Table of Contents
SERIES 7 | SERIES 24 | FINANCIAL REGULATION COURSES
FINRA Rule 11610 is the first substantive rule of the FINRA Rule 11600 subsection — and, despite its title's narrow focus on liability for expenses, the rule's actual content is a comprehensive eight-paragraph good delivery framework for bonds and similar evidences of indebtedness, with the liability-for-expenses principle serving as the rule's opening enforcement mechanism for the eight categories of good delivery standards that follow.
The opening sentence establishes the enforcement principle: failure of the seller to meet the requirements of good delivery relating to bonds and similar evidences of indebtedness, as set forth in paragraphs (a) through (h) of this Rule inclusive, shall make the seller liable for any expense incurred as a result of such failure.
The eight paragraphs then establish: (a) Coupon Bonds — proper coupon attachment requirements, with purchaser's option regarding cash or check for missing coupons; (b) Endorsed Bonds — a good delivery prohibition for bonds bearing improper endorsements unless sold specifically as an "endorsed bond"; (c) Interest in Default — a requirement that defaulted bonds carry all unpaid coupons; (d) Registerable as to Principal — a bearer-registration requirement for coupon bonds registerable as to principal; (e) Endorsements for Banking or Insurance Requirements — a good delivery prohibition for bonds bearing governmental-deposit endorsements unless released and sold as a "released endorsed bond"; (f) Coupon Detached Prior to Delivery — rules for and-interest bond deliveries on or after an interest payment date, including a late-delivery risk-allocation provision; (g) Stamped Bonds — good delivery rules tied to reorganization-plan or indenture-amendment stamping requirements, with a separate carve-out for tax-paid stamps; and (h) Certificates of Deposit — a good delivery prohibition for certificates of deposit issued by unspecified committees or depositaries.
FINRA Rule 11610 was amended by SR-FINRA-2010-030 effective December 15, 2010 — no prior amendment date is listed. One selected notice is associated — Regulatory Notice 10-49.
FINRA Rule 11610 sits within the 11600 Delivery of Bonds and Other Evidences of Indebtedness subsection of the 11000 Uniform Practice Code as its first substantive rule, immediately following FINRA Rule 11600's series marker and immediately preceding FINRA Rule 11620's computation of interest framework.
FINRA Rule 11610's opening sentence establishes a structural pattern this dictionary has now encountered repeatedly throughout its coverage of the Uniform Practice Code's good delivery framework — failure of the seller to meet the requirements of good delivery... shall make the seller liable for any expense incurred as a result of such failure.
This liability-for-expenses formulation directly parallels FINRA Rule 11550(a)'s any expense incurred through failure of a seller to meet these requirements shall be paid by the seller, FINRA Rule 11340(d)'s buyer's-deduction remedy for a seller's failure to furnish requested stamps, and FINRA Rule 11410(d)'s seller-borne shipment expenses for draft-attached deliveries.
What distinguishes FINRA Rule 11610's opening sentence from these prior instances is its scope — rather than establishing liability for a single, narrowly-defined failure (a missing stamp, a shipment expense), FINRA Rule 11610's opening sentence establishes liability for failure to meet any of the eight distinct good delivery standards that paragraphs (a) through (h) collectively establish. The opening sentence thus functions as a unifying enforcement clause for the entire rule — whatever specific good delivery defect a bond presents under paragraphs (a) through (h), the consequence is the same: the seller bears liability for any expense the receiving party incurs as a result.
FINRA Rule 11610(a) establishes the foundational good delivery standard for coupon bonds — a coupon bond shall have securely attached in the correct place proper coupons, warrants, etc., of the same serial number as the bond.
This provision builds directly on the coupon bond framework this dictionary examined in connection with FINRA Rule 11362(a)'s denomination structure and FINRA Rule 11520(b) and (c)'s mutilated-coupon endorsement framework. Where FINRA Rule 11520(b) addressed coupons that are present but mutilated or erroneously canceled, FINRA Rule 11610(a) addresses the more fundamental question of whether the correct coupons are present and properly attached at all. The same serial number as the bond requirement ensures that the coupons attached to a given bond certificate are specifically the coupons belonging to that certificate — not coupons from a different bond within the same issue, even if otherwise identical in terms — reflecting the same serial-number-specific identification concern that FINRA Rule 11520(b)'s bond number mutilation provision addressed from the endorsement-cure perspective.
The second sentence establishes a purchaser's option for the scenario where proper coupons are missing — acceptance of cash or check in lieu of missing coupons shall be at the option of the purchaser. This provision gives the purchaser, rather than the seller, the choice of remedy when coupons are missing — the purchaser may accept a cash or check substitute for the missing coupons' value, but is not required to do so. This purchaser's-option framing is consistent with the broader pattern this dictionary has observed of placing remedial choices in the hands of the party who did not cause the defect — here, a missing coupon represents a delivery defect attributable to the seller, and the purchaser (the non-defaulting party) retains the choice of whether a cash or check substitute is an acceptable remedy or whether the purchaser instead wishes to pursue some other course (such as rejecting the delivery as not constituting good delivery under the rule's general framework).
FINRA Rule 11610(b) addresses bonds bearing certain categories of endorsement — a coupon bond bearing an endorsement of a definite name of a person, firm, corporation, association, etc., in conjunction with words of condition, qualification, direction, or restriction, not properly pertaining thereto as a security, shall not be a good delivery unless sold specifically as an "endorsed bond." This shall also apply to bonds with coupons bearing such endorsements.
This provision establishes a default disqualification — a coupon bond bearing an endorsement that names a specific person, firm, corporation, association, or similar entity, combined with words of condition, qualification, direction, or restriction not properly pertaining to the security itself, is not good delivery by default. The not properly pertaining thereto as a security qualifier is key — it distinguishes endorsements that are themselves part of the security's proper documentary apparatus (such as the FINRA Rule 11520(b) and (c) coupon endorsements this dictionary examined, which exist specifically to cure mutilation or erroneous-cancellation defects) from endorsements that represent some extraneous condition, qualification, direction, or restriction unrelated to the security's own proper terms.
The cure for this default disqualification mirrors the structure this dictionary observed in FINRA Rule 11530(a)'s second exception for "called stock" or "called bonds" dealt in specifically as such — a bond bearing such an endorsement can still be good delivery if sold specifically as an "endorsed bond." This parallels FINRA Rule 11530(a)'s dealt in specifically as such formulation directly — where the parties have specifically transacted with the endorsement's presence as an acknowledged characteristic of what is being bought and sold (by designating the transaction as one in an "endorsed bond"), the buyer cannot complain that the endorsement renders the delivery deficient, since the buyer specifically contracted for a bond bearing that endorsement.
The final sentence extends this framework to coupons specifically — this shall also apply to bonds with coupons bearing such endorsements — confirming that the same default disqualification, and the same "endorsed bond" cure, applies whether the qualifying endorsement appears on the bond certificate itself or on one or more of its attached coupons.
FINRA Rule 11610(c) addresses bonds whose interest payments have ceased — a bond upon which interest is in default shall carry all unpaid coupons.
This single-sentence provision connects directly to FINRA Rule 11150's flat-trading framework examined earlier in this dictionary's coverage — recall that this dictionary identified bonds in default — where interest payments have ceased — as one of the categories of bond that trades flat, because there is no current interest accruing to calculate. FINRA Rule 11610(c) addresses the delivery-mechanics counterpart to this flat-trading characterization: for a bond in default, all unpaid coupons — representing interest payments that were due but never made — must accompany the bond on delivery.
The rationale connects to the all-or-nothing character of a defaulted bond's interest claims. Once a bond is in default, its unpaid coupons represent claims against the issuer that travel with the bond itself — a holder of the bond, going forward, holds whatever claim to eventual payment (through bankruptcy proceedings, reorganization, or otherwise) those unpaid coupons represent. FINRA Rule 11610(c) ensures that a delivery of a defaulted bond includes all of these unpaid-coupon claims — a seller cannot deliver the bond itself while retaining some of the unpaid coupons (and the claims they represent) for the seller's own account, since carry all unpaid coupons requires the complete set to travel with the bond on delivery.
FINRA Rule 11610(d) addresses a specific category of coupon bond — those that are registerable as to principal, meaning a coupon bond that, while otherwise a bearer instrument with respect to its interest coupons, has a feature allowing the principal amount to be registered in a specific holder's name (as distinguished from the fully bearer coupon bonds FINRA Rule 11362(a) primarily addressed, or the fully registered bonds FINRA Rule 11362(b) addressed).
For this hybrid category, FINRA Rule 11610(d) establishes: a coupon bond registerable as to principal shall be a good delivery only if registered to bearer. This requirement resolves a potential ambiguity that a registerable-as-to-principal coupon bond presents — such a bond could, at any given time, have its principal registered in the name of a specific holder, or registered to bearer (meaning no specific-holder registration is currently in effect, and the bond's principal is, for the time being, payable to whoever holds the bond). FINRA Rule 11610(d) establishes that, for good delivery purposes, such a bond must be in the registered to bearer state — not registered in some specific holder's name.
This requirement makes practical sense given the coupon-bond delivery framework's general orientation toward bearer-instrument conventions — a coupon bond, even one with the registerable-as-to-principal feature, is fundamentally a bearer instrument for delivery purposes under FINRA Rule 11362(a)'s framework, and FINRA Rule 11610(d) ensures that the registerable-as-to-principal feature, when present, does not place the bond in a registered-to-a-specific-holder state that would be incompatible with the bearer-instrument delivery conventions the rest of the coupon bond framework presupposes. A bond currently registered in a specific prior holder's name would require some additional transfer or re-registration step before it could be delivered to a new holder in the ordinary bearer-bond manner — FINRA Rule 11610(d) avoids this complication by requiring the registered to bearer state as the good delivery condition.
FINRA Rule 11610(e) addresses a specific category of endorsement related to regulatory deposit requirements — a coupon bond bearing an endorsement indicating that the bond was deposited in accordance with a governmental requirement pertaining to banking institutions or insurance companies shall not be a good delivery.
This provision addresses bonds that have been deposited to satisfy a governmental requirement applicable to banking institutions or insurance companies — connecting to the broader theme of governmental documentation and restriction requirements this dictionary examined in connection with FINRA Rule 11540's framework for delivery under government regulations. A bond bearing an endorsement reflecting such a deposit is not good delivery by default — the endorsement signals that the bond, as currently endorsed, remains subject to whatever deposit arrangement the endorsement reflects, a status incompatible with ordinary delivery to a new holder.
The second sentence provides the cure — if released, with such release acknowledged before an officer authorized to take acknowledgments, it shall be a good delivery if sold specifically as a "released endorsed bond." This cure has two components: first, the deposit arrangement must have been released — the governmental-requirement deposit that the original endorsement reflected must have been terminated or released, freeing the bond from that arrangement; and second, that release must be acknowledged before an officer authorized to take acknowledgments — a formal acknowledgment process, paralleling the kind of notarization or similar formal verification this dictionary has encountered elsewhere in connection with signature guarantees and authentications. Even with both of these conditions satisfied, the bond is good delivery only if sold specifically as a "released endorsed bond" — paralleling FINRA Rule 11610(b)'s "endorsed bond" specific-sale requirement and FINRA Rule 11530(a)'s "called stock" or "called bonds" specific-sale requirement, the released status must be an acknowledged term of the transaction itself for the bond, bearing as it still does the original (now-released) endorsement, to constitute good delivery.
FINRA Rule 11610(f) addresses the delivery mechanics for bonds dealt in and interest — the accrued-interest trading convention this dictionary has contrasted with the flat-trading convention throughout its coverage of FINRA Rule 11150 — specifically around an interest payment date.
Paragraph (f)(1) establishes the baseline rule — a bond dealt in "and interest," for delivery on or after the date on which interest is due and payable, shall be delivered without the coupon payable on such date. This provision addresses the scenario where a delivery occurs on or after an interest payment date — for such a delivery, the coupon representing the interest payment due on that date is not included in the delivery; it has, in effect, already been detached, presumably because the seller (as record holder as of the relevant record date, given the ex-interest framework FINRA Rule 11150 establishes) is the party entitled to that specific interest payment, while the buyer's and-interest purchase price already accounts for the accrued interest up to the relevant point under FINRA Rule 11150's and FINRA Rule 11620's frameworks.
Paragraph (f)(2) addresses a late delivery scenario — in the settlement of contracts in bonds dealt in "and interest" where delivery is due prior to the interest payment date but is made on or after the interest payment date, bonds may be delivered without coupons payable on such date, and the seller may present such detached, unpaid coupons to the buyer for payment, the buyer bearing the risk of non-payment.
This late-delivery provision addresses a timing complication — a contract calls for delivery before the interest payment date (meaning, under the ordinary and-interest framework, the buyer would be entitled to that upcoming interest payment, having purchased the bond before the relevant ex-interest cutoff), but the actual delivery is delayed until on or after that interest payment date has already passed. In this scenario, paragraph (f)(2) permits the bonds to be delivered without the now-due coupon (mirroring paragraph (f)(1)'s general on-or-after-payment-date rule), but then establishes a specific remedial mechanism — the seller may present such detached, unpaid coupons to the buyer for payment. This means the seller, who actually held the bond (and therefore the coupon) as of the payment date and would ordinarily have been able to present that coupon for payment directly, instead presents the detached coupon to the buyer — the party who, under the original and-interest contract terms, was economically entitled to that interest payment — for the buyer to handle payment.
The final clause — the buyer bearing the risk of non-payment — allocates the risk that the coupon, once presented, might not actually be paid (for whatever reason — issuer default, processing delay, or other complication) to the buyer. Since the buyer was the party economically entitled to this interest payment under the and-interest contract terms (the late delivery notwithstanding), the buyer bears the risk that the coupon, once it comes into the buyer's hands via the seller's presentation, does not actually result in payment.
FINRA Rule 11610(g) addresses bonds bearing stamps reflecting various corporate or governmental actions, across two numbered subparagraphs.
Paragraph (g)(1) establishes a good-delivery/not-good-delivery pairing tied to reorganization or indenture stamping requirements — if a plan of reorganization which has been declared operative, or an amendment or supplement to an indenture provides that the bonds covered thereby shall be stamped to reflect the adoption of such plan or the amendment or supplement to the indenture, bonds so stamped shall be a good delivery and bonds not so stamped shall not be a good delivery.
This provision connects to the when, as and if issued/distributed framework this dictionary examined in connection with FINRA Rule 11130 — a plan of reorganization that has been declared operative is precisely the kind of corporate action FINRA Rule 11130 addresses for contracts entered into before the reorganization's completion. FINRA Rule 11610(g)(1) addresses the post-operative-declaration scenario from a delivery-mechanics perspective — once a reorganization plan (or an indenture amendment or supplement) is operative and provides that covered bonds shall be stamped to reflect that adoption, the stamping itself becomes the good delivery criterion: stamped bonds are good delivery, unstamped bonds are not. This creates a clean, objectively verifiable good delivery standard tied directly to whatever stamping requirement the operative plan or indenture amendment establishes.
Paragraph (g)(2) establishes a specific carve-out for a different category of stamp — the fact that a bond has been stamped "Tax Paid" by any authority vested with the power to tax, if the stamp does not indicate ownership, shall not prevent such bond from being a good delivery. This provision addresses tax-related stamping — connecting to the stamp tax framework this dictionary examined in connection with FINRA Rule 11340 — confirming that a "Tax Paid" stamp from a taxing authority does not itself disqualify a bond from good delivery, provided that stamp does not indicate ownership. The if the stamp does not indicate ownership qualifier distinguishes a pure tax-compliance stamp (which paragraph (g)(2) confirms is compatible with good delivery) from a stamp that additionally indicates ownership (which might raise the kind of registration or endorsement concerns this dictionary has examined elsewhere — a "Tax Paid" stamp that also indicates a specific owner's name might, depending on the specific facts, implicate FINRA Rule 11610(b)'s endorsed-bond framework or other provisions addressing ownership-indicating markings).
FINRA Rule 11610(h) addresses certificates of deposit — a category this dictionary previously examined in connection with FINRA Rule 11364's units of delivery cross-reference to FINRA Rule 11362 — from a good delivery perspective: certificates of deposit issued by committees or depositaries other than those specified at time of trade shall not be a good delivery.
This provision establishes that a certificate of deposit's good delivery status depends on the identity of the issuing committee or depositary matching what was specified at the time of trade. Recall from this dictionary's FINRA Rule 11364 entry that a certificate of deposit for bonds represents a depositary interest in an underlying bond, historically arising in connection with bond reorganizations and exchange offers, with various committees or depositaries potentially serving this depositary function for different reorganization or exchange arrangements.
FINRA Rule 11610(h) ensures that a transaction in a certificate of deposit is understood, at the time of trade, to involve a certificate issued by a specific committee or depositary — and that the certificate actually delivered must be issued by that same specified committee or depositary to constitute good delivery. A certificate of deposit issued by some other committee or depositary — even if nominally representing a similar underlying interest — would not satisfy this requirement, since the committee or depositary identity itself is part of what the parties specified at time of trade, connecting to the broader FINRA Rule 11220 description-of-securities principle that the buyer and seller must agree as to details of the transaction, with the issuing committee or depositary's identity being one such detail for certificate of deposit transactions specifically.
FINRA Rule 11610 connects to FINRA Rule 11130's when, as and if issued/distributed framework — whose operative-plan-of-reorganization concept underlies FINRA Rule 11610(g)(1)'s stamping requirement for bonds covered by an operative reorganization plan. It connects to FINRA Rule 11150's flat-trading framework — whose categorization of defaulted bonds as trading flat directly underlies FINRA Rule 11610(c)'s all-unpaid-coupons delivery requirement, and whose and-interest counterpart underlies FINRA Rule 11610(f)'s coupon-detachment provisions. It connects to FINRA Rule 11220's description of securities framework — whose buyer-seller-agreement principle underlies FINRA Rule 11610(h)'s specified-committee-or-depositary requirement for certificates of deposit. It connects to FINRA Rule 11340's stamp tax framework — as a point of contrast and connection for FINRA Rule 11610(g)(2)'s "Tax Paid" stamp carve-out. It connects to FINRA Rule 11362(a) and (b) — whose coupon bond and registered bond denomination frameworks provide the baseline against which FINRA Rule 11610(a)'s coupon attachment requirements and FINRA Rule 11610(d)'s registerable-as-to-principal bearer requirement operate. It connects to FINRA Rule 11364 — whose certificates of deposit for bonds framework FINRA Rule 11610(h) addresses from the good-delivery, specified-issuer perspective. It connects to FINRA Rule 11520(b) and (c) — whose mutilated and erroneously-canceled coupon endorsement framework addresses a different but related category of coupon-level defect than FINRA Rule 11610(a)'s missing-coupon and FINRA Rule 11610(b)'s improperly-endorsed-coupon provisions. It connects to FINRA Rule 11530(a) — whose "called stock" or "called bonds" dealt-in-specifically-as-such formulation FINRA Rule 11610(b)'s "endorsed bond" and FINRA Rule 11610(e)'s "released endorsed bond" cures directly parallel. It connects to FINRA Rule 11540 — whose governmental documentation and restriction framework underlies FINRA Rule 11610(e)'s banking-or-insurance-requirement endorsement provisions. It connects to FINRA Rule 11550(a) — whose seller-borne-expense liability formulation FINRA Rule 11610's opening sentence directly parallels for the bond-specific good delivery context. It connects to FINRA Rule 11600 as its parent series marker. And it connects to FINRA Rule 11620 — the next rule in the FINRA Rule 11600 subsection, whose computation of interest framework operates alongside FINRA Rule 11610(f)'s and-interest coupon-detachment provisions as two complementary dimensions of bond interest mechanics.
FINRA Rule 11610 is tested on the Series 7 and Series 24 examinations as the comprehensive good delivery framework for bonds and similar evidences of indebtedness — an eight-category standard enforced through seller liability for any expense arising from non-compliance.
The key points to retain are these: FINRA Rule 11610's opening sentence makes the seller liable for any expense incurred from a failure to meet any of the eight good delivery standards in paragraphs (a) through (h); FINRA Rule 11610(a) requires coupon bonds to have proper, same-serial-number coupons securely attached, with the purchaser holding the option to accept cash or check for missing coupons; FINRA Rule 11610(b) disqualifies coupon bonds (and their coupons) bearing improper named-party endorsements from good delivery unless sold specifically as an "endorsed bond"; FINRA Rule 11610(c) requires defaulted bonds to carry all unpaid coupons; FINRA Rule 11610(d) requires coupon bonds registerable as to principal to be registered to bearer for good delivery; FINRA Rule 11610(e) disqualifies bonds bearing banking-or-insurance governmental-deposit endorsements unless released, with the release acknowledged before an authorized officer, and sold specifically as a "released endorsed bond"; FINRA Rule 11610(f) governs and-interest bond deliveries on or after an interest payment date — requiring delivery without the now-due coupon, with a late-delivery provision allowing the seller to present detached unpaid coupons to the buyer for payment, the buyer bearing non-payment risk; FINRA Rule 11610(g) ties good delivery for stamped bonds to operative reorganization-plan or indenture-amendment stamping requirements, while carving out "Tax Paid" stamps that do not indicate ownership; FINRA Rule 11610(h) requires certificates of deposit to be issued by the committee or depositary specified at time of trade for good delivery; and the rule was amended December 15, 2010 through SR-FINRA-2010-030 — no prior amendment date listed — with one selected notice, 10-49.
