FINRA Rule 11350

FINRA Rule 11350 was amended by SR-FINRA-2010-030 effective December 15, 2010, with a prior amendment effective January 1, 1973 — no amendments have occurred since 2010. One selected notice is associated — Regulatory Notice 10-49.

FINRA Rule 11350 sits within the 11300 Delivery of Securities subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11340's stamp taxes framework and immediately preceding FINRA Rule 11360's units of delivery framework.

The Mandatory Acceptance Obligation

FINRA Rule 11350's core operative command is directed at the purchaser, not the seller — the purchaser shall be required to accept a part delivery on any contract due. 

This mandatory framing means that, subject to the odd-lot exception discussed below, a purchaser cannot refuse a partial delivery merely on the ground that it is partial — if a seller tenders less than the full contracted quantity on a contract that is due, the purchaser must accept that partial tender, rather than being entitled to reject the entire delivery and treat the contract as wholly unperformed.

This mandatory acceptance obligation reflects a sensible allocation of risk and inconvenience in the delivery process. Without such a rule, a seller who is able to deliver, say, 90 percent of a contracted quantity but is temporarily unable to deliver the remaining 10 percent — perhaps due to a delay in obtaining the final portion of the securities — would face an all-or-nothing dilemma: either deliver nothing at all until the full quantity is available, or risk having the purchaser reject even the 90 percent that is ready for delivery. 

FINRA Rule 11350 resolves this dilemma in favor of partial performance — the seller may deliver what is available, the purchaser must accept that partial delivery, and presumably the remaining undelivered portion remains outstanding under the contract, subject to whatever further delivery, reclamation, or close-out mechanisms the Uniform Practice Code's other provisions establish for outstanding contractual obligations.

The Odd-Lot Exception

FINRA Rule 11350's mandatory acceptance obligation is subject to a single, carefully crafted exception — provided the portion remaining undelivered is not an amount which includes an odd-lot which was not a part of the original transaction. This exception requires careful unpacking, since its structure addresses a specific and somewhat counterintuitive scenario.

An odd-lot, in standard securities market terminology, refers to a quantity of shares smaller than the standard trading unit — for most equity securities, the standard trading unit, or round lot, is 100 shares, and any quantity less than 100 shares constitutes an odd-lot. Odd-lots have historically been treated differently from round lots in various respects throughout securities market structure and practice, often involving different pricing conventions, different execution mechanisms, or, as FINRA Rule 11350 itself illustrates, different delivery treatment.

FINRA Rule 11350's exception applies when the portion remaining undelivered after a part delivery would itself constitute, or would include, an odd-lot — but with the critical qualifier that this odd-lot was not a part of the original transaction. In other words, the exception is not triggered merely because the original transaction itself included an odd-lot component — many transactions legitimately involve odd-lot quantities as part of their original terms, and FINRA Rule 11350 does not exempt purchasers from accepting part deliveries of such originally-contracted odd-lots. Rather, the exception is triggered specifically when the part delivery itself creates a remaining-undelivered odd-lot that did not exist as such in the original transaction's terms — meaning the seller's choice of how much to deliver in the part delivery has effectively converted what would otherwise have been a round-lot remainder into an odd-lot remainder.

To illustrate: if a contract calls for delivery of 500 shares — a round-lot quantity, being a multiple of the 100-share standard unit — and the seller tenders a part delivery of 450 shares, the remaining undelivered portion would be 50 shares, an odd-lot. Since this 50-share odd-lot remainder was not itself part of the original transaction's terms — the original transaction was for a clean 500-share round-lot quantity, with no odd-lot component contemplated — FINRA Rule 11350's exception would apply, and the purchaser would not be required to accept this particular part delivery of 450 shares, precisely because doing so would leave the purchaser holding an outstanding 50-share odd-lot obligation that did not exist in the original bargain.

By contrast, if the original contract itself called for delivery of 550 shares — a quantity that itself includes an odd-lot component, being 5 round lots plus a 50-share odd-lot — then a part delivery that left a 50-share odd-lot remainder would not trigger FINRA Rule 11350's exception, because that odd-lot was part of the original transaction from the outset; the purchaser would be required to accept such a part delivery under the rule's general mandatory acceptance principle.

The Policy Rationale: Avoiding Seller-Created Odd-Lot Burdens

The odd-lot exception's policy rationale centers on protecting the purchaser from having the operationally less convenient odd-lot category of obligation imposed on them through the seller's unilateral choice of how to structure a part delivery, when that odd-lot obligation was not part of the bargain the purchaser originally struck.

Odd-lot positions and obligations have historically carried various operational inconveniences relative to round-lot positions and obligations — different handling in subsequent trading, different treatment in various market mechanisms, and simply the administrative burden of tracking and eventually resolving a small residual position that does not align with standard trading unit conventions. A purchaser who contracted for a clean round-lot quantity reasonably expects to receive that quantity as round lots, without having to separately track and eventually resolve an odd-lot remainder that arose only because the seller chose to structure a part delivery in a particular way.

FINRA Rule 11350's exception ensures that a seller cannot use the part delivery mechanism to offload this kind of seller-created odd-lot inconvenience onto an unwilling purchaser. If the seller wishes to make a part delivery, the seller must structure that part delivery in a way that does not leave the purchaser holding a remaining-undelivered odd-lot that was not part of the original bargain — for example, by delivering in round-lot increments that leave only a round-lot (or the originally-contemplated) remainder outstanding, rather than delivering an amount calculated without regard to whether the remainder constitutes a newly-created odd-lot.

FINRA Rule 11350's Position Relative to the Units of Delivery Framework

FINRA Rule 11350's position immediately preceding FINRA Rule 11360's Units of Delivery framework — the first rule in the cluster of FINRA Rules 11360 through 11365 examined in this dictionary's FINRA Rule 11300 entry as addressing the standardized quantities in which different security types must be delivered — is structurally significant. FINRA Rule 11350 addresses what happens when a delivery does not match the contracted quantity at all — a part delivery — while FINRA Rules 11360 through 11365 establish what the standard delivery units are for various security types in the first place.

These two concerns interact directly. The units of delivery framework establishes the standard increments — for stocks, the round-lot and odd-lot framework discussed above — in which securities are conventionally delivered. FINRA Rule 11350's odd-lot exception then operates against this backdrop, using the round-lot and odd-lot vocabulary that the units of delivery framework establishes to define when a part delivery's remainder triggers the exception to the purchaser's mandatory acceptance obligation. In this sense, FINRA Rule 11350 cannot be fully understood in isolation from the units of delivery framework that follows it — the odd-lot concept that does the critical work in FINRA Rule 11350's exception is itself a product of the standardized delivery unit conventions that FINRA Rules 11360 through 11365 will examine in detail.

The 1973 Amendment and Stability Through 2010

FINRA Rule 11350's amendment history — an amendment effective January 1, 1973, followed by the December 15, 2010 Consolidated Rulebook transfer through SR-FINRA-2010-030, with no amendments since — places FINRA Rule 11350 alongside FINRA Rule 11340 examined in this dictionary's immediately preceding entry as another provision whose substantive framework was established in the early 1970s and has proven durable across more than five decades without requiring substantive revision. This stability is consistent with the nature of the question FINRA Rule 11350 addresses — the mandatory acceptance principle for part deliveries, and the odd-lot exception protecting purchasers from seller-created odd-lot remainders, represent foundational allocations of risk and convenience in the delivery process that have not been rendered obsolete or in need of revision by the various settlement cycle changes, electronic communication developments, or other modernizations that have driven amendments to many of FINRA Rule 11350's neighboring provisions within the Uniform Practice Code.

Connection to FINRA Rules 11100, 11320, 11340, and 11360 Through 11365

FINRA Rule 11350 connects to FINRA Rule 11100(c) — whose non-cancellation principle for failed delivery establishes the broader framework within which FINRA Rule 11350's part-delivery acceptance obligation operates; a part delivery accepted under FINRA Rule 11350 leaves an outstanding remainder that, if ultimately undelivered, would itself become subject to FINRA Rule 11100(c)'s non-cancellation principle and the FINRA Rule 11810 buy-in remedy. It connects to FINRA Rule 11320 — whose dates-of-delivery framework establishes the timing at which a part delivery under FINRA Rule 11350 might be tendered, on any contract due. It connects to FINRA Rule 11340 — the immediately preceding rule, whose stamp tax framework would presumably apply on a pro-rata or as-applicable basis to whatever quantity is actually delivered in a part delivery accepted under FINRA Rule 11350. And it connects most directly and substantively to FINRA Rules 11360 through 11365 — the units of delivery cluster immediately following FINRA Rule 11350, whose round-lot and odd-lot framework for stocks provides the essential vocabulary that FINRA Rule 11350's odd-lot exception depends upon, and which this dictionary will examine in detail in the entries that follow.

Examination Relevance and Key Takeaways

FINRA Rule 11350 is tested on the Series 7 and Series 24 examinations as the part delivery acceptance rule — establishing the purchaser's mandatory acceptance obligation for partial deliveries, subject to a single odd-lot exception protecting purchasers from seller-created odd-lot remainders.

The key points to retain are these: FINRA Rule 11350 requires the purchaser to accept a part delivery on any contract due — a seller may tender less than the full contracted quantity, and the purchaser generally cannot refuse such a partial tender merely because it is partial; the rule's single exception applies when the portion remaining undelivered after the part delivery is an amount which includes an odd-lot which was not a part of the original transaction — meaning the exception applies only when the seller's chosen part-delivery quantity itself creates a remaining odd-lot that did not exist in the original transaction's terms, not when the original transaction itself already included an odd-lot component; the policy rationale is to prevent sellers from using the part delivery mechanism to unilaterally impose seller-created odd-lot remainders — with their attendant operational inconveniences — on purchasers who did not bargain for an odd-lot position; FINRA Rule 11350's odd-lot exception depends on the round-lot and odd-lot vocabulary established by the immediately following FINRA Rules 11360 through 11365 units of delivery framework; and the rule was amended December 15, 2010 through SR-FINRA-2010-030, with a prior amendment effective January 1, 1973 — no amendments since — and one selected notice, 10-49.