FINRA Rule 11580

Paragraph (b) establishes an exemptive pathway through the Corporate Financing Department, permitting a member to modify the standard transfer forms upon a written request showing good cause, where modification is necessary to meet other legal or regulatory requirements or to otherwise facilitate the transfer of the securities. FINRA Rule 11580 was adopted by SR-NASD-95-53 effective January 29, 1996, and subsequently amended by SR-NASD-96-42 effective January 24, 1997, SR-NASD-97-05 effective May 8, 1997, SR-NASD-2005-087 effective August 1, 2006, and both SR-FINRA-2010-060 and SR-FINRA-2010-030 effective December 15, 2010. Two selected notices are associated — 96-14 and 10-49.

FINRA Rule 11580 sits within the 11500 Delivery of Securities with Restrictions subsection of the 11000 Uniform Practice Code — notably, as confirmed by its breadcrumb trail, positioned directly beneath FINRA Rule 11500 rather than within the FINRA Rule 11570 cluster, confirming this dictionary's earlier characterization of FINRA Rules 11580 and 11581 as a distinct pair of rules rather than members of the Certificates in Various Names cluster. FINRA Rule 11580 immediately follows FINRA Rule 11574 — the final rule of the FINRA Rule 11570 cluster — and immediately precedes FINRA Rule 11581's limited partnership transfer forms framework, the final rule of the entire FINRA Rule 11500 subsection.

FINRA Rule 11580(a): The Standard Transfer Forms Mandate and Its Cross-Reference to FINRA Rule 2310

FINRA Rule 11580(a)'s first sentence establishes its core mandate in direct terms — each member that participates in the transfer of limited partnership securities, as defined in Rule 2310, shall use standard transfer forms in the same form as set forth in Rule 11581.

The as defined in Rule 2310 cross-reference is the textual confirmation of the connection this dictionary has anticipated since its FINRA Rule 11100 entry. FINRA Rule 2310 — examined in an earlier session of this project, addressing Direct Participation Programs — provides the definitional framework for what constitutes a Direct Participation Program for purposes of FINRA Rule 11100(a)(5)'s exclusion. FINRA Rule 11580(a) now confirms that, for limited partnership securities falling within that FINRA Rule 2310 definitional framework, the Uniform Practice Code does apply — specifically, for purposes of the transfer mandate this rule establishes — notwithstanding FINRA Rule 11100(a)(5)'s general exclusion of Direct Participation Program securities from the Code's coverage. This is the except as otherwise provided in this Code language given concrete operative effect: FINRA Rule 11580 is itself the otherwise provided provision FINRA Rule 11100(a)(5) contemplates.

The mandate's content — use standard transfer forms in the same form as set forth in Rule 11581 — establishes a standardization requirement paralleling, in structure if not in specific subject matter, the Uniform Comparison, Uniform Delivery Ticket, and Uniform Transfer Instruction Form requirements this dictionary examined in connection with FINRA Rules 11210, 11360, and 11550 respectively. Just as those rules established standardized forms for confirmation, delivery, and registered-securities transfer generally, FINRA Rule 11580(a) establishes that limited partnership securities transfers specifically must use the standard transfer forms whose place of publication FINRA Rule 11581 identifies — forms whose general character this dictionary's examination of FINRA Rule 11574's Supplementary Material .01 Sample Limited Partnership Change of Trustee Form has already previewed, including that form's distinctive forward this form and the original certificate (if available) to the General Partner for re-registration instruction.

The Two Categorical Exclusions: National Securities Exchange Trading and Regular-Way Depository Settlement

FINRA Rule 11580(a)'s second sentence establishes that this Rule shall not apply to limited partnership securities that are traded on a national securities exchange, or are on deposit in a registered securities depository and settle regular way.

These two exclusions identify categories of limited partnership securities for which the standard transfer forms mandate is unnecessary — because the securities in question are already integrated into exchange-trading or depository book-entry mechanisms that already provide for their transfer.

The first exclusion — limited partnership securities traded on a national securities exchange — addresses limited partnership interests that have achieved sufficient liquidity and standardization to be listed and traded on a national securities exchange, much like ordinary equity securities. For such exchange-traded limited partnership interests, the general delivery and transfer framework applicable to exchange-traded securities generally — including, where applicable, FINRA Rule 11310's book-entry settlement mandate for depository eligible securities — already provides an adequate transfer mechanism, without need for FINRA Rule 11581's standard transfer forms specifically designed for the more typical illiquid, non-exchange-traded limited partnership interest.

The second exclusion — limited partnership securities on deposit in a registered securities depository and settle regular way — addresses limited partnership interests that, while perhaps not exchange-traded, have nonetheless become sufficiently integrated into the depository system that they are on deposit at a registered securities depository (the same Exchange Act Section 17A-registered depositories FINRA Rule 11310(c) defines) and settle regular way (the FINRA Rule 11320(b) regular way settlement timing this dictionary examined earlier). For such depository-integrated, regular-way-settling limited partnership interests, book-entry settlement at the depository — the mechanism FINRA Rule 11310 requires for depository eligible securities generally — already provides the transfer mechanism, again without need for FINRA Rule 11581's standard forms.

Together, these two exclusions confirm that FINRA Rule 11580's standard transfer forms mandate is calibrated specifically to the category of limited partnership securities that remain outside both exchange-trading and depository-book-entry integration — the genuinely illiquid, non-standardized limited partnership interests for which no other mechanism (exchange-trading conventions, or book-entry settlement of the kind FINRA Rule 11310 requires generally) already provides an adequate transfer mechanism. For this residual category — which, given the historical character of Direct Participation Programs discussed in connection with FINRA Rule 2310, likely represents the most common case for limited partnership securities — FINRA Rule 11580(a)'s standard transfer forms mandate fills the gap.

FINRA Rule 11580(b): The Corporate Financing Department Exemptive Pathway

FINRA Rule 11580(b) establishes an exemptive pathway distinct from the general FINRA Rule 9600 Series exemptive framework this dictionary has encountered in connection with other rules — the Corporate Financing Department may, pursuant to a written request for good cause shown, grant an exemption from the requirements of paragraph (a) to permit a member to modify the standard transfer forms for the transfer of limited partnership securities where necessary to meet other legal or regulatory requirements or to otherwise facilitate the transfer of the securities.

This provision identifies a specific FINRA department — the Corporate Financing Department — as the body with authority to grant this particular exemption, rather than the more general FINRA Rule 9600 Series framework. The Corporate Financing Department's specific identification here is notable — this department's role elsewhere in FINRA's regulatory framework relates to the review of underwriting compensation and corporate financing arrangements (recall this dictionary's earlier discussion of FINRA Rule 2310(b)(4)(D)'s reference to the Corporate Financing Department's determination role regarding dual-employee compensation in direct participation program offerings). The Corporate Financing Department's identification as the body with authority over FINRA Rule 11580(b) exemptions suggests an institutional alignment — the same department that reviews direct participation program offerings at the underwriting stage also has authority over exemptions from the standard transfer forms mandate that applies to the resulting limited partnership securities at the secondary transfer stage.

The good cause shown standard, and the two enumerated grounds for modification — necessary to meet other legal or regulatory requirements, or to otherwise facilitate the transfer of the securities — establish the substantive criteria for this exemption. The other legal or regulatory requirements ground addresses the scenario where some legal or regulatory requirement outside the Uniform Practice Code itself — perhaps a requirement imposed by the limited partnership's own governing documents, by state partnership law, or by some other regulatory framework applicable to the specific limited partnership — necessitates a transfer form that departs from FINRA Rule 11581's standard form in some respect, with FINRA Rule 11580(b) providing the mechanism for the Corporate Financing Department to permit such a departure where necessary for compliance with that other requirement. The to otherwise facilitate the transfer ground is broader, allowing modification where doing so would simply facilitate the transfer process generally, without necessarily being driven by some specific external legal or regulatory requirement.

The Amendment History: From 1996 Adoption Through Multiple Refinements to 2010

FINRA Rule 11580's amendment history — Adopted by SR-NASD-95-53 effective January 29, 1996, followed by SR-NASD-96-42 effective January 24, 1997, SR-NASD-97-05 effective May 8, 1997, SR-NASD-2005-087 effective August 1, 2006, and both SR-FINRA-2010-060 and SR-FINRA-2010-030 effective December 15, 2010 — reveals a rule with a notably more recent origin than many of the other FINRA Rule 11500 subsection provisions this dictionary has examined, most of which trace to 1968-1991 origins. FINRA Rule 11580's 1996 adoption date situates it within a different regulatory era — one in which the specific question of standardizing limited partnership securities transfers had become sufficiently significant to warrant a dedicated new rule, likely reflecting the substantial growth of the direct participation program industry through the 1980s and the corresponding need for standardized secondary-market transfer mechanisms for the resulting limited partnership interests.

The two closely-spaced 1996-1997 amendments — SR-NASD-96-42 effective January 24, 1997 and SR-NASD-97-05 effective May 8, 1997, following the original January 29, 1996 adoption — suggest a period of active refinement shortly after the rule's initial adoption, consistent with the kind of iterative adjustment that often follows a new rule's initial implementation as practical experience reveals refinements needed. SR-NASD-2005-087 effective August 1, 2006 — the same SR-NASD-2005-087 this dictionary encountered in connection with FINRA Rule 11310's amendment history — situates FINRA Rule 11580 within that broader 2005-2006 amendment wave as well. And the dual December 15, 2010 amendments through SR-FINRA-2010-060 and SR-FINRA-2010-030 represent the Consolidated FINRA Rulebook transfer, consistent with the pattern this dictionary has observed for FINRA Rules 11100, 11560, and 11574.

The two selected notices — 96-14 and 10-49 — correspond respectively to the rule's 1996 adoption (Notice 96-14, which this dictionary has separately encountered in connection with FINRA Rule 11100's amendment history, suggesting Notice 96-14 addressed a package of Uniform Practice Code amendments including both FINRA Rule 11100 refinements and FINRA Rule 11580's original adoption) and the 2010 Consolidated Rulebook transfer.

Connection to FINRA Rules 2310, 11100, 11210, 11310, 11320, 11360, 11550, 11574, and 11581

FINRA Rule 11580 connects directly and by explicit cross-reference to FINRA Rule 2310 — whose Direct Participation Program definition FINRA Rule 11580(a) incorporates to identify the limited partnership securities subject to its standard transfer forms mandate, and whose Corporate Financing Department dual-employee compensation determination role under paragraph (b)(4)(D) suggests an institutional alignment with FINRA Rule 11580(b)'s exemptive authority. It connects directly to FINRA Rule 11100(a)(5) — as the rule that operationalizes that provision's except as otherwise provided in this Code language, bringing Direct Participation Program limited partnership securities back within Uniform Practice Code coverage for transfer purposes. It connects to FINRA Rule 11210, FINRA Rule 11360, and FINRA Rule 11550 — as structural parallels for the standardized-form approach, each establishing a Uniform Form (Comparison, Delivery Ticket, and Transfer Instruction respectively) for its own context, with FINRA Rule 11580 and FINRA Rule 11581 establishing the analogous standard transfer forms specifically for limited partnership securities. It connects to FINRA Rule 11310(c) and FINRA Rule 11320(b) — whose registered securities depository definition and regular way settlement timing respectively define the second of FINRA Rule 11580(a)'s two categorical exclusions. It connects to FINRA Rule 11574 — the immediately preceding rule, whose Supplementary Material .01 Sample Limited Partnership Change of Trustee Form previewed the kind of standardized limited-partnership-specific transfer documentation that FINRA Rule 11580(a) now mandates more generally, with that form's General Partner re-registration instruction reflecting the same limited-partnership-specific transfer mechanics FINRA Rule 11580 and FINRA Rule 11581 address. And it connects directly to FINRA Rule 11581 — the final rule of the FINRA Rule 11500 subsection, which identifies where the actual standard transfer forms FINRA Rule 11580(a) mandates are published: NASD Notice to Members 96-14 (March 1996), pp. 70–75.

Which Limited Partnership Securities the Rule 2310 Cross-Reference Reaches

FINRA Rule 11580(a) does not define its own subject. It reaches "limited partnership securities, as defined in Rule 2310". FINRA Rule 2310 defines a limited partnership as "an unincorporated association that is a direct participation program organized as a limited partnership whose partners are one or more general partners and one or more limited partners, which conforms to the provisions of the Revised Uniform Limited Partnership Act or the applicable statute that regulates the organization of such partnership." Two conditions therefore meet in every interest the mandate reaches: the program must be a direct participation program, and it must be organized as a limited partnership.

The first condition turns on FINRA Rule 2310's definition of a direct participation program: a program "which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution". That definition then excludes real estate investment trusts, certain tax-qualified plans, individual retirement plans, tax sheltered annuities and companies registered under the Investment Company Act. An interest in a real estate investment trust is therefore not an interest in a direct participation program, so it is not a limited partnership security within the mandate, however illiquid it is.

The second condition works in the other direction. FINRA Rule 2310 lists "Subchapter S corporate offerings" among direct participation programs, because its definition looks to flow-through tax treatment regardless of the structure of the entity. Shares in such an offering are direct participation program securities, but the issuer is a corporation, not a limited partnership. FINRA Rule 11580(a)'s standard transfer forms mandate does not reach them.

The definition does not require one particular statute. A partnership conforms if it conforms to "the Revised Uniform Limited Partnership Act or the applicable statute that regulates the organization of such partnership". A direct participation program organized as a limited partnership under a state statute other than the Revised Uniform Limited Partnership Act is still a limited partnership for this purpose. Its unlisted interests that are not on deposit in a registered securities depository are within the mandate.

Who Must Use the Forms, and in What Form

The obligation in FINRA Rule 11580(a) falls on "each member that participates in the transfer". It is not placed on the selling member alone. Where two members both take part in the transfer of an unlisted limited partnership interest, one delivering and one receiving, each is a member that participates in the transfer, and each is bound to use the standard transfer forms.

The forms must be used "in the same form as set forth in Rule 11581". A member does not comply by building its own document that captures the same information in a different layout. Changing the forms is what paragraph (b) addresses: the Corporate Financing Department may grant an exemption "to permit a member to modify the standard transfer forms". Without that exemption, a member participating in the transfer uses the forms as published.

FINRA Rule 11581 does not reproduce the forms. Its operative text reads in full: "The forms required by Rule 11580 are published in NASD Notice to Members 96-14 (March 1996), pp. 70–75." A member writing procedures for these transfers therefore cannot take the forms from the text of FINRA Rule 11581. It must obtain them from the Notice that rule identifies.

The Exchange Exclusion in Practice

The first exclusion describes the securities, not the transaction: the rule "shall not apply to limited partnership securities that are traded on a national securities exchange". If units of a limited partnership are traded on a national securities exchange, a transfer of those units between two members is outside the mandate, even where that particular transfer is arranged between the two members rather than executed on the exchange.

The exchange exclusion stands on its own. The words "on deposit in a registered securities depository and settle regular way" belong to the second exclusion only. Units traded on a national securities exchange are therefore outside the mandate even if the units in a particular transfer are not on deposit at any depository, or the trade is made for settlement other than regular way, such as a seller's option.

The exclusion names a national securities exchange. Units that are quoted and traded only in the over-the-counter market, and are not on deposit in a registered securities depository, meet neither exclusion. A member participating in their transfer uses the standard transfer forms.

The Depository Exclusion in Practice

The second exclusion needs two things together: the securities must be "on deposit in a registered securities depository" and they must "settle regular way". Regular-way settlement without deposit is not enough. Unlisted units held in certificate form outside any depository stay within the mandate, even though the trade in them is made regular way.

The depository must be a registered one. FINRA Rule 11310(c) uses "securities depository" to mean "a securities depository registered as a clearing agency under Section 17A of the Exchange Act", the same depositories this article identifies above. Units held for an investor by a custodian that is not registered as a clearing agency are not on deposit in a registered securities depository. The second exclusion does not apply to them, and unless the units are traded on a national securities exchange, the mandate does.

Regular Way Settlement and the Depository Exclusion

Regular way has a fixed meaning in the Code's dates of delivery: "In connection with a transaction 'regular way,' delivery shall be made at the office of the purchaser on, but not before, the first business day following the date of the transaction." Units on deposit in a registered securities depository that are traded on a Monday for delivery on the Tuesday, a business day, settle regular way. The second exclusion takes that transfer outside the mandate.

A holiday does not change the character of the trade. Regular-way delivery falls on the first business day following the trade date, so when the day after the trade is not a business day, delivery simply falls on the next day that is. Units on deposit traded regular way on a Friday before a Monday holiday are delivered on the Tuesday and still settle regular way, so the depository exclusion applies.

Other settlement terms fall outside that meaning. For a transaction for "cash", "delivery shall be made at the office of the purchaser on the day of the transaction". Units on deposit in a registered securities depository that are traded for cash do not settle regular way. The depository exclusion does not apply, and unless the units are traded on a national securities exchange, the member uses the standard transfer forms.

Requesting a Modified Form Under Paragraph (b)

Paragraph (b) relief is granted "pursuant to a written request for good cause shown". A member whose staff telephones the Corporate Financing Department to describe a problem with the standard form has not made the request the rule provides for. The request must be in writing, and it must show good cause.

The relief is limited in kind. The Department may grant an exemption from paragraph (a) "to permit a member to modify the standard transfer forms for the transfer of limited partnership securities". What it permits is a modified form. It is not a release from using transfer forms at all.

The two grounds are alternatives. A modification may be permitted "where necessary to meet other legal or regulatory requirements or to otherwise facilitate the transfer of the securities". A member does not have to point to an external legal requirement. Where a modification would facilitate the transfer, for example where the standard form lacks information a particular partnership needs to process the transfer, the second ground is available, subject to the written request and good cause.

How the Rule Works With FINRA Rule 11100's Scope Provisions

FINRA Rule 11100(a)(5) excludes from the Uniform Practice Code "transactions in Direct Participation Program securities as defined in Rule 2310, except as otherwise provided in this Code", and FINRA Rule 11100(b) provides that the Code's scope "may be expanded or limited in any Rule of this Code if specifically provided therein". A member that reasons from the general exclusion alone, concluding that because direct participation program securities are outside the Code it need not use the standard transfer forms for an unlisted limited partnership interest, has read the exclusion without its proviso. FINRA Rule 11580(a) is a rule of the Code that specifically provides for the transfer of these securities.

The Limited Partnership Change of Trustee Form in Practice

The Supplementary Material to FINRA Rule 11574 reproduces a Sample Limited Partnership Change of Trustee Form. The form names the investor ("FBO (Investor's Name)"), the "Assignor (Present Trustee's Name)" and the "Designee (New Trustee's Name)". A change of trustee on this form moves the interest from the present trustee to a new trustee, while the one investor named as the person for whose benefit it is held stays the same.

Both trustees sign. The form carries an "ASSIGNOR'S RELEASE" with an authorized signature and date, and an "ASSIGNEE'S ACCEPTANCE" with an authorized signature and date. A form signed only by the present trustee lacks the new trustee's acceptance.

The form ends with an instruction to the assignee: "Upon receipt, forward this form and the original certificate (if available) to the General Partner for re-registration." Because of the words "if available", an interest for which no original certificate can be produced does not stop the assignee from forwarding the form to the General Partner.

Transfer Agent and General Partner: Where the Paperwork Goes

The Uniform Transfer Instruction Form that FINRA Rule 11550(j) requires with securities presented for transfer is addressed "TO TRANSFER AGENT" and asks it to "transfer the attached securities as shown below". The limited partnership change of trustee form works differently. It "appoints the said partnership to transfer the said interests on the books of the partnership", and the assignee forwards it to the General Partner for re-registration. For the limited partnership interest, the transfer is recorded on the partnership's own books, not by a transfer agent acting on an instruction form.

Limited Partnership Interests in Customer Account Transfers

FINRA Rule 11870, which governs the transfer of customer accounts between members, has its own provisions on limited partnership interests. It lists among "nontransferable assets" "limited partnership interests in retail accounts". The customer "will be contacted in writing by the carrying member, and/or by the receiving member, with respect to the disposition of nontransferable assets". When a retail customer moves an account holding limited partnership interests, those interests are nontransferable assets, and the customer is contacted in writing about their disposition.

Where limited partnership interests are transferred under FINRA Rule 11870, "A receiving member must deem receipt of a duly executed limited partnership change of trustee form, with respect to limited partnership interests ... as adequate delivery for purposes of transferring such assets". A receiving member that has a duly executed change of trustee form cannot treat the delivery as inadequate on the ground that no physical certificate came with it.

Fail contracts on these assets run on a longer clock. FINRA Rule 11870(f)(1) requires a member to take steps to obtain possession of securities failed to receive "not later than 10 business days following the date delivery was due", but allows "not later than 30 business days" for listed types of securities and instruments, which include "limited partnership interests". A receiving member whose limited partnership interests from an account transfer are fifteen business days overdue is not yet past its deadline for starting a buy-in or other steps.

Two Exemptive Routes Compared

FINRA's customer account transfer rule and its limited partnership transfer rule use different exemption routes. FINRA Rule 11870(j)(1) provides that "Pursuant to the Rule 9600 Series, FINRA may exempt from the provisions of this Rule". FINRA Rule 11580(b) instead names the Corporate Financing Department, acting on a written request for good cause shown. A member needing relief from both a customer account transfer requirement and the limited partnership standard forms would seek the first under the Rule 9600 Series and the second by a written request to the Corporate Financing Department.

Examination Relevance and Key Takeaways

FINRA Rule 11580 is tested on the Series 7 and Series 24 examinations as the rule mandating standard transfer forms for limited partnership securities — the operative provision bringing Direct Participation Program limited partnership securities back within Uniform Practice Code coverage under FINRA Rule 11100(a)(5)'s except as otherwise provided language.

The key points to retain are these: FINRA Rule 11580(a) requires each member participating in the transfer of limited partnership securities, as defined in FINRA Rule 2310, to use the standard transfer forms set forth in FINRA Rule 11581; this mandate excludes two categories — limited partnership securities traded on a national securities exchange, and limited partnership securities on deposit in a registered securities depository that settle regular way — both categories for which other mechanisms (exchange-trading conventions, or book-entry settlement of the kind FINRA Rule 11310 requires generally) already provide adequate transfer mechanisms; FINRA Rule 11580(b) establishes an exemptive pathway through the Corporate Financing Department — rather than the general FINRA Rule 9600 Series framework — permitting form modification upon a written request showing good cause, where necessary to meet other legal or regulatory requirements or to otherwise facilitate the transfer; FINRA Rule 11580's 1996 origin (Adopted by SR-NASD-95-53 effective January 29, 1996) is notably more recent than most other FINRA Rule 11500 subsection provisions, reflecting the growth of the direct participation program industry and the corresponding need for standardized secondary-market transfer mechanisms; and the rule was subsequently amended by SR-NASD-96-42 effective January 24, 1997, SR-NASD-97-05 effective May 8, 1997, SR-NASD-2005-087 effective August 1, 2006, and both SR-FINRA-2010-060 and SR-FINRA-2010-030 effective December 15, 2010, with two selected notices — 96-14 and 10-49.