SERIES 7 | SERIES 65 | FINANCIAL REGULATION COURSES
FINRA Rule 4311 — Carrying Agreements — governs the requirements applicable to FINRA member firms when entering into agreements for the carrying of customer accounts in which securities transactions can be effected, establishing the foundational framework that determines how responsibilities for customer account management, asset safeguarding, recordkeeping, regulatory reporting, and compliance are allocated between introducing broker-dealers — the firms that maintain customer relationships and execute orders — and carrying broker-dealers — the firms that hold customer assets, clear and settle transactions, and maintain the financial infrastructure supporting the customer account relationship.
The introducing-carrying firm structure is one of the most fundamental organisational arrangements in the United States broker-dealer industry — enabling thousands of smaller introducing firms to provide full-service brokerage capabilities to their customers without maintaining the substantial capital, operational infrastructure, and regulatory compliance systems required to independently clear and settle securities transactions. By outsourcing the clearing and custody functions to specialised carrying firms — large clearing institutions such as those operating as full-service clearing houses — introducing firms can focus on customer relationships, investment advice, and order execution while relying on the carrying firm's operational platform for the back-office functions that support those activities.
Rule 4311 ensures that this allocation of functions between introducing and carrying firms is clearly documented in written agreements, that responsibilities are unambiguously assigned to one party or the other to prevent compliance gaps, and that the resulting arrangement provides customers with the same regulatory protections they would receive if a single firm performed all functions — from the safeguarding of their assets to the preparation of their account statements.
The Two Types of Carrying Arrangements
Rule 4311 applies to two types of customer account carrying arrangements — fully disclosed and omnibus — each representing a fundamentally different structure for the relationship between the introducing firm, the carrying firm, and the customer.
In a fully disclosed arrangement the carrying firm knows the identity of each individual customer whose account it carries — the introducing firm discloses its customers' identities and account information to the carrying firm, which then maintains separate individual accounts for each customer on its books. The carrying firm in a fully disclosed arrangement has a direct relationship with each customer's account even though the introducing firm maintains the customer-facing advisory relationship. The vast majority of retail brokerage clearing arrangements in the United States are fully disclosed — giving the carrying firm the information it needs to provide customer-specific services and to comply with customer protection obligations on a per-customer basis.
In an omnibus arrangement the carrying firm does not know the identity of the individual customers of the introducing firm — the introducing firm maintains a single omnibus account with the carrying firm representing the aggregated positions and balances of all of the introducing firm's customers, and the introducing firm maintains its own separate records of each individual customer's share of the omnibus account. Omnibus arrangements are more common in institutional contexts where the introducing firm serves as an intermediary for a pool of customer assets rather than in retail brokerage contexts where individual customer account management and customer protection obligations require the carrying firm to know the identity and financial position of each customer.
The Written Agreement Requirement
Rule 4311(a) establishes the fundamental requirement that no member firm may enter into a carrying arrangement unless it has a written agreement with the carrying firm — and unless that carrying firm is itself a FINRA member. The written agreement requirement ensures that the allocation of responsibilities between the introducing and carrying firm is documented with sufficient clarity to be enforceable and to provide FINRA examiners with a definitive record of each party's regulatory obligations.
The carrying agreement must identify and bind every direct and indirect recipient of clearing services as a party to the agreement — ensuring that the contractual framework covers not only the direct introducing firm but any introducing firms for which the direct introducing firm acts as an intermediary in obtaining clearing services. This comprehensive binding requirement prevents the creation of clearing arrangements where intermediate parties have no formal contractual relationship with the carrying firm — a structure that could create regulatory gaps in the allocation of compliance responsibilities.
When an introducing firm acts as an intermediary for another introducing firm in obtaining clearing services from a carrying firm — a tri-party arrangement — the direct introducing firm must notify the carrying firm of the existence of this arrangement and the identity of the other introducing firm. The carrying firm must be informed of all parties receiving clearing services through its platform — the carrying agreement must then bind all of these parties, ensuring that the regulatory obligations flowing from the carrying arrangement are clearly allocated across all participants.
The FINRA Board of Governors approved in June 2025 a proposal to issue a Regulatory Notice seeking industry comment on amendments to Rule 4311 that would provide greater clarity around tri-party arrangements, clarify responsibility allocations, address omnibus arrangements, and streamline reporting requirements — reflecting ongoing regulatory attention to the evolving clearing industry structure.
Allocation of Responsibilities — The Core Function of Carrying Agreements
The central operational function of Rule 4311 is to ensure that each significant compliance and operational function in the customer account relationship is clearly allocated to either the introducing firm or the carrying firm — preventing the emergence of gaps where both firms assume the other is responsible for a particular obligation and no one actually fulfils it.
Rule 4311(c) establishes the allocation framework — specifying which responsibilities must be expressly allocated in the carrying agreement and whether those responsibilities may be allocated to either party or must be assigned to a specific party.
The most critical non-negotiable allocation under fully disclosed agreements is the responsibility for safeguarding customer funds and securities under Securities Exchange Act Rule 15c3-3 — the customer protection rule that requires broker-dealers to maintain adequate reserves of cash or qualified securities to cover net customer credit balances and to segregate customer securities from the firm's own assets. Rule 4311(c)(2) expressly requires that this responsibility be allocated to the carrying firm in fully disclosed agreements — the carrying firm cannot delegate the Rule 15c3-3 safeguarding obligation to the introducing firm because the carrying firm is the party that actually holds the customer assets.
Similarly the responsibility for preparing and transmitting account statements to customers must be expressly allocated to the carrying firm in fully disclosed agreements — the carrying firm is the party with the complete and accurate account records needed to prepare accurate statements. The carrying firm may authorize the introducing firm to prepare and transmit statements on the carrying firm's behalf — but only with prior written FINRA approval — and the carrying firm retains ultimate responsibility for statement accuracy regardless of which party actually prepares and sends the statements.
Other functions — including the receipt and delivery of customer securities and funds, the extension of credit, the maintenance of books and records, and the execution of customer orders — may be allocated to either the introducing firm or the carrying firm based on the commercial and operational arrangements between the parties.
FINRA Notification Requirements
Rule 4311 imposes specific notification requirements on carrying firms to ensure that FINRA is aware of all clearing relationships established through the carrying agreement framework.
As early as possible but no later than ten business days prior to the commencement of carrying any accounts of a new introducing firm the carrying firm must submit to FINRA a notice identifying each such introducing firm by name and CRD number. This advance notification requirement gives FINRA the opportunity to identify any regulatory concerns about the new introducing firm relationship before customer accounts begin flowing through the carrying arrangement.
The carrying firm must use FINRA-approved standardised carrying agreement forms when entering into new arrangements with other United States registered broker-dealers — streamlining the carrying agreement review process by allowing FINRA-approved standard forms to be used without resubmission and re-approval for each new agreement. However carrying agreements that include parties that are not United States registered broker-dealers — such as foreign broker-dealers — must be individually submitted to FINRA for approval regardless of whether the agreement uses a standardised form.
Customer Protections in the Carrying Agreement Structure
The allocation of responsibilities between introducing and carrying firms under Rule 4311 is designed to ensure that customers receive the same regulatory protections regardless of which firm in the arrangement is responsible for any particular function — the customer should not be disadvantaged by the internal division of responsibilities between the two firms.
Customers of introducing firms whose accounts are carried by clearing firms are protected by the Securities Investor Protection Corporation in the same manner as customers of any other broker-dealer — with coverage of up to five hundred thousand dollars per customer including up to two hundred and fifty thousand dollars in cash against the consequences of broker-dealer insolvency. The SIPC coverage applies based on the customer's net equity claim against the carrying firm — because the carrying firm is the firm that actually holds the customer's assets.
The customer account statements prepared under the carrying agreement framework — whether by the carrying firm directly or by the introducing firm under the carrying firm's authorization — must satisfy all of the requirements of FINRA Rule 2231's customer account statement provisions. The introducing-carrying structure does not exempt the arrangement from the quarterly statement minimum, the required content specifications, or any other provision of Rule 2231.
Examination Relevance and Key Takeaways
FINRA Rule 4311 is tested on the Series 7 examination in the context of the introducing-carrying firm relationship, the allocation of responsibilities in clearing agreements, and the regulatory framework governing customer account carrying arrangements.
The key points to retain are these.
FINRA Rule 4311 — Carrying Agreements — prohibits member firms from entering into arrangements for the carrying of customer accounts unless the arrangement is governed by a written agreement with a FINRA member carrying firm. The two types of carrying arrangements are fully disclosed — where the carrying firm knows each individual customer's identity — and omnibus — where the carrying firm maintains a single aggregated account without individual customer identification.
The written carrying agreement must identify and bind every direct and indirect recipient of clearing services — including in tri-party arrangements where one introducing firm acts as intermediary for another. The responsibility for safeguarding customer funds and securities under Securities Exchange Act Rule 15c3-3 must be expressly allocated to the carrying firm in fully disclosed agreements — this responsibility cannot be delegated to the introducing firm. The responsibility for preparing and transmitting customer account statements must also be expressly allocated to the carrying firm — with introducing firm preparation permitted only with prior FINRA written approval. Carrying firms must notify FINRA at least ten business days before commencing the carrying of any new introducing firm's accounts. Customers of introducing firms whose accounts are carried by clearing firms receive Securities Investor Protection Corporation coverage based on their net equity claim against the carrying firm — the firm that actually holds their assets.
