Introducing Broker Clearing Agreement

I am responding to your letter of 15 April 2008 to the Financial Crimes Enforcement Network (« FinCEN ») requesting an administrative decision on the obligations of a U.S. clearing broker-dealer (« clearing company ») under the Bank Secrecy Act (« BSA ») establishing a fully disclosed clearing relationship with an initiating foreign company. In particular, in this judgment, we will (1) clarify whether a fully disclosed clearing agreement between a U.S. clearing company and a foreign introductory company is a matching account within the meaning of our Section 312 regulation of the USA PATRIOT Act (the « Correspondence Account Rule »);1(2) whether a clearing company is required to consider the fully disclosed accounts of a foreign importing company as its own accounts; to comply with the regulations of the Client Identification Program (the « PIC Rule »);2 and (3) if we expect a clearing company to require the foreign importing company to comply with the obligations of the PIC Rule, the Correspondence Account Rule and other U.S. anti-money laundering regulations that affect any accounts it may submit to the clearing company on a fully disclosed basis. The SEC`s interpretation of Rule 15c3-1 of the Securities Exchange Act (SEA) provides that a clearing deposit may be treated as an eligible asset provided that the netting agreement expressly states that the deposit will be returned to the importing company within 30 calendar days of termination of the agreement. The SEC`s interpretation also requires that a written agreement PAIB (Proprietary Accounts of Introducing Brokers) be signed between clearing and introductory companies. In addition, the netting agreement must stipulate that the importing company`s set-off deposit does not constitute an interest in the clearing broker-dealer for the clearing deposit to be considered eligible for capital purposes.1 Notwithstanding the foregoing, on the date on which an importing company notifies the clearing company of its voluntary termination of a clearing agreement that results in a termination penalty (i.B. termination has not yet expired), the importing company must charge a net capital commission for the lower amount of the cancellation penalty amount or the amount of the set-off deposit.

The importing entity must also decide, in accordance with generally accepted accounting principles, whether it should constitute a liability to take into account the effect of the penalty termination clause. An importing company that incurs liability for the full amount of the termination penalty may reduce the above-mentioned net capital charge by the amount of this provision. The amount of such a liability to be paid must be included in the total debt by introducing entities using the basic method to calculate their net capital requirement in accordance with EES Rule 15c3-1. 6Application of rules requiring special due diligence programs for certain foreign accounts in the investment and futures industry, FIN-2006-G009 to Note 14 and accompanying text (May 10, 2006) (a clearing company is not subject to the due diligence requirements of the correspondence account rule if it has not established a relationship with an account holder that would lead it to recommend securities or strategies to that account holder). Apex maintains the books and records required by law and business. The fully disclosed clearing agreement does not cover transactions in investments other than marketable securities that Apex normally settles on recognized exchanges and over-the-counter (« OTC ») markets. When providing Apex services under the fully disclosed clearing agreement, Apex may use and rely on the services of clearing agencies, automatic data processing providers, power of attorney processing, transfer agents, securities pricing services and other similar organizations. This document discusses the basic assignment of features related to managing your account. This is not a definitive enumeration of all possible circumstances, but only a general revelation. My most recent article deals, among other things, with the liability of a clearing dealer to established clients for the misconduct of its importing companies under two conflicting liability theories, one under federal securities and customary law, and the other under Blue Sky laws.

Because of the potential lien on the importing company`s clearing deposit, if that company is subject to the issuance of a protection order under the Securities Investor Protection Act, 1970 while the termination clause is still in effect, the importing company must process all cash and/or securities clearing deposits held by its clearing broker-dealer. up to the amount of the penalty for termination as non-refundable assets under EES Rule 15c3-1, unless the set-off agreement contains the following wording: This blog post is offered in part as an introduction to members of the judiciary, arbitral tribunals and bar association who may face a lawsuit against a « compensation broker » for the first time. Naturally, the role that clearing brokers play in securities markets is not well understood by the public, as clearing brokers operate under Wall Street`s radar and rarely make the news. .