HOLD BROTHERS
ON-LINE INVESTMENT SERVICES
LLC
WRITTEN SUPERVISORY PROCEDURES MANUAL
Proprietary and
Confidential
SECTIONS:
SECTION 1
INTRODUCTION
SECTION 2
I. NATURE AND GENERAL OPERATION OF BUSINESS
A. Nature of the Company's Business
B. Clearance and Settlement
C. Primary Office of Supervisory Jurisdiction
D. Annual Compliance Meeting
E. Annual Compliance Audit and Review of Supervisory Procedures and CEO CCO Certification Pursuant to Rule 3013
II. FINANCIALS
A. Prohibition of Acceptance of Customer Funds and or Securities
B. Net Capital Rule
C. Books and Records
D. Quarterly Security Counts - Proprietary Accounts
E. Lost and Stolen Securities or Missing Securities - Proprietary Accounts
F. Delivery Tickets and Securities Received and Delivered Blotter -Customer Accounts
G. Credit, Regulation T and Extensions of Time
1. No Extensions of Credit
2. Securities that are Unacceptable for Margin Purposes
3. Extensions of Time
4. Frozen Accounts
5. Freezing of Accounts
6. Transactions in Frozen Accounts
7. Margin Calls by the Clearing Firm
H. Exemption from the Customer Protection Rule
1. SEC Rule 15c3-3(k)(1)
2. SEC Rule 15c3-3(k)(2)(i)
3. SEC Rule 15cc-3(k)(2)(ii)
I. Clearing Agreement
III. REVIEW OF FINANCIALS
A. Required Books and Records
B. Net Capital Requirements
C. Rule 17a-11
NYSE Dividend Restriction
D. Preparation and Retention of Regulatory Financial Reporting
E. Electronic Records
F. Requirements
G. Audit System
H. Escrow Agent
SECTION 3
I. BRANCH OFFICE OPERATION
A. Definition of a Branch Office
B. OSJ and Non-OSJ Branches
C. Registration of Branch Offices
D. Maintenance of Supervisory Procedures
E. Inspection of Branch Offices
F. Opening of Customer Accounts and Acceptance of Securities Transactions
G. Review of Branch Activities from Home Office
H. Unregistered Offices and Off-site Representatives
II. SUPERVISORY OVERVIEW
A. Opening of Customer Accounts
B. General Securities Account
C. Updating Client Information
D. Customer Account Activity
E. Questionable Account Activity
F. Registration
G. Correspondence
1. Incoming Correspondence
2. Outgoing Correspondence
3. Letters of Solicitation
H. Form Letters
I. Customer Complaints
III. BOOKS AND RECORDS
A. Books and Records Maintained at Branch Offices
B. Blotters and Accessories
1. SEC Rule 17a-3 and 17a-4
C. Compliance Records
1. Customer Account File
2. Representative File
3. Personnel Files (Non- Registered Persons)
4. Personnel Files (Terminated Registered Persons)
5. Correspondence Files
6. Customer Complaint Files
7. Advertising Materials
8. Customer Account Statements
9. Compliance Alerts
10. Internal Review Reports
D. Compliance Library
E. Signage
F. NASD and NYSE Manual
G. Business Cards and Stationery
H. Special Accounts
I. Outside Activities
J. Selling Away
K. Insider Trading
SECTION 4
I. COMUNICATIONS WITH THE PUBLIC
A. Advertising
B. Sales Literature
C. Materials Filed with the NASD
D. Items to Avoid in Communications with the Public
E. Training
F. Approval Prior to Publication
II. RECORDS OF ADVERTISING AND SALES LITERATURE
A. General Standards
B. Advertising Compliance
C. Maintenance of Advertising Files
D. SIPC
E. Approval Requirements
F. Outgoing Correspondence
G. Incoming
H. Electronic Correspondence
I. Internal-Use- Only Information
J. Correspondence and Advertising
III. COMMUNICATIONS WITH THE PUBLIC
(Enhanced Rules With Special Emphasis on Electronic Communications)
A. Pre-Use Review
B. General Guidelines
1. Records of Approved Materials
2. Standards of Communications
C. Electronic Communications Policy
IV. E-MAIL POLICY
A. Record Retention
B. There Can Be No Expectation of Privacy.
C. Special Considerations and Risks of Electronic Communication
D. Special Prohibitions
E. E-Mail
F. Posting Information on the Internet
1. Web Sites
2. Chat Rooms
G. Home and Personal Internet/E-Mail Use
V. NASD CONDUCT (TELEMARKETING) RULE 2211
A. The Rule
1. Exemptions
B. Cold Calling Procedures
C. Telephone Prospecting - Appropriate Decorum - Disclosure
VI. ELECTRONIC DELIVERY OF INFORMATION
A. Adequate and Timely Notice
B. Comparable Information Access
C. Evidence of Compliance with Information Delivery Obligations
D. Authorized Communications from Customers
E. Supervision of Electronic Delivery
F. Using Electronic Messages
G. If an Advertisement is to be Used Electronically….
H. Web Sites
I. Chat Rooms
J. Disclosure
SECTION 5
I. HIRING, REGISTRATION AND SUPERVISION OF REGISTERED EMPLOYEES
A. Investigation of Registered Employee Candidates
B. Registration and Qualification Procedures
C, Traders
D. Maintenance and Review of Records and Information
E. Unregistered Persons
F. Outside Activities
G. Compensation
H. Finders Fees
I. Conflicts of Interest
J. Raising Funds
K. Registered Employees with Prior Disciplinary Disclosures
L. Supervision
M. Statutorily Disqualified Persons
1. Filing Form MC400
2. Supervision
3. Reporting Statutory Disqualifications
N. Termination of Registered Employees
O. Voluntary Termination
P. Involuntary Termination
Q. Dual Registration
R. Review of Employee Accounts at other Broker/Dealers
S. Prohibition of Private Securities Transactions by Associated Persons
T. Registration Files
U. Assignment of Each Registered Employee to a Principal
V. Fingerprints
W. Personnel List
II. SUPERVISION
A. Training
B. Telephone Decorum
C. Continuing Education
1. Regulatory Element
2. Firm Element
III. OUTSIDE ACTIVITY FORM
IV.REGISTERED EMPLOYEE ACTIVITIES
POLICIES
A. Regulatory Authorities
B. Participation in New Issue Under Writings
C. Non-Public Information
D. Blue Sky Requirements
SECTION 6
I. RISK MANAGEMENT
A. Account Reviews
B. Compliance Reports
|
C. Activity Reviews |
|
D. Conduct Annual audits of
Branches |
|
E. Compliance Area |
F. Compliance issue: Sale
|
G. Discretionary Accounts
|
H. Compliance Issue: Sale of Long Positions
1(a). Trade Date Report-Home Office Procedure
1(b). Trade Surveillance Exception Report
2. Compliance Area: Market Manipulation ($5.00 Stock Report)
3. Compliance Area: Order Assignment
4. Compliance Area: Open Positions
5. Compliance Area: Stopping and Purging Orders
II. PROPRIETARY TRADING RISK REVIEW COMMITTEE
III. CLIENT TRADING RISK REVIEW COMMITTEE
IV. TRADER CONDUCT REVIEW COMMITTEE
V. ADDITIONAL RISK MANAGEMENT CONSIDERATIONS
A. Risk Management Department
B. Position Limits
C. Short Sales
VI. RISK CHECKLIST
SECTION 7
I. CLIENT ACCOUNTS
A. Customer Suitability
1. Institutional Clients
2.
Non-Institutional Clients
B. Account Opening Procedures
C. Affirmative Determination of Appropriateness for Day-Trading
D. Day-Trading Risk Disclosure Form
E. Supervision
F. Disclosure
G. Electronic Trading Advertisements
H. Web Site
I. Third Party Authorizations
J. Tax and Legal Advice
K. Gifts and Gratuities
L. Compliance with Applicable Regulations
M. Customer Complaints
1. Definition of a Complaint
2. Responsibility of the Designated Principal
3. Required Maintenance of Records
N. Disclosure Event Filing
O. Procedure for Investigation
P. NYSE Quarterly Reports
Q. Margin Risk Disclosure
1. Margin Disclosure Form
R. Privacy Policy
S. Procedures for Maintaining Privacy of Confidential Client Information
1. Limited Access to Personal and Account Information.
2. Contractual Confidentiality Clauses.
II. CUSTOMER ACCESS TO THE COMPANY'S TRADING SYSTEMS
SECTION 8
I. OTHER RULES AND REGULATIONS
A. Fidelity Bond
C. Money Laundering
D. Non-Currency Transaction of a Suspicious Nature
E. Wire Order Record Keeping
F. Anti-Money Laundering Currency Transaction Reporting and Suspicious Activities Monitoring and reporting Procedures
G. Lost and Stolen Securities Program
H. Free-Riding
I. Form BD Updates
J. Front-Running
SECTION 9
I. OPTIONS
A. Review of Transactions and Commissions
B. Supervision
1. Cash and Margin Transactions
C. Customer Account Review
D. Account Documentation
E. Preparation of Electronic and Physical Order Memoranda
F. Option Transactions
G. Delivery of Current Disclosure Document
H. Option Exercise Allocation Methodology
I. Diligence in Opening Accounts
J. Option Trading Limitations
K. Position Limits
L. Uncovered (naked) Writing
M. Expiring Options Procedures
N. Senior Registered Options Principal (SROP)
O. Option Books and Records
P. Options Communication with the Public
SECTION 10
I. ORDER AUDIT TRAIL SYSTEM PROCEDURES
BACKGROUND
A. Clock Synchronization- NASD RULE 6953
B. Operational Procedures
C. Supervisory Procedures
D. New Order Reports
E. Routing Reports
F. Execution Reports
G. Cancel/Replace Reports
H. Desk Reports
I. Operational Procedures
J. Transmission
K. Monitoring
L. File Submission
M. Record Rejections
N. Statistics
O. Announcements
P. Data Correction and Deletion
Q. Data Verification
R. No Reporting Required
S. Order Reporting- NASD Rules 6954 and 6955
OATS COMPLIANCE LOGS
SECTION 11
I. EQUITIES
A. Review of Transactions and Commissions
B. Supervision
C. Cash and Margin Transactions
II. CUSTOMER ACCOUNT REVIEW
III. SUITABILITY
A. Non-Institutional
Clients
IV. CHURNING
V. EQUITY ACTIVITIES
A. Preparation of Order Memoranda
B. Solicited Orders
C. Confirmations
D. Disclosure of Control
E. Short Sale Procedures
1. Short Sale Definitions
2. NASD Short Sale Rule
3. Exemptions from the NASD Short Sale Rule
4. Prohibited Acts
5. Determination of Whether a Trade is Long or Short
F. Short Sales
1. Marked Short Sales
2. Sales of Individual Long Positions
3. Supervisory Review Procedures
G. Short Interest Reporting
H. Limit Order Requirements
I. Agency Orders
VI. TRADING ACTIVITIES
A. Providing Best Execution to Customer Orders
B. Market Orders
C. NYSE Proprietary Transactions
1. Restrictions on Proprietary Trading - "G Orders"
2. Exemption for- "G Orders"
3. Exemption for Executions by Unaffiliated Brokers (The
Effect vs. Execute Rule")
4. NYSE Market on Close ("MOC") Orders
5. NYSE RULE 80A
D. Normal Business Hours
E. Clearance and Settlement
F. Backing-Away by Dealers
G. Trade Reporting and Books and Records
I. NASDAQ,NNOTC and the Third Market
Requirements
Determining Which Party Reports A Transaction
Trade Report Information
Reporting Transactions In NASDAQ National Market,
NASDAQ SmallCap, Third Market and NNOTC Securities
Aggregate Trade Reporting (Bunching) of NASDAQ Securities
Operational Procedures
Supervisory Procedures
ACT Compliance
Operational Procedures
Supervisory Procedures
Books and Records
Cancels and Re-Bills
NASDAQ Trading Halts and SEC Suspensions
VII. SMALL ORDER EXECUTION SYSTEM (SuperSOES)
Purpose
Prohibited Activities
Locked and Crossed Markets
Public Customer Access to SOES
VIII. SUPERSOES (WHEN EFFECTIVE)
A. SELECTNET
IX. PENNY STOCKS
SECTION 12
I. GOVERNMENT SECURITIES
A. GENERAL OPERATING POLICY REGARDING U.S. SECURITIES SALES
SECTION 13
MUTUAL FUND PROCEDURES
I. REVIEW OF TRANSACTIONS AND COMMISSIONS
A. Requirement
B. Rule Requirements
C. Breakpoints
D. Switching
E. Operations
F. Selling Dividends
G. Suitability
MUTUAL FUND SWITCH LETTER
II. TRADING ACTIVITIES
A. Preparation of Order Memoranda
B. Solicited Orders
III. CUSTOMER ACCOUNT REVIEW
IV. OTHER M UTUAL FUND RULES AND REGULATIONS
A. NON-CASH COMPENSATION
SECTION 14
I. INSIDER TRADING
A. Overview of the Insider Trading Act
B. Overview of the Company's Current Business
C. Personnel to Whom Insider Trading Policies Apply
D. Definition of Insider Trading
E. Proprietary Trading
F. Responsibilities of the Company's Employees
G. Responsibilities of the Designated Principal
H. Disciplinary Action
SECTION 15
ANTI-MONEY LAUNDERING POLICIES & PROCEDURES
I. Purpose
II. Designated Personnel
III. Procedures
II. SPACE-SHARING
III. EMPLOYEE INSIDER TRADING ACKNOWLEDGEMENT
APPENDIX A
HOME OFFICE MANAGEMENT
APPENDIX B
OSJ LOCATIONS
APPENDIX C
MISCELLANEOUS
SECTION 1
INTRODUCTION
Every broker/dealer has an obligation to supervise the activities of its registered and associated persons. This manual is designed to assist designated personnel of Hold Brothers On-Line Investment Services LLC. (The “Company” or "Hold Brothers") and its employees and/or members in ensuring compliance with the rules and regulations of the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), applicable state jurisdiction(s) in which its registered employees are conducting business, and Company policies and procedures.
THE COMPANY IS NOT ENGAGED IN THE TRADITIONAL RETAIL BROKERAGE BUSINESS. INSTEAD, THE COMPANY PROVIDES A TECHNOLOGICAL, DIRECT ACCESS TRADING PLATFORM FOR PROPRIETARY TRADERS AND CUSTOMERS. HOLD BROTHERS DOES NOT MAKE MARKETS IN SECURITIES OR PARTICIPATE IN PUBLIC DISTRIBUTIONS OF SECURITIES. THIS MANUAL ALSO ATTEMPTS TO RECONCILE THE NATURE OF THE COMPANY’S BUSINESS WITH EXISTING REGULATORY REQUIREMENTS, INDUSTRY STANDARDS AND PRACTICAL BUSINESS CONSIDERATIONS.
THE COMPANY WILL ALWAYS ADHERE TO THE HIGHEST STANDARDS OF PROFESSIONAL AND ETHICAL REQUIREMENTS, AND EXPECTS ITS EMPLOYEES TO ADHERE TO THE SAME STANDARDS.
No manual can respond to every potential regulatory, business or ethical issue. In any instance where there is doubt, associated persons should make inquiry before taking action.
Principals will be assigned supervisory responsibilities and will have obligations to ensure that all rules, regulations, and policies applicable to the Company's business are adhered to in the office(s) and departments they manage. A listing of the assignment of responsibilities of Principals is contained at the end of this manual in Appendix A.
The Compliance Officer or designated compliance principal[1] will ensure that all Designated Principals are properly qualified for their responsibilities prior to employment or within the time specified by applicable regulations and thereafter such a qualification review will be undertaken annually. The CO reviews the CRD history to insure the appropriate examinations were completed prior to this designation. The Compliance/Registration Department will be responsible for filing all employee and Principal U-4's/U-5’s. The evidence of determining the qualifications of the registered and principal employees will be contained in the employee file including, but not be limited to, the Registration File, Human Resources File, and other Company records.
Designated Principal(s) and registered employees have the obligation to be familiar and remain current with this manual. This manual is not to be construed as all-inclusive, but rather it should serve as a guide in conducting supervisory as well as standard business functions. Issues that cannot be resolved by direct reference to this manual should be directed to the Principal in charge of the office or department, the Principal will determine if further inquiry should be made to the Compliance Department.
The Director of Compliance will review this manual at least annually. Any significant changes to SEC, NASD or state requirements, or the Company’s internal policies will be reflected in updates or addenda to the manual. Each Designated Principal must retain a copy of this Supervisory Manual electronic or otherwise in the home office and in all Branch Office(s) of the Company. This Manual is the exclusive property of the Company and must be returned whenever employment with the Company terminates for any reason. The contents of this manual are confidential and may not be revealed to any third party without the express consent of the Company. Every registered employee will receive a copy of this manual, or will be required to read this manual, at the time of employment. In either case, the employee must acknowledge that they have read and understood its procedures.
NOTE: Throughout the manual, persons are referred to using pronouns of the male gender, where appropriate, for simplicity.
SECTION 2
I. NATURE AND GENERAL OPERATION OF BUSINESS
A. Nature of the Company's Business
The Company’s focus of business is to facilitate direct access electronic trading activities for its proprietary traders and selected customers in Listed and Over the Counter (OTC) equities and certain other select financial products including, but not limited to, options, derivatives, and such other instruments and products (whether registered, or privately offered) as the Company determines. As an accommodation, the Company also offers its clients US government securities and mutual funds on an application basis. B. Clearance and Settlement
1. The Company clears and settles most of the Company’s proprietary trades and customer trades. Customer and proprietary accounts are also cleared and settled by the Company’s clearing firms.
2. The Company will clear its self cleared transactions through the facilities of The National Securities Clearing Corp. (“NSCC”) and the Depository Trust Company (“DTC”) on a book-entry, continuous net settlement basis, employing, whenever possible, “locked-in trades.”
C. Primary Office of Supervisory Jurisdiction
The primary location for the supervision of the Company's activities is designated as the "Primary Office of Supervisory Jurisdiction.”(“Primary OSJ”) The address listed on the most recent Form B/D will serve as the Company's principal office. The Compliance Department will be responsible for ensuring the Form BD is kept up to date.
D. Annual Compliance Meeting
The Director of Compliance shall cause to be conducted, or supervise, at least annually, a compliance meeting or interview to discuss and review relevant compliance issues with each registered employee. Registered employees will be required to sign a statement evidencing attendance at such a meeting. An agenda will also be prepared for the meeting/interview that outlines the topics to be covered.
REFERENCE: NASD Conduct Rule 3010(a)(7)
E. Annual Compliance Audit and Review of Supervisory Procedures
Pursuant to NASD Rule 3013 the Company requires an annual review of the business in which it engages. The review is designed to assist in detecting and preventing violations of and achieving compliance with applicable securities laws and regulations.
This annual review will be held in order to discuss with the registered employees any potential issues, or new material found during the review. This annual review of the Company’s business shall be conducted or supervised by the Director of Compliance.
F. Annual Certification The National
Association of Securities Dealers, Inc. (NASD) Rule 3013 (the Rule) and
accompanying Interpretative Material 3013 (IM 3013 requires every NASD member
to designate a chief compliance officer (CCO) and also would require such
member’s chief executive officer (CEO) and CCO to annually certify to having a
process in place to establish, maintain, review, modify, and test policies and
procedures reasonably designed to achieve compliance with applicable NASD rules and the federal securities laws.
At the Company, the Chief Compliance Officer and Director of
Compliance and Compliance Officer and Designated Compliance Officer are all the
same title and the same person.
The Rule is intended to provide an effective mechanism to compel substantial
and purposeful interaction between senior management and compliance personnel,
thereby enhancing the quality of members’ supervisory and compliance systems.
A. Chief Compliance Officer
The Rule requires all NASD members to designate and specifically identify to
the NASD on Form BD a principal to serve as CCO. The CCO is responsible to make
certain that he is correctly listed on the form BD. IM 3013 states that the
designation of CCO does not preclude such CCO from holding any other position
within the member, including the position of CEO, so long as such person can
discharge the duties of a CCO in light of his or her other responsibilities. As
a result, NASD members that are resource-strained would not be required to hire
or designate a dedicated CCO. The
Company’s designation of its CCO is recorded in Appendix A to this manual.
B. Annual Certification of Compliance and Supervisory Processes
The Rule requires members to have their CEO (or equivalent officer) and CCO
(collectively, the “Certifying Officers”) jointly certify each year, that the
member has in place processes to establish, maintain, review, test and modify
written compliance policies and written supervisory procedures that are
reasonably designed to achieve compliance with NASD rules and federal
securities laws and regulations.
By April 1, 2006 and each subsequent April 1st, Pursuant to IM 3013,
the CCO will have met with the CEO and certified in a written letter the
following. The CEO will then sign the same letter. Certifying Officers would be
required to certify that:
1. The member has in place processes to:
(a) Establish and maintain policies and
procedures reasonably designed to achieve compliance with applicable NASD
rules and federal securities laws;
(b) modify such policies and procedures as business, regulatory and legislative
changes and events dictate; and
(c) test the effectiveness of such policies and procedures on a periodic basis,
the timing and extent of which is reasonably designed to ensure continuing
compliance with NASD rules and federal
securities laws;
2. The member’s processes with respect to
item 1 above are evidenced in a report reviewed by the Certifying Officers and
such other officers, as the member may deem necessary to make the certification.
3. They, and other officers as applicable, have consulted with or otherwise
relied on those employees, officers, outside consultants, lawyers and
accountants, to the extent they deem appropriate, in order to attest to the
statements made in the certification.
IM 3013 states that the certification is meant to ensure that the person(s)
charged with managing the member’s compliance program has regular and
significant interaction with senior management concerning the subject matter of
the certification. The Rule permits co-certifications by other compliance
officers that report to the CCO, but any such co-certifications may be executed
only by senior compliance officers that have primary responsibility over a
segment of a member’s business operations.
IM 3013 points out that the NASD recognized that supervisors with business line
responsibility are accountable for the discharge of a member’s compliance
policies and written supervisory procedures. As a result, Certifying Officers
must only certify
to having processes in place to establish, maintain, review, test and modify
the member’s compliance policies and procedures. Furthermore, IM 3013 explains
that the execution of the certification alone does not establish business line
responsibility.
C. Report on Compliance and Supervisory
Processes
IM 3013 states that the report required by item 2 of the certification:
• Must document the processes for
establishing, maintaining, reviewing, testing and modifying compliance
policies;
• must be produced before execution of the certification and be reviewed by the
Certifying Officers and any other officers the member deems necessary to make
the certification;
• should include the manner and frequency in which the processes are
administered; and
• should identify the officers and supervisors that have responsibility for
administering such processes.
Further, the IM 3013 states that the report
may be combined with any other compliance report or other similar report
required by any other self-regulatory organization provided that:
• Such report is clearly titled in a manner
that indicates it is responsive to the requirements of the certification and
the IM 3013;
• a member that submits a report in response to an NASD request must submit the
report in its entirety; and
• the member makes the report annually.
On an annual basis the CCO will insure the
proper maintaining, reviewing, testing and modifying of compliance policies and
procedures. The CCO will provide a report about the process to senior
management. The report and supporting documentation will be attached to the
Compliance Logs and the CCO will initial the Compliance Checklist as evidence
that these materials have been reviewed and approved.
REFERENCE: NASD Conduct Rule 3010(c) and 3013II. FINANCIALS
A. Prohibition on Acceptance of Customer Funds And Or Securities
When the Company uses a Clearing firm to hold customer funds, Company operates under the (k)(2)(ii) exemptive provisions of SEC Rule 15c3-3; therefore, when using a clearing firm, the firm does not accept, hold or maintain customer securities and/or funds. In the event that a customer erroneously forwards funds or securities to Hold Brothers instead of to a clearing firm, the received funds or securities will be properly recorded on the appropriate log and then promptly returned to the customer, as more fully set forth below. "Promptly" is defined as by noon of the next business day after receipt deleted
REFERENCE: SEC RULE 15c3-3
B. Net Capital Rule
The amended Net Capital Rule does not allow the Company to receive customer checks made payable to the Company when meant for a clearing firm. The Rule, however, does recognize that customers may, in error, occasionally make their checks payable to the Company instead of to the appropriate clearing firm or issuer. In these cases, it is the Company’s responsibility to maintain records relating to these customer checks and to document the corrective action taken by the Company. The following procedures have been established to address the return of customer checks made payable to the Company.
deleted
C. Books and Records
Under the amended Net Capital Rule, the Company is required to provide customers with written notification on confirmations that all checks must be made payable to the appropriate clearing firm or issuer. To fully comply with the Net Capital Rule the Company will:
1. Provide notification to all current and future customers of the need to make checks payable to the clearing firm or issuer when a clearing firm is used.
2. Record receipt of any erroneously payable customer checks in the appropriate log; maintain copies of such checks and promptly mail such checks back to the customer’s address of record via certified mail, overnight carrier or other manner which allows tracking of the receipt of such mailing. The Operations Manager, designated in Appendix A, is responsible for the maintenance of the log and recording the date and time the checks were received and returned. The Ops Manager will initial the Compliance Checklist as evidence of the review.
REFERENCE: NASD RULE 3110 and SEC Rule 15c3-3
The Company shall at least once in each calendar quarter, review its proprietary accounts as follows:
1. Physically examine and count all securities held including securities that are the subjects of repurchase or reverse repurchase agreements;
2. Account for all securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive, failed to deliver, subject to repurchase or reverse repurchase agreements or otherwise subject to its control or direction but not in its physical possession by examination and comparison of the supporting detail records with the appropriate ledger control accounts;
3. Verify all securities in transfer, in transit, pledge, loaned, borrowed, deposited, failed to receive, failed to deliver, subject to repurchase or reverse repurchase agreements or otherwise subject to its control or direction but not in its physical possession, where such securities have been in said status for longer than thirty days;
4. Compare the results of the count and verification with its records; and record on the books and records of the Company all unresolved differences setting forth the security involved and date of comparison in a security count difference account no later than 7 business days after the date of each required quarterly security examination, count and verification in accordance with the requirements provided in paragraph (3) of this section.
Provided, however, that no examination, count, verification, and comparison for the purpose of this section shall be within 2 months of or more than 4 months following a prior examination, count, verification, and comparison made hereunder.
The examination, count, verification, and comparison shall be made or supervised by persons whose regular duties do not require them to have direct responsibility for the proper care and protection of the securities or the making or preservation of the subject records. The Operations Manager conducts monthly securities counts and the Compliance Officer will conduct an independent quarterly count/review as identified above.
E. Lost and Stolen Securities or Missing Securities - Proprietary Accounts
The Company has registered as a Direct Inquirer with the Securities Information Center (SIC) in accordance with rules issued by the SEC. However, the Company has currently been granted an ‘Exempt’ status as detailed in the relevant SEC rules. In the even the ‘Exempt’ status changes the Company will adhere to the following reporting requirements:
Stolen securities
The Company shall report to the SIC, and to a registered transfer agent for the issue, the discovery of the theft or loss of any securities certificate where there is substantial basis for believing that criminal activity was involved. Such report shall be made within one business day of the discovery and, if the certificate numbers cannot be ascertained at that time, they shall be reported as soon thereafter as possible.
The Company shall promptly report to the Federal Bureau of Investigation upon the discovery of the theft or loss of any securities certificate where there is substantial basis for believing that criminal activity was involved.
Missing or lost securities.
The Company shall report to the SIC, and to a registered transfer agent for the issue, the discovery of the loss of any securities certificate where criminal actions are not suspected when the securities certificate has been missing or lost for a period of two business days. Such report shall be made within one business day of the end of such period except which:
Securities certificates lost in transit to customers, transfer agents, banks, brokers or dealers shall be reported by the delivering institution by the later of two business days after notice of non-receipt or as soon after such notice as the certificate numbers of the securities can be ascertained.
Securities certificates considered lost or missing as a result of securities counts or verification required by rule, regulation or otherwise shall be reported by the later of ten business days after completion of such securities count or verification or as soon after such count or verification as the certificate numbers of the securities can be ascertained.
Securities certificates not received during the completion of delivery, deposit or withdrawal shall be reported in the following manner:
Where the Company has made delivery of the securities certificates the Company shall supply to the receiving institution the certificate number of the security within two business days from the date of request from the receiving institution. The receiving institution shall report within one business day of notification of the certificate number.
Where the delivery of certificates has been in person and where the Company has a receipt, the Company shall supply the receiving institution the certificate numbers of the securities within two business days from the date of request from the receiving institution. The receiving institution shall report within one business day of notification of the certificate number.
Where the delivery of securities certificates has been in person and where the Company has no receipt, the Company shall report within two business days of notification of non-receipt by the receiving institution; or
Where delivery of securities certificates by the Company is made by mail, if payment is not received within ten business days, the Company shall confirm with the receiving institution the failure to receive such delivery; if confirmation shows non-receipt, the Company shall report within two business days of such confirmation.
Counterfeit Securities:
The Company shall report the discovery of any counterfeit securities certificate to the Commission or its designee, to a registered transfer agent for the issue,
and to the Federal Bureau of Investigation within one business day of such discovery.
Recovery:
The Company, having reported a lost, missing or stolen securities certificate pursuant to this Section shall report recovery of that securities certificate to the SIC and to a registered transfer agent for the issue within one business day of such recovery or finding. A report in which criminality was indicated also shall notify the Federal Bureau of Investigation that the securities certificate has been recovered.
Information to be reported:
All reports made pursuant to this Section shall include, if applicable or available, the following information with respect to each securities certificate:
(i) Issuer;
(ii) Type of security and series;
(iii) Date of issue;
(iv) Maturity date;
(v) Denomination;
(vi) Interest rate;
(vii) Certificate number, including alphabetical prefix or suffix.
(viii) Name in which registered;
(ix) Distinguishing characteristics, if counterfeit
(x) Date of discovery of loss or recovery;
(xi) CUSIP number;
(xii) Financial Industry Numbering System ("FINS") Number; and
(xiii) Type of loss.
Forms:
The Company shall make all reports to the SIC and to a registered transfer agent for the issue pursuant to this section on Form X-17F-1A. The Company shall make reports to the Federal Bureau of Investigation pursuant to this Section on Form X-17F-1A, or a bank whose deposits are insured by the Federal Deposit Insurance Corporation in which case reports may be made on the form required by the institution's appropriate regulatory agency for reports to the Federal Bureau of Investigation.
Required Inquiries.
The Company shall inquire of the SIC with respect to every securities certificate which comes into its possession or keeping, whether by pledge, transfer or otherwise, to ascertain whether such securities certificate has been reported as missing, lost, counterfeit or stolen, unless:
(i) The securities certificate is received directly from the issuer or issuing agent at issuance.
(ii) The securities certificate is received from another reporting institution or from a Federal Reserve Bank or Branch or directly from The Depository Trust Co.
Form of Inquiry:
Inquiries, at this time, shall be made by phone directly to SIC.
Permissive Reports and Inquiries:
The Company may report to or inquire of the SIC with respect to any securities certificate not otherwise required by this section to be the subject of a report or inquiry.
Exemptions:
The following types of securities are not subject to paragraphs (b) and (c) of this section:
(1) Security issues not assigned CUSIP numbers
(2) Bond coupons;
(3) Unregistered securities;
(4) Global securities issues; and
(5) Any securities issue for which neither record nor beneficial owners can obtain a negotiable securities certificate.
Record keeping:
The Company shall maintain and preserve in an easily accessible place for three years copies of all Forms X-17F-1A filed pursuant to this section, all agreements regarding registration or other aspects of this section, and all confirmations or other information received from the SIC as a result of inquiry.
REFERENCE: SEC Rule 17f-1
F. Tickets and Securities Received and Delivered Blotter – Customer Accounts
The Company’s policy prohibits the acceptance of customer securities (i.e. certificates) when said securities are for a customer’s account held at a clearing firm. If certificates are received, they will be returned to the customer and the customer will be advised to forward such certificates to the clearing firm as more fully set forth below.
In the event a customer delivers a security certificate to the Company when said securities are for a customer’s account held at a clearing firm, such deliveries of securities will be recorded in the designated log. In addition, the customary uniform Delivery Ticket will be copied for each delivery of securities to the Company. Finally, any certificate received when sa