of the securities necessary to satisfy the amount requested in the "buy-in" notice.(d) Where the buyer is a customer (i.e., other than another member organization), upon failure of a defaulting member organization to effect delivery in accordance with a "buy-in" notice, the contract may be closed-out by purchasing for "cash", as prescribed in Rule 14, in the best available market, or at the option of the initiating member organization, for guaranteed delivery for all or any part of the securities necessary to complete the contract. "Buy-ins" executed in accordance with this paragraph shall be for the account and risk of the defaulting member organization.(e) Every "buy-in" notice shall state the date of the contract to be closed, the quantity and the contract price 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. Such notice shall state further that 'unless delivery of the underlying securities 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 initiating member organization.' Each "buy-in" notice shall also state the name and telephone number of the individual authorized to pursue further discussions concerning the "buy-in."(f) Securities delivered by the defaulting party subsequent to the receipt of the "buy-in" notice should be considered as received 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" 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," pursuant to section .25 of this Rule. If a re-transmitted "buy-in" is executed, it will operate to close-out all contracts covered under the re-transmitted notice. A "buy-in" may be executed by the initiating member organization from its long position and/or from customers' accounts maintained with such member organization.(g) Prior to the closing of a contract on which a "buy-in" notice has been given, the initiating member organization shall accept any portion of the securities called for by the contract, provided the portion remaining undelivered at the time the initiating member organization proposes to execute the "buy-in" is not an amount that includes an odd-lot which was not part of the original transaction.(h) The initiating member organization executing the "buy-in" shall immediately upon execution, but no later than 5:00 p.m. ET, notify the defaulting member organization as to the quantity purchased and the price paid. Such notification shall be in written or electronic form having contemporaneous receipt capabilities, or if not available, the telephone shall be used for the purpose of same day notification, provided that written or similar electronic notification having next day receipt capabilities must also be sent out simultaneously. In either case, formal confirmation of purchase along with a billing or payment, as appropriate, should be forwarded as promptly as possible after the execution of the "buy-in."(i) In situations where securities have been delivered by the defaulting member organization after the "buy-in" order was placed, the securities may be returned if the "buy-in" was executed before it could reasonably be cancelled by the initiating member organization.(j) For purposes of this Rule, written notice shall include an electronic notice through a medium that provides contemporaneous 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 Qualified Clearing Agency, etc.(k) Fails that are subject to the rules of a Qualified Clearing Agency must comply with the procedures or requirements of the Qualified Clearing Agency.
• • • Supplementary Material: --------------
.10 Members and member organizations are obligated to comply with the close-out provisions of Regulation SHO, promulgated under the Securities Exchange Act of 1934. Specifically, Exchange "buy-in" rules do not abrogate a member's or a member organization's responsibilities or obligations to comply with Regulation SHO, and the close-out provisions of Rule 203(b)(3)..15 Closing Contracts—Conditions
A member organization may close a contract as provided in section .20 of this Rule in the event that:(1) it has been advised that the other party to the contract does not recognize the contract; or(2) the other party to the contract neglects or refuses to exchange written contracts pursuant to Rule 137..20 Closing Contracts—Procedure
When Rule 282 permits the closing of a contract, an original party to the contract may close it, provided that notice, either written or oral, shall have been given to the other original party at least thirty minutes before such closing. If a member organization given up by an original party to a contract has been advised that the other party to the contract does not recognize it, or if the other party to the contract neglects or refuses to exchange written contracts, it shall promptly notify the original party who acted for him or it, who may then close the contract as herein provided..25 Notice of Intention to Successive Parties
Every member organization receiving notice that a contract is to be closed for its account because of non-delivery (including a notice pursuant to the rules of a Qualified Clearing Agency, other than an obligation of the member organization to deliver securities to the Qualified Clearing Agency or under its rules is to be closed-out for its own account) shall immediately re-transmit notice thereof to any other member organization from whom the securities involved are due. Every such re-transmitted notice shall be in writing and shall be delivered at the office of the member organization to whom it is addressed; it shall state the date of the contract upon which the securities are due from such member organization, and the name of the member organization who has given the original notice to close..30 Closing Portion of Contract
When notice of intention to close a contract, or re-transmitted notice thereof, is given for less than the full amount due, it shall be for not less than one trading unit..35 Liability of Succeeding Parties
The closing of a contract shall be for the account and liability of each succeeding party with an interest in such contract, and, in case notice that such contract will be closed has been re-transmitted, as provided in this Rule, such closing shall also automatically close all contracts with respect to which such re-transmitted notice shall have been delivered prior to the closing.
Re-establishment of Contract
If such re-transmitted notice is sent by a member organization before the contract has been closed, but is not received until after such closing, then the member organization who sent the notice may, unless otherwise agreed, promptly re-establish, by a new sale, the contract with respect to which such notice has been sent.
Payment of Money Difference
Any money difference resulting from the closing of a contract, or from the re-establishment of a contract as herein provided, shall be paid not later than 3:00 p.m. ET on the following business day to the member organization entitled to receive the same..40 Notice of Closing to Successive Parties
When a contract other than a contract the close-out of which is governed by the rules of a Qualified Clearing Agency has been closed the member organization who closed the same, or who gave the order to close the same, shall immediately notify the member organization for whose account the contract was closed. The member organization receiving such a notification or receiving notification that a contract has been closed pursuant to the rules of a Qualified Clearing Agency shall immediately notify each succeeding party in interest and other member organizations to whom re-transmitted notice, as provided for in section .30 of this Rule, has been sent. Statements of resulting money differences, if any, shall also be rendered immediately..45 Must Receive Delivery
When a member organization has delivered a buy-in notice pursuant to this Rule, or has re-transmitted notice thereof as provided for in section .30 of this Rule, the initiating member organization must receive and pay for those securities subject to the buy-in notice if tendered prior to the buy-in of such contract.
If the organization that, pursuant to this Rule, is notified prior to the buy-in by a defaulting member organization that some or all of the securities (but not less than one trading unit) are in its physical possession and will be promptly delivered, then the order to buy-in shall not be executed with respect to such securities, and the initiating member organization who has given the original order to buy-in shall accept and pay for such securities, if tendered promptly.
Damages for Non-delivery
If such securities are not promptly tendered, the defaulting member organization who has stated that they would be promptly delivered shall be liable for any resulting damages..50 Defaulting Party May Deliver After "Buy-In" Notice
A defaulting member organization (seller) who has received a "buy-in" notice, pursuant to this Rule, or re-transmitted notice thereof, may deliver the securities to the initiating member organization (buyer) issuing such notice up to 3:00 p.m. ET. The defaulting member organization may deliver such securities after 3:00 p.m. ET on the "effective date" of the buy-in notice if: (i) agreed to by the initiating member organization, (ii) before the execution of the order and (iii) when the defaulting member organization has physical possession of the securities..55 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 are: (1) in transfer; (2) in transit; (3) are being shipped that day; or (4) are due from a depository and giving the certificate numbers (except for those securities due from a depository), 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 NYSE based upon the circumstances involved..60 "Close-Out" Under NYSE or Other National Securities Exchange Rulings(1) When a national securities exchange makes a ruling that all open contracts with a particular member, which is also a member organization of the NYSE, should be closed-out immediately (or any similar ruling), such member organization may close-out contracts as directed by the national securities exchange.(2) Whenever the NYSE ascertains that a court has appointed a receiver for any member organization, because of its insolvency or failure to meet its obligations, or whenever the NYSE ascertains, based upon evidence before it, that a member organization cannot meet its obligations as they become due and that such action will be in the public interest, the NYSE may, in its discretion, issue notification that all open contracts with the member organization in question may be closed-out immediately.(3) Within the meaning of this section, 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 section shall be executed for the account and liability of the member organization in question. Notification of all close-outs shall immediately be sent to such member organization..65 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 organization may deliver a Liability Notice to the delivering member organization as an alternative to the close-out procedures set forth in this Rule. When the parties to a contract are both participants in a Qualified 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 Qualified 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 no later than one business day prior to the latest time and the date of the 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 organization may deliver a Liability Notice to the delivering member organization 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 organization but no later than noon on the same day. When the parties to a contract are both participants in a Qualified 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 Qualified 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 organization shall notify the defaulting member organization of the exact amount of the liability on the next business day.(C) In all cases, member organizations must be prepared to document requests for which a Liability Notice is initiated.(2) If the delivering member organization fails to deliver the securities on the expiration date, the delivering member organization 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 organization 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 organization..70 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 this Rule shall apply. In all cases, notification of executed "buy-in" must be provided pursuant to this Rule. "Buy-ins" executed in accordance with this paragraph shall be for the account and risk of the defaulting broker/dealer..75 "Buy-In" Desk Required
Member organizations shall have a "buy-in" section or desk adequately staffed to process and research all "buy-ins" during normal business hours..80 Buy-In of Accrued Securities
Securities in the form of stock, rights or warrants which accrue to a purchaser shall be deemed due and deliverable to the purchaser 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.Adopted:
April 18, 1968, effective August 1, 1968.
Amended:
August 15, 1968, effective December 1, 1968;
October 24, 1968, effective December 2, 1968;
May 18, 1972;
July 11, 1974;
April 30, 1976;
June 28, 1978;
May 16, 1983;
August 9, 2001, effective August 17, 2001 (NYSE-2001-16);
November 28, 2005 (NYSE-2005-50).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2009-007 eff. Mar. 13, 2009.
Amended by SR-FINRA-2009-053 eff. July 30, 2009.
Selected Notice: 08-64.Rule 291. Failure to Fulfill Closing Contract
When a contract is closed, any member or member organization accepting the bid or offer, and not complying promptly therewith, shall be liable for any damages resulting therefrom.
Rule 292. Restrictions on Members' Participation in Transaction to Close Defaulted Contracts
No member or member organization, who for his or its own account has given an order to close a contract because of non-delivery, shall fill the order by selling for his or its own account, either directly or through a broker, the securities named therein; and no member or member organization shall knowingly enable or permit any other person on whose behalf the order to close because of non-delivery has been issued to fill such order by selling for his own account the securities named therein. If a member or member organization has issued an order to close because of nondelivery and, acting for another principal, supplies the securities named therein, he or it must make delivery in accordance with the terms of the contract thus created, and may not by consent or otherwise fail to make such delivery. The member or member organization for whose account a contract is being closed, or any succeeding member or member organization in interest, or any member or member organization to whom re-transmitted notice has been sent, shall not accept the bid or offer, unless such member or member organization is acting for a principal other than the one for whose account the contract is being closed.
Rule 293. Closing Contracts in Suspended Securities
A contract, other than a contract governed by the rules of a Qualified Clearing Agency in securities which have been suspended from dealings on the Exchange, which has not been fulfilled according to the terms thereof may be closed in the best available market by the party thereto who is not in default.
Amended:
June 28, 1978.Rule 294. Default in Loan of Money
When a loan of money is not paid before 2:15 p.m. of the day upon which it becomes due, the borrower shall be considered as in default and the lender may, without notice, sell the securities pledged therefor, or so much thereof as may be necessary to liquidate the loan.
Liquidation of Securities Loans and Borrowings (Rule 296)
Rule 296. Liquidation of Securities Loans and Borrowings
(a) Each member or member organization that is a party to an agreement with another member or member organization providing for the loan and borrowing of securities shall have the right to liquidate such transaction whenever the other party to such transaction(1) applies for or consents to, or is the subject of an application for, the appointment of or the taking of possession by a receiver, custodian, trustee, or liquidator of itself or of all or a substantial part of its property,(2) admits in writing its inability, or becomes generally unable, to pay its debts as such debts become due,(3) makes a general assignment for the benefit of its creditors, or(4) files, or has filed against it, a petition under Title 11 of the United States Code, or has filed against it an application for a protective decree under Section 5 of the Securities Investor Protection Act of 1970,unless that right is stayed, avoided, or otherwise limited by an order authorized under the provisions of the Securities Investor Protection Act of 1970 or any statute administered by the Securities and Exchange Commission.(b) No member or member organization shall lend or borrow any security to or from any non-member of the Exchange except pursuant to a written agreement, which may consist of the exchange of contract confirmations, that confers upon such member or member organization the contractual right to liquidate such transaction because of a condition of the kind specified in (a) above.
• • • Supplementary Material: --------------
.10 As used herein, an agreement for the loan and borrowing of securities shall mean a securities contract or other agreement, including related terms, for the transfer of securities against the transfer of funds, securities, or other collateral, with a simultaneous agreement by the transferee to transfer to the transferor against the transfer of funds, securities, or other collateral, upon notice, at a date certain, or upon demand, the same or substituted securities..20 Each member or member organization subject to the provisions of Rule 15c3-3 under the Securities Exchange Act of 1934 that borrows securities from a customer (as defined in said rule) shall comply with the provisions thereof relating to the requirements for a written agreement between the borrowing member or member organization and the lending customer.Adopted:
March 20, 1985.Admission of Members (Rules 300–324)
Partnerships—Corporations (Rules 311–324)
Rule 311. Formation and Approval of Member Organizations
(a) Any person who proposes to form a member organization and any member organization which proposes to admit therein any approved person shall notify the Exchange in writing before any such formation or admission and shall submit such information as may be required by the Rules of the Exchange. No such member organization shall become or remain a member organization unless all persons required to be approved are so approved and execute such agreements with the Exchange as the Rules of the Exchange may prescribe.(b) The Board of Directors shall not approve a partnership or corporation as a member organization unless:(1) each director of such corporation is a member, principal executive or an approved person; and(2) every person who controls such corporation is a member, principal executive or approved person; and(3) every natural person who is a general partner in such partnership is a member or principal executive and every other person who controls such partnership is a member, principal executive or approved person; and(4) every person who engages in a securities or kindred business and is controlled by or under common control with such partnership or corporation is an approved person; and(5) The Board of Directors of such corporation designates "principal executives"; and(6) such partnership or corporation complies with such additional requirements as the rules of the Exchange may prescribe.(7) every employee who is associated as a member with such member organization is designated with a title, such as vice president, consistent with his responsibilities and the usage of titles within such organization.(c) In the case of existing corporations making application to become member corporations, there shall be submitted to the Exchange:(1) A certified list of all holders of record of each class of stock, giving the name and address of the holder and the number of shares of each class of such stock held;(2) A certified list of all persons who are to become members, principal executives, directors or approved persons,(3) A certified list of all persons designated as principal executives of the corporation.In the case of corporations proposed to be organized, similar information shall be submitted to the Exchange.(d) The approval of a corporation as a member corporation constitutes only a revocable privilege and confers on the corporation no right or interest of any nature whatsoever to continue as a member corporation.(e) No member corporation shall issue any publicly held security in the form of non-voting common stock unless the Exchange determines that the non-voting common stock has normal and appropriate preferences which entitle it to be regarded as preferred stock.(f) Every member firm shall be a partnership and every member corporation shall be a corporation created or organized under the laws of, and shall maintain its principal place of business in, the United States or any State thereof. The Exchange may, in its discretion, and on such terms and conditions as the Exchange may prescribe, approve as a member organization entities that have characteristics essentially similar to corporations, partnerships, or both. Such entities, and persons associated therewith shall, upon approval, be fully, formally and effectively subject to the jurisdiction, and to the Rules of the Exchange to the same extent and degree as are any other member organization and person associated therewith.(g) Each member organization shall execute and file with the Exchange a written agreement in a form acceptable to the Exchange evidencing(1) the authority of any member who is an officer or employee of such member organization to transact business on the Floor on behalf of such member organization, and(2) such member organization's responsibility and obligation with respect to any contract entered into on the Floor by any such member.Amendments.
March 26, 1970.
July 11, 1974, effective July 18, 1974.
August 9, 1976.
July 13, 1978.
April 2, 1979.
January 21, 1981.
March 29, 1989.
September 13, 1994.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77), amended by SR-FINRA-2008-034 eff. Jan. 1, 2008.
Amended by SR-FINRA-2008-036.
• • • Supplementary Material: --------------
.10 Rescinded effective February 15, 1979. (See Rule 351 for reporting requirements.).11 Application
The papers required to be submitted prior to approval of the formation or admission of a member organization are as follows:(1) Letter giving name and address of proposed or existing organization, date of proposed formation or admission, and names of all proposed or present officers and other parties required to be approved by the Exchange under Rules 304 and 311; and(2) individually executed applications by all parties whose approval by the Exchange is required.The papers required to be submitted prior to approval of the admission to an existing member organization of any party requiring the approval of the Exchange under Rules 304 and 311, are as follows:(1) Letter stating name of such proposed party and proposed date of admission to member organization; and(2) an individually executed application by such proposed party..12 Authorization and Statement of Understanding
Each member organization, or proposed member organization, must submit the following authorization and statement of understanding executed by each natural person requiring the approval of the Exchange under Rule 304:"In connection with my current application, I authorize the New York Stock Exchange, Inc. and any agent acting on its behalf, to conduct an investigation of my character, credit worthiness, ability, business activities, educational background, previous employment and reasons for termination thereof.
"I authorize and request any and all of my former employers, and any other person to furnish to the Exchange, and any agent acting on its behalf, any information that they may have concerning my character, credit worthiness, ability, business activities, educational background, general reputation, previous employment and reasons for termination thereof . . . Moreover, I hereby release each such employer and each such other person from any and all liability of whatsoever nature by reason of furnishing such information to the Exchange and any agent acting on its behalf.
"Further, I recognize that I will be the subject of an investigative report ordered by the Exchange and acknowledge that I have been informed of my right to request information from the Exchange concerning the nature and scope of the investigation requested.".13 Agreement with the Exchange
Each member corporation and each member and approved person of the corporation must agree with the Exchange that if any person required to be approved by the Exchange as a member or approved person fails or ceases to be so approved, the corporation may be deprived by the Exchange of all the privileges of a member corporation unless the corporation redeems or converts the stock held by such person as required under Rule 312..14 Partnership agreements
For information regarding the submission of copies of proposed partnership articles, see ¶2313.10..15 Corporate documents
For information regarding the submission of copies of proposed or existing corporate documents and other agreements, see ¶2313.20..16 Filing With Agent
Any filing or submission required under this rule which is made with a properly authorized agent acting on behalf of the Exchange shall for purposes of this rule be deemed to be a filing with the Exchange..17 The term "principal executive" shall include: an employee of a member organization designated to exercise senior principal executive responsibility over the various areas of the business of the member organization including: operations, compliance with rules and regulations of regulatory bodies, finances and credit, sales, underwriting, research and administration; and any employee of a member organization who is a functional equivalent of such person.
Amendments.
March 26, 1970.
July 11, 1974, effective July 18, 1974.
August 9, 1976.
July 13, 1978.
April 2, 1979.
January 21, 1981.
March 29, 1989.
September 13, 1994.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77), amended by SR-FINRA-2008-034 eff. Jan. 1, 2008.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 312. Changes Within Member Organizations
(a) Each member organization, shall promptly give to the Exchange notice in writing on such form as may be required by the Exchange (1) on Form U-5, of the death, retirement, or other termination of any party required to be approved under the Rules of the Exchange, (2) of the dissolution of the member organization.(b) In addition, in the case of a member corporation, such member corporation shall give written notice (1) of any material change in the stockholdings of any member, principal executive or approved person of such member corporation, (2) of any proposed change in the directors or officers, or (3) of any proposed change in the charter, certificate of incorporation, by-laws or other documents on file with the Exchange, or (4) of the failure to comply with all the conditions of approval specified in Rule 311.(c) Each member, principal executive and approved person of a member corporation shall promptly notify his member corporation of any material acquisition or disposition of shares of stock of such corporation.(d) Whenever a person who is required to be approved by the Board as a member, principal executive or approved person fails or ceases to be so approved, each member corporation shall promptly redeem or convert to a fixed income security such of its outstanding voting stock as may be necessary to reduce such party's ownership of voting stock in the member corporation below that level which enables such party to exercise controlling influence over the management or policies of such member corporation.(e) Unless permitted by the Exchange in order to protect investors and the public interest or to facilitate the administration of the Exchange, no person shall be a member or principal executive in a member organization unless all persons required to be approved by the Exchange are so approved.(f)(1) After the completion of a distribution of its equity or non-investment grade debt securities or those of any organization controlling the member organization or of any Material Associated Person (as used in Rule 17h-1T of the Securities Exchange Act of 1934, as amended) of the member organization, no member organization shall effect any transaction (except on an unsolicited basis) for the account of any customer in, or make any recommendation with respect to, any such security.(2) Any member organization that makes any recommendation of any equity or non-investment grade debt security issued by any person controlled by or under common control with such member organization (other than a Material Associated Person), shall promptly disclose to such customer the existence and nature of such control at the time of recommendation and, if this disclosure is not made in writing, shall provide this disclosure in writing prior to the completion of the transaction.(3) No corporation which has any publicly held security outstanding shall, without the prior written approval of the Exchange, dispose of any such security for its own account and no member corporation shall acquire any such security for its own account or for the account of any corporation controlling, controlled by or under common control with such member corporation except with the prior written approval of the Exchange or pursuant to the terms and provisions of such security or of any agreement between the member corporation and the holder of such security, which agreement has previously been filed with and approved by the Exchange. The Exchange will approve such a disposition or acquisition of securities unless it determines that such action will impair the financial responsibility or operational capability of the member corporation.This Paragraph (f) is subject to the provisions of Paragraph (c)(vii) of Rule 800 (Basket Trading: Applicability and Definitions).(g) A member corporation shall not without the prior written approval of the Exchange:(1) Reduce its capital or purchase or redeem any shares of any class of its stock or in any way amend its charter, certificate of incorporation or by-laws, and the Exchange may at any time in its discretion require the corporation to restore or increase capital or surplus, or both.(2) Issue any bonds, notes or other instruments evidencing funded indebtedness of the corporation except pursuant to the terms and provisions of such security or of any agreement between the member corporation and the holder of such security, which agreement has been previously filed with and approved by the Exchange.(3) Amend, modify or cancel any agreement made by it or any of its stockholders relating to the management of the corporation or the issue or transfer of securities of the corporation (other than agreements relating to ordinary securities and commodities transactions).The Exchange will approve any action described in (1), (2) or (3) above unless it determines that such action will impair the financial responsibility or operational capability of the member corporation.(h) No member corporation subject to Rule 325 shall, without the prior written consent of the Exchange, redeem or repurchase any shares of its stock on less than six months notice given to the Exchange no sooner than six months after the original issuance of such shares (or any predecessor shares). Each member corporation shall promptly notify the Exchange if any redemption or repurchase of any of its stock is postponed because prohibited under the provisions of Exchange Act Rule 15c3-1 (see 15c3-1(e)).(i) In order to ensure the continued financial responsibility and operational capability of a member corporation, the Exchange may require such member corporation to file with the Exchange a written report showing the use made by the member organization of the proceeds of any offering of any security issued by such member organization.(j) No stock shall be issued by a member corporation except for cash or such other consideration as the Exchange determines will not impair the financial responsibility or operational capability of such member corporation.Amendments.
December 19 1968, effective January 1, 1969.
March 26, 1970.
February 1, 1973.
August 9, 1976.
July 13, 1978.
October 19, 1978.
April 2, 1979.
January 21, 1981.
October 26, 1989.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77). August 25, 2006 (NYSE-2005-58).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 313. Submission of Partnership Articles—Submission of Corporate Documents
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this version of Rule 313 will no longer be applicable.
(a) All partnership articles and all amendments thereto shall be submitted and be acceptable to the Exchange prior to becoming effective.(b) The charter or certificate of incorporation and all amendments thereto, the by-laws and all amendments thereto, forms of stock certificates and any and all agreements or other documents and amendments thereto relating to the business or affairs of the member corporation between a member corporation and any of its stockholders or between any of the members, principal executives or approved persons of a member corporation other than agreements relating to ordinary securities and commodities transactions shall be submitted to and be acceptable to the Exchange prior to becoming effective.(c) Any prospectus or other offering circular prepared by a member corporation and used in connection with the offering of any security issued by it shall, prior to such use, be submitted by such corporation to the Exchange.(d) Whenever a member organization shall offer or sell any security, as defined under the Securities Act of 1933, as amended, or the General Rules and Regulations thereunder (the 1933 Act), or under the "blue sky" law or the regulations thereunder of any state in which it is proposed that the security be offered, which security is issued by the member organization for the purpose of raising capital under Rules 325 and 326 of the Board of Directors of the Exchange, the member organization must furnish the Exchange with an opinion of counsel in form and substance satisfactory to the Exchange as to whether or not the securities being offered or sold need be registered under the 1933 Act and a survey of the type customarily prepared in respect of the underwriting of securities, but not an opinion, as to what action, if any, need be taken with respect to such offer or sale under any applicable state "blue sky" law. If, in counsel's opinion, the securities need not be registered under the 1933 Act, his opinion shall state the exemption from the registration requirements of the 1933 Act upon which he is relying and the basis for such reliance. If the securities are required to be registered under the 1933 Act counsel's opinion shall include, in addition to such other statements as the Exchange in any particular case may require, a statement substantially to the effect that at the time the registration statement became effective, the registration statement and the prospectus (other than the financial statements contained therein) complied as to form in all material respects with the requirements of the 1933 Act (and with the Trust Indenture Act of 1939, as amended, if applicable) and nothing has come to counsel's attention that would lead counsel to believe that the registration statement at the time it became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the prospectus at the time the registration statement became effective or at the time of sale of the security contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
Prior to the consummation of the sale of the security, counsel shall furnish a statement to the Exchange as to the action taken in order to comply with the state "blue sky" law of any state in which the security is offered or sold.
Without limiting the generality of the foregoing, counsel, among other things, is expected to give appropriate consideration to (a) any other transactions pursuant to which the member organization has raised capital in the past, or expects to do so in the future, (b) the disclosure of material information regarding the member organization to offerees of the security, and (c) the need for representation by the purchaser of the securities as to his intention to hold the securities for investment.(e) Each member corporation shall, at such times as may be required by the Exchange, submit to the Exchange through its chief executive officer a certified list of its members, principal executives and approved persons showing to the best of his knowledge and belief the number of shares of each class of stock of such corporation held of record or beneficially or both by each such party.(f) Each member corporation shall, through its chief executive officer, submit to the Exchange at such times as the Exchange may require an affidavit listing to the best of his knowledge and belief the name of each party directly or indirectly beneficially owning 1% or more of the outstanding voting stock of such member corporation and showing the percentage of such ownership.Amendments.
March 26, 1970.
December 16, 1971.
August 9, 1976.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.
• • • Supplementary Material: --------------
Information Regarding Partnership Articles
.10 Submission of partnership agreements
Drafts of partnership articles or of changes in partnership articles proposed to be entered into in connection with the formation of a firm or the admission of a new partner should be submitted to Regulation & Surveillance at least one week in advance of the date on which the application will be acted upon by the Board of Directors. Drafts of other changes to be made in partnership articles should be submitted in advance of their effective date.
The Exchange requires that a signed, photostatic or conformed copy of all partnership articles, including any amendments and supplements thereto, as executed, be filed with the Exchange.
(See ¶2311 for procedure to be followed regarding approval of partners and partnerships.).11 Withdrawal of capital
The partnership articles of each member firm shall contain provisions that without the prior written approval of the Exchange the capital contribution of any partner may not be withdrawn on less than six months' written notice of withdrawal given no sooner than six months after such contribution was first made. Each member firm shall promptly notify the Exchange of the receipt of any notice of withdrawal of any part of a partner's capital contribution or if any withdrawal is not made because prohibited under the provisions of Securities and Exchange Commission Rule 15c3-1 (see 15c3-1(e)).
Adopted.
July 15, 1971.
Amendments.
January 20, 1972.
October 16, 1975; effective January 1, 1976..12 Deceased Partner's Interest in Continuing FirmI. The Exchange cannot, upon a partner's death, regard his interest as continuing to be part of the net capital of the continuing or successor firm unless the partnership articles of the firm contain specific and legally adequate provisions to the effect that the claim of the personal representative of a deceased partner to the partner's interest in the firm shall be subordinated to the claims of all present or future creditors of the continuing firm (or any successor firm) arising out of matters occurring subsequent to the partner's death.
If it is the desire and intent of the partners of any firm that the interest of a deceased partner shall be considered, without interruption after his death, as a part of the capital of the continuing or successor firm for a specified period, the partnership articles should effectively provide in substance:(1) That the payment of the deceased partner's interest in the firm to his estate can be deferred for a stated period; and(2) that until such payment, the interest of the deceased partner shall remain at the risk of the business of the continuing or successor firm and shall be considered as capital of such firm in the same manner and to the same extent as capital contributed by a limited partner; and(3) that any claim of the personal representative of the deceased partner to such interest shall be subordinated in right of payment and subject to the prior payment or provision for payment in full of claims of all present and future creditors of the continuing firm (or successor firm) arising out of any matters occurring before the end of the stated period.II. If it is the desire of the partners to have a deceased partner's capital continued for a stated period immediately following his death, with the option in his personal representative to continue it for a longer period under the provisions of the deceased partner's Will, it is suggested that the stated period in the partnership agreement be made sufficiently long as to permit the conditions discussed below with respect to testamentary provisions to be complied with.
Provisions in a deceased partner's Will (as distinguished from those in a partnership agreement) providing that the personal representative shall or may become a limited partner in the firm or subordinate the claims of the estate to decedent's interest to the claims of firm creditors who become such after the decedent's death, with respect to the Exchange's determination whether or not to allow a deceased partner's capital interest in computing the net capital of the firm will depend on the facts and circumstances of each case as they exist at the time of such determination. However, in no case will such testamentary provisions be considered as effective in connection with the Exchange's computation of net capital unless at least the following conditions are met:(1) The Will must contain provisions specifically authorizing the personal representative of the deceased partner either to continue the decedent's capital interest in the firm as limited capital, or otherwise to subordinate the estate's claims against the firm to the claims of creditors of the firm.(2) The Exchange must be furnished with a satisfactory opinion of counsel to the estate, to the effect that (A) the Will is valid and in full force and effect, (B) the named personal representative is duly qualified and is the executor administering the Will, (C) the personal representative is authorized by the Will to make or continue a capital contribution to the firm, (D) if the personal representative is a partner of, or otherwise interested in, the firm, said representative is authorized by the Will to deal with the estate for his own benefit, (E) all claims of present and future creditors and beneficiaries of the Estate and their successors are subordinate to the claims of all present and future creditors of the firm and its successors.(3) The personal representative of the decedent must have taken appropriate action either to become a limited partner in the firm or to subordinate the capital interest of the deceased partner as indicated above.III. It is recommended that member firms consult their own counsel with respect to the advisability of incorporating in their partnership articles provisions of the sort discussed in this Section. Any member firm which decides to adopt such provisions should submit the proposed provisions, in draft form, to the Exchange. Such member firm will then be advised whether, upon the adoption of such provisions and in the event of the death of a partner, the Exchange will be in a position to consider his interest in the firm as part of its net capital for the specified period following his death.
Amendment.
October 16, 1975; effective January 1, 1976..14 A-B-C agreements
[Rescinded by NYSE-2005-77].
Amendment.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77)..18 Sole board member provision
[Removed by NYSE-2005-77].
Amendment.
April 2, 1979;
February 29, 1980;
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Information Regarding Member Corporations
.20 Submission by proposed member corporations of certificate of incorporation, by-laws and other corporate documents
Existing corporations shall promptly submit certified copies (to the extent possible) of the documents referred to in Rule 313(b) and corporations to be formed shall submit drafts thereof, prior to the time they become effective, to Regulation & Surveillance. Upon the formation of a corporation or when an amendment to any of such documents becomes effective, a duly certified copy of the certificate of incorporation and by-laws shall be filed with Regulation & Surveillance and signed, photostatic or conformed copies of the other documents shall be so filed.
(See ¶2311 for procedure to be followed regarding approval of corporations.)
There shall also be submitted an opinion of counsel in form and substance satisfactory to the Exchange stating, among other things, that the corporation is duly organized and existing and that its stock is validly issued and outstanding and that the restrictions and provisions required by the Exchange on the transfer, issuance, conversion and redemption of its stock have been made legally effective.
Amendment.
March 26, 1970.
(See .23, below, for restrictions on corporations not incorporated under laws of the State of New York.).21 Provisions concerning disposition of stock
The certificate of incorporation of a member corporation may contain provisions that the corporation or its stockholders, or both, may have a prior right to purchase the stock of any stockholder upon such terms and conditions as may be specified therein.
The Exchange will expect a member corporation, either through its certificate of incorporation or separate agreements, to be in a position at all times to comply with the provisions of Rule 312(d).
Each stock certificate of a member corporation shall carry on its face a statement of any such provisions or a full summary thereof.
Amendments.
March 26, 1970.
March 16, 1972.
August 9, 1976.
April 2, 1979..22 Provisions concerning redemption or conversion
Each certificate of incorporation of a member corporation shall contain provisions authorizing the corporation to redeem or convert to a fixed income security all or any part of the outstanding shares of voting stock of such member corporation owned by any person required to be approved by the Board of Directors of the Exchange as a member or approved person who fails or ceases to be so approved as may be necessary to reduce such party's ownership of voting stock in the member corporation below that level which enables such party to exercise controlling influence over the management or policies of such member corporation.
If the certificate of incorporation of a member corporation subject to Rule 325 provides that a stockholder may compel the redemption of his stock such certificate must provide that without the prior written approval of the Exchange, the redemption may only be effected on a date not less than six months after receipt by the member corporation of a written request for redemption given no sooner than six months after the date of the original issuance of such shares (or any predecessor shares). Each member corporation shall promptly notify the Exchange of the receipt of any request for redemption of any stock or if any redemption is not made because prohibited under the provisions of Securities and Exchange Commission Rule 15c3-1 (See 15c3-1(e)).
Each stock certificate of a member corporation shall carry on its face a statement of the restrictions in SEC Rule 15c3-1(e) relating to the redemption of stock or a full summary thereof.
Adopted.
March 26, 1970.
Amendments.
July 15, 1971.
January 20, 1972.
October 16, 1975; effective January 1, 1976.
August 9, 1976.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64..23 Restrictions on corporations
Corporations not organized under the laws of the State of New York shall effectively subject themselves to the following restrictions and the opinion of counsel submitted to the Exchange at the time the corporation applies for approval as a member corporation shall set forth the extent to which the following restrictions have been made legally effective:
No dividend shall be declared or paid which shall impair the capital of the corporation nor shall any distribution of assets be made to any stockholder unless the value of the assets of the corporation remaining after such payment or distribution is at least equal to the aggregate of its debts and liabilities, including capital.
Renumbered.
March 26, 1970.Rule 319. Fidelity Bonds
(a) Each member organization doing business with the public shall carry fidelity bonds in such form and in such amounts as the Exchange may require covering its general partners or officers and its employees. The Stockbrokers Partnership Bond and the Brokers Blanket Bond approved by the Exchange, are the only forms which may be used. Specific Exchange approval is required for any variation from such forms.(b) Each such member organization may self-insure to the extent of $10,000 or 10% of its minimum insurance requirement as fixed by the Exchange, whichever is greater, for each type of coverage required by the rule. This deductible may be taken without considering it as a debit item in the computation of net capital. Self-insurance in amounts exceeding the above maximum may be permitted by the Exchange provided the member or member organization certifies to the satisfaction of the Exchange that it is unable to obtain greater bonding coverage, and agrees to reduce its self-insurance so as to comply with the above stated limits as soon as possible, and appropriate charges to capital are made pursuant to Exchange Act Rule 15c3-1.(c) Member organizations subject to this rule are required to maintain basic and specific coverage, which apply both to Stockbrokers Partnership Bond and Brokers Blanket Bond, in amounts not less than those prescribed in this Rule. Where applicable, such coverage must also extend to limited partners as employees, outside organizations providing electronic data processing services and the handling of U.S. government securities in bearer form.(d) Each member organization that introduces all customers' accounts on a fully disclosed basis must maintain minimum coverage as follows:(i) Minimum basic coverage for such member organizations whose net capital requirement under Rule 325:A. does not exceed $670,000 shall be the greater of $25,000 or 120% of their net capital requirement.B. exceeds $670,000 shall be determined by the schedule set forth in paragraph (e) of this rule.(ii) Specific coverage for such member organizations shall be as follows:A. Misplacement and Check Forgery-the amount of basic bond minimum requirement.B. Fraudulent Trading (not required of partnerships having no employees)-the greater of $25,000 or 50% of the basic bond minimum requirement, up to $500,000.C. Securities Forgery-the greater of $25,000 or 25% of the basic bond minimum up to $250,000.(e) Each member organization which carries customers' accounts must maintain minimum coverage as follows:(i) Minimum basic coverage for such member organizations shall be based on their net capital requirement under Rule 325 as follows:
Net Capital Requirement Under Rule 325 Basic Minimum Coverage $ 25,000–50,000 $ 200,000 50,001–100,000 300,000 100,001–200,000 500,000 200,001–300,000 600,000 300,001–500,000 700,000 500,001–1,000,000 800,000 1,000,001–2,000,000 1,000,000 2,000,001–3,000,000 1,500,000 3,000,001–4,000,000 2,000,000 4,000,001–6,000,000 3,000,000 6,000,001–12,000,000 4,000,000 12,000,001–and higher 5,000,000 (ii) Specific coverage for such member organizations shall be as follows:A. Misplacement and Check Forgery—the amount of the basic bond minimum requirement.B. Fraudulent Trading (not required of partnerships having no employees)—the greater of $100,000 or 50% or the basic bond minimum requirement, up to $500,000.C. Security Forgery—the greater of $100,000 or 25% of the basic bond minimum requirement, up to $250,000.Amendments.
December 19, 1955, effective January 4, 1956.
November 17, 1960, effective January 16, 1961.
June 19, 1969, effective June 19, 1969.
May 27, 1977.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).
• • • Supplementary Material: --------------
.10 The highest net capital requirement during the preceding twelve months, based upon either the basic or alternative method for computing net capital requirements, whichever is applicable, shall determine the minimum required coverage for the succeeding twelve month period. Required coverage may be redetermined as of the yearly anniversary date of the bond. If a replacement bond becomes necessary, coverage must be redetermined upon issuance of such bond, and thereafter such coverage shall be redetermined annually as of the anniversary date of the replacement bond..11 Each member organization will be expected to review carefully any need for coverage greater than that provided by the required minimums. Where experience or the nature of the business warrants additional coverage the Exchange expects it will be acquired..12 Each member organization subject to this rule shall immediately advise the Exchange in writing if its insurance is entirely or partially canceled.
In addition, each bond shall contain a provision that the insurance carrier will use its best efforts to notify the Exchange in the event the bond is canceled, terminated or substantially modified.*
* The term "substantially modified" shall mean any change in the type or amount of fidelity bonding coverage, or in the exclusions to which the bond is subject, or any other change in the bond such that it no longer complies with the requirements of this rule.Amendment.
May 27, 1977.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Rule 321. Formation or Acquisition of Subsidiaries
No member organization may, without the prior written approval of the Exchange, form or acquire a subsidiary company. The member organization shall require such subsidiary to comply with the following provisions.
• • • Supplementary Material: --------------
Information Regarding Subsidiary Companies of Member Organizations
.10 Definition of subsidiary
For purposes of this rule, the term "subsidiary" means an entity engaged in a securities or kindred business that is controlled by a member organization within the meaning of Rule 2. However, control shall not be presumed, for purposes of this rule, merely because a member is a director or principal executive of another person.
Adopted.
August 31, 1993.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64..11 Form of organization
A subsidiary shall be an incorporated company or partnership.
Amendments.
August 31, 1993.
August 19, 1994..12 Name
The name of the subsidiary and the name of the member organization must be sufficiently different to prevent confusion. The mere addition of "Inc." or "and Co." may not be sufficient.
Amendments.
August 31, 1993.
August 19, 1994..13 Severance of connection with subsidiary
The Exchange may at any time require that the member organization and the partners or stockholders thereof sever all connections with the subsidiary including the disposition of all securities and other interests therein, or such amount thereof as determined by the Exchange. Concurrent with or at any time after directing such severance, the Exchange may require the member organization to change its name if the Exchange finds that the name of the former subsidiary may be confused with the name of such member organization.
Amendment and Renumbered.
August 31, 1993.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77)..14 List of stockholders
A list of stockholders or partners of the subsidiary shall upon request be submitted to the Exchange.
Amendment and Renumbered.
August 31, 1993..15 Employees
No employee associated with a non U.S. registered foreign subsidiary whose duties correspond to those of a registered representative in the solicitation of accounts or orders for the purchase or sale of U.S. securities shall be employed by such subsidiary unless such person has been and is continued to be approved by the Exchange as a registered representative of the member or member organization.
Any filing or submission required under this rule which is made with a properly authorized agent acting on behalf of the Exchange shall for purposes of this rule be deemed to be a filing with the Exchange.
Amendment and Renumbered.
August 31, 1993..16 Capital requirements
The Exchange will not prescribe capital requirements for a subsidiary. However, the Exchange will require a pro forma balance sheet of the subsidiary to be filed with it before any action is taken on a member or member organization's application to form such a subsidiary. The Exchange may, however, require the submission of subsequent financial statements.
Amendment and Renumbered.
August 31, 1993..17 Banking commitments
A subsidiary's banking and other commitments, loans and obligations shall be kept separate and distinct from those of the member or member organization with which it is affiliated.
Amendment and Renumbered.
August 31, 1993..18 Functions of a subsidiary
A subsidiary may be formed to do an underwriting, agency or dealer business, or any other business acceptable to the Exchange.
Amendment and Renumbered.
August 31, 1993..19 Offices
A subsidiary will be permitted, under the conditions set forth in Rule 343 to occupy the same quarters as those of the member organization.
Amendment and Renumbered.
August 31, 1993..20 Books and records
A subsidiary shall keep books and records separate and distinct from those of the member or member organization with which it is affiliated and such books and records shall, upon request, be made available by the member or member organization for inspection by the Exchange. However, such books and records may be maintained by the member or member organization.
Amendment and Renumbered.
August 31, 1993..21 Transactions between members or member organizations and subsidiaries
A subsidiary will not be prohibited by the Exchange from having cash or margin brokerage transactions effected for its account by the member or member organization (See Section 11(a) of the Securities Exchange Act of 1934). The rules and regulations applicable generally to customer's accounts shall be applicable to each such account.
Amendment and Renumbered.
August 31, 1993..22 Conditions to be complied with after organization of subsidiary but prior to commencement of business
No subsidiary shall commence business after its organization without the prior written approval of the Exchange. Before giving such approval there shall be submitted to the Exchange an opinion of counsel, in form and substance satisfactory to the Exchange, stating (1) that the subsidiary is duly organized and existing, and (2) that the securities, if any, of the subsidiary has been duly and validly issued and is fully paid and non-assessable.
Amendment and Renumbered.
August 31, 1993..23 New issues
The provisions of Section 11(d)(1) of the Securities Exchange Act of 1934, relating to the extension or maintenance of credit in connection with new issues, will apply to transactions by a member or member organization in new issues in the distribution of which its subsidiary participated with the same force and to the same extent as if the member or member organization itself had participated in the distribution of such new issues.
Amendment and Renumbered.
August 31, 1993..24 Disclosure
In connection with any transactions which the member or member organization may have had with its customers, or any recommendation which the member or member organization may make to its customers, involving securities underwritten, distributed or sold by its subsidiary, full disclosure shall be made by the member or member organization to its customers of the interest of the subsidiary in such securities at that time.
Amendment and Renumbered.
August 31, 1993.
March 22, 2001 (NYSE-2000-37).
Amendments.
August 31, 1993.
August 19, 1994.Rule 322. Guarantees by, or Flow Through Benefits for Members or Member Organizations
Prior written notice shall be given the Exchange whenever any member or any member organization:
(a) guarantees, endorses or assumes, directly or indirectly, the obligations or liabilities of another person; or(b) receives flow through capital benefits in accordance with Appendix C of Rule 15c3-1 under the Securities Exchange Act of 1934.
• • • Supplementary Material: --------------
.10 Financial and Operational Impact
The written notice required by this rule shall be given to the Exchange at least 10 business days prior to entering into such arrangement or relationship with another person and shall include the address and general nature of business conducted by such person, a description of the relationship or arrangement between the parties, details regarding the capitalization of such person (including the percentage of ownership or profits by the member or member organization), as well as the actual and potential effect of the arrangement or relationship on the member or member organization's capital (including net capital) and operations and such other information as the Exchange may require..11 Dealings with member or member organization
A member or member organization may at any time be required to provide the Exchange with information with respect to the arrangement, relationship and dealings with a person referred to in this rule..12 Books and records
No member or member organization shall enter into an arrangement described in this rule unless it has the authority to make available promptly the books and records of such person for inspection by the Exchange in the United States. The books and records of such person shall be kept separately from those of the member or member organization..13 FOCUS Reporting Requirements
For persons referred to in this rule that are registered broker-dealers, the member organization shall furnish to the Exchange copies of such person's FOCUS Reports simultaneous with their being filed with the person's designated examining authority. For persons referred to in this rule that are not registered broker-dealers, the Exchange requires, in lieu of FOCUS, submission of financial and operational statements, in such format and at such time periods as may be required by the Exchange, sufficient to gauge the capital and operational effects of the arrangement or relationship. See also Rule 416.10..15 Routine guarantees
Guarantees executed routinely in the normal course of business such as signature guarantees, endorsement of securities and the writing of options, are not subject to the requirements of this rule provided that, in regard to the guarantee of the writing of options, the transaction is appropriately recorded on the member's or member organization's books and records in accordance with Securities Exchange Act Rule 17a-3(a)(10) and is reflected in its capital computation..16 Severance of connection
The Exchange may at any time require that the member or member organization and the partners or stockholders thereof sever all connections with a person referred to in this rule including the disposition of all securities and other interests therein, or such amount thereof as determined by the Exchange. Concurrent with or at any time after directing such severance, the Exchange may require the member organization to change its name if the Exchange finds that the name of the former associated organization may be confused with the name of such member organization.
(See also Rule 321)New Rule 322 adopted August 31, 1993.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Operation of Member Organizations (Rules 325–465)
Capital Requirements (Rules 325–328)
Rule 325. Capital Requirements Member Organizations
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
General provisions
(a) Each member organization shall comply with the net capital requirements prescribed by Rule 15c3-1 under the Securities Exchange Act of 1934 (the "Exchange Act") and with the additional requirements of this Rule 325.(b)(1) Each member organization subject to this Rule shall promptly, but in any event within 24 hours, notify the Exchange if its net capital after deduction of all capital withdrawals (including maturities) scheduled during the next six months falls below the following percentages:i. If the net capital minimum dollar amount requirement is applicable—150 percent thereof or some greater percentage as may from time to time be designated by the Exchange.ii. If the ratio of aggregate indebtedness to net capital is applicable—10 percent of aggregate indebtedness.iii. If the alternative net capital requirement percentage is applicable—five percent of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under Exchange Act Rule 15c3-3.iv. If the risk-based capital requirements of Commodity Exchange Act Rule 1.17 is applicable—120% of the risk-based capital requirements.(2) Each member organization shall notify the Exchange, in writing, no more than 48 hours after its tentative net capital (net capital before application of haircuts and undue concentration charges), as computed pursuant to Exchange Act Rule 15c3-1, has declined 20 percent or more from the amount reported in its most recent FOCUS Report filed with the Exchange.(3) Each member organization shall concurrently provide the Exchange with a copy of any report or notification made to the Securities and Exchange Commission pursuant to Exchange Act Rule 17a-11 or Commodities Exchange Act Regulation 1.12.(c)(1) In computing net capital, a long put option or a long call option which is not an obligation of a clearing agency registered under the Exchange Act, or has not been endorsed or guaranteed by a member organization, shall have no value and shall not operate to increase net capital under any provision of this Rule. However, this shall not apply to a member organization approved to use the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1e.(2) In the case of member organizations whose trading shows a pattern of purchasing and selling the same listed stock on the same day, (or all member organizations when so designated by the Exchange), during the period in which any special margin requirement is in effect, any new proprietary transaction of members or member organizations resulting in a long or short position, shall, notwithstanding any other provision of this Rule, be treated as a "contractual commitment" from the trade date to the settlement date and shall be subject to a charge to net capital of the same percentage as specified in the special margin requirement, excepting in the case of the DMM in that stock or of others who at the request of a Floor Official have participated in a difficult market situation.(d) The Exchange may at any time or from time to time with respect to a particular member organization or all member organizations or a new member organization prescribe greater net capital or net worth requirements than those prescribed under this Rule including more stringent treatment of items in computing net capital or net worth.
(See Rule 328 for information relating to sale and leasebacks, factoring, financing and similar arrangements, including fixed asset loan agreements, other deductible asset loan agreements, and collateral bank loans for the purpose of determining "ready market" for securities.)(e) In addition to the net capital requirement prescribed in Rule 15c3-1 promulgated under the Securities Exchange Act of 1934, each member organization which employs individuals to execute orders on the floor of the Exchange, must present evidence of financial responsibility in the amount of $100,000 for each such employee by one of the following methods;(1) A written guarantee by a member organization which is a member of a qualified clearing agency and has excess net capital of not less than $100,000 for each member for whom such guarantee has been extended or(2) $100,000 held by an independent agent in escrow, or(3) a letter of credit issued by a bank or other party acceptable to the Exchange in the amount of $100,000, or(4) marketable securities with a total value of at least $100,000 (after appropriate haircuts, to be determined in the same manner as haircuts are determined for capital requirements) on deposit with an organization acceptable to the Exchange and readily available, orSuch written guarantee, escrow account, letter of credit or marketable securities shall be available solely for sums due the Exchange and such sums as the Board of Directors shall determine are due by such member to member organizations as the result of losses arising directly from the closing out under the Rules, of contracts entered into, in the ordinary course of business in the market on the floor of the Exchange for the purchase, sale, borrowing or loaning of securities.
The Exchange will consider alternate methods of compliance with the financial responsibility standard.Amendments.
March 26, 1970.
July 15, 1971.
September 7, 1972.
July 11, 1974; effective July 18, 1974.
August 5, 1974.
April 3, 1975; effective May 1, 1975.
October 16, 1975; effective January 1, 1976.
April 11, 1978.
October 19, 1978.
October 9, 1980.
December 11, 1980 May 1, 1982.
October 13, 1988.
December 7, 1994.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).
March 29, 2007 (NYSE-2005-03).
Amended by SR-FINRA-2009-025 eff. Apr. 7, 2009.Rule 326(a). Growth Capital Requirement
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
A member organization that carries customer accounts shall not expand its business during any period in which:
(1) any of the following conditions continue to exist for more than 15 consecutive business days, provided that such condition has been known to the Exchange for at least five consecutive business days:a. The member organization's net capital is less than 150 percent of its minimum dollar net capital requirement or such greater percentage thereof as may from time to time be designated by the Exchange.b. The member organization is subject to the aggregate indebtedness requirement of Rule 15c3-1 under the Securities Exchange Act of 1934 (the "Exchange Act"), and its aggregate indebtedness is more than 1,000 percent of its net capital.c. The member organization elects to use the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1(a)(1)(ii), and its net capital is less than five percent of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under Exchange Act Rule 15c3-3.d. The member organization is approved to use the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1e, and(i) its tentative net capital as defined in Exchange Act Rule 15c3-1(c)(15) is less than 50 percent of the early warning notification amount required by Exchange Act Rule 15c3-1(a)(7)(ii), or(ii) its net capital is less than $1.25 billion.e. The member organization is registered as a Futures Commission Merchant pursuant to the Commodity Exchange Act, and its net capital is less than 120% of the minimum risk-based capital requirements of Commodity Exchange Act Rule 1.17.f. The member organization's deduction of capital withdrawals including maturities scheduled during the next six months and/or special deduction from net capital set forth in Rule 431(e)(8)(C)(iii) would result in any one of the conditions described in 1a, 1b, 1c, 1d or 1e of Section (a) of this Rule, or(2) The Exchange restricts the member organization.Amendments.
October 16, 1975; effective January 1, 1976.
June 28, 1978.
August 16, 1979.
January 7, 1981.
May 1, 1982.
March 29, 2007 NYSE-2005-03).Rule 326(b). Business Reduction Capital Requirement
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
A member organization that carries customer accounts shall forthwith reduce its business:
(1) to a point enabling its available capital to meet the standards set forth in 1a, 1b, 1c, 1d or 1e of Rule 326(a) if any of the following conditions continue to exist for more than 15 consecutive business days provided that such condition has been known to the Exchange for at least five consecutive business days:a. The member organization's net capital is less than 125 percent of its minimum dollar net capital requirement or such greater percentage thereof as may from time to time be designated by the Exchange.b. The member organization is subject to the aggregate indebtedness requirement of Exchange Act Rule 15c3-1, and its aggregate indebtedness is more than 1,200 percent of its net capital.c. The member organization elects to use the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1(a)(1)(ii), and its net capital is less than four percent of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under Exchange Act Rule 15c3-3.d. The member organization is approved to use the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1e, and(i) its tentative net capital as defined in Exchange Act Rule 15c3-1(c)(15) is less than 40 percent of the early warning notification amount required by Exchange Act Rule 15c3-1(a)(7)(ii), or(ii) its net capital is less than $1 billion.e. The member organization is registered as a Futures Commission Merchant pursuant to the Commodity Exchange Act, and its net capital is less than 110% of the minimum risk-based capital requirements of Commodity Exchange Act Rule 1.17f. The member organization's deduction of capital withdrawals including maturities scheduled during the next six months and/or special deduction from net capital set forth in Rule 431(e)(8)(C)(iii) would result in any one of the conditions described in 1a, 1b, 1c, 1d, or 1e of Section (b) of this Rule, or(2) When the Exchange restricts the member organization.Adopted.
July 15, 1971.
Amendments.
October 16, 1975.
June 28, 1978.
August 16, 1979.
May 1, 1982.
March 29, 2007 (NYSE-2005-03).Rule 326(c). Unsecured Loans and Advances
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
No drawings, unsecured or partly secured loans or advances of funds by a member organization to any partner, director, officer employee, stockholder, subordinated lender, secured demand note contributor or persons or entities related to, controlled by, under common control with such persons or in which such persons are employed, hold office or have a financial interest and no guarantees of obligations of any person shall be made, except with prior written approval of the Exchange, when any of the following conditions exist in a member organization, or if such drawings, loans, advances or guarantees would result in any of the following conditions:
(1) Its net capital is less than 150 percent of its minimum dollar net capital requirement or some greater percentage as may from time to time be designated by the Exchange, or(2) If subject to this requirement, its aggregate indebtedness is more than 1,000 percent of its net capital, or(3) If the net capital of a member organization that uses the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1(a)(1)(ii) in lieu of (2) above is less than five percent of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under Exchange Act Rule 15c3-3.(4) If the net capital of a member organization that is registered as a Futures Commission Merchant pursuant to the Commodity Exchange Act is less than 120% of the minimum risk-based capital requirements of Commodity Exchange Act Rule 1.17.(5) Capital withdrawals including maturities scheduled during the next six months would result in the condition described in (1), (2) or (3) above.Note: Applicable state laws should also be reviewed for restrictions on unsecured loans by corporations and partnerships.
Adopted.
December 12, 1974.
Amendment.
October 16, 1975; effective January 1, 1976.
March 29, 2007 (NYSE-2005-03).Rule 326(d). Reduction of Elimination of Loans and Advances
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
Except with the prior written approval of the Exchange, a member organization which has outstanding any unsecured or partly secured loans or advances of funds, or guarantees of obligations of the nature described in (c)(1) through (4) above, shall forthwith reduce or eliminate such unsecured or partly secured amounts due from such borrowers, or otherwise restore its capital to a point where the conditions described in (c)(1) through (4) did not exist, if any of the following conditions exist at the member organization:
(1) Its net capital is less than 125 percent of its net capital minimum dollar amount requirement, or some greater percentage as may from time to time be designated by the Exchange, or(2) If subject to this requirement, its aggregate indebtedness is more than 1,200 percent of its net capital, or(3) If the net capital of a member organization that uses the alternative method of computing net capital pursuant to Exchange Act Rule 15c3-1(a)(1)(ii) in lieu of (2) above is less than four percent of the aggregate debit items in the Formula for Determination of Reserve Requirements for Brokers and Dealers under Exchange Act Rule 15c3-3, or(4) If the net capital of a member organization that is registered as a Futures Commission Merchant pursuant to the Commodity Exchange Act is less than 110% of the minimum risk-based capital requirements of Commodity Exchange Act Rule 1.17.(5) Capital withdrawals including maturities scheduled during the next six months would result in the condition described in (1), (2), (3) or (4) above.Adopted.
December 12, 1974.
Amendments.
October 16, 1975; effective January 1, 1976.
May 1, 1982.
March 29, 2007 (NYSE-2005-03).
• • • Supplementary Material: --------------
.10 Expansion of business
For the purpose of this rule, expansion of business shall mean:(a) net increase in the number of registered representatives or other producing personnel,(b) exceeding average commitments over the previous three months for market making or block positioning,(c) initiation of market making in new securities or any new firm trading or other commitment in securities or commodities in which a market is not made (other than riskless trades associated with customer orders),(d) exceeding average commitments over the previous three months for underwritings,(e) opening of new branches,(f) entering any new line of business or deliberately promoting or expanding any present lines of business,(g) such other measures as the Exchange may determine.Adopted.
July 15, 1971..11 Business reduction
For the purposes of this rule, the term "business reduction" shall mean reducing or eliminating parts of a member organization's business in order to reduce the amount of capital required, such as disposing of branch offices, reducing trades, reducing or ceasing market making or underwriting, introducing accounts on a disclosed basis, and the like.
Adopted.
July 15, 1971..12 Business with restricted organization
The prohibitions of this rule shall apply to any member organization which introduces accounts on a disclosed basis to or clears on omnibus basis through another member organization which is prohibited from expanding or required to reduce its business under this rule, insofar as such business would be handled by such carrying or clearing member organization.
Adopted.
July 15, 1971..13 Subordination agreements
For the purposes of increasing an organization's total subordinated liabilities and capital available as protection to customers, a member organization may enter into subordination agreements which are not allowed as good capital under Rule 325. Such agreements may place at the risk of the business margin accounts, securities, collateral in excess of face value of Secured Demand Notes, partners' personal accounts and the like. Such subordinations must be in a form acceptable to and filed with the Exchange and must be shown separately in financial statements and similar documents.
Adopted.
July 15, 1971.Rule 328. Sale-And-Leasebacks, Factoring, Financing and Similar Arrangements
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
(a) No member organization shall consummate a sale-and-leaseback arrangement with respect to any of its assets; a sale, factoring or financing arrangement with respect to any unsecured accounts receivable; or a sale or factoring arrangement with respect to any customers' debit balances without the prior written authorization of the Exchange.(b) Any loan agreement the proceeds of which is intended to reduce the deduction in computing net capital for fixed assets and assets which cannot be readily converted into cash under SEC Rule 15c3-1(c)(2)(iv), must be submitted to and be acceptable to the Exchange prior to such reduction becoming effective.(c) Any agreement relating to a determination of a "ready market" for securities based upon the securities being accepted as collateral for a loan by a bank under SEC Rule 15c3-1(c)(11)(ii) must be submitted to and be acceptable to the Exchange before the securities are deemed to have a "ready market."Adopted.
July 11, 1974.
Amendment.
December 11, 1980.Offices and Employees (Rules 341–354)
Rule 342. Offices—Approval, Supervision and Control
(a) Each office, department or business activity of a member or member organization (including foreign incorporated branch offices) shall be under the supervision and control of the member or member organization establishing it and of the personnel delegated such authority and responsibility.
The person in charge of a group of employees shall reasonably discharge his duties and obligations in connection with supervision and control of the activities of those employees related to the business of their employer and compliance with securities laws and regulations.(b) The general partners or directors of each member organization shall provide for appropriate supervisory control and shall designate a general partner or principal executive to assume overall authority and responsibility for internal supervision and control of the organization and compliance with securities' laws and regulations. This person shall:(1) delegate to qualified principals or employees responsibility and authority for supervision and control of each office, department or business activity, and provide for appropriate procedures of supervision and control.(2) establish a separate system of follow-up and review to determine that the delegated authority and responsibility is being properly exercised.(c) A member organization shall provide notice to the Exchange of each branch office established by such member organization.(d) Qualified persons acceptable to the Exchange shall be in charge of:(1) any office of a member or member organization,(2) any regional or other group of offices,(3) any sales department or activity.(e) The amounts and types of credit extended by a member organization shall be supervised by members or principal executives qualified by experience for such control in the types of business in which the member organization extends credit.
• • • Supplementary Material: --------------
.10 Definition of Branch Office
A "branch office" is any location where one or more associated persons of a member or member organization regularly conduct the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, or is held out as such, excluding:(A) any location that is established solely for customer service and/or back office type functions where no sales activities are conducted and that is not held out to the public as a branch office;(B) any location that is the associated person's primary residence; provided that: (i) only one associated person, or multiple associated persons, who reside at that location and are members of the same immediate family, conduct business at the location; (ii) the location is not held out to the public as an office and the associated person does not meet with customers at the location; (iii) neither customer funds nor securities are handled at that location; (iv) the associated person is assigned to a designated branch office, and such branch office is reflected on all business cards, stationery, advertisements and other communications to the public by such associated person; (v) the associated person's correspondence and communications with the public are subject to all supervisory provisions of the Exchange's rules including, but not limited to, Rules 342 and 472; (vi) electronic communications (e.g., e-mail) are made through the member's or member organization's electronic system; (vii) all orders are entered through the designated branch office or an electronic system established by the member or member organization that is reviewable at the branch office; (viii) written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the member or member organization; and (ix) a list of the locations is maintained by the member or member organization;(C) any location, other than a primary residence, that is used for securities business for less than 30 business days in any one calendar year, provided the member or member organization complies with the provisions of (ii) through (viii) of paragraph (B) above;(D) any office of convenience, where the associated person occasionally and exclusively by appointment meets with customers, which is not held out to the public as a branch office (where such location is on bank premises, however, only signage required by the Interagency Statement (Statement on Retail Sales of Nondeposit Investment Products required under Banking Regulations) may be displayed);(E) any location that is used primarily to engage in non-securities activities and from which the associated person effects no more than 25 securities transactions in any one calendar year; provided that any advertisements or sales literature identifying such location also sets forth the address and telephone number of the location from which the associated person conducting business at the non-branch locations are directly supervised;(F) the Floor of a registered national securities exchange where a member or member organization conducts a direct access business with public customers; or(G) a temporary location established in response to the implementation of a business continuity plan.Notwithstanding the exclusions in subparagraphs 342.10(A)–(G), any location that is responsible for supervising the activities of persons associated with a member or member organization at one or more non-branch locations of such member or member organization is considered to be a branch office.
For purposes of this Rule, the term "business day" shall not include any partial business day provided that the associated person spends at least four hours on such business day at his or her designated branch office during the hours that such office is normally open for business.
For purposes of this Rule, the term "associated person of a member or member organization" is defined as a member or employee associated with a member or member organization.
For purposes of Rule 342.10(B)(viii), written supervisory procedures shall include criteria for on-site for cause reviews of an associated person's primary residence. Such reviews must utilize risk-based sampling or other techniques designed to assure compliance with applicable securities laws and regulations and with Exchange Rules.
For purposes of Rule 342.10(B)(viii) and (C), written supervisory procedures for such residences and other remote locations must be designed to assure compliance with applicable securities laws and regulations and with NYSE Rules.
Factors which should be considered when developing risk-based sampling techniques to determine the appropriateness of on-site for cause reviews of selected residences and other remote locations shall include, but not be limited to, the following: (i) the firm's size; (ii) the firm's organizational structure; (iii) the scope of business activities; (iv) the number and location of offices; (v) the number of associated persons assigned to a location; (vi) the nature and complexity of products and services offered; (vii) the volume of business done; (viii) whether the location has a Series 9/10-qualified person on-site; (ix) the disciplinary history of the registered persons or associated persons, including a review of such person's customer complaints and Forms U4 and U5; and (x) the nature and extent of a registered person's or associated person's outside business activities, whether or not related to the securities business..11 Reserved..12 Foreign branch offices
With prior approval of the Exchange, a member organization may establish a foreign branch office in corporate or partnership form, provided it is wholly owned by the member organization. Continuance of the arrangement is subject to any changes in the Rules of the Exchange as may be thereafter adopted.
Foreign branch offices approved pursuant to this paragraph .12 and their personnel shall be fully subject to the Rules of the Exchange to the same degree and extent as are members and member organizations and their personnel. All obligations and liabilities of such foreign branch office shall be assumed or guaranteed by its parent member organization and such member organization shall be fully responsible for all acts of such foreign branch office.
For purposes of this Rule 342.12, the term "foreign branch office" shall include any such independently organized foreign location from which the services of the member or member organization are being made available or whose financial resources are being utilized in the operation of the office or as to which either of the above is held out, respectively, as available or being utilized..13 Acceptability of supervisors(a) Generally
Any member or employee who is a candidate for acceptability under (d)(1), (2), or (3) above must have a creditable record and must pass the General Securities Sales Supervisor Qualification Examination (Series 9/10) or another examination acceptable to the Exchange which demonstrates competency relevant to assigned responsibilities. The General Securities Principal Examination (Series 24) is an acceptable alternative for persons whose duties do not include the supervision of options or municipal securities sales activity. The examination requirement may be waived at the discretion of the Exchange. In the case of a firm that is applying for registered broker-dealer status, such supervisory candidates, in addition to the requirements outlined above, must also have at least one year of direct experience or two years of related experience in the subject area to be supervised.(b) Compliance supervisors
Each member not associated with a member organization and in the case of a member organization, the person (or persons) designated to direct day-to-day compliance activity (such as the Compliance Officer, Partner or Director) and each other person at the member organization directly supervising ten or more persons engaged in compliance activity should have overall knowledge of the securities laws and Exchange rules and must pass the Compliance Official Qualification Examination. Where good cause is shown, the Exchange, at its discretion, may waive the examination requirement. The Exchange may give consideration to the scope of the member or member organization's activity, to previous related employment, and to examination requirements of other self-regulatory organizations. In such cases, the Exchange must be satisfied that the person is qualified for the position..14 Experience of senior management
Member organizations without experienced senior principals may be subject to agreements with the Exchange appropriately limiting their scope of activity..15 Small offices
may be in the charge of a qualified principal or manager who is either resident or nonresident in that area. In the event that such a qualified supervisor is non-resident, a resident registered representative may be designated for subsidiary authority and is not required to meet a manager's examination or experience requirements..16 Supervision of registered representatives
Would ordinarily include at least approval of new accounts and reasonable procedures for review of registered representatives' communications with the public relating to their business, and customer accounts and transactions. Such policies and procedures should be in writing and be designed to reasonably supervise each registered representative. Evidence that these supervisory policies and procedures have been implemented and carried out must be maintained and made available to the Exchange upon request.
See Rule 405 ("Diligence as to Accounts") for responsibilities for supervision of customer accounts..17 Review of communications with the public
Members and member organizations must develop written policies and procedures that are appropriate for their business, their size, structure and customers in connection with the review of communications with the public relating to their business. Where such policies and procedures for the review of public communications do not require pre-use review, they must include provision for the education and training of employees as to organizational policies and procedures, documentation of such education and training, and provide for surveillance and follow-up to ensure that such policies and procedures are implemented and adhered to.
See also Rule 472 ("Communications with the Public"), for preapproval requirements for certain communications and standards governing all communications..18 Member organizations shall provide for the supervision and control of each general ledger bookkeeping account and account of like function on the basis specified in Rule 440.20..19 Supervision of Producing Manager
Members and member organizations must develop and implement written policies and procedures reasonably designed to independently review and supervise customer account activity conducted by each Branch Office Manager, Sales Manager, Regional/District Sales Manager, or by any person performing a similar supervisory function. Such supervisory reviews must be performed by a qualified person pursuant to Rule 342.13 who:(a) is either senior to, or otherwise independent of, the Producing Manager under review. For purposes of this Rule, an "otherwise independent" person: may not report either directly or indirectly to the Producing Manager under review; must be situated in an office other than the office of the Producing Manager; must not otherwise have supervisory responsibility over the activity being reviewed; and must alternate such review responsibility with another qualified person every two years or less. Further, if a person designated to review a Producing Manager receives an override or other income derived from that Producing Manager's customer activity that represents more than 10% of the designated person's gross income derived from the member or member organization over the course of a rolling twelve-month period, the member or member organization must establish alternate senior or otherwise independent supervision of that Producing Manager to be conducted by a qualified person, pursuant to Rule 342.13, other than the designated person receiving the income.(b) If a member or member organization is so limited in size and resources that there is no qualified person senior to, or otherwise independent of, the Producing Manager to conduct the reviews pursuant to (a) above (for instance, the member or member organization has only one office, or an insufficient number of qualified personnel who can conduct reviews on a two-year rotation), the reviews may be conducted by a person, qualified pursuant to Rule 342.13, in compliance with (a) to the extent practicable.(c) A member or member organization relying on (b) above must document the factors used to determine that complete compliance with all of the provisions of (a) is not possible, and that the required supervisory systems and procedures in place with respect to any Producing Manager comply with the provisions of (a) to the extent practicable..20 Information requests
In connection with its investigation of anomalous trading activity and for other purposes, the Exchange from time to time requests from members and member organizations detailed information regarding trades effected by the member or member organization in specified NYSE listed securities and related financial instruments during a specified period. Each member not associated with a member organization and each member organization shall comply with each such request by the date required by the Exchange..21 Trade review and investigation
In order to help assure its compliance with the provisions of the Securities Exchange Act of 1934, the rules under that act and the rules of the Exchange prohibiting insider trading and manipulative and deceptive devices, each member not associated with a member organization and each member organization, in addition to carrying out such other supervisory procedures as may be necessary to discharge its supervisory responsibilities as to compliance with Federal Securities laws and rules and Exchange rules generally shall:(a) Subject trades in NYSE listed securities and in related financial instruments which are effected for the account of the member or member organization or for the accounts of members or employees of the member or member organization and their family members (including trades reported by other members or member organizations pursuant to Rule 407) to review procedures that the member or member organization determines to be reasonably designed to identify trades that may violate the provisions of the Securities Exchange Act of 1934, the rules under that act or the rules of the Exchange prohibiting insider trading and manipulative and deceptive devices, and(b) Conduct promptly an internal investigation into any such trade that appears that it may have violated those laws and rules in order to determine whether it did violate those laws and rules.The Exchange, at its discretion, may exclude from these review and investigation requirements particular classes of persons, trades, securities and related financial instruments..22 Definition of related financial instrument
For the purpose of Paragraphs .20 and .21, "related financial instrument" means:(a) Any stock underlying an NYSE listed stock option or included in an index stock group underlying an NYSE listed index stock group option,(b) Any stock option on an NYSE listed stock,(c) Any index stock (bond) group option on a stock (bond) group that includes an NYSE listed stock (bond),(d) Any futures contract on a stock (bond) group that includes an NYSE listed stock (bond), and(e) Any option on any such futures contract..23 Internal Controls
Pursuant to paragraphs (a) and (b) of this Rule, members and member organizations must develop and maintain adequate controls over each of its business activities. Such controls must provide for the establishment of procedures for independent verification and testing of those business activities. An ongoing analysis, based upon appropriate criteria, may be employed to assess and prioritize those business activities requiring independent verification and testing. A review of each member's or member organization's efforts with respect to internal controls, including a summary of tests conducted and significant exceptions identified, must be included in the Annual Report required by .30 of this Rule.
The independent verification and testing procedures shall not apply to members and member organizations that do not conduct a public business, or that have a capital requirement of $5,000 or less, or that employ 10 or fewer registered representatives.
(See also Rule 401(b)).24 Annual Branch Office Inspection(A) Each member organization business location designated as a branch office pursuant to Rule 342.10 must be inspected no less often than once each calendar year unless:(1) it has been demonstrated to the satisfaction of the Exchange that because of proximity, special reporting or supervisory practice, other arrangements may satisfy the Rule's requirements for a particular branch office; or(2) based upon the written policies and procedures of such member organization providing for a systematic risk-based surveillance system, the member organization submits a proposal to the Exchange and receives, in writing, an exemption from this requirement pursuant to Rule 342.25.(B) Every branch office, without exception, must be inspected at least once every three calendar-years. All required inspections must be conducted by a person who is independent of the direct supervision and control of the branch office in question (i.e., not the Branch Office Manager, or any person who directly or indirectly reports to such Manager, or any person to whom such Manager directly reports). Written reports reflecting the results of such inspections are to be maintained at the member organization for the longer of three years or until the next branch inspection..25 Risk-Based Surveillance and Branch Office Identification(A) Any member organization seeking an exemption, pursuant to Rule 342.24(A)(2), from the annual branch office inspection requirement must submit to the Exchange written policies and procedures for systematic risk-based surveillance of its branch offices. Such policies and procedures should reflect, among other factors, the member organization's business model, and product mix. Such policies and procedures must also, at a minimum, provide for:(1) The inspection of branches where developments during the year require a reconsideration of such branch's exemption;(2) A requirement that no less than half of the branch offices inspected each year on a cycle basis be done on an unannounced basis; and(3) A system to enable employees to report compliance issues on a confidential basis outside of the branch office chain of command.(B) For purposes of paragraph (A) the risk-based factors to be considered should include, but not necessarily be limited to, the following:(1) Number of registered representatives;(2) A significant increase in the number of registered representatives;(3) Number of customers and volume of transactions;(4) A significant increase in branch office revenues;(5) Incidence of concentrated securities positions in customers' accounts;(6) Aggregate customer assets held;(7) Nature of the business conducted and the sales practice risk to investors associated with the products sold, and product mix (e.g., options, equities, mutual funds, annuities, etc.);(8) Numbers of accounts serviced on a discretionary basis;(9) Compliance and regulatory history of the branch, including:(a) Registered representatives subject to special supervision by the member organization, self-regulatory authorities, state regulatory authorities or the Securities and Exchange Commission in years other than the previous or current year;(b) Complaints, arbitrations, internal discipline, or prior inspection findings; and(c) Persons subject to recent disciplinary actions by self-regulatory authorities, state regulatory authorities or the Securities and Exchange Commission.(10) Operational factors, such as the number of errors and account designation changes per registered representative;(11) Incidence of accommodation mailing addresses (e.g., post office boxes and "care of" accounts);(12) Whether the branch office permits checks to be picked up by customers or hand delivery of checks to customers;(13) Experience, function (producing or non-producing) and compensation structure of branch office manager;(14) Branch offices recently opened or acquired; and(15) Changes in branch location, status or management personnel.(C) Notwithstanding any policies or procedures implemented pursuant to this rule, branch offices that meet any of the following criteria must be inspected no less often than once each calendar year:(1) Offices with one or more registered representatives subject to special supervision as required by a self-regulatory authority or state regulatory authority during the current or immediately preceding year;(2) Offices with 25 or more registered individuals;(3) Offices in the top 20% of production or customer assets for the member organization;(4) Any branch office not inspected within the previous two calendar years; and(5) Any branch office designated as exercising supervision over another branch office..26 Criteria for Inspection Programs(A) An annual branch office inspection program must include, but is not limited to, testing and independent verification of internal controls related to the following areas:(1) Safeguarding of customer funds and securities;(2) Maintaining books and records;(3) Supervision of customer accounts serviced by Branch Office Managers;(4) Transmittal of funds between customers and registered representatives and between customers and third parties;(5) Validation of customer address changes; and(6) Validation of changes in customer account information..30 Annual Report and Certification
By April 1 of each year, each member not associated with a member organization and each member organization shall submit to the Exchange a report on the member or member organization's supervision and compliance effort during the preceding year and on the adequacy of the member or member organization's ongoing compliance processes and procedures. The report shall include:(a) A tabulation of the reports pertaining to customer complaints and internal investigations made to the Exchange during the preceding year pursuant to Rules 351(d) and (e)(ii),(b) Identification and analysis of significant compliance problems, plans for future systems or procedures to prevent and detect violations and problems, and an assessment of the preceding year's efforts of this nature, and(c) Discussion of the preceding year's compliance efforts, new procedures, educational programs, etc. in each of the following areas (if any of these areas do not apply to the member or member organization, the report should so state):(i) Antifraud and trading practices,(ii) Investment banking activities,(iii) Sales practices,(iv) Books and records,(v) Finance and operations,(vi) Supervision,(vii) Internal Controls, and(viii) Anti-money laundering.(d) Reserved.(e) Reserved.
Adopted.
August 2, 1971;
May 27, 1988;
December 31, 1997.
Amendments.
April 16, 1964;
March 26, 1970;
August 27, 1976;
August 31, 1993;
May 27, 1988;
December 31, 1997;
September 13, 2001 (NYSE-2001-11);
October 9, 2002 (NYSE-2002-24);
June 17, 2004 (Effective December 17, 2004) (NYSE-2002-36);
September 9, 2005 (NYSE-2002-34);
November 16, 2005 (NYSE-2004-64);
February 27, 2006, effective March 8, 2006 (NYSE-2005-77);
June 14, 2006 (NYSE-2005-60),
January 10, 2007 (NYSE-2006-97);
July 26, 2007 (NYSE-2007-59),
Amended by SR-FINRA-2007-022 eff. Nov. 28, 2007,
Amended by SR-FINRA-2008-034 eff. Jan. 1, 2008.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.
Selected Notices: 08-02, 08-57, 08-64.Rule 343. Offices—Sole Tenancy, and Hours
(a) Unless otherwise permitted by the Exchange, each office or foreign incorporated branch of a member or member organization shall not be occupied jointly with any other broker or dealer, investment advisor, or other person who conducts a securities or commodities business with the public. Types of office space arrangements deemed permissible are described below:(1) Clearing member organizations may furnish office space, telephone, ticker or any other facilities, to their introducing non-clearing member organizations.(2) A branch or main office sales area of a member or member organization may be shared with any other broker or dealer, investment advisor or other person who conducts a securities or commodities business with the public, provided the member or member organization furnishes the Exchange with the following written assurances:(A) The arrangement is not contrary to the rules of any self-regulatory organization; and(B) there is little or no customer traffic in the office of either organization; and(C) sufficient separation exists to enable customers who do visit to identify the individual or organization with which they are transacting business; and(D) employees can be clearly identified as to their respective employer; and(E) clearance has been obtained from the member organization's fidelity insurance carrier and auditors.(3) Notwithstanding the requirements set forth in (2) above, the Exchange will permit a member or member organization to share office space with any other broker or dealer, investment advisor or other person who conducts a securities or commodities business with the public if the following conditions are met:(A) such space is separated by ceiling-high solid walls; and(B) such space has direct access to a public hall, main corridor or street; and(C) the name of each organization is placed on the door to such space; and(D) there are no connecting doors or windows between the space to be jointly occupied; and(E) the names are not listed under the same telephone number, and the telephone number of the member is not used on the letterhead or on any advertising of any other member or non-member. (Also see Rule 36.60.)(b) Members and member organizations may share office space with any person who is not a broker or dealer, an investment advisor, or who does not conduct a securities or commodities business with the public.(c) Unless otherwise permitted by the Exchange, the main office of every member organization shall remain open for business on every full business day during the trading hours on the New York Stock Exchange.Amended:
April 16, 1964;
March 4, 1976; effective April 26, 1976;
December 5, 1977;
February 10, 2005 (NYSE-2004-63);
July 26, 2007 (NYSE-2007-59).
• • • Supplementary Material: --------------
Information Regarding Office Space Arrangements.10 A non-clearing member organization which has been afforded facilities by its clearing member organization may permit its registered employees to perform their regular duties in the board room of the clearing organization, only if such employees of the non-clearing organization wear badges identifying them as employees of such organization.
When two or more non-clearing member organizations share the facilities of a single board room all employees of such member organizations must wear badges identifying them as employees of their respective member organization employers. It is the duty of the clearing organization to see that this requirement is observed.Amended:
April 3, 1975; effective May 1, 1975;
March 4, 1976; effective April 26, 1976;
April 30, 1976;
December 5, 1977.Rule 344. Research Analysts and Supervisory Analysts
Research analysts and supervisory analysts must be registered with, qualified by, and approved by the Exchange.
Adopted:
June 18, 1964.
Selected Notice: 08-67.
• • • Supplementary Material: --------------
.10 For purposes of this Rule, the term "research analyst" includes a member, allied member, associated person or employee who is primarily responsible for the preparation of the substance of a research report and/or whose name appears on such report. Such research analysts must pass a qualification examination acceptable to the Exchange..11 For purposes of this Rule, the term "supervisory analyst" includes a member, allied member, or employee who is responsible for preparing or approving research reports under Rule 472(a)(2). In order to show evidence of acceptability to the Exchange as a supervisory analyst, a member, allied member, or employee may do one of the following:(1) Present evidence of appropriate experience and pass an Exchange Supervisory Analyst Examination (Series 16).(2) Present evidence of appropriate experience and successful completion of a specified level of the Chartered Financial Analysts Examination prescribed by the Exchange and pass only that portion of the Exchange Supervisory Analyst Examination (Series 16) dealing with Exchange rules on research standards and related matters.The Exchange publishes a Study Outline for the Research Analyst Examination and the Supervisory Analyst Examination (Series 16)..12 For purposes of this Rule, the term "associated person" is defined as a natural person engaged in investment banking, or a securities or kindred business, who is directly or indirectly controlling or controlled by a member or member organization, whether or not any such person is registered, applying for registration or exempt from registration with the NYSE.Amended:
October 4, 1973;
March 10, 1983;
July 29, 2003 (NYSE-2002-49);
February 23, 2005 (NYSE-2005-12);
April 14, 2005 (NYSE-2005-24).
Selected Notice: 08-67.Rule 345. Employees—Registration, Approval, Records
(a) No member or member organization shall permit any natural person to perform regularly the duties customarily performed by a securities lending representative or a direct supervisor of such, unless such person is registered with, qualified by and is acceptable to the Exchange.Amended:
September 17, 1959;
January 24, 1963;
December 3, 1964, effective January 1, 1965;
December 19, 1968;
January 30, 1969;
March 26, 1970;
September 17, 1970;
July 19, 1972;
October 16, 1975;
July 14, 1976;
May 2, 1978;
August 4, 1983;
February 4, 1988.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 08-67.
• • • Supplementary Material: --------------
Registration of Employees
.10 Employees required to be registered or approved
See definitions of "branch office manager", "registered representative" and "registered options representative" contained in Rules 9 (¶2009) and 10 (¶2010) and Rule 700(b)(49) (¶2700) and Rule 342 (¶2342) for qualification requirements for supervisors.
A "securities lending representative" is defined as any person who has discretion to commit his member or member organization employer to any contract or agreement (written or oral) involving securities lending or borrowing activities with any other person.
Amended:
March 26, 1970;
May 11, 1979;
February 4, 1988.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 08-67..11 Investigation and Records(a) Members and member organizations shall thoroughly investigate the previous record of persons whom they contemplate employing including, (1) persons required to be registered with the Exchange, (2) persons who regularly handle or process securities or monies or maintain the books and records relating to securities or monies and (3) persons having direct supervisory responsibility over persons engaged in the activities referred to in (1) and (2) above who are not otherwise required to be registered.
Investigatory requirements for persons required to be registered with the Exchange (referred to in (a)(1) above) shall be satisfied when the member or member organization fulfills its obligation to verify the information contained in the Uniform Application for Securities Industry Registration or Transfer (Form U-4) and reviews the most recent Form U-5, as described below, if applicable.
In addition, a member or member organization shall obtain from an applicant, if applicable, a copy of his or her Uniform Termination Notice of Securities Industry Registration (Form U-5) and any amendments filed thereto, by the most recent employer. A member or member organization shall request said Form U-5 from any person who was previously registered with the Exchange or other self-regulatory organization that requires its members to provide a copy of Form U-5 to its terminated registered persons. (See also Rule 345.17.)
The member or member organization shall obtain said Form U-5 no later than sixty (60) days following the filing of the application for registration or demonstrate to the Exchange that it has made reasonable efforts to comply with the requirement. A member or member organization receiving a Form U-5 pursuant to this provision shall review the Form U-5 and any amendment thereto as part of its investigatory process and shall take such action as may be deemed appropriate.
Investigatory requirements pertaining to persons specified in (a)(2) and (3) above shall be satisfied if a member or member organization verifies the information obtained pursuant to paragraph (c) below. Notwithstanding the above, further inquiry shall be made where appropriate in light of background information developed, the position for which the person is being considered or other circumstances. Investigation and verification shall be done by a member or person designated under the provisions of Rule 342(b)(1).(b) Any applicant for registration who receives a request for a copy of his or her Form U-5 from a member or member organization pursuant to (a) above shall provide such copy to the member or member organization within two (2) business days of the request if the Form U-5 has been provided to such person by his or her former employer. If an employer has failed to provide the Form U-5 to the applicant for registration, such person shall promptly request the Form U-5, and shall provide it to the requesting member or member organization within two (2) business days of receipt thereof. The applicant shall promptly provide any subsequent amendments to a Form U-5 he or she receives to the requesting member or member organization.(c) Members and member organizations are reminded to obtain and keep on file all information required under Rule 17a-3(a)(12) of the Securities Exchange Act of 1934 for persons included within the definition of "associated person" pursuant to Rule 17a-3(a)(12)(ii). In addition, the Exchange requires that a record be kept of whether a bonding company has ever denied or revoked, or paid out on any bond because of such person.
If an employee is registered with the Exchange, a duplicated copy of Form U-4 signed by an authorized person shall satisfy all the recordkeeping requirements of this paragraph.Amended:
July 15, 1965;
April 3, 1975;
May 11, 1979;
February 4, 1988;
August 23, 1990.
Renumbered:
August 9, 1976;
February 4, 1988;
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 08-67..12 Applications
Applications for all natural persons required to be registered with the Exchange shall be submitted to the Exchange on Form U-4, copies of which will be supplied on request. The application for the approval of such registered person shall be completed and filed upon the candidate's employment in order that processing may be completed by the time the training period is finished. (See .18—Filing With Agent.)
The information contained on Form U-4 must be kept current and shall be updated by the filing with the Exchange of an amendment to that form.
Amended:
March 26, 1970;
May 2, 1974;
May 11, 1979;
February 4, 1988.
Renumbered:
February 4, 1988.
Selected Notice: 08-67..13 Agreements
Prior to the Exchange's consideration of the application, each candidate for registration, other than a member of the Exchange shall sign an agreement(s), on a form(s) prescribed by the Exchange, which includes a pledge that the registered person will abide by the Rules adopted pursuant thereto as these now exist and as from time to time amended.
Amended:
February 3, 1966;
March 26, 1970. December 1, 1970;
April 1, 1971;
December 1, 1971;
March 16, 1972;
April 3, 1975; effective May 1, 1975;
December 1, 1977;
December 13, 1978;
May 11, 1979;
February 4, 1988;
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).
Renumbered:
August 9, 1979;
February 4, 1988;
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 08-67..15 Qualifications(1)(a) Candidates for registration
Candidates for registration, shall qualify by passing a qualification examinations, as applicable, which is acceptable to the Exchange.(b) Examination waivers
Where good cause is shown, the examination requirement for a candidate for registration may be waived at the discretion of the Exchange. Consideration may be given to previous related employment and to training and/or examination requirements of other self-regulatory organizations. In such cases, the Exchange must be satisfied that the candidate is qualified for registration.(2) Registered representatives
Such candidates shall pass a qualifying examination acceptable to the Exchange.(3) Limited registration
Applications as limited purpose registered representative candidates will be considered by the Exchange for those duly qualified persons whose activities are limited solely to the solicitation or handling of the sale or purchase of: investment company securities and variable contracts, insurance premium funding program, direct participation programs, and municipal securities, among other limited registration categories. Limited purpose registered representative candidates shall qualify by passing a qualification examination acceptable to the Exchange.(4) Registered options representative
Each registered representative who transacts any business with the public in option contracts shall qualify as a "Registered Options Representative" by passing a qualification examination acceptable to the Exchange. (See Rule 700(b)(49).)(5) Commodities solicitors
Individuals who are engaged in the solicitation or handling of business in, or the sale of, commodities futures contracts shall demonstrate their competency by satisfying a solicitor's examination requirement of a national commodities exchange, which examination is acceptable to the Exchange.Amendments.
July 17, 1969;
March 26, 1970.
May 7, 1973;
May 2, 1974;
July 14, 1976;
August 27, 1976;
October 25, 1978;
October 7, 1982;
February 4, 1988;
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notices: 08-64, 08-67..16 Power of Exchange over all employees
The Exchange may require at any time that the name, terms of employment, and actual duties of any person employed by a member or member organization shall be stated to the Exchange, together with such other information with respect to such employee as it may deem appropriate to permit it to enforce compliance with the Rules.
Renumbered.
August 9, 1976;
February 4, 1988.
Amendment.
May 11, 1979.
Selected Notice: 08-67.General Information Regarding Employees
.17 Termination of employment(a) The discharge or termination of employment of any registered person together with the reasons thereof, shall be reported promptly, but in any event not later than thirty days following termination, to the Exchange on a U-5 Form. (See .18—Filing With Agent.) A copy of said termination notice shall be provided concurrently to the person whose association has been terminated.(b) The member or member organization shall provide written notification to the Exchange by means of an amendment to Form U-5, filed pursuant to paragraph (a) above, in the event that the member or member organization learns of facts or circumstances causing any information set forth in said notice to become inaccurate or incomplete. Such amendment shall be filed with the Exchange and provided to the person whose association has been terminated not later than thirty days after the member or member organization learns of the facts or circumstances giving rise to the amendment.Amendment.
March 26, 1970;
May 2, 1974;
February 4, 1988;
August 23, 1990.
Renumbered.
August 9, 1976;
February 4, 1988.
Selected Notice: 08-67..18 Filing With Agent
Any filing or submission required to be made with the Exchange under this rule, where appropriate, may be made with a properly authorized agent acting on behalf of the Exchange and shall be deemed to be a filing with the Exchange.
Amendments.
May 2, 1974;
August 4, 1983;
April 23, 1985;
February 4, 1988.
Renumbered.
February 4, 1988.
Selected Notice: 08-67.Rule 345A. Continuing Education For Registered Persons
(a) Regulatory Element
No member or member organization shall permit any registered person to continue to, and no registered person shall continue to, perform duties as a registered person, unless such person has complied with the continuing education requirements of Section (a) of this Rule.(1) Each registered person shall complete the Regulatory Element of the continuing education program on the occurrence of their second registration anniversary date and every three years thereafter or as otherwise prescribed by the Exchange. On each occasion, the Regulatory Element must be completed within one hundred twenty days after the person's registration anniversary date. A person's initial registration date, also known as the "base date", shall establish the cycle of anniversary dates for purposes of this Rule. The content of the Regulatory Element of the program shall be determined by the Exchange for each registration category of persons subject to the rule.(2) Failure to complete
Unless otherwise determined by the Exchange, any registered persons who have not completed the Regulatory Element of the program within the prescribed time frames will have their registration deemed inactive until such time as the requirements of the program have been satisfied. Any person whose registration has been deemed inactive under this Rule shall cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring registration. The Exchange may, upon application and a showing of good cause, allow for additional time for a registered person to satisfy the program requirements.(3) Disciplinary Actions
Unless otherwise determined by the Exchange, a registered person will be required to re-take the Regulatory Element of the program and satisfy the program's requirements in their entirety in the event such person:(i) becomes subject to any statutory disqualification as defined in Section 3(a)(39) of the Securities Exchange Act of 1934 (see also Rule 346(f));(ii) becomes subject to suspension or to the imposition of a fine of $5,000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule or standard of conduct of any securities governmental agency, securities self-regulatory organization, or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or(iii) is ordered pursuant to a disciplinary proceeding to re-take the Regulatory Element by any securities governmental agency or securities self-regulatory organization.A re-taking of the Regulatory Element shall commence with participation within one hundred twenty days of the registered person becoming subject to the statutory disqualification, in the case of (i) above, or the completion of the sanction or the disciplinary action becoming final, in the case of (ii) and (iii) above. The date that the disciplinary action becomes final will be deemed the person's new base date for purposes of this Rule.(b) Firm Element(1) Persons Subject to the Firm Element
The requirements of Section (b) of this Rule shall apply to any registered person who has direct contact with customers in the conduct of the member's or member organization's securities sales, trading or investment banking activities, and to the immediate supervisors of such persons, and to registered persons who function as supervisory analysts, and research analysts as defined in Rule 344 (collectively, "covered registered persons").(2) Standards(i) Each member and member organization must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skills and professionalism. At a minimum, each member and member organization shall at least annually evaluate and prioritize its training needs and develop a written training plan. The plan must take into consideration the member's or member organization's size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element. If a member's or member organization's analysis determines a need for supervisory training for persons with supervisory responsibilities, such training must be included in the member's or member organizations's training plan.(ii) Minimum Standards for Training Programs
Programs used to implement a member's or member organization's training plan must be appropriate for the business of the member or member organization and, at a minimum, must cover the following matters concerning securities products, services and strategies offered by the member or member organization:a. General investment features and associated risk factors;b. Suitability and sales practice considerations; andc. Applicable regulatory requirements.(iii) Administration of Continuing Education Program
Each member and member organization must administer its continuing education program in accordance with its annual evaluation and written plan and must maintain records documenting the content of the programs and completion of the programs by covered registered persons.(3) Participation in the Firm Element
Covered registered persons included in a member's or member organization's plan must take all appropriate and reasonable steps to participate in continuing education programs as required by the member or member organization.(4) Specific Training Requirements
The Exchange may require a member or member organization, either individually or as part of a larger group, to provide specific training to its covered registered persons in such areas the Exchange deems appropriate. Such a requirement may stipulate the class of covered registered persons for which it is applicable, the time period in which the requirement must be satisfied and, where appropriate, the actual training content.Amendments.
March 3, 1998;
July 29, 2003 (NYSE-2002-49);
September 16, 2004 (SR-NYSE-2004-33)
• • • Supplementary Material: --------------
.10 For purposes of this Rule, the term "registered person" means any member, principal executive, registered representative, or other person registered or required to be registered under Exchange rules, but does not include any such person whose activities are limited solely to the transaction of business on the Floor with members or registered broker-dealers.
Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64..20 For purposes of this Rule, the term "customer" means any natural person or any organization, other than a registered broker or dealer, executing transactions in securities or other similar instruments with or through, or receiving investment banking services from, a member or member organization..30 Any registered person who has terminated association with a registered broker or dealer and who has, within two years of the date of termination, become reassociated in a registered capacity with a registered broker or dealer shall participate in the Regulatory Element of the continuing education program at such intervals that apply (second registration anniversary and every three years thereafter) based on the initial registration anniversary date, rather than based on the date of reassociation in a registered capacity.
Any former registered person who becomes reassociated in a registered capacity with a registered broker or dealer more than two years after termination as such will be required to satisfy the program's requirements in their entirety (second registration anniversary and every three years thereafter), based on the most recent registration date.
Amendment.
March 3, 1998..40 Any registration that is deemed inactive for a period of two calendar years pursuant to section (a)(2) of this Rule for failure of a registered person to complete the Regulatory Element, shall be terminated. A person whose registration is so terminated may become registered only by reapplying for registration and satisfying applicable registration and qualification requirements of Exchange rules (see Rule 345).
Adopted.
January 30, 1995..50 Pursuant to Rule 345A(b)(1), all persons registered as research analysts and supervisory analysts pursuant to Rule 344 must participate in a Firm Element Continuing Education program that includes training in applicable rules and regulations, ethics, and professional responsibility.
Adopted.
July 29, 2003 (NYSE-2002-49).Rule 346. Limitations—Employment and Association with Members and Member Organizations
(a) Every member not associated with a member organization must be a registered broker or dealer unless exempted by the Securities Exchange Act of 1934.(b) Without making a written request and receiving the prior written consent of his member or member organization employer, no member or employee of a member or member organization shall at any time be engaged in any other business; or be employed or compensated by any other person; or serve as an officer, director, partner or employee of another business organization; or own any stock or have, directly or indirectly, any financial interest in any other organization engaged in any securities, financial or kindred business; provided however, that such written request and consent shall not be required with regard to stock ownership or other financial interest in any securities, financial or kindred business which is publicly owned unless a control relationship exists.
(See also requirements of Rules 311, 350 and 407.)(c) Where a member organization approves an employee's participation in private securities transactions in which regard the employee has or may receive selling compensation, the transaction shall be recorded on the books and records of the member organization, which shall supervise such participation as if the transaction were executed on its behalf.(d) No member shall qualify more than one member organization for membership.(e) Every employee of a member organization who is assigned or delegated any responsibility or authority pursuant to Rule 342 shall devote his entire time during business hours to the business of such member organization unless an alternate arrangement has been approved in writing by the member organization.
The written approval of such arrangements must identify any entity for which the supervisory person will be performing services during business hours and must specifically describe the nature of such services. The approval must also set forth the approximate amount of time the supervisory person is expected to devote to each entity, with particular attention paid to the approximate time expected to be required for the person, based upon such person's qualifications and experience, to effectively discharge his or her supervisory responsibilities on behalf of any associated person of a member organization.
In addition, the approval letter must document that the member organization has made a good faith determination that the arrangement will in no way compromise the protection of investors or the public interest; compromise the supervisor's duties at the member organization; or give rise to a material conflict of interest.(f) Except as otherwise permitted by the Exchange, no member, member organization, approved person, employee or any person directly or indirectly controlling, controlled by or under common control with a member or member organization shall have associated with him or it any person who is known, or in the exercise of reasonable care should be known, to be subject to any "statutory disqualification" defined in Section 3(a)(39) of the Securities Exchange Act of 1934.Amended:
December 1, 1977;
May 28, 1982. March 29, 1989;
August 31, 1993,
amended by SR-FINRA-2008-034 eff. Jan. 1, 2008.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.
• • • Supplementary Material: --------------
.11 For the purpose of this rule, control is defined in Rule 2..12 For the purposes of this rule, the term associated with a member or member organization shall have the same meaning as the term "associated with a member" is defined in Section 3(a)(21) of the Securities Exchange Act of 1934..20 Under the appropriate circumstances the Exchange may, in determining control, treat as a single holding stock which is nominally held by different persons or organizations..30 For the purposes of this rule, the term "private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member organization, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 407, transactions among immediate family members for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded. The term "immediate family members" means a person's parents, mother-in-law or father-in-law, spouse, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, and children, and any other individual to whom the person provides material support..40 For the purposes of this rule, the term "selling compensation" shall mean any compensation paid directly or indirectly from any source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder's fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements.Amended:
December 1, 1977.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 351. Reporting Requirements
(a) Each member not associated with a member organization and each member organization shall promptly report to the Exchange whenever such member or member organization, or any member or registered or non-registered employee associated with such member or member organization:(1) has violated any provision of any securities law or regulation, or any agreement with or rule or standards of conduct of any governmental agency, self-regulatory organization, or business or professional organization, or engaged in conduct which is inconsistent with just and equitable principles of trade or detrimental to the interests or welfare of the Exchange;(2) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery;(3) is named as a defendant or respondent in any proceeding brought by a regulatory or self-regulatory body alleging the violation of any provision of the Securities Exchange Act of 1934, or of any other Federal or state securities, insurance, or commodities statute, or of any rule or regulation thereunder, or of any agreement with, or of any provision of the constitution, rules or similar governing instruments of, any securities, insurance or commodities regulatory or self-regulatory organization;(4) is denied registration or is expelled, enjoined, directed to cease and desist, suspended or otherwise disciplined by any securities, insurance or commodities industry regulatory or self-regulatory organization or is denied membership or continued membership in any such self-regulatory organization; or is barred from becoming associated with any member or member organization of any such self-regulatory organization;(5) is arrested, arraigned, indicted or convicted of, or pleads guilty to, pleads no contest to, any felony; or any misdemeanor that involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or a conspiracy to commit any of these offenses, or substantially equivalent activity in a domestic, military or foreign court;(6) is a director, controlling stockholder, partner, officer or sole proprietor of, or an associated person with, a broker, dealer, investment company, investment advisor, underwriter or insurance company which was suspended, expelled or had its registration denied or revoked by any agency, jurisdiction or organization or is associated in such a capacity with a bank, trust company or other financial institution which was convicted of, or pleaded no contest to, any felony or misdemeanor;(7) is a defendant or respondent in any securities or commodities-related civil litigation or arbitration which has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when a member organization is the defendant or respondent, then the reporting to the Exchange shall be required only when such judgment, award or settlement is for an amount exceeding $25,000;(8) is the subject of any claim for damages by a customer, broker or dealer which is settled for an amount exceeding $15,000. However, when the claim for damages is against a member organization, then the reporting to the Exchange shall be required only when such claim is settled for an amount exceeding $25,000;(9) is, or learns that he is associated in any business or financial activity with any person who is, subject to a "statutory disqualification" as that term is defined in the Securities Exchange Act of 1934.(10) is the subject of any disciplinary action taken by the member or member organization against any of its associated persons involving suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or any other significant limitation on activities.(b) Each member associated with a member organization and each registered or non-registered employee of a member or member organization shall promptly report the existence of any of the conditions set forth in paragraph (a) of this rule to the member or member organization with which such person is associated.(c) Each approved person shall promptly report to the member organization with which such approved person is associated, whenever such approved person becomes subject to a statutory disqualification as defined in Section 3(a)(39) of the Securities Exchange Act of 1934; and upon being so notified, or otherwise learning such fact, the member or member organization shall promptly so advise the Exchange in writing, giving the name of the person subject to the statutory disqualification and details concerning the disqualification.(d) At such intervals and in such detail as the Exchange shall specify, each member not associated with a member organization and each member organization shall report to the Exchange statistical information regarding customer complaints relating to such matters as may be specified by the Exchange. For the purpose of this paragraph (d), "customer" includes any person other than a broker or dealer.(e) Each member not associated with a member organization and a principal executive of each member organization shall take one or both of the following two actions in relation to the trades that are subject to the review procedures required by Rule 342.21(a):(i) Sign a written statement in the form specified below and deliver it to the Exchange by the 15th day of the month following the calendar quarter in which the trade occurred, and(ii) As to any such trade that is the subject of an internal investigation pursuant to Rule 342.21(b), but has not been both resolved and included in the written statement made pursuant to subparagraph (i) above, report in writing to the Exchange:(A) The commencement of the internal investigation, the identity of the trade and the reason why the trade could not be the subject of a written statement made pursuant to subparagraph (i) above (report by the 15th day of the month, following the calendar quarter in which the trade occurred).(B) The quarterly progress of each open investigation (report by the 15th day of the month following the quarter).(C) The completion of the investigation, detailing the methodology and results of the investigation, any internal disciplinary action taken, and any referral of the matter to the Exchange, another self-regulatory organization, the Securities and Exchange Commission or another Federal agency; and including, where no internal disciplinary action has been taken and no such referral has been made, a written statement in relation to the trade in the form specified below (report within one week after completion of the investigation).The statement that subparagraph (i) requires shall read substantially as follows:(1) [I/NAME OF MEMBER ORGANIZATION] [have/has] established procedures for reviewing the facts and circumstances surrounding trades in NYSE listed securities and related financial instruments for [my/the] account [of NAME OF MEMBER ORGANIZATION] ("Proprietary Trades") and for the accounts of [my/its] [members, allied members and] employees and their family members, including trades reported by other members or member organizations pursuant to Rule 407, ("Employee Trades"), which procedures [I/NAME OF MEMBER ORGANIZATION] [have/has] determined to be reasonably designed to identify trades that may violate the provisions of the Securities Exchange Act of 1934, the rules under that act or the rules of the Exchange prohibiting insider trading and manipulative and deceptive devices,(2) I, my designees or the senior supervisors responsible for particular activities have carried out those procedures in relation to Proprietary Trades and Employee Trades effected during the [ORDINAL NUMBER] quarter of [YEAR], and(3) Based upon my assessment of the adequacy of those procedures and of the diligence of those carrying out those procedures, and except as to those Proprietary Trades and Employee Trades that I have reported to the Exchange pursuant to Rule 351(e)(ii) as the subject of internal investigation, I have no reasonable cause to believe that: (a) any one or more of the Proprietary Trades effected during the period referred to in clause (2) above, or (b) any one or more of the Employee Trades both effected during that period and reviewed under those procedures violated the provisions of the Securities Exchange Act of 1934, the rules under the act or the rules of the Exchange prohibiting insider trading and manipulative and deceptive devices.When a statement pertains to one or more trades that have been the subject of an internal investigation pursuant to Rule 342.21(b) but as to which no internal disciplinary action has been taken and no referral of the matter to the Exchange, to another self-regulatory organization or to a Federal agency has been made, the statement that subparagraph (ii) (C) requires shall be as above, except that it shall refer to the particular trade(s) (rather than to the trades of a particular calendar quarter) and shall omit the clause excepting trades reported as the subject of an investigation.(f) Each member and member organization that prepares, issues or distributes research reports or whose research analysts make public appearances is required to submit to the member's or member organization's Designated Examining Authority, annually, a letter of attestation signed by a principal executive that the member or member organization has established and implemented procedures reasonably designed to comply with the provisions of Rule 472. The attestation must also specifically certify that each research analyst's compensation was reviewed and approved in accordance with the requirements of Rule 472(h)(2) and that the basis for such approval has been documented.Amended:
March 16, 1972;
February 15, 1979;
March 26, 1980;
May 27, 1988;
March 22, 1990;
May 3, 2002;
July 9, 2002 (2002-09);
July 29, 2003 (NYSE-2002-49).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.
• • • Supplementary Material: --------------
.10 Any report required pursuant to paragraphs (a), (b) or (d) of this Rule 351 shall be submitted to the Exchange on a form or forms prescribed by the Exchange.
Adopted:
February 15, 1979.
Amended:
May 27, 1988..11 For purposes of Rule 351(f), the attestation must be submitted by April 1 of each year.
Adopted:
July 9, 2002 (2002-09)..12 The term "research report" is defined in Rule 472.10 and the term "public appearance" is defined in Rule 472.50.
Adopted:
July 9, 2002 (2002-09).
Amended:
July 29, 2003 (NYSE-2002-49)..13 The term "customer complaint" shall mean any written statement of a customer, or any person acting on behalf of a customer, other than a broker or dealer, alleging a grievance involving the activities of those persons under the control of a member organization.
Adopted:
Adopted by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 352. Guarantees, Sharing in Accounts, and Loan Arrangements
Prohibitions Against Guarantees
(a) No member organization shall guarantee or in any way represent that it will guarantee any customer against loss in any account or on any transaction; and no member, principal executive, registered representative or officer shall guarantee or in any way represent that either he or she, or his or her employer, will guarantee any customer against loss in any customer account or on any customer transaction. The prohibitions in this paragraph extend to the payment, in whole or in part, of a debit balance.Prohibition Against Sharing in Profits and Losses
(b) Except as otherwise provided by this Rule, no member, member organization, principal executive, officer, or any other person acting in the capacity of a registered representative shall, directly or indirectly, (i) take or receive or agree to take or receive a share in the profits, or (ii) share or agree to share in any losses, in any customer's account or of any transaction effected therein.Joint Accounts and Order Errors
(c) Subject to compliance with paragraph (a), paragraph (b) of this Rule shall not preclude a member not associated with a member organization, or a member organization or, with the prior written authorization of the member organization, a member associated with such member organization, a principal executive or other person acting in the capacity of a registered representative, from participating with a customer in a joint account and sharing in the profits or losses therein in direct proportion to financial contributions made to such account. Accounts of immediate family members of such persons are exempt from the direct proportionate share limitation. (See Rule 93 for reporting and approval requirements concerning participation in joint accounts by members and member organizations.) Nor shall it preclude a member not associated with a member organization or a member organization from sharing or agreeing to share any losses in a customer account if it has been established that the loss was caused in whole or in part by an error resulting from the action or inaction of such member, member organization, or person associated therewith (See also Rule 134).
For purposes of this section (c), the term "immediate family" shall include parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the principal executive or persons acting in the capacity of a registered representative otherwise contributes directly or indirectly.Certain Investment Advisory Arrangements
(d) Notwithstanding the prohibition of paragraph (b), a person acting as an investment adviser (whether or not registered as such) may receive compensation based on a share of profits or gains in an account if all the of the conditions in Rule 205-3 of the Investment Advisers act of 1940 (as may be amended from time to time) are satisfied. All advisory compensation arrangements should be reviewed by member organizations and their counsel in light of applicable State and Federal law (e.g., ERISA).Limitations on Borrowing From or Lending to Customers
(e) A person associated with a member organization in any registered capacity may borrow money from or lend money to a customer of such person only if the member organization has written supervisory procedures permitting the borrowing and lending of money between such registered persons and their customers; and the lending or borrowing arrangement meets one of the following conditions:(1) the customer is a member of such registered person's immediate family; or(2) the customer is a financial institution regularly engaged in the business of providing credit, financing, or loans, or other entity or person that regularly arranges or extends credit in the ordinary course of business; or(3) the customer and the registered person are both registered persons of the same member organization; or(4) the lending arrangement is based on a personal relationship with the customer, such that the loan would not have been solicited, offered, or given had the customer and the registered person not maintained a relationship outside of the broker/customer relationship; or(5) the lending arrangement is based on a business relationship outside of the broker-customer relationship.Loan Procedures
(f) The following loan procedures shall apply:(1) Member organizations must pre-approve in writing the lending or borrowing arrangements described in subparagraphs (e)(3), (4), and (5) above, except that no pre-approval is required for loans totaling $100 or less between registered persons pursuant to subparagraph (e)(3).(2) With respect to the lending or borrowing arrangements described in subparagraph (e)(1) above, a member organization's written procedures may indicate that registered persons are not required to notify the member organization or receive member organization approval either prior to or subsequent to entering into such lending or borrowing arrangements.(3) With respect to the lending or borrowing arrangements described in subparagraph (e)(2) above, a member organization's written procedures may indicate that registered persons are not required to notify the member organization or receive approval either prior to or subsequent to entering into such lending or borrowing arrangements, provided that the loan has been made on commercial terms that the customer generally makes available to members of the general public similarly situated as to need, purpose and creditworthiness. For purposes of this subparagraph, member organization may rely on the registered person's written representation that the terms of the loan meet the above-described standards.(g) For purposes of this Rule, other than in section (c), the term "immediate family" shall include parents, grandparents, mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in law or daughter-in-law, children, grandchildren, cousin, aunt or uncle, or niece or nephew, and shall also include any other person whom the registered person supports, directly or indirectly, to a material extent.Adopted:
May 11, 1979.
Amended:
September 7, 2005 (NYSE-2004-47).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 353. Rebates and Compensation
(a) No member, principal executive, registered representative or officer shall, directly or indirectly, rebate to any person, firm or corporation any part of the compensation he receives for the solicitation of orders for the purchase or sale of securities or other similar instruments for the accounts of customers of his member organization employer, or pay such compensation, or any part thereof, as a bonus, commission, fee or other consideration for business sought or procured for him or for any member or member organization of the Exchange.(b) No member, principal executive, registered representative or officer shall be compensated for business done by or through his employer after the termination of his employment except as may be permitted by the Exchange.Adopted:
May 11, 1979.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 354. Reports to Control Persons
(a) By April 1 of each year, each member organization shall submit a copy of the report that Rule 342.30 requires the member organization to prepare to its one or more control persons or, if the member organization has no control person, to the audit committee of its Board of Directors or its equivalent committee or group. In the case of a control person that is an organization (a "controlling organization"), the member organization shall submit the report to the general counsel of the controlling organization and to the audit committee of the controlling organization's Board of Directors or its equivalent committee or group.(b) For the purpose of paragraph (a), "control person" means a person who controls the member organization within the meaning of Rule 2 otherwise than solely by virtue of being a director, general partner or principal executive (or person occupying a similar status or performing similar functions) of the member organization.Adopted:
March 7, 1989.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Commissions (Rules 365–390)
Rule 375. Missing the Market
A member or member organization who has accepted an order for execution and who, by reason of neglect to execute the order or otherwise, takes or supplies for his or its own account, the securities named therein is not acting as a broker and shall not charge a commission, without the knowledge and consent of the customer.
Rule 382. Carrying Agreements
(a) All agreements between a member or member organization and another NYSE member or member organization or any foreign or domestic non-member organization, relating to the carrying of customer accounts on an omnibus or fully disclosed basis, or any change in any such agreements, shall be submitted to and approved by the Exchange prior to becoming effective. The carrying member organization shall be responsible for submission of the agreement to the Exchange; except, that where a member or member organization introduces accounts to a non-member organization, the member or member organization shall be responsible for the submission of the agreement.(b) Each agreement in which accounts are to be carried on a fully disclosed basis shall specifically identify and allocate the respective functions and responsibilities of the introducing and carrying organizations, which agreement shall, at a minimum, address each of the following functions:(1) opening, approving and monitoring of accounts(2) extension of credit(3) maintenance of books and records(4) receipt and delivery of funds and securities(5) safeguarding of funds and securities(6) confirmations and statements(7) acceptance of orders and execution of transactions.(c) Each customer whose account is introduced on a fully disclosed basis shall be notified in writing upon the opening of his account of the existence of the agreement and of the relationship between the introducing and carrying organization.(d) In order for the introducing organization to carry out its functions and responsibilities pursuant to the agreement, each carrying organization must furnish promptly any written customer complaint received by the carrying organization regarding the introducing organization or its associated persons relating to functions and responsibilities allocated to the introducing organization pursuant to the agreement, directly to: (1) the introducing organization; and (2) the introducing organization's Designated Examining Authority (or, if none, to its appropriate regulatory agency or authority). The carrying agreement must specifically direct and authorize the carrying organization to do so.
The carrying organization must also notify the customer, in writing, that it has received the complaint, and that the complaint has been furnished to the introducing organization and to the introducing organization's Designated Examining Authority (or, if none, to its appropriate regulatory agency or authority).(e)(1) The carrying organization, at the commencement of the agreement and annually thereafter, must furnish to each of its introducing organizations a list of all reports (i.e., exception and other types of reports) which it offers to the introducing organization to assist the introducing organization to supervise and monitor its customer accounts in order for the introducing organization to carry out its functions and responsibilities pursuant to the agreement. The introducing organization must notify promptly the carrying organization, in writing, of those specific reports offered by the carrying organization that it requires to supervise and monitor its customer accounts.(2) Copies of the specific reports requested by and/or supplied to the introducing organization must be retained and preserved by the carrying organization as part of its books and records pursuant to Rule 440.(3) Annually, within 30 days of July 1 of each year, the carrying organization must give written notice to the introducing organization's chief executive and compliance officers, indicating as of the date of such notice, the list of reports offered to the introducing organization pursuant to paragraph (e)(1) of this rule, and specify those reports that were actually requested by and/or supplied to the introducing organization as of such date. A copy of this written notice must at the same time be provided to the introducing organization's Designated Examining Authority (or if none, to its appropriate regulatory agency or authority).(f) The agreement may permit the introducing organization to issue negotiable instruments directly to its customers, using instruments for which the carrying organization is the maker or drawer, provided that the introducing organization represents to the carrying organization in writing that it maintains, and shall enforce, supervisory procedures with respect to the issuance of such instruments that are satisfactory to the carrying organization.
(See also Rules 342, 401, and 416)
• • • Supplementary Material: --------------
.10 Carrying organizations may satisfy the requirements of paragraph (e)(2) above by furnishing, upon request, of the introducing organization's Designated Examining Authority (or if none, to its appropriated regulatory agency or authority), (1) a recreated copy of the report originally produced; or (2) the format of the report and the applicable data elements contained in the original report..20 The Exchange, at its discretion and upon a showing of good cause, may exclude certain carrying organizations from the requirements of paragraphs (d) and (e) above, in instances where the introducing organization is affiliated entity of the carrying organization.Adopted.
December 19, 1968.
Amendments.
April 3, 1975; effective May 1, 1975.
February 19, 1982.
June 2, 1999.
March 30, 2001.Rule 387. COD Orders
(a) No member or member organization shall accept an order from a customer 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 or member organization 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 name and account number of the customer on file with the agent.(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 or member organization delivers 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, and(4) The member organization has obtained an agreement from the customer that the customer will furnish his 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 his agent no later than:(i) 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 second business day after the date of execution of the trade as to which the particular confirmation relates; or(ii) 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. 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.
• • • Supplementary Material: --------------
.10 Transactions that are to be settled outside of the United States shall be exempt from the provisions of paragraph (a)(5) of this Rule..30 For the purposes of this rule, a "Clearing Agency" shall mean a Clearing Agency as defined in Section 3(a)(23) of the Securities Exchange Act of 1934, that is registered with the Securities and Exchange Commission ("Commission") pursuant to Section 17A(b)(2) of the Act or has obtained from the Commission an exemption from registration granted specifically to allow the Clearing Agency to provide confirmation and affirmation services..40 For the purposes of this rule, "depository eligible transactions" shall mean transactions in those securities for which confirmation, affirmation, and book entry settlement can be performed through the facilities of a Clearing Agency as defined in Rule 387.30..50 "Qualified Vendor" shall mean a vendor of electronic confirmation and affirmation services 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 that: (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 service 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 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 five hundred thousand dollars;(C) has submitted and shall continue to submit on an annual basis, an Auditor's Report to the Commission staff which is not deemed unacceptable by the Commission. An Auditor's Report will be deemed unacceptable if it contains any findings of material weakness;(D) notifies the Commission staff immediately in writing of any changes to its systems 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 Commission staff in writing if it intends to cease providing services;(F) provides the Exchange with copies of any submissions to the Commission staff made pursuant to .50(B), (C), (D) and (E) of this rule within ten business days; and(G) supplies supplemental information regarding their electronic trade confirmation/affirmation services as requested by the Exchange or the Commission staff..60 "Auditor's Report" shall mean a written report which 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 which (i) verifies the certifications contained in .50(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) above.Adopted.
Effective June 7, 1971.
Amendments.
January 1, 1983.
February 11, 1988.
March 17, 1995; effective June 7, 1995.
May 7, 1999.
October 30, 2001.Conduct of Accounts (Rules 401–414)
Rule 401. Business Conduct
(a) Reserved.(b) Each member and member organization shall maintain written policies and procedures, administered pursuant to the internal control requirements prescribed under Rule 342.23, specifically with respect to the following activities:(1) Transmittals of funds (e.g., wires, checks, etc.) or securities:(i) from customer accounts to third party accounts (i.e., a transmittal that would result in a change of beneficial ownership.);(ii) from customer accounts to outside entities (e.g., banks, investment companies, etc.);(iii) from customer accounts to locations other than a customer's primary residence (e.g., post office box, "in care of" accounts, alternate address, etc.);(iv) between customers and registered representatives (including the hand-delivery of checks).(2) Customer changes of address.(3) Customer changes of investment objectives.The policies and procedures required under (b)(1), (2), and (3) above must include a means/method of customer confirmation, notification, or follow-up that can be documented.Amendments.
June 17, 2004 (Effective December 17, 2004) (SR-NYSE-2002-36).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-028 eff. Dec. 15, 2008.
Selected Notices: 08-57, 08-64.
Rule 401A. Customer Complaints
(a) For every customer complaint they receive that is subject to the reporting requirements of Rule 351(d), members and member organizations must:(1) Acknowledge receipt of the complaint within 15 business days of receiving it, and(2) Respond to the issues raised in the complaint within a reasonable period of time.(b) Each acknowledgement and response required by this rule must be conveyed to the complaining customer by appropriate method:(1) Acknowledgements and responses to written complaints must be either:(i) In writing, mailed to the complaining customer's last known address, or(ii) Electronically transmitted to the e-mail address from which the complaint was sent (method only permissible for electronically transmitted complaints).(2) Acknowledgements and responses to verbal complaints must be either:(i) In writing, mailed to the complaining customer's last known address, or(ii) Made verbally to the complaining customer, and recorded in a log of verbal acknowledgements and responses to customer complaints.(c) Written records of the acknowledgements, responses, and logs required by this rule must be retained in accordance with Rule 440 ("Books and Records").Amendments.
April 13, 2005 (SR-NYSE-2004-59).Rule 402. Customer Protection—Reserves and Custody of Securities
(a) General Provisions
Each member organization shall obtain custody and control of securities and maintain reserves as prescribed by Rule 15c3-3 promulgated under the Securities Exchange Act of 1934. For the purpose of this Rule the definitions contained in such Rule 15c3-3 shall apply.(b) Agreements for Use of Customers' Securities
No member organization shall lend, either to itself as a broker-dealer or to others, securities which are held on margin for a customer and which are eligible to be pledged or loaned, unless such member organization shall first have obtained a written authorization from such customer permitting the loan of such securities by the member organization.
• • • Supplementary Material: --------------
.30 Securities Callable in Part
Member organizations which have in their possession or under their control bonds or preferred stocks of issues which are callable in part, whether specifically set aside or otherwise, shall identify each such bond or preferred stock so that their records shall clearly show for whose account it is held, except in the case of:(a) bonds, interest upon which has not been paid for at least two interest periods;(b) Euro-Dollar bonds deposited in a central clearing facility for Euro-Dollar bonds, provided:(1) customers are notified before deposit that their bonds may be deposited in the facility, and(2) the member organization on behalf of its customers has the right to withdraw uncalled bonds from the facility at any time.(c) bonds or preferred stocks, provided:(1) the member organization has adopted an impartial lottery system in which the probability of a customer's bonds or preferred stocks being selected as called is proportional to the holdings of all customers of such securities held in bulk by or for the member organization;(2) the member organization will withdraw such securities from any depository for the central handling of securities prior to the first date on which such securities may be called unless said depository has adopted an impartial lottery system which is applicable to all participants whereby the called amount of the securities deposited with the depository is allocated among said participants;(3) the systems and the manner in which such securities are held as referred to in (c)(1) and (c)(2) and the right of customers under subparagraph (C)(4) are disclosed to all customers prior to the member organization's depositing in bulk or prior to the customer purchasing such securities, such disclosure to be made in writing prior to deposit or purchase except in the case of a new account, provided notice as herein described is sent to the customer prior to settlement date; and(4) customers have the right to withdraw uncalled fully paid securities from the firm at any time prior to a partial call, and also to withdraw excess margin securities provided that the customers' accounts are not subject to restriction under Regulation T or such withdrawals will not cause a Rule 431 undermargined condition.In the event there is any call of such securities referred to in (b) and (c) above which is favorable to the called parties, the member organization shall not allocate any such called securities to any account in which it or its general, limited, or special partners, officers, directors, approved persons or employees have an interest until all other customers' positions in such securities have been satisfied.Amendment.
December 19, 1968;
March 1, 1972.
October 18, 1972;
December 12, 1974;
March 17, 1983.Rule 405. Diligence as to Accounts
Every member organization is required through a principal executive or a person or persons designated under the provisions of Rule 342(b)(1) [¶2342] to
(1) Use due diligence to learn the essential facts relative to every customer, every order, every cash or margin account accepted or carried by such organization and every person holding power of attorney over any account accepted or carried by such organization.(2) Supervision of Accounts
Supervise diligently all accounts handled by registered representatives of the organization.(3) Approval of Accounts
Specifically approve the opening of an account prior to or promptly after the completion of any transaction for the account of or with a customer, provided, however, that in the case of branch offices, the opening of an account for a customer may be approved by the manager of such branch office but the action of such branch office manager shall within a reasonable time be approved by a principal executive or a person or persons designated under the provisions of Rule 342(b)(1) [¶2342]. The member, principal executive or other designated person approving the opening of the account shall, prior to giving his approval, be personally informed as to the essential facts relative to the customer and to the nature of the proposed account and shall indicate his approval in writing on a document which is a part of the permanent records of his office or organization.(4) Common Sales Accounts
To facilitate the isolated liquidation of securities valued at $1,000 or less registered in the name of an individual who does not have an account, and which are not part of any distribution, a member organization may sell the securities through a common sales account set up for the specific purpose of handling such sales without sending a periodic statement to the customer as required by Rule 409, provided:a) The customer is identified as the individual in whose name the securities are registered,b) The securities are received by the member, at or prior to the time of the entry of the order, in the exact amount to be sold in good delivery form,c) A confirmation is sent to each customer,d) All proceeds of such sales are paid out on or immediately following settlement date, ande) The record made in the common sales account includes as to each transaction: customer's name and address, name and amount of securities to be sold, date received, date sold, amount per share, total amount credited to the account, total amount of check issued to the customer and the date of disbursement.Amendment.
December 22, 1969;
March 26, 1970.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.
• • • Supplementary Material: --------------
.10 Application of Rule 405(1) and (3) [¶2405]
In the case of a margin account carried by a member organization for a non-member corporation, definite knowledge should be had to the effect that the nonmember corporation has the right under its charter and by-laws to engage in margin transactions for its own account and that the persons from whom orders and instructions are accepted have been duly authorized by the corporation to act on its behalf. It is advisable in each such case for the carrying organization to have in its possession a copy of the corporate Charter, By-laws and authorizations. Where it is not possible to obtain such documents, a member or principal executive in the member organization carrying the account should prepare and sign a memorandum for its files indicating the basis upon which he believes that the corporation may properly engage in margin transactions and that the persons acting for the corporation have been duly authorized to do so.
In the case of a cash account carried for a non-member corporation, the carrying member organization should assure itself through a general partner or an officer who is a holder of voting stock that persons entering orders and issuing instructions with respect to the account do so upon the proper authority.
When an agency account is carried by a member organization its files should contain the name of the principal for whom the agent is acting and written evidence of the agent's authority.
When Estate and Trustee accounts are involved a member organization should obtain counsel's advice as to the documents which should be obtained.
Information as to the country of which a customer is a citizen is deemed to be an essential fact..20 See Rule 382 for information concerning the permitted allocation of responsibilities under (1) and (3) of this Rule between introducing and carrying organizations..30 See Rule 414 (Index and Currency Warrants) for account approval and suitability requirements relating to currency warrants, currency index warrants and stock index warrants.Amendment.
December 19, 1968;
March 26, 1970;
February 19, 1982;
June 26, 1990;
August 29, 1995.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 407. Transactions—Employees of Members, Member Organizations and the Exchange
(a) No member or member organization shall, without the prior written consent of the employer, open a securities or commodities account or execute any transaction in which a member or employee associated with another member or member organization is directly or indirectly interested.
In connection with accounts or transactions of members and employees associated with another member or member organization, duplicate confirmations and account statements shall be sent promptly to the employer.(b) No member (associated with a member or member organization) or employee associated with a member or member organization shall establish or maintain any securities or commodities account or enter into any securities transaction with respect to which such person has any financial interest or the power, directly or indirectly, to make investment decisions, at another member or member organization, or a domestic or foreign non-member broker-dealer, investment adviser, bank, other financial institution, or otherwise without the prior written consent of another person designated by the member or member organization under Rule 342(b)(1) to sign such consents and review such accounts.
Persons having accounts or transactions referred to above shall arrange for duplicate confirmations and statements (or their equivalents) relating to the foregoing to be sent to another person designated by the member or member organization under Rule 342(b)(1) to review such accounts and transactions. All such accounts and transactions periodically shall be reviewed by the member or member organization employer (see also Rule 342.21).
The Exchange may, upon written request, and where good cause is shown, waive any requirements of this Rule.Amendment.
June 16, 1960, effective July 1, 1960;
July 16, 1970;
May 11, 1979;
May 27, 1992;
August 13, 2002 (01-44)
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-027 eff. Dec. 15, 2008.
Selected Notice: 08-57, 08-64.
• • • Supplementary Material: --------------
.10 Reserved..11 The term "securities or commodities accounts" as used in the Rule 407(b) shall include, but not be limited to, limited or general partnership interests in investment partnerships.
Members and member organizations must develop and maintain written procedures for reviewing these accounts and transactions and shall assure that their associated persons are not improperly recommending or marketing these securities or products to others through members or member organizations..12 The requirement to send duplicate confirmations and statements shall not be applicable to transactions in unit investment trusts and variable contracts or redeemable securities of companies registered under the Investment Company Act of 1940, as amended, or to accounts which are limited to transactions in such securities, or to Monthly Investment Plan type accounts, unless the member or member organization employer requests receipt of duplicate confirmations and statements of such accounts..13 For the purposes of this Rule, the term "other financial institution" includes, but is not limited to, insurance companies, trust companies, credit unions and investment companies.Amendment.
May 27, 1992;
October 27, 2000;
August 13, 2002 (01-44).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-027 eff. Dec. 15, 2008.
Selected Notice: 08-57, 08-64.Rule 407A. Disclosure of All Member Accounts
(a) Each member must promptly report to the Exchange any securities account, including an error account, in which the member has, directly or indirectly, any financial interest or the power to make investment decisions, which is at a member or non-member broker-dealer, investment advisor, bank or other financial institution. A report shall contain such information as the Exchange may from time to time require.(b) A member having an account referred to above, including an account over which such member has the power to make investment decisions, shall notify the financial institution that such person is a member of the Exchange.(c) A member must report to the Exchange when any securities account referred to in (a) above is closed.
• • • Supplementary Material: --------------
.10 Purchases of a security of a publicly traded registered investment company directly from the issuer or principal underwriter shall not be deemed a securities account for purposes of this Rule. Interest in a nonpublicly traded investment vehicle, including hedge funds, is reportable under this Rule.Adopted.
September 13, 2001, effective February 4, 2002 (99-25)Rule 408. Discretionary Power in Customers' Accounts
(a) No member or employee of a member organization shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization of the customer, the signature of the person or persons authorized to exercise discretion in the account (and of any substitute so authorized), and the date such discretionary authority was granted.(b) No member or employee of a member organization shall exercise any discretionary power in any customer's account, without first notifying and obtaining the approval of another person delegated under Rule 342(b)(1) with authority to approve the handling of such accounts. Every order entered on a discretionary basis by a member or employee of a member organization must be identified as discretionary on the order at the time of entry. Such discretionary accounts shall receive frequent appropriate supervisory review by a person delegated such responsibility under Rule 342(b)(1), who is not exercising the discretionary authority. A written statement of the supervisory procedures governing such accounts must be maintained.(c) No member or employee of a member organization exercising discretionary power in any customer's account shall (and no member organization shall permit any member or employee thereof exercising discretionary power in any customer's account to) effect purchases or sales of securities which are excessive in size or frequency in view of the financial resources of such customer.(d) The provisions of this rule shall not apply to discretion as to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed. The authority to exercise time and price discretion will be considered to be in effect only until the end of the business day on which the customer granted such discretion, absent a specific, written, contrary indication signed and dated by the customer. This limitation shall not apply to time and price discretion exercised in an institutional account pursuant to valid Good-Till-Cancelled instructions issued on a "not-held" basis. Any exercise of time and price discretion must be reflected on the order ticket.
• • • Supplementary Material: --------------
.10 All discretionary orders in listed index warrants must be approved and initialed on the day entered by a Senior Registered Options Principal or Registered Options Principal..11 For purposes of this rule, an "institutional account" shall mean the account of (i) a bank (as defined in Section 3(a)(6) of the Securities Exchange Act of 1934), (ii) a savings association (as defined in Section 3(b) of the Federal Deposit Insurance Act), the deposits of which are insured by the Federal Deposit Insurance Corporation, (iii) an insurance company (as defined in Section 2(a)(17) of the Investment Company Act of 1940), (iv) an investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, (v) a state or a political subdivision thereof, (vi) a pension or profit sharing plan, subject to ERISA, with more than $25,000,000 total assets under management, or of an agency of the United States or of a political subdivision thereof, (vii) any person that has a net worth of at least forty-five million dollars and financial assets of at least forty million dollars, or (viii) an investment adviser registered under Section 203 of the Investment Advisers Act of 1940.Amendments.
December 19, 1968.
April 3, 1975.
June 26, 1990.
June 17, 2004 (Effective December 17, 2004) (SR-NYSE-2002-36).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 409. Statements of Accounts to Customers
(a) Except with the permission of the Exchange, or as otherwise provided by this paragraph, member organizations shall send to their customers statements of account showing security and money positions and entries at least quarterly to all accounts having an entry, money or security position during the preceding quarter. Quarterly statements need not be sent to a customer pursuant to Rule 409(a) if:1) the customer's account is carried solely for the purpose of execution on a Delivery versus Payment/Receive versus Payment basis (DVP/RVP);2) all transactions effected for the account are done on a DVP/RVP basis in conformity with Rule 387;3) the account does not show security or money positions at the end of the quarter;4) the customer consents to the suspension of such statements in writing. Such consents must be maintained by the member organization in a manner consistent with Exchange Rule 440 and Rule 17a-4 under the Securities Exchange Act of 1934;5) the member organization undertakes to provide any particular statement or statements to the customer promptly upon request; and6) the member organization undertakes to promptly reinstate the delivery of such statements to the customer upon request.Nothing in this rule shall be seen to qualify or condition the obligations of a member organization under SEC Rule 15c3-2 concerning quarterly notices of free credit balances on statements.
For purposes of this rule, a DVP/RVP account is an arrangement whereby payment for securities purchased is to be made to the selling customer's agent and/or delivery of securities sold is to be made to the buying customer's agent in exchange for payment at time of settlement, usually in the form of cash.(b) No member organization shall address confirmations, statements or other communications to a nonmember customer(1) in care of a person holding power of attorney over the customer's account unless either (A) the customer has instructed the member organization in writing to send such confirmations, statements or other communications in care of such person, or (B) duplicate copies are sent to the customer at some other address designated in writing by him; or(2) at the address of any member, member organization, or in care of a partner, stockholder who is actively engaged in the member corporation's business or employee of any member organization. The Exchange may upon written request therefore waive these requirements.(c) Rescinded October 6, 1978. (See SEC Rule 10b-10).(d) Rescinded July 1, 1970. (See SEC Rule 10b-16).(e) Each statement of account sent to a customer pursuant to this rule shall bear a legend as follows:(1) A legend that reads: "A financial statement of this organization is available for your personal inspection at its offices, or a copy of it will be mailed upon your written request."(2) A legend that advises customers to report promptly any inaccuracy or discrepancy in that person's account to his or her brokerage firm. If a customer's account is subject to a clearing agreement pursuant to Rule 382, the legend must advise that such notification be sent to both the introducing firm and the clearing firm. The legend must also advise the customer that any oral communications with either the introducing firm or the clearing firm should be re-confirmed in writing in order to further protect the customer's rights, including its rights under the Securities Investor Protection Act (SIPA).(f) Confirmation of all transactions (including those made "over-the-counter" and on other exchanges) in securities admitted to dealings on the Exchange, sent by members or member organizations to their customers, shall clearly set forth with a suitable legend the settlement date of each transaction. This requirement also applies to confirmations or reports from an organization to a correspondent, but does not apply to reports made by floor brokers to the member organization from whom the orders were received.
(See SEC Rule 10b-10)
Repositioned from Rule 411.20 with change effective May 28, 1982. (g) Member organizations carrying margin accounts for customers should send duplicate copies of monthly statements of guaranteed accounts to the respective guarantors unless such guarantors have specifically declared in writing that they do not wish such statements sent to them.
Repositioned from Rule 411.50 with change effective May 28, 1982.
Amendment.
October 15, 1964, effective January 1, 1965;
June 16, 1966;
July 20, 1967;
May 28, 1982;
November 22, 2006 (NYSE-2005-90);
December 8, 2006 (NYSE-2005-09);
amended by SR-FINRA-2007-037 eff. Jan. 1, 2008.
Selected Notice: 07-65.
• • • Supplementary Material: --------------
.10 Exceptions to Rule 409(b) [¶2409]
The provisions of Rule 409(b), above, are not considered applicable to the following:(1) General or special partners or holders of voting or non-voting stock other than any freely transferable security of member organizations.(2) Employees of member organizations.(3) Persons who maintain desk space at the office of a member or member organization and who thereby establish such office as their place of business.(4) Corporations of which partners, stockholders or employees are officers or directors, and corporation accounts over which such persons have powers of attorney, provided, in each such case, the partner, stockholder or employee is duly authorized by the corporation to receive communications covering the account.(5) Trust accounts, when a partner, stockholder or employee of a member organization is a trustee and has been duly authorized by all other trustees to receive communications covering the account.(6) Estate accounts, when a partner, stockholder or employee of a member organization is an executor or administrator of the estate and has been duly authorized by all other executors or administrators to receive communications covering the account.(7) Upon the written instructions of a customer and with the written approval of a member or supervisor of a member organization, a member organization may hold mail for a customer who will not be at his usual address for the period of his absence, but (a) not to exceed two months if the organization is advised that such customer will be on vacation or travelling or (b) not be exceed three months if the customer is going abroad.Amendment.
March 26, 1970;
December 2, 1981.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 409A. SIPC Disclosures
SR-FINRA-2009-016 has been approved by the SEC. Effective August 17, 2009, this rule will no longer be applicable. Please consult the appropriate FINRA rule.
Member organizations must advise each customer in writing, upon the opening of an account and at least annually thereafter, that they may obtain information about the Securities Investor Protection Corporation (SIPC), including the SIPC Brochure, by contacting SIPC, and shall provide the Web site address and telephone number of SIPC. If a clearing agreement pursuant to Rule 382 exists, the requirements of this rule may be delegated to either the introducing firm or the clearing firm.
Amendment.
December 8, 2006 (NYSE-2005-09).Rule 410. Records of Orders
(a) Every member or member organization must preserve for at least three years, the first two years in an easily accessible place, a record of:(1) every order received by such member or member organization, either orally or in writing, which record must include the name and amount of the security, the terms of the order, the time when it was so received and the time at which a report of execution was received.(2) every order entered by such member or member organization into the Off-Hours Trading Facility (as Rule 900 (Off-Hours Trading: Applicability and Definitions) defines that term), which record must include the name and amount of the security, the terms of the order, the time when it was so entered, and the time at which a report of execution was received.(3) the time of the entry of every cancellation of an order covered by (1) and (2) above.Changes In Account Name or Designation
Before any order covered by (1) or (2) above is executed, there must be placed upon the order slip or other similar record of the member or member organization the name or designation of the account for which such order is to be executed. No change in such account name (including related accounts) or designation (including error accounts) shall be made unless the change has been authorized by a member, principal executive or a person or persons designated under the provisions of Rule 342(b)(1). Such person must, prior to giving his or her approval of the account designation change, be personally informed of the essential facts relative thereto and indicate his or her approval of such change in writing on the order or other similar record of the member or member organization. The essential facts relied upon by the person approving the change must be documented in writing and maintained with the order or other similar record for at least three years, the first two in an easily accessible place as that term is used in Securities Exchange Act Rule 17a-4.
Exceptions
Under exceptional circumstances, the Exchange may upon written request waive the requirements contained in (1), (2) and (3) above.(b) Every order in any manner transmitted or carried to the Floor and executed pursuant to Section 11(a)(1)(G) of the Act and Rule 11a1-1(T) thereunder must be identified in a manner that will enable the executing member to disclose to other members that the order is subject to those provisions.
(See also Rules 112A.10 and 123A.45.)
• • • Supplementary Material: --------------
.10 For purposes of this Rule, a person designated under the provisions of Rule 342(b)(1) to approve account name or designation changes must pass an examination acceptable to the Exchange.Amendments.
June 19, 1969.
October 16, 1969, effective November 3, 1969.
February 1, 1973.
April 3, 1975; effective May 1, 1975.
August 26, 1976.
August 16, 1978.
February 1, 1979.
May 24, 1991.
June 17, 2004 (Effective December 17, 2004) (SR-NYSE-2002-36).
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Selected Notice: 08-64.Rule 411. Erroneous Reports
(a)(i) Erroneous Reports
Except as provided in Rule 123B(b) and in paragraph (ii) below, the price at which an order is executed shall be binding notwithstanding the fact that an erroneous report in respect thereto may have been rendered. A member must offer a corrected report to the non-member, which is rejected by an individual authorized to act for the non-member, before relying on paragraph (ii) below.(ii) A non-member for whom a member executed an order but rendered an erroneous report thereto may treat the terms of the execution report as though they were the terms of the actual auction market trade, provided:(1) the price and size of the erroneous report are within the range of prices and sizes in the subject security reported on the Consolidated Tape on the day in which the order was executed;(2) the member reports the nature of the error to the customer, and whether the error was favorable or unfavorable to the non-member;(3) the member documents, on trade-by-trade basis, the name of individual authorized to accept the erroneous report for the non-member, the amount of the error, and whether the error was in the nonmember's or member's favor;(4) except as provided in (6) below, the member treats the erroneous report as though it were an erroneous trade, and takes the opposite side of the report, and the opposite side of the actual auction market trade, into his or her error account or the error account of the member organization;(5) the member assumes any loss occasioned by the erroneous report, with any profit paid to the New York Stock Exchange Foundation;(6) a specialist may accommodate the member and take the error into the specialist's error account, so long as the member documents the specialist's taking in the error, and documents the non-member understandings indicated in paragraph (2) above, the specialist documents taking in the error to accommodate the member, and the member assumes any loss, with any profit going to the New York Stock Exchange Foundation.(iii) Except as provided in (iv) below, a report shall not be binding and must be rescinded if an order was not actually executed but was in error reported to have been executed; an order which was executed, but in error reported as not executed, shall be binding; provided, however, when a member who is on the Floor reports in good faith the execution of an order entrusted to him by another member or member organization and the other party to that transaction does not know it, the member or member organization to whom such report was rendered and the member broker who made the report shall treat the transaction as made for the account of the member who made the report, or the account of his member organization, if the price and size of the transaction were within the price and volume of transactions in the security at the time that the member who made the report believed he had executed the order. A detailed memorandum of each such transaction shall be prepared and filed with the Exchange by the member assuming the transaction.(iv) A Floor broker who fails to execute a not held order because of the Floor broker's error as to symbol, side or price, but reports to the customer the order had been executed in accordance with the customer's instructions, may treat the terms of the execution report as though they were the terms of a trade, provided:(1) the price and size of the erroneous report are within the range of prices and sizes in the subject security reported on the Exchange portion of the Consolidated Tape on the day in which the order was erroneously reported;(2) the Floor broker reports the error to the customer, and whether the error was favorable or unfavorable to the customer;(3) the Floor broker documents, on a trade-by-trade basis, the name of individual authorized to accept the erroneous report for the customer, the amount of the error, and whether the error was in the customer's favor;(4) the Floor broker treats the erroneous report as though it were an erroneous trade and his or her error account or the error account of the member organization becomes the opposite side to the report; and(5) the Floor broker assumes any loss occasioned by the erroneous report, and pays any profit to the New York Stock Exchange Foundation.Amendment.
January 19, 1956, effective February 13, 1956;
June 28, 1957, effective July 1, 1957;
May 28, 1982;
December 22, 1982;
September 13, 2001, effective February 4, 2002 (99-25);
June 5, 2007 (NYSE-2006-28).(b)(1) Conduct of Accounts
"Bunching" odd/lot orders
A member or member organization shall not combine the orders given by several different customers to buy or sell odd-lots of the same stock, into a round-lot order without the prior approval of the customers interested.
When a person gives, either for his own account, for various accounts in which he has an actual monetary interest, or for accounts over which such person is exercising investment discretion, buy or sell odd-lot orders which aggregate 100 shares or more, a member or member organization shall not accept such orders for execution unless they are, as far as possible, consolidated into full lots, except that selling orders marked "long" need not be so consolidated with selling orders marked "short." An exception from this consolidation requirement may be relied upon once per trading day by the person exercising investment discretion for the odd-lot orders in a particular stock that would aggregate to less than 300 shares.(2) Recording of transactions in accounts
Transactions in securities shall be recorded in accounts no later than settlement date.Amendment.
June 28, 1978;
August 18, 1992.
• • • Supplementary Material: --------------
.10 Transposed to Rule 411(b-1) without change effective May 28, 1982..20 Transposed to Rule 409(f) with change effective May 28, 1982..30 Rescinded effective May 28, 1982..40 Transposed to Rule 411(b)(2) with change effective May 28, 1982..50 Transposed to Rule 409(g) without change effective May 28, 1982..60 Transposed to Rule 36.30 without change effective May 28, 1982..70 Transposed to Rule 36.20 without change effective May 28, 1982.Rule 413. Uniform Forms
Every individual member and every member organization shall adopt such uniform forms as the Exchange may prescribe to facilitate the orderly flow of transactions within financial community.
Adopted.
February 3, 1973.Financial Statements and Reports (Rules 415–425)
Rule 416. Questionnaires and Reports
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this version of Rule 416 will no longer be applicable.
(a) Each member and member organization shall submit to the Exchange at such times as may be designated in such form and within such time period as may be prescribed such information as the Exchange deems essential for the protection of investors and the public interest.(b) Reserved.(c) Any report filed pursuant to this Rule containing material inaccuracies shall, for purposes of this rule, be deemed not to have been filed until a corrected copy of the report has been resubmitted.Amended by SR-FINRA-2008-034 eff. Jan. 1, 2008.
• • • Supplementary Material: --------------
.10 Member organizations may be required to provide financial and operational reports as required by paragraph (a) of this Rule for affiliated organizations, including but not limited to, persons referred to in Rules 321 and 322..20 Each member and member organization shall, on an ongoing basis and in such format as the Exchange may require, submit to the Exchange, or its designated agent, prescribed data of the member or member organization, and of any broker-dealer that is a party to a carrying agreement with a member or member organization pursuant to NYSE Rule 382.
Amendment.
August 31, 1993.
March 30, 2001.Amendments.
December 16, 1971
September 7, 1972.
June 17, 1976.
August 16, 1978.
January 16, 2001.Rule 416A. Member And Member Organization Profile Information Updates And Quarterly Certifications Via The Electronic Filing Platform
(a) Members and member organizations must furnish the Exchange with all of the profile information required by the Exchange's Electronic Filing Platform ("EFP"), and must comply with any Exchange request for such information promptly, but in any event not later than thirty days following such request.(b) Members and member organizations must update their required membership profile information promptly, but in any event not later than thirty days following any change in such information.(c) Each member and member organization shall designate to the Exchange an appropriate senior officer as referenced in Rule 351(e), or his or her designee, as its membership profile contact person.(d) Each member or member organization shall certify electronically once during each of the months of March, June, September, and December of every year that it has reviewed its required membership profile information, and that such information is complete and accurate.Amended:
November 24, 2004 (NYSE-2004-48).Rule 418. Audit
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
The Exchange may at any time require any member or member organization to cause an audit to be made by an independent public accountant of his or its accounts in accordance with the requirements of Exchange Rules and Rule 17a-5 under the Securities Exchange Act of 1934 ("Exchange Act").
Each member organization and each individual member not associated with a member organization doing any business in securities with others than members and member organizations of a national securities exchange is required to have an annual audit of its financial statements and reports conducted in accordance with the audit requirements of the Exchange and of the applicable requirements of the Securities and Exchange Commission by independent public accountants.
• • • Supplementary Material: --------------
Information Regarding Audits.10 Each member and member organization subject to this rule shall file with the Exchange by December 10th of each year, an agreement in a form prescribed by the Exchange dated no later than December 1st with an independent public accountant covering its annual audit during the following year..12 Any member or member organization failing to file an audited financial and operational report under this rule in the prescribed time shall be subject to a $200 penalty for each day of delayed filing..15 The annual financial statements and operational reports filed with the Exchange shall include a statement attesting that such financial statements and operational reports have been or will be made available to all members or allied members of the organization. Such statement shall be signed by two members or allied members of the organization..20 A copy of each audited financial and operational report, all statements, schedules, other reports and all pertinent working papers and memoranda should be retained for at least three years. (Working papers, etc., must be made available for review by a representative of the Exchange at the office of the respondent or at the office of the independent public accountant.).25 Every member organization approved by the Securities and Exchange Commission, pursuant to Rule 15c3-1 under the Exchange Act, to use the alternative method of computing net capital contained in Appendix E to that Rule shall file such supplemental and alternative reports as may be prescribed by the Exchange.Amendments.
February 7, 1974.
June 17, 1976.
August 16, 2005 (NYSE-2005-19).
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).Rule 420. Reports of Borrowings and Subordinate Loans For Capital Purposes
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
(a) Subordinated Loans
Before a subordinated loan of cash to a member organization may be considered for net capital purposes under Rule 325 the following documents shall be submitted to and approved by the Exchange:(1) A signed copy of the subordinated loan agreement on a form prescribed by or acceptable to the Exchange.(2) An opinion of counsel as required by Rule 313(d).All such subordinated loans shall meet the requirements of SEC Rule 15c3-1. Appendix D and such other standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member organization.(b) Secured Demand Notes
Where a person wishes to make securities which are fully paid for and non-assessable available to a member organization in a manner that will increase the organization's net capital under Rule 325, the securities must be pledged as collateral to a secured demand note which is contributed to the member organization pursuant to a secured demand note collateral agreement. Both the form of the secured demand note and the secured demand note collateral agreement shall be approved by the Exchange prior to becoming effective. In order to be approved by the Exchange such notes and agreements:(1) shall meet the requirements of SEC Rule 15c3-1, Appendix D and such other standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member organization; and(2) shall be accompanied by an opinion of counsel as required by Rule 313(d).(c) Capital Borrowings
Each general partner of a member firm shall promptly report to the Exchange any secured or unsecured borrowing of cash or securities regardless of its amount or description where the cash proceeds of such borrowing or the securities borrowed will be contributed to the capital of the member firm under Rule 104.20 or Rule 325.
The Exchange requires that the documents which evidence such borrowings conform to such standards as the Exchange deems appropriate to ensure the continued financial responsibility and operational capability of the member firm, and that the following documents be submitted to and approved by the Exchange before the cash or securities involved may qualify as capital acceptable for inclusion in the computation of net capital of the member firm under Rule 104.20 or Rule 325:(1) A signed copy of the note or agreement which must have at least twelve months duration.(2) A non-recourse letter addressed to the borrower's member firm and signed by the lender.(3) If more than one borrower is named in the loan instrument, all such borrowers must sign a statement indicating they understand the use of the proceeds of the loan (suggested language available from the Exchange).The nature of the documents required in (1), (2) and (3) will vary, depending upon whether the lender is an individual, bank, estate, trust, corporation, partnership, etc.Amendments.
May 21, 1970.
October 16, 1975; effective January 1, 1976.
February 15, 1980.
September 20, 1983.Rule 421. Periodic Reports
SR-FINRA-2008-067 has been approved by the SEC. The effective date has not been determined. Upon effectiveness, this rule will no longer be applicable; please consult the appropriate FINRA rule.
Member organizations shall submit, as required by the Exchange, periodic reports with respect to
(1) Reserved.(2) Customers' debit and credit balances.Amendments.
April 4, 1968
October 7, 1982
March 6, 2007 (NYSE-2006-111).
Amended by SR-FINRA-2008-033 eff. Dec. 15, 2008.
Selected Notice: 08-57.
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.10 Reserved.
Amendment.
March 30, 1993.
March 6, 2007 (NYSE-2006-111);
amended by SR-FINRA-2007-025 effective December 5, 2007.
Amended by SR-FINRA-2008-033 eff. Dec. 15, 2008.
Selected Notice: 08-57..20 Underwritings (Form MF-3)
[Rescinded December 16, 1971.].40 Customers' debit and credit balances (Form R-1)
Member organizations carrying margin accounts for customers, unless specifically exempted by the Exchange, are required to submit Form R-1 on a settlement basis, preferably as of the last business day of the month (but in any event not earlier than the last Thursday of the month). Form R-1 specifies the following information applicable to public customers:(1) Total of all debit balances in stock margin accounts;(2) Total of all free credit balances in cash accounts;(3) Total of all free credit balances in all margin accounts.Include only free credit balances in cash and margin accounts. Balances in short accounts and in Special Miscellaneous Accounts are not to be considered as free credit balances. Do not include debit or credit balances in the accounts of other organizations which are members of national securities exchanges, or your own organization, or of employees within your own organization.
Each member organization carrying margin accounts for customers, unless specifically exempted by the Exchange, is required to submit a report each month. When a member organization has no information to submit, a report should be filed with a notation thereon to that effect.
Reports are due as promptly as possible after each firm's last business day of the month, but not later than the sixth day of the following month. All inquiries concerning this report should be made to the Exchange at 656-5050..50 Fail "Contracts" (Form MF-6)
[Rescinded October 16, 1975, effective November 20, 1975.]Amendments.
December 11, 1975; effective March 12, 1976.
January 27, 1995.
March 6, 2007 (NYSE-2006-111).Margins (Rules 430–434)
Rule 430. Partial Delivery of Securities to Customers on C.O.D. Purchases
No member or member organization may accept from a customer a purchase order for any security, other than obligations of the United States Government, unless it has first ascertained that the customer placing the order or its agent will receive against payment securities in an amount equal to any execution confirmed to the customer, even though such an execution may represent the purchase of only a part of a larger order.
Amendments.
Effective September 1, 1968.Rule 431. Margin Requirements
(a) Definitions
For purposes of this Rule, the following terms shall have the meanings specified below:(1) The term "current market value" means the total cost or net proceeds of a security on the day it was purchased or sold or at any other time the preceding business day's closing price as shown by any regularly published reporting or quotation service, except for security futures contracts (see Section (f)(10)(C)(ii). If there is no closing price, a member organization may use a reasonable estimate of the market value of the security as of the close of business on the preceding business day.(2) The term "customer" means any person for whom securities are purchased or sold or to whom securities are purchased or sold whether on a regular way, when issued, delayed or future delivery basis. It will also include any person for whom securities are held or carried and to or for whom a member organization extends, arranges or maintains any credit. The term will not include the following: (a) a broker or dealer from whom a security has been purchased or to whom a security has been sold for the account of the member organization or its customers, or (b) an "exempted borrower" as defined by Regulation T of the Board of Governors of the Federal Reserve System ("Regulation T"), except for the proprietary account of a broker-dealer carried by a member organization pursuant to Section (e)(6) of this Rule.(3) The term "designated account" means the account of (i) a bank (as defined in Section 3(a)(6) of the Securities Exchange Act of 1934), (ii) a savings association (as defined in Section 3(b) of the Federal Deposit Insurance Act), the deposits of which are insured by the Federal Deposit Insurance Corporation,(iii) an insurance company (as defined in Section 2(a)(17) of the Investment Company Act of 1940), (iv) an investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, (v) a state or a political subdivision thereof, or (vi) a pension or profit sharing plan subject to ERISA or of an agency of the United States or of a state or a political subdivision thereof.(4) The term "equity" means the customer's ownership interest in the account, computed by adding the current market value of all securities "long" and the amount of any credit balance and subtracting the current market value of all securities "short" and the amount of any debit balance. Any variation settlement received or paid on a security futures contract shall be considered a credit or debit to the account for purposes of equity.(5) The term "exempted security" or "exempted securities" has the meaning as in Section 3(a)(12) of the Securities Exchange Act of 1934 ("the Exchange Act" or "SEA").(6) The term "margin" means the amount of equity to be maintained on a security position held or carried in an account.(7) The term "person" has the meaning as in Section 3(a)(9) of the Exchange Act.(8) The term "basket" shall mean a group of stocks that the Exchange or any national securities exchange designates as eligible for execution in a single trade through its trading facilities and that consists of stocks whose inclusion and relative representation in the group are determined by the inclusion and relative representation of their current market prices in a widely-disseminated stock index reflecting the stock market as a whole.(9) The term "highly rated foreign sovereign debt securities" means any debt securities (including major foreign sovereign debt securities) issued or guaranteed by the government of a foreign country, its provinces, states or cities, or a supranational entity, if at the time of the extension of credit the issue, the issuer or guarantor, or any other outstanding obligation of the issuer or guarantor ranked junior to or on a parity with the issue or the guarantee is assigned a rating (implicitly or explicitly) in one of the top two rating categories by at least one nationally recognized statistical rating organization.(10) The term "investment grade debt securities" means any debt securities (including those issued by the government of a foreign country, its provinces, states or cities, or a supranational entity), if at the time of the extension of credit the issue, the issuer or guarantor, or any other outstanding obligation of the issuer or guarantor ranked junior to or on a parity with the issue or the guarantee is assigned a rating (implicitly or explicitly) in one of the top four rating categories by at least one nationally recognized statistical rating organization.(11) The term "major foreign sovereign debt securities" means any debt securities issued or guaranteed by the government of a foreign country or a supranational entity, if at the time of the extension of credit the issue, the issuer or guarantor, or any other outstanding obligation of the issuer or guarantor ranked junior to or on a parity with the issue or the guarantee is assigned a rating (implicitly or explicitly) in the top rating category by at least one nationally recognized statistical rating organization.(12) The term "mortgage related securities" means securities falling within the definition in Section 3(a)(41) of the Securities Exchange Act of 1934.(13) The term "exempt account" means(A) a member organization, non-member broker-dealer registered as a broker or dealer pursuant to the Securities Exchange Act of 1934, a "designated account", or(B) any person that(i) has a net worth of at least forty-five million dollars and financial assets of at least forty million dollars for purposes of paragraphs (e)(2)(F) and (e)(2)(G), and(ii) either:(1) has securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, has been subject to the reporting requirements of Section 13 of the Exchange Act for a period of at least 90 days and has filed all the reports required to be filed thereunder during the preceding 12 months (or such shorter period as it was required to file such reports), or(2) has securities registered pursuant to the Securities Act of 1933, has been subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934 for a period of at least 90 days and has filed all the reports required to be filed thereunder during the preceding 12 months (or such shorter period as it was required to file such reports), or(3) if such person is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, is a person with respect to which there is publicly available the information specified in paragraphs (a)(5)(i) to (xiv), inclusive, of Rule 15c2-11 under that Act, or(4) furnishes information to the Securities and Exchange Commission as required by Rule 12g3-2(b) of the Securities Exchange Act of 1934, or(5) makes available to the member organization such current information regarding such person's ownership, business, operations and financial condition (including such person's current audited statement of financial condition, statement of income and statement of changes in stockholder's equity or comparable financial reports), as reasonably believed by the member organization to be accurate, sufficient for the purposes of performing a risk analysis in respect of such person.(14) The term "non-equity securities" means any securities other than equity securities as defined in section 3(a)(11) of the Securities Exchange Act of 1934.(15) The term "listed non-equity securities" means any non-equity securities that: (i) are listed on a national securities exchange; or (ii) have unlisted trading privileges on a national securities exchange.(16) The term "other marginable non-equity securities" means:(1) Any debt securities not traded on a national securities exchange meeting all of the following requirements:(i) At the time of the original issue, a principal amount of not less than $25,000,000 of the issue was outstanding;(ii) The issue was registered under section 5 of the Securities Act of 1933 and the issuer either files periodic reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 or is an insurance company which meets all of the conditions specified in Section 12(g)(2)(G) of the Securities Exchange Act of 1934; and(iii) At the time of the extension of credit, the creditor has a reasonable basis for believing that the issuer is not in default on interest or principal payments; or(2) Any private pass-through securities (not guaranteed by an agency of the U.S. government) meeting all of the following requirements:(i) An aggregate principal amount of not less than $25,000,000 (which may be issued in series) was issued pursuant to a registration statement filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933.(ii) Current reports relating to the issue have been filed with the Securities and Exchange Commission; and(iii) At the time of the credit extension, the creditor has a reasonable basis for believing that mortgage interest, principal payments and other distributions are being passed through as required and that the servicing agent is meeting its material obligations under the terms of the offering.(b) Initial margin
For the purpose of effecting new securities transactions and commitments, the customer shall be required to deposit margin in cash and/or securities in the account which shall be at least the greater of:(1) the amount specified in Regulation T of the Board of Governors of the Federal Reserve System, or Rules 400 through 406 of the Exchange Act or Rules 41.42 through 41.48 of the Commodity Exchange Act ("CEA"), or(2) the amount specified in section (c) of this Rule, or(3) such greater amount as the Exchange may from time to time require for specific securities, or(4) equity of at least $2,000 except that cash need not be deposited in excess of the cost of any security purchased (this equity and cost of purchase provision shall not apply to "when distributed" securities in a cash account). The minimum equity requirement for a "pattern day trader" os $25,000 pursuant to paragraph (f)(8)(B)(iv)(1) of this Rule.Withdrawals of cash or securities may be made from any account which has a debit balance, "short" position or commitments, provided it is in compliance with Regulation T of the Board of Governors of the Federal Reserve System and Rules 400 through 406 of the Exchange Act and Rules 41.42 through 41.48 of the CEA and after such withdrawal the equity in the account is at least the greater of $2,000 ($25,000 in the case of "pattern day traders") or an amount sufficient to meet the maintenance margin requirements of this Rule.(c) Maintenance margin
The margin which must be maintained in all accounts of customers, except for cash accounts subject to Regulation T unless a transaction in a cash account is subject to other provisions of this rule, shall be as follows:(1) 25% of the current market value of all securities except for securities futures contracts "long" in the account; plus(2) $2.50 per share or 100% of the current market value, whichever amount is greater, of each stock "short" in the account selling at less than $5.00 per share; plus(3) $5.00 per share or 30% of the current market value, whichever amount is greater, of each stock "short" in the account selling at $5.00 per share or above; plus(4) 5% of the principal amount or 30% of the current market value, whichever amount is greater, of each bond "short" in the account.(5) The minimum maintanence margin levels for secutiry futures contracts, long and short, shall be 20% of the current market value of such contract. (See paragraph (f) of this Rule for other provisions pertaining to security futures contracts).(d) Additional margin
Procedures shall be established by member organizations to:(1) review limits and types of credit extended to all customers,(2) formulate their own margin requirements, and(3) review the need for instituting higher margin requirements, mark-to-markets and collateral deposits than are required by this Rule for individual securities or customer accounts.(e) Exceptions to Rule
The foregoing requirements of this Rule are subject to the following exceptions:(1) Offsetting Long and Short Positions
When a security carried in a "long" position is exchangeable or convertible within a reasonable time, without restriction other than the payment of money, into a security carried in a "short" position for the same customer, the margin to be maintained on such positions shall be 10% of the current market value of the "long" securities. When the same security is carried "long" and "short" the margin to be maintained on such positions shall be 5% of the current market value of the "long" securities. In determining such margin requirements "short" positions shall be marked to the market.(2) Exempted Securities, Non-equity Securities and Baskets(A) Obligations of the United States and Highly Rated Foreign Sovereign Debt Securities
On net "long" or net "short" positions in obligations (including zero coupon bonds, i.e., bonds with coupons detached or non-interest bearing bonds) issued or guaranteed as to principal or interest by the United States Government or by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury, or in obligations that are highly rated foreign sovereign debt securities, the margin to be maintained shall be the percentage of the current market value of such obligations as specified in the applicable category below:(i) Less than one year to maturity, 1%(ii) One year but less than three years to maturity, 2%(iii) Three years but less than five years to maturity, 3%(iv) Five years but less than ten years to maturity, 4%(v) Ten years but less than twenty years to maturity, or 5%(vi) Twenty years or more to maturity, 6%Notwithstanding the above, on zero coupon bonds with five years or more to maturity the margin to be maintained shall not be less than 3% of the principal amount of the obligation.
When such obligations other than United States Treasury bills are due to mature in thirty calendar days or less, a member organization, at its discretion, may permit the customer to substitute another such obligation for the maturing obligation and use the margin held on the maturing obligation to reduce the margin required on the new obligation, provided the customer has given the member organization irrevocable instructions to redeem the maturing obligation.(B) All Other Exempted Securities
On any positions in exempted securities other than obligations of the United States, the margin to be maintained shall be 7% of the current market value.(C) Non-Equity Securities
On any positions in non-equity securities, the margin to be maintained (except where a lesser requirement is imposed by other provisions of this Rule) shall be:(i) 10% of the current market value in the case of investment grade debt securities; and(ii) 20% of the current market value or 7% of the principal amount, whichever amount is greater, in the case of all other listed non-equity securities, and all other marginable non-equity securities as defined in paragraph (a)(16) of this Rule.(D) Baskets
Notwithstanding the other provisions of this Rule, a member organization may clear and carry basket transactions of one or more members or member organizations registered as market-makers (who are deemed specialists for purposes of Section 7 of the Securities Exchange Act of 1934 pursuant to the rules of a national securities exchange) upon a margin basis satisfactory to the concerned parties, provided all real and potential risks in accounts carried under such arrangements are at all times adequately covered by the margin maintained in the account or, in the absence thereof, by the carrying member organization's excess net capital Rule 325.(E) Special Provisions
Notwithstanding the foregoing in this sub-section (e)(2),(i) A member organization may, at its discretion, permit the use of accrued interest as an offset to the maintenance margin required to be maintained, and(ii) The Exchange, upon written application, may permit lower margin requirements on a case-by-case basis.(F) Transactions With Exempt Accounts Involving Certain "Good Faith" Securities
On any position resulting from a transaction involving exempted securities, mortgage related securities, or major foreign sovereign debt securities made for or with an "exempt account", no margin need be required and any marked to the market loss on such position need not be collected. However, the amount of any uncollected marked to the market loss shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements, subject to the limits in paragraph (e)(2)(H) below.(G) Transactions with Exempt Accounts Involving Highly Rated Foreign Sovereign Debt Securities and Investment Grade Debt Securities
On any position resulting from a transaction made for or with an "exempt account" (other than a position subject to paragraph (e)(2)(F)), the margin to be maintained on highly rated foreign sovereign debt and investment grade debt securities shall be, in lieu of any greater requirements imposed under this Rule, (i) 0.5% of current market value in the case of highly rated foreign sovereign debt securities and (ii) 3% of current market value in the case of all other investment grade debt securities. The member organization need not collect any such margin; provided the amount equal to the margin required shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements. In computing the margin required, any marked to market losses included as a deduction to Net Capital shall be subject to the provisions in paragraph (e)(2)(H) below.(H) Limits on Net Capital Deductions for Exempt Accounts(i) Member organizations shall maintain a written risk analysis methodology for assessing the amount of credit extended to exempt accounts pursuant to paragraphs (e)(2)(F) and (e)(2)(G) which shall be made available to the Exchange upon request.(ii) In the event that the Net Capital deductions taken by a member organization as a result of marked to the market losses incurred under paragraphs (e)(2)(F) and (e)(2)(G)(exclusive of the percentage requirements established thereunder) exceed:(1) On any one account or group of commonly controlled accounts, 5% of the member organization's Tentative Net Capital (Net Capital before deductions on securities); or(2) On all accounts combined, 25% of the member organization's Tentative Net Capital (Net Capital before deductions on securities); then, unless such excess no longer exists on the fifth business day after it was incurred, the member organization (1) shall give prompt written notice to the Exchange and (2) shall not enter into any new transaction(s) subject to the provisions of paragraphs (e)(2)(F) or (e)(2)(G) that would result in an increase in the amount of such excess under, as applicable, subparagraph (i) or (ii) above.(3) Joint Accounts in Which the Carrying Organization or a Partner or Stockholder Therein Has an Interest
In the case of a joint account carried by a member organization, in which such organization, or any partner, member, principal executive or any stockholder (other than a holder of freely transferable stock only) of such member organization participates with others, each participant other than the carrying member organization shall maintain an equity with respect to such interest pursuant to the margin provisions of the Rule as if such interest were in a separate account.(4) International Arbitrage Accounts
International arbitrage accounts for non-member foreign brokers or dealers who are members of a foreign securities exchange shall not be subject to this Rule. The amount of any deficiency between the equity in such an account and the margin required by the other provisions of this Rule shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements.(5) Specialists' and Market Makers' Accounts
(A) A member organization may carry the account of an "approved specialist or market maker", which account is limited to specialist or market making transactions, including option hedge transactions established pursuant to the requirements of Rule 105, upon a margin basis which is satisfactory to both parties. The amount of any deficiency between the equity in the account and haircut requirements pursuant to SEA Rule 15c3-1 (Net Capital) shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements. However, when computing Net Capital deductions for transactions in securities covered by paragraphs (e)(2)(F) and (e)(2)(G) of this Rule, the respective requirements of those paragraphs may be used, rather than the haircut requirements of SEA Rule 15c3-1.
For the purpose of this paragraph (e)(5)(A), the term "approved specialist or market maker" means either:(i) a specialist or market maker, who is deemed a specialist for all purposes under the Securities Exchange Act of 1934 and who is registered pursuant to the rules of a national securities exchange; or(B) In the case of a joint account carried by a member organization in accordance with paragraph (e)(5)(A) above in which the member organization participates, the equity maintained in the account by the other participants may be in any amount which is mutually satisfactory. The amount of any deficiency between the equity maintained in the account by the other participants and their proportionate share of the haircut requirements pursuant to SEA Rule 15c3-1 (Net Capital), shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements. However, when computing Net Capital deductions for transactions in securities covered by paragraphs (e)(2)(F) and (e)(2)(G) of this Rule, the respective requirements of those paragraphs may be used, rather than the haircut requirements of SEA Rule 15c3-1.(6)(A) Broker/Dealer Accounts
A member organization may carry the proprietary account of another broker/dealer, which is registered with the Securities and Exchange Commission, upon a margin basis which is satisfactory to both parties, provided the requirements of Regulation T of the Board of Governors of the Federal Reserve System and Rules 400 through 406 under the Exchange Act and Rules 41.42 through 41.48 under the CEA are adhered to and the account is not carried in a deficit equity condition. The amount of any deficiency between the equity maintained in the account and the haircut requirements pursuant to SEA Rule 15c3-1 (Net Capital) shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements. However, when computing Net Capital deductions for transactions in securities covered by paragraphs (e)(2)(F) and (e)(2)(G) of this Rule, the respective requirements of those paragraphs may be used, rather than the haircut requirements of SEA Rule 15c3-1.(B) Joint Back Offices Arrangements
An arrangement may be established between two or more registered broker-dealers pursuant to Regulation T Section 220.(7)(c) to form a joint back office ("JBO") arrangement for carrying and clearing or carrying accounts of participating broker-dealers. Member organizations must provide written notification to the Exchange prior to establishing a JBO (also see Rule 313for requirements regarding submission of partnership/corporate documents.)(i) A carrying and clearing, or carrying member organization must:(1) maintain a minimum Tentative Net Capital of $25 million as computed pursuant to SEA Rule 15c3-1, except that a member organization whose primary business consists of the clearance of options market-maker accounts, may carry JBO accounts provided that it maintains a minimum Net Capital of $7 million as computed pursuant to SEA Rule 15c3-1. In addition, the member organization must include it its ratio of gross options market maker deduction to Net Capital required by the provisions of SEA Rule 15c3-1, gross deductions for JBO participant accounts. Clearance of option market maker accounts shall be deemed a broker-dealer's primary business if a minimum of 60% of the aggregate deductions in the above ratio are options market maker deductions. In the event that a carrying and clearing or carrying member organization's Tenative Net Capital or or Net Capital, respectively, has fallen below the above requirements, the firm shall (a) promptly notify the Exchange in writing of such deficiency, (b) take appropriate action to resolve such deficiency within three consecutive business days, or not permit any new transactions to be entered into pursuant to the Joint Back Office arrangement.(2) maintain a written risk analysis methodology for assessing the amount of credit extended to participating broker-dealers which shall be made available to the Exchange upon request; and(3) deduct from Net Capital haircut requirements pursuant to SEA Rule 15c3-1 in excess of the equity maintained in the accounts of the participating broker-dealers. However, when computing Net Capital deductions for transactions in securities covered by paragraphs (e)(2)(F) and (e)(2)(G) of this Rule, the respective requirements of those paragraphs may be used, rather than the haircut requirements of SEA Rule 15c3-1.(ii) A participating broker-dealer must:(1) be a registered broker-dealer subject to the SEC's Net Capital rule;(2) maintain an ownership interest in the carrying/clearing member organization pursuant to Regulation T of the Federal Reserve Board Section 220.7; and(3) maintain a minimum liquidating equity of $1 million in the Joint Back Office arrangement exclusive of the ownership interest established in (2) above. When the minimum liquidating equity decreases below the $1 million requirement, the participant must deposit an amount sufficient to eliminate this deficiency within 5 business days or be subject to margin account requirements prescribed for customers in Regulation T, and the margin requirements pursuant to the other provisions of this Rule.(7) Nonpurpose Credit
In a nonsecurities credit account, a member organization may extend and maintain nonpurpose credit to or for any customer without collateral or on any collateral whatever, provided:(A) the account is recorded separately and confined to the transactions and relations specifically authorized by Regulation T of the Board of Governors of the Federal Reserve System;(B) the account is not used in any way for the purpose of evading or circumventing any regulation of the Exchange or of the Board of Governors of the Federal Reserve System and Rules 400 through 406 under the Exchange Act and Rules 41.42 through 41.48 under the CEA; and(C) the amount of any deficiency between the equity in the account and the margin required by the other provisions of this Rule shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements.(The term "nonpurpose credit" means an extension of credit other than "purpose credit", as defined in Section 220.2 of Regulation T of the Board of Governors of the Federal Reserve System.)(8) Shelf-Registered, Control and Restricted Securities(A) Shelf-Registered Securities
The equity to be maintained in margin accounts of customers for securities which are the subject of a current and effective registration for a delayed offering (shelf-registered securities) shall be at least the amount of margin required by section (c) of this Rule, provided the member organization:(i) obtains a current prospectus in effect with the Securities and Exchange Commission, meeting the requirements of section 10 of the Securities Act of 1933, covering such securities;(ii) has no reason to believe the Registration Statement is not in effect or that the issuer has been delinquent in filing such periodic reports as may be required of it with the Securities and Exchange Commission and is satisfied that such registration will be kept in effect and that the prospectus will be maintained on a current basis; and(iii) retains a copy of such Registration Statement, including the prospectus, in an easily accessible place in its files.Shelf-registered securities which do not meet all the conditions prescribed above shall have no value for purposes of this Rule.
(Also see paragraph (e)(8)(C).)(B) Control and Restricted Securities
The equity in accounts of customers for control securities and other restricted securities of issuers who continue to maintain a consistent history of filing annual and periodic reports in timely fashion pursuant to the formal continuous disclosure system under the Securities Exchange Act of 1934, which are subject to Rule 144 or 145(d) of the Securities Act of 1933, shall be 40% of the current market value of such securities "long" in the account, provided the member organization:(i) in computing Net Capital under Rule 325, deducts any margin deficiencies in customers' accounts based upon a margin requirement as specified in sub-paragraph (C)(iv) of this sub-section (e)(8) for such securities and values only that amount of such securities which are then saleable under Rule 144 or 145(d) of the Securities Act of 1933 in conformity with all of the applicable terms and conditions thereof, for purposes of determining such deficiencies; and(ii) makes volume computations necessary to determine the amount of securities then saleable under Rule 144 or 145(d) of the Securities Act of 1933 on a weekly basis or at such frequency as the member organization and/or the Exchange may deem appropriate under the circumstances.(Also see paragraph (e)(8)(C).)(C) Additional Requirements on Shelf-Registered Securities and Control and Restricted Securities
A member organization extending credit on shelf-registered, control and other restricted securities in margin accounts of customers shall be subject to the following additional requirements:(i) The Exchange may at any time require reports from member organizations showing relevant information as to the amount of credit extended on shelf-registered, control and restricted securities and the amount, if any, deducted from Net Capital due to such security positions.(ii) The greater of the aggregate credit agreed, in writing, to be or actually extended to all customers on control and restricted securities of any one issue that exceeds 10% of the member organization's excess Net Capital shall be deducted from Net Capital for purposes of determining a member organization's status under Rule 326. The amount of such aggregate credit extended, which has been deducted in computing Net Capital under Rule 325, need not be included in this calculation. The Exchange, upon written application, may reduce the deduction to Net Capital under Rule 326to 25% of such aggregate credit extended on those positions that exceed 10% but are less than 15% of the member organization's excess Net Capital.(iii) The aggregate credit extended on all control and restricted securities reduced by the amount of credit extended which has been deducted in computing Net Capital under Rule 325shall be deducted from Net Capital on the following basis for purposes of determining a member organization's status under Rule 326:(1) To the extent such net amount of credit extended does not exceed 50% of a member organization's excess Net Capital, 25% of such net amount of credit extended, and(2) 100% of such net amount of credit extended which exceeds 50% of a member organization's excess Net Capital.(iv) Concentration Reduction
A concentration exists whenever the aggregate position in control and restricted securities of any one issue, excluding "excess securities" (as defined below), exceeds (1) 10% of the outstanding shares or (2) 100% of the average weekly volume during the preceding three month period. Where a concentration exists, for purposes of computing sub-paragraph (B)(i) of this sub-section (e)(8), the margin requirement on such securities shall be, based on the greater of (1) or (2) above, as specified below:
Percent of Outstanding Shares or Percent of Average Weekly Volume Margin Requirement Up to 10% Up to 100% 25% Over 10% and under 15% Over 100% and under 200% 30% 15% and under 20% 200% and under 300% 45% 20% and under 25% 300% and under 400% 60% 25% and under 30% 400% and under 500% 75% 30% and above 500% and above 100%
For purposes of this sub-paragraph (e)(8)(C)(iv), "excess securities" shall mean the amount of securities, if any, by which the aggregate position in control and restricted securities of any one issue exceeds the aggregate amount of securities that would be required to support the aggregate credit extended on such control and restricted securities if the applicable margin requirement were 50%.(v) The amount to be deducted from Net Capital for purposes of determining a member organization's status under Rule 326, pursuant to this paragraph (e)(8)(C), shall not exceed 100% of the aggregate credit extended reduced by any amount deducted in computing Net Capital under Rule 325.(D) Restricted Securities
Securities either:(i) then saleable pursuant to the terms and conditions of Rule 144(k) under the Securities Act of 1933, or(ii) then saleable pursuant to the terms and conditions of Rule 145(d)(2) or (d)(3) under such Act, shall not be subject to the provisions of this sub-section (e)(8), provided that the issuer continues to maintain a consistent history of filing annual and periodic reports in timely fashion pursuant to the formal continuous disclosure system under the Securities Exchange Act of 1934.(f) Other Provisions(1) Determination of Value for Margin Purposes
Active securities dealt in on a national securities exchange shall, for margin purposes, be valued at current market prices. Other securities shall be valued conservatively in view of current market prices and the amount which might be realized upon liquidation. Substantial additional margin must be required in all cases where the securities carried in "long" or "short" positions are subject to unusually rapid or violent changes in value, or do not have an active market on a national securities exchange, or where the amount carried is such that the position(s) cannot be liquidated promptly.(2) Puts, Calls, Other Options, Currency Warrants, Currency Index Warrants and Stock Index Warrants(A) Except as provided below, and in the case of a put, call, index stock group option, or stock index warrant with a remaining period to expiration exceeding 9 months, no put, call, currency warrant, currency index warrant or stock index warrant carried for a customer shall be considered of any value for the purpose of computing the margin to be maintained in the account of such customer.(B) The issuance, guarantee or sale (other than a "long" sale) for a customer of a put, a call, a currency warrant, a currency index warrant or a stock index warrant shall be considered a security transaction subject to section (b) of this Rule.(C) For purposes of this sub-section (f)(2), obligations issued by the United States Government shall be referred to as United States Government obligations. Mortgage pass-through obligations guaranteed as to timely payment of principal and interest by the Government National Mortgage Association shall be referred to as GNMA obligations.
The terms "current market value" or "current market price" of an option, currency warrant, currency index warrant or stock index warrant are as defined in Section 220.2 of Regulation T of the Board of Governors of the Federal Reserve System.
The term "exercise settlement amount" shall mean the difference between the "aggregate exercise price" and the "aggregate current index value" (as such terms are defined in the pertinent By-Laws of the Options Clearing Corporation).
The term "stock option (contract)" shall mean an option contract on a single stock. The term "index stock group option (contract)" shall mean an option contract on an index stock group.
The terms "currency warrant", "currency index warrant", "index currency group", "stock index warrant" and, in respect of stock index warrants, "industry index stock group" shall have the meanings that paragraph (a) of Rule 414(Index and Currency Warrants) assigns to them.
The terms "call" and "put" as used in connection with currency, currency index or stock index warrant mean a warrant structured as a "call" or "put" (as appropriate) on the underlying currency, index currency group or index stock group (as the case may be).
Except where the context otherwise requires, the definitions contained in section (b) of Rule 700, "Applicability, Definitions and References", shall apply to the terms used in this sub-section (f)(2).
When used in respect of a currency index warrant or a stock index warrant, the term "index group value" shall mean $1.00 (1) multiplied by the numerical value reported for the index that is derived from the market prices of the currencies in the index currency group or the stocks in the index stock group and (2) divided by the applicable divisor stated in the prospectus (if any).
A "registered clearing agency" shall mean a clearing agency as defined in Section 3(a)(23) of the Exchange Act that is registered with the Securities and Exchange Commission pursuant to Section 17A(b)(2) of the Act.
The term "underlying component" shall mean in the case of stock, the equivalent number of shares; industry and broad index stock groups, the current index group value and the applicable index multiplier; U.S. Treasury bills, notes and bonds, the underlying principal amount; foreign currencies, the units per foreign currency contract; and interest rate contracts, the interest rate measure based on the yield of U.S. Treasury bills, notes or bonds and the applicable multiplier. The term "interest rate measure" represents, in the case of short term U.S. Treasury bills, the annualized discount yield of a specific issue multiplied by ten or, in the case of long term U.S. Treasury notes and bonds, the average of the yield to maturity of the specific issues multiplied by ten.
The term "butterfly spread" means an aggregation of positions in three series of either puts or calls, structured as either: (A) a "long butterfly spread" in which two short options in the same series are offset by one long option with a higher exercise price and one long option with a lower exercise price or (B) a "short butterfly spread" in which two long options in the same series offset one short option with a higher exercise price and one short option with a lower exercise price, all of which have the same contract size, underlying component or index and time of expiration, are and based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, and the exercise prices are in ascending order.
The term "box spread" means an aggregation of positions in a long call and short put with the same exercise price ("buy side") coupled with a long put and short call with the same exercise price ("sell side") structured as: (A) a "long box spread" in which the sell side exercise price exceeds the buy side exercise price or, (B) a "short box spread" in which the buy side exercise price exceeds the sell side exercise price, all of which have the same contract size, underlying component or index and time of expiration, and are based on the same aggregate current underlying value.
The term "calendar spread" or "time spread" means the sale of one option and the simultaneous purchase of another option of the same type, both specifying the same underlying component with the same exercise price or different exercise prices, where the "long" option expires after the "short" option.
The term "long condor spread" means an aggregation of positions in four series of either puts or calls, structured as a long option with the lowest exercise price, two short options with the next two consecutively higher exercise prices and a long option with the highest exercise price, all of which have the same contract size, underlying component or index and time of expiration, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, and the exercise prices are in consecutive order. This strategy can also be considered as a combination of two long butterfly spreads, as defined in this subsection (f)(2)(C).
The term "short iron butterfly spread" means an aggregation of positions in two series of puts and two series of calls, structured as a short put and a short call with the same exercise price, offset by a long put with a lower exercise price and a long call with a higher exercise price, all of which have the same contract size, underlying component or index and time of expiration, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, and the exercise prices are in consecutive order. This strategy can also be considered as a combination of one long butterfly spread and one short box spread, as defined in this subsection (f)(2)(C).
The term "short iron condor spread"" means an aggregation of positions in two series of puts and two series of calls, structured as a long put with the lowest exercise price, a short put and a short call with the next two consecutively higher exercise prices, and a long call with the highest exercise price, all of which have the same contract size, underlying component or index and time of expiration, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, and the exercise prices are in consecutive order. This strategy can also be considered a combination of two long butterfly spreads and one short box spread, as defined in this subsection (f)(2)(C).
The term "long calendar butterfly spread" means an aggregation of positions in three series of either puts or calls, structured as two short options with the same exercise price, offset by a long option with a lower exercise price and a long option with a higher exercise price, all of which have the same contract size, underlying component or index, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, the exercise prices are in consecutive order, and one long option expires after the other three options expire concurrently. However, a long calendar butterfly spread cannot be composed of cash-settled, European style index options. This strategy can also be considered a combination of one long calendar spread and one long butterfly spread, as defined in this subsection (f)(2)(C).
The term "long calendar condor spread" means an aggregation of positions in four series of either puts or calls, structured as a long option with the lowest exercise price, two short options with the next two consecutively higher exercise prices and a long option with the highest exercise price, all of which have the same contract size, underlying component or index, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, the exercise prices are in consecutive order, and one long option expires after the other three options expire concurrently. However, a long calendar condor spread cannot be composed of cash-settled, European style index options. This strategy can also be considered a combination of one long calendar spread and two long butterfly spreads, as defined in this subsection (f)(2)(C).
The term "short calendar iron butterfly spread" means an aggregation of positions in two series of puts and two series of calls, structured as a short put and a short call with the same exercise price, offset by a long put with a lower exercise price and a long call with a higher exercise price, all of which have the same contract size, underlying component or index, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, the exercise prices are in consecutive order, and one long option expires after the other three options expire concurrently. However, a short calendar iron butterfly spread cannot be composed of cash-settled, European style index options. This strategy can also be considered a combination of one long calendar spread, one long butterfly spread, and one short box spread, as defined in this subsection (f)(2)(C).
The term "short calendar iron condor spread" means an aggregation of positions in two series of puts and two series of calls, structured as a long put with the lowest exercise price, a short put and a short call with the next two consecutively higher exercise prices and a long call with the highest exercise price, all of which have the same contract size, underlying component or index, are based on the same aggregate current underlying value, where the interval between the exercise price of each series is equal, the exercise prices are in consecutive order, and one long option expires after the other three options expire concurrently. However, a short calendar iron condor spread cannot be composed of cash-settled, European style index options. This strategy can also be considered a combination of one long calendar spread, two long butterfly spreads, and one short box spread, as defined in this subsection (f)(2)(C).
The term "escrow agreement", when used in connection with cash settled calls, puts, currency warrants, currency index warrants or stock index warrants, carried short, means any agreement issued in a form acceptable to the Exchange under which a bank holding cash, cash equivalents, one or more qualified equity securities or a combination thereof in the case of a call or warrant or cash, cash equivalents or a combination thereof in the case of a put or warrant is obligated (in the case of an option) to pay the creditor the exercise settlement amount in the event an option is assigned an exercise notice or, (in the case of a warrant) the funds sufficient to purchase a warrant sold short in the event of a buy-in.
In the case of any put, call, currency warrant, currency index warrant, or stock index warrant carried "long" in a customer's account which expires in 9 months or less, initial margin must be deposited and maintained equal to at least 100% of the purchase price of the option or warrant.
Long Listed Option or Warrant With An Expiration Exceeding 9 Months.
In the case of a put, call, index stock group option, or stock index warrant that is issued by a registered clearing agency, margin must be deposited and maintained equal to at least 75% of the current market value of the option or warrant; provided the option or warrant has a remaining period to expiration exceeding 9 months.
Long OTC Option or Warrant With An Expiration Exceeding 9 Months.
In the case of a put, call, index stock group option, or stock index warrant carried long that is not issued by a registered clearing agency, margin must be deposited and maintained equal to at least 75% of the option's or warrant's "in-the-money" amount plus 100% of the amount, if any, by which the current market value of the option or warrant exceeds its "in-the-money" amount provided the option or warrant:(1) is guaranteed by the carrying broker-dealer,(2) has an American style exercise provision, and(3) has a remaining period to expiration exceeding 9 months.(D) The margin required on any put, call, currency warrant, currency index warrant, or stock index warrant issued, guaranteed or carried "short" in a customer's account shall be:(i) In the case of puts and calls issued by a registered clearing agency, 100% of the current market value of the option plus the percentage of the current value of the underlying component specified in column II of this subsection (D)(i) below. In the case of currency warrants, currency index warrants and stock index warrants, 100% of the current market value of each such warrant plus the percentage of the warrant's current "underlying component value" (as column IV of this subsection (D)(i) describes) specified in column II of this subsection (D)(i) below.
The minimum margin on any put, call, currency warrant, currency index warrant or stock index warrant issued, guaranteed or carried "short" in a customer's account may be reduced by any "out-of-the-money amount" (as defined in this subsection (D)(i) below), but shall not be less than 100% of the current market value of the option or warrant plus the percentage of the current value of the underlying component specified in column III of this subsection (D)(i) below, except in the case of any put issued, guaranteed or carried "short" in a customer's account. Margin on such put option contract shall not be less than the current value of the put option plus the percentage of the put option's exercise price as specified in column III of this subsection (D)(i).
I
Type of OptionII
Initial and/or Maintenance Margin RequiredIII
Minimum Margin RequiredIV
Underlying Component Value(1) Stock 20% 10% The equivalent number of shares at current market prices (2) Option on Industry index stock group 20% 10% The product of the current index group value and the applicable index multiplier (3) Option on Broad index stock group 15% 10% The product of the current index group value and the applicable index multiplier (4) U.S. Treasury bills 95 days or less to maturity .35% 1/2% The underlying principal amount (5) U.S. Treasury notes .3% 1/2% The underlying principal amount (6) U.S. Treasury bonds 3.5% 1/2% The underlying principal amount (7) Foreign Currency Options and Warrants The product of units per foreign currency contract and the closing spot price. Australian dollar 4% 3/4% British pound 4% 3/4% Canadian dollars 1% 3/4% German marks 4% 3/4% European Currency Unit 4% 3/4% French franc 4% 3/4% Japanese yen 4% 3/4% Swiss franc 4% 3/4% (8) Currency Index warrants * * The product of the index group value and the applicable index multiplier (9) Stock Index Warrant on broad index stock group 15% 10% The product of the index group value and the applicable index multiplier (10) Stock Index Warrant on Industry index stock group 20% 10% The product of the index group value and the applicable index mulitpler (11) Interest Rate Contracts 10% 5% The product of the current interest rate measure and the applicable multiplier
*Subject to the approval of the Securities and Exchange Commission, the Exchange shall determine applicable initial, maintenance and minimum margin requirements for currency index warrants on a case-by-case basis.
For the purposes of this subsection (D)(i), "out-of-the-money amounts" are determined as follows:
Option or Warrant Issue Call Put Stock options Any excess of the aggregate exercise price of the option over the current market value of the equivalent number of shares of the underlying security. Any excess of the current market value of the equivalent number of shares of the underlying security over the aggregate exercise price of the option. U.S. Treasury options Any excess of the aggregate exercise price of the option over the current market value of the underlying principal amount. Any excess of the current market value of the underlying principal amount over the aggregate exercise price of the option. Index stock group options, currency index warrants and stock index warrants Any excess of the aggregate exercise price of the option or warrant over the product of the current index group value and the applicable multiplier. Any excess of the product of the current index group value and the applicable multiplier over the aggregate exercise price of the option or warrant. Foreign currency options and warrants Any excess of the aggregate exercise price of the option or warrant over the product of units per foreign currency contract and the closing spot prices. The product of units per foreign currency contract and the closing spot prices over the aggregate price of the option or warrant. Interest rate options Any excess of the aggregate exercise price of the option over the product of the current interest rate measure value and the applicable multiplier. Any excess of the product of the current interest rate measure value and the applicable multiplier over the aggregate exercise price of the option.
If the option or warrant contract provides for the delivery of obligations with different maturity dates or coupon rates, the computation of the "out-of-the-money amount" if any, where required by this Rule, shall be made in such a manner as to result in the highest margin requirement on the short option or warrant position.(ii) In the case of puts and calls issued by a registered clearing agency which represent options on GNMA obligations in the principal amount of $100,000, 130% of the current market value of the option plus $1,500, except that the margin required need not exceed $5,000 plus the current market value of the option.(iii) In the case of puts and calls not issued by a registered clearing agency the percentage of the current value of the underlying component and the applicable multiplier if any, specified in column II of this subsection (f)(2)(D)(iii) below, plus any "in-the-money amount" (as defined in this subsection (f)(2)(D)(iii).
In the case of options not issued by a registered clearing agency, the margin on any put or call issued, guaranteed or carried "short" in a customer's account may be reduced by any "out-of-the-money amount" (as defined in subsection (f)(2)(D)(i)), but shall not be less than the percentage of the current value of the underlying component and the applicable multiplier if any, specified in column III of this subsection (f)(2)(iii) below, except in the case of any put issued, guaranteed or carried "short" in a customer's account. Margin on such put option contract shall not be less than the percentage of the put option's exercise price as specified in column III of this subsection (f)(2)(iii) below.
I
Type of OptionII
Initial and/or Maintenance Margin RequiredIII
Minimum Margin RequiredIV
Underlying Component Value(1) Stock and convertible corporate debt securities 30% 10% The equivalent number of shares at current market prices for stocks or the underlying principal amount for convertible corporate debt securities (2) Industry index stock group 30% 10% The product of the current index group value and the applicable index multiplier (3) Broad index stock group 20% 10% The product of the current index group value and the applicable index multiplier (4) U.S. Government or U.S. Government Agency debt securities other than those exempted by Rule 3a12-7 under the Securities Exchange Act of 1934* 5% 3% The underlying principal amount (5) Corporate debt securities registered on a national securities exchange and marginable OTC corporate debt securities as defined in Regulation T Section 220.2 15% 5% The underlying principal amount (6) All other OTC options not covered above 45% 20% The underlying principal amount
*Option contracts under category (4) must be for a principal amount of not less than $500,000.
For the purpose of this subsection (f)(2)(D)(iii), "in-the-money amounts" are determined as follows:
Option Issue Call Put Stock options Any excess of the current market value of the equivalent number of shares of the underlying security over the aggregate exercise price of the option. Any excess of the aggregate exercise price of the option over the current market value of the equivalent number of shares of the underlying security. Index stock group options Any excess of the product of the current index group value and the applicable multiplier over the aggregate exercise price of the option. Any excess of the aggregate exercise price of the option over the product of the current index group value and the applicable multiplier. U.S. Government mortgaged related or corporate debt securities options Any excess of the current value of the underlying principal amount over the aggregate exercise price of the option. Any excess of the aggregate exercise price of the option over the current value of the underlying principal amount. (iv) Puts and calls not issued by a registered clearing agency and representing options on U.S. Government and U.S. Government Agency debt securities that qualify for exemption pursuant to Rule 3a12-7 under the Securities Exchange Act of 1934, must be for a principal amount of not less than $500,000, and shall be subject to the following requirements:(1) For exempt accounts, 3% of the current value of the underlying principal amount on thirty (30) year U.S. Treasury bonds and non-mortgage backed U.S. Government agency debt securities; and 2% of the current value of the underlying principal amount on all other U.S. Government and U.S. Government agency debt securities, plus any "in-the-money amount" (as defined in subsection (f)(2)(D)(iii)) or minus any "out-of-the-money amount" (as defined in subsection (f)(2)(D)(i)). The amount of any deficiency between the equity in the account and the margin required shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements on the following basis:(a) On any one account or group of commonly controlled accounts to the extent such deficiency exceeds 5% of a member organization's tentative Net Capital (net capital before deductions on securities), 100% of such excess amount, and(b) On all accounts combined to the extent such deficiency exceeds 25% of a member organization's tentative Net Capital, 100% of such excess amount, reduced by any amount already deducted pursuant to (a) above.(2) For non-exempt accounts, 5% of the current value of the underlying principal amount on thirty (30) year U.S. Treasury bonds and non-mortgage backed U.S. Government agency debt securities; and 3% of the current value of the underlying principal amount on all other U.S. Government and U.S. Government agency debt securities, plus any "in-the-money amount" or minus any "out-of-the-money amount", provided the minimum margin shall not be less than 1% of the current value of the underlying principal amount.For purposes of this subsection (f)(2)(D)(iv), an "exempt account" shall be defined as a member organization, non-member broker/dealer, "designated account", any person having net tangible assets of at least sixteen million dollars or in the case of mortgage-related debt securities transactions an independently audited mortgage banker with both more than $1.5 million of net current assets (which may include 3/4 of 1% maximum allowance on loan servicing portfolios) and with more than $1.5 million of net worth.(E)(i) Each put or call shall be margined separately and any difference between the current value of the underlying component and the exercise price of a put or call shall be considered to be of value only in providing the amount of margin required on that particular put or call. Substantial additional margin must be required on options issued, guaranteed or carried "short" with an unusually long period of time to expiration, or written on securities which are subject to unusually rapid or violent changes in value, or which do not have an active market, or where the securities subject to the option cannot be liquidated promptly.(ii) No margin need be required on any "covered" put or call.(F)(i) Where both a put and call specify the same underlying component are issued by a registered clearing agency and are carried "short" for a customer, the amount of margin required shall be the margin on the put or call, whichever is greater, as required pursuant to (f)(2)(D)(i) above, plus the current market value of the other option.
When:(1) a currency call warrant position is carried "short" for a customer account and is offset by a "short" currency put warrant and/or currency put option position;(2) a currency put warrant position is carried "short" for a customer account and is offset by a "short" currency call warrant and/or currency put option position;(3) a currency index call warrant position is carried "short" for a customer account and is offset by a "short" currency index put warrant and/or currency put option position;(4) a currency index put warrant position is carried "short" for a customer account and is offset by a "short" currency index call warrant and/or currency index call option position;(5) a stock index call warrant position is carried "short" for a customer account and is offset by a "short" stock index put warrant and/or stock index put option position;(6) a stock index put warrant position is carried "short" for a customer account and is offset by a "short" stock index call warrant and/or stock index call option position;(7) a broad index stock group call option position is carried "short" for a customer account and is offset by a "short" broad index stock group put option position; or(8) a broad index stock group put option position is carried "short" for a customer account and is offset by a "short" broad index stock group call option positionand the offset position is of equivalent underlying value on the same currency, currency index or index stock group, as appropriate, then the amount of margin required shall be the margin on the put position or the call position, whichever is greater, as required pursuant to (D)(i) above, plus the current market value of the other warrant and/or option position.(ii) Where either or both the put and call specifying the same underlying component are not issued by a registered clearing agency and are issued, guaranteed or carried "short" for a customer by the same broker-dealer (as defined in subsection (f)(2)(G) below), the amount of margin required shall be the margin on the put or call, whichever is greater, as required pursuant to (f)(2)(D)(iii) and (D)(iv) above, plus any unrealized loss on the other option. Where either or both the put or call are not issued, guaranteed or carried by the same broker-dealer then the put and call must be margined separately pursuant to subsections (f)(2)(D)(iii) and (D)(iv) above, however, the minimum margin shall not apply to the other option.(iii) If both a put and call for the same GNMA obligation in the principal amount of $100,000 are issued, guaranteed or carried "short" for a customer, the amount of margin required shall be the margin on the put or call, whichever is greater, as required pursuant to (f)(2)(D)(ii) above, plus the current market value of the other option.(G)(i) Where a call that is issued by a registered clearing agency is carried "long" for a customer's account and the account is also "short" a call issued by a registered clearing agency, expiring on or before the date of expiration of the "long" listed call and specifying the same underlying component, the margin required on the "short" call shall be the lower of (1) the margin required pursuant to (f)(2)(D)(i) above or (2) the amount, if any, by which the exercise price of the "long" call exceeds the exercise price of the "short" call.
Where a put that is issued by a registered clearing agency is carried "long" for a customer's account and the account is also "short" a put issued by a registered clearing agency, expiring on or before the date of expiration of the "long" listed put and specifying the same underlying component, the margin required on the "short" put shall be the lower of (1) the margin required pursuant to (f)(2)(D)(i) above or (2) the amount, if any, by which the exercise price of the "short" put exceeds the exercise price of the "long" put.(ii) Where a call warrant issued on an underlying currency, index currency group or index stock group is carried "long" for a customer's account and the account is also "short" a registered clearing agency-issued call option, and/or a call warrant, on the same underlying currency, index currency group, or index stock group, which "short" call position(s) expire on or before the date of expiration of the "long" call position and specify the same number of units of the same underlying currency or the same index multiplier for the same index currency group or index stock group, as the case may be, the margin required on the "short" call(s) shall be the lesser of (a) the margin required by (D)(i) above or (b) the amount, if any, by which the exercise price of the "long" call exceeds the exercise price(s) of the "short" call(s).
Where a put warrant issued on an underlying currency, index currency group or index stock group is carried "long" for a customer's account and the account is also "short" a registered clearing agency-issued put option, and/or a put warrant, on the same underlying currency, index currency group, or index stock group, which "short" put position(s) expire on or before the date of expiration of the "long" put position and specify the same number of units of the same underlying currency or the same index multiplier for the same index currency group or index stock group, as the case may be, the margin required on the "short" put(s) shall be the lesser of (a) the margin required by (D)(i) above or (b) the amount, if any, by which the exercise price(s) of the "short" put(s) exceed the exercise price of the "long" put.(iii) Where a call that is issued by a registered clearing agency is carried "long" for a customer's account and the account is also "short" a call issued by a registered clearing agency, expiring on or before the date of expiration of the "long" listed call and written on the same GNMA obligation in the principal amount of $100,000, the margin required on the "short" call shall be the lower of (1) the margin required pursuant to sub-paragraph (f)(2)(D)(ii) above or (2) the amount, if any, by which the exercise price of the "long" call exceeds the exercise price of the "short" call multiplied by the appropriate multiplier factor set forth below.
Where a put that is issued by a registered clearing agency is carried "long" for a customer's account and the account is also "short" a put issued by a registered clearing agency, expiring on or before the date of expiration of the "long" listed put and written on the same GNMA obligation in the principal amount of $100,000, the margin required on the "short" put shall be the lower of (1) the margin required pursuant to sub-paragraph (f)(2)(D)(ii) above or (2) the amount, if any, by which the exercise price of the "short" put exceeds the exercise price of the "long" put multiplied by the appropriate multiplier factor set forth below.
For purposes of this subparagraph (f)(2)(G)(iii), the multiplier factor to be applied shall depend on the then current highest qualifying rate as defined by the rules of the national securities exchange or national securities association on or through which the option is listed or traded. If the then current highest qualifying rate is less than 8%, the multiplier factor shall be 1; if the then current highest qualifying rate is greater than or equal to 8% but less than 10%, the multiplier factor shall be 1.2; if the then current highest qualifying rate is greater than or equal to 10% but less than 12%, the multiplier factor shall be 1.4; if the then current highest qualifying rate is greater than or equal to 12% but less than 14%, the multiplier factor shall be 1.5; if the then current highest qualifying rate is greater than or equal to 14% but less than 16%, the multiplier factor shall be 1.6; and if the then current highest qualifying rate is greater than or equal to 16% but less than or equal to 18%, the multiplier factor shall be 1.7. The multiplier factor or factors for higher qualifying rates shall be established by the Exchange as required.(iv) Where a call that is issued by a broker-dealer is carried "long" for a customer's account and the account is also "short" a call issued by the same broker-dealer, expiring on or before the date of expiration of the "long" call and specifying the same underlying component, the margin required on the short "call" shall be the lower of (1) the margin required pursuant to subsections (f)(2)(D)(iii) or (D)(iv) above or (2) the amount, if any, by which the exercise price of the "long" call exceeds the exercise price of the "short" call.
Where a put that is issued by a broker-dealer is carried "long" for a customer's account and the account is "short" a put issued by the same broker-dealer, expiring on or before the date of expiration of the "long" put and specifying the same underlying component, the margin required on the "short" put shall be the lower of (1) the margin required pursuant to subsections (f)(2)(D)(iii) or (D)(iv) above or (2) the amount, if any, by which the exercise price of the "short" put exceeds the exercise price of the "long" put.
A "long" call and a "short" call or a long "put" and a "short" put are deemed to be issued by the same broker-dealer when either the broker-dealer has issued or guaranteed both options or issued or guaranteed one of the options and the other option was issued by a registered clearing agency on behalf of that broker-dealer. If the options are not issued by the same broker-dealer then the "short" put or "short" call must be margined separately pursuant to subsections (f)(2)(D)(iii) or (D)(iv) above.(v) The following requirements set forth the minimum amount of margin which must be maintained in margin accounts of customers having positions in components underlying options, and stock index warrants, when such components are held in conjunction with certain positions in the overlying option or warrant. The option or warrant must be issued by a registered clearing agency or guaranteed by the carrying broker-dealer. In the case of a call or warrant carried in a short position, a related long position in the underlying component shall be valued at no more than the call/warrant exercise price for margin equity purposes.
Long Option or Warrant Offset
When a component underlying an option or warrant is carried long (short) in an account in which there is also carried a long put (call) or warrant specifying equivalent units of the underlying component, the minimum amount of margin which must be maintained on the underlying component is 10% of the option/warrant exercise price plus the "out-of-the-money" amount, not to exceed the minimum maintenance required pursuant to paragraph (c) of this Rule.
Conversions:
When a call or warrant carried in a short position is covered by a long position in equivalent units of the underlying component and there is also carried with a long put or warrant specifying equivalent units of the same underlying component and having the same exercise price and expiration date as the short call or warrant, the minimum amount of margin which must be maintained for the underlying component shall be 10% of the exercise price.
Reverse Conversions:
When a put or warrant carried in a short position is covered by a short position in equivalent units of the underlying component and is also carried with a long call or warrant specifying equivalent units of the same underlying component and having the same exercise price and expiration date as the short put or warrant, the minimum amount of margin which must be maintained for the underlying component shall be 10% of the exercise price plus the amount by which the exercise price of the put exceeds the current market value of the underlying, if any.
Collars:
When a call or warrant carried in a short position is covered by a long position in equivalent units of the underlying component and is also carried with a long put or warrant specifying equivalent units of the same underlying component and having a lower exercise price. and the same expiration date as the short call/warrant, the minimum amount of margin which must be maintained for the underlying component shall be the lesser of 10% of the exercise price of the put plus the put "out-of-the-money" amount or 25% of the call exercise price.
Butterfly Spread:
This subparagraph applies to a butterfly spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer.(1) With respect to a long butterfly spread as defined in subparagraph f(2)(C) of this Rule, the net debit must be paid in full.(2) With respect to a short butterfly spread as defined in subparagraph f(2)(C) of this Rule, margin must be deposited and maintained equal to at least the amount of the difference between the two lowest exercise prices with respect to short butterfly spreads comprised of calls or the difference between the two highest exercise prices with respect to short butterfly spreads, comprised of puts. The net proceeds from the sale of short option components may be applied to the requirement.Box Spread:
This subparagraph applies to box spreads as defined in subparagraph f(2)(C) of this Rule, where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer.(1) With respect to a long box spread as defined in subparagraph f(2)(C) of this Rule the net debit must be paid in full.(2) With respect to a short box spread as defined in subparagraph f(2)(C) of this Rule, margin must be deposited and maintained equal, at least the amount of the aggregate difference between the exercise prices. The net proceeds from the sale of short option components may be applied to the requirement.Long Box Spread in European Style Options:
With respect to a long box spread as defined in subparagraph f(2)(C) of this Rule, in which all component options have a European style exercise provision and are issued by a registered clearing agency or guaranteed by the carrying broker-dealer, margin must be deposited and maintained equal to at least 50% of the difference in the exercise prices. The net proceeds from the sale of short option components may be applied to the requirement. For margin purposes, the long box spread may be valued at an amount not to exceed 100% of the aggregate difference in the exercise prices.
Long Condor Spread:
This subparagraph applies to a long condor spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a long condor spread as defined in subparagraph (f)(2)(C) of this Rule, the net debit must be paid in full.
Short Iron Butterfly Spread:
This subparagraph applies to a short iron butterfly spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a short iron butterfly spread as defined in subparagraph (f)(2)(C) of this Rule, margin must be deposited and maintained equal to at least the amount of the exercise price interval. The net proceeds from the sale of short option components may be applied to the requirement.
Short Iron Condor Spread:
This subparagraph applies to a short iron condor spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a short iron condor spread as defined in subparagraph (f)(2)(C) of this Rule, margin must be deposited and maintained equal to at least the amount of the exercise price interval. The net proceeds from the sale of short option components may be applied to the requirement.
Long Calendar Butterfly Spread:
This subparagraph applies to a long calendar butterfly spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a long calendar butterfly spread as defined in subparagraph (f)(2)(C) of this Rule, the net debit must be paid in full.
Long Calendar Condor Spread:
This subparagraph applies to a long calendar condor spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a long calendar condor spread as defined in subparagraph (f)(2)(C) of this Rule, the net debit must be paid in full.
Short Calendar Iron Butterfly Spread:
This subparagraph applies to a short calendar iron butterfly spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a short calendar iron butterfly spread as defined in subparagraph (f)(2)(C) of this Rule, margin must be deposited and maintained equal to at least the amount of the exercise price interval. The net proceeds from the sale of short option components may be applied to the requirement.
Short Calendar Iron Condor Spread:
This subparagraph applies to a short calendar iron condor spread as defined in subparagraph (f)(2)(C) of this Rule where all option positions are issued by a registered clearing agency or guaranteed by the carrying broker-dealer. With respect to a short calendar iron condor spread as defined in subparagraph (f)(2)(C) of this Rule, margin must be deposited and maintained equal to at least the amount of the exercise price interval. The net proceeds from the sale of short option components may be applied to the requirement.(H)(i) Where a call is issued, guaranteed or carried "short" against an existing net "long" position in the security under option or in any security immediately exchangeable or convertible, other than warrants, without restriction including the payment of money into the security under option, no margin need be required on the call, provided (1) such net long position is adequately margined in accordance with this Rule and (2) the right to exchange or convert the net "long" position does not expire on or before the date of expiration of the "short" call. Where a put is issued, guaranteed or carried "short" against an existing net "short" position in the security under option, no margin need be required on the put, provided such net "short" position is adequately margined in accordance with this Rule.(ii) Where a call representing stock options is issued, guaranteed or carried "short" against an existing net "long" position in a warrant convertible into the underlying security under option, margin shall be required on the call equal to any amount by which the conversion price of the "long" warrant exceeds the exercise price of the call, provided (1) such net long position is adequately margined in accordance with this Rule and (2) the right to convert the net "long" position does not expire on or before the date of expiration of the "short" call. However, when a payment of money is required to convert the "long" warrant such warrant shall have no value for purposes of this Rule.(iii) In determining net "long" and net "short" positions, for purposes of sub-paragraphs (f)(2)(H)(i) and (ii) above, offsetting "long" and "short" positions in exchangeable or convertible securities (including warrants) or in the same security, as discussed in sub-section (e)(1) of this Rule, shall be deducted. In computing margin on such an existing net security position carried against a put or call, the current market price to be used shall not be greater than the exercise price in the case of a call or less than the current market price in the case of a put and the required margin shall be increased by any unrealized loss.(iv) Where a put or call option or stock index warrant is issued, guaranteed or carried "short" in the account of a customer against a letter of guarantee, or in the case of a call, an "escrow receipt", that(1) is in form satisfactory to the Exchange;(2) is issued by a third party custodian bank or trust company (the "custodian");(3) either is held in the account at the time the put or call is written or is received in the account promptly thereafter; and(4) in the case of an escrow receipt, is in compliance with the requirements of Rule 610 of The Options Clearing Corporation.No margin need be required on the put or call.
In the case of a call option or warrant on an index stock group, the letter of guarantee or escrow receipt must certify that the custodian holds for the account of the customer as security for the letter either (1) cash, (2) cash equivalents, (3) one or more qualified securities, or (4) any combination thereof, having an aggregate market value, computed as at the close of business on the day the call is written, of not less than 100% of the aggregate current index value computed as at the same time and that the custodian will promptly pay the member organization the exercise settlement amount in the event the account is assigned an exercise notice. The letter of guarantee or escrow receipt may provide for substitution of qualified securities held as collateral provided that the substitution shall not cause the value of the qualified securities held to be diminished. A qualified security means (1) an equity security, other than a warrant, right or option, that is listed on any national securities exchange, or (2) any equity security, other than a warrant, listed in the current list of Marginable Over-the-Counter Stocks as published by the Board of Governors of the Federal Reserve System.
In the case of a call option contract, the letter of guarantee or escrow receipt must certify that the custodian holds for the account of the customer as security for the letter, the underlying security (or a security immediately convertible into the underlying security without the payment of money) or foreign currency and that the custodian will promptly deliver to the member organization the underlying security or foreign currency in the event the account is assigned an exercise notice.
In the case of a put option contract (including a put on a broad index stock group option) or stock index warrant, the letter of guarantee must certify that the custodian holds for the account of the customer as security for the letter, cash or cash equivalents which have an aggregate market value, computed as at the close of business on the day the put is written, of not less than 100% of the aggregate exercise price of the put and that the guarantor will promptly pay the member organization the exercise settlement amount (in the case of a put on a broad index stock group) or the aggregate exercise price (in the case of any other put on an option contract) in the event the account is assigned an exercise notice. Cash equivalents shall mean securities issued or guaranteed by the United States and having a maturity of one year or less to maturity.(I) When a member or member organization issues or guarantees an option or stock index warrant to receive or deliver securities or foreign currencies for a customer, such option or stock index warrant shall be margined as if it were a put or call.(J) Registered specialists, market makers or traders
Notwithstanding the other provisions of this subsection (f)(2), a member organization may clear and carry the listed option transactions of one or more registered specialists, registered market makers or registered traders in options (whereby registered traders are deemed specialists for all purposes under the Exchange Act pursuant to the rules of a national securities exchange)(hereinafter referred to as "specialist(s)"), upon a "Good Faith" margin basis satisfactory to the concerned parties, provided the "Good Faith" margin requirement is not less than the Net Capital haircut deduction of the member organization carrying the transaction pursuant to Rule 325. In lieu of collecting the "Good Faith" margin requirement, a carrying member organization may elect to deduct in computing its Net Capital the amount of any deficiency between the equity maintained in the account and the "Good Faith" margin required.
For purposes of this paragraph (f)(2)(J), a permitted offset position means, in the case of an option in which a specialist or market maker makes a market, a position in the underlying asset or other related assets, and in the case of other securities in which a specialist or market maker makes a market, a position in options overlying the securities in which a specialist or market maker makes a market. Accordingly, a specialist or market maker in options may establish, on a share-for-share basis, a long or short position in the securities underlying the options in which the specialist or market maker makes a market, and a specialist or market maker in securities other than options may purchase or write options overlying the securities in which the specialist or market maker makes a market, if the account holds the following permitted offset positions:(i) A short option position which is not offset by a long or short option position for an equal or greater number of shares of the same underlying security which is "in the money";(ii) A long option position which is not offset by a long or short option position for an equal or greater number of shares of the same underlying security which is "in the money";(iii) A short option position against which an exercise notice was tendered;(iv) A long option position which was exercised;(v) A net long position in a security (other than an option) in which a specialist makes a market;(vi) A net short position in a security (other than an option) in which the specialist makes a market; or(vii) A specified portfolio type as referred to in SEA Rule 15c3-1-Appendix A.Permitted offset transactions must be effected for specialist or market making purposes such as hedging, risk reduction, rebalancing of positions, liquidation, or accommodation of customer orders, or other similar specialist or market maker purpose. The options specialist or market maker must be able to demonstrate compliance with this provision.
For purposes of this paragraph (f)(2)(J), the term "in the money" means the current market price of the underlying asset or index is not below (with respect to a call option) or above (with respect to a put option) the exercise price of the option; and, the term "overlying option" means a put option purchased or a call option written against a long position in an underlying asset; or a call option purchased or a put option written against a short position in an underlying asset.
Securities, including options, in such accounts shall be valued conservatively in the light of current market prices and the amount which might be realized upon liquidation. Substantial additional margin must be required or excess Net Capital maintained in all cases where the securities carried: (i) are subject to unusually rapid or violent changes in value including volatility in the expiration months of options, (ii) do not have an active market, or (iii) in one or more or all accounts, including proprietary accounts combined, are such that they cannot be liquidated promptly or represent undue concentration of risk in view of the carrying organization's Net Capital and its overall exposure to material loss.(K) The Exchange may at any time impose higher margin requirements in respect to any option or warrant position(s) when it deems such higher margin requirements are appropriate.(L) Exclusive designation
A customer may designate at the time an option order is entered which security held in the account is to serve in lieu of the required margin, if such service is offered by the member organization; or the customer may have a standing agreement with the member organization as to the method to be used for determining on any given day which security position will be used in lieu of the margin to support an option transaction. Any security held in the account which serves in lieu of the required margin for a short put or short call shall be unavailable to support any other option transaction in the account.(M) Cash account transactions
A member organization may make option transactions in a customer's cash account, providing:(i) The transaction is permissible under Section 220.8 of Regulation T of the Board of Governors of the Federal Reserve System; or(ii) Spreads
A European style cash-settled index stock group option or stock index warrant carried in a short position is deemed a covered position, and eligible for the cash account, provided a long position in a European style cash-settled stock group index option, or stock index warrant having the same underling component or index that is based on the same aggregate current underlying value, is held in or purchased for the account on the same day provided:(A) the long position and the short position expire concurrently,(B) the long position is paid in full, and(C) there is held in the account at the time the positions are established, or received into the account promptly thereafter:(1) cash or cash equivalents of not less than any amount by which the exercise price of the long call or call warrant (short put or put warrant) exceeds the exercise price of the short call or call warrant (long put or put warrant), to which requirement of net proceeds from the sale of the short position may be applied, or(2) an escrow agreement.The escrow agreement must certify that the bank holds for the account of the customer as security for the agreement 1) cash, 2) cash equivalents, or 3) a combination thereof having an aggregate market value at the time the positions are established of not less than any amount by which the exercise price of a long call or call warrant (short put or put warrant) exceeds the aggregate exercise price of a short call or call warrant (long put or put warrant) and that the bank will promptly pay the member organization such amount in the event the account is assigned an exercise notice or that the bank will promptly pay the member organization funds sufficient to purchase a warrant sold short in the event of a buy-in.(D) A long warrant may offset a short option contract and a long option contract may offset a short warrant provided they have the same underlying component or index and equivalent aggregate current underlying value.(iii) Long Butterfly Spreads, Short Butterfly Spreads, Long Condor Spreads, Short Iron Butterfly Spreads or Short Iron Condor Spreads
Put or call options carried in a short position are deemed covered positions and eligible for the cash account provided the account contains long positions of the same type which in conjunction with the short options, constitute a long butterfly spread, short butterfly spread, long condor spread, short iron butterfly spread, or short iron condor spread, as defined in subparagraph (f)(2)(C) of this Rule and provided:all component options are listed, or guaranteed by the carrying broker-dealer,all component options are European style,all component options are cash settled,the long options are held in, or purchased for the account on the same day,all component options expire concurrentlywith respect to a long butterfly spread as defined in subparagraph f(2)(C) of this Rule, the net debit is paid in full, andwith respect to a short butterfly spread as defined in subparagraph f(2)(C) of this Rule, are held in the account at the time the positions are established or received into the account promptly thereafter.(1) cash or cash equivalents of not less than the amount of the difference between the two lowest exercise prices with respect to short butterfly spreads comprised of call options or the difference between the two highest exercise prices with respect to short butterfly spreads comprised of put options to which requirement the net proceeds from the sale of short option components may be applied, or(2) an escrow agreement.The escrow agreement must certify that the bank holds for the account of the customer as security for the agreement 1) cash, 2) cash equivalents or 3) a combination thereof having an aggregate market value at the time the positions are established of not less than the amount of the difference between the two lowest exercise prices with respect to short butterfly spreads comprised of calls or the difference between the two highest exercise prices with respect to short butterfly spreads comprised of puts and that the bank will promptly pay the member organization such amount in the event the account is assigned an exercise notice on the call (put) with the lowest (highest) exercise price.(iv) Box Spreads
Puts and calls carried in a short position are deemed covered positions and eligible for the cash account provided the account contains long positions which in conjunction with the short options constitute a box spread as defined in subparagraph f(2)(C) of this Rule provided:all component options are listed, or guaranteed by the carrying broker-dealer,all component options are European style,all component options are cash settled,the long options are held in, or purchased for the account on the same day,all component options expire concurrentlywith respect to a long box spread as defined in subparagraph f(2)(C) of this Rule, the net debit is paid in full, andwith respect to a short box spread as defined in subparagraph of this Rule, there is held in the account at the time the positions are established or received into the account promptly thereafter.(1) cash or cash equivalents of not less than the amount of the difference between the exercise prices, which the net proceeds from the sale of short option components may be applied, or(2) an escrow agreement.The escrow agreement must certify that the bank holds for the account of the customer the security for the agreement 1) cash, 2) cash equivalents or 3) a combination thereof having an aggregate market value at the time the positions are established of not less than the amount of the difference between the exercise prices and that the bank will promptly pay the member organization such amount in the event the account is assigned an exercise notice on either short option.(3) "When Issued" and "When Distributed" Securities(A) Margin Accounts
The margin to be maintained on any transaction or net position in each "when issued" security shall be the same as if such security were issued.
Each position in a "when issued" security shall be margined separately and any unrealized profit shall be of value only in providing the amount of margin required on that particular position.
When an account has a "short" position in a "when issued" security and there are held in the account securities upon which the "when issued" security may be issued, such "short" position shall be marked to the market and the balance in the account shall for the purpose of this Rule be adjusted for any unrealized loss in such "short" position.(B) Cash Accounts
On any transaction or net position resulting from contracts for a "when issued" security in an account other than that of a member organization, non-member broker/dealer, or a "designated account", equity must be maintained equal to the margin required were such transaction or position in a margin account.
On any net position resulting from contracts for a "when issued" security made for or with a non-member broker/dealer, no margin need be required, but such net position must be marked to the market.
On any net position resulting from contracts for a "when issued" security made for a member organization or for or with a "designated account", no margin need be required and such net position need not be marked to the market. However, where such net position is not marked to the market, an amount equal to the loss at the market in such position shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements.
The provisions of this paragraph shall not apply to any position resulting from contracts on a "when issued" basis in a security(i) which is the subject of a primary distribution in connection with a bona fide offering by the issuer to the general public for "cash", or(ii) which is exempt by the Exchange as involving a primary distribution.The term "when issued" as used herein also means "when distributed".(4) Guaranteed Accounts
Any account guaranteed by another account may be consolidated with such other account and the margin to be maintained may be determined on the net position of both accounts, provided the guarantee is in writing and permits the member organization carrying the account, without restriction, to use the money and securities in the guaranteeing account to carry the guaranteed account or to pay any deficit therein; and provided further that such guaranteeing account is not owned directly or indirectly by (a) a partner, member or any stockholder (other than a holder of freely transferable stock only) in the organization carrying such account or (b) a member, member organization, a partner or any stockholder (other than a holder of freely transferable stock only) therein having a definite arrangement for participating in the commissions earned on the guaranteed account. However, the guarantee of a limited partner or of a holder of non-voting stock, if based upon his resources other than his capital contribution to or other than his interest in a member organization, is not affected by the foregoing prohibition, and such a guarantee may be taken into consideration in computing margin to be maintained in the guaranteed account.
When one or more accounts are guaranteed by another account and the total margin deficiencies guaranteed by any guarantor exceeds 10% of the member organization's excess Net Capital, the amount of the margin deficiency being guaranteed in excess of 10% of excess Net Capital shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements.(5) Consolidation of Accounts
When two or more accounts are carried for a customer, the margin to be maintained may be determined on the net position of said accounts, provided the customer has consented that the money and securities in each of such accounts may be used to carry or pay any deficit in all such accounts.(6) Time Within Which Margin or "Mark to Market" Must Be Obtained
The amount of margin or "mark to market" required by any provision of this Rule shall be obtained as promptly as possible and in any event within fifteen business days from the date such deficiency occurred, unless the Exchange has specifically granted the member organization additional time.(7) Practice of Meeting Regulation T Margin Calls by Liquidation Prohibited
When a "margin call", as defined in Section 220.2 of Regulation T of the Board of Governors of the Federal Reserve System, is required in a customer's account, no member organization shall permit a customer to make a practice of either deferring the deposit of cash or securities beyond the time when such transactions would ordinarily be settled or cleared, or meeting the margin required by the liquidation of the same or other commitments in the account.
This prohibition on liquidations shall only apply to those accounts that, at the time of liquidation, are not in compliance with the equity to be maintained pursuant to the provisions of this Rule.(8) Special Initial and Maintenance Margin Requirements(A) Notwithstanding the other provisions of this Rule, the Exchange may, whenever it shall determine that market conditions so warrant, prescribe:(i) higher initial margin requirements for the purpose of effecting new securities transactions and commitments in accounts of customers with respect to specific securities traded on the Exchange,(ii) higher maintenance margin requirements for accounts of customers with respect to any securities, and(iii) such other terms and conditions as the Exchange shall deem appropriate relating to initial and/or maintenance margin requirements for accounts of customers with respect to any securities.(B) Day-Trading(i) The term "day-trading" means the purchasing and selling or the selling and purchasing of the same security on the same day in a margin account except for:(a) a long security position held overnight and sold the next day prior to any new purchases of the same security, or(b) a short security position held overnight and purchased the next day prior to any new sales of the same security.(ii) The term "pattern day trader" means any customer who executes four (4) or more day trades within five (5) business days. However, if the number of day trades is 6% or less of total trades for the five (5) business day period, the customer will not longer be considered a pattern day trader and the special requirements under paragraph (f)(8)(B)(iv) of this Rule will not apply.(iii) The term "day trading buying power" means the equity in a customer's account at the close of business of the previous day, less any maintenance margin requirement as prescribed in paragraph (c) of this Rule, multiplied by four, for equity securities.
Whenever day-trading occurs in a customer's margin account the special maintenance margin required for the day trades in equity securities shall be 25% of the cost of all trades made during the day. For nonequities securities, the special maintenance margin shall be as required pursuant to the other provisions of this Rule. Alternatively, when two or more day trades occur on the same day in the same customer's account, the margin required may be computed utilizing the highest (dollar amount) open position during that day. To utilize the highest open position computation method, a record showing the "time and tick" of each trade must be maintained to document the sequence in which each day trade was completed.(iv) Special Requirements for Pattern Day Traders(1) Minimum Equity Requirement for Pattern Day Traders
The minimum equity required for the accounts of customers deemed to be pattern day traders shall be $25,000. This minimum equity must be maintained in the customer's account at all times (see Supplementary Material .40 of this Rule).(2) Pattern day traders cannot trade in excess of their day trading buying power as defined in paragraph (f)(8)(B)(iii) above. In the even a pattern day trader exceeds its day trading buying power which created a special maintenance margin deficiency, the following actions will be taken by the member organization:(a) The account will be margined based on the cost of all the day trades made during the day, and(b) The customer's day trading buying power will be limited to the equity in the customer's account at the close of business of the previous day, less the maintenance margin required in paragraph (c) of this Rule, multiplied by two, for equity securities.(3) Pattern day traders who fail to meet their special maintenance margin calls as required within five business days from the date the margin deficiency occurs will be permitted to execute transaction only on a cash available basis for 90 days or until the special maintenance margin call is met.(4) Pattern day traders are restricted from utilizing the guaranteed account provision pursuant to paragraph (f)(4) of this Rule for meeting the requirements of paragraph (f)(8)(B).(5) Funds, deposited into a day trader's account to meet the minimum equity or maintenance margin requirements of this Rule 431(f)(8)(B) cannot be withdrawn for a minimum of two business days following the close of business on the day of deposit.(C) When the equity in a customer's account, after giving consideration to the other provisions of this Rule, is not sufficient to meet the requirements of paragraph (f)(8)(A) or (B) additional cash or securities must be received into the account to meet any deficiency within five business days of the trade date.
In addition, on the sixth business day only, member organizations are required to deduct from Net Capital the amount of unmet maintenance margin calls pursuant to SEA Rule 15c3-1.(9) Free Riding in Cash Accounts Prohibited
No member organization shall permit a customer (other than a broker/dealer or a "designated account") to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member organization shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker/dealer where such securities were purchased and are not yet paid for. A member organization transferring an account which is subject to a Regulation T 90-day freeze to another member organization shall inform the receiving member organization of such 90-day freeze.
The provisions of Section 220.8(c) of Regulation T of the Board of Governors of the Federal Reserve System dictate the prohibitions and exceptions against customers' free riding. Member organizations may apply to the Exchange in writing for waiver of a 90-day freeze not exempted by Regulation T.(10) Customer Margin Rules Relating to Security Futures(A) Applicability
No member or member organization may effect a transaction involving, or carry an account containing, a security futures contract with or for a customer in a margin account, without obtaining proper and adequate margin as set forth in this section.(B) Amount of customer margin(i) General Rule
As set forth in sections (b) and (c) of this Rule, the minimum initial and maintenance margin levels for each security futures contract, long and short, shall be twenty (20) percent of the current market value of such contract.(ii) Excluded from the rules' requirements are arrangements between a member or member organization and a customer with respect to the customer's financing of proprietary positions in security futures, based on the member's or member organization's good faith determination that the customer is an "Exempted Person", as defined in Rule 401(a)(9) under the Exchange Act, and Rule 41.43(a)(9) of the CEA, except for the proprietary account of a broker-dealer carried by a member organization pursuant to Section (e)(6)(A) of this Rule. Once a registered broker or dealer, or member of a national securities exchange ceases to qualify as an exempted person, it shall notify the member or member organization of this fact before establishing any new security futures positions. Any new security futures positions will be subject to the provisions of this part.(iii) Permissible Offsets
Notwithstanding the minimum margin levels specified in paragraph (f)(10)(B)(i) of this Rule, customers with offset positions involving security futures and related positions may have initial or maintenance margin levels (pursuant to the offset table below) that are lower than the levels specified in paragraph (f)(10)(B)(i) of this Rule.
Description of Offset Security underlying the Security Future Initial Margin Requirement Maintenance Margin Requirement 1 Long security future (or basket of security futures representing each component of a narrow-based securities index) and long put option on the same underlying security (or index). Individual stock or narrow-based security index. 20% of the current market value of the long security future, plus pay for the long put in full. The lower of: (1) 10% of the aggregate exercise price of the put plus the aggregate put out-of-the-money amount, if any; or (2) 20% of the current market value of the long security future. 2 Short security future (or basket of security futures representing each component of a narrow-based securities index) and short put option on the same underlying security (or index). Individual stock or narrow-based security index. 20% of the current market value of the short security future, plus the aggregate put in-the-money amount, if any. Proceeds from the put sale may be applied. 20% of the current market value of the short security future, plus the aggregate put in-the-money amount, if any. 3 Long security future and Short position in the same security (or securities basket) underlying the security future. Individual stock or narrow-based security index. The initial margin required under Regulation T for the short stock or stocks. 5% of the current market value as defined in Regulation T of the stock or stocks underlying the security future. 4 Long security future (or basket of security futures representing each component of a narrow-based securities index) and short call option on the same underlying security (or index). Individual stock or narrow-based security index. 20% of the current market value of the long security future, plus the aggregate call in-the-money amount, if any. Proceeds from the call sale may be applied. 20% of the current market value of the long security future, plus the aggregate call in-the-money amount, if any. 5 Long a basket of narrow-based security futures that together tracks a broad based index and short a broad-based security index call option contract on the same index. Narrow-based security index. 20% of the current market value of the long basket of narrow-based security futures, plus the aggregate call in-the-money amount, if any. Proceeds from the call sale may be applied. 20% of the current market value of the long basket of narrow-based security futures, plus the aggregate call in-the-money amount, if any. 6 Short a basket of narrow-based security futures that together tracks a broad-based security index and short a broad-based security index put option contract on the same index. Narrow-based security index. 20% of the current market value of the short basket of narrow-based security futures, plus the aggregate put in-the-money amount, if any. Proceeds from the put sale may be applied. 20% of the current market value of the short basket of narrow-based security futures, plus the aggregate put in-the-money amount, if any. 7 Long a basket of narrow-based security futures that together tracks a broad-based security index and long a broad-based security index put option contract on the same index. Narrow-based security index. 20% of the current market value of the long basket of narrow-based security futures, plus pay for the long put in full. The lower of: (1) 10% of the aggregate exercise price of the put, plus the aggregate put out-of-the-money amount, if any; or (2) 20% of the current market value of the long basket of security futures. 8 Short a basket of narrow-based security futures that together tracks a broad-based security index and long a broad-based security index call option contract on the same index. Narrow-based security index. 20% of the current market value of the short basket of narrow-based security futures, plus pay for the long call in full. The lower of: (1) 10% of the aggregate exercise price of the call, plus the aggregate call out-of-the-money amount, if any; or (2) 20% of the current market value of the short basket of security futures. 9 Long security future and short security future on the same underlying security (or index). Individual stock or narrow-based security index. The greater of: (1) 5% of the current market value of the long security future; or (2) 5% of the current market value of the short security future. The greater of: 5% of the current market value of the long security future; or (2) 5% of the current market value of the short security future. 10 Long security future, long put option and short call option. The long security future, long put and short call must be on the same underlying security and the put and call must have the same exercise price. (Conversion) Individual stock or narrow-based security index. 20% of the current market value of the long security future, plus the aggregate call in-the-money amount, if any, plus pay for the put in full. Proceeds from the call sale may be applied. 10% of the aggregate exercise price, plus the aggregate call in-the-money amount, if any. 11 Long security future, long put option and short call option. The long security future, long put and short call must be on the same underlying security and the put exercise price must be below the call exercise price (Collar). Individual stock or narrow-based security index. 20% of the current market value of the long security future, plus the aggregate call in-the-money amount, if any, plus pay for the put in full. Proceeds from call sale may be applied. The lower of: (1) 10% of the aggregate exercise price of the put plus the aggregate put out-of-the-money amount, if any; or (2) 20% of the aggregate exercise price of the call, plus the aggregate call in-the-money amount, if any. 12 Short security future and long position in the same security (or securities basket) underlying the security future. Individual stock or narrow-based security index The initial margin required under Regulation T for the long security or securities. 5% of the current market value, as defined in Regulation T, of the long stock or stocks. 13 Short security future and long position in a security immediately convertible into the same security underlying the security future, without restriction, including the payment of money. Individual stock or narrow-based security index The initial margin required under Regulation T for the long security or securities. 10% of the current market value, as defined in Regulation T, of the long stock or stocks. 14 Short security future (or basket of security futures representing each component of a narrow-based securities index) and Long call option or warrant on the same underlying security (or index). Individual stock or narrow-based security index. 20% of the current market value of the short security future, plus pay for the call in full. The lower of: (1) 10% of the aggregate exercise price of the call, plus the aggregate call out-of-the-money amount, if any; or (2) 20% of the current market value of the short security future. 15 Short security future, short put option and long call option. The short security future, short put and long call must be on the same underlying security and the put and call must have the same exercise price. (Reverse Conversion) Individual stock or narrow-based security index. 20% of the current market value of the short security future, plus the aggregate put in-the-money amount, if any, plus pay for the call in full. Proceeds from put sale may be applied. 10% of the aggregate exercise price, plus the aggregate put in-the-money amount, if any. 16 Long (short) a security future and short (long) an identical 19 security future traded on a different market. Individual stock and narrow-based security index. The greater of: (1) 3% of the current market value of the long security future(s); or (2) 3% of the current market value of the short security future(s). The greater of: (1) 3% of the current market value of the long security future(s); or (2) 3% of the current market value of the short security future(s). 17 Long (short) a basket of security futures that together tracks a narrow-based index and short (long) a narrow based index future. Individual stock and narrow-based security index. The greater of: (1) 5% of the current market value of the long security future(s); or (2) 5% of the current market value of the short security future(s). The greater of: (1) 5% of the current market value of the long security future(s); or (2) 5% of the current market value of the short security future(s).
19Two security futures contracts will be considered "identical" for this purpose if they are issued by the same clearing agency or cleared and contracts guaranteed by the same derivatives clearing organization, have identical specifications, and would offset each other at the clearing level.(C) Definitions
For the purposes of section (f)(10) of this Rule and the offset table noted above, with respect to the term "security futures contracts," the following terms shall have the meanings specified below:(i) The term "security futures contract" means a "security future" as defined in Section 3(a)(55) of the Exchange Act.(ii) The term "current market value" has the same meaning as it is as defined in Rule 401(4) under the Exchange Act and Rule 41.43(a)(4) of the CEA.(iii) The term "underlying security" means, in the case of physically settled security futures contracts, the security that is delivered upon expiration of the contract, and, in the case of cash settled security futures contracts, the security or securities index the price or level of which determines the final settlement price for the security futures contract upon its expiration.(iv) The term "underlying basket" means, in the case of a securities index, a group of security futures contracts where the underlying securities as defined in paragraph (iii) above include each of the component securities of the applicable index and which meets the following conditions: (1) the quantity of each underlying security is proportional to its representation in the index, (2) the total market value of the underlying securities is equal to the aggregate value of the applicable index, (3) the basket cannot be used to offset more than the number of contracts or warrants represented by its total market value, and (4) the security futures contracts shall be unavailable to support any other contract or warrant transaction in the account.(v) The term "underlying stock basket" means a group of securities which includes each of the component securities of the applicable index and which meets the following conditions: (1) the quantity of each stock in the basket is proportional to its representation in the index, (2) the total market value of the basket is equal to the underlying index value of the index options or warrants to be covered (3) the securities in the basket cannot be used to cover more than the number of index options or warrants represented by that value, and (4) the securities in the basket shall be unavailable to support any other option or warrant transaction in the account.(vi) The term "variation settlement" has the same meaning as it is defined in Rule 401(a) of the Exchange Act and Rule 41.43(a)(32) of the CEA.(D) Security Futures Dealers' Accounts
Notwithstanding the other provisions of this section (f)(10), a member organization may carry and clear the market maker permitted offset positions (as defined below) of one or more security future dealers in an account which is limited to bonafide market maker transactions, upon a "Good Faith" margin basis which is satisfactory to the concerned parties, provided the "Good Faith" margin requirement is not less than the Net Capital haircut deduction of the member organization carrying the transaction pursuant to Rule 325. In lieu of collecting the "Good Faith" margin requirement, a carrying member organization may elect to deduct in computing its Net Capital the amount of any deficiency between the equity maintained in the account and the "Good Faith" margin required. For the purpose of this paragraph (f)(10)(D), the term "security futures dealer" means a security futures dealer as defined in Rule 400(c)(2)(v) of the Exchange Act and Rule 41.42(c)(2)(v) of the CEA.
For purposes of this paragraph (f)(10)(D), a permitted offset position means in the case of a security futures contract in which a security futures dealer makes a market, a position in the underlying asset or other related assets, or positions in options overlying the asset or other related assets. Accordingly, a security futures dealer may establish a long or short position in the assets underlying the security futures contracts in which the security futures dealer makes a market, and may purchase or write options overlying those assets, if the account holds the following permitted offset positions:(i) A long position in the security futures contract or underlying asset offset by a short option position which is "in or at the money";(ii) A short position in the security futures contract or underlying asset offset by a long option position which is "in or at the money";(iii) A position in the underlying asset resulting from the assignment of a market-maker short option position or making delivery in respect of a short security futures contract;(iv) A position in the underlying asset resulting from the assignment of a market-maker long option position or taking delivery in respect of a long security futures contract;(v) A net long position in a security futures contract in which a security futures dealer makes a market or the underlying asset;(vi) A net short position in a security future contract in which a security futures dealer makes a market or the underlying asset; or(vii) An offset position as defined in SEC Rule 15c3-1, including its appendices, or any applicable SEC staff interpretation or no-action position.(E) Approved Options Specialists' or Market Makers' Accounts
Notwithstanding the other provisions of (f)(10) and (f)(2)(j), a member organization may carry and clear the market maker permitted offset positions (as defined below) of one or more approved options specialists or market makers in an account which is limited to bonafide approved options specialist or market maker transactions, upon a "Good Faith" margin basis which is satisfactory to the concerned parties, provided the "Good Faith" margin requirement is not less than the Net Capital haircut deduction of the member organization carrying the transaction pursuant to Rule 325. In lieu of collecting the "Good Faith" margin requirement, a carrying member organization may elect to deduct in computing its Net Capital the amount of any deficiency between the equity maintained in the account and the "Good Faith" margin required.
For the purpose of this paragraph (f)(10)(E), the term "approved options specialist or market maker" means a specialist, market maker, or registered trader in options as referenced in paragraph (f)(2)(j) of this Rule, who is deemed a specialist for all purposes under the Exchange Act and who is registered pursuant to the rules of a national securities exchange. For purposes of this paragraph (f)(10)(E), a permitted offset position means a position in the underlying asset or other related assets. Accordingly, a specialist or market maker may establish a long or short position in the assets underlying the options in which the specialist or market maker makes a market, or a security futures contract thereon, if the account holds the following permitted offset positions:(i) A long position in the underlying instrument or security futures contract offset by a short option position which is "in or at the mone";(ii) A short position in the underlying instrument or security futures contracts offset by a long option position which is "in or at the money";(iii) A stock position resulting from the assignment of a market maker short option position or delivery in respect of a short security futures contract;(iv) A stock position resulting from the exercise of a market maker long option position or taking delivery in respect of a long security futures contract;(v) A net long position in a security (other than an option) in which a market maker makes a market;(vi) A net short position in a security (other than an option) in which the market maker makes a market; or(vii) An offset position as defined in SEC Rule 15c3-1, including the appendices, or any applicable SEC staff interpretation or no-action position.For purposes of paragraphs (f)(10)(D) and (E), the term "in or at the money" means the current market price of the underlying security is not more than the two standard exercise intervals below (with respect to a call option) or above (with respect to a put option) the exercise price of the option; the term "in the money" means the current market price of the underlying asset or index is not below (with respect to a call option) or above (with respect to a put option) the exercise price of the option; and the term "overlying option" means a put option purchased or a call option written against a long position in an underlying asset; or a call option purchased or a put option written against a short position in an underlying asset.
Securities, including options and security futures contracts, in such accounts shall be valued conservatively in the light of current market prices and the amount which might be realized upon liquidation. Substantial additional margin must be required or excess Net Capital maintained in all cases where the securities carried: (i) are subject to unusually rapid or violent changes in value including volatility in the expiration months of options or security futures products, (ii) do not have an active market, or (iii) in one or more or all accounts, including proprietary accounts combined, are such that they cannot be liquidated promptly or represent undue concentration of risk in view of the carrying member or member organization's Net Capital and its overall exposure to material loss.(F) Approved Specialists' Accountsothers
Notwithstanding the other provisions of (f)(10) and (f)(2)(j), a member organization may carry the account of an "approved specialist," which account is limited to bonafide specialist transactions including hedge transactions with security futures contracts upon a margin basis which is satisfactory to both parties. The amount of any deficiency between the equity in the account and haircut requirements pursuant to SEA Rule 15c3-1 (Net Capital) shall be deducted in computing the Net Capital of the member organization under the Exchange's Capital Requirements.
For purposes of this paragraph F (10)(F) the term "approved specialist" means a specialist who is deemed a specialist for all purposes under the Exchange Act and who is registered pursuant to the rules of a national securities exchange.(g) Portfolio Margin
As an alternative to the "strategy-based" margin requirements set forth in sections (a) through (f) of this Rule, member organizations may elect to apply the portfolio margin requirements set forth in this section (g) to all margin equity securities1, listed options, unlisted derivatives, and security futures products (as defined in Section 3(a)(56) of the Securities Exchange Act of 1934 (the "Exchange Act")), provided that the requirements of section (g)(6) (B)(1) of this Rule are met.
In addition, a member organization, provided that it is a Futures Commission Merchant ("FCM") and is either a clearing member of a futures clearing organization or has an affiliate that is a clearing member of a futures clearing organization, is permitted under this section (g) to combine an eligible participant's related instruments as defined in section (g)(2)(E), with listed index options, options on exchange traded funds ("ETF"), index warrants and underlying instruments and compute a m