FINRA Rule 11400

FINRA Rule 11400 sits within the 11000 Uniform Practice Code as the fourth major subsection, positioned between FINRA Rule 11365 — the final rule of the FINRA Rule 11300 Delivery of Securities subsection — and FINRA Rule 11410, the sole substantive rule of the FINRA Rule 11400 subsection itself.

What "Delivery with Draft Attached" Refers To

A draft, in the commercial and banking context FINRA Rule 11400's title invokes, is a financial instrument by which one party — the drawer — orders another party — the drawee, typically a bank — to pay a specified sum to a third party — the payee — either on demand or at a specified future time. A delivery of securities with draft attached refers to a specific delivery mechanism in which the securities being delivered are physically accompanied by a draft — an instrument representing the seller's claim to payment — with the delivery and the draft functioning together as a coordinated payment-collection mechanism.

This delivery-with-draft-attached mechanism historically served an important function in securities transactions, particularly those involving parties in different geographic locations or those where the selling party wished to ensure that payment was secured concurrently with, or as a direct precondition to, the delivery of the securities themselves. 

Rather than delivering securities outright and trusting the purchaser to remit payment separately — an arrangement that would expose the seller to the purchaser's payment risk during whatever interval elapsed between delivery and payment — the draft-attached mechanism ties the securities' delivery directly to a financial instrument that operationalizes the seller's right to payment, with a bank or other intermediary typically serving as the mechanism through which the draft is presented and the securities are released only against the draft's acceptance or payment.

This mechanism bears a family resemblance to the broader category of documentary collection arrangements used in commercial transactions more generally — arrangements in which a seller ships goods (or, in this context, delivers securities) together with documents (here, a draft) through a bank, with the bank releasing the goods or documents to the buyer only upon the buyer's acceptance or payment of the draft. The mechanism provides the seller with a degree of payment security that a simple physical delivery, unaccompanied by any such instrument, would not provide.

FINRA Rule 11400's Position Within the Uniform Practice Code's Delivery Framework

FINRA Rule 11400's position immediately following the FINRA Rule 11300 subsection — and its title's explicit framing as Delivery of Securities, paralleling FINRA Rule 11300's own title — confirms that FINRA Rule 11400 addresses a specialized variant of the general delivery framework FINRA Rule 11300 establishes, rather than an entirely separate transactional category. 

Where FINRA Rule 11300 addressed the general mechanics of delivery — book-entry settlement under FINRA Rule 11310, timing under FINRA Rule 11320, payment form under FINRA Rule 11330, stamp taxes under FINRA Rule 11340, part delivery under FINRA Rule 11350, and units of delivery under FINRA Rules 11360 through 11365 — FINRA Rule 11400 addresses the specific case where delivery occurs with a draft attached, a mechanism that interacts with several of these general delivery provisions in ways that FINRA Rule 11410, examined in this dictionary's next entry, will presumably address.

The relationship between FINRA Rule 11330's payment framework — examined earlier in this dictionary's coverage, establishing the delivering party's right to require payment by certified check, cashier's check, bank draft, or cash — and FINRA Rule 11400's draft-attached delivery mechanism deserves particular note. 

FINRA Rule 11330 enumerates bank draft as one of the four payment forms a delivering party may require. FINRA Rule 11400's draft-attached delivery mechanism represents a related but procedurally distinct concept — rather than simply specifying that payment, when tendered, must be in the form of (among other options) a bank draft, the draft-attached mechanism structures the delivery itself around the draft, with the draft physically or procedurally accompanying the securities through whatever collection process the mechanism employs.

The Single-Rule Subsection: A Structural Outlier

FINRA Rule 11400's organization of only a single child rule — FINRA Rule 11410 — makes it a structural outlier among the major subsections of the 11000 Uniform Practice Code examined in this dictionary's coverage thus far. FINRA Rule 11100 organized twelve rules across the foundational scope, governance, definitions, and ex-date framework. FINRA Rule 11200 organized two rules addressing comparisons, confirmations, and Don't Know Notices. FINRA Rule 11300 organized fourteen rules spanning book-entry settlement through the units of delivery cluster. FINRA Rule 11400, by contrast, organizes exactly one rule.

This single-rule structure suggests that delivery of securities with draft attached, while sufficiently distinct from the general delivery framework of FINRA Rule 11300 to warrant its own subsection-level organizational marker, nonetheless represents a narrower and more self-contained topic than the subjects addressed by the preceding subsections — a topic whose complete treatment can be accomplished within a single rule, FINRA Rule 11410, rather than requiring the kind of multi-rule elaboration that book-entry settlement, dates of delivery, payment, stamp taxes, part delivery, and units of delivery collectively required within FINRA Rule 11300.

Anticipating FINRA Rule 11410: Acceptance of Draft

FINRA Rule 11410's title — Acceptance of Draft — provides a preliminary indication of what this dictionary's next entry will address. In the context of documentary collection arrangements generally, acceptance of a draft refers to the drawee's (typically a bank's) formal acknowledgment of its obligation to pay the draft according to its terms — an acceptance that, once given, represents the drawee's binding commitment to pay, distinct from actual payment itself, which may occur at a later time depending on whether the draft is payable on demand (a sight draft) or at some future date (a time draft).

FINRA Rule 11410's focus on acceptance — rather than, for example, presentation of the draft, or payment of the draft, or some other stage in the documentary collection process — suggests that the rule addresses the specific procedural step at which the drawee's acceptance of the draft becomes operative for purposes of the securities delivery the draft accompanies, potentially addressing questions such as what constitutes acceptance, what consequences flow from acceptance for purposes of the underlying securities transaction, and how the timing of acceptance relates to the delivery and settlement framework that FINRA Rule 11300's various provisions — particularly FINRA Rule 11320's dates of delivery and FINRA Rule 11330's payment framework — establish for transactions generally.

This dictionary will examine FINRA Rule 11410 directly in its next entry, at which point the specific operative content of the draft-attached delivery mechanism — and FINRA Rule 11400's role as the organizational marker for that mechanism — will be confirmed in full.

Connection to FINRA Rules 11300, 11320, 11330, and 11410

FINRA Rule 11400 connects to FINRA Rule 11300 as the immediately preceding major subsection, whose general delivery framework — encompassing book-entry settlement, dates of delivery, payment, stamp taxes, part delivery, and units of delivery — provides the broader context within which FINRA Rule 11400's specialized draft-attached delivery mechanism operates as a variant or special case. It connects to FINRA Rule 11320's dates of delivery framework, since a draft-attached delivery's timing — when the securities are delivered, and how that timing relates to the draft's acceptance and payment — must be reconciled with FINRA Rule 11320's general delivery timing provisions for whichever contract type (regular way, seller's option, buyer's option, and so forth) the draft-attached transaction otherwise falls under. It connects to FINRA Rule 11330's payment framework, given bank draft's status as one of FINRA Rule 11330's four enumerated acceptable payment forms, and the conceptual relationship between that payment-form specification and FINRA Rule 11400's draft-attached delivery mechanism as two related but procedurally distinct aspects of how drafts function in securities settlement. And it connects directly and exclusively to FINRA Rule 11410 — its sole child rule, which this dictionary will examine next to complete coverage of the FINRA Rule 11400 subsection in its entirety.

Examination Relevance and Key Takeaways

FINRA Rule 11400 is tested on the Series 7 and Series 24 examinations as the series-level marker for the delivery of securities with draft attached — the smallest major subsection of the Uniform Practice Code, organizing a single rule addressing a specialized delivery mechanism in which securities are delivered together with a draft representing the seller's claim to payment.

The key points to retain are these: FINRA Rule 11400 has no operative text, no amendment history, and no selected notices of its own — it serves purely as the organizational marker for FINRA Rule 11410, Acceptance of Draft, its sole child rule; delivery of securities with draft attached is a specialized mechanism, related to documentary collection arrangements more broadly, in which securities are delivered together with a draft — an instrument representing the seller's claim to payment — typically through a bank or other intermediary that releases the securities only against the draft's acceptance or payment, providing the seller payment security that an unaccompanied physical delivery would not; FINRA Rule 11400's position immediately following the FINRA Rule 11300 Delivery of Securities subsection, and its parallel title framing, confirms it addresses a specialized variant of the general delivery framework rather than an unrelated transactional category, with particular conceptual proximity to FINRA Rule 11330's enumeration of bank draft as one of four acceptable payment forms; and FINRA Rule 11400's single-rule structure makes it a structural outlier among the 11000 series' major subsections, suggesting a narrower and more self-contained topic than its multi-rule neighbors.