Current through Register Vol. 63, No. 3, March 1, 2024
(1) General Provisions. The term "Fraudulent,
Deceptive, or Manipulative Act or Practice," as used in these rules, is hereby
defined to include the direct or indirect hypothecation by a broker-dealer, or
his arranging for or permitting, directly or indirectly, the continued
hypothecation of any securities carried for the account of any customer under
circumstances:
(a) That will permit the
commingling of securities carried for the account of any such customer with
securities carried for the account of any other customer, without first
obtaining the written consent of each such customer to such
hypothecation;
(b) That will permit
such securities to be commingled with securities carried for the account of any
person other than a bona fide customer of such broker-dealer under a lien for a
loan made to such broker-dealer; or
(c) That will permit securities carried for
the account of customers to be hypothecated, or subjected to any lien or liens
or claims of the pledgee or pledgees, for a sum which exceeds the aggregate
indebtedness of all customers in respect of securities carried for their
accounts; except that this clause shall not be deemed to be violated by reason
of an excess arising on any day through the reduction of the aggregate
indebtedness of customers on such day; provided that funds or securities in an
amount sufficient to eliminate such excess are paid or placed in transfer to
pledgee for the purpose of reducing the sum of the liens or claims to which
securities carried for the account of customers are subject as promptly as
practicable after such reduction occurs, but before the lapse of one-half hour
after the commencement of banking hours on the next banking day at the place
where the largest principal amount of loans of such broker-dealer are payable
and, in any event, before such broker-dealer on such day has obtained or
increased any bank loan collateralized by securities carried for the account of
customers.
(2)
Definitions. For the purposes of this rule:
(a) The term "Customer" shall not be deemed
to include any general or special partner or any director or officer of such
broker-dealer, or any participant, as such, in any joint, group, or syndicate
account with such broker-dealer or with any partner, officer, or director
thereof;
(b) The term "securities
carried for the account of any customer" shall be deemed to mean:
(A) Securities received by or on behalf of
such broker-dealer for the account of any customer;
(B) Securities sold and appropriated by such
broker-dealer to a customer, except that, if such securities were subject to a
lien when appropriated to a customer, they shall not be deemed to be
"Securities Carried for the Account of Any Customer" pending their release from
such lien as promptly as practicable;
(C) Securities sold, but not appropriated, by
such broker-dealer to a customer who has made any payment therefor, to the
extent that such broker-dealer owns and has received delivery of securities of
like kind, except that, if such securities were subject to a lien when such
payment was made, they shall not be deemed to be "Securities Carried for the
Account of Any Customer" pending their release from such lien as promptly as
practicable.
(c)
"Aggregate Indebtedness" shall not be deemed to be reduced by reason of
uncollected items. In computing aggregate indebtedness, related guaranteed and
guarantor accounts shall be treated as a single account and considered on a
consolidated basis, and balances in accounts carrying both long and short
positions shall be adjusted by treating the market value of the securities
required to cover such short positions as though such market value were a
debit; and
(d) In computing the sum
of the liens or claims to which securities carried for the account of customers
of a broker-dealer are subject, any rehypothecation of such securities by
another broker-dealer who is subject to this rule shall be
disregarded.
(3)
Exemption for Cash Accounts. The provisions of subsection (1)(a) of this rule
shall not apply to any hypothecation of securities carried for the account of a
customer in a special cash account within the meaning of section 4(c) of
Regulation T of the Board of Governors of the Federal Reserve System; provided
that, at or before the completion of the transaction of purchase of such
securities for, or of sale of such securities to such customer, written notice
is given or sent to such customer disclosing that such securities are or may be
hypothecated under circumstances which will permit the commingling thereof with
securities carried for the account of other customers.
(4) Exemption for Clearing Liens. The
provisions of subsections (1)(b) and (c), and section (6) of this rule shall
not apply to any lien or claim of the clearing corporation, or similar
department or association, of a national securities exchange or a registered
national securities association, for a loan made and to be repaid on the same
calendar day, which is incidental to the clearing of transactions in securities
or loans through such corporation, department, or association; provided,
however, that for the purpose of subsection (1)(c) of this rule, "Aggregate
Indebtedness of All Customers in Respect of Securities Carried for Their
Accounts" shall not include indebtedness in respect of any securities subject
to any lien or claim exempted by this paragraph.
(5) Exemption for Certain Liens on Securities
of Noncustomers. The provisions of subsection (1)(b) of this rule shall not be
deemed to prevent such broker-dealer from permitting securities not carried for
the account of a customer to be subjected:
(a)
To a lien for a loan made against securities carried for the account of
customers; or
(b) To a lien for a
loan made and to be repaid on the same calendar day. For the purpose of this
exemption, a loan shall be deemed to be "made against securities carried for
the account of customers" if only securities carried for the account of
customers are used to obtain or to increase such loan or as substitutes for
other securities carried for the account of customers.
(6) Notice and Certification Requirements. No
person subject to this rule shall hypothecate any security carried for the
account of a customer unless, at or prior to the time of each such
hypothecation, he gives written notice to the pledgee that the security pledged
is carried for the account of a customer and that such hypothecation does not
contravene any provision of this rule, except that, in the case of an omnibus
account, the broker-dealer for whom such account is carried may furnish a
signed statement to the person carrying such account that all securities
carried therein by such broker-dealer will be securities carried for the
account of his customers and that the hypothecation thereof by such
broker-dealer will not contravene any provision of this rule. The provisions of
this clause shall not apply to any hypothecation of securities under any lien
or claim of a pledgee securing a loan made and to be repaid on the same
calendar day.
(7) The fact that
securities carried for the accounts of customers and securities carried for the
accounts of others are represented by one or more certificates in the custody
of a clearing corporation or other subsidiary organization of either a national
securities exchange or of a registered national securities association, or of a
custodian bank, in accordance with a system for the central handling of
securities established by a national securities exchange or a registered
national securities association, pursuant to which system the hypothecation of
such securities is effected by bookkeeping entries without physical delivery of
such securities, shall not, in and of itself, result in a commingling of
securities prohibited by subsection (1)(a) or (b) of this rule, whenever a
participating broker-dealer hypothecates securities in accordance with such
system; provided, however, that:
(a) Any such
custodian of any securities held by or for such system shall agree that it will
not for any reason, including the assertion of any claim, right, or lien of any
kind, refuse or refrain from promptly delivering any such securities (other
than securities then hypothecated in accordance with such system) to such
clearing corporation or other subsidiary organization or as directed by it,
except that nothing in such agreement shall be deemed to require the custodian
to deliver any securities in contravention of any notice of levy, seizure, or
similar notice or order, or judgment, issued or directed by a governmental
agency or court or officer thereof, having jurisdiction over such custodian,
which on its face affects such securities;
(b) Such systems shall have safeguards in the
handling, transfer, and delivery of securities and provisions for fidelity bond
coverage of the employees and agents of the clearing corporation or other
subsidiary organization and for periodic examinations by independent public
accountants; and
(c) The provisions
of section (7) of this rule shall not be effective with respect to any
particular system unless the agreement required by subsection (a) of this
section and the safeguards and provisions required by subsection (b) of this
section shall have been deemed adequate by the Director or the Securities and
Exchange Commission for the protection of investors, and unless any subsequent
amendments to such agreements, safeguards, or provisions shall have been deemed
adequate by the Director or the Securities and Exchange Commission for the
protection of investors.
Stat. Auth.: ORS 59
Stats. Implemented: ORS
59.205(2)