Table of Contents
SERIES 7 | SERIES 24 | FINANCIAL REGULATION COURSES
FINRA Rule 11620 establishes the complete computational framework for accrued interest on bond transactions — providing the mathematical mechanics that FINRA Rule 11150's ex-interest date determination presupposes but does not itself specify, while simultaneously introducing the due-bill check mechanism that FINRA Rule 11630 will elaborate, and addressing income bonds' special treatment in a manner that directly resolves the cross-reference this dictionary's FINRA Rule 11150 entry identified.
The rule operates through six lettered paragraphs.
Paragraph (a), Interest to be Added to the Dollar Price, establishes the basic accrual computation for non-cash and cash transactions, with the T+1-conformed cutoff of up to but not including the first business day following the date of the transaction for non-cash transactions.
Paragraph (b), Basis of Interest, establishes the 360-day-year convention with a detailed day-count table.
Paragraph (c), Securities Traded "and interest," addresses deliveries occurring between the record date and the interest payment date, requiring a full-interest deduction at settlement.
Paragraph (d), Securities Traded "flat," introduces the due-bill check mechanism for deliveries made after the record date on contracts predating the ex-interest date.
Paragraph (e), Income Bonds, establishes the flat-trading default for income bonds, with an and-interest exception for fixed-rate-guaranteed portions not in default.
Paragraph (f), Fractions of a Cent, establishes the five-mills rounding convention.
FINRA Rule 11620 was most recently amended by SR-FINRA-2023-017 effective May 28, 2024 — the T+1 settlement cycle conformity amendment also examined throughout this dictionary's coverage of FINRA Rules 11140, 11150, 11210, and 11320 — with a prior T+2-era amendment through SR-FINRA-2016-047 effective September 5, 2017, SR-FINRA-2010-030 effective December 15, 2010, SR-NASD-94-56 effective June 7, 1995, and earlier amendments effective January 2, 1968, February 9, 1968, February 21, 1969, and March 18, 1983. Five selected notices are associated — 83-69, 95-36, 10-49, 17-19, and 24-04.
FINRA Rule 11620 sits within the 11600 Delivery of Bonds and Other Evidences of Indebtedness subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11610's bond good delivery framework and immediately preceding FINRA Rule 11630's due-bills and due-bill checks framework.
FINRA Rule 11620(a) establishes the basic accrual mechanism for bonds traded and interest — in the settlement of contracts in interest-paying securities other than for "cash," there shall be added to the dollar price interest at the rate specified in the security, which shall be computed up to but not including the first business day following the date of the transaction.
This up to but not including the first business day following the date of the transaction cutoff is the current, post-May 28, 2024 formulation — directly mirroring the T+1 regular way delivery standard this dictionary examined in connection with FINRA Rule 11320(b), and confirmed by the Versions tab's three-period structure (December 15, 2010 through September 4, 2017; September 5, 2017 through May 27, 2024; and May 28, 2024 onwards), paralleling the identical three-period pattern this dictionary observed for FINRA Rules 11140, 11150, and 11320. The accrued interest added to the dollar price compensates the seller for interest accrued up to the settlement date — and as the settlement cycle has shortened from T+2 to T+1, the accrual cutoff has correspondingly shifted, mirroring the day-for-day shift this dictionary has now traced across multiple settlement-cycle-dependent provisions.
The second sentence addresses cash transactions separately — in transactions for "cash," interest shall be added to the dollar price at the rate specified in the security up to but not including the date of transaction. This mirrors FINRA Rule 11320(a)'s same-day delivery requirement for cash transactions — since a cash transaction settles on the trade date itself, the accrual cutoff is the trade date itself (up to but not including that date), rather than the following business day that non-cash transactions use.
FINRA Rule 11620(b) establishes the foundational convention for how interest accrual periods are measured — interest shall be computed on the basis of a 360-day year, i.e., every calendar month shall be considered to be 1/12 of 360 days; every period from a date in one month to the same date in the following month shall be considered to be 30 days.
This 360-day-year convention — sometimes referred to in broader financial contexts as the 30/360 day-count convention — treats every month as having exactly 30 days for interest computation purposes, regardless of a given month's actual number of calendar days (28, 29, 30, or 31). This convention simplifies interest calculations considerably compared to an actual/actual day-count approach, since the interest accrued for any full calendar month is always the same fraction (1/12) of the annual interest amount, without needing to account for February's shorter length or the varying lengths of 30-day versus 31-day months.
The accompanying Note provides a detailed table of examples translating this 30-day-month convention into specific elapsed-day calculations for various date ranges, including: from the 1st to the 30th of the same month figured as 29 days; from the 1st to the 31st of the same month figured as 30 days; from the 1st to the 1st of the following month figured as 30 days; from the 1st to the 28th of February figured as 27 days; from the 23rd of February to the 3rd of March figured as 10 days; and from the 15th of May to the 6th of June figured as 21 days. A further set of examples addresses interest payable on the 30th or 31st of the month specifically — from the 30th or 31st to the 1st of the following month figured as 1 day; from the 30th or 31st to the 30th of the following month figured as 30 days; from the 30th or 31st to the 31st of the following month figured as 30 days; and from the 30th or 31st to the 1st of the second following month figured as 1 month, 1 day.
These examples collectively operationalize the abstract every period from a date in one month to the same date in the following month shall be considered to be 30 days principle for the edge cases that principle's literal application might otherwise leave ambiguous — particularly involving February's shorter length and months ending on the 30th or 31st. The from the 1st to the 28th of February figured as 27 days example, for instance, confirms that the 30-day-month convention does not somehow extend February artificially to 30 days for this calculation — the actual elapsed days (27, from the 1st to the 28th) governs even though the abstract convention would treat the full month as 30 days for annual-fraction purposes.
FINRA Rule 11620(c) addresses a specific timing scenario for and-interest bonds — when delivery of a security traded "and interest" is made between the record date fixed for the purpose of determining the holder entitled to receive interest and the interest payment date, a deduction equivalent to the full amount of the interest to be paid shall be made on settlement.
This provision addresses the scenario where a delivery occurs in the window between the record date and the interest payment date itself. In this window, the seller — having been the holder of record as of the record date — is the party who will receive the upcoming interest payment directly from the issuer, even though the security is being delivered to the buyer before that payment is actually made. FINRA Rule 11620(c) resolves the resulting mismatch through a settlement-price deduction — a deduction equivalent to the full amount of the interest to be paid shall be made on settlement, meaning the buyer's settlement price is reduced by the full amount of the upcoming interest payment, reflecting that the buyer will not receive that payment (the seller will, as record holder) but the buyer's price should nonetheless reflect this allocation.
This deduction mechanism represents one of two distinct mechanisms FINRA Rule 11620 establishes for resolving record-date-related timing mismatches — paragraph (c)'s price-deduction approach for and-interest securities, and paragraph (d)'s due-bill-check approach for flat-traded securities, examined next.
FINRA Rule 11620(d) addresses the parallel scenario for flat-traded securities — when delivery of a security traded "flat" is made after the record date fixed for the purpose of determining the holder entitled to receive interest, in the settlement of a contract made prior to the date on which the security was traded "ex-interest," a due-bill check for the full amount of the interest to be paid shall accompany the delivery.
This provision introduces the due-bill check mechanism this dictionary anticipated in its FINRA Rule 11600 entry. The scenario paragraph (d) addresses involves a contract made prior to the security's ex-interest date — meaning, under FINRA Rule 11150's framework, the buyer is economically entitled to the upcoming interest payment — but delivery occurs after the record date, meaning the seller, as record holder, is the party who will actually receive that payment directly from the issuer. For flat-traded securities — where, unlike and-interest securities under paragraph (c), there is no separate accrued-interest component in the price to adjust through a deduction — paragraph (d) instead requires that a due-bill check for the full amount of the interest to be paid shall accompany the delivery.
The due-bill check functions as the seller's advance acknowledgment of the obligation to pass along the upcoming interest payment to the buyer once received — rather than adjusting the settlement price (as paragraph (c) does for and-interest securities), paragraph (d) requires a separate instrument, accompanying the delivery itself, that documents the seller's obligation to remit the interest payment to the buyer when the seller receives it from the issuer as record holder. This due-bill check, once the underlying interest payment is actually received by the seller, becomes the mechanism through which that payment is passed along to the buyer — the title FINRA Rule 11630 bears (Due-Bills and Due-Bill Checks) confirms that this mechanism receives its own dedicated, more detailed treatment in the rule immediately following FINRA Rule 11620.
The structural distinction between paragraph (c)'s deduction approach for and-interest securities and paragraph (d)'s due-bill-check approach for flat-traded securities reflects the different pricing conventions these two categories employ — and-interest securities have a separately-calculable accrued-interest component that can simply be adjusted (deducted) at settlement, while flat-traded securities' prices do not separately account for interest at all, making a due-bill-check instrument — rather than a price adjustment — the appropriate mechanism for documenting and eventually effecting the pass-along of the interest payment the buyer is economically entitled to but will not receive directly from the issuer.
FINRA Rule 11620(e) addresses income bonds directly — confirming and elaborating the cross-reference this dictionary's FINRA Rule 11150 entry identified but could not fully resolve at the time. Income bonds shall be dealt in "flat" even though such bonds are paying interest, except that where a certain fixed rate is guaranteed in the indenture and provision is made for additional contingent payment, they shall be dealt in "and interest" at the fixed rate guaranteed in the indenture (so long as interest payments at such fixed rate are not in default and no announcement of intention to default has been made).
This provision establishes a default rule and an exception. The default rule — income bonds shall be dealt in "flat" even though such bonds are paying interest — confirms the categorization this dictionary's FINRA Rule 11150 entry anticipated: income bonds, whose interest payments depend on the issuer's earnings or other contingencies (as this dictionary discussed in connection with FINRA Rule 11130(b)(2)'s treatment of income or contingent interest securities), trade flat by default — even when such bonds are, in fact, currently paying interest, the flat-trading convention applies as the default, given the contingent and potentially variable nature of those payments.
The exception addresses a hybrid structure — where a certain fixed rate is guaranteed in the indenture and provision is made for additional contingent payment, the bond shall be dealt in "and interest" at the fixed rate guaranteed in the indenture. This exception directly confirms and elaborates the hybrid treatment this dictionary's FINRA Rule 11130(b)(3) discussion anticipated for securities bearing a fixed rate of interest plus contingent additional payment — FINRA Rule 11620(e) now confirms that for such hybrid income bonds, the fixed-rate-guaranteed portion is dealt in and interest (with the corresponding accrued-interest computation and paragraph (c) deduction mechanism applying to that fixed-rate portion specifically), while — by implication, given paragraph (e)'s overall flat default for income bonds — the contingent additional payment portion remains subject to the flat-trading default.
The parenthetical qualifier — so long as interest payments at such fixed rate are not in default and no announcement of intention to default has been made — ties this and-interest exception to the fixed-rate payments' continued non-default status. If the fixed-rate payments fall into default, or if the issuer announces an intention to default on those fixed-rate payments, the and-interest exception ceases to apply — connecting to FINRA Rule 11610(c)'s requirement that defaulted bonds carry all unpaid coupons, and to the general flat-trading characterization of defaulted bonds this dictionary identified in connection with FINRA Rule 11150. Once default (actual or announced-as-intended) affects the fixed-rate payments, even the fixed-rate-guaranteed portion of a hybrid income bond reverts to the flat-trading default that paragraph (e)'s opening sentence establishes for income bonds generally.
FINRA Rule 11620(f) establishes a rounding convention for the interest computations paragraphs (a) through (e) produce — in all transactions involving the payment of interest, fractions of a cent equalling or exceeding five mills shall be regarded as one cent; fractions of a cent less than five mills shall be disregarded.
A mill, in this context, represents one-tenth of a cent — so five mills represents exactly half a cent. This provision establishes a standard round-half-up convention applied at the half-cent threshold: a computed interest amount whose fractional-cent component is five mills (half a cent) or more rounds up to the next full cent, while a fractional-cent component of less than five mills (less than half a cent) is simply disregarded, rounding down to the nearest full cent. This rounding convention ensures that the detailed day-count and rate-based computations paragraphs (a) through (e) establish ultimately produce a dollar-and-cents figure suitable for actual settlement, without leaving fractional-cent remainders that would have no practical meaning in a cash settlement context.
FINRA Rule 11620's amendment history — January 2, 1968, February 9, 1968, February 21, 1969, March 18, 1983, SR-NASD-94-56 effective June 7, 1995, SR-FINRA-2010-030 effective December 15, 2010, SR-FINRA-2016-047 effective September 5, 2017, and SR-FINRA-2023-017 effective May 28, 2024 — places FINRA Rule 11620 within the same settlement-cycle-dependent family this dictionary has traced through FINRA Rules 11140, 11150, 11210, and 11320, with paragraph (a)'s accrual cutoff having shifted in tandem with those rules' settlement-timing provisions across the T+2-to-T+1 transition.
The selected notice 95-36 — not previously encountered in this dictionary's coverage of the Uniform Practice Code — corresponds to SR-NASD-94-56 effective June 7, 1995, the same amendment date this dictionary encountered in connection with FINRA Rule 11150's amendment history. This shared 1995 amendment date and the new Notice 95-36 reference suggests that SR-NASD-94-56 represented a coordinated amendment addressing both FINRA Rule 11150's ex-interest date framework and FINRA Rule 11620's interest computation framework together — a sensible pairing given how closely these two rules' subject matter interrelates, as this entry's analysis of paragraphs (c), (d), and (e) has demonstrated throughout.
FINRA Rule 11620 connects directly and substantively to FINRA Rule 11150 — whose ex-interest date determination FINRA Rule 11620(a) through (d) provide the computational mechanics for, with paragraph (c)'s record-date-to-payment-date deduction and paragraph (d)'s due-bill-check mechanism each addressing a different pricing convention's (and-interest versus flat) response to the same underlying timing mismatch that FINRA Rule 11150's ex-interest date framework creates. It connects to FINRA Rule 11130(b) — whose accrued interest framework for when, as and if issued/distributed transactions in income or contingent interest securities and hybrid fixed-plus-contingent securities, this dictionary noted at the time could not be fully resolved without further confirmation, is now directly confirmed and elaborated by FINRA Rule 11620(e)'s income bonds provision. It connects to FINRA Rule 11320(b) — whose T+1 regular way delivery standard FINRA Rule 11620(a)'s accrual cutoff directly mirrors, both having undergone the same settlement-cycle-driven amendments across the T+2-to-T+1 transition. It connects to FINRA Rule 11610(c) — whose all-unpaid-coupons requirement for defaulted bonds connects to FINRA Rule 11620(e)'s parenthetical reversion to flat-trading upon default or announced intention to default for the fixed-rate portion of hybrid income bonds. And it connects directly and indispensably to FINRA Rule 11630 — the next rule in the FINRA Rule 11600 subsection, which this dictionary anticipates will provide the detailed framework for the due-bill and due-bill check mechanism that FINRA Rule 11620(d) introduces.
FINRA Rule 11620 is tested on the Series 7 and Series 24 examinations as the comprehensive computation-of-interest framework for bonds — providing the day-count conventions, accrual cutoffs, and record-date timing-mismatch resolution mechanisms (deduction versus due-bill check) that operationalize FINRA Rule 11150's ex-interest date determinations.
The key points to retain are these: FINRA Rule 11620(a) — as amended effective May 28, 2024 for T+1 — adds accrued interest to the dollar price for non-cash and-interest transactions computed up to but not including the first business day following the transaction date, and for cash transactions up to but not including the transaction date itself; FINRA Rule 11620(b) establishes the 360-day-year (30/360) day-count convention, with a detailed table of elapsed-day examples addressing February and month-end (30th/31st) edge cases; FINRA Rule 11620(c) requires a full-interest-amount deduction at settlement when an and-interest security is delivered between the record date and the interest payment date; FINRA Rule 11620(d) requires a due-bill check for the full interest amount to accompany delivery when a flat-traded security is delivered after the record date on a contract made prior to the ex-interest date — introducing the due-bill check mechanism FINRA Rule 11630 elaborates; FINRA Rule 11620(e) confirms that income bonds trade flat by default even while paying interest, except that a fixed rate guaranteed in the indenture (with additional contingent payment provision) trades and-interest at that guaranteed rate so long as it is not in default or subject to an announced intention to default — directly resolving the hybrid-security treatment this dictionary's FINRA Rule 11130(b) entry anticipated; FINRA Rule 11620(f) establishes a five-mills (half-cent) rounding threshold for fractional-cent interest amounts; and the rule was last amended effective May 28, 2024 through SR-FINRA-2023-017, with prior amendments effective January 2, 1968, February 9, 1968, February 21, 1969, March 18, 1983, SR-NASD-94-56 effective June 7, 1995, SR-FINRA-2010-030 effective December 15, 2010, and SR-FINRA-2016-047 effective September 5, 2017, with five selected notices — 83-69, 95-36, 10-49, 17-19, and 24-04.
