FINRA Rule 11300

FINRA Rule 11300 sits within the 11000 Uniform Practice Code as the third major subsection, positioned between FINRA Rule 11220 — the final rule of the 11200 Comparisons or Confirmations and Don't Know Notices subsection — and FINRA Rule 11310, the first substantive rule of the 11300 subsection itself.

The Logical Position of the 11300 Subsection: From Documentation to Delivery

The 11300 subsection's position immediately following the 11200 subsection completes the next stage in the transaction lifecycle this dictionary has traced through its coverage of the Uniform Practice Code. 

The 11100 subsection established the foundational scope, governance, definitions, trade date, contingent-contract, and ex-date frameworks that determine what a transaction's terms are and how those terms are affected by corporate actions and contingencies. 

The 11200 subsection established how those terms are documented and verified between the parties through the comparison, confirmation, and Don't Know Notice framework of FINRA Rules 11210 and 11220.

The 11300 subsection now turns to the physical and operational question that all of this documentation exists to facilitate: how does the actual transfer of securities from seller to buyer occur? 

This question encompasses several distinct dimensions that the eleven rules within FINRA Rule 11300 address in turn — the mechanism of delivery itself, whether through book-entry settlement under FINRA Rule 11310 or other means; the timing of delivery under FINRA Rule 11320's dates of delivery framework; the payment that accompanies delivery under FINRA Rule 11330; the allocation of stamp tax obligations under FINRA Rule 11340; the treatment of deliveries that do not satisfy a contract's full quantity under FINRA Rule 11350's part delivery framework; and the standardized quantities — the units of delivery — in which different security types must be delivered, grouped under FINRA Rule 11360's heading and addressed by the security-type-specific provisions of FINRA Rules 11361 through 11365.

Book-Entry Settlement as the Modern Default

FINRA Rule 11310's position as the first rule within the 11300 subsection — Book-Entry Settlement — is itself significant, particularly when considered alongside the historical character of many of the subsection's other provisions. As this dictionary's coverage of the Uniform Practice Code has repeatedly observed, many of the Code's provisions — including aspects of FINRA Rule 11210's Don't Know Notice procedures under paragraph (c), with their multi-copy paper forms, certified mail, and messenger delivery requirements — trace their origins to an era of physical securities certificates and paper-based settlement processes predating modern electronic infrastructure by decades.

FINRA Rule 11310's placement as the lead rule of the 11300 subsection signals that, notwithstanding the historical paper-based character of much of the surrounding framework, the Uniform Practice Code's delivery framework begins with book-entry settlement — the electronic, depository-based mechanism through which the overwhelming majority of modern securities deliveries actually occur, with physical certificate delivery functioning as the exception — its certificate denominations set within this subsection by FINRA Rules 11361 and 11362, and particular certificate problems addressed by the later FINRA Rule 11500 Delivery of Securities with Restrictions subsection — rather than the default addressed first.

The Units of Delivery Cluster: FINRA Rules 11360 Through 11365

The largest single component of the 11300 subsection by rule count is the units of delivery cluster — FINRA Rule 11360's heading and Uniform Delivery Ticket Form followed by five security-type-specific provisions in FINRA Rules 11361 through 11365. This cluster addresses a question that might seem mundane but carries significant operational importance: in what quantities — what units — must securities be delivered to satisfy a contract?

The units of delivery concept reflects a market-organizing function similar in character to FINRA Rule 11170's part-redeemed bonds framework examined earlier in this dictionary's coverage — just as FINRA Rule 11170 establishes a standardized approach to pricing bonds whose remaining principal differs from their original face value, the units of delivery framework establishes standardized quantities in which different security types are delivered, so that market participants can transact without needing to negotiate delivery quantities on a transaction-by-transaction basis. FINRA Rule 11360 heads the cluster and carries the Uniform Delivery Ticket Form as its Supplementary Material, while FINRA Rules 11361 through 11364 then address the specific units applicable to stocks, bonds, unit investment trust securities, and certificates of deposit for bonds respectively — four security types, of which certificates of deposit for bonds take the units prescribed for bonds, while stocks, bonds and unit investment trust securities each have units of their own. FINRA Rule 11365 then addresses a further specialized category — securities traded as units or bonds with stock attached — a category that, by its very title, suggests securities combining characteristics of multiple underlying instrument types, requiring its own treatment distinct from the single-instrument-type provisions of FINRA Rules 11361 through 11364.

Payment, Stamp Taxes, and Part Delivery: The Transactional Periphery of Delivery

The remaining three rules within the 11300 subsection — FINRA Rule 11330's Payment, FINRA Rule 11340's Stamp Taxes, and FINRA Rule 11350's Part Delivery — address dimensions of the delivery process that surround the core act of transferring securities themselves.

FINRA Rule 11330's Payment provision addresses the other side of the delivery-versus-payment exchange that constitutes settlement — securities flow from seller to buyer, and payment flows from buyer to seller, with FINRA Rule 11330 giving the party making delivery the right to require that payment to be made upon delivery by certified check, cashier's check, bank draft or cash, alongside the delivery mechanics that FINRA Rules 11310 and 11320 establish.

FINRA Rule 11340's Stamp Taxes addresses a category of transaction cost that, while perhaps less prominent in the modern U.S. market than in earlier eras or in certain foreign jurisdictions, historically represented a significant consideration in securities transfers — stamp taxes imposed by governmental authorities on the transfer of securities, with FINRA Rule 11340 requiring members to furnish tax stamps or pay the tax through securities clearing organizations as the taxing jurisdictions require, and requiring the seller, where a state stock transfer tax is due, to furnish stamped sale memorandum tickets at the time of delivery or pay the tax through securities clearing organizations.

FINRA Rule 11350's Part Delivery addresses the scenario where a delivery does not satisfy the full quantity called for by a contract — a scenario that interacts directly with the units of delivery framework of FINRA Rules 11360 through 11365, since a part delivery is, definitionally, a delivery in some quantity other than the full contracted quantity, and the units of delivery framework's standardized quantities provide the reference points against which a delivery's completeness or partiality is measured.

Connection to FINRA Rules 11100, 11170, 11210, 11220, and 11500

FINRA Rule 11300 connects to FINRA Rule 11100(c) — whose non-cancellation principle and direction to the FINRA Rule 11810 buy-in and FINRA Rule 11820 sell-out remedies for failed delivery or failed payment establishes the broader consequences framework within which the FINRA Rule 11300 subsection's delivery mechanics operate; a failure to deliver in accordance with FINRA Rule 11300's provisions is precisely the kind of failure that triggers FINRA Rule 11100(c)'s remedial framework. It connects to FINRA Rule 11170's part-redeemed bonds settlement price formula, which interacts with the units of delivery framework of FINRA Rules 11360 through 11365 in determining both the price and quantity dimensions of a part-redeemed bond delivery. It connects to FINRA Rules 11210 and 11220 — whose comparison, confirmation, and description requirements, including the illustrative part-redeemed and flat phrases examined in FINRA Rule 11220's entry, establish the documentary record against which the actual delivery under FINRA Rule 11300's provisions is measured for compliance. And it connects to FINRA Rule 11500 — the upcoming Delivery of Securities with Restrictions subsection, which addresses the delivery of securities bearing restrictions, temporary certificates, and other special categories that FINRA Rule 11300's general delivery framework does not itself address, with FINRA Rule 11310's book-entry settlement framework representing the unrestricted default against which FINRA Rule 11500's restricted-delivery provisions operate as the exception.

Following One Trade Through the Subsection

On a Monday, Alder Securities buys 500 shares of a stock from Brookline Capital, another FINRA member, regular way. The stock is depository eligible. FINRA Rule 11310(a) requires a member to use the facilities of a securities depository for the book-entry settlement of all transactions in depository eligible securities with another member or a member of a national securities exchange or a registered securities association. FINRA Rule 11320(b) makes delivery on a regular way transaction due on, but not before, the first business day following the date of the transaction. If the Tuesday is a business day, the trade is settled by book entry through a securities depository, with delivery due on the Tuesday.

Not every book-entry arrangement counts. FINRA Rule 11310(c) defines a "securities depository" for the purposes of the rule as a securities depository registered as a clearing agency under Section 17A of the Exchange Act. Suppose Alder and Brookline agreed instead to settle by a transfer on the books of a custodian bank that is not registered as a clearing agency. That is a book entry, but it is not settlement through the facilities of a securities depository as FINRA Rule 11310 defines one, so it does not meet FINRA Rule 11310(a).

When the Book-Entry Requirement Does Not Reach a Trade

FINRA Rule 11310(a) applies only to depository eligible securities, and FINRA Rule 11310(d)(1) defines them with two conditions. The securities must be part of an issue that is eligible for deposit at a securities depository. And, with respect to the particular transaction, they must be eligible for book-entry transfer at the depository at the time of settlement. Suppose an issue is eligible for deposit, but on the settlement date of one trade the securities to be delivered in it are not eligible for book-entry transfer at the depository. For that trade they are not depository eligible securities, so FINRA Rule 11310(a) does not require book-entry settlement of it.

A new issue listed on an exchange follows a timetable of its own. Under FINRA Rule 11310(d)(2), an exchange's determination that a securities depository has included the security's CUSIP number in its file of eligible issues does not by itself make the security depository eligible. For a new issue distributed by an underwriting syndicate on or after the date a depository system for monitoring the syndicate's repurchases of distributed shares is available, the security becomes depository eligible on the date trading in it begins on the exchange. Suppose such an issue's CUSIP number is added to the depository's file on the 3rd of a month and exchange trading begins on the 10th. The security is depository eligible from the 10th, not from the 3rd.

FINRA Rule 11310(g) takes a transaction outside the rule where the securities to be delivered are not on deposit at a securities depository and the deliverer cannot deposit them in time. For a transaction for same-day settlement, the deadline is the depository's cut-off time for same-day crediting of deposited securities. Suppose Brookline sells shares to Alder for cash, holds them only in certificates not on deposit, and cannot deposit them before that cut-off time. FINRA Rule 11310 does not apply to the trade. Delivery is governed by FINRA Rule 11320(a), under which delivery on a cash transaction is made at the office of the purchaser on the day of the transaction.

Both conditions in FINRA Rule 11310(g) must be met. Suppose instead that Brookline's certificates are not on deposit but Brookline could deposit them before the relevant cut-off, and would simply rather deliver the certificates. The exclusion does not apply, because Brookline is not unable to deposit them. If the securities are depository eligible, FINRA Rule 11310(a) still requires book-entry settlement.

Customer Transactions: Delivery Versus Payment

FINRA Rule 11310(b) reaches transactions with customers. A member shall not effect a delivery-versus-payment or receipt-versus-payment transaction in a depository eligible security with a customer unless the transaction is settled by book entry using the facilities of a securities depository. Suppose Brookline sells a depository eligible bond to an institutional customer on a delivery-versus-payment basis, and the customer's custodian bank asks to receive physical certificates against payment. Brookline may not effect the transaction on that basis. It must be settled by book entry through a securities depository, whatever the custodian prefers.

The Uniform Practice Code's general scope, under FINRA Rule 11100(a), is over-the-counter secondary market transactions between members. FINRA Rule 11100(b) provides that this scope may be expanded or limited in any rule of the Code if the rule specifically so provides. FINRA Rule 11310(b) speaks expressly of a transaction "with a customer".

Dates of Delivery in Practice

A seller's option contract is due on the date the option expires, but the seller may deliver earlier on the terms of FINRA Rule 11320(c). Early delivery may be made on any business day after the first business day following the date of the transaction and before the option expires. Suppose a seller's option trade is made on a Thursday, the option running for two weeks, and there are no holidays. The first business day following the trade is the Friday. The earliest day on which the seller may deliver is therefore the Monday.

Early delivery under a seller's option also needs notice given in advance. The seller must deliver written notice of intention to deliver at the office of the purchaser on a business day preceding the day of delivery. Suppose the seller hands its written notice to the purchaser on a Wednesday morning and tenders the securities that afternoon. The notice was not given on a business day preceding the day of delivery, so the early delivery does not meet FINRA Rule 11320(c). If the seller instead waits and delivers on the date the option expires, it is delivering on the due date itself, and the paragraph's notice condition attaches only to delivery before that date.

A buyer's option contract is due on the date the option expires. FINRA Rule 11320(g) covers a seller who tenders delivery before the stated time under a contract made under paragraph (b), (d) or (h) of the rule, and paragraph (d) is the buyer's option paragraph. Suppose a seller tenders the securities three business days before a buyer's option expires. The purchaser may accept the tender if it chooses. It may also reject it, and the rejection is without prejudice to its rights.

On a delayed-delivery contract, delivery is due on the date the parties agreed when they made the trade. FINRA Rule 11320(e) applies to that date as to any other: a contract due on a day other than a business day matures on the next business day. Suppose two members agree a delayed-delivery date that turns out to be a Saturday. The contract matures on the Monday, if the Monday is a business day.

Where delivery is made at the purchaser's office, it is also bounded by the clock. FINRA Rule 11320(h) requires delivery to be made at the office of the purchaser between the hours established by rule or practice in the community where the office is located. A seller that arrives with certificates after those hours on the due date has not made delivery within FINRA Rule 11320(h).

The place of delivery can also be set at the trade. If the purchaser maintains more than one office, delivery is made at the office with which the transaction was effected, unless delivery instructions are provided at the time of the transaction. Suppose Alder effects a trade through its Boston office and, at the time of the trade, instructs Brookline to deliver to its Hartford office. Delivery is made at the Hartford office.

Payment and Stamp Taxes at the Moment of Delivery

FINRA Rule 11330 gives the party making delivery the right to require the purchase money to be paid upon delivery by certified check, cashier's check, bank draft or cash. Suppose Brookline delivers certificates at Alder's office and Alder proposes to send payment the following day. Brookline may insist on being paid upon delivery.

Where a state stock transfer tax is due, FINRA Rule 11340(b) requires the seller to furnish the buyer, at the time of delivery, a sale memorandum ticket with sufficient state transfer stamps affixed and cancelled, unless the seller pays the tax through securities clearing organizations. The obligation is tied to delivery, not to the trade. On a regular way trade made on a Monday, with the Tuesday a business day, the stamped ticket is due with the delivery on the Tuesday.

A buyer may want stamps beyond those the sale requires. Under FINRA Rule 11340(c), the seller's furnishing of such additional stamps may be made a part of the transaction. The buyer's self-help remedy in FINRA Rule 11340(d) depends on an earlier request. It applies only if the buyer has requested the additional stamps and, at the time of delivery, the seller does not furnish them and has not made adequate provision for them. Suppose a buyer never asked for additional stamps, and at delivery decides it wants some. It cannot furnish them itself and deduct their cost from the purchase price under FINRA Rule 11340(d).

Part Delivery Against the Due Date and a Pending Buy-In

FINRA Rule 11350 requires the purchaser to accept a part delivery "on any contract due". A tender made before the contract is due falls under FINRA Rule 11320(g) instead. Suppose Brookline owes Alder 1,000 shares on a regular way contract made on a Monday and due on the Tuesday, and on the Monday it tenders 600 of them. The contract is not yet due, so the purchaser's duty under FINRA Rule 11350 has not arisen. Acceptance of the early tender is at Alder's election, and rejecting it does not prejudice Alder's rights.

The same odd-lot condition appears in the buy-in rule. Once a buy-in notice has been given, and until the contract is closed, the buyer must accept delivery of the securities called for by the contract. For a partial delivery, the condition is that the portion remaining undelivered when the buyer proposes to execute the buy-in does not include an odd lot that was not part of the original transaction. Suppose Alder has given Brookline a buy-in notice on a 500-share contract, and before the buy-in is executed Brookline tenders 300 shares. The 200 left undelivered are two round lots of 100, so Alder must accept the 300.

Units of Delivery Applied to Bonds and Certificates of Deposit

For fully registered bonds, FINRA Rule 11362(b) permits delivery in denominations of $1,000 or multiples of $1,000, or in amounts of $100 or multiples aggregating $1,000, but in no event in denominations larger than $100,000. Suppose a contract calls for $250,000 principal amount of fully registered bonds, and the seller delivers two certificates of $100,000 and one of $50,000. Each certificate is a multiple of $1,000 and none is larger than $100,000, so the delivery is in permitted denominations.

Coupon bonds are delivered in denominations of $1,000, or in denominations of $100 or multiples of $100 aggregating $1,000. Suppose a seller of $1,000 principal amount of coupon bearer bonds tenders four certificates of $250 each. They total $1,000, but $250 is not a multiple of $100, so they are not denominations that FINRA Rule 11362(a) permits.

Some bond issues can be had in either coupon or registered form. FINRA Rule 11362(c) lets such contracts be settled by delivery in either form "Unless otherwise specified at the time of execution". Suppose Alder buys bonds of such an issue and the trade is made specifying registered bonds, and the confirmation carries the phrase "registered", as FINRA Rule 11220 contemplates. The either-form default does not apply to that contract, and the seller cannot rely on it to deliver coupon bonds.

FINRA Rule 11364 gives certificates of deposit for bonds the same units of delivery as FINRA Rule 11362 prescribes for bonds. That includes FINRA Rule 11362(d): when a contract is for a principal amount that is not a multiple of $100, the parties must agree on the proper units of delivery at the time of entering into the contract. Suppose two members contract for certificates of deposit for bonds with a principal amount of $1,050. They must agree the units of delivery when they make the contract, as they would for the bonds themselves, and not leave the question to settlement.

A bond that has been partly redeemed is still delivered under the bond units, but it is priced on a basis FINRA Rule 11170 sets. The settlement price of a contract in a "part-redeemed" bond is determined by multiplying the contract price by the original principal amount. Suppose half the principal of a bond originally issued at $1,000 has been redeemed. The settlement price is calculated on the original $1,000 principal amount, not on the $500 that remains outstanding.

When Delivery Fails

FINRA Rule 11100(c) provides that in trades between members, a failure to deliver the securities sold on or after the settlement date does not cancel the contract, and it points the buyer to FINRA Rule 11810. Under FINRA Rule 11810(a), a contract the seller has not completed may be closed by the buyer not sooner than the third business day following the date delivery was due. Suppose a regular way trade between two members, settled directly between them, is made on a Monday, so delivery is due on the Tuesday, and the seller fails to deliver. In a week with no holidays, and where the contract is not subject to the buy-in requirements of an exchange or a registered clearing agency, the earliest day the buyer may close the contract by buy-in is the Friday.

Where the 11500 Subsection Takes Over

The 11300 rules fix how, when and in what units securities are delivered. Several rules of the 11500 subsection then decide whether particular certificates are good delivery. A delivery can meet the first and fail the second. Suppose a contract calls for 100 shares and the seller tenders one certificate for exactly 100 shares, a form FINRA Rule 11361(a)(1) permits. The certificate is a temporary certificate, and permanent certificates for the issue are available. Under FINRA Rule 11510 it is not a good delivery.

Common Errors in Delivering Securities

Several errors recur. One is treating any book entry as satisfying FINRA Rule 11310. The book-entry settlement the rule requires is settlement through a securities depository registered as a clearing agency under Section 17A of the Exchange Act.

A second is reading FINRA Rule 11310(g) as a general option to deliver certificates. The exclusion needs both conditions: the securities are not on deposit, and the deliverer is unable to deposit them before the depository's cut-off.

A third is delivering early without checking the contract type. Under a seller's option, early delivery needs written notice given on a preceding business day. Under regular way and buyer's option contracts, an early tender may be refused without prejudice to the purchaser's rights.

A fourth is getting the units wrong for bonds: tendering coupon bond pieces that are not multiples of $100, a registered bond certificate larger than $100,000, or leaving the units of an odd principal amount to be worked out at settlement instead of agreeing them when the contract is made.

Depository Eligibility Judged at Settlement

The second condition in FINRA Rule 11310(d)(1) is tied to a moment: with respect to a particular transaction, the securities must be eligible for book-entry transfer at the depository at the time of settlement of the transaction.

Suppose Fenwick Securities sells shares to Galloway Capital, another FINRA member, seller's option, and the trade is to be settled in the United States. The issue is eligible for deposit at a securities depository. On the day of the trade, the particular shares Fenwick will deliver are not eligible for book-entry transfer at the depository. By the time of settlement they are on deposit at the depository and eligible for book-entry transfer there. With respect to this transaction, the shares meet both conditions at the time of settlement, so they are depository eligible securities. FINRA Rule 11310(a) therefore requires the two members to use the facilities of a securities depository for the book-entry settlement of the trade. That the shares were not eligible for book-entry transfer when the trade was made does not take it outside the rule.

Where a new issue is distributed by an underwriting syndicate before a depository system for monitoring the syndicate's repurchases of distributed shares is available, FINRA Rule 11310(d)(2)(B) sets a different date. Where the managing underwriter elects not to deposit the securities on the date trading in the security begins on the exchange, an exchange's determination that a securities depository has included the security's CUSIP number in its file of eligible issues does not make the security depository eligible until the later date the managing underwriter designates in a notification submitted to the securities depository, and in no event more than three months after trading in the security began on the exchange. Suppose trading in such an issue begins on the exchange on 10 March, the managing underwriter elects not to deposit the securities that day, an exchange has determined that the depository has included the issue's CUSIP number in its file of eligible issues, and the managing underwriter's notification designates 2 May. That determination does not make the security depository eligible until 2 May, a date within three months of 10 March. It does not do so on 10 March.

Customer Trades the Book-Entry Requirement Does Not Reach

FINRA Rule 11310(b) reaches a delivery-versus-payment or receipt-versus-payment transaction with a customer in a depository eligible security. Two of the rule's other paragraphs limit its reach. The security must meet the definition in FINRA Rule 11310(d)(1), and under FINRA Rule 11310(e) the rule shall not apply to transactions settled outside of the United States.

Suppose Fenwick sells a bond to an institutional customer on a delivery-versus-payment basis, and the bond's issue is not eligible for deposit at a securities depository. The bond is not part of an issue eligible for deposit, so it is not a depository eligible security, and FINRA Rule 11310(b) does not require the transaction to be settled by book entry.

Suppose instead that Fenwick sells a depository eligible security to an institutional customer on a delivery-versus-payment basis, and the transaction is settled outside the United States. FINRA Rule 11310(e) provides that the rule shall not apply to transactions settled outside of the United States, so FINRA Rule 11310(b) does not require this transaction to be settled by book entry through a securities depository. The security's eligibility does not change that.

Written Notice of Early Delivery on a Business Day

FINRA Rule 11320(c) lets the seller under a seller's option deliver on any business day after the first business day following the date of transaction and before the option expires, provided the seller delivers at the office of the purchaser, on a business day preceding the day of delivery, written notice of intention to deliver. The day on which the notice is delivered must itself be a business day.

Suppose Fenwick sold shares to Galloway seller's option on a Tuesday, the option running for thirty days, and Fenwick decides to deliver early on the Monday of the following week, a business day. It delivers its written notice of intention to deliver at Galloway's office on the Saturday. Galloway's office is staffed that day, but the Saturday is not a business day. The notice was not delivered on a business day preceding the day of delivery, so delivery on the Monday does not meet FINRA Rule 11320(c). Had Fenwick delivered the notice at Galloway's office on the Friday, a business day preceding the Monday, the condition would have been met.

Paying the State Transfer Tax Through a Clearing Organization

FINRA Rule 11340(b) gives the seller two ways to deal with a state stock transfer tax that is due. The seller shall furnish to the buyer at the time of delivery a sale memorandum ticket with sufficient state transfer stamps affixed and canceled, or the tax may be paid by the seller through securities clearing organizations. Suppose a state stock transfer tax is due on Fenwick's sale to Galloway, and Fenwick pays the tax through a securities clearing organization. At delivery Galloway asks for a stamped sale memorandum ticket as well. Paying the tax through a securities clearing organization is the alternative paragraph (b) provides, so paragraph (b) does not require Fenwick to furnish the stamped ticket too.

Timing a Buy-In Notice

Except where FINRA Rule 11810 allows a buy-in without notice, as for contracts made for cash, a buyer's buy-in of a seller who has failed to deliver runs on written notice. Written notice of buy-in shall be delivered to the seller at its office not later than 12:00 noon, Eastern Time, two business days preceding the execution of the proposed buy-in. The two days are business days.

Suppose Fenwick has failed to deliver shares it sold to Galloway regular way, the contract being one that is not subject to the buy-in requirements of a national securities exchange or a registered clearing agency. Galloway plans to execute a buy-in on a Monday, a day on which FINRA Rule 11810(a) allows it to close the contract. The Friday before is a holiday and not a business day, while the Thursday and the Wednesday are business days. The two business days preceding the Monday are the Thursday and the Wednesday, so Galloway's written notice must reach Fenwick's office by 12:00 noon Eastern Time on the Wednesday.

A notice also has an end. Under FINRA Rule 11810(e)(1), if a buy-in is not completed on the day specified in the notice, or on that date as extended under the rule, the notice expires at the close of business on the day specified. Suppose Galloway's notice specifies the Monday, no extension applies, and Galloway does not execute the buy-in that day. On the Tuesday it cannot execute the buy-in under that notice, which expired at the close of business on the Monday.

Securities in Transit and the Cost of a Buy-In

A seller whose securities are on their way can obtain more time. Under FINRA Rule 11810(g), if, before the closing of a contract on which a buy-in notice has been given, the buyer receives from the seller written or comparable electronic notice that the securities are in transfer, in transit or being shipped that day, giving the certificate numbers of the securities, the buyer must extend the execution date of the buy-in for a period of seven calendar days from the date delivery was due under the buy-in. Suppose Galloway's buy-in notice states that unless delivery is effected at or before 3:00 p.m. Eastern Time on Thursday the 5th, the shares may be bought in on that date for Fenwick's account. Before the contract is closed, Fenwick gives Galloway written notice that the shares are in transit, with their certificate numbers. Galloway must extend the execution date by seven calendar days from the 5th, to Thursday the 12th.

A buy-in that is executed is executed for the seller's account. The buy-in notice states that, unless delivery is effected in time, the security may be bought in on the date specified for the account of the seller, and FINRA Rule 11810(h) requires any money difference resulting from the closing of the contract to be paid to the member entitled to receive it. Suppose Fenwick's contract was to sell Galloway 400 shares at $25 a share, and Galloway executes its buy-in by buying the 400 shares at $27 a share. Closing the contract that way costs $2 a share more than the contract price, $800 in all. The buy-in having been executed for Fenwick's account, that $800 falls on Fenwick, not on Galloway. FINRA Rule 11100(c) points the same way: in trades between members, in every case of nondelivery of securities, the party in default is liable for any damages which may accrue thereby.

Late Delivery and the Interest Settled on a Bond

The interest added to the dollar price of an interest-paying security runs to a date counted from the trade. Under FINRA Rule 11620(a), in the settlement of contracts other than for cash, interest at the rate specified in the security is added up to but not including the first business day following the date of the transaction. Suppose Fenwick sells Galloway a bond traded "and interest", regular way, on a Thursday, and the Friday is a business day. Fenwick fails to deliver and finally delivers on the following Wednesday. The interest added to the dollar price is computed up to but not including the Friday. Fenwick's late delivery does not carry it on to the Wednesday.

The deduction in FINRA Rule 11620(c) turns on when delivery is actually made. When delivery of a security traded "and interest" is made between the record date fixed for determining the holder entitled to receive interest and the interest payment date, a deduction equivalent to the full amount of the interest to be paid is made on settlement. Suppose another contract between Fenwick and Galloway, in a bond traded "and interest", is due for delivery on the 14th of a month. The record date for the bond's next interest payment is the 15th, and the payment date is the 1st of the following month. Had Fenwick delivered on the 14th, delivery would have been made before the record date. It delivers on the 17th instead, between the record date and the payment date, so the full amount of the interest to be paid is deducted on settlement.

Examination Relevance and Key Takeaways

FINRA Rule 11300 is tested on the Series 7 and Series 24 examinations as the series-level marker for the Uniform Practice Code's delivery mechanics framework — the subsection governing how securities are physically and operationally transferred to complete settlement.

The key points to retain are these: FINRA Rule 11300 is the series-level marker for an eleven-rule subsection — FINRA Rule 11310, Book-Entry Settlement; FINRA Rule 11320, Dates of Delivery; FINRA Rule 11330, Payment; FINRA Rule 11340, Stamp Taxes; FINRA Rule 11350, Part Delivery; FINRA Rule 11360, Units of Delivery; and the units-of-delivery cluster FINRA Rules 11361 through 11365 addressing stocks, bonds, unit investment trust securities, certificates of deposit for bonds, and securities traded as units or bonds with stock attached — with no operative text, no amendment history, and no selected notices of its own; the subsection represents the next stage in the transaction lifecycle following the documentation framework of the 11200 subsection, addressing the actual physical and operational transfer of securities; FINRA Rule 11310's placement as the lead rule signals book-entry settlement as the modern default delivery mechanism, with certificate denominations set by FINRA Rules 11361 and 11362 and further physical-certificate-related provisions addressed separately in the later FINRA Rule 11500 subsection; the units of delivery cluster of FINRA Rules 11360 through 11365 establishes standardized delivery quantities across different security types, serving a market-organizing function comparable to FINRA Rule 11170's part-redeemed bonds pricing standardization; and FINRA Rule 11330's payment, FINRA Rule 11340's stamp taxes, and FINRA Rule 11350's part delivery provisions address the transactional periphery surrounding the core delivery mechanics — payment flowing opposite to delivery, tax allocation, and the treatment of deliveries that do not satisfy a contract's full contracted quantity.