FINRA Rule 11160

FINRA Rule 11160 was last amended by SR-FINRA-2010-030 effective December 15, 2010, with a prior amendment effective November 1, 1991 through SR-NASD-91-13 — and, notably, was not amended by either the 2017 T+2 or 2024 T+1 settlement cycle conformity amendments that amended both FINRA Rules 11140 and 11150 directly. Two selected notices are associated — 91-63 and 10-49.

FINRA Rule 11160 sits within the 11100 Scope of Uniform Practice Code subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11150's ex-interest framework for flat-traded bonds and immediately preceding FINRA Rule 11170's framework for transactions in part-redeemed bonds.

What Liquidating Payments and Payments on Account of Principal Are

FINRA Rule 11160 addresses two related but distinct categories of distribution that are conceptually different from the ordinary dividend, interest, rights, and warrant distributions addressed by FINRA Rules 11140 and 11150.

A liquidating payment is a distribution made to security holders as part of the wind-down or dissolution of the issuer — when a corporation, partnership, or trust ceases operations and distributes its remaining assets to equity holders, those distributions are liquidating payments. Unlike an ordinary dividend — which represents a distribution of earnings while the issuer continues as a going concern — a liquidating payment represents a return of capital in connection with the issuer's termination, and may be made in one or more installments depending on the pace at which the issuer's assets are converted to cash and distributed.

A payment on account of principal is a distribution that reduces the outstanding principal amount of a debt instrument — as distinguished from an interest payment, which compensates the holder for the use of that principal without reducing the principal amount itself. Payments on account of principal arise in a variety of contexts: sinking fund payments, in which an issuer periodically retires a portion of an outstanding bond issue; principal paydowns on amortizing debt instruments, where each payment includes both an interest component and a principal component; and partial redemptions, where an issuer calls a portion of an outstanding issue for early redemption — a category that connects directly to FINRA Rule 11170's framework for part-redeemed bonds, the rule immediately following FINRA Rule 11160.

Why These Distributions Need an Ex-Date at All

The fundamental question FINRA Rule 11160 answers is the same fundamental question FINRA Rules 11140 and 11150 answer for their respective categories of distribution — when a security holder is entitled to receive a distribution as of a record date, but the security continues trading in the secondary market around that record date, which party to a transaction executed near the record date — the buyer or the seller — is entitled to the distribution?

For liquidating payments, this question matters because a security that is the subject of an ongoing liquidation may continue to trade in the secondary market throughout the liquidation process — a buyer purchasing shares of a company in liquidation needs to know whether their purchase entitles them to an upcoming liquidating distribution or whether that distribution belongs to the seller. For payments on account of principal, the question matters for substantially similar reasons — a buyer purchasing a bond that is about to receive a principal paydown or partial redemption payment needs to know whether that payment belongs to them as the new holder or to the seller as the prior holder of record.

Without an ex-date mechanism for these distribution types, the same kind of uncertainty and potential for business disputes that FINRA Rule 11110 identifies as a core problem the Uniform Practice Code addresses would arise specifically in the context of liquidating distributions and principal payments — precisely the kind of uncertainty FINRA Rule 11160 forecloses by extending the established FINRA Rule 11140 and FINRA Rule 11150 formulas to these distribution types.

The Cross-Reference Structure: Why FINRA Rule 11160 Has No Independent Formula

FINRA Rule 11160's defining structural characteristic is that it establishes no independent ex-date formula of its own — it operates entirely through incorporation by reference of the formulas FINRA Rules 11140 and 11150 already establish. This cross-reference structure reflects a deliberate drafting choice with two significant implications.

First, it means that the specific ex-date formula that applies to a liquidating payment or principal payment under FINRA Rule 11160 depends on which underlying security type is involved. For a liquidating payment on a stock — an equity security — the FINRA Rule 11140 formula applies, meaning the relevant provisions of FINRA Rule 11140(b) — distinguishing distributions under and over 25 percent of the security's value, and addressing ADRs and foreign securities — would govern the ex-date determination for that liquidating payment, just as they would for an ordinary dividend on that same stock. For a principal payment on a bond traded flat — a debt instrument — the FINRA Rule 11150 formula applies, meaning the record-date-anchored or payment-date-anchored provisions of FINRA Rule 11150(a) would govern, just as they would for an ordinary interest payment on that same bond.

Second, and as a direct consequence of this cross-reference structure, FINRA Rule 11160 automatically incorporates any future amendments to FINRA Rules 11140 and 11150 without itself needing to be amended. This explains why FINRA Rule 11160's amendment history shows no amendment corresponding to either the 2017 T+2 settlement cycle conformity amendment or the 2024 T+1 settlement cycle conformity amendment, even though both of those amendments substantively changed the formulas in FINRA Rules 11140 and 11150 that FINRA Rule 11160 incorporates by reference. When FINRA Rule 11140(b)(1)'s ex-dividend date formula shifted from the first business day preceding the record date under the T+2-era rule to the record date itself under the current T+1-era rule, FINRA Rule 11160's ex-liquidating-payment-date formula for stocks shifted correspondingly — automatically, by virtue of the cross-reference, without any need for FINRA to separately amend FINRA Rule 11160's text. This is an efficient drafting technique: rather than maintaining duplicate formulas in FINRA Rule 11160 that would need to be kept in sync with FINRA Rules 11140 and 11150 through parallel amendments each time the settlement cycle changes, FINRA Rule 11160 simply points to those rules' formulas directly, ensuring permanent consistency without ongoing maintenance.

The 1991 and 2010 Amendments

FINRA Rule 11160's two confirmed amendments — SR-NASD-91-13 effective November 1, 1991 and SR-FINRA-2010-030 effective December 15, 2010 — correspond to broader amendment waves that affected multiple rules within the 11100 subsection simultaneously, as this dictionary's entries on FINRA Rules 11120, 11140, 11150, and others have confirmed.

SR-NASD-91-13 effective November 1, 1991 was part of the broader 1991 NASD Uniform Practice Code modernization confirmed in Notice to Members 91-63 — the same notice that, as discussed in FINRA Rule 11120's entry, addressed amendments to the definitions provisions and reorganized several sections of the predecessor NASD Uniform Practice Code. Notice to Members 91-63 specifically confirms that the NASD amended what is now FINRA Rule 11160 to add a reference to what is now FINRA Rule 11150 to the rule's then-existing reference to what is now FINRA Rule 11140 — reflecting that liquidating payments may be applied to both equity and debt, and therefore that FINRA Rule 11160's formula needed to cross-reference both the equity-focused FINRA Rule 11140 and the debt-focused FINRA Rule 11150, rather than only one of the two. This 1991 amendment is therefore the origin of FINRA Rule 11160's current dual cross-reference structure — before this amendment, the rule apparently cross-referenced only the equity-focused predecessor to FINRA Rule 11140, and the 1991 amendment added the debt-focused cross-reference to reflect the reality that principal payments — a category specific to debt instruments — fall within FINRA Rule 11160's scope.

SR-FINRA-2010-030 effective December 15, 2010 represents the transfer of FINRA Rule 11160, along with the rest of the 11100 subsection, into the Consolidated FINRA Rulebook — updating cross-references from the predecessor NASD rule numbering to the current FINRA Rule 11140 and FINRA Rule 11150 numbering, without altering the substantive cross-reference structure that the 1991 amendment had established.

FINRA Rule 11160 as a Model of Regulatory Economy

FINRA Rule 11160 — at a single sentence, the shortest rule examined in this dictionary's coverage of the 11100 subsection — exemplifies a broader principle of regulatory drafting economy that recurs throughout the Uniform Practice Code. Rather than treating liquidating payments and principal payments as requiring their own freestanding ex-date framework with their own formulas, definitions, and late-information fallback provisions — which would essentially duplicate large portions of FINRA Rules 11140 and 11150 — FINRA Rule 11160 simply identifies these payment types as falling within the existing FINRA Rule 11140 and FINRA Rule 11150 frameworks, applying whichever of those two rules' formulas corresponds to the underlying security type.

This approach mirrors, on a smaller scale, the relationship between FINRA Rule 11120(g) and FINRA Rule 11121 discussed earlier in this dictionary's coverage of the 11100 subsection — different rules within the Uniform Practice Code addressing closely related concepts through cross-reference and incorporation rather than independent restatement. The cumulative effect across the 11100 subsection is a framework in which the foundational ex-date concept, defined once in FINRA Rule 11120(d), is then operationalized through a small number of detailed formula-providing rules — principally FINRA Rules 11140 and 11150 — with additional distribution categories such as liquidating payments and principal payments under FINRA Rule 11160 simply directed to the appropriate existing formula rather than requiring their own.

Connection to FINRA Rules 11110, 11120, 11140, 11150, and 11170

FINRA Rule 11160 connects to FINRA Rule 11110 as the source of the UPC Committee's general interpretive authority that underlies the FINRA Rule 11140 and FINRA Rule 11150 formulas FINRA Rule 11160 incorporates. It connects to FINRA Rule 11120(d) — whose foundational ex-date definition is the conceptual basis for FINRA Rule 11160's ex liquidating payments terminology. It connects directly and indispensably to FINRA Rule 11140 — whose formula governs FINRA Rule 11160's application to liquidating payments and principal payments in stocks, and which automatically carries forward into FINRA Rule 11160 any future amendments to that formula. It connects equally directly and indispensably to FINRA Rule 11150 — whose formula governs FINRA Rule 11160's application to liquidating payments and principal payments in bonds and similar evidences of indebtedness traded flat, with the same automatic-incorporation effect. And it connects to FINRA Rule 11170 — the immediately following rule addressing transactions in part-redeemed bonds, a category of security directly implicated by the payments on account of principal that FINRA Rule 11160 addresses, since a part-redeemed bond is, definitionally, a bond that has already received one or more principal payments of the type FINRA Rule 11160 governs the ex-date treatment of.

Examination Relevance and Key Takeaways

FINRA Rule 11160 is tested on the Series 7 and Series 24 examinations as the rule extending the FINRA Rule 11140 and FINRA Rule 11150 ex-date formulas to liquidating payments and payments on account of principal — a rule notable for its brevity and its pure cross-reference structure.

The key points to retain are these: FINRA Rule 11160 consists of a single sentence providing that all transactions except cash transactions in stocks, bonds, or similar evidences of indebtedness shall be ex liquidating payments or payments on account of principal in accordance with the formula set forth in FINRA Rules 11140 and 11150; a liquidating payment is a distribution made in connection with an issuer's wind-down or dissolution, while a payment on account of principal is a distribution that reduces a debt instrument's outstanding principal — both categories distinct from ordinary dividends and interest payments; the applicable formula depends on the underlying security type — the FINRA Rule 11140 formula for stocks, including its size-based and ADR-and-foreign-securities provisions, and the FINRA Rule 11150 formula for bonds and similar evidences of indebtedness traded flat; FINRA Rule 11160's pure cross-reference structure means it automatically incorporates any future amendments to FINRA Rules 11140 and 11150 without itself requiring amendment — explaining why FINRA Rule 11160 was not amended by either the 2017 T+2 or 2024 T+1 settlement cycle conformity amendments that directly amended both of those rules; the rule's current dual cross-reference to both FINRA Rule 11140 and FINRA Rule 11150 originated in the SR-NASD-91-13 amendment confirmed in Notice to Members 91-63, which added the debt-focused cross-reference to reflect that liquidating payments may be applied to both equity and debt; and the rule was last amended December 15, 2010 through SR-FINRA-2010-030, with a prior amendment effective November 1, 1991 through SR-NASD-91-13, and two selected notices — 91-63 and 10-49.