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IM-2330. Segregation of Customers' Securities
This rule is no longer applicable.
(a) Improper Use
No member or person associated with a member shall make improper use of a customer's securities or funds.
(b) General Provisions
Every member in the conduct of its business shall adhere to the provisions of SEC Rule 15c3-3 under the Act with respect to obtaining possession and control of securities, and the maintenance of appropriate cash reserves. For the purposes of this Rule, the definitions contained in Rule 15c3-3 shall apply.
(c) Authorization to Lend
No member shall lend, either to himself or to others, securities carried for the account of any customer, which are eligible to be pledged or loaned unless such member shall first have obtained from the customer a written authorization permitting the lending of securities thus carried by such member.
(d) Segregation and Identification of Securities
No member shall hold securities carried for the account of any customer which have been fully paid for or which are excess margin securities unless such securities are segregated and identified by a method which clearly indicates the interest of such customer in those securities.
"Hypothecation of Customers' Securities" — See SEC Rules and Regulation T Tab
(e) Prohibition Against Guarantees
No member or person associated with a member shall guarantee a customer against loss in connection with any securities transaction or in any securities account of such customer.
(f) Sharing in Accounts; Extent Permissible
(1)(A) Except as provided in paragraph (f)(2) no member or person associated with a member shall share directly or indirectly in the profits or losses in any account of a customer carried by the member or any other member; provided, however, that a member or person associated with a member may share in the profits or losses in such an account if (i) such person associated with a member obtains prior written authorization from the member employing the associated person; (ii) such member or person associated with a member obtains prior written authorization from the customer; and (iii) such member or person associated with a member shares in the profits or losses in any account of such customer only in direct proportion to the financial contributions made to such account by either the member or person associated with a member.
(B) Exempt from the direct proportionate share limitation of paragraph (f)(1)(A)(iii) are accounts of the immediate family of such member or person associated with a member. For purposes of this Rule, the term "immediate family" shall include parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the member or person associated with a member otherwise contributes directly or indirectly.
(2) Notwithstanding the prohibition of paragraph (f)(1), a member or person associated with a member that is acting as an investment adviser (whether or not registered as such) may receive compensation based on a share in profits or gains in an account if (i) such person associated with a member seeking such compensation obtains prior written authorization from the member employing the associated person; (ii) such member or person associated with a member seeking such compensation obtains prior written authorization from the customer; and (iii) all of the conditions in Rule 205-3 of the Investment Advisers Act of 1940 (as the same may be amended from time to time) are satisfied.
Amended by SR-FINRA-2009-014 eff. Dec. 14, 2009.
Amended by SR-NASD-84-33 eff. Feb. 7, 1985.
Selected Notices: 83-74, 09-60.
(a) Rule 2330(d) requires members to segregate and identify by customers both fully paid and "excess margin" securities. With regard to a customer's account which contains only stocks, it is general practice for firms to segregate that portion of the stocks having a market value in excess of 140% of the debit balance therein. When a customer's account contains bonds, the basis upon which the member is borrowing or can borrow on such bonds should be taken into consideration in determining the amount of securities to be segregated.
(b) Following are three general types of segregation of customers' securities currently in use by many firms:
(1) Physical segregation of securities by issue, with a separate list showing ownership of the securities by each customer. The listing, on cards or other records, should reflect all changes in ownership interest. This method is for securities in street name (not in individual customers' names), but the proportionate interests of the individual customers are indicated by the records.
(2) Physical segregation of securities by issue, affixing to each certificate a tab or other identification showing the name of the beneficial owner of the certificate. This may be used for shares in street name or in the customer's name.
(3) Specific segregation of all certificates of each customer in separate envelopes or folders, identified by customer, or by clipping the certificates together and identifying the customer by tab or other notation affixed to the segregated certificates.
(c) In the methods enumerated in paragraph (b), the records should note the dates when the securities are segregated. When such securities are not in the actual custody of the member, for instance, when they are in the physical possession of a correspondent firm, their location and the means by which they may be identified as belonging to each customer should be indicated on the books of the member carrying the customers' accounts.