chapter five Flashcards
When as if issued
settlement explination
Bonds are announced but not available for trading yet.
Early Delivery
If delivered before settlement buyer can reject.
SEttlement expenses
Delivery is paid for by seller and delivery occurs at the buyers office.
Cusip applicatoin
Must be done no later then the award date (not the delivery date)
Inter dealer transactions
trade confirms
If ineligible for automated comparison it must generate a confirm.
Almost all transactions clear electronically
Inter Dealer Paper Confirmation Delivery
times
regular way = trade date
Cash settlement = Exchanged by telephone on trade date follow up is t+1
Whan as and if issued = No later then t+1 final confirm at least 3 business days prior to settlement.
dealer confirmation data
both parties name address phone accrued interest par security description cusip trade & settlement date yield and price if concession amount per 1K identity of executing broker, clearing firm and time of trade
Dealer confirmation Comparison
If discrepancy party in errors sends a corrected confirm within 1 business day.
Each party must send the other dealer a written DK if unresolved.
dk response rules
Dealer concludes trade did occur -must immediately phone confirming dealer and send written notice in 1 business day
Dealer confirms trade didn’t occur - phone immediately and send written nonrecognition notice with return receipt in 1 business day.
No receipt of confirmation
If a dealer sent confirmation but didn’t receive one back they must call by the fourth day after the trade date but no later than the eight Business day. and follow with written notice the next business day.
Good delivery conditions
must have a delivery ticket that includes denominations, par value and coupon rate
Bearer bonds must be in denominations of 1K or 5K and
registered bunds must be in denominations of 1K or multiples of 1K up to 100K per bond.
Mutilated certificate deliver
must have validation letter from any of the following Transfer Agent Paying Agent Trustee Registrar Issuer
Mutilated interest coupons
must be validated by the issuer or a commercial bank
cancelled coupons
endorsement or guarantee may be by issuer authorized agent official of the issuer trustee paying agent
bearer bonds coupons delivery
all unpaid coupons must be attached
If defaulted all unpaid and future coupons must be attached
If delivering within 30 days of interest payment the seller can detach the coupon and provide a bank draft paying no later than the interest payment date
Delivery of called bonds
If partial call prior to settlement seller must deliver uncalled bonds
If in whole call on or before trade date seller must disclose the bond is called
if in whole call after trade date delivery is good
minimum denomination
No municipal security issued after June 1 2002 may be traded in a denomination lower then when it was issued unless done to close out a customer position which requires written notice
Small money differences
IF computations don’t match small money differences wont cause rejection it’s deemed the sellers price will prevail and must reconcile within 10 business days
Small Money Differences Chart
par up to 25K 10 dollars 100K 25 dollars 250K 60 dollars 1 mill 250 dollars 1 million or more 500 dollars
delivery insured bonds
must be accompanied by proof of insurance
registered securities deliver
certificate
must be endorsed for delivery known as assignment. Must be exact match to name on cert. All sigs and alternations must be guaranteed by a commercial bank or NYSE member
bond interest abberviations
Jan 1 july 1 is a J&J bond
May 1 and November 1 is an M&N bond
Feb 15 and August 15 is an F&A 15 bond
June 15 and Dec 15 is a J&D 15 bond
Reclaiming interest sent to the wrong party
Party owed interest must send written notice to recipient
10 business days to send check
if notice is 60 days after interest was due then 20 business days to send check.
Reclamation
Receiving dealer returns securities with a copy of the delivery ticket and attached written notice that describes the issue.
Delivering firm must correct the deficiency promptly and return the securities
Time limits for reclamation
missing coupon, mutilated, missing legal opinion or proof of insurance 1 business day
Dishonored interest check 3 business days
irregular deliver refusal by transfer agent 18 months
missing counterfit etc. unlimited
Closeout procedures
notification
notify by inter dealer system 1 business day after settlement. notice must state when they require completion but no earlier than 5:15 pm est. t+3. Can go out to 10th calendar day if purchaser wants.
Types of Closeout by buyer
3 ways
- buy in at market seller bears loss
- Accept delivery of municipals that are comparable.
- Require seller to repurchase the securities on terms that provide for seller t bear any accrued interest and costs.
re transmittal allowed
firms may retransmit to another broker dealer that securities are du. Must due it by 5:15 1 business day and must notify originating firm and tell the`m the dates was extended.
retransmittal of closeout
no faault dealer is sending it to the other dealer and claiming no fault.
close out by seller
may sell out at market no earlier than close of business following date of notice. Notice can be by telephone
Confirm
Yield for Callable discount bond
YTM
Confirm
Yield for Callable premium bond
YT first Call
Confirm
Stepped coupon bond rate
must display current rate
Exception to displaying yield on a confirm
Reset Bonds
Bonds in Default - no interest no yield calc
Bonds sold at par - at par yields are the same
Reset bonds
Coupon is adjusted periodically to reflect current market rates. Yield computations is impossible
Customer request for trade info
within 30 days must respond in 5 business
outside 30 days must respond in 15 business days
Municipal Risk less Principal Transactions
Buys for inventory to fill a customer and then sells to customer at a market. No risk as teh position is nill after selling to customer.
Transfer form
G-26 also called a TIF
Customer complaints procedure
- must send copy of the investor brochure which includes methods for settling/resolving disputes.
- Series 53 or 9/10 must approve resolution
- Must retain for 6 years.
Nominal Quote
Not firm informational only
Subject Quotes
Conditioned must be identified as subject quote
MPID
Each BD must obtain a unique broker symbol from FINRA the Market Participant Identity and file form RTRS.
RTRS Reporting
uses mpid
RTRS business day is 730 am to 630 pm
15 minutes during business hours
RTRS Reporting new issue
If executed before 630 pm must be reportedhours. If after 6:30 must be reported by 8pm on trade date otherwise 15 minutes after start next business day.
RTRS Reporting Short Term Instruments
maturing in less than nine months including Variable rate bonds and commercial paper must report by end of RTRS business day.
Transactions Not reported to RTRS
No cusip
Municipal fund Securities
inter dealer that are not inter dealer transactions eligible for comparison in a clearing agency registered with the commission
smmp
dollar amount
any entity or person with 50 million
Investor Letter
Also called a big boy letter or sophisticated investor letter
acknowledges the risks associated with securities being purchased and signed by the investor.
Often includes net worth, sophistication and access to market information.
SIC
central reporting place for Lost, Counterfeit, Missing or Stolen Securities
Lost Security Procedure
2 business days to locate if no criminal action is suspected.
On third day loss must be reported to SIC and transfer agent on form X 17f-1A
Lost Security Criminal
must report in one day to SIC and Transfer Agent. FBI must be notified promptly.
If security is are later recovered must notify parties in one business day.
Mandatory Securities Inquiries to the SIC
exceptions
Must inquire of the SIC if a securitiy is missing lost, counterfeit or stolen.
Exceptions
Received from issuer
Received from another reporting institution
part of transaction valued at 10K or less
received from existing customer and
is register in customers name or was previously sold to the customer by that member.
Mandatory Securities Inquiries to the SIC
summary
requires inquiry if it’s from a new customer or registered in bearer form or from an existing customer with no record of purchase.
fidelity bond requirement
finra rule 4360
net capital less than 250K coverage is 120 % or 100K whichever is greater.
over 250K use finra’s fidelity bond table
Banker Dealers Fidelity bond coverage
Exempt they are already covered under banking laws for this type of insurance.
Net worth calc
Total assets minus total liabilities
Net Capital
Liquid assets minus total liabilities
In theory if a member goes into liquidation net capital is the amount realized after liquidation and liabilities are paid.
Record Keeping
Life Time
Articles of incorporation
Minutes of board or partnership meetings
Records of stock certificate
Six Year Records
Purchase and Sales Blotters (P&S) Cash Receipts and disbursement blotters Receipt and delivery of securities blotters General Ledger Customer ledgers (statements) Securities records including ownership and location Customer account records Syndicate settlement records complaints Principal designation Political contributions Form g-37 gifts and gratuities Consultant arrangements
3 year records
all others not designated as lifetime or six year
includes U4, U5 and fingerprint card
Records Availability
Must be readily available for 2 years
Posting Requirements
Blotter
General Ledger
Customer ledgetrs
Blotters must post the event date plus one.
General ledger posted monthly 10 business days after month end. bank dealers are excluded
Customer Ledgers posted no later then settlement
Customer Ledger required details
Purchase and sales of securities
receipt and disbursement of cash
receipts and deliveries of securities
other debits and credits relating to customer accounts
Ledger requirement for same day in and out of securities
No posting is required because the security was not held on the books or a location over night.
Special Syndicate 6 year records
security description and aggregate par value Name % participation for each member Terms and condition of syndicate formation, operation & closure. Allotments and Prices Date & amount of good faith deposit. Date of settlement with issuer Syndicate closing date All orders received OS delivery to MSRB's Emma system Reconciliation of syndicate account
Record Dates
may be kept on a trade date or settlement date basis but must be applied consistently.
When may reclamation occur without a time limit
If the security is counterfeit or stolen
Payment when in receipt of an interest payment claim
10 business days unless it’s been more than 60 days then it 20 business days
Reclamation of irregular delivery
Example delivered wrong certificate
up to 18 months
accrued interest on confirms
Added to buyers purchase prices added to sellers proceeds
fail to deliver fail to receive record retention
3 years
