TO: All NASD Members
ATTN: Operations Principals, Cashiers, and P&S Dept.
The Securities and Exchange Commission has approved amendments to Sections 5, 9, 12 and 30 of the Uniform Practice Code. The Code prescribes the manner in which over-the-counter securities transactions other than those cleared through a registered clearing agency are compared, cleared and settled between NASD member firms. These amendments apply to all NASD members.
BACKGROUND AND EXPLANATION OF AMENDMENTS
The amendments to the Uniform Practice Code are designed to revise, clarify and adjust certain sections of the Code to reflect current market practices. These specific revisions were brought about at the suggestion of the Subcommittee on Unit Investment Trust Securities. The Subcommittee, while in the process of making recommendations for amending the Code to permit UITS to be covered, earmarked certain sections of the Code which were in need of revision.
The following is a brief description of the Uniform Practice Committee's recommended amendments to the Code.
- Section 5(b)(3) of the Code which relates to ex-dividend dates for investment company shares is deleted since such shares are no longer covered by the Code. It was believed that the recent addition of Section l(a)(iv) specifically excluding investment company shares other than those in Unit Investment Trusts made the retention of Section 5(b)(3) inappropriate.
- Section 9 relating to comparisons or confirmations and "Don't Know" Notices has been amended by the addition of a new Section 9(d) which, in addition to the normal DK notice procedure contained in Section 9(c) allows sending a DK notice by any means of transmission which will provide for verification of delivery and receipt of the notice. This provision was adopted to allow the use of modern telecommunications capacities of many member firms which enable them to more efficiently transmit notices by means other than registered or certified mail as contemplated by Section 9(c). Additionally, the 15 calendar day time period contained in Section 9(c)(l) was deleted since the DK notice procedure is voluntary in nature and therefore such a restriction serves no valid purpose.
- Section 12 dealing with time and place of delivery has been amended to allow the parties involved in a transaction to utilize delivery instructions other than those provided for under the rule, such as delivery to a different location, if the alternate instructions are provided by the purchaser at the time of the transaction.
- Section 30 dealing with witnesses to assignments has been deleted since the procedure is not required under the rules of the Stock Transfer Association and has not been in common use for many years.
The text of these amendments to the Association's Uniform Practice Code is attached. Questions regarding these amendments may be directed to Donald J. Catapano, Uniform Practice Department at (212) 839-6255.
Sincerely,
John T. Wall
Executive Vice President
Member and Market Services
Attachment
AMENDMENTS TO THE UNIFORM PRACTICE CODE
Sections 5, 9,12 and 30
(New language is underlined, deletions are indicated by brackets)
Transactions in Securities "Ex-Dividend," "Ex-Rights" or "Ex-Warrants"
Sec. 5(b).
[Ex-dividend dates for investment company shares
(3) Notwithstanding the above, the ex-dividend date on securities of an open-end management investment company shall be the date designated by the issuer or its principal underwriter. ]
Comparisons or Confirmations and "Don't Know Notices"
Sec. 9.
Sent By Each Party
(a) (no change)
Uniform Comparison or Confirmation
(b) (no change)
"DK" Procedures Using "Don't Know Notices" (NASD Form No. 101)
(c) When party to a transaction sends a
comparison or confirmation [ or comparison] of a trade, but does not receive a
comparison or confirmation [or comparison] or a signed DK, from the contra- [broker ]
member by the close of four business days following the trade date of the transaction, the following procedure may be utilized:
(1) [ Not later than the fifteenth calendar day following the trade date] The confirming member shall send by certified mail, return receipt requested, or messenger, a "Don't Know Notice" on the form prescribed by the Association to the contra- [ broker ] member in accordance with the directions contained thereon. If the notice is sent by certified mail the returned, signed receipt therefor must be retained by the confirming member and attached to the fourth copy of the "Don't Know Notice." If delivered by messenger, the fourth copy must immediately be dated and manually receipted by, and imprinted with the firm stamp of, the contra-[broker] member pursuant to the provisions of paragraph (c) (4) [hereof] of this section, returned to the messenger and thereafter be retained by the confirming member.
(2)
[ (a) ]
(A) After receipt of the "Don't Know Notice" as specified in [section (1) hereof] paragraph (c)(l) of this section, the contra- [ broker ] member shall have four business days after the notice is received to either confirm or DK the transaction by mail or messenger in accordance with the provisions of [ subparagraphs (b) or (c) and subsection (4) hereof], paragraphs (c)(2)(B) or (C) of this section.
[ (b) ]
(B) If the contra-[broker ] member desires to respond by mail, the second copy of the "Don't Know Notice" previously received shall be executed in accordance with the provisions of [subsection (4) hereof] paragraph (c)(4) of this section and sent to the confirming broker by certified mail, return receipt requested. The notice so returned shall indicate clearly whether the contra-[ broker ] member desires to confirm or DK the transaction. The returned, signed receipt must thereafter be retained by the contra-[broker] member.
[ (c) ]
(C) If the contra- broker member desires to respond by messenger, [he] it^ shall return to the confirming broker member the second and third copies of the notice which shall indicate clearly whether the contra-[ broker ] member desires to confirm or DK the transaction. The third copy shall be dated and manually receipted by the confirming [broker] member pursuant to the provisions of [subsection (4) hereof ] paragraph (c)(4) of this section and immediately be returned to the messenger and thereafter be retained by the contra-[broker ] member.
(3) If the confirming member does not receive a response from the contra- [ broker ] member by the close of four business days after receipt by the confirming member of either the fourth copy of the "Don't Know Notice" [ as specified in subsection (1) ] if delivered by messenger, or the post office receipt if delivered by mail, as specified in paragraph (c)(l) of this section, such shall constitute a DK and the confirming member shall have no further liability for the trade.
(4) All "Don't Know Notices" sent by any party pursuant to the provisions of this section 9 [(b) ] (c) must be manually signed by a person authorized to pursue further discussions in respect to the transaction on behalf of the signing member. In addition to the manual signature receipt on the third and fourth copies, as required by paragraphs [ (b)] (c)(l) and [(b)(2)(c)] (c)(2)(C) hereof, if delivered by hand, the firm stamp of the contra-[ broker] member must be imprinted thereon to signify receipt.
(5) (no change)
"DK" Procedure Using Other Forms of Notice
(d) When a party to a transaction sends comparison or confirmation of a trade, but does not receive a comparison or confirmation or a signed DK, from the contra-member by the close of four business days following the date of the transaction, the following procedure may be utilized in place of that provided in the preceding paragraph (c).
(1) The confirming member shall provide notice to the contra-member Identifying the trade in question by providing the information described in Section 10 of this Code. The notice shall, in addition, contain a request for the contra-member to confirm or "DK" the trade and the name of the individual issuing the notice.
(2) The confirming member shall record and retain verification of delivery to the contra-member of each notice issued in accordance with paragraph (d)(l) of this section T
(3) The contra-member, on receipt of the notice from the confirming member, shall research the trade in question.
(4) The contra-member shall then send notice to the confirming member to either confirm or "DK" the trade and shall include the name of the individual issuing the notice.
(5) If the confirming member does not receive a response in the form of a notice from the contra-member by the close of four business days after receipt of the confirming member's notice, such shall constitute a DK and the confirming member shall have no further liability.
(6) Both the confirming member and the contra-member shall record and retain verification of the delivery and receipt of each notice issued" pursuant to paragraph (d)(4) of this section T
(7) If the trade in question is confirmed by the contra-member pursuant to paragraph (d)(4) of this section, settlement shall be completed in the normal manner.
(8) Notices under this paragraph (d) may be delivered through any communications medium which provides verification of delivery and receipt as required under paragraphs (d)(2) and (d)(6).
Delivery of Securities Time and Place of Delivery
Sec. 12. Delivery shall be made at the office of the purchaser between the hours established by rule or practice in the community where such office is located. If the purchaser maintains more than one office, delivery shall be made at the office with which the transaction was effected, unless delivery instructions are provided at the time of the transaction.
Witnesses to Assignments
[See. 30. Each signature to an assignment or power of substitution shall be witnessed by an individual and dated. Where there are two or more signatures to an assignment, the witness shall state definitely, in his own handwriting, to which signature he was witness. A certificate with either the assignment or power of substitution witnessed by a person since deceased is not a good delivery. ]
