FINRA Rule 11730

FINRA Rule 11730 was amended effective January 2, 1968, and by SR-FINRA-2010-030 effective December 15, 2010 — no amendments have occurred since 2010. One selected notice is associated — Regulatory Notice 10-49.

FINRA Rule 11730 sits within the 11700 Reclamations and Rejections subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11721's obligations of members who discover securities to which they are not entitled and immediately preceding FINRA Rule 11740's marking to the market framework, the final rule of the FINRA Rule 11700 subsection.

The Reclamation Right: Unlimited Time, Returned to the Publication-Date Holder

FINRA Rule 11730's core provision establishes a reclamation right for a security delivered after publication of notice of call for its redemption. Recall from FINRA Rule 11530(a) that a certificate of stock or a bond ceases to be good delivery upon publication of notice of call for redemption — FINRA Rule 11730 now provides the reclamation remedy for a violation of that good delivery standard: a security delivered after that publication may be reclaimed.

The reclamation right has two distinctive features. First, it may be made without limit of time — paralleling FINRA Rule 11540(b)'s unlimited reclamation period for foreign securities certificates subject to a persistent black-list or blocked-list stoppage. As this dictionary's FINRA Rule 11540 entry discussed, an unlimited reclamation period departs from the general Uniform Practice Code emphasis on prompt resolution — FINRA Rule 11410(f)'s ten-day deadline, FINRA Rule 11710(d) and (e)'s 15/45-day periods, and even FINRA Rule 11720's substantial but finite 30-month periods. FINRA Rule 11730's unlimited period reflects a similar rationale to FINRA Rule 11540(b)'s — a called security's defect (having been called for redemption, and therefore representing something other than the ongoing security the contract called for) is not the kind of defect that becomes less significant or less reclaimable merely because time has passed; the security remains a called security indefinitely, and the reclamation right correspondingly persists indefinitely.

Second, such security may be returned to the party who held it at the time of such publication — this establishes the specific party to whom the reclaimed called security is returned: not necessarily the immediately preceding party in whatever chain of subsequent transactions may have occurred, but specifically the party who held the security at the time the call notice was published. This publication-date-holder framing connects directly to FINRA Rule 11530(a)'s publication of notice of call for redemption trigger — the same publication event that causes a certificate to cease being good delivery under FINRA Rule 11530(a) is the same event that identifies, under FINRA Rule 11730, which party bears ultimate responsibility for the called certificate's return, regardless of how many subsequent transactions in that certificate may have occurred after that publication date.

The Two Exceptions: Direct Parallels to FINRA Rule 11530(a)

FINRA Rule 11730's two exceptions — except that this Rule shall not apply when an entire issue is called for redemption or when the security involved was dealt in specifically as a "called" security — are, in substance, identical to the two exceptions this dictionary examined in connection with FINRA Rule 11530(a)'s good delivery framework for called securities.

The entire-issue exception mirrors FINRA Rule 11530(a)'s except when an entire issue is called for redemption exception precisely. As this dictionary's FINRA Rule 11530 entry explained, where an entire issue has been called, every certificate of the security is now a called certificate — there is no mismatch between what a contract called for (an ordinary, uncalled certificate) and what was delivered (a called certificate), since no uncalled certificates exist. With no such mismatch, there is nothing to reclaim — a delivery of a called certificate, where the entire issue is called, is simply the only form in which the security now exists, and FINRA Rule 11730's reclamation right correspondingly does not apply.

The dealt in specifically as a "called" security exception mirrors FINRA Rule 11530(a)'s except against transactions in "called stock" or "called bonds" dealt in specifically as such exception precisely. Where the parties specifically transacted in the security as a called security — with that called status as an acknowledged term of the transaction — the buyer cannot claim the delivery was defective merely because the security was, in fact, called; the buyer specifically contracted for a called security and received exactly that.

The 1968 Origin and Pairing with FINRA Rule 11530

FINRA Rule 11730's amendment history — effective January 2, 1968, followed by SR-FINRA-2010-030 effective December 15, 2010, with no amendments in between — places its origin among the earliest provisions this dictionary has examined, sharing the January 2, 1968 effective date with FINRA Rule 11620's earliest confirmed amendment. The absence of any intervening amendment across more than four decades — paralleling the stability this dictionary observed for FINRA Rules 11330 and 11350 — suggests that FINRA Rule 11730's called-securities reclamation framework, like its FINRA Rule 11530(a) good-delivery counterpart, addresses a question whose answer has remained stable despite the many settlement-cycle, electronic-communication, and Consolidated-Rulebook changes that have driven amendments to numerous neighboring provisions throughout this dictionary's coverage.

The close textual parallel between FINRA Rule 11730's two exceptions and FINRA Rule 11530(a)'s two exceptions — examined in detail above — confirms that these two rules were designed to operate as a coordinated pair: FINRA Rule 11530(a) establishes the good-delivery-status consequence of a security having been called (ceasing to be good delivery, subject to the entire-issue and dealt-in-specifically-as-called exceptions), while FINRA Rule 11730 establishes the reclamation remedy for a delivery that violates that good-delivery standard (an unlimited-time reclamation right returning the security to the publication-date holder, subject to the identical two exceptions).

Connection to FINRA Rules 11220, 11530, 11540, and 11740

FINRA Rule 11730 connects directly and substantively to FINRA Rule 11530(a) — whose called-securities good delivery framework, including its publication of notice of call for redemption trigger and its identical entire-issue and dealt-in-specifically-as-"called" exceptions, FINRA Rule 11730 provides the reclamation-side counterpart to. It connects to FINRA Rule 11220's description of securities framework — whose dealt in specifically as such concept for illustrative phrases this dictionary noted in connection with FINRA Rule 11530(a)'s second exception applies equally to FINRA Rule 11730's parallel exception for securities dealt in specifically as a "called" security. It connects to FINRA Rule 11540(b) — the other instance of an unlimited reclamation period this dictionary has encountered, both reflecting that certain categories of defect (persistent foreign-securities stoppages for FINRA Rule 11540(b); called status for FINRA Rule 11730) do not diminish with the passage of time in the way that the finite periods of FINRA Rules 11410(f), 11710(d)-(e), and 11720 presuppose for their respective categories of defect. And it connects to FINRA Rule 11740 — the final rule of the FINRA Rule 11700 subsection, addressing marking to the market, which this dictionary anticipates examining next to complete this subsection's coverage and resolve the FINRA Rule 11130(c) cross-reference discrepancy this dictionary flagged in its FINRA Rule 11700 entry.

Examination Relevance and Key Takeaways

FINRA Rule 11730 is tested on the Series 7 and Series 24 examinations as the reclamation framework for called securities — the direct reclamation-side counterpart to FINRA Rule 11530(a)'s good delivery framework, sharing that rule's two exceptions and establishing the second unlimited reclamation period this dictionary has encountered alongside FINRA Rule 11540(b).

The key points to retain are these: FINRA Rule 11730 provides that reclamation for a security delivered after publication of notice of call for its redemption may be made without limit of time, with such security returned to the party who held it at the time of that publication — not necessarily the immediately preceding party in any subsequent chain of transactions; the rule's two exceptions — entire issue called for redemption, or the security dealt in specifically as a "called" security — directly mirror FINRA Rule 11530(a)'s two exceptions to that rule's good-delivery disqualification for called securities, confirming the two rules operate as a coordinated good-delivery-and-reclamation pair; FINRA Rule 11730's unlimited reclamation period parallels FINRA Rule 11540(b)'s unlimited period for persistent foreign-securities stoppages, both reflecting categories of defect that do not diminish with time; and the rule was amended effective January 2, 1968, and by SR-FINRA-2010-030 effective December 15, 2010 — no amendments since — with one selected notice, 10-49.