FINRA Rule 11700

What Reclamations and Rejections Are, and Why This Subsection Comes Where It Does

A rejection, in the context this dictionary has developed throughout its coverage of the Uniform Practice Code, refers to a receiving party's refusal to accept a tendered delivery at the time of tender — the receiving party identifies some defect in the delivery (it is not good delivery, in the sense this dictionary has examined throughout FINRA Rules 11510 through 11581) and declines to accept it. A reclamation, by contrast, refers to a receiving party's claim against a delivery that has already been accepted — the defect comes to light only after acceptance, and the receiving party seeks to reclaim against the delivering party for that subsequently-discovered defect.

FINRA Rule 11700's position immediately following the FINRA Rule 11600 subsection — and its placement as the seventh major subsection overall — reflects its function as a kind of capstone for the good delivery framework this dictionary has traced throughout FINRA Rules 11510 through 11650. 

Each of those rules established what constitutes good delivery for a particular category of security or circumstance — temporary certificates, mutilated securities, called or worthless securities, governmentally-restricted securities, registered securities requiring assignment, transfer-books-closed companies, the various registration-name categories, limited partnership securities, and the bond-specific frameworks of FINRA Rules 11610 through 11650. 

FINRA Rule 11700's subsection now addresses what happens procedurally when a delivery fails to meet whatever good delivery standard applies — the rejection and reclamation mechanisms through which a receiving party identifies and acts upon such a failure.

FINRA Rule 11710's General Provisions: The Anticipated Foundational Framework

FINRA Rule 11710's title — General Provisions — and its position as the first rule of the FINRA Rule 11700 subsection suggest it will establish the foundational reclamation and rejection framework that the subsection's more specific rules (FINRA Rules 11720, 11721, 11730, and 11740) then build upon or apply to particular circumstances. This General Provisions framing parallels the structural role this dictionary has observed for other foundational rules within their respective subsections — FINRA Rule 11100 within the 11100 subsection, or FINRA Rule 11610 within the FINRA Rule 11600 subsection (notwithstanding that rule's narrower title).

Given the connections this dictionary has traced throughout its coverage — FINRA Rule 11410(f)'s explicit carve-out for matters covered under Reclamations, in Rules 11710 to 11730, and FINRA Rule 11630(f)'s buy-in remedy for due-bills not honored upon redemption — FINRA Rule 11710 establishes the definitions of reclamation and rejection, the Uniform Reclamation Form requirement, the time and manner of a return, and 15- and 45-day reclamation periods for minor irregularities and wrong forms of certificate, while the more specific provisions of FINRA Rules 11720, 11721, 11730, and 11740 each do their own work: 30-month reclamation periods for particular categories of defect, a duty on a member that discovers securities to which it is not entitled, reclamation of called securities without limit of time, and deposits when the market value of the subject of a contract changes.

FINRA Rule 11720's Irregular Delivery, Transfer Refused, and Lost or Stolen Securities

FINRA Rule 11720's title identifies three distinct categories of circumstance that this dictionary anticipates the rule addresses together — irregular delivery, transfer refused, and lost or stolen securities.

Irregular delivery connects directly to the various good delivery standards this dictionary has examined throughout FINRA Rules 11510 through 11650 — a delivery that does not conform to one of those standards (a temporary certificate where permanent certificates are available under FINRA Rule 11510, a mutilated security lacking proper authentication under FINRA Rule 11520, and so forth) would constitute an irregular delivery, and FINRA Rule 11720 likely addresses the procedural consequences of such irregularity being discovered.

Transfer refused addresses a scenario this dictionary has not yet directly examined but which connects naturally to the assignment and transfer framework of FINRA Rule 11550 and the FINRA Rule 11570 cluster — a security delivered with what appeared to be proper assignment and transfer documentation, but where the issuer's transfer agent or registrar subsequently refuses to process the transfer (perhaps due to some defect in the assignment, the signature guarantee, or the underlying authority documentation this dictionary examined in connection with FINRA Rules 11571 through 11574). FINRA Rule 11720 likely addresses what recourse the receiving party has when a transfer is refused after the security has already been delivered and accepted.

Lost or stolen securities addresses a category with obvious connections to the governmental restriction and black-list framework this dictionary examined in connection with FINRA Rule 11540(b) — a security that has been reported as lost or stolen presents a title defect that may not be apparent from the certificate's physical condition or registration status alone, but that nonetheless renders the security incapable of good delivery, with FINRA Rule 11720 likely addressing how such a defect, discovered after delivery, is handled.

FINRA Rule 11721's Obligations of Members Who Discover Securities in Their Possession to Which They Are Not Entitled

FINRA Rule 11721's title describes a specific scenario distinct from FINRA Rule 11720's — a member discovers that it holds securities to which it is not entitled. This scenario differs from FINRA Rule 11720's irregular-delivery and transfer-refused categories in an important respect — those categories address a receiving party's response to a defect in a delivery it received, whereas FINRA Rule 11721 addresses a member's own discovery that securities in its possession belong to someone else, raising an affirmative obligation on the discovering member's part rather than merely a reactive remedy.

This scenario could arise in numerous ways — a delivery that was, in fact, never properly completed but that left the would-be deliverer still in possession of securities the would-be receiver believed had been delivered; an operational error resulting in securities ending up in the wrong member's custody; or any number of other circumstances in which the formal chain of delivery and the actual physical or book-entry location of securities diverge. FINRA Rule 11721's title — Obligations of Members Who Discover — frames this as an affirmative duty triggered by discovery, rather than as a remedy triggered by a counterparty's claim, suggesting the rule establishes what a member must do once it becomes aware of this situation, regardless of whether any counterparty has yet made a claim.

FINRA Rule 11730's Called Securities: The Marking-to-Market Predecessor and FINRA Rule 11530 Connection

FINRA Rule 11730's title — Called Securities — connects directly to FINRA Rule 11530(a)'s framework for securities called for redemption, examined earlier in this dictionary's coverage of the FINRA Rule 11500 subsection. Recall that FINRA Rule 11530(a) established that a certificate ceases to be good delivery upon publication of notice of call for redemption, subject to exceptions for entire-issue calls and for "called stock" or "called bonds" dealt in specifically as such.

FINRA Rule 11730's position within the FINRA Rule 11700 Reclamations and Rejections subsection suggests it addresses the reclamation-and-rejection-specific dimension of called securities — what happens when a security delivered (or about to be delivered) turns out to have been called, from the perspective of the receiving party's rejection rights or the delivering party's potential reclamation exposure, as distinguished from FINRA Rule 11530(a)'s good-delivery-status determination itself. The two rules operate together — FINRA Rule 11530(a) establishes that a called certificate (outside its exceptions) is not good delivery, while FINRA Rule 11730 establishes the procedural consequences when such a certificate has been delivered after publication of the notice of call: reclamation may be made without limit of time, rather than within any period FINRA Rule 11710's general provisions establish, and the security may be returned to the party who held it at the time of that publication.

FINRA Rule 11740's Marking to the Market: Resolving the FINRA Rule 11130(c) Cross-Reference

FINRA Rule 11740's title — Marking to the Market — directly confirms and resolves the cross-reference this dictionary's entry on FINRA Rule 11130(c) identified but could not fully examine at the time. Recall that FINRA Rule 11130(c) addressed the mark-to-market requirement for when, as and if issued/distributed contracts — the time of issuance or distribution of the securities is indefinite and may be long delayed... such contracts should be marked to the market pursuant to the provisions of Rule 11730 — and this dictionary noted at the time that FINRA Rule 11730 (within the FINRA Rule 11700 Reclamations and Rejections subsection) would provide this marking-to-market mechanism's detailed framework.

However, the confirmed child rule list for FINRA Rule 11700 reveals that FINRA Rule 11740 — not FINRA Rule 11730 — bears the Marking to the Market title, with FINRA Rule 11730 instead addressing Called Securities. This presents a discrepancy worth flagging explicitly: FINRA Rule 11130(c)'s text, as confirmed in this dictionary's earlier entry on that rule, referenced Rule 11730 specifically for marking to the market — but the current FINRA Rule 11700 subsection's child rule numbering shows FINRA Rule 11740, not FINRA Rule 11730, bearing that title. 

This could reflect a renumbering that occurred at some point in FINRA Rule 11700's subsection's history (with FINRA Rule 11130(c)'s text potentially reflecting an older Rule 11730 reference that predates a subsequent renumbering to FINRA Rule 11740), or could reflect some other explanation not yet confirmed. 

This dictionary flags this discrepancy explicitly rather than resolving it through assumption — when this dictionary examines FINRA Rule 11740 directly, its amendment history and any cross-references within its own text may clarify whether FINRA Rule 11130(c)'s Rule 11730 reference reflects a since-superseded numbering, and similarly, when this dictionary examines FINRA Rule 11730 directly, its content will confirm whether it addresses called securities as its current title indicates, consistent with this entry's analysis above.

The Five-Rule Structure and Its Numbering Pattern

FINRA Rule 11700's five child rules — FINRA Rule 11710, FINRA Rule 11720, FINRA Rule 11721, FINRA Rule 11730, and FINRA Rule 11740 — present a numbering pattern with one notable feature: FINRA Rule 11721 is a sub-numbered rule (a rule numbered as a variant of its predecessor, 1172_1_, immediately following FINRA Rule 1172_0_), a pattern this dictionary has encountered in the FINRA Rule 11111/11112 pairing within FINRA Rule 11110's cluster examined early in this dictionary's coverage of the 11100 subsection, and again in FINRA Rules 11361 through 11365, FINRA Rules 11571 through 11574, and FINRA Rule 11581. This suggests FINRA Rule 11721 may represent a rule added after FINRA Rule 11720's original adoption, inserted into the numbering sequence using the X1 convention this dictionary observed for FINRA Rule 11111/11112 — a pattern this dictionary will be able to confirm when examining FINRA Rule 11721's own amendment history directly.

Connection to FINRA Rules 11100, 11110, 11130, 11410, 11530, 11540, 11550, 11570, and 11630

FINRA Rule 11700 connects to FINRA Rule 11100(c) — whose non-cancellation principle and direction to the FINRA Rule 11810 buy-in and FINRA Rule 11820 sell-out remedies for failed performance established the broader remedial framework within which FINRA Rule 11700's reclamation and rejection procedures operate as the mechanism for identifying and acting upon delivery defects in the first place, before any buy-in or sell-out under FINRA Rules 11810 or 11820 becomes necessary. 

It connects to FINRA Rule 11110's cluster structure — specifically the FINRA Rule 11111/11112 sub-numbering pattern that FINRA Rule 11721's numbering appears to replicate. It connects directly to FINRA Rule 11130(c) — whose marking-to-market cross-reference to Rule 11730 this entry has flagged as potentially inconsistent with the current FINRA Rule 11700 subsection's child rule list showing FINRA Rule 11740 as Marking to the Market, a discrepancy this dictionary will resolve upon examining FINRA Rules 11730 and 11740 directly. 

It connects to FINRA Rule 11410(f) — whose explicit carve-out for matters covered under Reclamations, in Rules 11710 to 11730 is the most direct prior reference this dictionary has encountered to this subsection, and which itself may bear on the FINRA Rule 11730/11740 numbering question this entry has flagged. It connects to FINRA Rule 11530(a) — whose called securities good delivery framework FINRA Rule 11730's Called Securities title directly parallels. 

It connects to FINRA Rule 11540(b) — whose lost-or-stolen-adjacent foreign securities stoppage framework connects conceptually to FINRA Rule 11720's lost or stolen securities category. It connects to FINRA Rule 11550 and the FINRA Rule 11570 cluster — whose assignment, transfer, and registration-name frameworks underlie the transfer refused category FINRA Rule 11720's title identifies. And it connects directly to FINRA Rule 11630 — whose paragraph (f) buy-in remedy for due-bills not honored upon redemption operates as a related but distinct close-out mechanism alongside whatever reclamation and rejection procedures FINRA Rule 11700's subsection establishes.

Rejection or Reclamation: Where the Line Falls in Practice

FINRA Rule 11710(a) defines a reclamation as "a claim for the right to return or the right to demand the return of a security which has been previously accepted". Securities that were presented for delivery and "for a valid reason have been refused" are deemed a rejection. The dividing fact is acceptance. How quickly the defect is noticed does not decide it.

Suppose Alder Securities accepts a delivery of 1,000 shares from Birch & Co. at 10 a.m. At 11 a.m. an Alder operations clerk notices a defect in one certificate. Alder's claim is a reclamation, even though only an hour has passed, because the securities had already been accepted. Had the clerk spotted the defect while the delivery was being presented, and refused it for that reason, the refusal would have been a rejection.

The definition of rejection carries a condition: the refusal must be "for a valid reason". Suppose instead that Alder refuses a delivery that is in good order in every respect, because the market price has fallen since the trade and Alder no longer wants the shares. That refusal is not a rejection within FINRA Rule 11710(a). It is a failure to accept delivery in accordance with the terms of the contract. Under FINRA Rule 11820(a), where the buyer fails to accept delivery and there is no properly executed Uniform Reclamation Form or equivalent depository generated advice meeting FINRA Rule 11710(b), the seller may, without notice, sell out the securities for the account and liability of the party in default.

A refusal can rest on a good delivery standard elsewhere in the Code. FINRA Rule 11530(a) provides that a certificate of stock or a bond "shall cease to be a good delivery upon publication of notice of call for redemption", except where an entire issue is called and except against transactions in "called stock" or "called bonds" dealt in specifically as such. A buyer presented, in an ordinary trade, with a bond from an issue that has been partly called, where that bond's call notice has already been published, is being offered a certificate that is not good delivery. Refusing it for that reason is a refusal of the kind FINRA Rule 11710(a) treats as a rejection.

Matching the Defect to Its Reclamation Period

The rules in this subsection do not set one reclamation period. Each period depends on the kind of defect, and the periods are not all measured from the same day:

An irregularity which affects only the currency of the security in the market: 15 days from the day of original delivery, or 45 days if the security is issued under the jurisdiction of a foreign country (FINRA Rule 11710(d)).

A form of certificate that was not a good delivery but is exchangeable without charge for one that is: 15 days from the day of original delivery (FINRA Rule 11710(e)).

An irregular delivery, a certificate whose transfer has been refused by the transfer agent, or a security that is lost, stolen or confiscated: 30 months after the settlement date of the contract (FINRA Rule 11720(a), (b) and (c)).

A security delivered after publication of notice of call for its redemption: without limit of time, subject to the rule's two exceptions (FINRA Rule 11730).

The starting point matters when a seller delivers late. Suppose a contract's settlement date is March 2, and the seller does not deliver until March 12. On March 25 the buyer finds a certificate irregularity which affects only the currency of the security in the market. The security is a domestic one. The 15 days under FINRA Rule 11710(d) run "from the day of original delivery", which was March 12, so the buyer is still within the period on March 25. Counting from the settlement date would have closed the period on March 17, but that is not the date the paragraph uses.

The foreign-issuer extension works in the same way. Suppose the security in the same example had been issued under the jurisdiction of a foreign country, and the irregularity was found 30 days after the day of original delivery. The period under FINRA Rule 11710(d) for such a security is 45 days from the day of original delivery, so the reclamation is still in time.

The contrast between a called security and the 30-month categories shows how far apart the periods can be. Suppose that three years after settlement a member finds two problems from different trades. One is a bond from an issue that was partly called, delivered to it in an ordinary trade after the notice of call for that bond had been published. The other is a certificate the transfer agent has just refused to transfer. The called bond may still be reclaimed, because FINRA Rule 11730 allows reclamation without limit of time. The refused certificate is outside the 30 months after the settlement date that FINRA Rule 11720(b) allows.

The end of the 30-month period does not end the member's claim. Suppose a member that bought 500 shares finds 32 months after settlement that it was delivered 800. The period under FINRA Rule 11720(a) for reclaiming an over-delivery has run. FINRA Rule 11720(d) provides that the running of the 30-month period "shall not be deemed to foreclose a member's rights to pursue its claim via other open avenues, including but not limited to the FINRA arbitration procedure."

These periods are also protected from a shorter deadline elsewhere in the Code. FINRA Rule 11410(f) requires claims over price, interest, protest fees, wire charges and similar items arising from the acceptance of draft shipments in which irregularities exist to be presented not later than ten days after payment. It then provides that "This limitation shall not apply to matters covered hereinafter under 'Reclamations,' in Rules 11710 to 11730." Suppose a member accepts and pays a draft shipment and three weeks later finds that the shipment duplicated an earlier delivery. The ten-day limit does not bar the claim. The duplicate delivery is an irregular delivery that may be reclaimed within 30 months after the settlement date of the contract.

Called Securities Before and After the Call Notice

FINRA Rule 11730 applies to a reclamation made because "a security was delivered after publication of notice of call for its redemption". The timing of the delivery against the publication decides whether the rule applies. Suppose Birch & Co. delivers a bond to Alder Securities on June 3, and the issuer publishes notice calling that bond for redemption on June 10. The delivery came before publication. At the moment of delivery the bond had not yet ceased to be a good delivery under FINRA Rule 11530(a), and FINRA Rule 11730 does not reach it. Alder cannot use FINRA Rule 11730 to return the bond on the ground that it has since been called.

FINRA Rule 11730 does not apply "when an entire issue is called for redemption or when the security involved was dealt in specifically as a 'called' security." A partial call is not an entire-issue call. Suppose an issuer calls part of a bond issue, a particular bond among those called is delivered in an ordinary trade after the notice of call has been published, and the parties did not deal in it specifically as a called bond. Neither exception applies. The buyer may reclaim without limit of time, and the bond may be returned to the party who held it at the time of the publication.

Transfer Refused: When the Right Arises

FINRA Rule 11720(b) allows a reclamation "by reason of the fact that a specific certificate tendered in settlement of a contract has been presented for transfer and transfer thereof has been refused by the transfer agent". The right depends on two events that have already happened: the certificate has been presented for transfer, and the transfer agent has refused it. Suppose a member that accepted a certificate comes to suspect that the transfer agent will reject the assignment on it, but has not yet presented the certificate for transfer. That member does not yet have a transfer-refused reclamation under FINRA Rule 11720(b). That right arises when the certificate is presented and the transfer agent refuses the transfer.

The Uniform Reclamation Form and the Sell-Out

FINRA Rule 11710(b)(1) requires that "A properly executed Uniform Reclamation Form must accompany securities on reclamation or return." The requirement is written for securities on reclamation or return generally. It is not limited to reclamations under the periods in FINRA Rule 11710 itself. A member that reclaims a certificate under FINRA Rule 11720(b) after the transfer agent has refused it must send the form with the certificate. If the certificate comes back without the form, the receiving broker may, at its option, sell it out under FINRA Rule 11820, in no event later than three business days after receipt by the receiving broker or its agent.

The three business days are an outer limit. Suppose a security is returned without a Uniform Reclamation Form and the receiving broker's agent receives it on a Monday in a week with no holiday. Three business days after receipt ends on the Thursday. If the broker first decides to sell it out on the following Monday, five business days after receipt, it is too late to use the sell-out that FINRA Rule 11710(b)(2) allows.

A Member That Finds Securities It Is Not Entitled To

FINRA Rule 11721 provides that "Any member who discovers securities in its possession to which it is not entitled is required to make reasonable attempts to ascertain and to promptly notify the true owner of such securities and to take affirmative steps to correct the situation." The rule has three parts: find out who the true owner is, tell that owner promptly, and take steps to correct the situation.

The first part matters when the owner is not obvious. Suppose Alder's month-end reconciliation shows a surplus position in a security that no trade on its books accounts for. Alder cannot simply hold the surplus until someone asks for it. It must make reasonable attempts to ascertain who the true owner is, promptly notify that owner, and take affirmative steps to correct the situation.

The rule's words also reach a member at the receiving end of an irregular delivery. Suppose Alder contracted to buy 500 shares and was delivered 800, and Alder's staff notice the extra 300. The deliverer could reclaim the excess under FINRA Rule 11720(a), which lists over-deliveries as irregular deliveries. But Alder now knows it holds 300 shares in its possession to which it is not entitled. FINRA Rule 11721's requirement applies to Alder from that discovery, whether or not the deliverer has yet noticed or made any claim.

Marking to the Market in Practice

FINRA Rule 11740(a) provides that "The party who is partially unsecured by reason of a change in the market value of the subject of a contract in securities may demand from the other party a deposit equal to the difference between the contract price and the market price, without being required to make a mutual deposit." The rule speaks of "a contract in securities". It is not confined to when, as and if issued or distributed contracts, although FINRA Rule 11130(c) directs that those contracts be marked to the market. A party to a seller's option contract under FINRA Rule 11320(c), still awaiting delivery when the market moves, may therefore make a demand under FINRA Rule 11740(a) in the same way.

The demand arises only from a change in the market value of the subject of the contract. Suppose a member becomes uneasy about its counterparty's finances, but the market price of the securities has not moved from the contract price. The member is not partially unsecured by reason of a change in market value, so FINRA Rule 11740(a) gives it no deposit to demand.

The deposit runs one way. Suppose the party receiving a demand replies that it will post its deposit only if the demanding party posts one too. FINRA Rule 11740(a) allows the demand "without being required to make a mutual deposit", so that condition has no footing in the rule.

A demand must be made in writing. FINRA Rule 11740(d) provides that "All demands for deposits or refunds shall be in writing and shall be delivered at the office of the party upon whom the demand is made". FINRA Rule 11740(e) gives the right to close the contract only on failure to comply with a demand "made in accordance with paragraphs (a), (c) and (d)". Suppose a trader telephones the counterparty to demand a deposit, and no deposit arrives. That demand was not in writing, so its non-payment does not give the right to close the contract under FINRA Rule 11740(e).

The earliest close-out follows business days. FINRA Rule 11740(f) provides that no contract may be closed "prior to the expiration of regular delivery time in the community where the party making the demand maintains its office, on the next business day following the day when notice of such demand was received by the other party." Suppose a written demand is received on a Friday and the following Monday is an ordinary business day. The earliest the demanding party may close the contract is after regular delivery time on that Monday in its own community. Saturday and Sunday do not count.

When a Valid Refusal Leaves the Contract Open

Refusing a delivery that is not good delivery does not end the contract. Suppose Alder Securities buys shares from Birch & Co., and the two members settle the trade directly between themselves, not through a registered clearing agency. A government with jurisdiction over the security requires a clearance certificate in connection with any transfer of it, and Birch presents the shares without one. Under FINRA Rule 11540(a), such a security is not a good delivery unless it is accompanied by the document so required. Alder refuses the delivery for that reason.

Birch's tender was refused for a valid reason, so the securities Birch sold have not been delivered. FINRA Rule 11100(c) provides that in trades between members, failure to deliver the securities sold on or after the settlement date does not effect a cancellation of the contract, and that the buyer's remedy is provided for by FINRA Rule 11810, unless the parties mutually consent to cancel the trade. So the contract stands and Birch still owes the shares. If Birch does not deliver them, and the two firms do not agree to cancel, Alder's remedy is a buy-in under FINRA Rule 11810.

Declining an Early Tender

The timing of a tender can change the buyer's position. Under FINRA Rule 11320(b), delivery on a regular way transaction is made on, but not before, the first business day following the date of the transaction. FINRA Rule 11320(g) provides that if, in a contract under paragraph (b), (d) or (h), the seller tenders delivery before the stated time, acceptance is at the election of the purchaser, and rejection of such delivery by the purchaser is without prejudice to its rights. Paragraph (g) attaches no condition to that election.

Suppose Birch sells shares to Alder regular way on a Monday and tenders them that Monday afternoon. The shares are in good order, but the price has fallen, and Alder declines to take them that day. Alder may do so. The tender came before the stated time, so acceptance was at Alder's election, and declining it is without prejudice to Alder's rights under the contract.

The Money Amount of the Contract When the Market Has Moved

FINRA Rule 11710(c)(2) sets out what the party that originally delivered a returned or reclaimed security must give. It must immediately give the party returning it either the security in proper form for delivery, in exchange for the security originally delivered, or the money amount of the contract. The money alternative is measured by the contract, not by the market.

Suppose Birch sold Alder 500 shares at $20 a share, a contract of $10,000, and Alder returns them on a reclamation the rules allow, with a properly executed Uniform Reclamation Form. The shares now trade at $23, so 500 of them are worth $11,500. If Birch does not give Alder shares in proper form for delivery, it gives Alder the money amount of the contract, which is $10,000.

The Uniform Reclamation Form on a Called-Security Return

FINRA Rule 11710(b)(1) requires a properly executed Uniform Reclamation Form to accompany securities on reclamation or return. FINRA Rule 11710(b)(2) allows the receiving broker, at its option, to sell out under FINRA Rule 11820 any security reclaimed or returned on a transaction without one, in no event later than three business days after receipt by the receiving broker or its agent. Neither paragraph makes an exception for a reclamation that has no time limit.

Suppose a member reclaims a called bond under FINRA Rule 11730, years after the delivery, and sends it back to the party that held it at the time the notice of call was published. It sends no Uniform Reclamation Form. The party receiving the bond may, at its option, sell it out under FINRA Rule 11820, no later than three business days after it or its agent receives the bond. The fact that FINRA Rule 11730 allows reclamation without limit of time does not remove the form requirement.

Notifying a Sell-Out of a Returned Security

A sell-out under FINRA Rule 11710(b)(2) is made pursuant to FINRA Rule 11820, and FINRA Rule 11820(b) sets the notification that follows a sell-out. The party executing the sell-out must, as promptly as possible on the day of execution, but no later than 6 p.m. ET, notify the broker-dealer for whose account and risk the securities were sold of the quantity sold and the price received. The notification must be in written or electronic form having immediate receipt capabilities. A formal confirmation of the sale is forwarded as promptly as possible after the execution.

Suppose a receiving broker sells out, at 2 p.m. ET on a Wednesday, shares that were returned to it without a Uniform Reclamation Form. Its notification of the quantity sold and the price received is due no later than 6 p.m. ET that Wednesday. A notification first sent on the Thursday morning is late.

Called Stock as Well as Called Bonds

FINRA Rule 11530(a) applies to "a certificate of stock or a bond", and FINRA Rule 11730 applies to "a security". Neither is confined to bonds. Suppose an issuer publishes notice calling part of its preferred stock for redemption. After publication, a certificate for called shares is delivered in an ordinary trade in which the parties did not deal in the shares specifically as called stock. The certificate was not a good delivery under FINRA Rule 11530(a), and the buyer may reclaim it under FINRA Rule 11730 without limit of time, just as it could reclaim a called bond.

A Mark-to-Market Demand Delivered After Banking Hours

FINRA Rule 11740(d) governs when a demand for a deposit is delivered as well as how. All demands for deposits or refunds shall be in writing and shall be delivered at the office of the party upon whom the demand is made during the business hours of member banks of the Federal Reserve System located in the community where that party maintains its office. FINRA Rule 11740(e) gives the right to close the contract only for failure to comply with a demand made in accordance with paragraphs (a), (c) and (d).

Suppose a member's written demand for a deposit is delivered at its counterparty's office at 7:30 p.m. on a business day, after the Federal Reserve member banks in the counterparty's community have closed for the day, and the counterparty makes no deposit. That demand was not delivered during the hours paragraph (d) requires. Its non-payment therefore does not give the member the right to close the contract under FINRA Rule 11740(e).

Trades the Code Does Not Reach

The reclamation rules are part of the Uniform Practice Code, and FINRA Rule 11100 sets the Code's scope. Under FINRA Rule 11100(a), over-the-counter secondary market transactions in securities between members are subject to the Code, with listed exceptions. FINRA Rule 11100(b) allows a rule of the Code to expand or limit that scope if it specifically provides so, and none of FINRA Rules 11710, 11720 and 11730 does.

The first exception covers transactions between members which are compared, cleared or settled through the facilities of a registered clearing agency, except to the extent that the rules of the clearing agency provide that rules of other organizations shall apply. Suppose two members settle an over-the-counter trade in common stock through a registered clearing agency whose rules make no such provision, and the buyer later finds it was delivered the wrong security. The Code's reclamation provisions do not govern that claim, because the transaction is outside the Code. Had the two members settled the same trade directly between themselves, the wrong delivery would be an irregular delivery that FINRA Rule 11720(a) allows to be reclaimed.

Municipal securities are excepted too. FINRA Rule 11100(a)(3) excepts transactions in municipal securities as defined in Section 3(a)(29) of the Exchange Act. Suppose two members trade a municipal bond, settling directly between themselves, and the bond delivered turns out to have been called for redemption. The buyer cannot reclaim it under FINRA Rule 11730, because the Code does not apply to the transaction.

Unit investment trust securities are treated differently from other redeemable securities of registered investment companies. FINRA Rule 11100(a)(4) excepts transactions in redeemable securities issued by companies registered under the Investment Company Act, but provides that the Code shall apply to secondary market transactions between members in any security issued by a registered investment company classified as a unit investment trust. FINRA Rule 11720(a) counts delivery of unit investment trust securities having the incorrect payment option as an irregular delivery. So a member that buys trust units from another member in the secondary market, settles directly, and receives units with the incorrect payment option may reclaim under FINRA Rule 11720(a). A member that buys redeemable shares of a registered investment company that is not a unit investment trust from another member, and is over-delivered, has no reclamation under the Code, because that transaction is excepted.

Two Sellers, One Refused Certificate

FINRA Rule 11720(b) ties a transfer-refused reclamation to "a specific certificate tendered in settlement of a contract". Where a member has bought the same security from more than one seller, those words decide which contract the reclamation belongs to.

Suppose Alder Securities buys 100 shares of a company's common stock from Birch & Co. In a separate trade it buys another 100 shares of the same stock from Cedar Partners. Each trade is settled directly between the two members concerned, and Alder's records show which certificate each seller delivered. Alder later presents the certificate Birch delivered for transfer, and the transfer agent refuses to transfer it. The certificate Cedar delivered transfers without difficulty. The refused certificate was tendered in settlement of the Birch contract. Alder's transfer-refused reclamation is therefore a claim on that contract, for the right to return that certificate to Birch. Alder has no transfer-refused reclamation against Cedar, because no certificate Cedar tendered has been refused.

Birch, not Cedar, then bears the obligations of the party that originally delivered the certificate. FINRA Rule 11710(c)(2) requires Birch to give Alder immediately either the security in proper form for delivery, in exchange for the security originally delivered, or the money amount of the contract.

Timing a Buy-In After a Valid Refusal

When a buyer refuses a tender because it is not a good delivery, and the seller delivers nothing further, the seller has not completed the contract according to its terms. FINRA Rule 11810 sets two separate time limits for a buy-in, and both must be met. Under FINRA Rule 11810(a), such a contract may be closed by the buyer not sooner than the third business day following the date delivery was due. Under FINRA Rule 11810(b)(1), written notice of the buy-in must be delivered to the seller at its office not later than 12:00 noon, Eastern Time, two business days preceding the execution of the proposed buy-in.

Suppose delivery on a trade in common stock between Alder Securities and Birch & Co. was due on a Monday, in a week with no holiday. The two members settle the trade directly between themselves, and the contract is not subject to the buy-in requirements of a national securities exchange or a registered clearing agency. The contract was not made for cash or for guaranteed delivery on a specified date. On the Monday Birch tenders a certificate that is not a good delivery, and Alder refuses it for that reason. Birch delivers nothing further. The third business day following the Monday is the Thursday. Alder delivers its written notice of buy-in to Birch's office at 10 a.m. ET on the Wednesday. A buy-in on the Thursday would have needed notice by noon ET on the Tuesday, two business days before it. The Wednesday notice is in time for a buy-in on the Friday, so the Friday is the earliest day on which Alder may execute the buy-in.

Giving notice of a buy-in does not release the buyer from taking delivery while the contract remains open. FINRA Rule 11810(f) provides that, prior to the closing of a contract on which a buy-in notice has been given, the buyer shall accept delivery of the securities called for by the contract, subject to a proviso about odd-lots on a partial delivery. Suppose that after Alder's notice, and before the day the notice sets for the buy-in, Birch tenders the full quantity due in a certificate that is a good delivery. Alder must accept it. It cannot turn the tender away in order to go ahead with the buy-in.

When the Parties Agree That a Money Answer Ends the Trade

FINRA Rule 11710(c)(2) attaches a consequence when the party that originally delivered a returned or reclaimed security answers with the money amount of the contract rather than a security in proper form. Unless otherwise agreed, the party to whom the security is returned is deemed to be failing to deliver the security until a proper delivery is made. The words "unless otherwise agreed" leave the parties free to agree that the party to whom the security is returned is not to be treated as failing to deliver.

Suppose Alder Securities returns shares to Birch & Co. on a reclamation the rules allow, with a properly executed Uniform Reclamation Form, and Birch pays Alder the money amount of the contract instead of giving it shares. Without more, Birch would be deemed to be failing to deliver the shares until it made a proper delivery. But when the money is paid, Alder and Birch agree to cancel the trade. FINRA Rule 11100(c) provides that the buyer's remedy for a failure to deliver is provided for by FINRA Rule 11810, the buy-in rule, unless the parties mutually consent to cancel the trade. Because Alder and Birch have agreed to cancel the trade, Alder has no buy-in against Birch on it.

Examination Relevance and Key Takeaways

FINRA Rule 11700 is tested on the Series 7 and Series 24 examinations as the series-level marker for the Reclamations and Rejections framework — the procedural capstone to the good delivery standards FINRA Rules 11510 through 11650 establish, addressing what happens when a delivery fails to meet those standards.

The key points to retain are these: FINRA Rule 11700 has no operative text, no amendment history, and no selected notices of its own — it serves purely as the organizational marker for five child rules: FINRA Rule 11710, General Provisions; FINRA Rule 11720, Irregular Delivery — Transfer Refused — Lost or Stolen Securities; FINRA Rule 11721, Obligations of Members Who Discover Securities in Their Possession to Which They Are Not Entitled; FINRA Rule 11730, Called Securities; and FINRA Rule 11740, Marking to the Market; a rejection refers to a receiving party's refusal of a tendered delivery at the time of tender, while a reclamation refers to a claim against a delivery already accepted where a defect is subsequently discovered; this subsection provides the procedural framework for identifying and acting upon failures to meet the good delivery standards established throughout FINRA Rules 11510 through 11650; FINRA Rule 11721's sub-numbered position suggests a later addition to the subsection, paralleling the FINRA Rule 11111/11112 numbering pattern this dictionary encountered earlier; and this entry flags an unresolved discrepancy between FINRA Rule 11130(c)'s cross-reference to Rule 11730 for marking to the market and the current FINRA Rule 11700 subsection's child rule list, which shows FINRA Rule 11740 — not FINRA Rule 11730 — bearing that title, a discrepancy this dictionary will resolve when examining both rules directly.