(a) General
Except as otherwise provided by paragraph (b) of this Rule, each general securities member shall, with a frequency of not less than once every calendar quarter, send a statement of account ("account statement") containing a description of any securities positions, money balances, or account activity to each customer whose account had a security position, money balance, or account activity during the period since the last such statement was sent to the customer. In addition, each general securities member shall include in the account statement a statement that advises the customer to report promptly any inaccuracy or discrepancy in that person's account to his or her brokerage firm. In cases where the customer's account is serviced by both an introducing and carrying firm, each general securities member must include in the advisory a reference that such reports be made to both firms. Such statement also shall advise the customer that any oral communications should be re-confirmed in writing to further protect the customer's rights, including rights under the Securities Investor Protection Act (SIPA).
(b) Delivery Versus Payment/Receive Versus Payment (DVP/RVP) Accounts
Quarterly account statements need not be sent to a customer pursuant to paragraph (a) of this Rule if:
(1) The customer's account is carried solely for the purpose of execution on a DVP/RVP basis;
(2) All transactions effected for the account are done on a DVP/RVP basis in conformity with [Rule 11860];
(3) The account does not show security or money positions at the end of the quarter (provided, however that positions of a temporary nature, such as those arising from fails to receive or deliver, errors, questioned trades, dividend or bond interest entries and other similar transactions, shall not be deemed security or money positions for the purpose of this paragraph (b));
(4) The customer consents to the suspension of such statements in writing. The member must maintain such consents in a manner consistent with [Rule 4512] and SEA Rule 17a-4;
(5) The member undertakes to provide any particular statement or statements to the customer promptly upon request; and
(6) The member undertakes to promptly reinstate the delivery of such statements to the customer upon request.
Nothing in this Rule shall be seen to qualify or condition the obligations of a member under SEA Rule 15c3-3(j)(1) concerning quarterly notices of free credit balances on statements.
(c) DPP and Unlisted REIT Securities
A general securities member shall include in a customer account statement a per share estimated value of a direct participation program (DPP) or unlisted real estate investment trust (REIT) security, developed in a manner reasonably designed to ensure that the per share estimated value is reliable, and the disclosures in paragraph (c)(2) as applicable.
(1) For purposes of this paragraph (c), a per share estimated value for a DPP or REIT security will be deemed to have been developed in a manner reasonably designed to ensure that it is reliable if the member uses one of the following per share estimated value methodologies.
(A) Net Investment
At any time before 150 days following the second anniversary of breaking escrow, the member may include a per share estimated value reflecting the “net investment” disclosed in the issuer's most recent periodic or current report (“Issuer Report”). “Net investment” shall be based on the “amount available for investment” percentage in the “Estimated Use of Proceeds” section of the offering prospectus or, where “amount available for investment” is not provided, another equivalent disclosure that reflects the estimated percentage deduction from the aggregate dollar amount of securities registered for sale to the public of sales commissions, dealer manager fees, and estimated issuer offering and organization expenses. When the issuer provides a range of amounts available for investment, the member may use the maximum offering percentage unless the member has reason to believe that such percentage is unreliable, in which case the member shall use the minimum offering percentage.
(B) Appraised Value
At any time, the member may include a per share estimated value reflecting an appraised valuation disclosed in the Issuer Report, which, in the case of DPPs subject to the Investment Company Act ("1940 Act”), shall be consistent with the valuation requirements of the 1940 Act and the rules thereunder or, in the case of all other DPPs and REITs, shall be:
(i) based on valuations of the assets and liabilities of the DPP or REIT performed at least annually, by, or with the material assistance or confirmation of, a third-party valuation expert or service; and
(ii) derived from a methodology that conforms to standard industry practice.
(2) Disclosures
(A) An account statement that provides a "net investment" per share estimated value for a DPP or REIT security under paragraph (c)(1)(A) shall disclose, if applicable, prominently and in proximity to disclosure of distributions and the per share estimated value the following statements: "IMPORTANT—Part of your distribution includes a return of capital. Any distribution that represents a return of capital reduces the estimated per share value shown on your account statement."
(B) Any account statement that provides a per share estimated value for a DPP or REIT security shall disclose that the DPP or REIT securities are not listed on a national securities exchange, are generally illiquid and that, even if a customer is able to sell the securities, the price received may be less than the per share estimated value provided in the account statement.
(d) Definitions
For purposes of this Rule, the following terms will have the stated meanings:
(1) "Account Activity" includes, but is not limited to, purchases, sales, interest credits or debits, charges or credits, dividend payments, transfer activity, securities receipts or deliveries, and journal entries relating to securities or funds in the possession or control of the member.
(2) a "General Securities Member" refers to any member that conducts a general securities business and is required to calculate its net capital pursuant to the provisions of SEA Rule 15c3-1(a). Notwithstanding the foregoing definition, a member that does not carry customer accounts and does not hold customer funds or securities is exempt from the provisions of this Rule.
(3) "Direct Participation Program" or "Direct Participation Program Security" refers to the publicly issued equity securities of a direct participation program as defined in [Rule 2310] (including limited liability companies), but does not include securities listed on a national securities exchange or any program registered as a commodity pool with the Commodity Futures Trading Commission.
(4) "Real Estate Investment Trust" or "Real Estate Investment Trust Security" refers to the publicly issued equity securities of a real estate investment trust as defined in Section 856 of the Internal Revenue Code, but does not include securities listed on a national securities exchange.
(5) "Annual Report" means the most recent annual report of the DPP or REIT distributed to investors pursuant Section 13(a) of the Exchange Act.
(6) "DVP/RVP account" refers to an arrangement whereby payment for securities purchased is made to the selling customer's agent or delivery of securities sold is made to the buying customer's agent in exchange for payment at time of settlement, usually in the form of cash.
(e) Exemptions
Pursuant to the [Rule 9600]Series, FINRA may exempt any member from the provisions of this Rule for good cause shown.
• • • Supplementary Material: --------------
.01 Compliance with Rule 4311 (Carrying Agreements). Members are reminded of their obligations under Rule 4311, including specifically the rights and obligations of the carrying firm under Rule 4311(c)(2) that generally requires each carrying agreement in which accounts are to be carried on a fully disclosed basis to expressly allocate to the carrying firm the responsibility for the safeguarding of funds and securities for the purposes of SEA Rule 15c3-3 and for preparing and transmitting statements of account to customers.
.02 Transmission of Customer Account Statements to Other Persons or Entities
(a) Except as provided for in paragraph (b) of this Supplementary Material, a member may not send account statements relating to a customer's account(s) to other persons or entities unless:
(1) the customer has provided written instructions to the member to send the statements to such person or entity; and
(2) the member continues to send accounts statements directly to the customer either in paper format or electronically as provided in Supplementary Material. 03 of this Rule.
(b) Where a court of competent jurisdiction has appointed a guardian, conservator, trustee, personal representative or other person with legal authority to act on behalf of a customer, a member may cease sending account statements to the customer upon written instructions from such court-appointed fiduciary provided that the court-appointed fiduciary furnishes to the member an official copy of the court appointment that establishes authority over the customer's account(s).
(c) Notwithstanding paragraph (a) of this Supplementary Material, a member may provide duplicate customer account statement(s) under Rule 2070, Rule 3210 or other similar applicable federal securities laws, rules and regulations in accordance with the requirements of such rule.
.03 Use of Electronic Media to Satisfy Delivery Obligations. A member may satisfy its delivery obligations under this Rule by using electronic media, subject to compliance with standards established by the SEC on the use of electronic media for delivery purposes.
.04 Compliance with Rule 3150 (Holding of Customer Mail). A member is permitted to hold customer mail, including customer account statements or other communications relating to a customer's account, subject to the requirements of Rule 3150.
.05 Information to be Disclosed on Statement. Customer account statements must clearly and prominently disclose on the front of the statement:
(a) The identity of the introducing firm and carrying firm (if different) and their respective contact information for customer service. The identity of the carrying firm and its contact information for customer service may appear on the back of the statement provided such information is in "bold" or "highlighted" letters;
(b) That the carrying firm is a member of SIPC; and
(c) The opening and closing balances for the account.
.06 Assets Externally Held. Where a customer account statement includes assets that the member does not carry on behalf of the customer and that are not included on the member's books and records, such assets must be clearly and distinguishably separated on the statement. The statement must:
(a) Clearly indicate that such externally held assets are included on the statement solely as a courtesy to the customer;
(b) Disclose that information (including valuation) for such externally held assets included on the statement is derived from the customer or other external source for which the member is not responsible; and
(c) Identify that such externally held assets may not be covered by SIPC.
.07 Use of Logos, Trademarks, etc. Where the logo, trademark or other similar identification of a person (other than the introducing firm or carrying firm) appears on a customer account statement, the identity of such person(s) and the relationship to the introducing, carrying or other firm included on the statement must be provided and may not be used in a manner that is misleading or causes customer confusion.
.08 Use of Summary Statements. Where a member holds a customer's account and another person(s) who separately offers financial related products or services to the same customer (e.g. mutual fund sales and custodial services, banking products and services, insurance products and services, securities products and services, etc.) seek to jointly provide their respective customer account statements together with a statement summarizing or combining assets held in different accounts ("summary statement") the member is required to:
(a) In the summary statement:
(2) indicate that the summary statement does not replace any other statement(s) the customer may receive from other financial institutions that hold the customer's assets;
(3) identify each entity from which information is provided or assets being held are included, their relationship with each other (e.g., parent, subsidiary or affiliated organization), and their respective functions (introducing firm, carrying firm, fund distributor, banking or insurance product provider, etc.);
(4) clearly distinguish between assets held or categories of assets held by each entity included in the summary;
(5) identify the customer's account number at each entity and provide contact information for customer service at each entity; if the customer's account number and the contact information for customer service at each entity are included on their respective account statements, then such information need not be included on the summary statement; and
(6) identify each entity that is a member of SIPC;
(b) Ensure that to the extent that the summary statement aggregates the values of the various accounts summarized or portions thereof, such aggregation is recognizable as having been arithmetically derived from the separately stated totals or their components;
(c) Distinguish the beginning and end of each separate statement (e.g., summary, brokerage, mutual fund, banking, insurance, etc.) by color, pagination or other distinct form of demarcation;
(d) Ensure that there is a written agreement between the carrying firm and each other person jointly providing its respective customer account statements attesting that each such person has developed procedures and controls for reviewing and testing the accuracy of the information included on its respective statements; and
(e) Ensure that the summary statement complies with Rule 2231.
