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Incorporated NYSE Rule Interpretations

Rule 10 "Registered Representative"

/01 Persons Not Required To Be Registered

Persons associated with a member organization whose functions are solely and exclusively clerical or ministerial will not be required to register with the Exchange. Examples of persons not required to register include wire operators, (i.e., member organization order room personnel who deal exclusively and on a non-discretionary basis with other personnel of the same organization), customer service personnel who do not take orders directly from the public and who take note of customer inquiries and seek to administratively resolve them, as well as certain other operations, administrative and support personnel.

Rule 296 Liquidation of Securities Loans and Borrowings

(b) Transactions With Non-Member Organizations
/01 Written Agreements

For purposes of repurchase and reverse repurchase transactions not subject to Rule 15c3-3 under the Securities Exchange Act of 1934, a confirmation issued by a member organization pursuant to Rule 10b-10 of such Act that sets forth a right to liquidate the transaction because of a condition of the kind specified by Rule 296(a) will satisfy the requirement of a written agreement under Rule 296(b).

Rule 311 Formation and Approval of Member Organizations

(b)

(5) OFFICERS

/01 Principal Executives

General Qualifications

Principal executives must satisfy any and all examination requirements necessary to perform their assigned functions. Candidates for such positions must also have work experience and background commensurate with their responsibilities. The Exchange may request information with respect to the experience of anyone appointed or elected to such positions.

/02 Examination Requirements for Chief Financial Officers ("CFO") and Chief Operations Officers ("COO")

A person designated CFO or COO pursuant to /01 of this Interpretation must pass the Financial and Operations Principal Qualification Examination ("Series 27") unless designated CFO or COO of an introducing member organization, in which case such person must pass either the Series 27 Examination or the Introducing Broker/Dealer Financial and Operations Principal Qualification Examination ("Series 28").

/03 Dual Designation of CFO and COO

If a member organization's activities are limited to introducing customers' accounts and such organization does not hold funds or securities, an individual, who must be either Series 27 or Series 28 qualified, may be designated as both CFO and COO. Member organizations must use due diligence to reasonably assess the supervisory adequacy of such arrangements pursuant to Rule 342. The Exchange must be notified promptly of any such dual designations.

/06 Limitations on Principal Executives

Principal Executives may be part-time employees, subject to the prior approval of the member organization pursuant to Rule 346(e).

(f) PRINCIPAL PLACE OF BUSINESS

/01 Criteria

In order to satisfy the rule's requirement that a member organization's principal place of business be maintained within the U.S., at least the following must be located within the U.S., at a definite and manned physical location which is adequate to serve as the site for Exchange inspection of the organization:

a) Assets of customers who are citizens or residents of the U.S. and assets associated with transactions effected in the U.S., except for: (1) funds which are ordinarily held in branch offices or in transit, and (2) securities which are held as provided for in SEA Rule 15c3-3(c).

To the extent that the broker-dealer introduces customer accounts on a fully disclosed basis to a carrying firm which is located in the U. S., such customer assets may be located at the carrying firm.

b) Books and records customarily maintained by brokers and dealers at their principal place of business and sufficient to permit the Exchange to conduct its inspection of the member organization.

The utilization of a clearing broker, a bank, or a service bureau which prepares or maintains the member organizations' books and records in accordance with SEA Rules 17a-3 and 17a-4 would satisfy this criterion if such broker, bank or bureau is located in the U.S., and the records would be readily accessible to the Exchange.

c) Member organization capital sufficient to meet applicable capital requirements.

d) All allied members, qualified and authorized to perform Rule 342 functions.

e) Clearance, settlement and securities handling operations which pertain to securities transactions effected in the U.S., to the extent that such operations are maintained by the broker-dealer.

f) Operations pertaining to foreign securities transactions effected on behalf of customers who are citizens or residents of the U.S., to the extent that such operations are customarily maintained by a broker-dealer at a principal place of business.

(g) MINIMUM OF ACTIVE PARTNERS IN MEMBER ORGANIZATIONS — USE OF MEMBER ORGANIZATION NAME

/01 Carrying Accounts

To carry customer accounts a member firm must have at least two general partners who are natural persons actively engaged in the organization's business.

The purpose of this requirement is to avert a situation in which the death or disassociation of a sole general partner could result in a delay in servicing customers' accounts, in the street-side settlement of open contractual commitments or otherwise interfere in the conduct of the firm's business to the detriment of the public interest and investor confidence.

/02 Divisions of Member Organizations — Names

Divisions that are not separate legal entities may not be identified by the use of such words as "Company", "Corporation" or "Incorporation", which connote separate entities. Persons staffing such divisions should not have the title of "President", which indicates a separate entity. The titles, "Vice President" or "Assistant Vice President" are satisfactory when used in a context which does not convey the existence of authority on behalf of the member organization not, in fact, possessed by that individual.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.

Selected Notices: 08-57, 08-64.

Rule 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 rule will no longer be applicable; please consult the appropriate FINRA rule.

(d) OPINION OF COUNSEL
/01 Loans, Demand Notes and Partners' Contributions

The Rule 313(d) opinion is required not only for the sale of a member organization's equity securities or debentures but also for the infusion of capital through subordinated loans of cash, secured demand notes and capital contributions of limited partners. In some cases, purchasers of member organization stock have asserted that the sale violated blue sky laws and have sought rescission of the sale. A similar Federal claim might exist under the 1933 Act. The SEC has warned about soliciting subordinated loans in violation of Federal securities laws.

/02 Independent Counsel

Any opinion submitted to comply with Rule 313(d) must be rendered by independent counsel. While such opinions normally are to be rendered by outside counsel, the Exchange, in its discretion, may accept the opinion of inside counsel, where appropriate. Without exception, all legal opinions must address, with specificity and in a reasoned manner, each of the factors indicated in Rule 313(d), including the basis for relying upon a particular claimed exemption provided by the Securities Act of 1933.

Rule 319 Fidelity Bonds

/01 Coverage Exception

A member organization whose business is solely that of a Specialist, Floor broker or registered Floor trader and who does not conduct business with the public, is not required to carry a brokers blanket bond, whether or not it has employees.

/02 Additional Coverages

The required coverage of the brokers blanket bond must apply, through rider or otherwise, to:
•   All domestic and foreign guaranteed and non-guaranteed affiliates, subsidiaries and branches;

•   Bearer instruments if the member organization handles such securities;

•   Limited partners of a member firm if they are also employees;

•   The partners, officers and employees or person acting in a similar capacity of electronic data processing agencies in their activities on behalf of the member organizations.

/03 Inadequacy of Minimum Coverage

Under Rule 319 the Exchange prescribes certain minimum insurance requirements based upon the business activities of member organizations. However, these prescribed minimums may only afford limited protection and may not be sufficient to offset substantial losses. For example, an organization with coverage of $100,000 for a defalcation must consider the possibility and ramifications of a defalcation in excess of $100,000. Such a possibility may result in Net Capital problems, in addition to the fact that the uninsured portion of the loss directly affects profitability, which may hamper future capital raising efforts. Increased coverage is, in general, available at a proportionately lower rate than the basic coverage.

/04 In Transit Coverage

Based upon insurance limitations for in transit losses of securities, many organizations have instituted internal procedures to ensure that deliveries, by messenger or otherwise, do not exceed these limitations. While such practices appear widespread, it is possible that some member organizations may not be using similar safeguards to ensure that "pick ups" by messengers do not exceed specified insurance limits. Clearing organizations should review their practices for "picking up" securities from depositories, clearing corporations, transfer agents, banks, etc. to determine if additional value limitation safeguards are warranted. Organizations may wish to consider increasing in transit coverage as an alternative to instituting more stringent internal procedures.

/05 Self-Insurance

A member organization may self- insure up to $10,000 or 10% of its basic minimum coverage (BMC), whichever is greater. The amount by which self- insurance exceeds this 10% but not exceeding 90% of BMC is to be deducted in computing net capital.

Example: Assume that the required BMC is $2,000,000 of which 10% or $200,000 can be self- insured. Assuming further that the organization's self- insurance is $2,500,000 (which exceeds the allowed 10% by $2,300,000), the capital charge is limited to $1,800,000 which is 90% of the BMC.

Please note that the 10% self- insurance provision refers to BMC only, not to each type of coverage required by the rule.

Rule 325 Capital Requirements

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.

(c)
(1) Long Put or Call Options

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 Securities Exchange Act of 1934 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.
/01 SEC no-action letter to NYSE dated January 31, 1990 provides interim conditions for recognition of long unlisted options, for U.S. Government debt securities endorsed or guaranteed by a limited group of narrowly defined issuers.

If the terms and conditions of the interim no-action letter are strictly adhered to and solely for such period of time as the no-action letter remains in effect, the Exchange will permit recognition of unlisted option instruments as detailed in the commission's no-action letter as consisting and conforming with Rule 325(c)(1) and the purpose for which it was adopted. See NYSE Interpretation memo No. 90-3 dated May 22, 1990.

(No. 90-3, May, 1990)

Rule 342 Offices — Approval, Supervision and Control

(a)(b)

/01 Application — Table of Supervision

The purpose of this rule is to insure that each area of the member organization's activities is properly supervised and that lines of supervisory responsibility are clear. In order to make certain that the lines of supervisory responsibility are at all times explicitly delineated, member organizations must maintain, for use and inspection, a written and dated "table of supervision" identifying the person with overall responsibility for the organization's internal supervision and control and compliance with applicable regulations as well as those individuals to whom such specific duties have been delegated. Both the individual and the specific duty entailed (by geographic area, department and business activity) must be evident. Such table should be maintained on a current basis and superseded pages retained.

/02 Titles and Positions

When an office of a member organization has more than one manager, the person having primary authority must be clearly designated as "in charge."

Anyone having a title or position that implies supervisory responsibility for registered personnel who are functioning as registered representatives, must qualify as a supervisory person under Rule 342.13.

The person or persons designated to direct day-to-day compliance activity or who directly supervise ten or more persons who carry out that activity (e.g., Compliance Officer, Partner or Director) should have overall knowledge of the Securities Laws and Exchange Rules and must pass the Compliance Official Examination ("Series 14"). Compliance Directors of member organizations that conduct a Specialist business must pass the Series 14A Examination.

A member organization engaged in a public business in addition to a Specialist business is required to have a qualified Compliance Official who has passed the Series 14A and Series 14 Examinations. Those member organizations whose activities are solely related to execution of orders on the Floor and who do not conduct any business with the public must designate a Compliance Officer; however, such Compliance Officer is exempt from taking and passing the Series 14 Examination.

Compliance Officials at member organizations whose commissions and other fees from their public business (retail and institutional) are under $500,000 in the preceding calendar year and who introduce to another broker-dealer, are exempt from the Series 14 Examination requirement.

Supervisors of ten or more persons whose compliance responsibilities are limited to the registration of member organization employees with the various regulatory and self-regulatory authorities are also exempt from the Series 14 Examination requirement.

/03 Sales Contests

Member organizations that want to conduct sales contests must use proper judgment and follow good business practices in conducting these contests.

At a minimum, member organizations shall address the following areas when conducting a sales contest:

1. appropriate disclosure to customers — if an entity other than the member organization is financing the contest or otherwise providing remuneration, proper disclosure should be made where necessary (See SEA Rule 10b-10 for disclosure or remuneration by a broker or dealer on customers' transactions);

2. consistency with customer investment objectives — the member organization should establish guidelines for determining the appropriateness of the particular securities, funds or other investment vehicles for the customer accounts to be solicited; and

3. supervisory controls — a) the member organization should specifically determine whether it should place restrictions on the types of accounts which may participate, such as discretionary accounts, personal accounts of employees and accounts of employees' relatives; b) the member organization must take special measures to ensure appropriate supervision, disclosure and control over the selling efforts of its employees.

Member organizations must also determine that such contests comply with state and federal laws and whether they may be deemed to constitute a public offering of securities.

See also NASD Rule 2830 (k) and (1) relating to investment company shares.

(b) BRANCH OFFICES

/01 Approval

In order to obtain approval for a new branch office, an application form prescribed by the Exchange must be completed and submitted to the Exchange through the CRD System.

/02 Acquisition, Merger or Consolidation

In the event of an acquisition, merger or consolidation, the application form referred to in /01 must be furnished, together with:

• The financial and other terms of the arrangements;

• A description of how the member organization will instruct new personnel in its policies and practices;

• The approximate number of new accounts (cash and margin) to be serviced or carried;

• The anticipated increase in aggregate indebtedness;

• A list of any additional accounting points to be established; and

• A description of any change in business activities (e.g., participation in underwriting, commodity accounts).

Additionally, arrangements must be made to register the sales and supervisory personnel of the acquired entity.

/02 Acquisition, Merger or Consolidation (continued)

Attention should also be given to the necessity of obtaining customers' consent to transfer accounts.

If a person associated with a non- member firm is to become a general partner or officer in the member organization, an Exchange examiner may visit the non- member firm prior to the effective date of the acquisition, merger or consolidation.

(e) SUPERVISION: EXTENSION OF CREDIT AND CONCENTRATIONS OF RISK

/01 Application

The Exchange expects all member organizations to have in place a system whereby the concentrations of risk in proprietary, customer and other accounts and extension of credit to customers and others are under the formal supervision, evaluation and control of one or more general partners or principal executives. These responsibilities and authority may be delegated to other qualified principals or employees. The general partner or principal executive shall establish a separate system of follow-up and review to determine whether the delegated authority and responsibility is being properly exercised. Such systems shall be in place for each product line or risk activity, however, one person may be delegated responsibility for more than one product line or risk activity.

Each member organization should maintain a listing at its principal office each registered branch office and each non-registered location of those individuals designated responsibility for each business activity and product line for review by Exchange examiners.

The types of product lines and risk activities that should be specifically included in the delegation and review of responsibilities should include, but not be limited to, the following:

• Trading limits — should be established and reviewed for each trader, department and the organization as a whole;

• Concentrations — parameters should be established to detect, monitor and evaluate risks of accumulations of large positions in introduced accounts as well as customers, non-customers (e.g. partners and principal executives), trading brokers and employees;

• Credit — Procedures should be established to:

(i) monitor limits and types of credit extended in customers' and non-customers' and other credit accounts

(ii) formulate house margin requirements

(iii) review the need for additional margin, mark-to-market and collateral deposits for all accounts;

• Compliance — systems should be in place to review compliance with applicable regulatory and in-house requirements;

• Risk — should include procedures to review risk potential individually and collectively in all types of commitments; and

• to review risk in all open or unpaid transactions, general ledger accounts and contractual and contingent commitments.

The above review should include but not be limited to: cleared and uncleared regular way and open contractual commitments including delayed delivery, "DVP", underwriting, when issued/when distributed, repurchase, standbys, commodity spot (cash), futures and forward contracts.

Supervisory and review procedures shall be maintained in writing, copies of which shall be maintained at the organization's principal office and at each branch office in accordance with existing Exchange interpretations of Rule 342. (See Rule 342.16/02)

Reports must be made to the Exchange when concentrations in securities or commodities positions, commitments or other contingencies could reasonably be expected to result in a significant loss, capital or liquidity problem.

See also Rule 401/05 — Early Reporting of Developing Problems.

.10 REGISTERED REPRESENTATIVE OPERATING FROM RESIDENCE

/01 Special Supervision

Registered representatives operating from small offices (see Interpretation to Rule 342.15) shall be subject to special supervision by the member organization for the two-month period immediately following completion of the prescribed training period (as such training is required by Rule 345).

Member organizations are required to develop and implement special written supervisory procedures for this purpose that, at a minimum, provide for the following:

• Daily review of all correspondence including prior approval of all outgoing correspondence;

• Review of all incoming and outgoing electronic communications, e.g., Internet use and electronic mail;

• Daily review of all customer account activity; and

• An on-site inspection by the Branch Office Manager (or qualified designee) responsible for supervision of the small (as defined in Section .15 of this Interpretation) office in the two-months following the prescribed training period.

Member organizations should advise registered representatives operating from small offices of the nature of, and time period that, the special supervision will be in place. It is important that member organizations retain records evidencing the special supervision.

.13 ACCEPTABILITY OF SUPERVISORS

/01 Qualifications

Every branch office or sales manager must have a creditable record and must pass the General Securities Sales Supervisor Qualification Examination ("Series 9/10").

.15 SMALL OFFICES

/01 Application

Small offices that serve an order-taking function only and have no operational facilities are not required to have a qualified resident manager if they are under the close supervision of the main office or other designated branch office.

/02 Limitation and Experience

Small offices are limited to a total of three registered representatives, one of whom is to be designated "in charge." Six months experience as a registered representative is considered sufficient for the person in charge in view of limitations on duties and responsibilities.

The requirement to designate a registered representative "in charge" will not apply to a small office with only one registered representative employed at the branch location (e.g., a registered representative operating from a residence office or other such small office). Close supervision and control of such one-person small offices by the main office or other designated branch office having a qualified Branch Office Manager on premises will be required and such procedures must be made part of the member organization's written plan of supervision. (See also Interpretation /05 be low and Interpretation /03 to Rule 342.11 concerning required special supervision for one-person offices).

/03 Limited Purpose Offices

An office with more than three registered representatives can be designated a "limited purpose office" if demonstrated to the satisfaction of the Exchange that, because of the limited scope and type of its business activities, it does not require a qualified on-site resident branch office manager. However, all limited purpose offices must otherwise be under the close supervision and control of a qualified person as defined under Rule 342.13.

The Exchange will consider various factors in determining whether a location is a limited purpose office, including: (i) the number of registered persons in the office, their registration category and the functions they perform; (ii) the scope and types of business activities conducted; (iii) the nature and complexity of products and services offered; (iv) the volume of business done; (v) the adequacy of procedures to supervise the limited purpose office activities; and (vi) the adequacy and independence of systems and supervisory persons for regular and "for cause" internal and third party inspections and audits.

Member organizations are responsible for maintaining a readily available, current and accurate list of all locations approved and designated by the Exchange as a limited purpose office. Further, any material change with respect to the representations made by any member organization pursuant to this Interpretation with respect to any location so approved and designated must be promptly brought to the attention of the Exchange for reconsideration.

/04 Booths

Information booths may be established by member organizations solely for the purpose of distributing literature.

/05 Special Supervision

Registered Representatives operating from small, one-person offices shall be subject to the special supervision as prescribed in Interpretation /01 to Rule 342.10 (see page 3410).

.16 SUPERVISION OF REGISTERED REPRESENTATIVES

/01 Registered Representative Correspondence — Review and Retention of Incoming Communications

The handling of incoming business communications is an important part of a member organization's compliance responsibilities. Rule 342, as interpreted by the Exchange, requires that member organizations have reasonable procedures for the review of incoming communications (inc luding electronic mail). With respect to incoming communications addressed to registered representatives, such review procedures shall specifically provide for the review of all such communications (except electronic mail which shall otherwise be included in the organization's overall review procedures).

It is the understanding and view of the Exchange that member organizations possess the legal capacity to insist that mail addressed to their offices be deemed to be related to their business, even if marked to the attention of a particular associated person, if they advise associated persons that personal communications should not be received at the firm. Member organizations are reminded that SEA Rule 17a-4(b)(4) requires that "originals of all communications received...by the member, broker or dealer...relating to its business as such..." must be preserved for not less than three years.

Some mail that can be readily identified from its envelope or otherwise be identified as being regulatory bulletins, research or promotional material, advertising or fund-raising appeals need not be deemed as incoming communications subject to this Interpretation.

In establishing procedures for carrying out supervisory responsibilities with regard to incoming mail directed to registered representatives, member organizations should:

1. assign designated persons to open such mail before the registered representative receives it, or

2. open such mail in the presence of the registered representative, or

3. have the registered representative open the mail in the presence of a designated person.

A program calling for incoming communications to be voluntarily submitted by registered representatives to supervisors will not suffice, since such a system does not assure the member organization that all business communications are, in fact, being reviewed and retained.

The Exchange has determined after careful examination of this matter that these suggested procedures do not conflict with existing postal regulations and do not interfere with asserted rights to privacy. Moreover, the public interest factors would appear to outweigh any inconvenience incurred.

/02 Written Statement of Supervisory Procedures

The duty to maintain a written statement of supervisory procedures should be reflected in a distinct and specifically identifiable manual of such procedures, whose provisions are to be enforced by the member organization. A copy of this manual is to be kept at the principal office and at each branch office of the member organization.

/03 Compliance Manual

A principal method for ensuring that member organization personnel are aware of and comply with the organization's internal procedures, Exchange requirements, SEC regulations, and other applicable provisions of law, is by the maintenance of a timely, accurate and complete written manual of procedures and practices with which all member organization personnel are expected to comply. Accordingly, member organizations are expected to maintain a form of compliance manual appropriate to the type of firm involved, its size and product lines engaged in and to make copies thereof available to all appropriate member organization personnel.

.30 Reserved.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.
Amended by SR-FINRA-2008-030 eff. Dec. 15, 2008.

Selected Notices: 08-57, 08-64.

Rule 343 Offices — Sole Tenancy, Hours, Display of Membership Certificates

(a) SHARING OF OFFICE SPACE
/01 Permissible Office Space Arrangements

Arrangements whereby member organizations share office space with their corporate affiliates and subsidiaries and fellow members of other exchanges will be governed by the standards set forth in Rule 343 for all securities-oriented individuals or organizations. The Exchange's approval of such arrangements will depend upon such factors as the nature of the business, the degree of control and the responsibilities of the member organization's employees.

The diagram below illustrates the limitations of such arrangements with securities or commodities organizations when the assurances called for in Rule 343(a)(2) cannot be furnished.

PUBLIC HALL

Member or Non-Member Closed Door X A X Member Closed Door

X X

X X

X X

X X

X X

X X X X X

Member Closed Door

A receptionist hired by any of the organizations may occupy area "A."

Rule 344 Research Analysts and Supervisory Analysts

/01 Research Analysts

Qualifications

Research Analyst candidates shall qualify by taking the Research Analyst Qualification Examination (“Series 86/87”). For purposes of this interpretation, the term “research analyst” is defined in Rule 344.10. The Series 86 covers security analysis and valuation of equity securities. The Series 87 covers pertinent rules and regulations of the self-regulatory organizations, and the SEC.

Prerequisite

The General Securities Registered Representative Examination (“Series 7”) qualification is a prerequisite for any Research Analyst candidate prior to taking either Part I (“Series 86”) or Part II (“Series 87”) of the Research Analyst Qualification Examination.

Alternatively, the United Kingdom Limited Registered Representative (“Series 17”) Examination and the Canadian Limited Registered Representative (“Series 37/38”) Examination will also serve as prerequisites to taking either Part I or Part II of the Research Analyst Qualification Examination.

In satisfying the Series 7, Series 17 or Series 37/38 examination prerequisite, Research Analyst candidates will not be required to complete the four-month training period required of Registered Representative candidates nor do they have to be approved by the Exchange pursuant to Rule 345.15/02.

Candidates that have failed either Part I or II of the Research Analyst Qualification Examination must wait 30 days before re-taking either part of the examination.

Exemptions

Successful completion of Levels I and II of the Charter Financial Analyst (“CFA”) Examination administered by the CFA Institute allows a Research Analyst candidate to request an exemption from Part I (“Series 86”) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (“Series 86”), a candidate will be qualified as a Research Analyst after passing Part II (“Series 87”) and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).

Successful completion of Levels I and II of the Chartered Market Technician Program (“CMT”) administered by the Market Technician Association (“MTA”) allows a Research Analyst candidate who prepares only technical research reports to request an exemption from Part I (“Series 86”) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (“Series 86”), a candidate will be qualified as a Research Analyst only after passing Part II (“Series 87”) and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).

To qualify for a CFA or CMT exemption a Research Analyst candidate must have: (i) completed the CFA Level II or CMT Level II within two years of application for registration or (ii) functioned as a research analyst continuously since having passed the CFA Level II or CMT Level II. Applicants that have completed the CFA Level II or CMT Level II that do not meet criteria (i) or (ii) may where good cause is shown based upon previous related employment experience make a written request to the Exchange for an exemption.

A technical research report is a research report as defined in Rule 472.10(2) that is based solely on stock price movement and trading volume and not on the subject company’s financial information, business prospects, contact with the subject company’s management, or the valuation of a subject company’s securities.

/02 Foreign Research Analysts

Exemption

The requirement to register as a research analyst pursuant to NYSE Rule 344.10 shall not apply to an associated person who: (1) is an employee of a non-member foreign affiliate of a member organization (“foreign research analyst”), (2) resides outside the United States and (3) contributes, partially or entirely, to the preparation of globallybranded or foreign affiliate research reports but does not contribute to the preparation of a member organization’s research, including a mixedteam report, that is not globally-branded, provided that the following conditions are satisfied:

Supervisory Review

Member organizations that publish or otherwise distribute globallybranded research reports partially or entirely prepared by a foreign research analyst must subject such research to pre-use review and approval by a supervisory analyst in accordance with NYSE Rule 344.11 or by a registered principal in accordance with NASD Rule 1022(a)(5). In addition, the member organization must ensure that such research reports comply with NYSE Rule 472, as applicable.

Disclosure

In publishing or otherwise distributing globally-branded research reports partially or entirely prepared by a foreign research analyst, a member organization must prominently disclose:
(1) each affiliate contributing to the research report;

(2) the names of the foreign research analysts employed by each contributing affiliate;

(3) that such research analysts are not registered/qualified as research analysts with the NYSE and/or NASD; and

(4) that such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

The disclosures required by this Rule must be presented on the front page of the research report or the front page must refer to the page on which the disclosures can be found. In electronic research reports, a member may hyperlink to the disclosures. References and disclosures must be clear, comprehensive and prominent.

     Record Keeping

Member organizations must establish and maintain records that identify those individuals who have availed themselves of this exemption, the basis for such exemption, and evidence of compliance with the conditions of the exemption. Failure to establish and maintain such records shall create an inference of a violation of NYSE Rule 344.

Member organizations must also establish and maintain records that evidence compliance with the applicable content, disclosure and supervision provisions of NYSE Rule 472. Member organizations must maintain these records in accordance with the supervisory requirements of NYSE Rule 342, and in addition to such requirement, the failure to establish and maintain such records shall create an inference of a violation of the applicable content, disclosure and supervision provisions of NYSE Rule 472.

Application of the Federal Securities Laws, Rules and Regulations and Self-Regulatory Organization Rules

The foregoing shall not affect the obligation of any person or broker-dealer, including a foreign broker-dealer, to comply with the applicable provisions of the federal securities laws, rules and regulations and any self-regulatory organization rules.

Effect of Exemption on Associated Person Status

The fact that a foreign research analyst avails himself of this exemption shall not be probative of whether that individual is an associated person of the member organization for other purposes, including whether the foreign research analyst is subject to the NYSE 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Globally-Branded Research Report

A globally-branded research report refers to the use of a single marketing identity that encompasses the member organization and one or more of its affiliates.

Mixed-Team Research Report

A mixed-team research report refers to any member organization research report that is not globally-branded and includes a contribution by a research analyst who is not an associated person of the member organization.

Affiliate

For the purposes of this exemption, the term affiliate shall mean a person that directly or indirectly controls, is controlled by, or is under common control with, a member organization.

/03 Supervisory Analysts

Qualifications

Supervisory Analyst candidates shall qualify by taking and passing the Supervisory Analyst (“Series 16”) Examination.

Experience

Appropriate experience for a candidate for Supervisory Analyst means having at least three years prior experience within the immediately preceding six years involving securities or financial analysis.

Examples of appropriate experience may include the following:
•   Equity or Fixed Income Research Analyst;

•   Credit Analyst for a securities rating agency;

•   Supervising preparation of materials prepared by financial/securities analysts;

•   Financial analytical experience gained at banks, insurance companies or other financial institutions;

•   Academic experience relating to the financial/securities markets/industry.

Director of Research

A person having the title of “Director of Research” need not be a supervisory analyst as defined by the Rule so long as he/she does not approve research reports. If, however, such a person is in charge of registered representatives, he/she must qualify as a supervisory person under Rule 342.13.

/04 Exemptions

Successful completion of the CFA Level I Examination administered by the CFA Institute (in lieu of completion of Levels, I, II and III for a full CFA designation) will suffice to allow a Supervisory Analyst candidate to qualify by taking Part I of the Series 16 Qualification Examination.

Amendment.
Amended by SR-FINRA-2007-010 eff. Apr. 7, 2008;
Amended by SR-FINRA-2008-012 eff. Apr. 3, 2008.

Rule 345 Employees — Registration, Approval, Records

(a) REGISTRATION
/01 Exceptions

Registration is not required for personnel performing the mechanical function of recording an order and passing it along the usual communication channels, telephoning reports of executions or reading quotations when the person handling the account is unavailable. This interpretation does not include registered trainees or transfers awaiting Exchange approval. It is restricted to employees who:
•   Are deemed capable and qualified by a member organization or allied member for these responsibilities.

•   Are specifically authorized to accept orders.

•   Are familiar with the normal size of orders in the account.

•   Are closely supervised by the person servicing the account.

(Also see Rule 10/01, page 2910)

/02 "Independent Contractors"

The establishment of "independent contractor" status between a natural person registered with and qualified by the Exchange and a member organization is permitted only if it does not in any way compromise such person's characterization and treatment as an "employee" of their associated member organization for purposes of the Rules of the Exchange. Though not an exhaustive list, the following regulatory requirements must be fulfilled by a member organization that enters into an arrangement with any person asserting independent contractor status:
1. The member organization must directly supervise and control all activities effected on its behalf by independent contractors to the same degree and extent that it is required to regulate the activities of all other persons registered with such member organization, consistent with Rule 342 and all other applicable Exchange rules, for example:
a) The member organization must ensure that any dual employment arrangement involving an independent contractor complies with Exchange Rule 346.

b) The member organization must ensure that: the independent contractor is covered by the organization's fidelity insurance bond; such person is not subject to a "statutory disqualification" (as defined in Section 3(a)(39) of the Securities Exchange Act of 1934); and that he or she is in compliance with applicable state Blue Sky provisions.

c) The member organization must ensure that notification of the initiation and cessation of independent contractor status and other required amendments be appropriately evidenced on Form U4 or Form U5, as applicable.

2. The member organizations must obtain the written concurrence of each individual asserting independent contractor status that he or she will be subject to the direct, detailed supervision, control and discipline of the member organization, and will be bound by the relevant rules, standards and guidelines of the member organization. Further, the prospective independent contractor must attest that he or she will be deemed an employee of the member organization and, as such, will be fully subject to the jurisdiction of the Exchange. The Exchange is a third-party beneficiary of any such attestation. The "Consent to Jurisdiction" form, included below, must be used for this purpose.

"Consent to Jurisdiction" forms executed pursuant to this Interpretation are not required to be submitted to, or approved by, the Exchange. However, all such forms must be maintained together with the corresponding executed independent contractor agreement and must be promptly provided to the Exchange upon request.

This Interpretation does not permit the incorporation of registered representatives nor does it permit the assertion of independent contractor status by any principal executive of a member organization.

CONSENT TO JURISDICTION

In consideration of my application as a "registered person" associated with ______________________________, I agree that:
(a) I am and shall remain subject to the direct, detailed supervision, control and discipline of _____________________ with respect to any and all activities engaged in by me related to the securities business, and any other business engaged in by _____________________, and agree to be bound by the relevant, rules, standards and guidelines of _____________________ regarding duties and responsibilities governing my conduct.

(b) For all purposes of the Rules of New York Stock Exchange LLC (the "Exchange") I shall be deemed to be an employee of ____________________________ . I am and shall remain fully subject to the jurisdiction of the Exchange and to the Rules of the Exchange presently obtaining or as they shall from time to time be amended, including, but not by way of limitation, all penalties, prohibitions or limitations provided for therein, as they apply to an "employee" of a member organization of the Exchange, and I shall at all times conduct myself in accordance with said Rules.

_______________________________

Date

_______________________________

Signature of Employee

_______________________________

Name of Employee

_______________________________

Social Security Number

_________________________

Full Name of Member Organization and Address of Branch Office

/03 Registered Persons Who Volunteer or Are Called to Active Military Duty

The Exchange will grant specific relief to registered employees of member organizations who volunteer or are called into active military duty. Such registered employees will be placed in a specifically designated "inactive" status upon notification to the Exchange of their volunteering or military call-up. However, such employees will remain registered with the Exchange, and, therefore are eligible to receive transaction-based compensation. Since such employees are "inactive," they may not perform any of the duties performed by a registered representative. However, his or her member organization may make arrangements with another registered representative of the member organization to have the accounts of such registered person serviced and to provide for a sharing of the commissions such accounts generate.

Further, member organizations shall be waived from remitting to the Exchange the annual maintenance fees for such registered employees as prescribed in Rule 345.14.

Such registered employees who volunteer or are called into active military duty shall receive a deferment from the Regulatory Element and Firm Element of the Continuing Education Program as prescribed in Exchange Rule 345A. Continuing Education requirements will be reinstated upon the registered person's return from active military duty.

Dual member organizations of the NYSE and NASD should notify the NASD of their registered employees who volunteer or are called into active military duty by mailing or faxing to the CRD/Public Disclosure Department of the NASD a letter (on firm letterhead) identifying the name and CRD number of the registered person called into active duty, the name and CRD number of the firm, or firms, with whom such person is associated, and a copy of the official call-up notification.

NYSE-only member organizations should notify the Exchange of their registered employees who volunteer or are called into active duty by mailing or faxing to the Exchange's Qualifications and Registrations Department, a letter (on firm letterhead) identifying the name and CRD number of person(s) who volunteer or are called into active duty, the name and CRD number of the firm, or firms, with whom such person is associated, and a copy of the official call-up notification.

(a)
(i) COMPENSATION
/01 Compensation to Non-Registered Persons

Rule 345(a) precludes member organizations from paying to non-registered persons compensation based upon the business of customers they direct to member organizations if:
a) the compensation is formulated as a direct percentage of the commissions or income generated, or

b) payment is on other than an isolated basis, or

c) the customers have the use of the facilities of such person for the transmission of orders or messages directly to the member organization, or

d) such person has formal discretionary authority to place orders or instructions with the member organizations, or

e) such person regularly engages in activity which may be reasonably expected to result in the procurement of new customer or orders.

The interpretation does not preclude normal clearing and introductory arrangements between member organizations or between member organizations and non-member broker/dealers.

Please refer to /03 below for interpretation with respect to transaction-related compensation arrangements with non-registered foreign persons acting as finders.

/02 Compensation Paid for Advisory Solicitations

A member organization, registered with the SEC as an investment adviser, may enter into any arrangement that fully complies with Rule 206(4)-3 ("Cash Payments for Client Solicitations") of the Investment Advisers Act of 1940. Such arrangements will not be deemed contrary to the registration requirements of Rule 345 (see also Rule 10 "Definition of Registered Representative"). Member organizations are advised to check on the applicability of any state registration requirements for member organizations and associated persons.

/03 Compensation to Non-registered Foreign Persons Acting as Finders

Member organizations may pay to non-registered foreign persons transaction-related compensation based upon the business of customers they direct to member organizations if the following conditions are met:
a) the member organization has assured itself that the non-registered foreign person who will receive the compensation (the "finder") is not required to register in the U.S. as a broker-dealer and has further assured itself that the compensation arrangement does not violate applicable foreign law;

b) the finders are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad;

c) the customers are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad transacting business in either foreign or U.S. securities;

d) customers receive a descriptive document, similar to that required by Rule 206(4)-3(b) of the Investment Advisers Act of 1940, that discloses what compensation is being paid to finders;

e) customers provide written acknowledgement to the member organization of the existence of the compensation arrangement and that such acknowledgement is retained and made available for inspection by the Exchange;

f) records reflecting payments to finders are maintained on the member organization's books and actual agreements between the member organization and persons compensated are available for inspection by the Exchange; and

g) the confirmation of each transaction indicates that a referral or finders fee is being paid pursuant to an agreement.

(b) OFFICERS
/01 Application

All persons having titles that imply authority and responsibility over sales personnel must be qualified as supervisory persons. See Rule 342.13/01.

/02 Officers of Division within Member Organizations

See Rule 311(h)/02

/03 Officers of Partnerships

The Exchange does not object to member partnerships designating certain employees as officers, provided the title makes clear the employee's status by defining the specific area of responsibility, e.g., Vice President, Research Department.

/04 Persons Previously Approved in Other Capacities

Applicants applying for officer status (See also Rule 345(b)) who are currently registered with the Exchange through the Central Registration Depository ("CRD") in another capacity, will be required to file only page 1 of Form U4 by checking the "officer" box under the "Registration Category" section of the form. The CRD will process this information and post it to the CRD record.

.11 INVESTIGATION AND RECORDS
/01 Application — Investigation

Member organizations must investigate the previous record of persons whom they contemplate employing including, (1) persons required to be registered with the Exchange, (2) persons who regularly have access to the keeping, handling or processing of securities, monies or the original 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.

Investigatory requirements for persons required to be registered with the Exchange (referred to in (1) above) will be satisfied when the member organization fulfills its obligation to verify the information contained in the Uniform Application for Securities Industry Registration Or Transfer (Form U4). Similarly, investigatory requirements pertaining to persons specified in (2) and (3) above shall be satisfied if a member organization verifies the information obtained pursuant to SEA Rule 17a-3(a)(12). (See /02 below.) Notwithstanding the above, further inquiry must be made where appropriate in light of background information developed, the position for which the person is being considered or other circumstances.

For those persons a member organization contemplates employing who are not specifically required to be investigated, a member organization should tailor its investigation in a manner it deems appropriate in light of the position to be held by such person. (See also Rule 346(f) regarding persons subject to "statutory disqualifications").

/02 Application — Records

Member organizations are reminded to obtain and keep on file all information required under SEA Rule 17a-3(a)(12) for persons included within the definition of "associated person" (see Rule 17a-3(a)(12)(ii)). Further, 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.

For persons required to be registered with the Exchange, a duplicate copy of Form U4 signed by an authorized person will satisfy all the recordkeeping requirements of NYSE Rule 345.11.

.12 APPLICATIONS
/01 Updating Form U4

Information contained on Form U4 must be kept current. Instructions on Form U4 require that a registered person ensure that the information contained in Form U4 is updated and amended as necessary. In this regard, member organizations have an obligation to ensure that amended forms are submitted to the Exchange in a timely manner.

.15 QUALIFICATIONS
/01 Examination Waivers

Where good cause is shown, the examination requirement for a candidate for registration may be waived at the discretion of the Exchange. The Exchange will review requests for waivers in light of several factors including length and type of previous employment and the requirements of other self- regulatory organizations.

In addition, registered representative candidates who meet one of the following conditions may request a waiver of the examination requirements.
•   A former NYSE registered representative who terminated his or her association as such within the last two years, from the date of termination.

•   A former NYSE registered representative who within the last ten years has been continuously employed full-time in a general securities business.

/02 Categories of Registration

Registered representative candidates may sit for the Series 7 exam at the first available examination session after they have become employed. Member organizations are reminded that trainees may not perform the functions of a registered representative until approved by the Exchange. (Also see Rule 345(a)/01, page 3450.)

Limited registration candidates are those whose activities are limited solely to the solicitation or handling of the sale or purchase of instruments such as investment company securities and variable contracts, insurance premium funding programs, direct participation programs and municipal securities. Limited purpose registered representative candidates must qualify by passing a qualification examination acceptable to the Exchange.

Limited registration for floor members and floor clerks would permit floor members and floor clerks who have successfully completed the Series 7A examination module to conduct a public business which is limited to accepting orders directly from professional customers for execution on the trading floor. The Floor Member ("Series 15") Examination and the Trading Assistant ("Series 25") Examination are prerequisites for the Series 7A Examination for floor members and floor clerks, respectively.

A professional customer includes a bank, trust company, insurance company, investment trust, state or political subdivision thereof, charitable or nonprofit educational institution regulated under the laws of the United States, or any state, or pension or profit sharing plan subject to ERISA or of an agency of the United States or of a state or political subdivision thereof or any person who has a net worth of at least $45 million of which $40 million are financial assets.

For purposes of the definition of professional customer, the term "person" shall mean the same as that term is defined in Rule 2, except that it shall not include natural persons.

Registered options representative: Each registered representative who transacts any business with the public in options contracts shall qualify as a "Registered Options Representative" by passing the Series 7 examination.

Securities lending representatives and their direct supervisors are not subject to training or examination requirements. Securities lending representatives and their direct supervisors must, however, file a Form U4 and sign a code of ethics agreement (addendum to Form U4).

See Rule 345.10 for definitions of the term "securities lending representative."

.18 FILING WITH AGENT
/01 Properly Authorized Agent

The "Properly Authorized Agent" is the Central Registration Depository ("CRD") until otherwise noted. Required filings under this Rule 345, where appropriate, may be made with the properly authorized agent.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.

Selected Notice: 08-64.

Rule 345A Continuing Education for Registered Persons

(a) REGULATORY ELEMENT
/01 Registration Date

Registered persons are required to participate in the Regulatory Element on three occasions, based on their initial registration anniversary date. Initial registration means the first date that the person became registered with the NYSE, NASD or another self-regulatory organization, regardless of subsequent registrations, provided that the person has remained continuously registered since that initial date.

A person's initial registration date is the date that the registration was originally approved rather than the date the person passed a qualification examination. This includes registered persons who have received waivers from specific examination requirements.

/02 Application

The requirements of the Regulatory Element apply to all persons registered or required to be registered under Exchange rules, even if such persons are not required to be qualified by taking and passing an examination e.g., certain principal executives and securities lending representatives.

/03 Firm Delivery of Regulatory Element

Member organizations will be permitted to administer the Regulatory Element continuing education program to their registered persons by instituting a firm program acceptable to the Exchange.

The following procedures are required:
A. Senior Officer or Partner In-Charge
•   The member organization has designated a senior officer or partner to be responsible for the firm's delivery of the Regulatory Element continuing education program.

B. Site Requirements
•   The location of all delivery sites will be under the control of the member organization.

•   Delivery of Regulatory Element continuing education will take place in an environment conducive to training. (Examples: a training facility, conference room or other area dedicated to this purpose would be appropriate. Inappropriate locations would include a personal office or any location that is not or cannot be secured from traffic and interruptions).

•   Where multiple delivery terminals are placed in a room, adequate separation between terminals will be maintained.

C. Technology Requirements
•   The communication links and member organization delivery computer hardware must comply with standards defined by the Exchange or its designated vendor.

D. Supervision
•   The member organization's Written Supervisory Procedures must contain the procedures implemented to comply with the requirements of its delivery of Regulatory Element continuing education.

•   The member organization's Written Supervisory Procedures must identify the senior officer or partner designated pursuant to 03/A and contain a list of individuals authorized by the firm to serve as proctors.

•   Member organization locations for delivery of Regulatory Element continuing education will be specifically listed in the member organization's Written Supervisory Procedures.

E. Proctors
•   All sessions will be proctored by an authorized person during the entire Regulatory Element continuing education session. Proctors must be present in the session room or must be able to view the person(s) sitting for Regulatory Element continuing education through a window or by video monitor.

•   The individual responsible for proctoring at each administration will sign a certification that required procedures have been followed, that no material from Regulatory Element continuing education has been reproduced, and that no candidate received any assistance to complete the session. Such certification may be a part of the sign-in log required under F. Administration.

•   Individuals serving as proctors must be persons registered with an SRO and supervised by the designated senior officer/partner for purposes of firm delivery of the Regulatory Element continuing education.

•   Proctors will check and verify the identification of all individuals taking Regulatory Element continuing education.

F. Administration
•   All appointments will be scheduled in advance using the procedures and software specified by the Exchange, its agent or designated vendor to communicate with the PROCTOR system and CRD.

•   The firm/proctor will conduct each session in accordance with the administrative and appointment scheduling procedures required by the Exchange or its designated vendor.

•   A sign-in log will be maintained at the delivery facility. Logs will contain the date of each session, the name and social security number of the individual taking the session, confirmation that required identification was checked, the sign-in time, the sign-out time and the name of the individual proctoring the session. Such logs are required to be retained pursuant to SEA Rule 17a-4.

•   No material will be permitted to be utilized for the session nor may any session-related material be removed.

•   Delivery sites will be made available for inspection by the SROs.

Before commencing firm delivery of Regulatory Element continuing education, member organizations are required to file with their Designated Examining Authority ("DEA"), a letter of attestation (as specified below) signed by a senior officer or partner attesting to the establishment of required procedures addressing senior officer/partner in-charge, supervision, site, technology, proctors and administrative requirements.

The letter of attestation shall be read substantially as follows:

[Name of member organization] has established procedures for delivering Regulatory Element continuing education on its premises. I have determined that these procedures are reasonably designed to comply with SRO requirements pertaining to firm delivery of Regulatory Element continuing education including that such procedures have been implemented to comply with senior officer/partner in-charge, supervision, site, technology, proctors and administrative requirements.

_____________________
Signature

_____________________
Printed Name

_____________________
Title [Must be signed by a Senior Officer/Partner of the member organization.]

_____________________
Date

G. Annual Representation

Each member organization will be required to represent to the Exchange, annually, that they have continued to maintain, and reasonably believe that they have complied with, all required procedures outlined in sections A through F of this interpretation for the previous year. Such attestation must be signed by a senior officer or partner.

H. Definition of Senior Officer or Partner

For purposes of interpretation /03, a "senior officer or partner" means the chief executive officer or managing partner or either (A) any other officer or partner who is a member of the member organization's executive or management committee or its equivalent committee or group or (B) if the member organization has no such committee or group, any officer or partner having senior executive or management responsibility who reports directly to the chief executive officer or managing partner. If, in the case of a member organization, its chief executive officer or managing partner does not sign the attestation, a copy of the attestation shall be provided to the chief executive officer or managing partner.

/04 Registration Lapses

A person whose registration lapsed for less than two years and who seeks to be reregistered will be required to participate in the Regulatory Element to cover any occasion that was missed during the period in which the person was unregistered, based on such person's initial registration date. If any such person has been unregistered for more than two years, then such person would be a new registrant and required to satisfy appropriate qualifying examination requirements and satisfy the requirements of the Regulatory Element based on the new initial registration anniversary date.

/05 CRD Notification

Member organizations will be notified by the Central Registration Depository ("CRD") concerning those registered persons in the CRD system whose registration anniversary dates trigger participation in the Regulatory Element computer-based training.

Even though notification will be provided by CRD as a courtesy, the final responsibility to ensure timely participation in and completion of the Regulatory Element as required is that of member organizations and registered personnel themselves.

Member organizations and personnel who receive such notices from the CRD but would otherwise be exempt from the requirements of the Regulatory Element because their business is limited solely to the transaction of business on the Floor with registered broker-dealers must contact the Exchange's Qualifications and Registrations Department to confirm that they are (by definition) exempt from the Regulatory Element. However, any such persons who do not conduct public business on the Floor, but maintain a registration (e.g. Series 7 or 7A) that would enable them to conduct a public business, must satisfy the Regulatory Element requirements in order for their registration to remain active.

(a)
(2)
/01 Failure to Complete

Any person whose registration has been deemed inactive due to failure to complete the Regulatory Element within prescribed time frames is prohibited from performing any functions or duties as a registered person. Such person may not accept or solicit business or perform any functions related thereto or receive commissions for the purchase or sale of securities, except for trail or residual commissions resulting from transactions completed before the inactive status. Persons deemed inactive may not engage in any activity requiring registration and member organizations must ensure that, where appropriate, such persons' duties and responsibilities are otherwise performed e.g., a member organization whose financial/operations principal's or compliance official's registration has been deemed inactive must designate another qualified person to exercise such duties and responsibilities.

(a)
(3)
/01 Re-entry into the Program

Re-entry into the Regulatory Element is triggered by the occurrence of specified disciplinary events. The effective date of a disciplinary action requiring re-entry into the program is the date upon which such action becomes final and conclusive i.e., expiration of the time period allowed to appeal or request review of the action (see Exchange Rule 476(g)) or, if the matter is appealed or reviewed, the date a decision on the appeal or review is issued.

(b) FIRM ELEMENT
(1)
/01 Persons Subject to Firm Element

The Firm Element applies to each member organization and its covered registered persons. Such covered persons include salespeople, traders, investment bankers and others who conduct a securities business with public customers, and their immediate supervisors, as well as research analysts and supervisory analysts. Some examples of covered persons are set forth below.
•   Sales Trader with direct customer (non-broker-dealer) contact.

•   Investment Banker who solicits new business, contacts customers or prospective customers in an advisory capacity or participates in sales presentations.

•   Market personnel or other persons who give presentations to customers.

The immediate supervisors of the above persons are also covered persons.

Examples of those who are not covered persons are:

•   Sales Trader dealing only with broker-dealer personnel.

•   Investment Bank employee who performs analytical work with no customer contact.

•   Marketing Personnel who design and develop sales literature but do not make sales presentations.

Additionally, persons whose sole customer contact is in dealing with customers or responding to customer inquiries on administrative or operations-type matters will not be covered persons under the Firm Element.

(b)
(2)
(i) Needs Assessment and Written Training Plan
/01 Needs Assessment

The required annual needs analysis, which forms the basis for establishing a firm's training priorities and development of a written training plan, and the written training plan itself, are not required to be submitted to the Exchange for review or approval. However, such assessment and training plan shall be made available by members and member organizations for review by the Exchange upon request.

/02 Security Futures Contracts
A. General Securities Registered Representatives

A covered person may engage in sales activity related to Security Futures Contracts after completing, prior to December 31, 2006, a Firm Element continuing education program that provides adequate knowledge of, and proficiency in, Security Futures Contracts.

B. General Securities Sales Supervisor

A covered person otherwise qualified to supervise securities sales activity will qualify to supervise Security Futures Contracts after completing, prior to December 31, 2006, a Firm Element continuing education program that provides adequate knowledge of, and proficiency in, the supervision of Security Futures Contracts.

C. Content Outline — Minimum Requirements

Minimum Firm Element continuing education program requirements pursuant to A and B above are set forth in the Securities Futures Contracts Content Outline.

D. Qualification Examinations

Persons not qualified as a General Securities Registered Representative prior to the implementation of a Security Futures Qualification Examination will be required to pass such examination in order to engage in or supervise Security Futures Contracts activity. Persons qualified as General Securities Representatives prior to the time a qualification examination is implemented may, prior to December 31, 2006, complete a Firm Element continuing education program in lieu of passing the qualification examination.

(c) GENERAL STANDARDS
/01 Registered Persons Outside United States

The Regulatory Element covers all registered persons and the Firm Element applies to all registered persons who deal with public customers, including those persons domiciled abroad (i.e., outside U.S.). This includes foreign branch office registered personnel and those employees of non-U.S. registered subsidiaries who are approved by the Exchange as registered representatives of the parent member organization pursuant to Exchange Rule 321.15.

/02 Maintenance of Records

Records relating to the Continuing Education Program will be required to be maintained in accordance with the recordkeeping requirements of SEA Rule 17a-4. Generally, member organizations are required to maintain records relating to Continuing Education requirements for a minimum of three years, with the first two years in an easily accessible place.

/03 Supervisory Procedures

A member organization shall maintain written supervisory procedures (see Interpretation /02 to Rule 342.16) which shall include a delineation of the responsibility for and supervision of the Regulatory and Firm Element requirements.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.

Selected Notice: 08-64.

Rule 346 Limitations — Employment and Association with Member Organizations

/01 Registration of Unassociated Natural Persons

NYSE Rule 346(a) and Section 15(a) of the Securities Exchange Act of 1934 (the "Exchange Act") require that natural persons not associated with entities which are registered broker/dealers must themselves register as a broker or dealer with the SEC unless specifically exempted by the Exchange Act.

/02 Personal Business Expenses

Registered representatives are permitted to absorb the cost of any advertising or outside activities. However, a member organization must establish controls to ensure that the contents of all such advertising and all outside activities receive its approval, and otherwise assume responsibility for all activities effected on its behalf and under its name.

/03 Outside Connections — Legal Limitations

Rule 346 affords member organizations discretion to permit their associated persons to engage in outside activities — without Exchange approval — to the extent compatible with Rule 342. In the exercise of this discretion, member organizations and their associated persons would be advised to consult with counsel as to possible limitations arising under specific provisions of Federal Law. (See, for example, Section B of the Clayton Act, 15 USC 19 governing common directors of competing corporations).

Before approving an outside connection for an associated person, member organizations should consider any possible conflict of interest and potential liability that may accrue as a result of the outside activity. Particularly sensitive situations arise when the outside connection is an unrelated securities business since it may be perceived that any business done with such associated person is done with his member organization. Even in the unique circumstance where approval is granted, the member organization should consider whether such person is associated with another registered entity (broker/dealer or investment adviser) or should be individually registered with the Securities and Exchange Commission as a broker/dealer or investment advisor.

(e) STATUTORY DISQUALIFICATIONS
/01 Definitions

Statutory disqualifications relate basically to acts involving expulsion or suspension by any regulatory or self-regulatory agency or other acts of dishonesty, acts or conduct constituting a statutory disqualification as set forth in Section 3(a)(39) of the Exchange Act as well as convictions within the past ten years for felonies or misdemeanors specified in Section 15(b)(4)(B) of the Exchange Act.

/02 Reporting Requirements — Non-Registered Employees

Member organizations are required to submit to the Exchange (for filing with the SEC) details concerning any prospective employee subject to a statutory disqualification. Member organizations should exert reasonable care to determine the existence of a statutory disqualification prior to employing any prospective employee.

For those persons already employed by a member organization who thereafter become subject to a statutory disqualification, notice should be sent to the Exchange immediately.

/03 Reporting Requirements — Form U4 Applications

A candidate for registration who is subject to a statutory disqualification may not engage in any activity on behalf of his or her employer until such time as approval has been obtained by the Exchange and the SEC.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.

Selected Notice: 08-64.

Rule 350 Compensation or Gratuities to Employees of Others

Amendment.
Deleted by SR-FINRA-2008-027 eff. Dec. 15, 2008.

Selected Notice: 08-57.

Rule 351 Reporting Requirements

(e) REPORTS OF PROPRIETARY AND EMPLOYEE TRADING REVIEWS
/01 Reports of Investigation

Member organizations are required to make quarterly written statements to the Exchange as to the result of reviews made under Rule 342.21 in connection with proprietary and employee trading. If member organizations determine that no trades subject to the review procedures violated rules concerning insider trader and manipulative and deceptive devices, a written statement substantially the same as set forth in Rule 351(e) would be submitted in accordance with the time frame specified in the rule.

If information is developed that leads to an investigation of a trade previously reported as reviewed with no problems, notice of commencement of an investigation should be made promptly to the Exchange. The previously filed written statement should not be amended and resubmitted and a member organization should not delay reporting the onset of an investigation until the next (quarterly) report is due since the trade subject to the investigation would not be a covered trade reviewed for the quarter covered by the next report.

Rule 375 Missing the Market

/01 Customer Contact and "As of" Reports

When a member organization has "missed the market" on a customer order, the customer should be contacted, informed of the circumstances, and given the choice of having the order filled at the price prevailing "as of" the time the market was missed or executed at the present market price.

If the customer elects to have the order filled at the "as of" price, the member organization may
• effect the transaction for the customer's account on the Floor and make a cash price adjustment; or

• fill the customer's order from the firm's error account.

The customer's confirmation shall carry the legend "as of" (date).

Rule 382 Carrying Agreements

/01 Application

Every carrying agreement between two registered broker-dealers involved in a fully disclosed relationship must address, at a minimum, the seven basic functions enumerated in Rule 382. Each agreement and any changes thereto must be filed with the Exchange for approval.

Omnibus carrying agreements need not conform to paragraphs (b) and (c) of Rule 382 and need to be submitted to the Exchange for approval only when newly executed or if changed.

/02 Basic Functions

Listed below are the seven categories as well as specific functions attendant to each, which generally must be addressed:

(1) opening, approving and monitoring of accounts (obtaining and verifying new account documentation, knowledge of customer and customer investment objectives, new account approval/rejection, review of orders/accounts, supervision of orders/accounts, furnishing of investment advice, handling and supervision of discretionary accounts and handling of accounts for employees or officers of member organizations, self-regulatory organizations and other financial institutions);

(2) extension of credit (Regulation T compliance, maintenance of margin, payment and charging of interest and rehypothecation/lending of securities);

(3) maintenance of books and records (maintenance of stock records, compilation and filing of regulatory reports and maintenance of account documentation/records);

(4) receipt and delivery of funds and securities (delivery/receipt of funds/securities to/from customers, transfer of securities/accounts, compliance with restricted/control stock requirements, payment of dividends and handling of exchange/tender offers, rights and warrants and redemptions);

(5) safeguarding of funds and securities;

(6) confirmations and statements (preparation/transmission of confirmations and statements); and

(7) acceptance and execution of transactions (responsibility to accept/reject orders, responsibility for errors in execution, procedures for proper transmission of orders and for screening orders prior to execution and settlement of contracts).

The above functions are not all inclusive but are representative of functions involved in the conduct of a general securities business.

•   At a minimum, each function listed above should , where applicable, be specifically allocated with a clear indication of the extent of responsibility assumed by each party to the agreement.

•   Where any mutual responsibility is intended, in respect to any function, that too, should be clearly indicated in the agreement.

•   Additional functions that are peculiar to a given relationship should be addressed and allocated.

•   Special situations which would justify deletion of any function should be specifically mentioned in a covering letter accompanying the agreement, when it is submitted to the Exchange.

/03 Additional Requirements and Procedures
•   To the extent that a particular function is allocated to one of the parties, the other party is to supply that firm with all appropriate data in its possession pertinent to the proper performance and supervision of that function. The agreement should acknowledge this obligation.

•   Each organization will be accountable for actual performance of all functions performed by employees and other associated persons as well as for overall supervision of functions and activities performed by it pursuant to any carrying agreement. See Rule 342.

•   Each agreement shall specifically provide procedures for handling of customer inquiries and complaints. Where processing of inquiries/complaints is to be accomplished differently from the functional allocation of responsibilities, specific delineation of respective responsibilities of each party must be made in the agreement. Each organization shall establish procedures for handling customer inquiry/complaint functions to be handled by them. Provisions should also be made to ensure such matters are expeditiously routed to the appropriate organization when not so directed by a customer initially.

•   Notice shall be given to each new customer of the introducing organization as to the existence of the agreement, upon the opening of an account. Such notice should include a meaningful and understandable disclosure of the allocation of functions and responsibilities which are customer related. New or revised disclosure notices must be submitted to the Exchange for approval.

•   Each agreement must specify which organization is to be responsible for customer notification.

/04 Special Considerations
•   Member organizations should carefully weigh the capital and other regulatory and practical consequences of the assumption of the functions enumerated in Rule 382. See, specifically, SEA Rules 15c3-1, 17a-3 and 17a-4.

•   SEA Rule 17a-3(b) is not to be deemed as precluding a carrying firm from furnishing, and the introducing firm from obtaining and retaining, such books and records as may be necessary for the introducing firm to effectively perform its functions and to satisfy its duty to carry out its supervisory activities for purposes of Rule 342.

/05 Three Party Agreements
•   Three party arrangements which usually involve two introducers and one carrying organization may be permitted by the Exchange. However, introduction of a third party into an existing two party arrangement will require a new or amended agreement to be submitted for approval by the carrying organization.

•   It is recommended that a single agreement signed by all three parties and reflecting the allocated responsibilities of each be utilized. However, if two separate agreements are used (introducer 1 and introducer 2; introducer 2 and carrying organization), each agreement must reflect the third party and its allocated responsibilities. Member organizations must ensure that the two agreements are consistent.

•   A disclosure notice must be sent to customers (Rule 382(c)) explaining the responsibilities allocated to each of the three parties and how their accounts are affected.

Rule 387 COD Orders

/01 Coding

Pursuant to paragraph (a)(1) of the Rule, unless the transaction is exempt from the provisions of paragraph (a)(5), the member organization must receive from the customer prior to or at the time of accepting the order the following Institutional Delivery (ID) coding information: the customers' agent bank number, the customers' custodian client account number at the agent bank, and institution number, where appropriate.

/02 Order Ticket

The reference in paragraph (a)(2) of the Rule requires that the order ticket be marked as a collect on delivery of (COD) or payment on delivery (POD) transaction, when appropriate. It is not necessary to use COD or POD as the designating symbols, so long as whatever symbols used to designate the orders are readily understood by all affected parties in the organization to reflect that the order is COD or POD.

/03 Confirmations

It should be noted that a confirmation generated through an institutional delivery system may or may not relieve a member organization from either NYSE or SEC requirements regarding the furnishing of confirmations of transactions to customers. Member organizations are responsible for determining and complying with such requirements.

/04 Agreement

Regarding paragraph (a)(4) of the Rule, while a written agreement with the customer is preferable, an oral agreement will be acceptable providing that the member organization has documented the oral agreement in memorandum form. The written agreement can be set forth in a new account form so long as the customer signs the new account form.

/05 New Issues

New issues are subject to Rule 387 as of the date they become depository eligible.

/06 Broker to Broker Transactions

For broker to broker COD or POD transactions, NYSE Rule 133 shall apply. In the event that the provisions of Rule 133 are not followed, then the provisions of Rule 387 shall apply. However, this should not be construed to mean that a choice can be made between following the provisions of Rule 133 or Rule 387. For broker to broker transactions, Rule 133 supercedes Rule 387. However, when one broker is a customer of another broker, Rule 387 applies.

/07 Physical Deliveries

Member organizations must not accept or make physical deliveries when settling eligible transactions subject to Rule 387. Where settlement within an Institutional Delivery system is not possible, book entry settlement via Deliver Orders (DO's) or Receive Orders (RO's) within a securities depository is required. However, the Exchange expects that book entry settlement within an ID system (PDQ) will be the norm.

/08 Sinking Funds and/or Dividend Reinvestments

Eligible sinking funds and/or dividend reinvestment transactions must be confirmed, acknowledged and book entry settled through the facilities of a registered securities depository.

/09 Introducing Brokers

Introducing brokers who clear their customer accounts on a fully disclosed or omnibus basis through a depository participant member organization are subject to Rule 387. The introducing broker is deemed to be an indirect depository participant because of his relationship with his clearing broker.

/10 Foreign Currency Settlement

Transactions settling in foreign currencies, even though they may settle within the United States, are not subject to the provisions of paragraph (a)(5) of Rule 387.

/11 Alternatives to Rule 387

If a customer who is not exempt from the Rule elects not to utilize the facilities of a registered securities depository for the confirmation, acknowledgement and book entry settlement of depository eligible transactions, the member organization must deny that customer the COD/POD privilege. The customer must then trade on a regular cash account basis.

/12 Extension Guidelines for Accounts Preparing for Participation in an Institutional Delivery System

Member organizations may continue to extend the COD/POD privilege after January 1, 1983, to non-exempt customers who are not participating in an institutional delivery system of a securities depository, but who are in the process of making the necessary arrangements to do so in order to meet the requirements of the Rule, provided that:
1) for domestic accounts: within fifteen (15) business days after the first COD/POD transaction, the customer provides the member organization his custodian client number, agent bank number and institution number, where appropriate, obtained from his agent bank or a written notice from a securities depository indicating that the customer or his agent has signed a letter of intent to participate in that depository's institutional delivery system, specifying the date of expected participation;

2) for foreign accounts: within thirty (30) business days after the first COD/POD transaction, the customer provides the member organization his custodian client account number, agent bank number and institution number, where appropriate, obtained from his agent bank or a written notice from a securities depository indicating that the customer or his agent has signed a letter of intent to participate in that depository's institutional delivery system, specifying the date of expected participation.

For both of the above situations, the customer's account must be fully coded and prepared for institutional delivery participation by the agreed upon participation date. The COD/POD privilege must be denied to any such account not in participation by the agreed upon date. The Depository Trust Company has instituted a Letter of Intent program. See DTC Important Notices pertaining to the Letter of Intent program.

/13 Indirect Bank Participation in a Securities Depository

It is the Exchange's view that Rule 387 should be applied in every case where the entity that is acting as agent for a customer is, in effect, a department, division or related entity or an otherwise direct or indirect depository user. There is no exemption for specialized departments, affiliates, parent, sister or subsidiary corporations of depository participants. In addition, member organizations are reminded that they must not accept or make physical deliveries through a registered clearing agency or over-the window when settling transactions which are subject to Rule 387.

/14 Foreign Customers and/or Foreign Broker/Dealers

Eligible transactions of foreign customers and/or broker/dealers trading with or through NYSE member organizations are subject to Rule 387 if the transaction settles in the United States through the services of a bank participating in a securities depository.

/15 Customer COD/POD Accounts

If any eligible transactions in a customer's account at a member organization settle through a direct or indirect depository participant, all eligible transactions in the account must settle through a securities depository.

/16 American Depository Receipts (ADR's)

When a European customer of an NYSE member organization, in an arbitrage transaction, purchases bearer shares in Europe and simultaneously sells depository eligible ADR's through the NYSE member organization, it may take two or six weeks to convert the bearer shares to registered ADR's. However, since the transaction settles in the United States and is not covered by an exemption, it is subject to Rule 387.

/17 Thin Issues

In instances where a member organization acting on standing instructions from an issuer buys a large block of the issuer's preferred stock for retirement, the transaction may take six months to complete if the stock is a thin issue. The member organization may either make partial delivery or go short. This type of transaction is subject to Rule 387 if the member organization and the customer or its agent are direct or indirect depository participants.

/18 Related Rules

See Regulation T, Section 220.8 (b)(2) and NYSE Rule 430 (Partial Delivery of Securities to Customers on COD Purchases) for additional requirements and procedures covering COD/POD transactions.

Rule 401 Business Conduct

/01 Trading Against Firm Recommendations

Reserved.

/02 Private Sales

Reserved.

/03 Conversions, Acquisitions and Changes in Business Activities

Member organizations are expected to notify the Exchange when planning important organizational or operational changes, such as mergers with or acquisitions of other broker/dealers or the acquisition of a significant electronic data processing system conversion or a change in business activity involving the addition of new product lines such as municipal bonds, government securities, options or commodities, etc. By discussing these proposals with the Exchange well in advance of implementation, member organizations will have the benefit of the Exchange's insight and experience which may serve to aid in avoiding financial and operational problems.

/04 Early Reporting of Developing Problems

Exchange and SEC regulations presently require member organizations to give certain "early warning" notices when conditions fall outside of specified parameters. However, it has been our experience that in many cases an earlier informal notice can help resolve the difficulty before any formal notification would be required. The Exchange, therefore, expects notification from a member organization immediately upon discovery of any existing or impending condition(s) which it reasonably believes could lead to capital, liquidity or operational problems or impairment of record-keeping, clearance or control functions.

A list of the kind of potential problems on which early notification is expected follows. It should be realized that this list is not intended to be all inclusive and that your coordinator may be of further assistance with regard to situations not specifically covered.

Capital Problems

Concentrations in securities or commodities positions, commitments or other contingencies wherein adverse results could reasonably be expected to create a loss or net capital deduction that would result in a violation of the net capital requirements.

Accruals of expenses, deficits in customers' or brokers' accounts, liabilities, "Don't Know" trades, short security positions and similar items for which adequate reserves have not been provided and which, individually or in the aggregate, could have a material adverse effect on net capital.

An acceleration clause or other default provision in a loan or subordinated loan agreement is expected to or has become operative.

Reserve Requirements Problems

Any condition that could result in a material failure to make a required deposit or cause a deficiency in the balance on deposit in the Special Reserve Bank Account for the Exclusive Benefit of Customers as required under SEA Rule 15c3-3.

Liquidity Problems

Any problem with liquidity, profitability or a cash or other asset shortage which could materially inhibit a broker or dealer from promptly meeting its obligations to customers, other broker/dealers or creditors.

Impending circumstances which cause or might cause a bank to call its loans or to refuse to carry the firm's accounts in a normal fashion.

Developing situations which cause or might cause a clearing corporation to limit the firm to cash settlements.

Impending or actual inability to complete daily deliveries without the creation of deficit conditions pursuant to possession and control requirements under SEA Rule 15c3-3 for customers' securities.

Recordkeeping Problems

Any situation which may materially impair accurate maintenance of the member organization's Books and Records or the ability to account for possession or control of securities or commodities. This could be a computer breakdown, service agency problems, loss of key personnel, systems conversions, continuous inability to complete daily activities because of volume or personnel difficulties or similar reasons.

Reputation Problems

Loss of confidence in a broker-dealer may cause immediate returns of stock loans, refusals to trade or buy- ins by other broker-dealers, calling of bank loans or tightening of collateral requirements, customer account delivery requests and eventual profit deterioration.

Reputation may be impaired either by direct events such as announcements of disciplinary actions or litigation against a member organization, or by indirect unfavorable developments such as personal bankruptcies or criminal prosecution of key personnel, or financial problems of other associated organizations for whom the member organization has no legal responsibility.

Amendment.
Amended by SR-FINRA-2008-028 eff. Dec. 15, 2008.

Selected Notice: 08-57.

Rule 402 Customer Protection — Reserves and Custody of Securities

(b) Agreements for Use of Customer's Securities
/01 Application

Member organizations may use a single margin/loan consent agreement format signed by a customer as written authorization to permit the loaning of a customer's margin eligible securities in lieu of obtaining a separate written authorization. Such margin/loan consent agreement must contain a legend in bold type face placed directly above the signature line which states substantially as follows:

"BY SIGNING THIS AGREEMENT I ACKNOWLEDGE THAT MY SECURITIES MAY BE LOANED TO YOU OR LOANED OUT TO OTHERS."

(See also SEA Rules 8c-1 and 15c-2)

Rule 405 Diligence as to Accounts

/01 Credit Reference — Business Background

The Exchange recommends that credit references and business backgrounds of new accounts be cleared by persons other than the actual registered representative opening the account.

/02 Approval of New Accounts/Branch Offices

Rule 405(3) provides that a Branch Office Manager may approve the opening of new customer accounts but that such action, within a reasonable period of time, must be approved by a principal executive or a person or person(s) designated under the provisions of Rule 342(b)(1). Branch Office Managers may be among the parties designated with authority to make final firm determinations as to the opening of new accounts, at the discretion of the member organization acting on an individual basis.

It is important to note that Rule 342 requires a separate system of follow-up and review to determine that all delegated authority is being properly exercised.

/03 Fictitious Orders

On occasion, fictitious orders for listed securities have been placed with member organizations. The execution of such orders could expose the member organization to financial loss and could artificially affect prices on the Exchange. Therefore, member organization personnel opening accounts and/or accepting orders for new or existing accounts should make every effort to verify the legitimacy of the account and the validity of every order. Questionable accounts and/or orders should be brought to the attention of the appropriate supervisory person prior to opening or entry.

Fictitious orders reported to the Exchange indicate patterns which occur most frequently. In one pattern, the caller impersonates an executive of the member organization and claims to be opening the account and/or placing the order for a third party reported to be a friend of either that executive or another executive of the member organization. The individual appears to be generally familiar with the essential facts about the individual being impersonated and evidently is aware that this person is not available to verify the order.

In another pattern, the caller impersonates a professional, such as a doctor, is generally familiar with essential facts about the professional, including bank references, and is also aware that the person is not available for callback verification.

/04 Accounts in which Member Organizations have an Interest

Transactions for an account in which a member organization has an interest may not be initiated "on the Floor" of the Exchange unless the member organization is trading either, (a) as a Specialist in one of its registered specialty stocks; (b) as a Registered Competitive Market Maker; (c) as a Competitive Trader; or (d) within the scope of a specific exemption from the Exchange's Floor trading rules, such as the exemptions for bona fide arbitrage and for error transactions. See also Section 11(a) of the Securities Exchange Act of 1934 and the rules thereunder.

Amendment.
Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008.

Selected Notice: 08-64.

Rule 407 Transactions — Employees of Member Organizations and the Exchange

/01 Account of Spouse

When a situation arises where the spouse of an allied member or employee associated with a member organization subject to Rule 407 wishes to open an account with another registered broker-dealer, the following interpretation applies.

If it has been proven to the satisfaction of the member organization that the spouse's account is completely independent of the individual subject to Rule 407, approval of the account is not required and neither the member organization carrying the spouse's account nor the employee is required to provide confirmations and statements to the member organization employer.

/02 Majority Stock Ownership

When an employee associated with a member organization is also a majority stockholder of a non-public corporation that wishes to open a discretionary margin account at another member organization, Rule 407(b) applies.

Rule 408 Discretionary Power in Customers' Accounts

/01 Automatic Money Market Fund Redemptions

Member organizations that establish an automatic money market fund redemption program for customers having both a securities and money fund account, wherein the customer may elect to have securities purchases paid for via an automatic liquidation of fund shares, will not be required to obtain a customer's written authorization provided that:
1) written notice is sent to applicable customers which informs them of the existence of such programs and sets forth the procedures to be followed in order to participate in the program or to elect not to do so, and

2) such written notice outlines the specific procedures followed by the member organization in effecting automatic redemptions including the steps a customer must take to override the automatic redemption procedure in any specific purchase transaction.

It should be noted that this interpretation applies only to an established money market fund redemption program and should not be construed to permit member organizations or their associated persons to execute transactions in other types of securities without specified authorization from a customer.

/02 Identification of Discretionary Orders

A member organization will be deemed in compliance with the Rule 408(b) requirement that every order entered on a discretionary basis must be identified as discretionary on the order at the time of entry, if it assigns a specific series of numbers or symbols to its discretionary accounts. All orders entered for such accounts will be considered "identified as discretionary" by the account numbers or symbols unless "DNE" (Discretion Not Exercised) is marked on the order tickets.

A member organization's written statement of supervisory procedures and compliance manual should reflect such allocation of specific series of numbers or symbols as being assigned to discretionary accounts if such a system is used.

Rule 409 Statements of Accounts to Customers

(a)
/01 Applicability

Compliance with Rule 409(a) and the accuracy of statements of accounts thereunder is the responsibility of the member organization carrying the customer account for which the statement is required, unless such responsibility has been allocated to a non-member registered broker-dealer carrying organization pursuant to an Exchange approved agreement under Rule 382.

/02 Information to be Disclosed

Statements of accounts to customers must clearly and prominently disclose on the front of the statement:
1. the identity of the introducing and carrying organization and their respective phone numbers for service¹;

2. that the carrying organization is a member of SIPC;

3. the opening and closing balances for the account.

/03 Use of Third Party Agents

Prior to utilizing a "third party agent" to prepare and/or transmit statements of accounts to customers, a member organization shall represent/undertake in writing to the Exchange that:
1. The third party is acting as agent for the member organization;

2. the member organization retains responsibility for compliance with Rule 409(a);

3. the member organization has developed procedures/controls for reviewing and testing the accuracy of statements of accounts prepared and/or transmitted by the third party agent;

4. the member organization will retain copies of statements of accounts prepared and/or transmitted by the third party agent in accordance with applicable books and records requirements.

Allocation of responsibilities for preparation and/or transmissions of statements to any person other than a carrying organization pursuant to an agreement approved by the Exchange in accordance with Rule 382 (Carrying Agreements) shall be deemed to be utilization of a "third party agent."

An introducing organization that is a provider of services included in a member organization's statements of accounts may not function as a "third party agent" and may not itself prepare and/or transmit such statements.

/04 Assets Externally Held and Included on Statements Solely as a Service to Customers

Where a statement of account includes assets as to which the member organization does not have fiduciary responsibility, does not have access to and which are not included on the member organization's books and records, such assets must be clearly and distinguishably separated on the statement. It must be clearly indicated on the statement that such externally held assets: are included on the statement solely as a courtesy to the customer, information (including valuation) is derived from the customer or other external source for which the member organization is not responsible, and are not covered by SIPC.

/05 Use of Logos, Trademarks, etc.

Where the logo, trademark or other similar identification of a person (other than the carrying or introducing organization) appears on a customer account statement, the identity of such person(s) and the relationship to the introducing, carrying or other organization included on the statement must be provided and may not be utilized in a manner which is misleading or causes customer confusion.

/06 Use of Summary Statements

Where a member organization carrying a customer's account and another person(s) who separately offers financial related products/services to the same customer (e.g. mutual fund sales/custodial services, banking products/services, insurance products/services, securities products/services, etc.) seek to jointly formulate and/or distribute their respective customer account statements together with a statement summarizing or combing assets held in different accounts ("summary statement"), the Exchange will require:
1. That the summary statement:
a. indicate that the "summary statement" is provided for informational purposes and includes assets held at different entities;

b. identify each entity from which information is provided or assets being held are included, their relationship with each other (e.g., parent, subsidiary or affiliated organization), and their respective functions (introducing/carrying brokerage firms, fund distributor, banking/insurance product providers, etc.);

c. clearly distinguish between assets held by each entity by use of columns, coloring or other distinct form of demarcation;

d. identify the customer's account number at each entity²;

e. provide a telephone number for customer service at each entity²

f. disclose which entity carries each of the different assets or categories of assets included on the summary;

g. identify each entity that is a member of SIPC.³

2. To the extent that the summary statement aggregates the values of the various accounts summarized or portions thereof, such aggregation shall be recognizable as having been arithmetically derived from the separately stated totals or their components.

3. That the beginning and end of each separate statement (e.g., summary, brokerage, mutual fund, banking, insurance, etc.) be clearly distinguishable by color, pagination or other distinct form of demarcation.

4. That there be a written agreement between the carrying organization and each other person jointly formulating and/or distributing its respective customer account statements attesting that each such person has developed procedures/controls for reviewing and testing the accuracy of the information included on its respective statements.

5. That the summary statement shall comply with Rule 409 and all interpretations thereof.

(b)
/01 Standards For Holding Mail For Foreign Customers — Rule 409(b)(2) Waivers

The Exchange will consider written requests from member organizations for the implementation of policies and procedures for the holding of confirmations, statements and broker-dealer financial statements ("communications") for foreign customers. Requests for waivers under Rule 409(b) must include the following representations:
1. that the member organization will obtain not less frequently than annually and will retain (in accordance with SEA Rule 17a-4(b)) a written statement from the customer who has requested such waiver, that it is not feasible for such customer to make alternative arrangements for the regular receipt of these communications and that by reason of inefficient local mail services or unstable political climates, the customer requests that such material temporarily be held on behalf of such customer at the premises of the member organization; and

2. that the member organization has written procedures in place for the holding of mail that include, at a minimum, that:
a. frequent supervisory review be conducted of any account for which waivers for transmissions of communications have been obtained, with special attention given to discretionary accounts.

b. an annual review of the organization's system shall be conducted by the compliance/internal audit department or by the person(s) assigned or delegated such responsibility pursuant to Rule 342 (independent of the branch office) — such review should encompass a reasonable sampling of account documentation and account activity,

c. a log of such communications will be maintained at the branch or (principal) sales office servicing the account, which will note the date of direct transmittal of such communications to the customer and where sent, and

d. the member organization will endeavor to promptly communicate (orally) the substance of the communications directly to the customer and that a written record is kept of all meetings and conversations, etc., with the customer. Communications will be furnished to the customer at the earliest possible meeting.

Each foreign customer for whom mail is held is required to state, in writing, that it is not feasible to make alternative arrangements for the regular receipt of the mail. In this regard, member organizations shall represent to the Exchange that it will take steps to determine that the foreign customer has no other U.S. location reasonably available for receipt of the communications. In making that determination, member organizations may rely on the customer's statement unless the member or member organization is on notice of facts to the contrary.

Foreign customer accounts for which mail is held require frequent supervisory review by the member organization, i.e., a higher level of supervision and monitoring than is accorded other accounts. Additionally, the annual review conducted by the compliance/internal audit department (or other person(s) delegated such responsibility) must include a determination as to whether all the foreign customer communications are retained pursuant to written customer instructions.

The foreign customer communications held in accordance with a waiver under 409(b)(2) shall be made available to the customer for review at all times and at no special cost.

¹ The SEC has stated that under the Securities Exchange Act Rule 15c3-1(a)(2)(iv), certain carrying firms must issue customer account statements, and the account statements must contain the name and telephone number of a person at the carrying firm who the customer can contact with inquiries regarding the account (See SEA Release No. 34-31511, dated November 24, 1992). The phone number of the carrying organization may appear on the back of the statement. If it does, it must be in "bold" or "highlighted" letters.

² If the client's account number and the customer service telephone number at each entity are included on their respective account statements, such information need not be included on the summary statement.

³ See, e.g., SIPC Bylaws (Article II) for possible ways to identify SIPC membership by using SIPC statements or symbols.

Rule 410 Records of Orders

/01 Pre-time stamping

Pre-time stamping of order tickets in connection with block positioning is contrary to Rule 410.

/02 Allocations of Block Orders

Member organizations may accept block orders and permit investment advisors to make allocations on such orders to customers and remain in compliance with Rule 410 provided that the organizations receive specific account designations or customer names by the end of the business day.

This Interpretation applies to (a) outside investment advisers as well as to (b) employees of a member organization who provide investment advisory services on behalf of a member organization acting as an investment adviser. However, in either instance, the investment adviser must be one who is registered under the Investment Advisers Act of 1940 (the "Act") or who, but for Section 203A, would be required to register under the Act. It does not apply to accounts handled by individual registered representatives of member organizations who otherwise exercise discretionary authority over accounts.

(a)(ii)(5)
/01 Erroneous Reports — Reporting Requirements

Profits resulting from instances where member organizations are allowed to treat an erroneous report to a non- member as though it were an erroneous trade (whether accruing to Floor members or upstairs trading desks), must be forwarded to the NYSE Foundation. When determining the amount of profit to be remitted, it is permissible to deduct transaction costs (such as clearance charges and Section 31 fees) relating to the particular error transaction. Member organizations must prepare and maintain clear and detailed records documenting how the remitted net profit is calculated.

Member organizations are allowed (provided certain conditions are met as described in paragraph (a)(ii) of Rule 411) to treat an erroneous report to a non-member as though it were an erroneous trade if the non-member refuses to accept a correct report.

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 rule will no longer be applicable; please consult the appropriate FINRA rule.

/01 Gold and Silver Offerings

Member organizations must submit all plans for gold and silver offerings in writing to the Exchange prior to implementation along with an opinion of counsel that the plan for trading and handling bullion does not constitute an investment contract requiring SEC registration as a security. Member organizations and their counsels are advised to review the Securities and Exchange Commission Release dated December 26, 1974, which contains the text of some no-action letters with regard to arrangements for the sale of gold bullion. The Release was issued as Securities Act of 1933 Release No. 5552 and Securities Exchange Act of 1934 Release No. 11156.

Rule 430 Partial Delivery of Securities to Customers on C.O.D. Purchases

No 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.

/01 Partial Deliveries

Every member organization carrying accounts must have a supervisory designee personally check at the working level that:
•   All COD executions are separately confirmed to permit partial deliveries;

•   Partial deliveries are made as soon as securities are available to do so;

•   No customers receive preferential treatment by means of employees holding a possible partial delivery until securities are assembled for a full delivery.

Failure to use partial deliveries when possible will be considered a violation of the principles of Regulation T and Rule 430.

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.

/01 Customer Includes

The term "customer" includes a broker or dealer, member, allied member, member organization and their partners, officers or employees (other than clerical) whenever the carrying member organization extends, arranges or maintains any credit on their behalf.

(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.

/01 Savings and Loan Associations

Savings and loan associations are not "banks" as defined in Section (3)(a)(6) of the Securities Exchange Act of 1934 and, therefore, are not included in the term "designated account". Savings and loan associations are deemed other lenders subject to Regulation G of the Board of Governors of the Federal Reserve System.

/02 Foreign Institutions

Foreign institutions do not qualify as "designated accounts" as they are not regulated under the laws of the United States or of a state or political subdivision thereof. The term "foreign institutions" includes but is not limited to, such foreign organizations as banks, brokers, dealers, insurance companies and government agencies.

/03 Investment Trust

The term "investment trust" means any investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940.

/04 Bank

The term "bank" means a domestic bank as defined under Section 3(a)(6) of the Securities Exchange Act of 1934.

(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").

/01 CATS, TIGERS and Similar Securities

CATS, TIGERS and similar securities may be treated as "exempted securities" subject to the same requirements as any other government security.

(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.

(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" is $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" positions 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.

/01 Compliance with Regulation T

Member organizations must adhere to the requirements of this Rule or Regulation T, whichever is greater. Where Regulation T requires "good faith" margin or has no requirements (e.g., exempted securities) then the equity required by this Rule will govern.

/02 Minimum Equity

Every margin transaction must result in an equity in the account of at least $2,000 except that payment in full for any security purchased will satisfy the requirement. Each customer account, including those instances where more than one margin account is permitted under Regulation T, is subject to the $2,000 requirement except for:

• The purchase of "when distributed" securities in a cash account;

• The purchase of exempt securities;

• The purchase of an option ($2,000 needed upon exercise);

• The sale of a put option where the exercise price is less than $20.00 per share;

Every short sale, regardless of the amount involved, is subject to the $2,000 requirement.

If the equity in an account falls below $2,000 because of a decline in the market value of the security(ies) and no new commitments are made, no deposit or liquidation is necessary. For the purpose of this Rule, a same-day substitution constitutes a new commitment. No withdrawal may be made from an account which would leave less than $2,000 equity after the withdrawal.

/03 Profitable Options

A customer who holds profitable options may either sell them or exercise them and simultaneously liquidate the resulting security position without meeting the margin requirement of this section of the Rule. A profitable option is defined as an option to buy or sell a security at a price which is more favorable to the option holder than the current market price of the security on which the option is written.

This same treatment is permitted on bona fide spread positions when, on the same day, a short call is exercised against the customer and he/she exercises their long call to close out the short security position created.

/04 Federal National Mortgage Association (FNMA)

The initial margin required on purchases of FNMA common stock or FNMA convertible debentures will be the same as that required by Regulation T for a margin security at that time. Short sales, which must be made in the margin account, require initial margin equal to the amount required by Regulation T for short sales.

/05 Accounts Subject to Minimum Equity

In accordance with the designation of types of accounts permitted under Regulation T, such accounts will be subject to or exempt from the $2,000 minimum equity requirement as follows:

	Subject to	Exempt From
Margin account	X
Special Memorandum Account		X
Arbitrage account	X
Cash account		X
Nonsecurities credit and employee stock ownership account		X
Omnibus account	X
Broker/dealer credit account		X
Market functions account		X
Government securities account	X

(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.

/01 Profitable Options

Transactions in profitable options are exempt from maintenance margin requirements as outlined under Rule 431(b)/03.

/02 Partners' Accounts

Member firm partners should be guided by the following principles in determining margin requirements of partners' accounts:

• The net combined deficit, if any, in a partners' capital account, drawing account, other personal accounts and his share of the partnership's undistributed profits and losses, must be deducted in determining the equity in his individual securities account(s).

• Any securities carried in capital accounts must be fully paid for after considering any deficits in individual accounts as described above.

• Any purchase in partners' individual accounts must meet Regulation T initial margin requirements.

/03 Stockholders' Accounts

The requirements described in Rule 431(c)/02 above could apply to a member corporation carrying stockholder accounts. For maintenance margin purposes, when a stockholder has a securities account and is indebted to the member corporation as a result of some other transaction, such indebtedness should be offset against the stockholder's securities account to determine the value of securities that may be carried in the securities account.

/04 Securities Value

Listed and unlisted securities, other than options, may be given value in the computation of maintenance margin requirements.

/05 Sales of Stock Covered by Due Bills

When a customer sells stock, in any type of account, which carries a due bill representing additional shares of the same stock or another stock, and the certificate covering the sale is not registered in the name of a member firm or its nominee, the carrying firm shall retain out of the proceeds of the sale a sum at least equal to the market value of the shares represented by the due bill until the shares covered thereby are received. If the market value of the shares represented by the due bill increases, the member firm must obtain from the customer additional funds or securities to satisfy the mark to market.

Only excess funds or securities held against these due bill requirements are to be given consideration in determining the status of a customer's account as it relates to maintenance margin for other purposes.

/06 Sinking Fund Transactions

Certain sinking fund transactions fail to qualify for the Nonsecurities Credit and Employee Stock Ownership Account under Regulation T (see Section 220.9(a)/03) because:

• Retirement of the security is deferred,

• Delivery is delayed beyond the next sinking fund retirement date, or

• The transaction is made with an affiliate of the issuer rather than directly with the issuer.

When a sinking fund transaction that may not be carried in the Nonsecurities Credit and Employee Stock Ownership Account for one or more of the above reasons, qualifies for the margin account under Regulation T, Section 220.4, the margin treatment afforded such transaction may be as follows:

• If 30 calendar days or less to delivery, the transaction may be exempt from margin requirements, but any mark-to-market loss which is not obtained must be deducted in computing net capital. (See SEC Rule 15c3-1(c)(2)(xii)).

• If over 30 calendar days to delivery, the transaction may be exempt from the margin requirements of this Rule, and instead treated as an open proprietary contractual commitment subject to the requirements of SEC Rule 15c3-1 subparagraphs (c)(2)(vi) and (c)(2)(viii). Such treatment, however, should not result in a duplication of deductions under the capital rule (SEC Rule 15c3-1).

See NYSE Rule 431(e)(7)/01 and Regulation T Section 220.09(a)/03.

/07 Option Premiums

Although premiums received from writing an option may be withdrawn or used as an offset against requirements on other transactions on the same day, such usage may result in the loss of equity to an account. An "in the money" call option could be sold against a long position in the underlying security, resulting in the underlying security being valued at the call's exercise value, which is below the current market value (pegging). In this case, any withdrawal will result in a loss of equity in the account and conceivably could even result in violation of this Rule. Accordingly, care should be used before any withdrawals are permitted. [See Reg. T Section 220.4(e)/06.]

/08 Marginable Foreign Securities

The purchase or short-sale of a marginable foreign security in a margin account or a sub-account, as allowed in Regulation T, will be subject to this section of the Rule and sub-paragraph (f)(1), "Determination of Value for Margin Purposes" for those securities not traded on a recognized foreign securities market.

(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.

/01 Credit Extended

The Rule requires that member organizations determine the total dollar amount of credit to be extended to any one customer or on any one security to limit the potential loss or exposure to the firm. It is important that specific limits be established to prevent any one customer or group of customers from endangering the member firm's capital.

/02 Credit Committee

It is suggested that member organizations appoint a credit committee with full authority to formulate credit policies and set limits as to the amount of credit that may be extended. It is recommended that the committee include the finance officer, credit officer and/or margin manager.

(e) EXCEPTIONS TO RULE

The foregoing requirements of this Rule are subject to the following exceptions:

/01 Exceptions

The exceptions referred to in this section apply only to the Special Initial Margin Requirements (Rule 431(f)(8)) and the Maintenance Margin Rule (Rule 431(c)). They do not apply to the $2,000 minimum equity requirement of Rule 431 (b).

(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.

/01 Net Positions

The terms net "long" or net "short" positions mean positions in the same issue of the same security.

/02 Time to Maturity

Requirements under this sub-section of the Rule are based on the remaining life of the bond until maturity, not on the bond's nominal life from issuance date to maturity date. Thus, a thirty year bond with only eight (8) years to maturity would require margin of 4%.

/03 International Bank

Obligations of the International Bank for Reconstruction and Development are treated as obligations of the United States Government. Customer positions in these obligations may be margined in accordance with the requirements of this section of the Rule.

/04 Federal National Mortgage Association (FNMA)

All securities issued by FNMA are deemed to be exempted securities. See Rule 431(b)/04 for special initial margin requirements on FNMA common stock and convertible debentures.

/05 Government Bond Dealers

Recognized Government bond dealers may extend credit, under this Rule, to any customer on a mutually agreed upon basis on U.S. Government securities, provided that, if the margin requirements are lower than the proprietary haircut deductions under the uniform net capital rule (SEC Rule 15c3-1, sub-paragraph (c)(2)(vi)(A), Securities Haircuts, Government Securities) a deduction in computing net capital will be made to the extent that the equity in a customer's account is less than such haircuts.

Recognized dealers are those U.S. Government Securities dealers reporting to the Market Reports Division of the Federal Reserve Bank of New York.

/06 Roll-Overs

Member organizations may permit a customer to roll-over Government securities that are maturing in thirty days or less into another Government security and use the margin maintained on the maturing issue to be used to reduce the margin required on the new issue, providing they have received irrevocable instructions from the customer to redeem the maturing issue. For example, a customer rolls-over a U.S. Treasury bond maturing in 20 days and purchases a new U.S. Treasury bond maturing in 25 years. The new U.S. Treasury requires 6% margin, which is offset in part by the 1% margin presently held on the U.S. Treasury maturing in 20 days. As a result the total margin required is 5%

(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.

/01 Non-Marginable Bonds

Non-convertible corporate debt securities that are not listed or traded on a registered national securities exchange or do not qualify as an "OTC margin bond" are deemed non-marginable securities and not eligible for the lower margin requirements permitted in this section of the Rule. These bonds must be margined in accordance with Section (c) of this Rule.

/02 Mortgage Related Securities

For a mortgage related security to qualify for the 5% margin treatment, the security must be in compliance with Section 3(a)(41) of the Securities Exchange Act of 1934 and must qualify as a marginable security.

/03 Net Tangible Assets

For the purpose of this Rule, net tangible assets means total assets less total liabilities less intangible assets (i.e., good will, etc.).

/04 Foreign Sovereign Debt Securities

"Good faith" loan value may be extended by broker/dealers on certain long-term debt securities issued or guaranteed as a general obligation by a foreign sovereign, its provinces, cities or states, or a supranational entity if there is available an explicit or implicit rating of the entity in one of the two highest rating categories by a nationally recognized statistical rating organization (Reg. T 220.18(b)).

The Exchange initial and maintenance margin requirements shall be the same requirements as non-convertible corporate debt securities (See Rule 431(e)(2)(C)).

(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 under 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.

/01 Accrued Interest

Member organizations may only use accrued interest to reduce or eliminate a maintenance call that has been created pursuant to this Rule. Accrued interest may not be considered as part of the price of a bond nor used in determining or computing equity in an account.

/02 Grandfather Clause

The Exchange is aware that the amended margin requirements under sub-sections (e)(2)(A), (B) and (C) of this Rule which are fully effective on September 1, 1987, may result in new maintenance calls on previously established positions that were properly margined in accordance with prior Rule 431 requirements. The specific areas affected are obligations of the United States wit twenty or more years to maturity, and the minimum margin requirements imposed on obligations of the United States, all other exempted securities and non-convertible corporate debt securities.

The Exchange will allow member organizations, at their discretion, to continue to carry those customer accounts now subject to the higher requirements in accordance with the prior Rule 431 requirements. However, once the customer's account becomes properly margined under the amended Rule 431 requirements it must be maintained in accordance with the higher requirements.

Member organizations shall supply the Exchange with an itemized list of all customer accounts being maintained pursuant to this "grandfather" provision. Only the customer accounts in the list are subject to the "grandfather clause". The itemized list must be received by the Exchange within thirty (30) business days from the date the member organization adopts the amended Rule 431.

Finally, the itemized list shall record the customer's name, account number(s) and the quantity and description of the security (ies) involved.

(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.

/01 Net Tangible Assets of $16,000,000

For the purpose of sub-section (e)(2)(F), the term "designated account" shall include any person as defined in sub-section (a)(7) having net tangible assets (as defined in subsection (e)(2)(C)/03) of sixteen million dollars ($16,000,000) or more.

/02 Repurchase Agreements

Reverse repurchase agreements in exempted securities shall be maintained in a special account subject to the provisions of this section of the Rule.

/03 Mortgage Related Securities

For the purpose of this Rule, cash transactions and reverse-repurchase transactions in mortgage related securities as defined in Section 3(a)(41) of the Securities Exchange Act of 1934 may be afforded the same treatment as exempted securities under this sub-section (e)(2)(F).

/04 Government National Mortgage Association (GNMA)

All GNMA cash transactions for customers and non-customers are subject to the provisions of this section of the Rule. Cash transactions in GNMAs may include transactions in TBAs (to be announced) and standbys. TBAs are delayed delivery and "when issued" type transactions in GNMAs. Generally, GNMA pool numbers are not announced or assigned to these transactions on trade date. Standby commitments represent the equivalent of a short put position in a customer account, which gives the member organization the right to deliver to the customer against payment a specific amount of GNMAs on a specified date.

Unrealized profits in one GNMA transaction may offset any loss from another GNMA transaction in the same customer account and the amount of net unrealized profits may be used to reduce requirements. Only profits (in-the-money amounts), if any, on long standbys are recognized.

/041 Exempt Accounts for GNMAs

Exempt accounts in addition to those provided in this section of the Rule and those established under paragraph /01 above may include (a) all independently audited entities with both more than $1.5 million of net current assets (which may include in the case of mortgage bankers a 3/4 of 1% maximum allowance on loan servicing portfolios) and with more than $1.5 million of net worth and (b) GNMA brokers who act only as agents where the member organizations independently confirm, at least monthly, that such GNMA brokers are acting for accounts qualified above or which are otherwise exempt accounts. In evaluating loan servicing portfolios the generalized 3/4 of 1% allowance is not necessarily appropriate. It is suggested that consideration be given to such factors as: the loan balance, servicing fee, remaining life of the loan, probability of loan survival, delinquency rate, geographic relationships, cost of foreclosure and servicing costs.

/042 Establishing Risk Limits for GNMAs

In lieu of deducting from original capital 100% of mark-to-market deficits in exempt accounts and having to obtain margin as well as mark-to-market deficits from non-exempt mortgage bankers' accounts, member organizations may make a determination in writing of a risk limit for each such exempt account and non-exempt mortgage banker's account.

The exemption shall apply only to the limit amount which for any one account or a group of commonly controlled accounts cannot exceed 5% of the member firm's tentative net capital. The risk limit determination for positions and mark-to-market exposure shall be made by a qualified credit executive or credit committee of executives qualified under Exchange Rule 342(e), taking into consideration the firm's excess net capital and each customer's net current or tangible assets. Each firm shall establish various levels of credit limits which are to be authorized in writing by appropriate management credit executives or committees depending upon credit levels. Supervisory personnel shall review the activity and status of accounts of customers, as frequently as circumstances warrant but in any event at least quarterly. Member organizations shall also (1) assure themselves that persons entering orders and issuing instructions with respect to customer accounts are doing so upon authority (see Exchange Rule 405.10) and (2) institute procedures to obtain prompt written confirmation of trades.

/043 Exempt Account Requirements for GNMA Transactions

Exempt accounts shall not be required to put up margin or marks-to-market on their exempt GNMA transactions, i.e., those within their established risk limits. However, a member organization shall charge its capital for any marked-to-market deficits not collected as follows:

	Period to Contract Maturity or Delivery Date from Trade Date	Capital Charge Percentage of Mark-to-Market Deficits
(a) TBAs	0 to 120 days	10%
	121 days to 1 1/2 years	25%
	Over 1 1/2 years	100%
(b) Standbys	0 to 1 year	15%
	Over 1 year to 2 years	25%
	Over 2 years	100%

See /046 for possible additional capital charges relating to concentration.

Any transactions in excess of the established risk limit shall be treated as though they were carried for non-exempt accounts subject to the requirements of paragraph /044 below except that cash margin deficiencies need not be obtained.

[See Exhibit I.]

Note: The TBA category 0 to 120 days may include all transactions which provide for a settlement date no later than the last day of the calendar month in which the 120^th day after trade date falls.

/044 GNMAs — Non-Exempt Accounts Other Than Mortgage Bankers

In non-exempt accounts of other than mortgage bankers, TBA or standby transactions are subject to a 5% margin requirement and marks-to-market, which must be obtained. Any cash margin deficiencies based upon such requirements are to be deducted in the computation of net capital after five (5) business days from the date they arise, until collected. However, on those TBA transactions with delivery dates or contract maturity dates 120 days* or less from trade date no margin or mark-to-market deficits need be obtained, provided 100% of any mark-to-market deficits are deducted by the member organization in computing net capital.

[See Exhibit I.]

*The TBA category 0 to 120 days may include all transactions which provide for a settlement date no later than the last day of the calendar month in which the 120^th day after trade date falls.

/045 GNMAs — Non Exempt Mortgage Bankers' Accounts

Non-exempt mortgage bankers' accounts shall not be required to put up margin or marks-to-market on their GNMA transactions, within their established risk limits. However, member organizations shall charge their capital for any mark-to-market deficits not collected as follows:

	Period to Contract Maturity or Delivery Date from Trade Date	Capital Charge Percentage of Mark-to-Market Deficits
(a) TBAs	0 to 120 day*	25%
	121 days to 1 1/2 years	50%
	Over 1 1/2 years	100%
(b) Standbys	All transactions	100%

*The TBA category 0 to 120 days may include all transactions which provide for a settlement date no later than the last day of the calendar month in which the 120th day after trade date falls.

See /046 for possible additional capital charges relating to concentration.

Any transactions in excess of the established risk limit shall be treated as though they were being carried for nonexempt accounts subject to the requirements of paragraph /044 above except that cash margin deficiencies need not be obtained.
[See Exhibit I.]

/046 GNMAs — Concentration Risk Provision

With respect to transactions up to the risk limit, a mark-to-market deficit in any one account or combined group of commonly controlled exempt accounts or non-exempt mortgage banker's account shall be charged to capital to the extent it exceeds 5% of the firm's tentative net capital, although the total deduction shall not exceed 100% of the deficit. In addition, if the total mark-to-market deficits in all accounts less the amount of such deficits deducted in computing net capital, exceeds tentative net capital, 50% of such excess shall be deducted in computing net capital.

/047 GNMAs — Conversion or Exercise of Standbys

In computing the capital charges under these interpretations, the trade date and capital charge percentage for TBAs which have been sold to a customer under the terms of a standby agreement shall be the same as the original trade date and capital charge percentage for the standby contract in the account of the writer. As an example, if an exempt account entered into a thirteen (13) month standby contract to purchase GNMAs and the holder of the standby contract exercise his option to sell after twelve (12) months has elapsed, thus selling to the exempt account TBAs with less than 120 days to maturity, the member organization must still charge its capital (for uncollected mark-to-market deficits) on the basis of the original standby contract (25%) and not on the basis of a "new" TBA transaction (10%).

EXHIBIT I

G.N.M.A

Treatment of Customers' Transactions Under Rule 431(e)(2)(F)

Type of Account				Type of Transaction
				Period to Contract Maturity or Delivery Date from Trade Date
	TBAs			Standbys
	0 to 120 days(1)	121 days to 1 1/2 years	Over 1 1/2 years	0 to 1 year	O ver 1 year to 2 years	Over 2 years
Exempt Accounts(2)
5% Margin	No	No	No	No	No	No
Mark-to market deficits	Yes(3)	Yes(4)	Yes(5)	Yes(6)	Yes(4)	Yes(5)
Capital charges	Yes(3)	Yes(4)	Yes(5)	Yes(6)	Yes(4)	Yes(5)
Non-exempt Accounts Other than Mortgage Bankers
5% Margin	No	Yes	Yes	Yes	Yes	Yes
Mark-to market deficits	Yes(5)	Yes(7)	Yes(7)	Yes(7)	Yes(7)	Yes(7)
Capital charges	Yes(5)	Yes(7)	Yes(7)	Yes(7)	Yes(7)	Yes(7)
Non-exempt Mortgage Bankers
5% Margin	No	No	No	No	No	No
Mark-to market deficits	Yes(4)	Yes(8)	Yes(5)	Yes(5)	Yes(5)	Yes(5)
Capital charges	Yes(4)	Yes(8)	Yes(5)	Yes(5)	Yes(5)	Yes(5)

CODES

(1) The category 0 to 120 days may include all transactions which provide for a settlement date no later than the last day of the calendar month in which the 120^th day after trade date falls.

(2) Exempt accounts are defined as: member organization, non-member broker/dealer*, "designated account", or any person (as defined under Section 3(a)(9) of the SEC Act of '34) having net tangible assets (stockholders' equity less intangible assets) of $16,000,000 or more.

On GNMA transactions only, exempt accounts may include all independently audited entities with both more than $1.5 million of net current assets (which may include in the case of mortgage bankers a 3/4 of 1% maximum allowance on loan servicing portfolios) and with more than $1.5 million of net worth. In addition, GNMA transactions with GNMA brokers who act only as agents may be treated as "exempt account" transactions if the member organization independently confirms at least monthly that such GNMA brokers are acting for accounts qualified as "exempt accounts".

*The term non-member broker/dealer refers to those broker/dealers who are members of another securities exchange or who are registered with the SEC under Section 15 of the Securities Exchange Act of 1934.

(3) Mark-to-market losses need not be obtained, provided an amount equal to 10% of the loss, plus the amount of the deficit in each such account or accounts controlled by such persons that exceeds 5% of tentative net capital, is deducted in computing net capital by the member organization under the Exchange's capital requirements.

Any mark-to-market deficit plus margin on transactions in excess of the established risk limit for an account or a group of commonly controlled accounts is to be deducted in computing net capital by the member organization under the Exchange's capital requirements. In addition, if the total mark-to-market deficits in all accounts less the amount of such deficits deducted in computing net capital, exceeds tentative net capital, 50% of such excess shall be deducted in computing net capital.

(4) Same as (3) above, except substitute 25% for 10%.

(5) These mark-to-market losses need not be obtained, provided an amount equal to 100% of the loss is deducted in computing net capital by the member organization under the Exchange's capital requirements.

(6) Same as (3) above, except substitute 15% for 10%.

(7) CMD — Margin and mark-to-market losses (CMDs) must be collected. Such CMDs are to be deducted in computing net capital by the member organization under the Exchange's capital requirements, after five (5) business days from the date they arise, until collected.

(8) Same as (3) above, except substitute 50% for 10%.

(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.

/01 Employee Participation

(a) Sharing in Profits

If any employee as part of his compensation is participating in only the profits in a firm account, such an account would be deemed a proprietary account. The Exchange has no objection to such arrangements, provided the employee's participation is recorded as a salary or bonus incentive or in another similar manner. Exchange permission is not required for such arrangements.

(b) Sharing in Losses

The Exchange does not prohibit an employee from sharing in the losses of firm accounts. However, it should be understood that in such instances the member organization is extension or maintaining credit on the employee's behalf. Thus, such an account would represent a "joint venture" between the employee and the member organization. These accounts, as well as general partners' personal accounts, are customer accounts and must be properly margined in their entirety by the respective participant in proportion to their interest.

(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 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.

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.

/01 Underwritings — Over Allotments

Short sale transactions made by an approved specialist or market maker in accordance with a guaranteed over-allotment from an underwriting may be treated as a specialist or market making transaction.

(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 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 JBO (also see Rule 313 for 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 in 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 Tentative Net Capital, 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.)

/01 Sinking Fund Transactions

When a member organization purchases a security for its own account and sells it on a delayed delivery basis to the issuer for sinking fund requirement purposes and such transaction qualifies under Regulation T for the Nonsecurities Credit and Employee Stock Ownership Account, the margin treatment afforded such sinking fund transaction may be as follows:

• If 30 calendar days or less to delivery, the transaction may be exempt from margin requirements but any mark-to-market loss which is not obtained must be deducted in computing net capital. (See SEC Rule 15c3-1(c)(2)(xii)).

• If over 30 calendar days to delivery, the transaction may be exempt from margin requirements of this Rule and instead treated as an open proprietary contractual commitment subject to the requirements of SEC Rule 15c3-1 subparagraphs (c)(2)(vi) and (c)(2)(viii). Such treatment, however, should not result in a duplication of deductions under the capital requirements rule.

For sinking fund transactions that do not qualify for this type of treatment, see NYSE Rule 431(c)/06.

See NYSE Rule 431(c)/06 and Regulation T, Section 220.9(a)/03.

/02 Unsecured Loans

Unsecured loans are to be charged to net capital in their entirety.

/03 Nonpurpose Loans Collateralized by Certificates of Deposit

Nonpurpose loans collateralized by negotiable certificates of deposit need not be charged to net capital in their entirety if certain conditions are satisfied. (See SEC Rule 15c3-1(c)(2)(iv)(B)/10).

(8) Shelf-Registered, Control and Restricted Securities.

/01 Adherence to Rules 144 and 145(d) — Securities Act of 1933

Member organizations are cautioned to take appropriate steps to ensure that the provisions and conditions of Securities Act Rules 144 and 145(d) have been and are adhered to before extending credit on shelf-registered, control and restricted securities.

It should be noted that Rule 145(d) is not entirely independent, and is partially dependent upon many of the provisions of Rule 144 (i.e., — subsections (c), (e), (f) and (g)). Rule 144 seeks to set forth objective standards intended to be reflective of what is other than a "distribution":

• Ensuring the availability of adequate current public information about the issuer and distinguishing between regularly reporting and non-reporting companies [Rule 144(c)];

• Placing the unconditional economic risk of the investment more clearly upon the purchaser (and preventing conduit sales on behalf of the issuer) by requiring that "restricted securities" be fully paid and held by the purchaser for a 2-year period [Rule 144(d)];

• Predetermining the market impact of the transaction (in order to avert distributions) by arbitrarily limiting the amount of securities which may be sold (based upon such predicates as volume, number of shares outstanding, "affiliation" with the issuer and the nature of the reporting obligation) [Rule 144(e)], by generally proscribing solicited buy orders and the payment of special compensation [Rule 144(f)] and by mandating that the sale be effected as an ordinary unsolicited brokerage transaction or directly with a "market maker" [Rule 144(f) and (g)].

• Building into the rule safeguarding features relative to the above by imposing upon the selling broker steps of "reasonable inquiry" [Rule 144(g)] and by usually requiring the filing of a notice of sale [Rule 144(h)].

Member organizations are advised to pay particular attention to the volume and varying resale limitations, the currency of the issuer's filings, the tacking and aggregation provisions (including the concepts of "person" and "acting in concert") and to consider requesting a letter containing an irrevocable power to sign Form 144 in the name of and on behalf of the customer or obtaining a Form 144 signed in blank. In either event, it would be necessary to establish a means by which the information required by Form 144 would be continuously updated by the customer. Special inquiry may be advisable where a number of pledgers of the same security ("x") all use the proceeds of their loans to purchase another security ("y").

Failure to take appropriate precautions and institute relevant procedures may result in violations of both the Securities Act of 1933, as amended, as well as Exchange Rule 431. It is to be emphasized that value will be accorded only to the securities of those issuers who are subject to the continuous reporting system of the Exchange Act (i.e., Section 12(b), 12(g) and 15(d) companies) who have been subject thereto for a period of at least 90 days and who have filed all required reports during the preceding 12 months.

(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).)

/01 Shelf-Registered Securities

Shelf-registered securities are securities registered for continued or delayed offering pursuant to Rule 415 under the Securities Act of 1933.

/02 Net Capital Charges

Shelf-registered securities that meet all of the conditions prescribed in sub-section (e)(8)(A) need not be included in the calculation of excess net capital and net capital deductions required by sub-sections (e)(8)(C) and (D).

/03 Example — Net Capital Charge

A new customer deposits shelf-registered securities with a market value of $100,000 and in accordance with Regulation T (50% loan value) makes a $50,000 withdrawal. All of the conditions in Rule 431(e)(8)(A) are met. If at a future date, the market value of the securities depreciated to $60,000, additional margin required from the customer would be $5,000, computed as follows:

$60,000	Current Market Value
50,000	Debit
10,000	Equity
15,000	Maintenance requirement (25% pursuant to Rule 431(c))
$5,000	Additional margin which must be collected under Rule 431(c) and (e)(8).

Assuming no change in value, the $5,000 cash margin deficiency is a deduction in computing net capital under the Exchange's capital requirements, five (5) business days after the date it arises, until collected. [See SEC Rule 15c3-1(c)(2)(xii)]

/04 Mortgage Related Securities

Mortgage related securities as defined in Section 3(a)(41) of the Securities Act of 1934 that are subject to a shelf registration, may be carried on a margin basis subject to subsection (e)(2)(C) of this Rule. Therefore, this subsection (e)(8)(A) does not apply.

(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).)

/01 Possible Reduction of Marginable Shares

Member organizations may wish to consider, where practicable, a requirement that customers deposit with them all control or restricted securities of the class on which credit is being extended. Absent this arrangement, or to the extent it is known that additional shares of these securities are not deposited with them, the amount of shares considered good for margin purposes should under certain conditions be reduced by the amount of such shares not held, before member organizations determine the amount of credit to be extended.

/02 Example of Computations

A customer deposits control securities with a current market value of $1,000,000 and, in accordance with Regulation T (50% loan value), makes a $500,000 withdrawal. If the saleable amount of such securities, under Securities Act Rule 144, had a current market value of $600,000 and no concentration exists pursuant to sub-section (e)(8)(C)(iv), the "customer margin computation" and "capital charge computation" would be as follows:

"Customer margin computation"
$1,000,000	Value
500,000	Debit
500,000	Equity
400,000	Maintenance requirement (40%)

Account meets the Rule 431(e)(8)(B) "customer" requirement.

"Capital charge computation"
$600,000	Saleable value
500,000	Debit
100,000	Equity
150,000	25% requirement for net capital purposes
$50,000	Amount to be deducted in computing the member organization's net capital under Rule 325 pursuant to Rule 431(e)(8)(B)(i) and (C)(iv).

If at a future date, the current market value of the control securities depreciated to $800,000, additional margin of $20,000 would be required from the customer. If, at that date, the saleable amount of such securities under Securities Act Rule 144 had a current market value of only $520,000, the "customer margin computation" and "capital charge computation" would be as follows:

"Customer margin computation"
$800,000	Value
500,000	Debit
300,000	Equity
320,000	Maintenance requirement (40%)
$ 20,000	Margin call which must be met by customer pursuant to Rule 431(e)(8)(B).

"Capital charge computation"
	$520,000	Saleable value
	500,000	Debit
	20,000	Equity
	130,000	25% requirement for net capital purposes.
	110,000
Less	20,000	Current outstanding margin call (See 15c3-1(c)(2)(xii)).
	$90,000	Amount to be deducted in computing the member organization's net capital under Rule 325 pursuant to Rule 431(e)(8)(B)(i) and (C)(iv).

/03 Rule 144 — Securities Act of 1933

The reference, in Rule 431, to Rule 144 is to that Rule under the Securities Act of 1933 [17 CFR Section 230.144 (1983)]. Generally, Rule 144 provides that any affiliate of the issuer or other person who sells restricted securities of an issuer for his or her account, or any person who sells restricted or any other securities for the account of an affiliate of the issuer, is not deemed to be engaged in a distribution of the securities, and therefore is not an underwriter as defined in Section 2(11) of the 1933 Act, if the securities are sold in accordance with all the terms and conditions of the Rule.

/04 Rule 145 — Securities Act of 1933

The reference, in Rule 431, to Rule 145 is to that Rule under the Securities Act of 1933 [17 CFR Section 230.145 (1985)]. Rule 145 provides generally, in part, that any party, or any affiliate of such party, including a corporation (other than the issuer), whose assets or capital structure are affected by certain corporate reorganization transactions specified in the Rule shall be deemed to be an underwriter for purposes of 1933 Act requirements. Rule 145(d) exempts from these requirements, persons, among others, who sell the securities acquired in such transactions in compliance with certain Rule 144 limitations.

/05 Application of Rule 144 — Securities Act of 1933

Whenever credit is extended under NYSE Rule 431 for control or restricted securities, the Rule presupposes: that the securities have been issued by a seasoned company with an unblemished reporting history and meet the other standards set forth in Rule 431; that the member organization has recourse to the customer upon default pursuant to the signed margin agreement; that credit has been granted to the public customer in the bona fide expectation of repayment on the basis of such customer's general credit worthiness; and that such securities are sold only upon default of the margin loan and not upon the order of the customer.

/06 "Then Saleable"

The term "then saleable", which is used in Rule 431(e)(8)(B)(i) and in (e)(8)(D)(i) & (ii), refers to those specified and quantifiable securities where all the terms and conditions of Securities Act Rule 144 have been completely satisfied, including any applicable holding period, and thus immediately saleable within the parameters of Securities Act Rules 144 and 145(d).

/07 Mortgage Related Securities

Mortgage related securities as defined in Section 3(a)(41) of the Securities Exchange Act of 1934 which are "restricted securities" solely because they were offered and sold pursuant to the private placement exemption from the registration requirements of the Securities Act of 1933, may be carried on a margin basis subject to sub-section (e)(2)(C) of this Rule. Therefore, this sub-section (e)(8)(B) does not apply.

(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.

/01 Reporting Requirements

Member organizations are required to advise their Finance Coordinator, in writing, when the credit extended on shelf-registered, control and restricted securities exceeds the lesser of 10% of excess net capital or $1,000,000.

(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 326 to 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.

/01 Limit on Credit Extended

There is no limit to the total amount of credit which may be extended to all customers on control and restricted securities of any one issuer. However, if the total credit actually extended or agreed to be extended on any one issue exceeds 10% of excess net capital then the amount in excess of 10% shall be deducted from net capital in determining the member organization's status under Rule 326. For example:

A member organization's excess net capital is $10,000,000. A control customer deposits $3,000,000 (current market value) of XYZ securities on which the firm agrees to lend $1,500,000 (Regulation T 50%). The customer withdraws only $1,000,000. The member organization must deduct $500,000 from net capital to determine its status under Rule 326, computed as follows:

Excess net Capital	$10,000,000
10% of excess		$1,000,000
Amount agreed to be extended		1,500,000
Rule 326 deduction Pursuant to Rule 431(e)(8)(C)(ii)		$ 500,000

/02 Time of Calculation

Calculations necessary to determine compliance with sub-section (e)(8)(C)(ii) must be made at the time that credit is actually extended or agreed to be extended and must include all credit which had previously been extended or agreed to be extended. Each extension of credit impacts the Rule 326 calculations which could require business reduction.

(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 325 shall 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.

/01 Aggregate Credit Extended

The aggregate credit extended to each customer for purposes of sub-section (e)(8)(C)(iii) only, shall be determined by the adjusted debit balance, if any, in the customer's account which is deemed to be the total amount of credit extended to that customer. Adjusted debit balance is determining by liquidating all of the long and short security positions in the customer's account, other than long control or restricted securities, at their current market values (debit balance plus market value of short securities, less market value of long securities and any credit balance) except that no long option positions carried for the customer shall be considered to have any value and the short cover value of any short option positions traded in the over-the-counter market shall be considered as an increase (debit) to the adjusted debit balance for their in-the-money amounts, if any. The short cover value of any short listed option positions shall be their market value. In addition, such adjusted debit balance shall include any mark to market losses on positions in "when issued" and "when distributed" securities.

/011 Example of Computations — Aggregate Credit Extended

A customer deposits 5,000 shares of XYZ, a restricted security, with a market value of $100,000 ($20 per share). On the same day, in accordance with Regulation T (50% loan value) the customer sells short 1,000 shares of ABC for $40,000 and writes (sells) ten listed call options on DEF at $40 (strike price) at $500 per option (total premium $5,000). No funds are withdrawn from the account.

At a later date, the market values have appreciated to $25 per share for XYZ, $50 per share for ABC and $700 per option for DEF. Based on these prices, the total amount of credit extended on the restricted security is $12,000, which must be included when calculating the amount to be deducted from net capital for purposes of determining the member organizations status under Rule 326.

The above amount is calculated as follows:

Liquidation of short sale of ABC
1,000 shares at $50	$50,000
Less proceeds of sale	40,000
Loss		$10,000
Short cover value of DEF calls
10 Calls at $700	$7,000
Less Premium held	5,000
Loss		2,000
Adjusted debit balance		$12,000

/02 Limit on Credit Extended

There is no limit to the amount of credit that may be extended to all customers on control and restricted securities of all issuers combined. However, the total credit actually extended (not the amounts agreed to but not actually extended) will result in a deduction to net capital in determining the member organization's status under Rule 326 based on the formula in sub-section (e)(8)(C)(iii).

/021 Example of Rule 326 Deduction

Assume that a member organization's excess Net Capital is $2,000,000 and aggregate credit extended to all customers on control and restricted securities totals $1,000,000. The charge to net capital for determining the firm's status under Rule 326 would be $250,000, computed as follows:

Excess net capital	$2,000,000
50% limit on excess net capital	1,000,000
Aggregate credit extended	1,000,000
Charge to Rule 326 of 25% as aggregate credit extended does not exceed limit on excess net capital	$ 250,000

If in the above example, the member organization's excess Net Capital was $1,600,000, the charge to net capital under Rule 326 would be $400,000, computed as follows:

Excess net capital	$1,600,000
50% limit on excess net capital	800,000
Aggregate credit extended	1,000,000
Charge to Rule 326
25% of amount up to 50% ($800,000) of excess net capital	$ 200,000
100% of amount exceeding 50% of excess net capital ($1,000,000 - $800,000)	200,000
Total Charge	$400,000

(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), 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%

/01 Securities Subject to Concentration Formula

Only control and restricted securities are to be considered in determining when a concentration exists. Shelf-registered securities are not subject to the concentration formula. Securities of other issuers held in the customers account are not subject to the concentration formula.

/02 Example of Concentration Computation

Assume that the customer's position in the example under (e)(8)(B)/02 represented 11% of the outstanding shares, thereby subjecting the position to a concentration reduction. The "customer's margin computation" would be unchanged, but the "capital charge computation" would be as follows:

At the time the control securities were deposited with a current market value of $1,000,000:

"Capital charge computation"
$ 600,000	Saleable value
500,000	Debit
100,000	Equity
180,000	30% requirement for net capital purposes pursuant to concentration reduction.
$ 80,000	Amount to be deducted in computing the member organization's net capital under Rule 325 pursuant to Rule 431(e)(8)(B)(i) and (C)(iv).

When the control securities depreciated in value to $800,000:

"Capital charge computation"
	$520,000	Saleable value
	500,000	Debit
	20,000	Equity
	156,000	30% requirement for net capital purposes pursuant to concentration reduction.
	$132,000
Less	20,000	Current outstanding margin call (See SEC Rule 15c3-1(c)(2)(xii))
	$112,000	Amount to be deducted in computing the member organization's net capital under Rule 325 pursuant to Rule 431(e)(8)(B)(i) and (C)(iv)

(v) The amount to be deducted from Net Capital for purposes of determining a member organizations 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.

/01 Non-Affiliate Exemption

Within the context of this sub-section (e)(8)(D), Securities Act Rules 144(k) and 145(d)(3) permit the sale of securities subject to these Rules without volume limitation or notice requirement upon satisfaction of a two year holding requirement by persons who have not themselves been affiliates of the issuer for the preceding three months. Rule 145(d)(2) permits sales upon satisfaction of a one-year holding period.

/02 Continuing Requirement for Non-Affiliate Exemption

The relief afforded by Rule 431(e)(8)(D) is effective only during such time periods as the provisions of 144(k), 145(d)(2) or (d)(3) continue to apply and have been fully satisfied and only in regard to securities of an issuer that continues to maintain a consistent history of filing annual periodic reports; in timely fashion, pursuant to the formal continuous disclosure system under the Securities Exchange Act of 1934.

/03 Optional Member Organization Procedures

It should be noted that the provisions of Rule 431(e)(8)(D) permit member organizations to impose such higher maintenance requirements as they may deem appropriate. Moreover, they may wish to establish special supervisory procedures to consider the desirability of and to monitor loan transactions entered into pursuant to Rule 431.

/04 Then Saleable

See Rule 431(e)(8)(B)/06.

(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.

/01 Concentration or Volatile Securities

Substantial additional margin must be required:

• When there are concentrations in single securities (either in particular accounts or in all margin accounts carried) which, due to their size, may not be liquidated promptly; and

• For accounts with positions in volatile securities subject to unusually rapid or violent changes in value.

Accordingly, steps should be taken to:

• Increase margin requirements when it appears that accumulated positions will be difficult to liquidate promptly; and

• Prevent such positions from being acquired.

/02 Suspended Securities

Securities suspended by the SEC (not those whose trading has been halted or suspended by a self-regulatory organization) that are held in customer's accounts are valued and margined as follows:

(a) Long positions have no value.

(b) Short positions are valued at the last known sale price prior to suspension and regular maintenance margin requirements are applied.

(c) Long and short positions of the same security are paired-off and only the excess position is margined in accordance with (a) or (b) above.

(d) Long stock versus short warrants representing the same security are treated the same as (c) above.

(e) Long exchangeable or convertible securities versus equivalent shorts of the underlying security position are treated as follows:

(1) there is no maintenance requirement, if there is no conversion cost or other restrictions, or

(2) if there is a conversion cost but no other restriction, the requirement is the conversion cost or the regular maintenance requirement on the short position, whichever is less, or

(3) if there is a restriction to the conversion other than a conversion cost, the positions are margined in accordance with items (a) and (b) above.

(2) Puts, Calls, Other Options, Currency Warrants, Currency Index Warrants and Stock Index Warrants.

/01 Compliance With Rule

Member organizations are required to comply with Rule 431 and should file a written notice with the Chicago Board Options Exchange, as provided in its Rule 12.11, stating that they elect to be bound by the New York Stock Exchange requirements.

(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 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 the timely payment of principal and interest by the Government National Mortgage Association shall be referred to as GNMA obligations.

Definitions: — for (f)(2)(Numbered for Interpretation Handbook Purposes)

(i) 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.

(ii) 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).

(iii) 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.

(iv) 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.

(v) 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 in the prospectus (if any).

(vi) A "registered 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 pursuant to Section 17A(b)(2) of the Act.

(vii) 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 multiplied by ten.

(viii) 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 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.

(ix) 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.

(x) 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.

(xi) 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).

(xii) 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).

(xiii) 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).

(xiv) 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).

(xv) 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).

(xvi) 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).

(xvii) 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).

(xviii) 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 warrants, 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.

/01 Condor Spreads

The long condor, short iron condor, long calendar condor and short calendar iron condor spread strategies described in section (f)(2) of this Rule can be structured whereby the interval between the two middle exercise prices is not equal to the interval between the 1^st & 2^nd, and 3^rd & 4^th exercise prices. However, the interval between the 1^st & 2^nd and 3^rd & 4^th exercise prices must always be equal to each other.

The interval between the two middle exercise prices may be any amount greater than zero, and the call exercise price may not be below the put exercise price in the case of the Short Iron Condor and Short Calendar Iron Condor spreads.

Examples of the above strategies as currently defined, along with examples of the variation strategies that would now be eligible for the same margin requirement are as follows:

Strategy	Current Rule Definition	Variation	Margin Requirement for Both
Long Condor Spread (Calls)	Long Call Feb 50 Short Call Feb 55 Short Call Feb 60 Long Call Feb 65	Long Call Feb 50 Short Call Feb 55 Short Call Feb 65 Long Call Feb 70	Pay for net debit in full.
Long Condor Spread (Puts)	Long Put Feb 50 Short Put Feb 55 Short Put Feb 60 Long Put Feb 65	Long Put Feb 50 Short Put Feb 55 Short Put Feb 65 Long Put Feb 70	Pay for net debit in full.
Long Calendar Condor Spread (Calls)	Long Call Feb 45 Short Call Feb 50 Short Call Feb 55 Long Call Apr 60	Long Call Feb 45 Short Call Feb 50 Short Call Feb 70 Long Call Apr 75	Pay for net debit in full.
Long Calendar Condor Spread (Puts)	Long Put Feb 45 Short Put Feb 50 Short Put Feb 55 Long Put Apr 60	Long Put Feb 45 Short Put Feb 50 Short Put Feb 70 Long Put Apr 75	Pay for net debit in full.
Short Iron Condor Spread	Long Put Feb 50 Short Put Feb 55 Short Call Feb 60 Long Call Feb 65	Long Put Feb 50 Short Put Feb 55 Short Call Feb 70 Long Call Feb 75	Exercise price interval (aggregate) of the put or call spread. Net credit received may be applied.
Short Calendar Iron Condor Spread	Long Put Feb 45 Short Put Feb 50 Short Call Feb 55 Long Call Apr 60	Long Put Feb 45 Short Put Feb 50 Short Call Feb 60 Long Call Apr 65	Exercise price interval (aggregate) of the put or call spread. Net credit received may be applied.

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, 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 sub-section (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 warrant issued, guaranteed or carried "short" in a customer's account may be reduced by any "out-of-the-money" (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 Option	II Initial and/or Maintenance Margin Required	III Minimum Margin Required	IV Underlying Component Value
(01) 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 val and the applicable index multiplier
(4) U.S. Treasury bills-95 days or less to maturity	35%	1/2%	The underlying principal amount
(5) US, 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 multiplier
(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 produce 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)(D)(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)(D)(iii) below.

I Type of Options	II Initial and/or Maintenance Margin Required	III Minimum Margin Required	IV 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.

**Option transactions on all other OTC margin bonds are not eligible for the margin requirements contained in this provision. Margin requirements for such securities are to be computed pursuant to category (6).

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.

*Option contracts under category (4) must be for a principal amount of not less than $500,000.

/01 Mergers and acquisitions

When an options exchange ceases trading in a option, issued by a registered clearing agency, of a specific company because the "underlying asset" (as defined in Regulation T, Section 220.2 —Definitions) no longer trades due to a merger or acquisition and the registered clearing agency has formerly announced that all outstanding options will settle for cash in an amount equal to the difference between a fixed dollar amount and the strike price of the option, the margin required on such options may, at the member organization's discretion, be computed as follows:

Out-of-the-money options —	no requirement
In-the-money options -	The amount of the difference between the dollar amount set by the registered clearing corporation and the strike price of the option or the amount of margin required by the registered clearing corporation, whichever is greater.

The difference between the amount of margin previously required pursuant to Rule 431(f)(2)(D)(i) and the above requirements, if any, may be released to the customer on the effective date as established by the registered clearing agency.

(FRB letter to CBOE dated April 12,1990)

(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 a 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 position

and 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 or 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 sub-paragraph (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 the 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 is 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, 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.

(a) 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.

(b) 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.

(c) 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.

(d) 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.

(e) Butterfly Spread: This subparagraph applies to a butterfly spread as defined in subparagraph (f)(2)(C)(viii) 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)(viii) 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)(viii) of this Rule, margin must be deposited and maintained equal to at least the amount of the aggregate difference between the two lowest exercise prices with respect to short butterfly spreads comprised of calls or the aggregate 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.

(f) Box Spread: This subparagraph applies to box spreads as defined in subparagraph (f)(2)(C)(ix) 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)(ix) 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)(ix) of this Rule, margin must be deposited and maintained equal to, 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.

(g) Long Box Spread in European Style Options: With respect to a long box spread as defined in subparagraph (f)(2)(C)(ix) 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 aggregate 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.

(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.

/01 Convertible Bond Hedge

Convertible bonds carried long in margin or cash accounts may be considered as a hedge for short call options sold in margin or cash accounts for an equivalent amount of common stock into which the bonds are convertible.

/02 Control or Restricted Securities Covering Options Sold

The sale (writing) of listed call options against securities subject to Rules 144 and 145 of the Securities Act of 1933 is permissible. However, any sale of securities subject to Rules 144 or 145, through the sale of options, will require that all conditions of the Rules must be satisfied both at the time of sale of the option and at the time that the underlying security is delivered pursuant to an exercise notice.

Cash accounts

Calls may be sold against fully paid securities, providing Rules 144 and 145 are adhered to. There are no Exchange requirements on such positions in cash accounts, as they are deemed covered calls.

Margin accounts

Margin accounts are treated the same as cash accounts except that any credit extended on securities subjects the account to sub-section (e)(8) of 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.

/01 Net Positions

In the case of convertible hedge positions (i.e., where 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) or "short against the box" positions in a customer's account, neither the long nor the short position is available to offset the margin required on any option position carried for such customer.

(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 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.

/01 OTC Government Options

Regulation T, Section 220.18(b) states that the margin on exempted securities is that required by the creditor in "good faith". Under Rule 3a12-7 of the Securities Act of 1934, over-the-counter options on government securities which represent obligations of $250,000 or more are designated as exempt securities. Therefore, an escrow receipt for an OTC government option where the underlying value is $250,000 or more may be collateralized by cash.

An escrow receipt for an OTC government option where the underlying value is less than $250,000 requires that the underlying security be held as collateral for the receipt.

FRB Letter to CBOE Dated December 12, 1986

/02 Use of Government Security Under Escrow Receipt

It is not permissible for the underlying security backing an escrow receipt that is collateralizing an OTC government option to be sold under a repurchase agreement. Further, the underlying security may not be used to secure another obligation.

FRB Letter to CBOE Dated December 12, 1986

/03 Indices Option Deposit Letter — Under Collateralized

If a member organization is notified by the issuing bank or trust company (pursuant to the terms of the letter) that the value of the deposit has fallen below 50% of the current aggregate position value, the deposit letter will cease to be acceptable in lieu of margin unless the member organization promptly obtains additional collateral.

Interp. Memo No 87-1 Dated January 14, 1987

/04 Option Deposit Letter

The privilege of using option deposit letters may be extended to any customer of a member organization provided such letter by a third party custodian bank or trust company.

In this regard:

• The Exchange's prescribed forms of option deposit letters for puts and calls on equity securities or U.S. Government securities and for puts on indices and the OCC's prescribed forms of escrow receipts are the only forms that may be accepted by member organizations. Any other form of option deposit letter is not acceptable for purposes of Rule 431 absent prior written approval of the Exchange.

• Member organizations must comply with Rule 405 (Diligence as to Accounts) as it relates to the customer trading the options and to the bank or trust company issuing the option deposit letter.

• Option deposit letters may not be accepted unless the securities or cash held by the bank or trust company are free of all liens or encumbrances.

• Member organizations should set a limit on the number of customers from whom option deposit letters will be accepted, or the number of option deposit letters to be accepted on behalf of any one customer.

• Option deposit letters should be recorded on the member organization's books and records (see Rule 440 (Books and Records)).

• Member organizations should establish a limit on the total dollar amount of all outstanding option deposit letters accepted from any one bank or trust company and a total dollar amount of all option deposit letters accepted in relation to the member organization's net worth.

• If the security against which an option is written is being carried in a member account, the security position must be maintained at the member organization.

• Banks acting as fiduciaries for trust clients may issue option deposit letters for their trust accounts.

Exhibits I and II are the Exchange's prescribed forms of option deposit letters for puts and calls, respectively, on equity securities or U.S. Government securities. Exhibit III is the Exchange's prescribed form of option deposit letter for puts on indices.

Exhibit I

EQUITY/TREASURY
OPTION DEPOSIT LETTER

(PUT)

[Bank Letterhead]

______________
(Date)

To: ____________________________
(Broker/Dealer Name)

The undersigned (the "Bank") having an office located at________________________ hereby certifies and warrants that:

(i) it is a bank or trust company, doing business in corporate form, organized under the laws of United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;

(ii) as escrow agent, it has on deposit in the United States for the account of ___________________ (the "Customer"), cash or cash equivalents meeting the requirements of Sec.220.8(a)(4)(i) of Regulation T of the Board of Governors of the Federal Reserve System (the Deposit) having an aggregate market value not less than $__________ (valuing cash equivalents at face value), which amount equals the product obtained by multiplying (a) the "aggregate exercise price," as that term is defined in the pertinent By-Laws of the Options Clearing Corporation (the "OCC"), of each option contract referred to below by (b) the number of such contracts referred to below; and

(iii) the Bank has received specific authorization from the Customer to issue this deposit letter and to hold the Deposit pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the following option contact(s):

Trade Date:	Underlying Securities:
					Options Series
Number of Contracts	Option Type	Expiration		Aggregate Exercise Price Per Contact
		Month	Year
	Put

The Bank represents and convents that, in consideration of your carrying the above described option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposit for your benefit in an account segregated on its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its beat efforts to promptly notify you if any notice of lien, levy, court order, or other process that may or purports to affect the Deposit or any portion thereof is served upon it.

The Customer shall have the right from lime to fee to deposit with the Bank, as escrow agent to be held by the Bank hereunder and subject to all of the provisions hereof cash or cash equivalents and thereupon to withdraw from the Deposit cash or cash equivalents which hive in aggregate market value of the cash or cash equivalents so deposited (valuing cash equivalents at face value), provided, however, that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events.

The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this deposit letter is released or the Bank is directed to make payment as hereinafter provided.

Upon presentation of this deposit letter to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank's reasonable belief, has been duly executed on your behalf, the Bank may release the Deposit held pursuant to this deposit letter to the Customer.

Upon (a) presentation of this deposit letter to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief, has been duly executed on your behalf, and (b) delivery to the Bank for the account of the Customer of the securities underlying the above-described option contract(s), which securities shall be in form to constitute good delivery under the rules of the OCC, the Bank will pay you, out of the Depositor the proceeds thereof; the exercise settlement amount as to each of the option contracts described above, plus all applicable commission and other charges due you.

In the event of any cash or stock dividend, interest payment, stock distribution, stock split, rights offering, distribution, reorganization, recapitalization or reclassification, or other similar event, affecting the securities underlying the above-described option contract(s), the amount to be paid by the Bank to you and/or the securities or other property to be delivered by you to the Bank shall be adjusted as may be required by the OCC.

The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this deposit letter is released by you, and until this deposit letter is so released, you shall retain the right to demand payment upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.

If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that is issuing this deposit letter and as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make payment in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposit or the proceeds thereof.

Bank______________________________________________________

By_______________________________
Date _____________________
(Authorized Signature)

ENDORSEMENT OF RELEASE (to be completed by the Broker/Dealer)

The undersigned hereby releases all rights of the undersigned with respect to this Option Deposit Letter.

_____________________________________
(Broker/Dealer)

By_________________________________
Date______________________________

PAYMENT ORDER (to be completed by the Broker/Dealer)

The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with the Options Clearing Corporation has been assigned to the short position of the undersigned which includes the option contract(s) described above, (2) delivers to the Bank the securities underlying the above-described option contract(s), and (3) demands payment that will settle such assignment, plus applicable commissions and other charges, in the amount of $_________.

_________________________________
(Broker/Dealer)

By________________________________
Date__________________________

Exhibit II

EQUITY/TREASURY
OPTION DEPOSIT LETTER

(CALL)

[Bank Letterhead]

_________________________
(Date)

To: _______________________________
(Broker/Dealer Name)

The undersigned (the "Bank"), having an office located at___________________, hereby certifies and warrants that:

(i) it is a bank or trust company, doing business in corporate form, organized under the laws of the United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;

(ii) as escrow agent, it has on deposit in the United States for the account of ________________________ (the "Customer"), in form to constitute good delivery under the rules of the Options Clearing Corporation (the "OCC"), the securities that underlie the option contract(s) described below or other securities which are immediately convertible into or exchangeable for such securities without the payment of money (which right to convert or exchange does not expire on or before the expiration date of the option contract(s) described below), such deposited securities being hereinafter referred to as the Deposited Securities; and

(iii) the Bank has received specific authorization from the Customer to issue this deposit letter and to hold the Deposited Securities pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the following option contract(s):

Trade Date:	Underlying Securities:
					Options Series
Number of Contracts	Option Type	Expiration		Aggregate Exercise Price Per Contact
		Month	Year
	Call

The Bank represents and covenants that, in consideration of your carrying the above described option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposited Securities (or other securities satisfying the definition of Deposited Securities set forth above, which other securities, upon deposit with the Bank, shall be included within the term Deposited Securities as hereinafter referred to) for your benefit in an account segregated on its books, separate and apart form all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposited Securities or any portion thereof to any lien or incumbrance, or cause or permit the Deposited Securities or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its best efforts to promptly notify you if any notice of lien, levy, court order, or other process that may or purports to affect the Deposited Securities or any portion thereof is served upon it.

The Bank agrees that it will hold the Deposited Securities in accordance wall the terms hereof until this deposit letter is released or the Bank is directed to make delivery as hereinafter provided.

Upon the presentation of this deposit letter to the Bank at the address shown above, with the Endorsement of Release below that, in the Banks reasonable belief has been duly executed on your behalf, the Bank may release the Deposited Securities held pursuant to this deposit letter to the Customer.

Upon presentation of this deposit letter to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief has been duly executed on your behalf, and delivery to the Bank of an amount equal to the product of (a) the aggregate exercise price per contract described above, times (b) the number of option contracts described above, minus ail applicable commissions and other charges due you, the Bank will deliver the Deposited Securities to you for the account of the Customer.

In the event of any cash or stock dividend, interest payment, stock distribution, stock split, rights offering, distribution, reorganization, recapitalization or reclassification, or other similar event affecting the securities underlying the above-described option contract(s), the amount to be paid by you to the Bank and/or the securities or other property to be delivered by the Bank to you shall be adjusted as may be required by the OCC.

The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this deposit letter is released by you, and until this deposit letter is so released, you shall retain the right to demand delivery of the Deposited Securities as herein provided upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.

If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this deposit letter and functioning as escrowee and bailee of the Deposited Securities, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make delivery in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposited Securities or the proceeds thereof.

Bank _______________________________________________________

By_____________________________
Date________________________
(Authorized Signature)

ENDORSEMENT OF RELEASE (to be completed by the Broker/Dealer)

The undersigned hereby releases all rights of the undersigned with respect to this Option Deposit Letter.

_____________________________
(Broker/Dealer)

By________________________
Date_________________________

PAYMENT ORDER (to be completed by the Broker/Dealer)

The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with the Options Clearing Corporation has been assigned to the short position of the undersigned which includes the option contract(s) described above, (2) delivers to the Bank an amount equal to the product of (a) the aggregate exercise price per contract described above, times (b) the number of option contracts described above, minus all applicable commissions and other charges due the undersigned, and (3) demands delivery of the Deposited Securities sufficient to permit the undersigned to settle such assignment.

_____________________________
(Broker/Dealer)

By_________________________________
Date______________________________

EXHIBIT III

MARKET INDEX

OPTION DEPOSIT LETTER

(PUT)

[Bank Letterhead]

_______________
(Date)

To: ____________________________________
(Broker/Dealer Name)

The undersigned (the "Bank"), having in office located at___________________, hereby certifies and warrants that:

(ii) as escrow agent, it has on deposit in the United States for the account of _________________________(the "Customer"), cash or cash equivalents meeting the requirements of Section 220.8(a)(4)(i) of Regulation T of the Board of Governors of the Federal Reserve System (the "Deposit") having an aggregate market value not less than $____________(valuing cash equivalents at face value), which amount equals the product obtained by multiplying (a) the "aggregate exercise price," as that term is hereinafter defined, of each market index option contract referred to below by (b) the number of such contracts referred to below; and

Trade Date:	Underlying Index:
					Options Series
Number of Contracts	Option Type	Expiration		Aggregate Exercise Price Per Contact
		Month	Year
	Put

The Bank represents and covenants that, in consideration of your carrying the above described market index option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposit for your benefit in an account segregated or its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its best efforts to promptly notify you if any notice of lien, levy, court order, or other process that mayor purports to affect the Deposit or any portion thereof is served upon it.

The Customer shall have the right from tune to time to deposit with the Bank, as escrow agent to be held by the Bank hereunder and subject to all of the provisions hereof, cash or cash equivalents and thereupon to withdraw from the Deposit cash or cash equivalents which have an aggregate market value of the cash or cash equivalents so deposited (valuing cash equivalents at face value), provided, however, that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events.

The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this deposit letter is released or the Bank is directed to make payment as hereinafter provided.

Upon presentation of this deposit letter to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank's reasonable belief, has been duty executed on your behalf, the Bank may release the Deposit held pursuant to this deposit letter to the Customer.

Upon presentation of this deposit letter to the Bank at the address shown above, with the Payment Order Wow that, in the Bank's reasonable belief, hat been duly executed on your behalf the Bank will pay you, out of the Deposit or the proceeds thereof, the exercise settlement amount as to each of the market index option contract) described above, which, as to each such contract, shall be the amount by which the "aggregate exercise price" of such contract it greater than the "aggregate current index value" of the underlying index (as those quoted terms are defined in the pertinent By-Laws of the Options Clewing Corporation), plus all applicable commissions and other charges due you.

The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this deposit letter it released by you, and until this deposit letter is so released, you shall retain the right to demand payment upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.

If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this deposit letter and functioning as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make payment in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposit or the proceeds thereof.

Bank________________________________________________________

By________________________________(Authorized Signature)
Date______________________________
ENDORSEMENT OF RELEASE (to be completed by the Broker/Dealer)

The undersigned hereby releases all rights of the undersigned with respect to this Market Undo Option Deposit Letter.

_______________________________
(Broker/Dealer)

By _______________________________ Date______________________

PAYMEMT ORDER (to be completed by the Broker/Dealer)

The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with the Options Clearing Corporation has been assigned to the short portion of the undersigned which includes the option market index contract(s) described above and (2) demands payment that will settle such assignment, plus applicable commissions and other charges due, m the amount of $ _____________.

_______________________________
(Broker/Dealer)

By_______________________________ Date________________________________

Exhibit IV

MARKET INDEX
OPTION DEPOSIT LETTERS

(CALL)

______________________(Date)

To: _______________________________
(Broker/Dealer Name)

The undersigned (the "Bank"), having an office located at _______________________________, hereby certifies and warrants to you ("Broker/Dealer") that:

(i) it is a bank or trust company, doing business in corporate form, organized under the laws of the United States or any state thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;

(ii) as escrow agent, it has on deposit in the United States for the account of _____________________________________________ (the "Customer"), (a) cash, (b) cash equivalents meeting the requirements of Regulation T of the Board of Governors of the Federal Reserve System, (c) one or more qualified securities as defined in New York Stock Exchange Rule 431(f)(2)(H)(iv), or (d) any combination thereof (the "Deposit");

(iii) the aggregate market value of the Deposit, computed as of the close of business on the trade date referred to below (valuing cash equivalents at face value and qualified securities at their last sale price, as reported on such trade date pursuant to an effective transaction reporting plan as defined in Rule 11Aa3-1 under the Securities Exchange Act of 1934 or their last bid price, if not subject to East sale reporting) was not less than the aggregate current index value set forth In the table below;

(iv) to the extent the Deposit includes securities such securities are in good deliverable form, or the Bank has the unrestricted power to put such securities into good deliverable form, in accordance with the requirements of the primary market for such securities and the Customer has duly authorized the Bank to liquidate such securities to the extent necessary to perform the Banks obligations thereunder; and

(v) the Bank has reserved written affirmation from the Customer that alt index call options covered by this deposit letter are written against a diversified stock portfolio and has also received specific authorization from the Customer to issue this deposit letter and to hold the Deposit pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the over-the-counter call option contract on the underlying Index referred to below:

Trade Date:	Expiration Date:		Underlying Index:
Number of Contracts	Option Type	Aggregate Current Index Value	Index Multiplier	Exercise Price
	Call	$

The Bank represents and covenants that, in consideration of Broker/Dealer carrying the above described index option contract(s) 'short' in the account of the Customer on Broker/Dealer's books, it will maintain the Deposit for Broker/Dealer's benefit in an account segregated on is books, separate end apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit in any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or part in any manner whatsoever. The Bank will use its best efforts to promptly notify Broker/Dealer if any notice of lien, levy, court order, or other process that may or purports to affect the deposit or any portion thereof is served upon it.

The Customer shall have the right from time to time to deposit with the Bank, as escrow agent to be held by the Bank hereunder and subject to all the provision hereof, cash, cash equivalents, or qualified securities as described in clause (ii) above and thereupon to withdraw from the Deposit cash, cash equivalents, or qualified securities which have an aggregate market value not exceeding the market value of the cash, cash equivalents, or qualified securities so deposited, with the result that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events. For purposes of this paragraph, aggregate market value shall be determined in the manner indicated in clause (iii) above, except that qualified securities shall be valued as of the close of business on the preceding business day of the date of such deposit and withdrawal.

Upon the requested the Broker/Dealer, the Bank will promptly provide the Broker/Dealer with a written listing of the cash, cash equivalents, and/or qualified securities included in the Deposit. If at any time the current aggregate market value of the Deposit shall be less than the greater of either (a)55% of the product of (A) the number of contracts indicated above and (B) the aggregate current index value of the underlying index determined on the immediately preceding business day (such product being the "Current Index Amount") or 130% of the aggregate Exercise Settlement Amount (as defined in Rule 431(f)(2) of The New York Stock Exchange) of option contracts referred to herein, the Bank shall promptly notify the Broker/Dealer and the Customer in writing of such fact end request that the Customer supplement the Deposit. As used herein, the term "aggregate current index value" means the "current index value" as such term is defined by the By-Laws of The Options Clearing Corp., multiplied by the "Index Multiplier" in the above table.

If at any time the current aggregate market value of the Deposit shall at any time be less than the greater of either (x) 50% of the Current Index Amount or (y) 120% of the Exercise Settlement Amount of option contracts referred to herein, whether or not a request to the Customer for supplementation is then pending, the Bank will immediately advise the Broker/Dealer in writing thereof. For purposes of determining the market value of the Deposit qualified securities shall be valued as of the close of business on the preceding business day.

If any cash equivalent or qualified security shall cease to meet the requirements of clause (ii) above, such cash equivalents or qualified security shall be assigned no value for purposes of determining current aggregate market value pursuant to this paragraph.

The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this deposit letter is released or the Bank is directed to make delivery as hereinafter provided. Upon presentation of this deposit letter to the Bank at the address shown above, with the Endorsement of Release below that, in the Banks reasonable belief, has been duly executed on Broker/Dealer's behalf, the Bank may release the Deposit held pursuant to this deposit letter to the Customer.

Upon presentation of this deposit letter to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief has been duly executed on Broker/Dealer behalf, the Bank will pay Broker/Dealer, out of the Deposit or the proceeds thereof, the Exercise Settlement Amount as to each of the market index option contracts described above, plus all applicable commissions and other charges due Broker/Dealer.

The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this deposit letter is released by the Broker/Dealer, and until this deposit letter is so released, the Broker/Dealer shall retain the right to demand payment upon the assignment of any Exercise Notice to any short position in a series of options identified above carried in the Customer's account.

If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this deposit letter and functioning as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make delivery in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face effects the Deposit or the proceeds thereof.

Bank________________________________________________________

By___________________________________(Authorized Signature)
Date______________________
ENDORSEMENT OF RELEASE (to be completed by the Broker/Dealer)

The undersigned hereby releases all rights of the undersigned with respect to this OTC Index Option Deposit letter.

___________________________
(Broker/Dealer)

By___________________________ Date____________________________

PAYMENT ORDER (to be completed by the Broker/Dealer)

The undersigned hereby (1) certifies to the above-named Bank that it has, as holder, exercised the OTC call option contracts referred to above and (2) demands payment that will settle such exercise, plus applicable commissions and other charges due, in the amount of $ ________________.

___________________________
(Broker/Dealer)

By___________________________ Date_________________

(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 transaction of one or more registered specialist, registered market makers or registered traders of one or more registered traders in options (which registered traders are deemed specialists for all purposes under the Securities Exchange Act of 1934 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 makes a market, a position in the underlying asset or other related assets, and in the case of other securities in which a specialist makes a market, a position in options overlying the securities in which a specialist makes a market. Accordingly, a specialist 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 makes a market, and a specialist in securities other than options may purchase or write options overlying the securities in which the specialist makes a market, if the account holds the following permitted offset positions:

(i) A short option position which is "in or at the money" and 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 "in or at the money" and 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.

For purposes of this paragraph (f)(2)(J), the term "in or at the money" means the current market price of the underlying security is not more than 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, 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.

/01 Specialists' Option Hedging — Rule 105

Transactions in options effected by a specialist pursuant to Rule 105 (Specialists' Interest in Pools and Options) are deemed "market maker transactions", and shall be subject to the margin requirements of this sub-section (f)(2)(J). Therefore, the amount of margin which the specialist must maintain with the clearing firm may be determined by mutual agreement between the clearing firm and the specialist. However, such an account may not be carried in a "deficit equity" position. The margin treatment under section (f)(2)(J) may be applied when the clearing firm does not carry the equity position(s) of the specialist.

(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 underlying 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 aggregate exercise price of the long call or call warrant (short put or put warrant) exceeds the aggregate 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 aggregate 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) Butterfly 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 butterfly spread as defined in subparagraph (f)(2)(C)(viii) 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,

with respect to a long butterfly spread as defined in subparagraph (f)(2)(C)(viii) of this Rule, the net debit is paid in full, and

with respect to a short butterfly spread as defined in subparagraph (f)(2)(C)(viii) 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 aggregate difference between the two lowest exercise prices with respect to short butterfly spreads comprised of call options or the aggregate 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 aggregate difference between the two lowest exercise prices with respect to short butterfly spreads comprised of calls or the aggregate 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)(ix) 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,

with respect to a short box spread as defined in subparagraph (f)(2)(C)(ix) of this Rule, the net debit is paid in full, and

with respect to a short box spread as defined in subparagraph (f)(2)(C)(ix) 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 aggregate difference between the exercise prices, which requirement of the net proceeds from the sale of short option components may be applied, or

(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.

/01 Offsetting Position

When an account has a short position in a "when issued" security and the underlying security is held in the account, no margin need be required on the 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".

/01 Offsetting Position

No margin need be obtained for contracts to sell "when issued" securities when the underlying security is held in the account or the member organization has been informed that the customer owns the underlying securities. Any sale based on ownership by the customer of the underlying security must be made in reliance upon an agreement accepted by the member organization in good faith that the customer will not dispose of the underlying security while the contract of sale remains outstanding and that upon consummation of the plan, the underlying security will be promptly deposited in the account and exchanged for the new security. Since the "when issued" sale may remain outstanding for a relatively long period of time, the member organization's files should contain a written memorandum regarding the customer's agreement.

(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.

/01 Foreign Currency Sub-Accounts

The Exchange will permit the consolidation of margin accounts and sub-accounts for maintenance purposes without requiring conversion of the foreign currency or foreign denominated security into U.S. dollars. Member organizations must recognize the possibility that fluctuations between foreign currencies and the U.S. dollar may have an adverse effect on the total equity in a margin account. Additional margin should generally be required to compensate for potential losses in equity that may occur due to such currency fluctuations.

[Info. Memo. 90-20, dated May 16, 1990.]

(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.

/01 Fifteen Day Period

The fifteen day period begins on the first business day that follows the date on which the margin deficiency occurred, not the day the member organization may have so notified the customer nor the fifth business day when net capital charges were required.

/02 Exchange-Approved Additional Time

The exchange will only grant additional time upon written request, which must fully explain the reason for the request, description of the security and total positions involved.

In general, the Exchange will only consider those situations involving concentrations of a security which is difficult to liquidate, large volatile positions that would effect the market or price of the security and other similar conditions as the basis for approving a request for additional time.

/03 Exchange Oversight

As part of the Exchange's regular examination process, every carrying member organization will be monitored to determine compliance with the fifteen (15) business day limit.

(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.

/01 Liquidation

Member organizations should have a complete understanding of how the customer intends to finance a margin transaction. If funds are not available in the account, margin is to be furnished by the deposit of cash or securities. If the customer intends to liquidate other securities to finance the transaction, that sale should tale place at or before the time of the new commitment.

(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.

/01 Special Initial Requirements

Any special initial margin requirements imposed by the Exchange shall, without regard to the other provisions of this Rule, be imposed only on the day of a new transaction. Thereafter, the maintenance requirement will be applicable.

Equity in the margin account which is in excess of Exchange maintenance requirements may be used to satisfy special initial margin requirements. However, the credit balance in a customer's Special Memorandum Account may not be used toward the margin required.

The required margin for any margin purchase or any short sale of special requirement securities must be in the account before any new order is accepted. It is not necessary to deposit more than the initial margin required on any new transaction or group of transactions on a given day.

/02 Exemptions

The special initial margin requirements will not apply to:

• purchases of stocks to cover existing short positions;

• accounts long that sell short against the box;

• puts, calls and other options held in accounts prior to the establishment of special margin requirements on the underlying security in accordance with this Rule (Note: Such options issued after the establishment of special margin requirements must be margined as though the potential security positions were established at that time.);

• transactions in cash accounts; and

• transactions in U.S. Government and Municipal obligations

/03 Profitable Options

Transactions in profitable options as outlined under Rule 431(b)/03 are exempt from special initial margin requirements.

(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 no longer be considered a pattern day-trader and the special requirements under paragraph (f)(8)(B)(iv) of this Rule will not apply.

/01 Multiple Purchases and Sales

If a customer enters an order to purchase a security and sells the same security within the same day, but for reasons beyond the customer's control e.g., price, the purchase was executed in smaller blocks, it will be considered as one day-trade. However, the member organization must be able to demonstrate that it was the customer's intent to execute one day-trade. This will also apply to when a customer enters a sale order and buys the same security within the same day. In addition, the trades would have to have been executed in sequential order.

One purchase and several subsequent sale transactions of the same security, where the sales were executed in sequential order within the same day, shall constitute one day-trade. One sale and several subsequent purchases of the same security, where the purchases were executed in sequential order within the same day, shall also constitute one day-trade.

(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 non-equities 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.

/01 Option Day-Trade

Option day-trades are subject to this sub-section (f)(8)(B). For day-trades executed in accounts of customers not deemed pattern day-traders the requirement is 100% of the premium received on the "long" or "short" transaction, whichever occurred first.

If a customer is a pattern day-trader, the day-trading transactions are treated as having created a naked short option position and, therefore, subject to the margin requirements as prescribed in sub-section (f)(2)(D) of this Rule. However, if the member organization can substantiate that the purchase side of the day-trade took place prior to the sell side of the day-trade, the margin required will be 100% of the premium on the "long" option. A written record of the time of each executed option transaction must be maintained to demonstrate that the purchase was prior to the sale.

/02 Day-Trading Buying Power

For a proprietary account of a registered broker/dealer subject to the SEC's Net Capital Rule, "day-trading buying power" means the equity in the account at the close of business of the previous day, less any haircut requirement as prescribed in SEA Rule 15c3-1, multiplied by six, for equity securities.

(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).

/01 Minimum Equity Requirement

Member organizations may use any settled and available funds, or any available market value from fully paid for securities, including money market mutual funds, held long in the customer's cash account to satisfy the $25,000 minimum equity requirement, without moving the funds or securities to the margin account. The member organization must have adequate procedures in place in order to prevent the funds in the cash account from being used for other withdrawal purposes such as debit card and check withdrawals. Any funds, securities or money market mutual funds held in the cash account cannot be used for the calculation of day-trading buying power unless they have been moved to the margin account one business day prior to calculating the day-trading buying power. In the event money market mutual funds are to be moved to the margin account, member organizations must adhere to SEA Rule 11(d)(1). In addition, for both minimum equity and day-trade buying power, member organizations may use money market mutual funds provided the member organization has custody of the fund shares and the exclusive ability to liquidate the fund shares.

Member organizations shall not allow a pattern day-trader to day-trade until the minimum equity of $25,000 has been satisfied. When a pattern day-trader's account falls below the $25,000 minimum equity requirement, based on the previous business day's close, the member organization needs to have procedures in place in order to prevent the pattern day-trader from day-trading. In addition, the $25,000 must be in the margin account or cash account one business day prior to resuming any day-trading.

(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 event a pattern day-trader exceeds their 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 transactions only on a cash available basis for 90 days or until the special maintenance margin call is met.

/01 Cash Available

Cash available means 1x Rule 431 excess. No "time and tick" calculations will be allowed for accounts on a 90-day day-trading restriction.

(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.

/01 Deposit of Funds

Member organizations may look to funds in a customer's cash account to satisfy a day-trade call without moving the funds to the margin account. This exception will only be permitted if the member organization has adequate procedures in place to prevent the circumvention of the two (2) day hold requirement on funds deposited into or held in that account i.e., the customer must be prohibited from using the funds for other withdrawal purposes such as debit card and check withdrawals relative to this balance while it is being used to satisfy the day-trade margin call. Funds deposited into the cash account within two business days prior to the creation of a day-trade call, which the member organization can utilize to satisfy the day-trade call, are subject to the two day holding period 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.

/01 Multiple Day-Trade Calls

When a customer of a member organization has multiple day-trade calls outstanding and the due date of the first day-trade call is still within the five business days, then the customer can meet the highest day-trade call amount. This will satisfy the remaining day-trade calls that are outstanding. However, once a call is aged past the 5^th business day, the customer will be required to satisfy that call separately. Member organizations are advised not to allow customers to make a practice of meeting multiple day-trade calls in this manner.

/02 Liquidation to Meet a Day-Trade Call

A customer may liquidate securities to satisfy a day-trade call, but only the maintenance margin requirement of the liquidated securities will be released. However, the Exchange discourages such practice because the member organization should consider the customer's ability to meet their commitments.

(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 a waiver of a 90-day freeze not exempted by Regulation T.

/01 90-Day Freeze

Customers making a practice of purchasing securities in a cash account and selling them before payment is received, are to be placed on a restricted status for a period of 90 calendar days following the trade date of the sale. Unless funds sufficient to pay for a new purchase in full are in the account during this 90-day freeze, no security may be purchased for or sold to that customer in their cash account. Two or more such occurrences, without extenuating circumstances, may warrant restriction. When a member organization believes a restriction should be lifted, it may apply in writing for relief to Credit Regulation, Member Firm Regulation Division, New York Stock Exchange, Inc.

Each application for a waiver of the 90-day freeze should be signed by an authorized person of the member organization and should contain the following information:

• the full name and address of the customer;

• the name and description of the security or securities involved, purchase and sale prices, and the respective dates of purchase and sale;

• a statement describing the circumstances upon which the request is made; and

• the date on which full payment for the purchase was received.

SUPPLEMENTARY MATERIAL

.10 Request for exemption from sub-section (e)(3) of Rule 431 above. — Requests for exemption from the provisions of sub-section (e)(3) should be submitted in writing to the Exchange and, in addition to indicating the names and interests of the respective participants in the joint account, should contain a statement that the conditions described in paragraph (e)(3)(A), (B) or (C) actually exist.

In the case of an account conforming to the conditions described in paragraph (e)(3)(C), the application should also include the following information as of the date of the request:

(A) complete description of the security;

(B) cost price, offering price and principal amount of obligations which have been purchased or may be required to be purchased;

(C) date on which the security is to be purchased or on which there will be a contingent commitment to purchase the security;

(D) approximate aggregate indebtedness;

(E) approximate Net Capital; and

(F) approximate total market value of all readily marketable securities (i) exempted and (ii) non-exempted, held in organization accounts, partners' capital accounts, partners' individual accounts covered by approved agreements providing for their inclusion as partnership property, accounts covered by subordination agreements approved by the Exchange and customers' accounts in deficit.

Rule 435(5) Circulation of Rumors

/01 Responsibility of Personnel

Rule 435, which prohibits the circulation of rumors, extends personal responsibility for its observation to all member organization personnel. Those who service accounts, those who are handling the member organization's long distance wires and those on the trading desks must in particular exercise a high degree of individual responsibility as their conversations are less likely to receive the same degree of supervisory oversight as written messages.

Rule 440.20 Suspense Accounts

/01 Suspense Accounts

Suspense accounts are not to be used as a substitute for current and accurate books. Failure to clear suspense accounts promptly may be construed as a failure to maintain proper records within the context of Rule 440.

Rule 440A Telephone Solicitation

/01 Compliance with FCC and SEC Rules

Member organizations that engage in telephone solicitation to market their products and services ("telemarketing" or "cold-calling") are subject to the requirements of the rules of the Federal Communications Commission ("FCC") and Securities and Exchange Commission ("SEC") relating to telemarketing practices and the rights of telephone consumers. This includes, but is not limited to, the requirement to make and maintain a list of persons who do not want to receive telephone solicitations (a "do-not-call" list).

Rule 472 Communications with the Public

Rule 472.10 Definitions

/01 "Communication"

The term "communication" is defined in Rule 472.10(1) to include, but is not limited to, advertisements, market letters, research reports, sales literature, electronic communications, communications in and with the press and wires and memoranda to branch offices or correspondent firms which are shown or distributed to customers or the public.

/02 Research Reports

The term "research report" is defined as "a written or electronic communication that includes an analysis of equity securities or individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.

Research reports must be prepared or approved by a qualified supervisory analyst. (See Rules 344 and 472(a)(2)). Where a supervisory analyst does not have technical expertise in a particular product area, the basic analysis contained in such report may be co-approved by a product specialist designated by the member organization.

If uncertainty exists as to whether a specific document is a market letter, (see 472/04), or research report, the prudent approach is to treat it as a research report and obtain the approval of a supervisory analyst. Many member organizations have found it advantageous to have all investment literature approved by a supervisory analyst to provide uniform control and supervision.

/03 Advertisement

"Advertisement" is defined in Rule 472.10(3) to include, but is not limited to, any communications that is published or designated for use in any print, electronic or other public media such as newspapers, periodicals, magazines, radio, television, telephone recording, web sites, motion pictures, audio or video device, telecommunications device, billboards, or signs.

All advertisements must be approved prior to use by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than the preparer. Additionally, member organizations may find it advantageous to clear advertising with their legal counsel, particularly as involving legal or tax questions such as estate planning, trusts and advertisements which may constitute the offering of a "security."

Member organizations are reminded that an advertisement which may be deemed to be the public offering of a "security," must comply with the registration requirements of the Securities Act of 1933 and applicable rules thereunder.

Exchange standards (Rule 472(i) and (j)) apply to all member organizations' advertising, regardless of subject matter. Advertising referring to the market, economic conditions, recruitment, the firm's products, services, or facilities in any area — listed or unlisted stocks, bonds, options (see also Rule 791), commodities, tax shelters, insurance, etc. — is subject to Exchange standards. Member organizations should note that their name must appear on all advertisements except for recruitment ads. The member organization directly bears full responsibility for any publication or broadcast made on its behalf. The member organization should be mindful that before running an ad which has been previously used, re-examination by the firm is necessary in light of continually changing conditions. Ads containing statistics, claims or comparisons with other firms should be carefully reviewed and updated.

/04 Market Letters

Market letters are written comments on market conditions. They can also include "follow-ups" to research reports, and articles prepared by member organizations which appear in newspapers and periodicals. Generally, a market letter consists of items of one page or less. Market letters may recommend specific securities but must closely adhere to the specific standards of Rule 472(j). Since market letters are usually limited in the amount of information provided concerning any recommended securities, supporting information must be offered. A more extensive treatment is usually considered a research report.

Market letters must be approved in advance of distribution. Approval may be given by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than the preparer of the letter.

/05 Sales Literature

This term refers to written or electronic material (including, but not limited to, telemarketing scripts) discussing or promoting the products, services and facilities offered by a member organization or its personnel, the role of investment in an individual's overall financial plan, or other literature calling attention to any market letters, research reports, brochures, etc. Sales literature must be approved in advance of distribution. Approval may be given by an allied member, supervisory analyst or person designated under the provisions of Rule 342(b)(1), who is other than its preparer.

/06 Other Communication Activities

Definition of "Public Appearance"

The term "public appearance" as defined in Rule 472.50, is "any participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public speaking activity in which a research analyst makes a recommendation or offers an opinion concerning an equity security."

Newspaper or magazine articles, radio/TV appearances, seminars, or interviews in and with the media are examples of other communication activities, which must be approved in advance of publication or broadcast. Approval may be given by an allied member, supervisory analyst, or person designated under the provisions of Rule 342(b)(1). Further, the member organization must establish specific written supervisory procedures applicable to allied members and employees who engage in any of these types of activity.

Electronic communications and memoranda to branch offices or correspondent firms, which are shown or distributed to clients, are also subject to the approval requirements and standards of Rule 472. Member organizations should ensure that those communications distributed to customers or the public are not marked "internal" as such designation may lead the recipient to believe that he or she is receiving special and perhaps "inside" information, when, in fact, he or she is not.

The activities described in /06 and any other similar activities are subject to the general standards set forth in Rule 472(i) and to the specific standards of Rule 472(j) if the activity includes a discussion of specific securities.

/07 Material Externally Prepared

Generally, all communications distributed to or made available to customers or the public must comply with Exchange standards, whether prepared by the member organization or externally. However, consideration will be given to requests for a waiver of this requirement where, among other factors:
•   The member organization has no editorial control over the content, subject matter or timing of the material;

•   The material is otherwise obtainable and was not prepared at the request of or commissioned by the member organization;

•   The member organization and the preparer of the material are unaffiliated;

•   The preparer of the material is subject to a parallel and comparable system of regulation; and

•   The material is transmitted in its entirety (i.e., in full text) and does not contain any comment thereon by the member organization.

Members are cautioned not to disseminate in its entirety (i.e., in full text) and does not contain any comment thereon by the member.

/08 General Standards

All member organization communications are subject to the general standards set forth in Rule 472(i).

The general standards prohibit the use of untruthful, misleading or inaccurate statements in any form of communication with the customers or the public, whether written or oral (including radio and television broadcasts, seminars, etc.).

Opinions

Opinions should not be stated as facts and must be reasonable and clearly and distinctly labeled as opinions. Assumptions underlying an opinion should be stated. Substantiation will be required where the material is comparative or where it is otherwise deemed appropriate. Qualifying comparative claims with phrases such as "we believe" or "to the best of our knowledge" will not release the firm from its responsibility of being able to substantiate the underlying claim.

The following are statements which are not properly labeled as opinions or which require substantiation:
(1) "A better way to accumulate money is through tax deferred annuities."

This would have been acceptable had it been labeled as an opinion.

(2) "We believe our compensation package for registered representatives is unsurpassed."

Although stated as an opinion, substantiation would be required. (See Rule 472(i) — Claims and Comparisons).

Language

Promissory, exaggerated and flamboyant statements and unwarranted superlatives discredit the validity of any communication, reflect poorly on the investment community and are likely to be misleading. Statements which tend to incite an investor to buy or sell on an emotional rather than a reasoned basis are inappropriate in member organization communications with the public.

Here are some examples of statements which are unacceptable:

Promissory —

(1) "Worried about paying too much for a growth stock? Stop worrying. The best is yet to come."

(2) "...commitments may be made at prevailing levels for exceptional capital gains."

(3) "I have seen profits of 50% to 100% taken by people who understand stock movements and adhere to this positive investment program. Any student of the market can apply the basic rules outlined above and improve his market."

Flamboyant and inflammatory —

(1) "Operating in a dynamic growth area with top flight management and strong management and strong finances, the company is an outstanding vehicle for maximum capital appreciation."

(2) "Further projection of sales and earnings is hazardous, but would probably be over-conservative in light of the company's explosive growth potential."

Exaggerated —

(1) "This hotel chain is without peer."

(2) "Admittedly late, but at ten times earnings XYZ Corp. still has a tremendous potential...Fear of buying near all-time highs will lead you away from the strongest stock every time."

(3) In describing opportunities for registered representatives, a firm stated that it had a "complete research service." Investigation revealed that the "service" consisted of one analyst who also handled 45 of his own accounts.

/09 Specific Standards

The specific standards set forth under Rule 472(j) are illustrative of the general standards in Rule 472(i) but are not exclusive. Compliance with applicable provisions of Rule 472(j) does not necessarily equal compliance with Rule 472(i). For example, disclosures, in a given context, which satisfies Rule 472(i) where additional facts would be material to the customer or reader.

Recommendation [See Rule 472(j)(1)]

For purposes of these standards, the term "recommendation" includes any advice, suggestion or other statement, written or oral, that is intended, or can reasonably be expected, to influence a customer to purchase, sell or hold a security.

When specific securities are recommended in any communication to customers or the public (excluding extemporaneous interviews in and with the media) appropriate disclosures must be made. Disclosures made in written material must be prominent, separate from any general hedge clause and in clear positive language.
a. Market-making/dealing as principal:

Making a market, acting as a principal or the intention to do so within one month of a recommendation (if such intent is known at the time of the recommendation) must be explicitly disclosed even if the activity is temporary. The following disclosures would meet Exchange requirements:
(h) "This firm makes a market in the above security."
(ii) "This firm will deal as principal in the above security."

The following disclosure would not meet Exchange requirements if an actual market is then being made:

(i) "This firm may from time to time make a market in the above security."

(ii) "This firm usually makes a market in the above security."

An investor should have access to available data in order to make an intelligent investment decision. Therefore, information supporting a recommendation must be provided or offered.

The offer of additional information must be prominently displayed in at least the same type as the body copy of the material or in a smaller type of different color or bolder face. It may not be buried in a hedge clause. A simple statement such as, "Additional information is available upon request" is acceptable.

The current market price of a recommended security must be disclosed in the original report as well as in follow-up reports, whether written or oral.

Disclosures Other than by Research Analysts

a. Positions: Disclosure should be made if the employees involved in the preparation or issuance of the communication may have positions in securities (including significant options holdings) of the recommended issuer.

b. Directorates: If an allied member or employee is a director of a corporation whose security is being recommended, disclosure of this fact must be made.

c. Other: When making investment recommendations, member organizations, allied members, and employees involved in preparation of research should disclose to customers any material conflict of interest relating to them which could reasonably be expected to impair their ability to render unbiased and objective advice.

N.B.: The attention of member organizations and their personnel is directed to the discussion of "Trading Against Firm Recommendations" which appears under NYSE Rule 401/01 (page 4010) of this HANDBOOK.

Past Recommendations [See Rule 472(j)(2)]

Portraying the performance of past recommendations or of actual transactions must be done in a manner which fairly and reasonably presents the record in question. Selecting one or a limited number of past recommendation or illustrating the performance of one or a limited number of customer accounts is inappropriate as it would not constitute an acceptable "universe." Examples of acceptable universes would include firm presentation of a record of all of its past recommendations of at least the most recent 12-month period, or a record of all discretionary accounts under management for at least the most recent 12-month period. Another example of an acceptable universe would include a record of all specific security recommendations within one industry for at least the most recent 12-month period. For example, the firm may publish a monthly market letter or a series of research reports recommending securities within the electric utility industry. If the firm wishes to summarize the performance of the recommendations, it must follow the provisions outlined in Rule 472(j)(2).

When referring to the success of past recommendation, all of the conditions outlined in Rule 472(j)(2) must be met. Member organizations which are registered investment advisers must also comply with SEC Rule 206(4)-1 under the Investment Advisers Act of 1940.

The following examples improperly promote the successful performance of past research recommendations:

(1) "All of the stocks we recommended in last month's market letter are continuing to do well"

(2) "We are dropping BCF (24) from our closely followed list. We had originally recommended this stock at $18, two months ago.

(3) "BPF has risen 50% since our recommendation in October and profits may be taken."

There is no objection to giving the price history of a specific security but it is neither necessary nor proper to mention the fact that the organization recommended the security at a lower price. Instead of the statement made in example (3), one might say "BPF has risen 50% since October and now appears fully priced. Profits may be taken."

Projections and Predictions [See Rule 472(j)(3)]

Past records, charts, tables or other material cannot be used, either explicitly or implicitly, to promise future profits or income from investments. When an advertisement or other communication refers to the yields of particular investments, whether bonds, annuities, GNMAs, etc., the following disclosures may be appropriate:

(1) all fees, expenses or charges that may affect the yield calculation (if yield is not net and if other charges have the economic affect of reducing the effective yield, disclosure is required);

(2) whether the yield is actual or projected;

(3) the basis of the yield; and

(4) any expected conditions or circumstances that are likely to change or affect the yield, such as an early call of the security.

Estimates must clearly be labeled as such. If, for example, the principal or interest of any annuity or other investment instrument is advertised as guaranteed, disclosure should be made concerning:

(1) the identity of the guarantor;

(2) the length of time the guarantee is effective, e.g., "12% current annual interest rate";

(3) whether penalties or fees are involved for premature withdrawal of funds; and

(4) whether any conditions exist which must be satisfied in order for the guarantee to apply.

Forecasts

Past performance is not indicative of the future. Such matters as future earnings, dividends or price action cannot be predicted with certainty. Forecasts not sufficiently qualified can be misleading. Here are some examples of forecasts not properly qualified.

"...The market has bottomed out and will take off to new highs..."

"...1985 will be the eighth consecutive year in which the company will post record sales and earnings..."

"...Company philosophy and a pattern of steady growth assure a vigorous and profitable future..."

"...The company will be able to double their present receivables from $11,000,000 to $22,000,000 in the very near future, which in turn will have a substantial impact on earnings..."

Claims and Comparisons [See Rule 472(j)(4)]

Competitive claims and comparisons may be used, but the member organization must be prepared to completely and meaningfully substantiate them.

Dating [See Rule 472(j)(5)]

This guideline is designed to deter the distribution of outdated information. In general, investment literature recommending specific securities should be dated by day, month and year. On the other hand, industry studies containing no recommendations, quarterly investment reviews or economic research papers may be dated by month or season. Dating by year may be acceptable in some instances for brochures, pamphlets, circulars and other generic sales literature.

Statistics often become outdated rapidly. Especially in industries or companies where new developments are frequent, significant data might well become outdated in a matter of weeks.

Identification of Sources [See Rule 472(j)(6)]

Testimonials [See Rule 472(j)(7)]

In general, advertising or sales literature is considered to be of a testimonial nature and subject to requirements of Rule 472(j)(7) whenever it includes favorable comments concerning the quality of the firm's investment advice made by any person not clearly identified as being in its employ.

However, where it is evident that the comment is made by a non-customer actor, announcer or by way of caricature and where the copy omits any direct or indirect reference to benefits personally gained by the speaker, the comment will not be considered a testimonial.

Hedge Clauses

Statements in a hedge clause should be consistent with statements made in the main body of sales and investment literature. Hedge clauses do not relieve a firm from its obligation to meet Exchange standards. Many hedge clauses contain the following acceptable language:

"The information above has been obtained from sources believed reliable but is not necessarily complete and cannot be guaranteed. Any opinions expressed are subject to change without notice."

A member organization cannot disclaim responsibility for its communications or for opinions expressed by its employees. Hedge clauses must be separate from any disclosures required under Rule 472(j). (Also see: Investment Advisers Act Release No. 58, April 10, 1951).

/10 Guidelines for "Discount" Communications

The following guidelines are designed to assist member organizations prepare and approve communications that offer discount commissions to the public. The guidelines, which include examples of appropriate disclosures, are based on specific requirements of Rule 472(i) and (j) that apply to all communications. The guidelines should help you create effective communications that comply with Exchange rules.
(1) Under some circumstances what is left out may be just as important as what is included. Therefore, any significant conditions or qualifications surrounding discounts must be mentioned. This would include cases where discounts are not available on certain products, such as options, bonds or securities offered by prospectus, or where services offered to discount customers are limited compared to those offered to non-discount customers.

EX.: "Discounts available if you don't want research."

"Discounts apply to cash transactions only."

"Discounts do not apply to options."

"Save commissions on your next stock transactions."

"Prepayment required."

"50% of our usual rates on NYSE orders placed before 9:30 a.m."

"Discounts based on annual volume of trading."

(2) In order to be truthful, as required by Rule 472(i) communications should not be confusing or misleading. Therefore, whenever commission savings are presented in percentage figures:
a) The base from which the figures are derived must be given;

EX.: "Discounts based on rates of full-commission firms."

b) If percentages represent average savings, it should be indicated;

c) Any minimum commission charge should be disclosed.

(3) Rule 472(j)(4) required comparisons of one firm's charges and services with those of other firms to be factually supportable. When discount rates are compared to the rates of other brokers, either through rate charts or percentage comparisons, the advertiser should have documentation to support all figures. The Exchange may ask to see rate schedules or request a breakdown of the number of customers enjoying various discount brackets in order to substantiate the availability of advertised savings.

(4) Likewise, claims comparing one firm to another must be factually supportable. Firms should be able to substantiate these claims to the Exchange upon request. Examples of some comparative claims are:

"We're different from other discounters because we offer discounts and full service too."

"Our registered representatives are more experienced than those at any other discount firm."

(5) Rule 472(j)(5) requires significant information that is not reasonably current (usually not more than six months old — depending on the industry and circumstances) to be noted. Therefore, charts illustrating comparative rate schedules must be current (within the last six months). In many cases it may be appropriate to disclose the source and date of the information. In all cases firms must be prepared to substantiate the source and date as current.

EX.: "All rates based on our [insert appropriate date] telephone survey."

(6) In keeping with the Exchange's traditional standard of truthfulness, examples of savings should be based on typical trades by retail customers, not on large transactions affordable by only a very few customers.

/11 Other Regulations

Communications are also subject to the general anti-fraud provisions of the Federal securities laws. Additionally, member organizations should note Rule 206(4)-1 under the Investment advisers Act of 1940, Section 17(b) of the Securities Act of 1933 and the tombstone rules under that Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as State law, as may be applicable.

See also NYSE Rule 791 — Communications Pertaining to Options.

/12 Supervision

Rule 342(b) requires that an appropriate system of supervision be instituted and implemented for the control of member organization communications with the public. (Also see Rule 342. 16/02 of this Handbook).

To achieve effective supervision, many firms delegate responsibility for the review of all communications to their compliance officers after it has been approved by the responsible individual(s) designated in Rule 472.

(k)
(2) Disclosures Required in Public Appearances
/01 Public Appearances — Print Media

When a research analyst recommends securities in a print or broadcast media interview, newspaper article or other type of public medium all of the disclosures required under Rule 472(k)(2) are required to be provided to the media outlet for inclusion in the published interview, article, broadcast, or other medium.

Whenever a research analyst recommends securities in a print media interview, newspaper article prepared under his or her name, or broadcast, a record of such interview, article or broadcast must be made within forty-eight (48) hours of such interview, article or broadcast. Such record must be prepared by the research analyst, Legal or Compliance personnel or Research Department management.

Such record must include, at a minimum, the name of the research analyst(s), the name of the publication, the date of the interview, article, or broadcast, the name of the interviewer (if applicable), the name(s) of the securities recommended and the specific disclosures provided to the print or broadcast media source and/or interviewer. Such record must be made regardless of whether the media outlet published or broadcast the required disclosures. The research analyst's member organization must retain the record of such interview, article, or broadcast and the disclosures made in a manner consistent with Rule 17a-4 of the Securities Exchange Act of 1934. The record retained must be readily available to the Exchange, upon request.

		PUBLIC HALL
Member or Non-Member Closed Door	X	A	X	Member Closed Door
	X		X
	X		X
	X		X
	X		X
	X		X
		X X X X X
		Member Closed Door

Incorporated NYSE Rule Interpretations

Rule 10 "Registered Representative"

Rule 296 Liquidation of Securities Loans and Borrowings

Rule 311 Formation and Approval of Member Organizations

Rule 313 Submission of Partnership Articles Submission of Corporate Documents

Rule 319 Fidelity Bonds

Rule 325 Capital Requirements

Rule 342 Offices — Approval, Supervision and Control

Rule 343 Offices — Sole Tenancy, Hours, Display of Membership Certificates

Rule 344 Research Analysts and Supervisory Analysts

Rule 345 Employees — Registration, Approval, Records

Rule 345A Continuing Education for Registered Persons

Rule 346 Limitations — Employment and Association with Member Organizations

Rule 350 Compensation or Gratuities to Employees of Others

Rule 351 Reporting Requirements

Rule 375 Missing the Market

Rule 382 Carrying Agreements

Rule 387 COD Orders

Rule 401 Business Conduct

Rule 402 Customer Protection — Reserves and Custody of Securities

Rule 405 Diligence as to Accounts

Rule 407 Transactions — Employees of Member Organizations and the Exchange

Rule 408 Discretionary Power in Customers' Accounts

Rule 409 Statements of Accounts to Customers

Rule 410 Records of Orders

Rule 416 Questionnaires and Reports

Rule 430 Partial Delivery of Securities to Customers on C.O.D. Purchases

Rule 431 Margin Requirements

Rule 435(5) Circulation of Rumors

Rule 440.20 Suspense Accounts

Rule 440A Telephone Solicitation

Rule 472 Communications with the Public