Chapter 13.4 Flashcards
FINRA Uniform Practice Code
Is concerned with the mechanics of executing and completing securities transactions between FINRA members.
Regular way Settlement:
2nd business day after trade date for common stocks, corporate bonds, municipal bonds, and most federal agency issues.
**2nd business day settlement would not apply to government securities or limited partnerships that are not listed on an exchange.
Clearance and settlement of securities transactions requires member firms to:
- Clear transactions through a registered clearing corporation
- FINRA may exempt transactions to accommodate special circumstances as needed
- FINRA requires market making member firms to be a member of a clearing corporation. The Securities industry association is not a clearing corporation
When is Delivery due for U.S. Government bonds?
Due on the next business day after trade date. Settle T+1.
Delivery due date for a cash transaction
Delivery is due on the day of the transaction
Seller’s option
Delivery is due not sooner than the 2nd business day, but not later than the 180th calendar day. The seller must give the buyer one day’s written notice. Under Reg T, the buyer must pay for the purchase by the 4th business day after trade date.
“Completion of a transaction”
Means the time when a customer pays the B/D or the time a bookkeeping entry is made by the B/D and/or the time when the security is delivered after payment for the security is made. If the security is in the custody of the firm at the time of the sale, the transaction is considered to be “complete,” the earlier of when the firm transfers the security from the account of the customer or the closing date of the transaction. Bookkeeping entries can also effect payment.
**The mandatory Buy-in period for customers who fail to deliver securities they have sold at 10 business days after settlement date.
When Issued - When distributed Contracts
- Differs from other contracts in that the securities involved in the transaction have not yet been issued
- Settlement date for when issued security is a date determined by both parties, usually 3 business days after the security becomes available for delivery
Mark to Market
A written demand by one B/D that is partially unsecured for a deposit equal to the difference between the contract price and the market price. Mark to Market means adjusting the value of a security or portfolio to reflect current market prices.
- When issued transactions can be "marked to market" if the value of the contract declines - Securities are also "mark to market" in a margin account
Reclamation
A claim for the right to return or to demand the return of a security previously accepted. Rejection is when a B/D, for valid reasons, refuses to accept a delivery of securities. Valid reasons for reclamation include missing coupons, or transfer reused.
**Default on interest payment on or before delivery date is NOT a valid reason for reclamation
Close-out Procedures: Buy in by the B/D
- If a seller of a long sale does not deliver the shares by settlement date, a buy-in can be affected by the contra broker on the 3rd business day following the settlement date
- Written notice of buy-in must be delivered to the seller at their office not later than 12:00 noon, two business days preceding the execution of the proposed buy-in.
- Immediate written notice must be given to the seller regarding the buy in price, shares, etc.
Close-out Procedures: Sell out by the B/D
- If a purchasing firm fails to accept delivery other than for valid reasons, the seller can, without written notice, sell the security at best available price
- The buyer is responsible for any loss
- Immediate written report must be given to the firm that was sold out
