Unit 6-Uniform Practice Flashcards
Regular Way Settlement
T+2 (just like stock)
Cash Settlement
Same Day
When Issued (WAII)
No earlier than 2 business days after the syndicate manager notifies clearing agent of established settlement date (used new issue is announced but has not started trading)
Settlement Rules
If a security is delivered before settlement, the buyer has the right to accept or reject
- Buyer must accept on settlement date
- Seller pays all delivery expenses and settlement occurs in the buyer’s office (rare today as most trades are settled by a clearing agent in book entry)
Dealer to Dealer Confirms
Submitted electronically by each party. Details are then compared by a centralized system, which then generates a confirm the following morning
-Paper confirms are extremely rare
When is confirm sent (in case of paper confirms)?
Regular Way: On trade date
Cash: Exchanged by telephone on trade date, followed by paper confirm
When Issued: Initial confirm is T+1, final confirm at least 3 days before settlement
NOTE: Initial confirm does not contain accrued interest, settlement date, or total dollar amount. Final confirm will
What is on Interdealer Confirm?
-Each party’s name, phone, and address
-Contra party info (who is buying from or selling to)
-Par value and any accrued interest
-Trade Date and Settlement Date
-Description and CUSIP
-Yield and Price
-Amount of concession (if any) per $1000
MSRB also requires:
-Identity of the executing broker and clearing agent
-Time of trade
NOTE: Only the dealer reports trades to retail customers. This is called a one-sided submission
Unrecognized Trades (DK)
-If dealer determines trade occurred, must phone contra firm and send written confirm within one business day
-If dealer determines trade did not occur, must phone contra firm an send rejection notice and any funds received within one business day
NOTE: If discrepancies remain, either party can void the transaction and seek rectification through arbitration
What happens when only one firm sends a confirm?
The confirming party must phone other party no earlier than 4 business days after trade date and no later than 8 business days after trade date. Any telephone call must be followed up with a “failure to confirm” notice within one business day.
Good Delivery
-All deliveries must have delivery ticket
-Bearer bonds must be delivered in increments of 1,000 or 5,000 par
-Registered bonds must be delivered in denominations of 1000 up to a max of 100,000
-Insured bonds must have proof of insurance enclosed
NOTE: Partial deliveries are NIGO and can be rejected
Mutilated Certificates
Cannot be accepted unless accompanied by a validation letter from:
- Transfer agent
- Paying agent
- Trustee
- Registrar
- Issuer
Delivery of Bearer Bonds
- All unpaid coupons must be attached
- If delivery is being made within 30 days of an interest payment, the seller can detach one coupon and submit a bank draft for one month’s interest by the payable date
Delivery of Called Bonds
-Partial Call: Seller must deliver a bond not subject to the call (unless buyer is okay)
-Whole Call: Seller must disclose to buyer that bond has been called
NOTE: Seller is not liable if call is announced after trade date but before settlement
Minimum Denominations
Typically, a BD cannot affect a transaction in a muni issue for anything lower than the lowest denomination of the issue
-Does not apply if BD buys position from client so long as it can determine client does not possess any bonds that would make the position above the minimum
-Allowed to sell position below minimum to another customer if the seller is liquidating the position
NOTE: If selling a partial position, the BD must submit in writing (either on confirm or separate) a disclosure that there may be liquidity issues with holding a position below minimum
Endorsing Paper Bonds (registered securities)
For good delivery, bonds must be endorsed (called assignment) in the exact name bonds are registered
-All signatures (or alterations) must be guaranteed by a commercial bank or NYSE memeber
