(1)
TRANSFER INSTRUCTIONS
/01
Conditions of Transfer
Security account asset transfers accomplished pursuant to Rule 412 are subject to certain conditions. The customer must be informed of, affirm, or authorize (as the case may be) the following conditions through their inclusion in the transfer instruction form the customer is required to authorize in order to initiate the account asset transfer:
1. The customer must be informed that to the extent any account assets are not readily transferable, with or without penalties, such assets may not be transferred within the time frames required by Rule 412.
2. If securities account assets are being transferred in whole, the customer must authorize the liquidation of any nontransferable proprietary money market fund assets in the account and the transfer of any resulting credit balance to the receiving organization, or specifically indicate another method of disposition of such assets.
With respect to the transfer of retirement plan securities account assets in whole, the customer must be informed that the choice of method of disposition of such assets other than liquidation and transfer may result in liability for the payment of taxes and penalties with respect to such assets.
3. The customer must be informed that he or she will be notified in writing by the carrying organization, and/or by the receiving organization, to determine what disposition he or she wishes to make with respect to nontransferable assets, other than proprietary money market fund assets (if any), indicated in an instruction to transfer specifically designated account assets. See /06 of this Interpretation for customer notification requirements pertaining to transfers of securities account assets in whole.
4. If securities account assets in whole (other than retirement plan account assets) are being transferred, the customer must affirm that he or she has destroyed or returned to the carrying organization any credit/debit cards and/or unused checks issued in connection with the account.
5. The customer must authorize the custodian/trustee for a retirement plan securities account:
a. to deduct any outstanding fees due the custodian/trustee from the credit balance in the account, or
b. to liquidate assets in the account to the extent necessary to satisfy any outstanding fees due the custodian/trustee, if the account does not contain a credit balance or if the credit balance in the account is insufficient to satisfy any outstanding fees due the custodian/trustee.
/02
Exceptions to Transfer Instruction
A carrying organization may not take exception to a transfer instruction, and therefore deny validation of the transfer instruction, because of a dispute over securities positions or money balance to be transferred. Such alleged discrepancies notwithstanding, the carrying organization must transfer the securities positions and/or money balance reflected on its books for the account.
An organization may take exception to a transfer instruction only if:
1. additional documentation is required (additional legal documents such as death or marriage certificates needed);
2. account is flat;
3. account number is invalid (account number is not on delivering organization's books);
4. request is a duplicate;
5. violates organization's credit policy;
6. unrecognized residual credit asset (receiving organization cannot identify correct client);
7. client rescinds instruction (client submitted written request to cancel transfer);
8. SS number/tax ID mismatch (number does not correspond to carrying organization's);
9. account title mismatch (receiving organization's account title does not correspond to carrying organization's);
10. Missing or improper authorization (TIF requires an additional client authorization or successor custodian's acceptance authorization or custodial approval); or
11. client takes possession (account assets in question are in transfer to deliver direct to customer).
Note: Responsibility for tracking account number changes due to internal reassignment of an account to another broker or account executive lies with the delivering organization. Any account so reassigned and rejected by the delivering organization shall not be considered a legitimate exception under Rule 412.
/03 Validation of Transfer Instruction — Freeze of Account (Carrying Organization)
Upon validation of an instruction to transfer securities account assets in whole, the carrying organization should "freeze" the account to be transferred, i.e., all open orders should be cancelled and no new orders should be accepted; except for transactions closing options positions which expire within seven (7) days.
/04
Validation of Transfer Instructions — Validation of Assets
Upon validation of an instruction to transfer securities account assets in whole or in specifically designated part, the carrying organization must return the transfer instruction to the receiving organization with an attachment indicating all securities positions, safekeeping positions, and money balances to be transferred as shown on the books of the carrying organization. Except as hereinafter provided, the attachment must include a then current market value for all assets so indicated. If a then current market value for an asset cannot be determined,
e.g., a limited partnership interest, the asset must be valued at original cost. However, delayed delivery assets (see (f)/04 below), nontransferable assets, and assets in transfer to the customer,
i.e., in possession of the transfer agent at the time of receipt of the transfer instruction by the carrying organization for shipment, physically and directly, to the customer, need not be valued, although the "delayed delivery", "nontransferable", or "in transfer" status, respectively, of such assets must be indicated on the attachment.
For purposes of this rule, a "safekeeping position" shall mean any security held by a carrying organization in the name of the customer, including securities that are unendorsed or have a stock/bond power attached.
For purposes of this rule, a "nontransferable asset" shall mean an asset that is incapable of being transferred from the carrying organization to the receiving organization because it is:
1. an asset that is a proprietary product of the carrying organization, or
2. an asset that is a product of a third party (e.g., mutual fund/money market fund) with which the receiving organization does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account.
A proprietary product of the carrying organization shall be deemed nontransferable unless the receiving organization has agreed to accept transfer of the product.
The receiving organization, upon receipt of the asset validation report that indicates all positions and money balances in the account, shall designate any assets that are a product of a third party (e.g., mutual fund/money market fund) with which the receiving organization does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account. The carrying organization, upon receipt of such designation, shall treat such designated assets as nontransferable and refrain from transferring the designated assets.
/05 Validation of Transfer Instruction — Regulation T Calls (Carrying Organization)
Upon validation of an instruction to transfer securities account assets in whole or in specifically designated part, the carrying organization must indicate on the instruction or by attachment any Regulation T calls outstanding as of the date of validation with respect to the account assets to be transferred.
/06
Validation of Transfer Instruction — Non-Transferable Assets
A. If securities account assets to be transferred in whole include any nontransferable assets (as defined in (b)(1)/04 above) that are proprietary products of the carrying organization, the carrying organization must provide the customer with a list of the specific assets and request, in writing, prior to or at the time of validation of the transfer instruction, further instructions from the customer with respect to the disposition of such assets. In particular, such request must provide the customer with the following alternative methods of disposition for nontransferable assets:
1. Liquidation, with a specific indication of any redemption or other liquidation-related fees that may result from such liquidation and that those fees may be deducted from the money balance due the customer.
2. Retention by the carrying organization for the customer's benefit.
3. Shipment, physically and directly, in the customer's name to the customer.
B. If securities account assets to be transferred in whole include any nontransferable assets that the receiving organization has designated as assets that are a product of a third party (
e.g., mutual fund/money market fund) with which the receiving organization does not maintain the relationship or arrangement necessary to receive/carry the asset for the customer's account, the receiving organization must provide the customer with a list of the specific assets and request, in writing, at or prior to the time it makes such designation, further instructions from the customer with respect to the disposition of such assets. In particular, such request must provide the customer with the following alternative methods of disposition for such nontransferable assets:
1. Liquidation, with a specific indication of any redemption, sales charge, or other liquidation-related fees that may result from such liquidation and that those fees may be deducted from the money balance due the customer. The indication must also refer the customer to the fund prospectus or to their registered representative at the carrying firm for specific details regarding any such fees.
2. Retention by the carrying organization for the customer's benefit.
3. Shipment, physically and directly, in the customer's name to the customer.
4. Transfer to the third party that is the original source of the product, for credit to an account opened by the customer with that third party.
/07
Asset Input — Municipal Securities (Carrying Organization)
A carrying organization must provide the following description, at a minimum, as asset data with respect to any municipal securities positions to be transferred that have not been assigned a CUSIP number:
1. name of the issuer;
2. interest rate;
3. maturity date and if the securities are limited tax, subject to redemption prior to maturity (callable), or revenue bonds, an indication to such effect, including in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities; and
4. if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service, or if there is more than one such obligor, the statement "multiple obligors" may be shown.
/08 Rejection of Account Transfer (Receiving Organization)
After validation of the transfer instruction by the carrying organization, a receiving organization may reject a transfer of account assets in whole only if the account is not in compliance with the receiving organization's credit policies or minimum asset requirements. (A receiving organization may deem an account that is not in compliance with Regulation T requirements as not being in compliance with its credit policies.) However, a receiving organization may only reject the entire account for such reasons; it may not reject only a portion of the account assets (e.g., the particular assets not in compliance with the organization's credit policies or minimum asset requirements) while accepting the remainder.
(2)
COMPLETION OF TRANSFER
/01 Rejection of Fail Contracts
A carrying organization may not reject ("DK") a fail contract, including a deliver or receive order generated by an automated customer account transfer system, in connection with assets in an account transferred that have not been delivered to the receiving organization.
/02 Fail Contracts — Marked as "412 Fails"
All fail contracts established pursuant to the requirements of Rule 412 should be clearly marked or captioned as such.
/03 Fail Contracts — Capital Charges
The staff of the Securities and Exchange Commission Division of Market Regulation has advised the Exchange that it would not recommend enforcement action if member organizations interpret SEA Rule 15c3-1(c)(2)(ix), which requires deductions from net capital for fail to deliver contracts outstanding five or more business days (twenty-one or more business days with respect to municipal securities), as not applying to fail to deliver contracts established pursuant to the requirements of Rule 412, including the interpretations thereunder.
/04 Fail Contracts — Safekeeping Positions
All fail contracts required to be established on safekeeping positions, as defined in (b)(1)/04 above, must indicate that they relate to a safekeeping position. Member organizations should adopt additional procedures to ensure appropriate recordkeeping with respect to such safekeeping position related fail contracts and thereby avoid erroneous deliveries and dividend adjustments.
/05 Fail Contracts — Mark-to-Market
Open fail contracts established pursuant to the requirements of Rule 412 should be marked-to-market regularly.
/06 Retirement Plan Securities Accounts — Custodian/Trustee Fees
If, with respect to the transfer of retirement plan securities account assets, outstanding fees are due the custodian/trustee for the account, such fees must be deducted from the credit balance in the account or, if the account does not contain a credit balance or if the credit balance is insufficient to satisfy such fees, assets in the account must be liquidated to the extent necessary to satisfy such fees. If liquidation of assets in the account is not practicable, such fees must then be transferred to and accepted by the receiving organization as a debit item with the account.
