Table of Contents
SERIES 7 | SERIES 24 | FINANCIAL REGULATION COURSES
FINRA Rule 11630 provides the complete operative framework for the due-bill and due-bill check mechanism that FINRA Rule 11620(d) introduced — defining what a due-bill and a due-bill check are, establishing distinct procedures for stock-dividend-and-rights due-bills versus cash-distribution-and-interest due-bill checks, governing redemption timing, and providing a buy-in remedy under FINRA Rule 11810 for a seller's failure to honor a presented due-bill.
The rule operates through six lettered paragraphs.
Paragraph (a), Definition of Due-Bills, defines a due-bill as an instrument evidencing transfer of title to a security or rights, or evidencing a seller's obligation to deliver such to a subsequent purchaser — non-transferable and non-assignable by the purchaser.
Paragraph (b), Definition of Due-Bill Checks, defines a due-bill check as a due-bill in the form of a check payable on the date of payment of a cash dividend, interest on registered bonds, or interest on unit investment trust securities.
Paragraph (c), Due-bills for Stock Dividends and Rights, establishes the accompanying-due-bill requirement for securities sold before trading ex-dividend or ex-rights but delivered too late for record-date transfer, with a pro-ration mechanism subject to a 10% stock dividend exception.
Paragraph (d), Due-bill Checks for Cash Distribution and Interest, establishes the parallel due-bill check accompaniment requirement for cash distributions and registered bond or UIT interest. Paragraph (e), Redemption of Due-Bills, establishes the redemption timing standard.
Paragraph (f), Default Upon Redemption of Due-Bills, establishes the FINRA Rule 11810 buy-in remedy for paragraph (c) due-bills not honored upon presentation, with a payable-date timing restriction. Supplementary Material .01 sets forth five Sample Due-Bills Forms — for stock dividend or stock distribution, for rights, for interest on a when-issued contract, for dividend on a when-issued contract, and the due-bill check itself.
FINRA Rule 11630 was amended by SR-FINRA-2010-030 effective December 15, 2010, with prior amendments effective February 21, 1969, March 1, 1970, November 1, 1971, November 1, 1972, and March 18, 1983. Two selected notices are associated — 83-69 and 10-49.
FINRA Rule 11630 sits within the 11600 Delivery of Bonds and Other Evidences of Indebtedness subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11620's computation of interest framework and immediately preceding FINRA Rule 11640's claims for dividends, rights, interest, etc. framework.
FINRA Rule 11630(a) provides the foundational definition — the term "due-bill" as used in this Rule means an instrument employed for the purpose of evidencing the transfer of title to any security or rights pertaining to any security contracted for or evidencing the obligation of a seller to deliver such to a subsequent purchaser.
This definition identifies two functions a due-bill can serve — evidencing the transfer of title to a security or rights pertaining to a security that has been contracted for, or evidencing the seller's obligation to deliver that security or those rights to a subsequent purchaser. Both functions address the same underlying scenario this dictionary identified in connection with FINRA Rule 11620(d) — a buyer who is economically entitled to a security, right, or distribution (because the buyer purchased before the relevant ex-date), but where the seller, as record holder, will receive that security, right, or distribution directly from the issuer because delivery occurred too late for the buyer to be recorded as the new holder by the relevant record date.
The second sentence establishes a critical limitation — a due-bill shall not be transferable or assignable by the purchaser. This non-transferability restriction means a due-bill is a personal instrument running specifically between the seller (who issues it) and the specific purchaser (to whom it is issued) — the purchaser holding a due-bill cannot transfer or assign that due-bill to some third party, meaning the due-bill's benefit remains tied to the specific purchaser who received it as part of the original transaction's settlement.
FINRA Rule 11630(b) defines the more specific due-bill check instrument — the term "due-bill checks" as used in this Rule means a due-bill in the form of a check payable on the date of payment of a cash dividend, interest on registered bonds or interest on unit investment trust securities, which prior to such date shall be considered as a due-bill, as defined in paragraph (a) of this Rule, for the amount of such dividend or interest.
This definition establishes a due-bill check as a specific sub-category of due-bill — one that takes the physical form of a check, and that is payable on the date of payment of one of three enumerated distribution types: a cash dividend, interest on registered bonds, or interest on unit investment trust securities. The which prior to such date shall be considered as a due-bill clause establishes the instrument's dual character across time — before the payment date, the instrument functions as a due-bill under paragraph (a)'s general definition (evidencing the obligation, non-transferable by the purchaser); on the payment date itself, the instrument becomes payable as a check, for the amount of the dividend or interest it represents.
The connection to FINRA Rule 11620(b) deserves note — FINRA Rule 11630(b)'s enumeration of cash dividend, interest on registered bonds, and interest on unit investment trust securities as the three categories of distribution for which a due-bill check (as distinguished from a stock-or-rights due-bill under paragraph (c)) is the appropriate instrument reflects that these three categories share a common character — each represents a cash payment, as distinguished from the delivery of additional securities or rights that paragraph (c)'s due-bills address. This cash-versus-securities distinction maps directly onto FINRA Rule 11620(c) and (d)'s distinction between and-interest deductions (cash-price adjustments) and flat due-bill checks (cash instruments) — both contexts distinguish cash-denominated obligations from securities-denominated obligations, with due-bill checks specifically serving the cash-denominated category.
FINRA Rule 11630(c) establishes the framework for due-bills covering stock dividends and rights — a security sold before it trades "ex-dividend" (for stock and scrip dividends) or "ex-rights" and delivered too late for transfer on or before the record date, shall be accompanied by a due-bill for the distribution to be made.
This first sentence establishes the triggering scenario directly — a security sold before its ex-dividend (for stock and scrip dividends specifically) or ex-rights date under the FINRA Rule 11140 framework, but delivered too late for the buyer to be transferred onto the issuer's books by the record date, must be accompanied by a due-bill for the upcoming stock dividend or rights distribution.
The second sentence establishes the pro-ration mechanism that gives this provision its distinctive character — when a due-bill accompanying a delivery evidences the obligation of the seller to deliver stock, the purchaser shall prorate the value of the contract, and shall make payment of the balance upon redemption of the due-bill. This pro-ration mechanism addresses a valuation problem specific to stock dividends — at the time of the original delivery (accompanied by the due-bill for the not-yet-issued additional shares), the purchaser does not yet hold the additional shares the stock dividend represents, but the original contract price presumably reflected the security's value inclusive of the right to that stock dividend. The purchaser therefore prorates the value of the contract — paying, at the time of the accompanied delivery, a price reflecting only the shares actually delivered (excluding the value attributable to the not-yet-delivered stock dividend shares) — and then makes payment of the balance — the remaining portion of the original contract price, attributable to the stock dividend shares — upon redemption of the due-bill, meaning once the seller actually delivers the additional shares the due-bill evidences the obligation to deliver.
The third sentence establishes an important exception to this pro-ration mechanism — the requirement to pro-rate the value of the contract as described above shall not apply to stock dividends less than ten percent (10%) or to "spinoffs" or rights. This exception removes three categories from the pro-ration requirement: stock dividends representing less than 10% of the underlying position, spinoffs (a corporate action in which a company distributes shares of a subsidiary or division to its existing shareholders, creating a new independently-traded entity), and rights generally. For these categories, the due-bill accompanies the delivery (as paragraph (c)'s first sentence requires), but the purchaser does not prorate the contract value at the time of the accompanied delivery — the full original contract price is paid at that time, with the due-bill simply representing the seller's separate obligation to deliver the stock dividend, spinoff shares, or rights once issued, without any contemporaneous price adjustment.
The less than ten percent threshold for this exception suggests a de minimis rationale — a stock dividend representing less than 10% of the underlying position represents a relatively modest addition to the position's value, for which the administrative complexity of contemporaneous pro-ration may not be warranted relative to simply allowing the due-bill to represent the seller's outstanding delivery obligation without a price adjustment. Spinoffs and rights, by contrast, may be excluded from pro-ration for a different reason — both represent distributions whose value may be more difficult to determine with precision at the time of the original delivery (a spinoff's shares may not yet have an established trading price; rights' value depends on the relationship between the rights' subscription price and the underlying security's market price, both of which may be in flux), making a contemporaneous pro-ration based on an estimated value less practical than simply allowing the due-bill to represent the outstanding obligation without an interim price adjustment.
FINRA Rule 11630(d) establishes the parallel accompaniment requirement for due-bill checks — due-bill checks for a cash distribution, interest on registered bonds or interest on unit investment trust securities shall accompany securities delivered too late for transfer on or before the record date.
This provision establishes a structurally simpler rule than paragraph (c)'s framework for stock dividends and rights — for the three categories of cash-denominated distribution FINRA Rule 11630(b) defines due-bill checks as covering (cash dividends, registered bond interest, and unit investment trust interest), a due-bill check simply accompanies a too-late-for-record-date-transfer delivery, without any pro-ration mechanism analogous to paragraph (c)'s. This simplicity reflects the cash-denominated character of these distributions — since a due-bill check is itself a check, payable for a determinate dollar amount on the relevant payment date, there is no analogous valuation-and-pro-ration problem of the kind paragraph (c) addresses for stock dividends (where the purchaser does not yet hold the additional shares whose value must be accounted for in some interim fashion). The due-bill check simply represents the determinate dollar amount the purchaser will receive on the payment date, with no need for any contemporaneous price adjustment at the time of the accompanied delivery itself.
FINRA Rule 11630(e) establishes the timing standard for when due-bills become redeemable — due-bills for any security or rights pertaining to any security shall be redeemable on the date on which the security or rights are issued by the corporation or as soon thereafter as the signer or guarantor of the due-bill can obtain transfer of the security or rights into denominations necessary to effect the redemption of the due-bills.
This provision establishes a two-part timing standard. The primary trigger is the date on which the security or rights are issued by the corporation — once the corporation has actually issued the stock dividend shares, spinoff shares, or rights the due-bill represents, the due-bill becomes redeemable as of that issuance date. The secondary, fallback timing — or as soon thereafter as the signer or guarantor of the due-bill can obtain transfer of the security or rights into denominations necessary to effect the redemption — addresses the practical reality that the due-bill's signer or guarantor (the seller, or whoever guaranteed the seller's due-bill obligation) may need some additional time, after the corporation's issuance date, to actually obtain the issued securities or rights in denominations suitable for redeeming the specific due-bill (connecting to the units of delivery framework this dictionary examined in connection with FINRA Rules 11360 through 11365 — the issued securities must be obtainable in denominations matching what the due-bill represents).
This two-part standard parallels the structure this dictionary has observed elsewhere in the Uniform Practice Code's accommodation of practical timing realities — much as FINRA Rule 11410(a)'s Note advises sellers regarding draft presentation timing to avoid drawee refusal, FINRA Rule 11630(e)'s as soon thereafter formulation acknowledges that a strict issuance-date redemption requirement might not always be practically achievable, and provides a reasonable fallback tied to the signer or guarantor's actual ability to obtain the necessary denominations.
FINRA Rule 11630(f) provides the remedial mechanism for a seller's failure to honor a presented due-bill — a due-bill for any security or rights pertaining to any security issued pursuant to paragraph (c) of this Rule and presented for redemption pursuant to the terms of paragraph (e) of this Rule, and not honored by the seller may, at the option of the buyer, be treated as a "fail to receive" from the seller, and the distribution evidenced by such due-bill may be bought-in for the account and risk of the seller pursuant to the terms of Rule 11810.
This provision establishes a direct cross-reference to FINRA Rule 11810 — the buy-in framework this dictionary has anticipated since FINRA Rule 11100(c)'s non-cancellation principle, and that FINRA Rules 11190(b)(1) and 11340(d) have each touched upon from different angles. FINRA Rule 11630(f) provides that where a paragraph (c) due-bill (covering stock dividends and rights, with their pro-ration mechanism) has been presented for redemption in accordance with paragraph (e)'s timing standard, but the seller does not honor it, the buyer has the option to treat the situation as a "fail to receive" — the buyer did not receive the distribution the due-bill represented an obligation to deliver — and to buy-in the distribution for the account and risk of the seller pursuant to FINRA Rule 11810.
The final sentence establishes an important timing restriction on this buy-in remedy — however, buy-ins executed in accordance with this paragraph (f) must be executed after the payable date of such securities as determined by the issuing corporation. This restriction ensures that the buy-in remedy — which involves the buyer purchasing the relevant securities or rights elsewhere and holding the seller liable for any cost difference under FINRA Rule 11810's framework — cannot be invoked prematurely, before the issuing corporation's own payable date for the relevant distribution has actually arrived. This makes sense given paragraph (e)'s redemption-timing standard — a due-bill becomes redeemable upon issuance (or as soon thereafter as practicable for denomination purposes), and a buy-in for non-redemption presupposes that this redemption obligation has actually become due and has not been honored; requiring the buy-in to occur only after the payable date ensures the underlying distribution has genuinely become due before the buyer resorts to the buy-in remedy.
Notably, paragraph (f) by its terms applies specifically to paragraph (c) due-bills — covering stock dividends and rights — without an explicit parallel provision for paragraph (d)'s due-bill checks covering cash distributions and interest. This may reflect that a due-bill check, being itself in the form of a check for a determinate dollar amount, presents a more straightforward non-payment scenario (a dishonored check) than the security-or-rights-delivery scenario paragraph (c)'s due-bills present — a dishonored due-bill check might be addressed through whatever general remedies apply to dishonored financial instruments, rather than requiring the specific FINRA Rule 11810 buy-in mechanism that paragraph (f) provides for paragraph (c)'s stock-and-rights due-bills specifically.
Supplementary Material .01 sets forth five Sample Due-Bills Forms, each corresponding to a different category of due-bill this rule's paragraphs address.
Form (a), Due-Bill for Stock Dividend or Stock Distribution, contains an assignment of a specified number of shares of stock to be issued on a specified date to the registered holder of a specified certificate, with an irrevocable appointment of an attorney with full power of substitution to transfer the dividend shares on the corporation's books — directly implementing paragraph (c)'s due-bill-for-stock-dividend framework, and incorporating the attorney-and-power-of-substitution mechanism this dictionary examined in connection with FINRA Rule 11550(d) and (g).
Form (b), Due-Bill for Rights, contains an assignment of a warrant or fractional warrant evidencing subscription rights, to be issued to the holder of record of a specified certificate as of a specified record date — implementing paragraph (c)'s due-bill-for-rights framework.
Form (c), Due-Bill for Interest on When Issued Contract, and Form (d), Due-Bill for Dividend on When Issued Contract, both connect directly to FINRA Rule 11130's when, as and if issued/distributed contracts framework examined earlier in this dictionary's coverage — each form certifies that, upon issuance of the relevant security in accordance with an approved plan, the signer will pay a specified amount representing interest (Form (c)) or a dividend (Form (d)) on securities sold when, as, and if issued, with both forms including a null and void provision if the underlying contract cannot be completed in accordance with the approved plan — directly mirroring the cancellation framework FINRA Rule 11130(h) established for when, as and if issued/distributed contracts whose underlying issuance does not occur as contemplated.
Form (e), Due-Bill Check, presents the actual check form contemplated by paragraph (b)'s definition — confirmed from the FINRA.org page as a check-format instrument bearing the legend Consider this check as due-bill until payable date as shown below, with fields for the payee, dollar amount, an indication of whether the payment is in respect of a Dividend Account or Interest Account, the relevant security, a NOT PAYABLE BEFORE date field, and a RECORD DATE field. This form's structure directly embodies paragraph (b)'s dual-character definition — the consider this check as due-bill until payable date legend, combined with the NOT PAYABLE BEFORE field, operationalizes the temporal transition paragraph (b) describes: a due-bill before the payable date, becoming a payable check on that date.
FINRA Rule 11630 connects directly and indispensably to FINRA Rule 11620 — whose paragraph (d) introduced the due-bill check mechanism that FINRA Rule 11630 now defines and elaborates in full, with FINRA Rule 11620(c) and (d)'s and-interest-versus-flat distinction mapping onto FINRA Rule 11630(b)'s due-bill-check definition for cash-denominated distributions. It connects to FINRA Rule 11140 — whose ex-dividend and ex-rights date determinations establish the before it trades "ex-dividend"... or "ex-rights" predicate for FINRA Rule 11630(c)'s due-bill requirement. It connects to FINRA Rule 11550(d) and (g) — whose attorney-and-power-of-substitution mechanism Supplementary Material .01's Form (a) incorporates for transferring stock dividend shares on the corporation's books. It connects to FINRA Rule 11130 — whose when, as and if issued/distributed contract framework, including its FINRA Rule 11130(h) cancellation provisions, Supplementary Material .01's Forms (c) and (d) directly implement through their null and void clauses tied to plan completion. And it connects directly and by explicit cross-reference to FINRA Rule 11810 — the buy-in framework this dictionary has anticipated since FINRA Rule 11100(c), now confirmed as the specific remedy FINRA Rule 11630(f) provides for a seller's failure to honor a presented paragraph (c) due-bill, subject to the after-the-payable-date timing restriction — with FINRA Rules 11890 through 11894's Clearly Erroneous Transactions framework representing the broader close-out procedures context within which FINRA Rule 11810's buy-in mechanism, and FINRA Rule 11630(f)'s invocation of it, ultimately operate.
FINRA Rule 11630 is tested on the Series 7 and Series 24 examinations as the comprehensive due-bill and due-bill check framework — resolving the ex-date timing mismatch FINRA Rule 11620 introduced, with distinct mechanisms for securities-denominated (stock dividends, rights) versus cash-denominated (cash dividends, registered bond interest, UIT interest) distributions, and a FINRA Rule 11810 buy-in remedy for non-redemption.
The key points to retain are these: FINRA Rule 11630(a) defines a due-bill as a non-transferable, non-assignable-by-the-purchaser instrument evidencing transfer of title to a security or rights, or a seller's obligation to deliver such; FINRA Rule 11630(b) defines a due-bill check as a due-bill in check form, payable on the payment date of a cash dividend, registered bond interest, or unit investment trust interest, functioning as a due-bill before that date and as a payable check on it; FINRA Rule 11630(c) requires a due-bill to accompany a too-late-for-record-date-transfer delivery of a security sold before its ex-dividend (stock/scrip dividends) or ex-rights date, with the purchaser pro-rating the contract value and paying the balance upon due-bill redemption — except for stock dividends under 10%, spinoffs, and rights, which are excluded from pro-ration; FINRA Rule 11630(d) requires a due-bill check to accompany such a delivery for cash distributions, registered bond interest, or UIT interest, without a pro-ration mechanism; FINRA Rule 11630(e) makes due-bills redeemable on the corporation's issuance date or as soon thereafter as the signer or guarantor can obtain the necessary denominations; FINRA Rule 11630(f) allows a buyer, where a paragraph (c) due-bill presented for redemption is not honored, to treat the situation as a fail to receive and buy-in the distribution under FINRA Rule 11810 for the seller's account and risk — but only after the issuing corporation's payable date; Supplementary Material .01 provides five sample forms, with Forms (c) and (d) directly implementing FINRA Rule 11130's when, as and if issued/distributed cancellation framework; and the rule was amended December 15, 2010 through SR-FINRA-2010-030, with prior amendments effective February 21, 1969, March 1, 1970, November 1, 1971, November 1, 1972, and March 18, 1983, and two selected notices — 83-69 and 10-49.
