Rule 319 Fidelity Bonds
This rule is no longer applicable. Incorporated NYSE Rule Interpretation 319 has been superseded by FINRA Rule 4360. Please consult the appropriate FINRA Rule.
/01 Coverage Exception
A member organization whose business is solely that of a Specialist, Floor broker or registered Floor trader and who does not conduct business with the public, is not required to carry a brokers blanket bond, whether or not it has employees.
A member organization whose business is solely that of a Specialist, Floor broker or registered Floor trader and who does not conduct business with the public, is not required to carry a brokers blanket bond, whether or not it has employees.
/02 Additional Coverages
The required coverage of the brokers blanket bond must apply, through rider or otherwise, to:
The required coverage of the brokers blanket bond must apply, through rider or otherwise, to:
• All domestic and foreign guaranteed and non-guaranteed affiliates, subsidiaries and branches;
• Bearer instruments if the member organization handles such securities;
• Limited partners of a member firm if they are also employees;
• The partners, officers and employees or person acting in a similar capacity of electronic data processing agencies in their activities on behalf of the member organizations.
/03 Inadequacy of Minimum Coverage
Under Rule 319 the Exchange prescribes certain minimum insurance requirements based upon the business activities of member organizations. However, these prescribed minimums may only afford limited protection and may not be sufficient to offset substantial losses. For example, an organization with coverage of $100,000 for a defalcation must consider the possibility and ramifications of a defalcation in excess of $100,000. Such a possibility may result in Net Capital problems, in addition to the fact that the uninsured portion of the loss directly affects profitability, which may hamper future capital raising efforts. Increased coverage is, in general, available at a proportionately lower rate than the basic coverage.
Under Rule 319 the Exchange prescribes certain minimum insurance requirements based upon the business activities of member organizations. However, these prescribed minimums may only afford limited protection and may not be sufficient to offset substantial losses. For example, an organization with coverage of $100,000 for a defalcation must consider the possibility and ramifications of a defalcation in excess of $100,000. Such a possibility may result in Net Capital problems, in addition to the fact that the uninsured portion of the loss directly affects profitability, which may hamper future capital raising efforts. Increased coverage is, in general, available at a proportionately lower rate than the basic coverage.
/04 In Transit Coverage
Based upon insurance limitations for in transit losses of securities, many organizations have instituted internal procedures to ensure that deliveries, by messenger or otherwise, do not exceed these limitations. While such practices appear widespread, it is possible that some member organizations may not be using similar safeguards to ensure that "pick ups" by messengers do not exceed specified insurance limits. Clearing organizations should review their practices for "picking up" securities from depositories, clearing corporations, transfer agents, banks, etc. to determine if additional value limitation safeguards are warranted. Organizations may wish to consider increasing in transit coverage as an alternative to instituting more stringent internal procedures.
Based upon insurance limitations for in transit losses of securities, many organizations have instituted internal procedures to ensure that deliveries, by messenger or otherwise, do not exceed these limitations. While such practices appear widespread, it is possible that some member organizations may not be using similar safeguards to ensure that "pick ups" by messengers do not exceed specified insurance limits. Clearing organizations should review their practices for "picking up" securities from depositories, clearing corporations, transfer agents, banks, etc. to determine if additional value limitation safeguards are warranted. Organizations may wish to consider increasing in transit coverage as an alternative to instituting more stringent internal procedures.
/05 Self-Insurance
A member organization may self- insure up to $10,000 or 10% of its basic minimum coverage (BMC), whichever is greater. The amount by which self- insurance exceeds this 10% but not exceeding 90% of BMC is to be deducted in computing net capital.
Example: Assume that the required BMC is $2,000,000 of which 10% or $200,000 can be self- insured. Assuming further that the organization's self- insurance is $2,500,000 (which exceeds the allowed 10% by $2,300,000), the capital charge is limited to $1,800,000 which is 90% of the BMC.
Please note that the 10% self- insurance provision refers to BMC only, not to each type of coverage required by the rule.
A member organization may self- insure up to $10,000 or 10% of its basic minimum coverage (BMC), whichever is greater. The amount by which self- insurance exceeds this 10% but not exceeding 90% of BMC is to be deducted in computing net capital.
Example: Assume that the required BMC is $2,000,000 of which 10% or $200,000 can be self- insured. Assuming further that the organization's self- insurance is $2,500,000 (which exceeds the allowed 10% by $2,300,000), the capital charge is limited to $1,800,000 which is 90% of the BMC.
Please note that the 10% self- insurance provision refers to BMC only, not to each type of coverage required by the rule.