Finra Clearing Agreement Rule

by on Dec.09, 2020, under Uncategorized

7 NASD rules do not have a provision consistent with NYSE Rule 322. As a result, the requirements of FINRA`s new Rule 4150 for non-NYSE members are new. Some FINRA introductory companies have entered into compensation agreements that not only require a deposit of compensation, but also contain a provision or clause that would fine the importing company (payable to the clearing company) if the introductory company voluntarily terminates the compensation agreement before a period set by the agreement (cessation penalty clause). As a general rule, these clauses are effective at the time of the conclusion of the agreement, but they expire after a certain period of time, at the end of which no fine would be imposed on the importing company if it voluntarily terminated its compensation agreement with the clearing company. One of the most common reasons clearing companies impose such termination clauses is to ensure that they maintain the fixed clearing relationship established for a sufficient period of time to recover investments in technology, systems and personnel, including taking into account the release of an introductory company`s accounts. Please note that FINRA Rule 4311 (b) (4) requires that each company conduct appropriate due diligence on any new inductive business relationship to assess the financial, operational, credit and reputational risk that such an agreement will have on the door-to-door business. The following questions are representative of the nature of the evaluations FINRA expects of companies as part of their due diligence. However, the entity should assess the scope of the audit required for each correspondent and conduct additional audits, as it deems necessary. Please note that the carrier company must keep a record of the due diligence for each new introductory within the time frames prescribed by Rule 17a-4 (b) of the Exchange Act. The SEC approved FINRA1`s proposed amendment to adopt a set of financial responsibilities and related operational rules for FINRA`s consolidated body of rules.2 FINRA 4150, 4311, 4522 and 4523 rules are new consolidated financial liability rules, as well as certain operational and contractual requirements of members. The new rules are based in part on the NYSE and NASD rules and replace them.3 FINRA staff have received questions regarding the definition of “termination of the agreement.” For example, an importing company may notify the clearing company that it will terminate its compensation agreement on date X (cancellation date), in which case it must receive its compensation deposit within 30 days of that date. The companies stated that, in some cases, the process of transferring all customers from the importing company to the new clearing company cannot be completed or even started within 30 days of the termination date.

In this case, the clearing company may withhold the clearing deposit until the account transfer to the new clearing company is completed. If, in this case, the withholding of the contribution by the clearing company may be considered operationally appropriate, the current interpretation of rule 15c3-1 of the SEA standard does not provide flexibility to take into account the operational reality and requires the company to levy, on the 31st day following the retraction date, a net capital tax for the unpaid deposit. 12 FINRA`s new Rule 4311.01 contains guidance on what constitutes a substantial change in the meaning of point b) 1 of the rule. Major amendments include changes that are not limited to: the allocation of responsibilities required by the rule; The termination clauses of the importing company; any condition or provision affecting the liability of the parties; and the parties to the agreement, including z.B the inclusion of a new contracting party to the agreement, for example. B, a “piggyback” agreement, a new company or a new introductory company, but without termination of the agreement.

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