Conduct and Practices Handbook Course (CPH) Quiz 27

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), 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 on following conditions:-

(a) 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.
(b) The Uniform Practice Code Committee ascertains, based upon the evidence before it, that a member cannot meet its obligations as they become due and that such action will be in the public interest.

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), the following statements are correct for the term “close-out immediately” that is notified by the Uniform Practice Code Committee for the all open contracts with the member in question:-

(a) “buy-ins” may be executed without prior notice of intent to “buy-in”.
(b) “sell-outs” may be executed without making prior delivery of the securities called for.

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), all close-outs 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.

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), 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.

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), members shall have a “buy-in” section or desk with adequately staffed to process and research all “buy-ins” within the required time frames.

In the FINRA Rule 11810 (Buy-In Procedures and Requirements), 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 FINRA Rule 11810 before it could reasonably be canceled by the initiating party.

In the FINRA Rule 11820 (Selling-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.

In the FINRA Rule 11840 (Rights and Warrants), 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).

In the FINRA Rule 11840 (Rights and 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.

In the FINRA Rule 11840 (Rights and Warrants), In contracts for warrants, rights or other securities which have expired by their terms, deliveries affected more than 30 days after expiration shall be consist of the following:-

(a) The expired securities.
(b) A Letter of Indemnity in lieu of the expired instrument.

In the FINRA Rule 11860 (COD Orders), No member shall accept an order from a customer, including foreign customers and/or broker-dealer’s 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 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.

In the FINRA Rule 11860 (COD Orders), the member shall deliver to the customer, a confirmation or all relevant data customarily contained in 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.

In the FINRA Rule 11860 (COD Orders), the customer will assure that instructions are delivered to its agent on the following conditions:-

(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.
(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.

In the FINRA Rule 11860 (COD Orders), 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 following statements define the “Qualified Vendor” that is a vendor or electronic confirmation and affirmation service that shall, for each transaction subject to FINRA Rule 11860 (COD Orders):-

(a) That shall deliver a trade record to a Clearing Agency in the Clearing Agency’s format.
(b) That shall obtain a control number for the trade record from the Clearing Agency.
(c) That shall cross-reference the control number to the confirmation and subsequent affirmation of the trade.
(d) That shall include the control number when delivering the affirmation of the trade to the Clearing Agency.

In the FINRA Rule 11860 (COD Orders), the following statements define the “Qualified Vendor” that is a vendor or electronic confirmation and affirmation service that certifies to its customers:-

(a) 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.
(b) That its electronic trade confirmation/affirmation system has sufficient capacity to process the specified volume of data that it reasonably anticipates being entered into its electronic trade confirmation/affirmation system during the upcoming year.
(c) 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.
(d) 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.
(e) That its current assets exceed its current liabilities by at least $500,000.

In the FINRA Rule 11860 (COD Orders), when “Qualified Vendor” that is a vendor or electronic confirmation and affirmation service begins to provide such services and thereafter annually submits an Auditor’s Report to the SEC staff which is not deemed unacceptable by the SEC staff.

In the FINRA Rule 11860 (COD Orders), immediately notifies the SEC staff in writing if “Qualified Vendor” intends to cease providing services, and supplies supplemental information regarding its electronic trade confirmation/affirmation services as requested by FINRA or SEC staff.

In the FINRA Rule 11860 (COD Orders), a vendor may cease to be qualified on the following conditions:-

(a) The SEC staff deems the Auditor’s report unacceptable either because it contains any findings of material weaknesses, or for other identified reasons.
(b) The SEC staff notifies the vendor in writing that it is no longer qualified.

In the FINRA Rule 11860 (COD Orders), a written “Auditor’s Report” 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.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), the following statement(s) satisfies the term “nontransferable asset” that is incapable of being transferred from the carrying member to the receiving member:-

(a) An asset that is a proprietary product of the carrying member.
(b) 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.
(c) An asset that may not be received due to regulatory limitations on the scope of the receiving member’s business.
(d) 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.
(e) 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.).
(f) Limited partnership interests in retail accounts.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), 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 about the action taken.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), a proprietary product of the carrying member shall be deemed nontransferable unless the receiving member has agreed to accept the transfer of the product.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), 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.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), 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.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), 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 to the custodian/trustee from the credit balance in the account.
(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.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), 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 options positions that expire within seven (7) business days, must be canceled and no new orders may be taken.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), a carrying member may take exception to a transfer instruction on the following conditions:-

(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).
(d) It is a duplicate request.
(e) It violates the member’s credit policy.
(f) It contains unrecognized residual credit assets (receiving members cannot identify customers).
(g) The customer rescinds the instruction (e.g., the customer has submitted a 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).
(j) The account title on the transfer instruction does not match that on the carrying member’s records.
(k) The account type on the transfer instruction does not correspond to that on the carrying member’s records.
(l) 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).
(m) 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).

In the FINRA Rule 11870 (Customer Account Transfer Contracts), the carrying member must complete the transfer of the customer’s security account assets to the receiving member within three business days following the validation of a transfer instruction.

In the FINRA Rule 11870 (Customer Account Transfer Contracts), on completion of the transfer 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.