Broker Dealer Clearing Agreement

We recommend that all companies that are parties to a clearing agreement carefully consider the impact of this communication and any measures that may be necessary. In response, we argued that the assignment was not effective because FINRA had not approved it and that, therefore, the existing netting agreement remained in effect, but the clearing house remained stubborn. In fact, the clearing house was so tenacious that it limited my client`s clients to liquidating trades for only two full trading days, while we did. What are some examples? How about the compensation deposit, to begin with. Importing companies have to invest a considerable amount of money with their clearing houses just to be able to do business. However, the amount of these deposits largely belongs to the clearing house. While there may be a rudimentary donation and take of the amount during negotiations, the clearing house ends up simply dictating what it needs. Even after the agreement has been signed, the clearing house has the right to request more. Otherwise. You may remember that a few years ago, shortly after its inception, Apex Clearing asked its correspondents to increase their deposits by considerable amounts.

As the Wall Street Journal reports, TradeKing had to obtain an injunction against Apex to delay a claimed increase in its compensation deposit by $100,000 to $13 million, as it would make the company out of business. [1] I am not selecting apex or suggesting that it is the only clearing house that has done so; But this dispute has been made public, so I can point that out. FINRA employees received questions about the definition of “termination of the agreement.” For example, an investment company may participate in the clearing that it will terminate its netting agreement on date X (cancellation date), in which case it must receive its deposit within 30 days of that date. The companies said that, in some cases, the process of transferring all customers from the IPO company to the new clearing house might not be completed or even started within 30 days of the cancellation date. In this case, the clearing house may withhold the clearing deposit until the transfer of the accounts to the new clearing house is completed. While the withholding of the deposit by the clearing company may be considered operationally appropriate in such a case, the current interpretation of SEA Rule 15c3-1 does not allow for the operational reality to be taken into account and requires the importing company to levy a net capital tax for the unpaid deposit on the 31st day following the cancellation date. Notwithstanding the foregoing, on the day an importing company informs the clearing house of its voluntary termination of a set-off agreement resulting in a termination penalty (i.e. the termination clause has not yet expired), the investment company must collect a net capital tax corresponding to the lower amount of the termination penalty or the amount of the set-off premium.

The importing company must also decide, in accordance with generally accepted accounting principles, whether it should assume liability to reflect the effect of the termination penalty. .

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