BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • 11800. CLOSE-OUT PROCEDURES

    • 11810. Buy-In Procedures and Requirements

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

      However, this Rule shall not apply:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      (d) Procedures for Closing of Contracts

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

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

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

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

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

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

      (e) "Buy-in" Not Completed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

      .03 Sample Buy-In Forms.

      (a) Notice of Buy-In

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


      (b) Notice of Re-transmitted Buy-In

        ................................................................................
        (Member's Name)
       
        ................................................................................
        (Locality and Date)
       
      TO ..................................................................................................................................
       
      RE ..................................................................................................................................
       
      (Quantity and Description of Security)
       
      which is due from you to the undersigned on a contract made on ........... at .............. for settlement on
       
      (Date of Contract) (Contract Price)
       
      ....................................................
       
      (Settlement Date)
       
      * * *
       
          We hereby inform you that a notice of buy-in has been issued with respect to the aforesaid securities and stated that unless delivery was made at or before .................. (Time and date on original buy-in) the securities may be bought in pursuant to Rule 11810 of the Uniform Practice Code.
       
      Note: If some or all of the foregoing securities are due you by another member of the Financial Industry Regulatory Authority, Inc. Rule 11810 also permits you to use the re-transmitted buy-in.
       
        Buy-In Dept.
        By:
        Phone:
      Amended by SR-FINRA-2016-047 eff. Sept. 5, 2017.
      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended by SR-NASD-2007-035 eff. March 13, 2008.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Amended by SR-NASD-95-50 eff. Dec. 28, 1995.
      Amended by SR-NASD-91-61 eff. Mar. 1, 1993.
      Amended by SR-NASD-89-34 eff. Feb 1, 1990.
      Amended by SR-NASD-87-10 eff. June 1, 1989.
      Amended by SR-NASD-84-20 eff. Jan. 1, 1985.
      Amended by SR-NASD-83-8 eff. Oct. 14, 1983.
      Amended by SR-NASD-82-1 eff. Mar. 12, 1982; Mar. 18, 1983.
      Amended eff. Jan. 2, 1968; Feb. 9, 1968; Feb. 21, 1969; Sept. 1, 1969; Mar. 1, 1970; June 1, 1970; Sept. 1, 1970; Aug. 1, 1972; Dec. 1, 1972; May 1, 1973; Jan. 13, 1977; Apr. 7, 1978.

      Selected Notices: 73-39, 82-34, 83-6, 83-69, 84-68, 86-59, 89-44, 89-56, 90-15, 93-17, 96-8, 08-06, 10-49, 17-19.

    • 11820. Selling-Out

      (a) Conditions Permitting "Sell-Out"
      Upon failure of the buyer to accept delivery in accordance with the terms of the contract, and lacking a properly executed Uniform Reclamation Form or the equivalent depository generated advice for depository eligible securities meeting the requirements prescribed in Rule 11710(b), the seller may, without notice, "sell-out" in the best available market and for the account and liability of the party in default all or any part of the securities due or deliverable under the contract.
      (b) Notice of "Sell-Out"
      The party executing a "sell-out" as prescribed above shall, as promptly as possible on the day of execution, but no later than 6 p.m. ET, notify the broker-dealer for whose account and risk such securities were sold of the quantity sold and the price received. Such notification shall be in written or electronic form having immediate receipt capabilities. A formal confirmation of such sale shall be forwarded as promptly as possible after the execution of the "sell-out."
      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended by SR-NASD-91-13 eff. Nov. 1, 1991.
      Amended eff. Feb. 21, 1969; Sept. 1, 1969.

      Selected Notice: 10-49.

    • 11840. Rights and Warrants

      (a) Definition — "Rights"
      The term "rights" or "rights to subscribe," as used in this Rule is the privilege offered to holders of record of issued securities to subscribe (usually on a pro rata basis) for additional securities of the same class, of a different class, or of a different issuer as the case may be.
      (b) Definition — "Warrants"
      The term "warrants" or "stock purchase warrants" as used in this Rule is an instrument issued separately or accompanying other securities, but not necessarily issued to stockholders of record as of a specific date; i.e., warrants issued with or attached to bonds, common stock, preferred stocks, etc. The instrument represents the privilege to purchase securities at a stipulated price or prices and is usually valid for several years.
      (c) Basis and Unit of Trading — Rights
      Except as otherwise designated by the Committee, transactions in rights to subscribe shall be on the basis of one right accruing to each share of issued stock and the unit of trading in rights shall be 100 rights (unless otherwise specified).
      (d) Basis and Unit of Trading — Warrants
      Except as otherwise agreed or designated by the Committee, transactions in stock purchase warrants shall be on the basis of one warrant representing the right of the purchaser to receive one warrant in settlement of such transaction and the unit of trading shall be 100 warrants. Members must ascertain how many warrants they have to sell, what each warrant entitles the holder to purchase, the purchase price, and the current price of the warrant relative to the price of the underlying security which may be purchased. Trades in warrants should be properly described on comparisons and confirmations.
      (e) Securities Which Have Expired by Their Terms
      (1) In contracts for warrants, rights or other securities which have expired by their terms, deliveries effected more than 30 days after expiration shall be consist of (A) the expired securities; or (B) a Letter of Indemnity in lieu of the expired instrument.
      (2) In the case of units or other securities of which one or more of the integral parts of the instrument has expired by its terms, after expiration, the instrument shall cease to be a unit as originally contemplated in the contract. Deliveries effected after expiration shall consist of the unexpired security and (A) the expired instrument; or (B) a Letter of Indemnity in lieu of the expired instrument.
      (3) Deliveries effected pursuant to paragraphs (e)(1) and (2) of this Rule shall be settled at the existing contract price.

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

      .01 Sample Letter of Indemnity.

        _______________________________________________
      (Date)
       
      To:_______________________________________________
       
      Re:_______________________________________________
       
      (Quantity and Description)  
        CUSIP #:_______________________________________________
       
          For value received the undersigned hereby assigns, transfers and sets over to you all rights and privileges which may accrue on the above contract made on (Date of Contract) _______________________________________________ at (Contract Price) _______________________________________________ for settlement (Settlement Date).
       
          Upon acceptance of this delivery in lieu of physical certificates, we agree, for ourselves, our successors, assigns, heirs, executors and administrators, to at all times indemnify and hold harmless from and against any and all claims, liabilities, damages, taxes, charges and expense sustained or incurred by reason of this action. Acceptance of this delivery shall operate to close-out the above stated contract in accordance with the provisions of the FINRA's Uniform Practice Code.
      ______________________________________
      (Member Firm)
      ______________________________________
      (Official Signature)
       
      If any questions, please contact ______________________at (Telephone Number)______________________


      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended by SR-NASD-91-13 eff. Nov. 1, 1991.
      Amended eff. Sept. 1, 1969; Mar. 1, 1970.

      Selected Notice: 10-49.

    • 11860. COD Orders

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      Amended by SR-FINRA-2016-047 eff. Sept. 5, 2017.
      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended by SR-NASD-98-20 eff. June 28, 1999.
      Amended by SR-NASD-94-56eff. June 7, 1995.
      Amended eff. Feb. 11, 1988.
      Adopted eff. Nov. 19, 1982.

      Selected Notices: 86-60, 88-3, 95-36, 10-49, 17-19.

    • 11870. Customer Account Transfer Contracts

      (a) Responsibility to Expedite Customer's Request
      (1) When a customer whose securities account is carried by a member (the "carrying member") wishes to transfer securities account assets, in whole or in specifically designated part, to another member (the "receiving member") and gives authorized instructions to the receiving member, both members must expedite and coordinate activities with respect to the transfer.
      (2) If a customer desires to transfer a portion of his or her account outside of the Automated Customer Account Transfer Service (ACATS), authorized alternate instructions should be transmitted to the carrying member indicating such intent and specifying the designated assets to be transferred. Although such transfers are not subject to the provisions of this Rule, members must expedite all authorized account asset transfers, whether through ACATS or via other means permissible under this Rule, and coordinate their activities with respect thereto. Unless otherwise indicated, the automated customer account transfer capabilities referred to in paragraph (m)(1) of this Rule shall be utilized for partial transfers.
      (3) For purposes of this Rule, customer authorization pursuant to a transfer instruction could be the customer's actual signature, or an electronic signature in a format recognized as valid under federal law to conduct interstate commerce.
      (b) Transfer Procedures
      (1) Upon receipt from the customer of an authorized broker-to-broker transfer instruction form (“TIF”) to receive such customer's securities account assets in whole or in specifically designated part, from the carrying member, the receiving member must immediately submit such instruction to the carrying member by establishing such instruction in ACATS. The carrying member must, within one business day following the establishment of such account transfer instructions, or receipt of a TIF directly from the customer authorizing the transfer of assets in specifically designated part: (A) validate the transfer instruction to the receiving member (with an attachment reflecting all positions and money balances to be transferred as shown on its books); or (B) take exception to the transfer instruction for reasons other than securities positions or money balance discrepancies and advise the receiving member of the exception taken. The time frame(s) set forth in this paragraph will change, as determined from time-to-time in any publication, relating to the ACATS facility, by the National Securities Clearing Corporation (NSCC).
      (2) The carrying member and the receiving member must promptly resolve any exceptions taken to the transfer instruction.
      (c) Transfer Instructions
      (1) Securities account asset transfers accomplished pursuant to this Rule are subject to the following conditions, which the customer must be informed of, affirm, or authorize (as the case may be) through their inclusion in the transfer instruction the customer is required to authorize to initiate the account asset transfer:
      (A) To the extent any account assets are not readily transferable, with or without penalties, such assets may not be transferred within the time frames required by this Rule.
      (B) The customer will be contacted in writing by the carrying member, and/or by the receiving member, with respect to the disposition of nontransferable assets other than proprietary money market fund assets (if any), indicated in an instruction to transfer specifically designated account assets. (See paragraphs (c)(3) and (4) below for customer notification requirements pertaining to transfers of securities account assets in whole.)
      (C) If securities accounts assets in whole, other than retirement plan account assets, are being transferred, the customer must affirm that he or she has destroyed or returned to the carrying member any credit/debit cards and/or unused checks issued in connection with the account.
      (D) For purposes of this Rule, a "nontransferable asset" shall mean an asset that is incapable of being transferred from the carrying member to the receiving member because it is:
      (i) an asset that is a proprietary product of the carrying member;
      (ii) an asset that is a product of a third party (e.g., mutual fund/money market fund) with which the receiving member does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account;
      (iii) an asset that may not be received due to regulatory limitations on the scope of the receiving member's business;
      (iv) an asset that is a bankrupt issue for which the carrying member does not possess (which shall be deemed to include possession at a securities depository for the carrying member's account) the proper denominations or quantity of shares necessary to effect delivery and no transfer agent is available to re-register the shares;
      (v) an asset that is an issue for which the proper denominations cannot be obtained pursuant to governmental regulation or the issuance terms of the product (e.g., foreign securities, baby bonds, etc.);
      (vi) limited partnership interests in retail accounts.
      (E) The carrying member and the receiving member must promptly resolve and reverse any nontransferable assets that were not properly identified during validation. In all cases, each member shall promptly update its records and bookkeeping systems and notify the customer of the action taken.
      (2) A proprietary product of the carrying member shall be deemed nontransferable unless the receiving member has agreed to accept transfer of the product. Upon receipt of the asset validation report, the receiving member shall designate any assets that are a product of a third party (e.g., mutual fund/money market fund) with which the receiving member does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account. The carrying member, upon receipt of such designation, may treat such designated assets as nontransferable and refrain from transferring the designated assets.
      (3) If securities account assets to be transferred in whole include any nontransferable assets that are proprietary products of the carrying member, the carrying member must provide the customer with a list of the specific assets and request, in writing and prior to or at the time of validation of the transfer instruction, further instructions from the customer with respect to the disposition of such assets. In particular, such request should provide, where applicable, the customer with the following alternative methods of disposition for nontransferable assets:
      (A) Liquidation, with a specific indication of any redemption or other liquidation-related fees that may result from such liquidation and that those fees may be deducted from the money balance due the customer and that any remaining balance will be distributed to the customer, including the method by which it will be so distributed.
      (B) Retention by the carrying member for the customer's benefit.
      (C) Transfer, physically and directly, in the customer's name to the customer.
      (4) If securities account assets to be transferred in whole include any nontransferable assets that the receiving member has designated as assets that are a product of a third party (e.g., mutual fund/money market fund) with which the receiving member does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account, the receiving member must provide the customer with a list of the specific assets and request, in writing and prior to the time it makes such designation, further instructions from the customer with respect to the disposition of such assets. In particular, such request should, where applicable, provide the customer with the following alternative methods of disposition for nontransferable assets:
      (A) Liquidation, with a specific indication of any redemption or other liquidation-related fees that may result from such liquidation and that those fees may be deducted from the money balance due the customer. The indication must also refer the customer to the fund prospectus or to their registered representative at the carrying firm for specific details regarding any such fees.
      (B) Retention by the carrying member for the customer's benefit.
      (C) Shipment, physically and directly, in the customer's name to the customer.
      (D) Transfer to the third party that is the original source of the product, for credit to an account opened by the customer with that third party.
      (5) If the customer has authorized liquidation or transfer of assets deemed to be nontransferable, the carrying member must distribute the resulting money balance to the customer or initiate the transfer within five (5) business days following receipt of the customer's disposition instructions.
      (6) With respect to transfers of retirement plan securities account assets, the customer authorizes the custodian/trustee for the account:
      (A) to deduct any outstanding fees due the custodian/trustee from the credit balance in the account, or
      (B) if the account does not contain a credit balance, or if the credit balance in the account is insufficient to satisfy any outstanding fees due the custodian/trustee, to liquidate assets in the account to the extent necessary to satisfy any outstanding fees due the custodian/trustee.
      (d) Validation of Transfer Instructions
      (1) Upon validation of an instruction to transfer securities account assets in whole, a carrying member must "freeze" the account to be transferred, i.e., all open orders, with the exception of option positions that expire within seven (7) business days, must be canceled and no new orders may be taken.
      (2) A carrying member may not take exception to a transfer instruction, and therefore deny validation of the transfer instruction, because of a dispute over securities positions or the money balance in the account to be transferred. Such alleged discrepancies notwithstanding, the carrying member must transfer the securities positions and/or money balance reflected on its books for the account.
      (3) A carrying member may take exception to a transfer instruction only if:
      (A) Additional documentation is required (e.g., legal documents such as death or marriage certificate);
      (B) the account is "flat" and reflects no transferable assets;
      (C) the account number is invalid (i.e., the account number is not on the carrying member's books); however, if the carrying member has changed the account number for purposes of internally reassigning the account to another broker or account executive, it is the responsibility of the carrying firm to track the changed account number, and such reassigned account number shall not be considered invalid for purposes of fulfilling a transfer instruction.
      (D) it is a duplicate request;
      (E) it violates the member's credit policy;
      (F) it contains unrecognized residual credit assets (receiving member cannot identify customer);
      (G) the customer rescinds the instruction (e.g., the customer has submitted written request to cancel transfer);
      (H) there is a mismatch of the Social Security number/Tax ID (e.g., the number on the transfer instruction does not correspond to that on the carrying member's records);
      (I) the account title on the transfer instruction does not match that on the carrying member's records;
      (J) the account type on the transfer instruction does not correspond to that on the carrying member's records;
      (K) the transfer instruction is missing or contains an improper authorization (e.g., TIF requires an additional customer authorization or successor custodian's acceptance authorization or custodial approval); or
      (L) the customer has taken possession of the assets in the account (e.g., the account assets in question have been transferred directly to the customer).
      (4) If a carrying member takes exception to a transfer instruction because the account is "flat," as provided in subparagraph (3)(B) above, the receiving member may re-submit the transfer instruction only if the most recent customer statement is attached.
      (5)(A) Upon validation of an instruction to transfer securities account assets in whole or in specifically designated part, the carrying member must return the transfer instruction to the receiving member with an attachment indicating all securities positions, safekeeping positions, and money balances to be transferred as shown on the books of the carrying member. Except as hereinafter provided, the attachment must include a then-current market value for all assets so indicated. If a then-current market value for an asset cannot be determined (e.g., a limited partnership interest), the asset must be valued at original cost. However, delayed delivery assets (as defined in paragraph (j)(2) of this Rule), nontransferable assets, and assets in transfer to the customer, i.e., in possession of the transfer agent at the time of receipt of the transfer instruction by the carrying member for shipment, physically and directly to the customer, need not be valued, although the "delayed delivery," "nontransferable," or "in-transfer" status, respectively, of such assets must be indicated on the attachment.
      (B) For purposes of this Rule, a "safekeeping position" shall mean any security held by a carrying member in the name of the customer. Safekeeping positions shall also include securities that are unendorsed or have a stock/bond power attached thereto.
      (6) Upon validation of an instruction to transfer securities account assets in whole or in specifically designated part, the carrying member must indicate on the instruction, or by attachment, any initial margin calls, as required by Regulation T, that are outstanding as of the date of validation with respect to the account assets to be transferred.
      (7) A carrying member must provide the following description, at a minimum, as asset data with respect to any municipal securities positions to be transferred that have not been assigned a CUSIP number:
      (A) name of the issuer;
      (B) interest rate and dated date;
      (C) maturity date and put date, if applicable, and if the securities are limited tax, subject to redemption prior to maturity (callable), or revenue bonds; an indication to such effect, including in the case of revenue bonds, the type of revenue, if necessary for a materially complete description of the securities; and
      (D) if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service, or if there is more than one such obligor, the statement "multiple obligors" may be shown.
      (8) After validation of the transfer instruction by the carrying member, a receiving member may reject a transfer of account assets in whole only if the account is not in compliance with the receiving member's credit policies or minimum asset requirements. (A receiving member may deem an account not in compliance with Regulation T requirements as not in compliance with its credit policies.) A receiving member, however, may only reject the entire account for such reasons; it may not reject only a portion of the account assets (e.g., the particular assets not in compliance with the member's credit policies or minimum asset requirement) while accepting the remainder.
      (e) Completion of the Transfer
      Within three business days following the validation of a transfer instruction, the carrying member must complete the transfer of the customer's security account assets to the receiving member. The receiving member and the carrying member must immediately establish fail-to-receive and fail-to-deliver contracts at then-current market values upon their respective books of account against the long/short positions, including options, that have not been delivered/received and the receiving/carrying member must debit/credit the related money amount. The customer's security account assets shall thereupon be deemed transferred. The time frame(s) set forth in this paragraph will change, as determined from time-to-time in any publication, relating to the ACATS facility, by the NSCC.
      (f) Fail Contracts Established
      (1) Any fail contracts resulting from this securities account asset transfer procedure shall be included in a member's fail file and, not later than 10 business days following the date delivery was due, the member shall take steps to obtain physical possession or control of securities so failed to receive by initiating a buy-in procedure or otherwise; provided, that with respect to the following types of securities or instruments, not later than 30 business days following the date delivery was due, the member shall take steps to obtain physical possession or control of securities so failed to receive by initiating a buy-in procedure or otherwise:
      (A) banker's acceptances;
      (B) bond anticipation notes;
      (C) certificates of deposit;
      (D) commercial paper;
      (E) FMAC certificates;
      (F) FNMA certificates;
      (G) foreign securities;
      (H) GNMA certificates;
      (I) limited partnership interests;
      (J) municipal bonds;
      (K) mutual fund shares (transferable);
      (L) revenue anticipation notes;
      (M) SBA certificates; and
      (N) tax anticipation notes.
      (2) A carrying member may not reject ("DK") a fail contract, including a Receive/Deliver Instruction generated by an automated customer account transfer system, in connection with assets in an account that has been transferred but which assets have not been delivered to the receiving member.
      (3) All fail contracts established pursuant to the requirements of this Rule shall be clearly marked or captioned as such. This paragraph will not apply if a fail contract participates in a repricing and reconfirmation service offered by a registered clearing agency.
      (4) All fail contracts required to be established on safekeeping positions must be so indicated.
      (5) Open fail contracts established pursuant to the requirements of this Rule shall be marked-to-market regularly.
      (6) Nontransferable assets and in the process of being transferred directly to the customer are exempt from the requirement in paragraph (e) of this Rule.
      (7) Members may agree to close out fail contracts established pursuant to the requirements of this Rule through the delivery of securities that are substantially comparable to those owed with the prior consent of the customer.
      (8) A receiving member shall reject a delivery of a security that cannot be deemed a safekeeping position against a fail contract as such.
      (9) A receiving member must deem receipt of a duly executed limited partnership change of trustee form, with respect to limited partnership interests, or a mutual fund re-registration form, with respect to mutual fund shares, as adequate delivery for purposes of transferring such assets pursuant to this Rule. With respect to mutual fund shares, a receiving member must deem receipt of a mutual fund re-registration form evidencing book-entry shares in an account as adequate delivery for purposes of transferring such shares, provided the registration form contains the customer's new account number at the fund. The carrying member shall be responsible for obtaining this number and entering it on the form prior to submission to the receiving member. This provision is applicable to book-entry shares and is not intended to preclude the delivery of physical certificates.
      (g) Prompt Resolution of Discrepancies
      (1) Any discrepancies relating to positions or money balances that exist or occur after transfer of a customer's securities account assets must be resolved promptly.
      (2) The carrying member must promptly distribute to the receiving member any transferrable assets that accrue to the account after the transfer of a customer's securities account has been effected.
      (3) When a member receives a claim notice relating to a securities account asset transfer, the member must resolve the claim within five (5) business days from receipt of such claim or take exception to the claiming member by setting forth specific reasons for denying the claim.
      (h) Close-Out Procedures
      A valued fail contract in a security, for which there are no established close-out procedures, and which has not been completed by the carrying member, may be closed by the receiving member not sooner than the third business day following the date delivery was due, in accordance with the following procedure:
      (1) Written notice shall be delivered to the carrying member at its office not later than 12:00 noon, Eastern Time (ET), two business days preceding the execution of the proposed "close-out."
      (2)(A) Every notice of "close-out" shall state the settlement date, the quantity and contract price of the securities covered by said contract, and shall state further that unless delivery is effected at or before a certain specified time, which may not be prior to 3:00 p.m. ET, the security may be "closed-out" on the date specified for the account of the carrying member.
      (B) Original notices may only be issued pursuant to fail contracts marked or captioned as fails established pursuant to paragraph (f)(3) of this Rule.
      (C) Notice may be redelivered immediately to another member from whom the securities involved are due in the form of a re-transmitted notice. A re-transmitted notice must be delivered to subsequent members not later than 12:00 noon ET one business day preceding the original date of execution of the proposed close-out.
      (D) Re-transmitted notices may be issued against a fail contract regardless of its origin.
      (3)(A) On failure of the carrying member to effect delivery in accordance with the notice, or to obtain a stay as hereinafter provided, the receiving member may close the contract by purchasing the securities necessary to complete the contract. Such execution will also operate to close-out all contracts covered under re-transmitted notices.
      (B) The party executing the "close-out" shall immediately upon execution, but not later than 6:00 p.m. ET on the date of the execution of such “close-out,” notify the member for whose account the securities were bought as to the quantity purchased and the price paid. Such notification shall be in written or electronic form having immediate receipt capabilities. If a medium with immediate receipt capabilities is not available, the telephone shall be used for the purpose of same day notification, and written or similar electronic notification having next day receipt capabilities must be sent out simultaneously. In either case formal confirmation of purchase along with a billing or payment (depending upon which is applicable) shall be forwarded as promptly as possible after the execution of the "close-out." Notification of the execution of the "close-out" shall be given to succeeding members to whom a re-transmitted notice was issued using the same procedures stated herein.
      (C) If prior to the closing of a contract on which a "close-out" notice has been given, the receiving member receives from the carrying member written notice stating that the securities, except for those securities due from a depository, are (i) in transfer; (ii) in transit; (iii) being shipped that day; (iv) due from a depository, and include the certificate numbers; then the receiving member must extend the execution date of the "close-out" for a period of seven (7) calendar days from the date delivery was due under the "close-out."
      (4) In the event that a "close-out" is not completed on the day specified in the notice, said notice shall expire at the close of business on the day specified in the notice, or if extended, at the close of business on the last day of the extension.
      (i) Sell-Out Procedures
      (1) Upon failure of the receiving member to accept delivery in accordance with the terms of the contract, and lacking a (A) properly executed Uniform Reclamation Form; (B) depository generated rejection advice; or (C) valid Reversal Form; the carrying member may, without notice, "sell-out" in the best available market, for the liability of the party in default, all or any part of the securities due or deliverable under the contract.
      (2) The party executing a "sell-out" as prescribed above shall notify, no later than 6:00 p.m. ET on the day of execution, the member, for whose account and liability such securities were sold, of the quantity sold and the price received. Such notification shall be in written or electronic form having immediate receipt capabilities. A formal confirmation of such sale shall be forwarded as promptly as possible after the execution of the "sell-out."
      (j) Exemptions
      (1) Pursuant to the Rule 9600 Series, FINRA may exempt from the provisions of this Rule, either unconditionally or on specified terms and conditions, (A) any member or (B) any type of account, security or financial instrument.
      (2) The following assets are deemed subject to delayed delivery and are exempt from paragraph (e) of this Rule:
      (A) insurance policies (annuities);
      (B) stripped coupons;
      (C) when-issued or when-distributed securities.
      (3) Zero value fail-to-receive and fail-to-deliver instructions shall be generated for the assets specified in paragraph (j)(2) of this Rule.
      (k) Retirement Plan Securities Accounts
      (1) It is the responsibility of the receiving member to obtain the approval of its custodian/trustee accepting a customer's retirement plan securities account before submitting a transfer instruction for such account assets to the carrying member or its custodian/trustee to facilitate transfer of the account assets.
      (2) If, with respect to the transfer of a retirement plan securities account assets, outstanding fees are due the custodian/trustee for the account, such fees must be deducted from the credit balance in the account or, if the account does not contain a credit balance or if the credit balance is insufficient to satisfy such fees, assets in the account must be liquidated to the extent necessary to satisfy such fees. If liquidation of assets in the account is not practicable, such fees must then be transferred to and accepted by the receiving member as a debit item with the account.
      (l) Securities Account
      For the purposes of this Rule, the term "securities account" shall be deemed to include any and all of the account's money market fund positions or the redemption value thereof.
      (m) Participant in a Registered Clearing Agency
      (1) When both the carrying member and the receiving member are participants in a registered clearing agency having automated customer securities account asset transfer capabilities and are eligible to use such capabilities, the securities account asset transfer procedure, including the establishing and closing out of fail contracts, must be accomplished in accordance with the provisions of this Rule and pursuant to the rules of and through such registered clearing agency with the exception of specifically designated assets transferred pursuant to the submittal of a customer's authorized alternate instructions to the carrying member.
      (2) When such registered clearing agency has the capability to transfer mutual fund positions or to employ functionalities including Partial Transfer Receive (PTR), Partial Transfer Delivery (PTD), Fail Reversal, Mutual Fund Fail Cleanup, or Reclaim Processing, such capability must be utilized with the exception of specifically designated assets transferred pursuant to the submittal of a customer's authorized alternate instructions to the carrying member.
      (3) When securities account assets are transferred in whole and such registered clearing agency has the capability to transfer residual credit positions (both cash and securities) that have accrued to an account after the account has been transferred (residual credit processing), such capability must be utilized for transferring residual credit positions from the carrying member to the receiving member.
      (4) When both the carrying member and the receiving member are participants in a registered clearing agency having automated customer securities account asset transfer capabilities with a facility permitting electronic transmittal of customer account asset transfer instructions, such facilities shall be used in accordance with the following:
      (A) members using such facilities shall execute an agreement designated by the Committee specifying the rights, obligations and liabilities of all participants in or users of such facilities;
      (B) customer account transfer instructions shall be transmitted in accordance with the procedures prescribed by the registered clearing agency;
      (C) the transmittal of a transfer request through such electronic facilities shall constitute a representation by the receiving member that it has received a properly executed TIF or other actual authority to receive the customer's securities and funds;
      (D) transfer instructions transmitted through such facilities shall contain the information necessary for the clearing agency and the carrying member to respond to the transfer instruction as may be specified by this Rule and the clearing agency; and
      (E) non-standard ACAT processing, such as Partial Transfer Receives (PTR), Partial Transfer Deliver (PTD) Fail Reversal, and reclaim processing shall be transmitted through such facilities, if the facility permits.
      (5) For purposes of this Rule, the term "registered clearing agency'' shall be deemed to be a clearing agency as defined in the Exchange Act and registered in accordance with the Exchange Act. For purposes of this Rule, the term “participant in a registered clearing agency” shall mean a member of a registered clearing agency that is eligible to make use of the agency's automated customer securities account transfer capabilities.
      (n) Transfers Accomplished Ex-Clearing
      (1) If one or both of the members processing a customer account transfer pursuant to this Rule is not a member of a registered clearing agency, the fail-to-receive and fail-to-deliver contracts required to be established pursuant to paragraph (e) of this Rule must be established outside a clearing corporation on an "ex-clearing house" basis. Similarly, settlement of the fail contracts and any close-out executions must be made "ex-clearing house."
      (2) Each member (including members that do not utilize automated customer securities account asset transfer facilities) is required, for a minimum period of six (6) months after the transfer of securities account assets in whole is completed, to transfer credit balances (both cash and securities) that occur in such transferred account assets within (10) ten business days after the credit balances accrue to the account.

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

      .01 Written Procedures. Members must establish, maintain and enforce written procedures to affect and supervise the transfer of securities account assets pursuant to this Rule that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.

      .02 Transfer of Retirement Plan Securities. With respect to the transfer of retirement plan securities account assets, the carrying member is responsible for informing the customer that the choice of method of disposition of such assets may result in liability for the payment of taxes and penalties with respect to such assets.

      .03 Sample Transfer Instruction Forms.

      (a) Customer Account Transfer

      CUSTOMER SECURITIES ACCOUNT TRANSFER INSTRUCTION
       
        ________________________________________
        (Date)
       
      RECEIVING FIRM ________________________________________ CARRYING FIRM ________________________________________
       
      RECEIVING FIRM
      ACCOUNT NUMBER ________________________________________
      CARRYING FIRM
      ACCOUNT NUMBER ________________________________________
       
      ACCOUNT TITLE ________________________________________
      ________________________________________
      ________________________________________
       
      ACCOUNT TYPE ________________________________________ (C = CASH, M = MARGIN)
       
      TAX ID OR SS NUMBER ________________________________________
       
      TO _________________________________________________________________________________
      (Receiving Firm Name and Address)
       
      Please receive my entire securities account from the below indicated carrying firm and remit to it the debit balance or accept from it the credit balance in my securities account.
       
      TO _________________________________________________________________________________
      (Carrying Firm Name and Address)
       
      Please transfer my entire securities account to the above indicated receiving firm, which has been authorized by me to make payment to you of the debit balance or to receive payment of the credit balance in my securities account. I understand that to the extent any assets or instruments in my securities account are not readily transferable, with or without penalties, such assets or instruments may not be transferred within the time frames required by Rule 11870 of the FINRA Uniform Practice Code.

      I understand that you will contact me with respect to the disposition of any assets in my securities account that are nontransferable. If certificates or other instruments in my securities account are in your physical possession, I instruct you to transfer them in good deliverable form, including affixing any necessary tax waivers, to enable such receiving firm to transfer them in its name for the purpose of sale, when and as directed by me. I further instruct you to cancel all open orders for my securities account on your books.

      I affirm that I have destroyed or returned to you any credit/debit cards and/or unused checks issued to me in connection with my securities account.
       
      ________________________________________ ________________________________________
      (Customer's Signature) (Date)
       
      ________________________________________ ________________________________________
      (Customer's Signature if Joint Account) (Date)
       
      [It is suggested that a copy of the customer's most recent account statement be attached.]
       
      Receiving Firm Contact:
      Name ________________________________________ Phone Number ________________________________________
       
      For Broker Use Only:
      Mutual Fund Registration Instructions:
      Registration Name _________________________________________________________________________________
      Address _________________________________________________________________________________
      Tax ID # _________________________________________________________________________________
      Dividend and Capital Gains Options:
      Reinvest ( ) Dividend Cash/Capital Gains Reinvest ( )
      All Cash ( ) Deposit to New Plan ( )
      Issue Certificate ( ) Deposit to Existing Plan ...... ( )
      Broker Instructions (if broker agreement exists):
      Name _________________________________________________________________________________
      Address _________________________________________________________________________________
      RR Name/Number/Branch _________________________________________________________________________________


      (b) Customer Retirement Account Transfer

      CUSTOMER RETIREMENT PLAN SECURITIES ACCOUNT
      TRANSFER INSTRUCTION
       
      RECEIVING FIRM ________________________________________ CARRYING FIRM ________________________________________
       
      RECEIVING FIRM
      ACCOUNT NUMBER ________________________________________
      CARRYING FIRM
      ACCOUNT NUMBER ________________________________________
       
      ACCOUNT TITLE ________________________________________
      ________________________________________
      ________________________________________
       
      ACCOUNT TYPE ________________________________________ (I = IRA, Q = QUALIFIED)
       
      TAX ID OR SS NUMBER ________________________________________
       
      TO _________________________________________________________________________________
      (Prior Custodian/Trustee Name, Address and Tax ID Number)
       
      You are the custodian/trustee for my retirement plan securities account with
       
      _________________________________________________________________________________
      (Carrying Firm Name and Address)
       
      as my broker. Please be advised that I have amended my retirement plan and have adopted a new retirement plan with the below indicated as successor custodian/trustee and
       
      _________________________________________________________________________________ as broker
      (Receiving Firm Name and Address)
       
      Pursuant to said amendment, please transfer all assets in my securities account to such successor custodian/trustee. I understand that to the extent any assets in my account are not readily transferable, with or without penalties, such assets may not be transferred within the time frames required by Rule 11870 of the FINRA Uniform Practice Code.

      I understand that the above indicated carrying firm will contact me with respect to the disposition of any assets in my account that are nontransferable. I authorize you to deduct any outstanding fees due you from the credit balance in my account. If my account does not contain a credit balance, or if the credit balance in the account is insufficient to satisfy any outstanding fees due you, I authorize you to liquidate the assets in my account to the extent necessary to satisfy any outstanding fees due you. If certificates or other instruments in my account are in your physical possession, I instruct you to transfer them in good deliverable form, including affixing any necessary tax waivers, to enable the successor custodian/trustee to transfer them in its name for the purpose of sale, when and as directed by me. Upon receiving a copy of this transfer instruction, the carrying firm will cancel all open orders for my account on its books.
       
      ________________________________________ ________________________________________
      (Customer's Signature) (Date)
       
      Please be advised that _________________________________________________________________________________
      (Successor Custodian/Trustee Name, Address and Tax ID Number)
       
      will accept the above captioned account as successor custodian/trustee.
      Please send all checks to
       
      _________________________________________________________________________________ and non-DTC eligible items to
       
      _________________________________________________________________________________
       
      ________________________________________ ________________________________________
      (Successor Custodian/Trustee Authorized Signature) (Date)
       
      ________________________________________ ________________________________________
      (Tax ID Number) (Date of Trust)
       
      [It is suggested that a copy of the customer's most recent account statement be attached.]
       
      Receiving Firm Contact:
      Name ________________________________________ Phone Number ________________________________________
       
      For Broker Use Only:
      Mutual Fund Registration Instructions:
      Registration Name _________________________________________________________________________________
      Address _________________________________________________________________________________
      Tax ID # _________________________________________________________________________________
      Dividend and Capital Gains Options:
      Reinvest ( ) Dividend Cash/Capital Gains Reinvest ( )
      All Cash ( ) Deposit to New Plan ( )
      Issue Certificate ( ) Deposit to Existing Plan ...... ( )
      Broker Instructions (if broker agreement exists):
      Name _________________________________________________________________________________
      Address _________________________________________________________________________________
      RR Name/Number/Branch _________________________________________________________________________________


      (c) Mutual Fund Re-Registration

      MUTUAL FUND RE-REGISTRATION INSTRUCTIONS
      USED FOR BROKER-TO-BROKER TRANSFERS
       
      (1) TO: ________________________________________ Date: ________________________________________
        Transfer Agent: ________________________________________
        Address: ________________________________________
       
      (2) Present
      Account
      Information
      Name of Fund: ________________________________________

      Fund A/C #: ________________________________________

      Certificate # (if in physical form)

      [Certificate attached must be in negotiable form.]

      Account Registration: ________________________________________
       
      (3)(A) Broker
      Identification
      Old Firm Name and
      In-house A/C# ________________________________________
       
      (3)(B)   New Firm Name and
      In-house A/C# ________________________________________
       
      (4) Registration
      Instructions
      Please transfer _________ shares from the above-referenced account and register as follows:
       
        Name _________________________________________________________________________________
        Address _________________________________________________________________________________
        Tax ID # _________________________________________________________________________________
       
      Dividend and Capital Gains Option:
      Reinvest ( ) Dividend Cash/Capital Gains Reinvest ( )
      All Cash ( ) Deposit to New Plan ( )
      Issue Certificate ( ) Deposit to Existing Plan ........ ( )
       
      (5) Broker-Dealer Instructions If a Broker-Dealer Agreement exists:

      Name ________________________________________

      Address ________________________________________

      RR Name/Number/Branch ________________________________________
       
      (6) Release In consideration for your complying with the above request, we hereby agree to indemnify the:

      ________________________________________ (fund)

      and

      ________________________________________ (agent)

      against any and all losses incurred hereof.

      Thank you in advance for your cooperation in this matter.

      Sincerely,
       
        (Signature Guarantee Stamp) ________________________________________
        (Authorized Signature)
       
      If there are any questions call:
       
      ________________________________________ ________________________________________
      (Signature of Carrying Firm) (Phone Number)
       
      ________________________________________ ________________________________________
      (Signature of Receiving Firm) (Phone Number)
       
      Items 1, 2, 3a are completed by the carrying firm.
       
      Items 3b, 4 and 5 are completed by the receiving firm.

      Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended by SR-FINRA-2007-005 eff. Oct. 22, 2007.
      Amended by SR-NASD-2004-58 eff. Sept. 13, 2004.
      Amended by SR-NASD-2001-53 eff. Sept. 12, 2001.
      Amended by SR-NASD-2000-68 eff. Nov. 17, 2000.
      Amended by SR-NASD-97-28 eff. Aug. 7, 1997.
      Amended by SR-NASD-97-05 eff. May 8, 1997.
      Amended by SR-NASD-95-59 eff. July 1, 1996.
      Amended by SR-NASD-94-56 eff. Mar. 3, 1995.
      Amended by SR-NASD-94-56 eff. Dec. 2, 1994.
      Amended by SR-NASD-93-41 eff. Feb. 1, 1994.
      Amended by SR-NASD-91-61 eff. Mar. 1, 1993.
      Adopted by SR-NASD-85-29 eff. Feb. 24, 1986.

      Selected Notices: 86-12, 93-17, 93-86, 01-53, 01-66, 04-58, 07-50, 10-49.

    • 11880. Settlement of Syndicate Accounts

      (a) Definitions

      (1) "Selling syndicate" means any syndicate formed in connection with a public offering to distribute all or part of an issue of corporate securities by sales made directly to the public by or through participants in such syndicate.

      (2) "Syndicate account" means an account formed by members of the selling syndicate for the purpose of purchasing and distributing the corporate securities of a public offering.

      (3) "Syndicate manager" means the member of the selling syndicate that is responsible for maintenance of syndicate account records.

      (4) "Syndicate settlement date" means the date upon which corporate securities of a public offering are delivered by the issuer to or for the account of the syndicate members.

      (b) Final settlement of syndicate accounts shall be effected by the syndicate manager within 90 days following the syndicate settlement date.

      (c) No later than the date of final settlement of the syndicate account, the syndicate manager shall provide to each member of the selling syndicate an itemized statement of syndicate expenses that shall include, where applicable, the following categories of expenses: legal fees; advertising; travel and entertainment; closing expenses; loss on oversales; telephone; postage; communications; co-manager's expenses; computer, data processing charges; interest expense; and miscellaneous. The amount under "miscellaneous" should not be disproportionately large in relation to other items and should include only minor items that cannot be easily categorized elsewhere in the statement. Any other major items not included in the above categories shall be itemized separately.

      (d) Settlement of Underwritten Public Offerings
      The syndicate manager of a public offering underwritten on a "firm-commitment" basis shall, immediately, but in no event later than the scheduled closing date, notify the FINRA's Operation Department of any anticipated delay in the closing of such offering beyond the closing date in the offering document or any subsequent delays in the closing date previously reported pursuant to this Rule.
      Amended by SR-FINRA-2010-030 eff. Dec. 15, 2010.
      Amended eff. May 1, 1987; Mar. 14, 1988; Aug. 3, 1988.
      Adopted eff. Oct. 1, 1985.

      Selected Notices: 85-59, 87-23, 87-88, 88-73, 10-49.

    • 11890. Clearly Erroneous Transactions

      • 11891. General

        For purposes of the Rule 11890 Series, the terms of a transaction are “clearly erroneous” when there is an obvious error in any term, such as price, number of shares, or other unit of trading, or identification of the security.

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

        .01 Refusal to Abide by Rulings. It shall be considered conduct inconsistent with just and equitable principles of trade for any member to refuse to take any action that is necessary to effectuate a final decision of a FINRA officer or the UPC Committee under this Rule 11890 Series.

        .02 Disruptions or Malfunctions Related to the Use of a FINRA System. In making a determination regarding whether a transaction is clearly erroneous, FINRA takes into account the circumstances at the time of the transaction, the maintenance of a fair and orderly market, and the protection of investors and the public interest. Participants in FINRA systems are responsible for ensuring that the appropriate price and type of order are entered into FINRA's systems. Simple assertion by a member that it made a mistake in entering an order or a quote, or that it failed to pay attention or to update a quote, may not be sufficient to establish that a transaction was clearly erroneous.

        .03 Extraordinary Market Conditions. The Rule 11890 Series is generally focused on systemic problems that involve large numbers of parties or trades, or market conditions where it would not be in the best interests of the market for one or more transactions to stand. Additionally, the Rule 11890 Series would include situations where an extraordinary event has occurred or is ongoing that has had a material effect on the market for a security traded over-the-counter or has caused major disruption to the marketplace.

        .04 Account Intrusion. FINRA's clearly erroneous authority under the Rule 11890 Series does not extend to unauthorized trading activity or attempts to manipulate stock prices by illegally gaining access to legitimate accounts or opening new accounts using false information (often referred to as “account intrusion”). Such suspicious trading activities relate to allegations of fraud and therefore are not within the scope of the Rule 11890 Series. In this regard, members should routinely review the adequacy of their internal controls and ensure that appropriate system safeguards are in place to minimize or eliminate the potential for account intrusion.

        Amended by SR-FINRA-2009-068 eff. Feb. 15, 2010.
        Amended by SR-NASD-2006-104 eff. March 5, 2007.
        Amended by SR-NASD-2005-089 eff Oct. 1, 2005.
        Renumbered by SR-NASD-2003-80 eff. May 6, 2003.
        Adopted by SR-NASD-2002-127 eff. Jan. 27, 2003.

        Selected Notices: 03-11, 10-04.

      • 11892. Clearly Erroneous Transactions in Exchange-Listed Securities

        (a) Procedures for Reviewing Transactions
        (1) An Executive Vice President of FINRA's Market Regulation Department or Transparency Services Department, or any officer designated by such Executive Vice President (FINRA officer), may, on his or her own motion, review any over-the-counter transaction involving an exchange-listed security arising out of or reported through a trade reporting system owned or operated by FINRA or FINRA Regulation and authorized by the Commission, provided that the transaction meets the thresholds set forth in paragraph (b), except as provided for in paragraphs (c) and (d) below. A FINRA officer acting pursuant to this subparagraph may declare any such transaction null and void if the officer determines that (A) the transaction is clearly erroneous, or (B) such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest, consistent with the thresholds set forth in paragraph (b), except as provided for in paragraphs (c) and (d) below. Absent extraordinary circumstances, the officer shall take action pursuant to this paragraph generally within 30 minutes after becoming aware of the transaction. When extraordinary circumstances exist, any such action of the officer must be taken no later than the start of trading on the day following the date of execution(s) under review.
        (2) If a FINRA officer acting pursuant to this Rule declares any transaction null and void, each party involved in the transaction shall be notified as soon as practicable by FINRA, and the party aggrieved by the action may appeal such action in accordance with Rule 11894, unless the officer making the determination also determines that the number of the affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest, and further provided that rulings made by FINRA in conjunction with one or more other self-regulatory organizations are not appealable.
        (b) Thresholds
        Determinations of a clearly erroneous execution pursuant to paragraph (a)(1) will be made as follows:
        (1) Numerical Guidelines
        Subject to the provisions of paragraph (b)(3) below, a transaction shall be found to be clearly erroneous if the price of the transaction is away from the Reference Price by an amount that equals or exceeds the Numerical Guidelines set forth below. The Reference Price will be equal to the consolidated last sale immediately prior to the execution(s) under review except for: (A) Multi-Stock Events involving twenty or more securities, as described in paragraph (b)(2) below and (B) in other circumstances, such as, for example, relevant news impacting a security or securities, periods of extreme market volatility, sustained illiquidity, or widespread system issues, where use of a different Reference Price is necessary for the maintenance of a fair and orderly market and the protection of investors and the public interest.
        Reference Price:
        Circumstance or Product
        Normal Market Hours
        (9:30 a.m. Eastern Time
        to 4:00 p.m. Eastern
        Time) Numerical
        Guidelines (Subject
        transaction's %
        difference from the
        Reference Price):
        Outside Normal Market
        Hours Numerical
        Guidelines (Subject
        transaction's %
        difference from the
        Reference Price):
        Greater than $0.00 up to
        and including $25.00
        10% 20%
        Greater than $25.00 up to
        and including $50.00
        5% 10%
        Greater than $50.00 3% 6%
        Multi-Stock Event —
        Events involving five or
        more, but less than twenty, securities
        whose executions occurred within a
        period of five minutes or less
        10% 10%
        Multi-Stock Event —
        Events involving twenty or
        more securities whose executions
        occurred within a period of five
        minutes or less
        30%, subject to the terms
        of paragraph (b)(2)
        below
        30%, subject to the terms
        of paragraph (b)(2) below
        Leveraged ETF/ETN securities Normal Market Hours
        Numerical Guidelines
        multiplied by the leverage
        multiplier (i.e. 2x)
        Normal Market Hours
        Numerical Guidelines
        multiplied by the leverage
        multiplier (i.e. 2x)
        (2) Multi-Stock Events Involving Twenty or More Securities
        During Multi-Stock Events involving twenty or more securities, the number of affected transactions may be such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. In such circumstances, FINRA may use a Reference Price other than the consolidated last sale. To ensure consistent application across the markets when this paragraph is invoked, FINRA will promptly coordinate with other self-regulatory organizations to determine the appropriate review period, which may be greater than the period of five minutes or less that triggered application of this paragraph, as well as select one or more specific points in time prior to the transactions in question and use transaction prices at or immediately prior to the one or more specific points in time selected as the Reference Price. FINRA will nullify as clearly erroneous all transactions that are at prices equal to or greater than 30% away from the Reference Price in each affected security during the review period selected by FINRA and the other self-regulatory organizations consistent with this paragraph.
        (3) Additional Factors
        Except in the context of a Multi-Stock Event involving five or more securities, a FINRA officer may also consider additional factors to determine whether a transaction is clearly erroneous, including but not limited to, system malfunctions or disruptions; volume and volatility for the security; derivative securities products that correspond to greater than 100% in the direction of a tracking index; news released for the security; whether trading in the security was recently halted/resumed; whether the security is an IPO; whether the security was subject to a stock-split, reorganization, or other corporate action; overall market conditions; Opening and Late Session executions; validity of the consolidated tapes' trades and quotes; consideration of primary market indications; and executions inconsistent with the trading pattern in the stock. Each additional factor shall be considered with a view toward maintaining a fair and orderly market and the protection of investors and the public interest.
        (c) Multi-day Events
        A series of transactions in a particular security on one or more trading days may be viewed as one event if all such transactions were effected based on the same fundamentally incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for all such transactions (the "Event"). A FINRA officer, acting on his or her own motion, shall take action to declare all transactions that occurred during the Event null and void not later than the start of trading on the day following the last transaction in the Event. If trading in the security is halted before the valuation error is corrected, a FINRA officer shall take action to declare all transactions that occurred during the Event null and void prior to the resumption of trading. Notwithstanding the foregoing, no action can be taken pursuant to this paragraph with respect to any transactions that have reached settlement date or that result from an initial public offering of a security. To the extent transactions related to an Event occur on one or more other self-regulatory organization, FINRA will promptly coordinate with such other self-regulatory organization(s) to ensure consistent treatment of the transactions related to the Event, if practicable. Any action taken in connection with this paragraph will be taken without regard to the Numerical Guidelines set forth in this Rule. FINRA will notify each member involved in a transaction subject to this paragraph as soon as practicable of a determination to declare such transaction null and void, and the party aggrieved by the action may appeal such action in accordance with Rule 11894.
        (d) Transactions Occurring During Trading Halts
        In the event of any disruption or malfunction in the operation of the electronic communications and trading facilities of a self-regulatory organization or responsible single plan processor in connection with the transmittal or receipt of a regulatory trading halt, suspension or pause, a FINRA officer, acting on his or her own motion, shall declare as null and void any transaction in a security that occurs after the primary listing market for such security declares a regulatory trading halt, suspension or pause with respect to such security and before such regulatory trading halt, suspension or pause with respect to such security has officially ended according to the primary listing market. In addition, in the event a regulatory trading halt, suspension or pause is declared, then prematurely lifted in error and is then re-instituted, a FINRA officer also shall declare as null and void transactions that occur before the official, final end of the regulatory halt, suspension or pause according to the primary listing market. Any action taken in connection with this paragraph shall be taken in a timely fashion, generally within thirty (30) minutes of the detection of the erroneous transaction and in no circumstances later than the start of normal market hours on the trading day following the date of the execution(s) under review. Any action taken in connection with this paragraph will be taken without regard to the Numerical Guidelines set forth in this Rule. FINRA will notify each member involved in a transaction subject to this paragraph as soon as practicable of a determination to declare such transaction(s) null and void, and the party aggrieved by the action may appeal such action in accordance with Rule 11894.

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

        .01 Determinations by a National Securities Exchange to Nullify and Void the Terms of One or More Transactions in an Exchange-Listed Security When There Are Corresponding or Related Transactions Reported Through a FINRA System.

        FINRA believes that coordinating with other self-regulatory organizations with the goal of having consistency and transparency regarding the clearly erroneous process is important to the marketplace and to investors. Consequently, for OTC transactions in exchange-listed securities that are reported to a FINRA system, such as a FINRA Trade Reporting Facility (“TRF”) or Alternative Display Facility (“ADF”), FINRA will generally follow the determination of a national securities exchange to break a trade(s) when that national securities exchange has broken a trade(s) at or near the price range in question at or near the time in question (in FINRA staff's sole discretion) such that FINRA breaking such trade(s) would be consistent with market integrity and investor protection. In such a case where multiple national securities exchanges have related trades, FINRA will leave a trade(s) unbroken when any of those national securities exchanges has left a trade(s) unbroken at or near the price range in question at or near the time in question (in FINRA staff's sole discretion) such that FINRA breaking such trade(s) would be inconsistent with market integrity and investor protection.

        .02 The amendments set forth in File Nos. SR-FINRA-2010-032 and SR-FINRA-2014-021, and the provisions of Supplementary Material .03 of this Rule shall be in effect during a pilot period to coincide with the pilot period for the Limit Up-Limit Down Plan, including any extensions to the pilot period for the Plan. If the Plan is not extended or approved as permanent, the version of this Rule prior to SR-FINRA-2010-032 shall be in effect, and the amendments set forth in File No. SR-FINRA-2014-021 and the provisions of Supplementary Material .03 of this Rule shall be null and void.

        .03 Securities Subject to Limit Up-Limit Down Plan. For purposes of this Supplementary Material .03, the phrase "Limit Up-Limit Down Plan" or "Plan" shall mean the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of SEC Regulation NMS.

        (a) The provisions of Rule 11892 paragraphs (a) through (d) and Supplementary Material .01 above shall govern all over-the-counter transactions in exchange-listed securities reported to a FINRA system, such as a FINRA TRF or ADF, including transactions in securities subject to the Plan, other than as set forth below.
        (b) If as a result of a member's technology or systems issue any transaction reported to a FINRA system, such as a FINRA TRF or ADF, occurs outside of the applicable price bands disseminated pursuant to the Plan, a FINRA officer, acting on his or her own motion or at the request of a member, shall review and deem such transaction clearly erroneous, subject to the certification requirement of paragraph (c) below. Absent extraordinary circumstances, any such action of the FINRA officer shall be taken in a timely fashion, generally within thirty (30) minutes of the detection of the erroneous transaction. When extraordinary circumstances exist, any such action of the FINRA officer must be taken by no later than the start of normal market hours on the trading day following the date on which the execution(s) under review occurred. Each member involved in the transaction shall be notified as soon as practicable by FINRA, and a member aggrieved by the action may appeal such action in accordance with Rule 11894. In the event that a single plan processor experiences a technology or systems issue that prevents the dissemination of price bands, FINRA will make the determination of whether to deem transactions clearly erroneous based on Rule 11892 paragraphs (a) through (d) and Supplementary Material .01 above.
        (c) A member requesting review of a transaction pursuant to the above paragraph must certify, in the manner and form prescribed by FINRA, that the subject transaction(s) occurring outside of the applicable price bands disseminated pursuant to the Plan is the result of the member's bona fide technological or systems issue.
        Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
        Amended by SR-FINRA-2014-021 eff. June 19, 2014.
        Amended by SR-FINRA-2014-013 eff. Mar. 19, 2014.
        Amended by SR-FINRA-2013-041 eff. Sept. 24, 2013.
        Amended by SR-FINRA-2013-012 eff. Jan. 30, 2013.
        Amended by SR-FINRA-2012-038 eff. July 23, 2012.
        Amended by SR-FINRA-2012-005 eff. Jan. 24, 2012.
        Amended by SR-FINRA-2011-039 eff. Aug. 10, 2011.
        Amended by SR-FINRA-2011-037 eff. Aug. 5, 2011.
        Amended by SR-FINRA-2011-014 eff. Mar. 30, 2011.
        Amended by SR-FINRA-2010-065 eff. Dec. 8, 2010.
        Amended by SR-FINRA-2010-032 eff. Sept. 10, 2010.
        Amended by SR-FINRA-2009-068 eff. Feb. 15, 2010.
        Amended by SR-FINRA-2008-037 eff. July 8, 2008.
        Amended by SR-NASD-2006-104 eff. March 5, 2007.
        Amended by SR-NASD-2006-121 eff. Oct. 30, 2006.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
        Amended by SR-NASD-2006-033 eff. Mar. 1, 2006.
        Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
        Amended by SR-NASD-2005-115 eff. Sep. 22, 2005.
        Amended by SR-NASD-2004-009 eff. July 27, 2005.
        Amended by SR-NASD-2003-125 eff. Aug. 8, 2003.
        Amended by SR-NASD-2002-127 eff. Jan. 22, 2003.
        Amended by SR-NASD-98-85 eff. October 11, 1999.
        Amended by SR-NASD-98-94 eff. April 26, 1999.
        Amended by SR-NASD-96-51 eff. Feb. 23, 1998.
        Amended June 21, 1991; May 21, 1993.
        Adopted eff. Apr. 2, 1990.

        Selected Notices: 98-21, 99-29, 00-10, 03-11, 10-04, 10-43, 16-04.

      • 11893. Clearly Erroneous Transactions in OTC Equity Securities

        (a) Procedures for Reviewing Transactions
        An Executive Vice President of FINRA's Market Regulation Department or Transparency Services Department, or any officer designated by such Executive Vice President, may, on his or her own motion, review any transaction involving an OTC Equity Security arising out of or reported through a trade reporting system owned or operated by FINRA or FINRA Regulation and authorized by the Commission. A FINRA officer acting pursuant to this paragraph may declare any such transaction null and void if the officer determines that (A) the transaction is clearly erroneous, or (B) such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest; provided, however, that the officer shall take action pursuant to this paragraph as soon as possible after becoming aware of the transaction, but in all cases by 3:00 p.m., Eastern Time, on the next trading day following the date of the transaction(s) at issue. If a FINRA officer acting pursuant to this paragraph declares any transaction null and void, each party involved in the transaction shall be notified as soon as practicable by FINRA, and the party aggrieved by the action may appeal such action in accordance with Rule 11894, unless the officer making the determination also determines that the number of the affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest.
        (b) Clearly Erroneous Factors
        (1) Numerical Guidelines
        A transaction in an OTC Equity Security may be found to be clearly erroneous under this Rule only if the execution price of the transaction is away from the Reference Price by an amount that equals or exceeds the Numerical Guidelines set forth below. In some instances, the Numerical Guidelines set forth below are based on a range where the maximum percentage difference applies to the lower execution price in the range and the minimum percentage difference applies to the higher execution price in the range. The range is intended to smooth the percentage changes from tier to tier and allow for more gradual deviations. The Reference Price will generally be the prevailing market price just prior to the time of the trade.
        Reference Price Numerical Guidelines (Subject
        Transaction's % Difference from the
        Reference Price)
        $0.9999 and under 20%
        $1.0000 and up to and including
        $4.9999
        Low end of range minimum 20% –
        High end of range minimum 10%
        $5.0000 and up to and including
        $74.9999
        10%
        $75.0000 and up to and including
        $199.9999
        Low end of range minimum 10% –
        High end of range minimum 5%
        $200.0000 and up to and including
        $499.9999
        5%
        $500.0000 and up to and including
        $999.9999
        Low end of range minimum 5% –
        High end of range minimum 3%
        $1,000.0000 and over 3%
        (2) Alternative Reference Prices
        In unusual circumstances, which may include periods of extreme market volatility, sustained illiquidity, or widespread system issues, FINRA may, in its discretion and with a view toward maintaining a fair and orderly market and the protection of investors and the public interest, use a Reference Price other than the prevailing market price just prior to the time of the trade. Other Reference Prices may include the consolidated inside price, the consolidated opening price, the consolidated prior close, or the consolidated last sale prior to a series of executions.
        (3) Additional Factors
        A FINRA officer may also consider additional factors to determine whether a transaction is clearly erroneous, including but not limited to, system malfunctions or disruptions; volume and volatility for the security; derivative securities products that correspond to greater than 100% in the direction of a tracking index; news released for the security; whether trading in the security was recently halted/resumed; whether the security is an IPO; whether the security was subject to a stock-split, reorganization, or other corporate action; overall market conditions; Opening and Late Session executions; validity of the consolidated tapes, trades and quotes; consideration of primary market indications; and executions inconsistent with the trading pattern in the stock. Each additional factor shall be considered with a view toward maintaining a fair and orderly market and the protection of investors and the public interest.
        (c) For purposes of this Rule, the term “OTC Equity Security” has the same meaning as defined in Rule 6420, except that the term shall not include any equity security that is traded on any national securities exchange.

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

        .01 Limited Application of Clearly Erroneous Authority to Transactions in OTC Equity Securities. With respect to OTC Equity Securities in particular, FINRA historically has applied its clearly erroneous authority in only very limited circumstances, for example, where there is an extraordinary event that has had a material effect on the market for the OTC Equity Security and the canceling of trades is necessary to protect investors and ensure a fair and orderly marketplace. This more narrow approach is due to differences in the OTC equity and exchange-listed markets, including the lack of compulsory information flows in the OTC equity market that come as a result of the listing process and the fact that aberrant trading in the OTC equity market is often due to issues other than systems problems or extraordinary events. As a result, in the vast majority of situations relating to OTC Equity Securities, FINRA does not expect to use its clearly erroneous authority; rather, FINRA expects the parties to settle any dispute privately.

        Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015.
        Amended by SR-FINRA-2010-002 eff. Feb. 15, 2010.
        Adopted by SR-FINRA-2009-068 eff. Feb. 15, 2010.

        Selected Notices: 10-04, 16-04.

      • 11894. Review by the Uniform Practice Code (“UPC”) Committee

        (a) A member or person associated with a member may appeal a determination to declare a transaction null and void made by a FINRA officer under Rule 11892 or 11893 to the UPC Committee, unless the officer making the determination also determines that the number of the affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. An appeal must be made in writing, and must be received by FINRA within thirty (30) minutes after the person making the appeal is given the notification of the determination being appealed. Once a written appeal has been received, the counterparty to the trade that is the subject of the appeal will be notified of the appeal and both parties shall be able to submit any additional supporting written information up until the time the appeal is considered by the UPC Committee. Either party to a disputed trade may request the written information provided by the other party during the appeal process. An appeal shall not operate as a stay of the determination being appealed, and the scope of the appeal shall be limited to trades which the person making the appeal is a party. Once a party has appealed a determination to the UPC Committee, the determination shall be reviewed and a decision rendered, unless (1) both parties to the transaction agree to withdraw the appeal prior to the time a decision is rendered, or (2) the party filing the appeal withdraws its appeal prior to the notification of counterparties under this paragraph. Upon consideration of the record, and after such hearings as it may in its discretion order, the UPC Committee, pursuant to the standards set forth in this Rule, shall affirm, modify, reverse, or remand the determination.
        (b)(1) With respect to appeals regarding exchange-listed securities, determinations by the UPC Committee pursuant to this Rule will be rendered as soon as practicable, but generally, on the same trading day as the execution(s) under review. On requests for appeal received after 3:00 p.m., Eastern Time, a determination will be rendered as soon as practicable, but in no case later than the trading day following the date of the execution(s) under review.
        (2) With respect to appeals regarding OTC Equity Securities, determinations by the UPC Committee pursuant to this Rule will be rendered as soon as practicable, but in no case later than two trading days following the date of the execution(s) under review.
        (c) The decision of the UPC Committee pursuant to an appeal, or a determination by a FINRA officer that is not appealed, shall be final and binding upon all parties and shall constitute final action on the matter in issue. Any determination by a FINRA officer pursuant to Rule 11892 or 11893 or any decision by the UPC Committee pursuant to this Rule shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.
        (d) Communications
        (1) All materials submitted pursuant to this Rule shall be submitted in writing within the time parameters specified herein via such telecommunications procedures as FINRA may announce from time to time. Materials shall be deemed received at the time indicated by the equipment (i.e., facsimile or computer) receiving the materials. FINRA, in its sole and absolute discretion, reserves the right to reject or accept any material that is not received within the time parameters specified herein.
        (2) FINRA shall provide affected parties with prompt notice of determinations under this Rule via facsimile, electronic mail, or telephone (including voicemail); provided, however, that if an officer nullifies or modifies a large number of transactions pursuant to Rule 11892 or 11893, FINRA may instead provide notice to parties via a press release or any other method reasonably expected to provide rapid notice to many market participants.
        (e) For purposes of this Rule and other FINRA rules that permit review of FINRA decisions by the UPC Committee, a decision of the UPC Committee may be rendered by a panel of that Committee. The panel shall consist of three or more members of the UPC Committee, provided that no more than 50 percent of the members of any panel are directly engaged in market making activity or employed by a member with revenues from market making activity that exceed ten percent of its total revenues.
        Amended by SR-FINRA-2009-068 eff. Feb. 15, 2010.
        Amended by SR-FINRA-2008-037 eff. July 8, 2008.
        Amended by SR-NASD-2006-104 eff. March 5, 2007.
        Amended by SR-NASD-2006-121 eff. Oct. 30, 2006.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
        Amended by SR-NASD-2006-033 eff. Mar. 1, 2006.
        Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
        Amended by SR-NASD-2005-115 eff. Sep. 22, 2005.
        Amended by SR-NASD-2004-009 eff. July 27, 2005.
        Amended by SR-NASD-2003-125 eff. Aug. 8, 2003.
        Amended by SR-NASD-2003-080 eff. May 6, 2003.
        Amended by SR-NASD-2002-127 eff. Jan. 22, 2003.
        Amended by SR-NASD-98-85 eff. October 11, 1999.
        Amended by SR-NASD-98-94 eff. April 26, 1999.
        Amended by SR-NASD-96-51 eff. Feb. 23, 1998.
        Amended June 21, 1991; May 21, 1993.
        Adopted eff. Apr. 2, 1990.

        Selected Notices: 98-21, 99-29, 00-10, 03-11, 10-04.