Table of Contents
SERIES 7 | SERIES 24 | FINANCIAL REGULATION COURSES
FINRA Rule 11310 establishes the mandatory book-entry settlement framework that, as anticipated in this dictionary's FINRA Rule 11300 entry, represents the modern default mechanism for delivering depository eligible securities — requiring both inter-member and member-customer transactions in such securities to settle through a registered securities depository rather than through physical certificate delivery, while carefully defining the scope of depository eligible securities and carving out specific categories of transactions that the book-entry mandate does not reach.
The rule operates through seven lettered paragraphs. Paragraph (a) requires members to use depository facilities for book-entry settlement of all transactions in depository eligible securities with other members or with members of national securities exchanges or registered securities associations.
Paragraph (b) extends this requirement to delivery-versus-payment and receipt-versus-payment transactions with customers.
Paragraph (c) defines securities depository as a depository registered as a clearing agency under Exchange Act Section 17A.
Paragraph (d) defines depository eligible securities through a two-part test and addresses the timing of eligibility for new issues distributed by underwriting syndicates.
Paragraph (e) excludes transactions settled outside the United States.
Paragraph (f) establishes that the rule's requirements supersede any inconsistent requirements under other Uniform Practice Code rules.
And paragraph (g) excludes transactions where the securities are not on deposit at a depository and the deliverer is unable to deposit them before the depository's applicable cut-off time or date.
FINRA Rule 11310 was last amended by SR-FINRA-2010-030 effective December 15, 2010, with prior amendments through SR-NASD-2005-087 effective August 1, 2006, SR-NASD-95-24 effective June 7, 1995, and SR-NASD-93-11 effective August 10, 1993. Three selected notices are associated — 93-45, 95-55, and 10-49.
FINRA Rule 11310 sits within the 11300 Delivery of Securities subsection of the 11000 Uniform Practice Code as its first substantive rule, immediately following FINRA Rule 11300's series marker and immediately preceding FINRA Rule 11320's dates of delivery framework.
FINRA Rule 11310(a) establishes the inter-member book-entry mandate — a member shall 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.
This mandate is comprehensive within its scope — it applies to all transactions in depository eligible securities between the enumerated categories of counterparties, without qualification or exception within paragraph (a) itself. Any transaction in a depository eligible security between a FINRA member and another FINRA member, or between a FINRA member and a member of a national securities exchange or registered securities association, must be settled through book-entry at a securities depository.
FINRA Rule 11310(b) extends a parallel but distinctly framed mandate to customer transactions — 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.
The narrower framing of paragraph (b) — limited specifically to delivery-versus-payment or receipt-versus-payment transactions, commonly known by their acronyms DVP and RVP — reflects the distinct nature of customer relationships as compared to inter-member relationships. DVP and RVP transactions are a specific category of institutional customer transaction in which the customer's custodian bank or other agent simultaneously exchanges payment for securities with the executing broker-dealer, as distinguished from the more common retail customer arrangement in which the customer's securities are held directly in an account at the broker-dealer itself without a separate DVP or RVP settlement step.
FINRA Rule 11310(b)'s book-entry mandate applies specifically to this DVP and RVP category of customer transaction — where a customer's transaction does take the DVP or RVP form, that settlement must occur via book-entry at a securities depository, just as inter-member transactions must under paragraph (a).
FINRA Rule 11310(c) provides a tightly bounded definition — for purposes of this Rule, the term securities depository shall mean a securities depository registered as a clearing agency under Section 17A of the Exchange Act. This definition anchors the entire rule's book-entry mandate to a specific category of federally regulated entity — Exchange Act Section 17A is the statutory provision governing the registration and regulation of clearing agencies, and a securities depository registered as a clearing agency under that section is subject to the SEC's oversight framework for clearing agencies generally.
This definitional anchor means that FINRA Rule 11310's book-entry mandate is not satisfied by just any electronic record-keeping system a member might maintain or use — it specifically requires the use of an entity that has obtained clearing agency registration under Section 17A, a category that in practice encompasses entities such as the Depository Trust Company, operating as a subsidiary of the Depository Trust & Clearing Corporation. The Section 17A registration requirement ensures that the book-entry settlement mandated by FINRA Rule 11310 occurs through an entity subject to the comprehensive regulatory framework that Section 17A and the SEC's implementing rules establish for clearing agencies — including the kind of oversight that would, for example, apply to NSCC's reconfirmation and pricing services discussed in this dictionary's FINRA Rule 11190 entry.
FINRA Rule 11310(d)(1) establishes the foundational definition that determines the entire rule's scope of application — the term depository eligible securities shall mean securities that are part of an issue of securities that is eligible for deposit at a securities depository, and that, with respect to a particular transaction, are eligible for book-entry transfer at the depository at the time of settlement of the transaction.
This two-part test combines an issue-level eligibility criterion with a transaction-level and time-specific eligibility criterion. The first prong — part of an issue of securities that is eligible for deposit at a securities depository — addresses whether the security, as a category or issue, has been accepted by the depository for deposit at all; not every security issue is necessarily eligible for depository deposit, particularly for newly issued securities before the depository has processed and accepted that specific issue. The second prong — with respect to a particular transaction, are eligible for book-entry transfer at the depository at the time of settlement of the transaction — adds a transaction-specific and time-specific dimension; even if an issue is generally eligible for deposit, a specific holder's specific securities of that issue might not yet be eligible for book-entry transfer at the depository at the specific time a particular transaction is scheduled to settle, for example if those specific securities have not yet themselves been deposited into the depository system.
FINRA Rule 11310(d)(2) addresses a specific and carefully calibrated timing question for new issues distributed by underwriting syndicates — a determination under rules of a national securities exchange that a securities depository has included a CUSIP number identifying a security in its file of eligible issues does not render the security depository eligible under this Rule until one of two alternative dates, depending on whether a depository system for monitoring syndicate repurchases of distributed shares is available.
Under paragraph (d)(2)(A), for a new issue distributed by an underwriting syndicate on or after the date a depository system for monitoring repurchases of distributed shares by the underwriting syndicate is available, depository eligibility under FINRA Rule 11310 attaches as of the date of the commencement of trading in such security on the exchange. Under paragraph (d)(2)(B), for a new issue distributed prior to the availability of such a monitoring system, where the managing underwriter elects not to deposit the securities on the date trading commences on the exchange, depository eligibility attaches as of such later date as the managing underwriter designates in a notification to the depository — but in no event more than three months after the commencement of trading in such security on the exchange.
This carefully calibrated timing framework addresses a specific operational concern in the new-issue underwriting context — during the period immediately following a new issue's distribution, the underwriting syndicate may need to track and potentially repurchase shares from syndicate members as part of the stabilization and syndicate settlement process discussed elsewhere in connection with FINRA Rule 11880's settlement of syndicate accounts. If depository eligibility — and the corresponding FINRA Rule 11310 book-entry mandate — attached immediately upon a depository's mere inclusion of the security's CUSIP number in its file of eligible issues, this could interfere with the syndicate's ability to track and manage repurchases during this sensitive post-distribution period. FINRA Rule 11310(d)(2)'s framework defers the operative depository eligibility determination until either a monitoring system is available to accommodate book-entry settlement alongside syndicate repurchase tracking, or — absent such a system — until the managing underwriter itself determines the appropriate timing, subject to the three-month outer limit that prevents indefinite deferral.
FINRA Rule 11310(e) establishes a geographically defined exclusion — this Rule shall not apply to transactions settled outside of the United States. This exclusion confirms that FINRA Rule 11310's book-entry mandate — anchored as it is to securities depositories registered as clearing agencies under Exchange Act Section 17A, a U.S. statutory framework — does not extend to transactions whose settlement occurs outside the United States, where different depository and settlement infrastructure, subject to different regulatory frameworks, would apply.
This exclusion is consistent with the broader pattern this dictionary has observed throughout the Uniform Practice Code's treatment of cross-border transactions — FINRA Rule 11140(b)(3)'s vesting of direct Committee designation authority for ex-dividend dates on ADRs and foreign securities, and FINRA Rule 11220's illustrative Canadian funds phrase addressing cross-border currency considerations, both reflect the Uniform Practice Code's recognition that its domestically-anchored framework requires specific accommodations or exclusions when transactions involve foreign settlement infrastructure.
FINRA Rule 11310(f) establishes a supremacy clause within the Uniform Practice Code itself — the requirements of this Rule shall supersede any inconsistent requirements under other Rules in the Code. This provision confirms FINRA Rule 11310's status as the controlling authority on book-entry settlement matters within the Uniform Practice Code's overall framework — to the extent any other provision of the Code might be read to impose a requirement inconsistent with FINRA Rule 11310's book-entry mandate, scope definitions, or exclusions, FINRA Rule 11310 controls.
This supersession provision is particularly significant given the Uniform Practice Code's layered architecture, discussed in this dictionary's FINRA Rule 11100(b) entry — the principle that the scope of coverage contained in paragraph (a) of FINRA Rule 11100 may be expanded or limited in any Rule of this Code if specifically provided therein. FINRA Rule 11310(f) operates as a specific instance of this layered architecture, but in the supersession direction — rather than another rule expanding or limiting FINRA Rule 11310's scope, FINRA Rule 11310(f) ensures that FINRA Rule 11310 itself controls over any other rule that might otherwise be read inconsistently, given the centrality of book-entry settlement to the modern operation of the entire delivery framework that the FINRA Rule 11300 subsection establishes.
FINRA Rule 11310(g) establishes the final and most operationally nuanced exclusion — this Rule shall not apply to any transactions where the securities to be delivered in settlement of the transaction are not on deposit at a securities depository, and either of two further conditions is satisfied.
Under paragraph (g)(1), for same-day settlement transactions, the exclusion applies if the deliverer is unable to deposit the securities in a securities depository prior to the cut-off time established by the depository for same-day crediting of deposited securities. Under paragraph (g)(2), more generally, the exclusion applies if the deliverer is unable to deposit the securities in a depository prior to the cut-off date established by the depository for that issue of securities.
This exclusion addresses the practical reality that a member who holds securities outside the depository system — for example, securities held in physical certificate form, or securities held through some other custodial arrangement not yet reflected in depository records — cannot instantaneously convert those securities into depository-eligible book-entry form. Depositories operate on their own cut-off schedules for accepting deposits and crediting them for same-day or other settlement purposes, and a deliverer whose securities are not already on deposit, and who cannot meet the relevant cut-off, would be placed in an impossible position if FINRA Rule 11310's book-entry mandate applied without exception in such circumstances — the deliverer would be required to settle by book-entry, but would be operationally unable to do so in time. FINRA Rule 11310(g) resolves this by excluding such transactions from the rule's application altogether, allowing settlement to proceed through whatever non-book-entry mechanism is operationally available in these specific circumstances, rather than placing the deliverer in breach of FINRA Rule 11310 through no fault of their own timing constraints.
FINRA Rule 11310's amendment history — SR-NASD-93-11 effective August 10, 1993, SR-NASD-95-24 effective June 7, 1995, SR-NASD-2005-087 effective August 1, 2006, and SR-FINRA-2010-030 effective December 15, 2010 — traces the evolution of the book-entry settlement mandate from its early-1990s origins, a period during which the securities industry was actively transitioning from predominantly physical certificate settlement toward the depository-based book-entry infrastructure that FINRA Rule 11310 now establishes as the mandatory default. The selected notices associated with the rule — 93-45 and 95-55 — correspond to the 1993 and 1995 amendments respectively, while the 2010 amendment through SR-FINRA-2010-030 represents the rule's transfer into the Consolidated FINRA Rulebook alongside the broader Uniform Practice Code transfer discussed throughout this dictionary's coverage of the 11000 series.
FINRA Rule 11310 connects to FINRA Rule 11100(b) — whose layered scope architecture principle FINRA Rule 11310(f)'s supersession provision exemplifies in reverse, establishing FINRA Rule 11310 as controlling over inconsistent provisions elsewhere in the Code. It connects to FINRA Rule 11140(b)(3) and FINRA Rule 11220's Canadian funds phrase — both reflecting the broader pattern of cross-border accommodation that FINRA Rule 11310(e)'s foreign settlement exclusion represents within the book-entry settlement context specifically. It connects directly to FINRA Rule 11320 — the next rule in the FINRA Rule 11300 subsection, whose dates of delivery framework operates in coordination with FINRA Rule 11310's book-entry settlement mandate, since the timing of delivery and the mechanism of delivery are two complementary dimensions of the same overall settlement process. It connects to FINRA Rule 11500 — the Delivery of Securities with Restrictions subsection, whose physical-certificate-oriented provisions address precisely the category of securities that FINRA Rule 11310(g)'s undeposited-securities exclusion contemplates as falling outside the book-entry mandate. And it connects to FINRA Rule 11880's settlement of syndicate accounts — the underwriting syndicate context that FINRA Rule 11310(d)(2)'s new-issue timing provisions are specifically calibrated to accommodate.
FINRA Rule 11310 is tested on the Series 7 and Series 24 examinations as the mandatory book-entry settlement framework — the modern default delivery mechanism for depository eligible securities, with carefully defined eligibility criteria and operationally necessary exclusions.
The key points to retain are these: FINRA Rule 11310(a) requires members to use securities depository facilities for book-entry settlement of all transactions in depository eligible securities with other members, members of national securities exchanges, or registered securities associations; FINRA Rule 11310(b) extends this requirement to delivery-versus-payment and receipt-versus-payment transactions with customers; FINRA Rule 11310(c) defines securities depository as a depository registered as a clearing agency under Exchange Act Section 17A; FINRA Rule 11310(d) defines depository eligible securities through a two-part test — issue-level deposit eligibility and transaction-specific, time-specific book-entry transfer eligibility at settlement — and establishes specific timing rules for new issues distributed by underwriting syndicates, deferring depository eligibility until either the commencement of exchange trading where a syndicate repurchase monitoring system is available, or a managing-underwriter-designated date subject to a three-month outer limit where no such system exists; FINRA Rule 11310(e) excludes transactions settled outside the United States; FINRA Rule 11310(f) provides that the rule's requirements supersede any inconsistent requirements under other Uniform Practice Code rules; FINRA Rule 11310(g) excludes transactions where the securities are not on deposit at a depository and the deliverer cannot meet the depository's applicable same-day crediting cut-off time or issue-specific cut-off date; and the rule was last amended December 15, 2010 through SR-FINRA-2010-030, with prior amendments effective August 10, 1993 through SR-NASD-93-11, June 7, 1995 through SR-NASD-95-24, and August 1, 2006 through SR-NASD-2005-087, with three selected notices — 93-45, 95-55, and 10-49.
