Uniform Practice Code Rules Flashcards
What does the FINRA Uniform practice code do
governs BD to BD practices, such as settlement procedures, good delivery of securities, computation of accrued interest on bonds
Which code are uniform practice disputes handled with
Under the FINRA code of arbitration and mediation
(dealer to dealer)
The uniform practice code applies to all over the counter transactions except (4)
- exempt securities (US government and municipals)
- mutual funds and variable annuities
- direct participation programs (limited partnerships)
- transactions between members cleared through a registered clearing agency
When must customer confirmations on trades be sent
No later than the day after the trade
What is the information that is required for customer confirmations on trades (13)
- Customer name
- Customer Address
- Firm name
- Firm address and phone number
- Name of security purchased or sold
size of trade - Price of trade
- If a bond trade - accrued interest
- If a agency trade - disclose commission
- Principal transaction in NASDAQ stocks - disclose markup
- Trade date
- Settlement date
- Market maker fee to introducing BD (payment for order flow)
- CUSIP number
What are the settlement date options (5)
- Regular way - 2 days for settlement of stock, corporate bonds, municipal bonds
- Regular way - US government - Next business day
- Cash - same day, before 2:30 PM EST.
- Sellers option - when the seller needs more time. settlement will be made when the seller gets the securities but not before the 3rd business day after the trade.
Seller gives the buyer 1-day notice. - When, as, and if issued (WAII) - for new securities when issuance is announced but certificates are not yet available for trading.
Also used for corp reorganizations where existing securities are replaced.
What does FINRA require on WAII contracts (When, As, If issued) (3)
at minimum:
An adequate description of the security
Designation of FINRA as the authority
Provision for marking the contract to market
What is not included on a WAII at first
Settlement date - this is not initially known because the securities aren’t yet available.
When securities are issued, finra uniform practice committee sets the settlement date. (Typically 2 business days after certs issued)
Total dollar price and accrued interest - can only be calculated when settlement date is known.
What constitutes good delivery of securities?
Assignment in the exact name for individuals
Corporate assignment not exact
Fiduciaries assigned such as trust, estates
Signature guarantee
All unpaid coupons attached
Units of delivery in round. Lots of 100 shares, or multiples of 100
Bonds delivered in 1000 minimum face amounts
Partial deliveries must be accepted
When does interest accrue to on bonds
Up to but not including settlement date
What basis does corporate bonds accrue
on a 30 day month/360 day year basis
How is government bonds computed
On an actual day/month/actual year basis, not including settlement date
What are the dates that relate to a dividend
Declaration date
Record date: corp takes s/h names and addresses from transfer agent
Payable date: when cheques will be mailed by transfer agent
ex-date - the business day before the record date
cash settlement ex-date: The business day after the record date
To be an owner of record for the distribution of a dividend, when must the stock have been paid for
by close of the record date
What happens when trade settles after record date
The dividend will go to the previous owner
What is a cum dividend
settling a security trade before record date
What is an ex-dividend
buying a security before record date but settling after record date
What is the ex-date for stock splits or 25% cash dividends
The business day after the payable date
How much notice is required when setting a record date
10 days advance notice to exchange
What is a shareholder’s preemptive right
The right to maintain proportionate ownership in the company. S/h’s get first chance on the issue
How to calculate the value of cum rights
(Market price - subscription price) / (number of rights +1)
cum rights is when any purchase will settle before the record date
How to calculate the value of ex rights
(Adjusted market price - subscription price) / number of rights
They are worth less because they do not have any rights to buy shares at predetermined price
When a stock trades ex-rights, who gets the distribution
The seller of the shares
What can a buyer do if the seller fails to deliver
If securities not received on settlement:
Buyer can send written notice of buy-in no later than 12pm the next day.
Buy-in can be performed in two business days
Seller has 2 business days to deliver
Any losses are charged to the seller
If seller notifies that the securities are in transit, buy-in can be completed after 7 calendar days after original buy-in date
How is a reclamation inititated
If securities are excepted, then found to not be in good form:
Uniform reclamation form
Upon receipt, seller must cure the deficiency
When must reclamations be filed
15 days for minor irregularities
30 months for major irregularities
When is the last day to exercise options contracts
Third Friday of expiration month at midnight
When is the last time to exercise options contracts
exercise cut-off is 5:30 PM EST on the third Friday of the month
What is required for FINRA to accept a COD or POD
Member receives customer name and account number from bank, along with name and address of bank
Member obtains agreement from the customer that they will furnish the agent with instructions to pay promptly upon delivery
COD or POD is noted on the order ticket
A copy of the confirmation is given to the customer
The customer must agree to notify the agent to pay no later than 1 business day after trade date
When must syndicate settlements be made
90 days after the close of books
How is a customer account transferred between firms
Customer fills out the transfer instruction form (ACATS) with the receiving firm
Customer signature must be guaranteed
Non-transferrable assets cannot be transferred
ACATS must be sent by the receiving firm immediately
Account is frozen at carrying firm and they have 1 business day to verify positions
Transfer must be completed within 3 business days of validation
Options expiring within 7 business days are not frozen and can still be exercised or traded
