BIRKELBACH INVESTMENT
SECURITIES, INC
SUPERVISORY PROCEDURES
AND COMPLIANCE MANUAL
(For Internal Use Only)
October 1, 2009
BIRKELBACH INVESTMENT SECURITIES, INC
SUPERVISORY PROCEDURES AND COMPLIANCE MANUAL
The latest updates to this Manual are as follows:
Section
Pages
Date
ACKNOWLEDGMENT
TO:
Compliance Officer
RE:
Supervisory Procedures and Compliance Manual
I acknowledge that I have read and agree to abide by BIRKELBACH INVESTMENT
SECURITIES, INC (the “Firm”) Supervisory Procedures and Compliance Manual, including any
amendments or updates thereto, at all times during my association with the Firm.
Signature:
Print Name:
Date:
ACKNOWLEDGMENT
TO:
Compliance Officer
RE: BIRKELBACH INVESTMENT SECURITIES, INC Insider Trading Policy and
Procedures
I acknowledge that I have read and understand the Firm’s Insider Trading Policy and
Procedures (Section IV). I hereby agree to adhere to the provisions thereof, including any
amendments or updates thereto, at all times during my association with the Firm.
Signature:
Print Name:
Date:
Table of Contents
Page
I.
Description of the Firm’s Business Activities .....................................................................1
II.
Summary and Description of Supervisory Duties ...............................................................1
III.
A.
General Considerations ............................................................................................1
B.
Determining Qualifications of Supervisory Personnel ............................................2
C.
General Supervisory Requirements .........................................................................2
D.
Specific Supervisory Duties of Principals ...............................................................2
E.
Delegation of Principals’ Duties ..............................................................................6
F.
Designation of Supervisory Control Procedures Principal ......................................6
G.
Annual Compliance Review ....................................................................................6
H.
Annual Certification.................................................................................................7
I.
Annual Compliance Meeting ...................................................................................9
J.
Revision and Distribution of the Manual .................................................................9
K.
1.
2.
3.
Continuing Education ............................................................................................10
Regulatory Element ...................................................................................10
Firm Element .............................................................................................11
Oversight ....................................................................................................12
L.
Sanctions for Violations .........................................................................................12
M.
Exceptions to Firm Policies and Procedures ..........................................................12
N.
Amending Form BD ..............................................................................................13
O.
Fees and Assessments ............................................................................................13
P.
Clearing Agreement ...............................................................................................13
Employment and Registration Matters ................................................................................1
A.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Employee and Registered Person Trading Procedures ............................................1
Employee and Employee-Related Accounts ................................................1
Notification and Approval of Employee Accounts and Employee-Related
Accounts ......................................................................................................2
Review of Employee and Registered Person Transactions..........................2
Additional Principles Applicable to Employee and Registered Person
Trading .........................................................................................................2
Private Investments, Co-investments and Outside Business Activities .......3
Private Securities Transactions ....................................................................4
Falsification of Books and Records .............................................................5
Gifts, Gratuities and Loans ..........................................................................5
Commitments on Behalf of the Firm ...........................................................6
i
Table of Contents
(continued)
Page
10.
11.
12.
IV.
V.
VI.
Advance Fee Schemes .................................................................................6
Extensions of Credit.....................................................................................7
Other Prohibited or Restricted Transactions and Activities Imposed on
Registered Persons .......................................................................................7
B.
Annual Attestation ...................................................................................................9
C.
1.
2.
3.
Registration and Employment..................................................................................9
Registration ..................................................................................................9
Employment/Association .............................................................................9
Heightened Supervision .............................................................................12
Policies and Procedures Relating to Confidential Information............................................1
A.
Prohibition on Insider Trading .................................................................................1
B.
1.
2.
3.
4.
5.
Definitions................................................................................................................1
Confidential Information .............................................................................1
Inside Information ........................................................................................1
Proprietary Information ...............................................................................2
Material Information ....................................................................................2
Non-public Information ...............................................................................2
C.
1.
2.
3.
4.
5.
6.
7.
8.
Handling of Confidential Information .....................................................................2
Disclosure of Inside or Proprietary Information ..........................................2
Use of Inside or Proprietary Information .....................................................3
Trading While in Possession of Material Inside Information ......................3
Frontrunning ................................................................................................3
Manipulation ................................................................................................3
Handling of Inside or Proprietary Information ............................................3
Personal Benefit ...........................................................................................4
Rumors .........................................................................................................4
Regulatory Inquiries, Customer Complaints, Litigation and Arbitration ............................1
A.
Disciplinary Rule Violations....................................................................................1
B.
Regulatory Inquiries.................................................................................................1
C.
Customer Complaints...............................................................................................1
D.
Litigation, Arbitration and Other Matters ................................................................2
E.
Other Reportable Matters .........................................................................................3
F.
Material Event and Customer Complaint Reporting ...............................................3
G.
Statistical and Summary Information Reporting .....................................................5
Opening Accounts -- Account Approval Procedures...........................................................1
A.
Forms of Accounts ...................................................................................................1
ii
Table of Contents
(continued)
Page
B.
1.
2.
VII.
VIII.
3.
4.
5.
6.
New Account Information Form ..............................................................................1
General .........................................................................................................1
Responsibility of Registered Persons Concerning Their Customers’
Accounts ......................................................................................................1
Approval of New Accounts .........................................................................3
Suitability .....................................................................................................3
Customer Addresses.....................................................................................5
Anti-Money Laundering ..............................................................................5
C.
Account Documentation ..........................................................................................5
D.
Discretionary Authority; Third Party Accounts .......................................................5
E.
Margin Accounts ......................................................................................................7
F.
Customer Funds and Securities ................................................................................8
G.
Accounts for FINRA and AMEX Employees .........................................................8
H.
Transactions for Employees of FINRA Members ...................................................8
General Order and Execution Rules ....................................................................................1
A.
Order Procedures Generally.....................................................................................1
B.
Completing and Transmitting Order Tickets ...........................................................1
C.
1.
2.
3.
4.
Transaction Recordkeeping and Review .................................................................2
Recordkeeping .............................................................................................2
Books and Records ......................................................................................2
Review of Trading Activity .........................................................................3
Review of Cancellations and Corrections (“C&Cs”)...................................3
D.
Securities Borrowing Procedure -- Short Sales .......................................................3
E.
Time Period for Payment .........................................................................................4
F.
1.
2.
Errors and Reneges ..................................................................................................4
Errors............................................................................................................4
Reneges ........................................................................................................4
G.
Best Execution .........................................................................................................5
Advertising, Sales Literature and Correspondence with Customers ...................................1
A.
Policy 1
B.
General Standards ....................................................................................................1
C.
Definitions................................................................................................................2
D.
Advertising Files ......................................................................................................3
E.
Filing of Advertisements with FINRA ....................................................................3
iii
Table of Contents
(continued)
Page
IX.
F.
Special Considerations for Options .........................................................................3
G.
Media Interviews and Public Presentations .............................................................4
H.
Correspondence Review Procedures........................................................................5
I.
Websites ...................................................................................................................6
J.
Chat Rooms..............................................................................................................6
K.
Electronic Bulletin Boards .......................................................................................6
L.
Seminars and Outside Teaching Activities ..............................................................7
M.
Misuse of Firm Systems...........................................................................................7
N.
Advertising Arrangements .......................................................................................7
O.
Cold-Calling.............................................................................................................7
Securities Trading Activities................................................................................................1
A.
1.
2.
3.
4.
Manipulative Practices .............................................................................................1
Anti-Manipulative Principles .......................................................................1
Specific Prohibitions ....................................................................................1
Elements of Manipulative Activity ..............................................................3
Proper Identification of Accounts --Prohibitions Against “Parking” ..........3
B.
High Volume and High Volatility; Trading Halts ...................................................4
C.
Fair Prices and Commissions ...................................................................................5
D.
1.
2.
3.
4.
5.
6.
OATS Reporting ......................................................................................................5
Recording of Order Information ..................................................................5
Order Transmittal .........................................................................................6
Other Modifications and Cancellations .......................................................6
Supervisory Reviews of OATS Procedures .................................................7
Synchronization Procedures.........................................................................8
Recordkeeping Requirements ......................................................................9
E.
TRACE Reporting ...................................................................................................9
X.
Special Products/Services ....................................................................................................1
A.
Mutual Funds .......................................................................................................................1
1.
Breakpoint Sales ..........................................................................................1
2.
NAV Transfers .............................................................................................3
3.
Selling Dividends .........................................................................................3
4.
Contingent Deferred Sales Charge...............................................................4
5.
Prospectus Review .......................................................................................4
6.
Change of Address .......................................................................................4
7.
Signature Guarantees ...................................................................................4
iv
Table of Contents
(continued)
Page
8.
9.
10.
11.
12.
13.
14.
15.
16.
B.
1.
2.
3.
4.
5.
Suitability .....................................................................................................4
Redemption Procedures ...............................................................................5
Prospectus Delivery .....................................................................................5
Suitability for Class A, B, or C Mutual Fund Classes .................................6
Late Trading .................................................................................................6
Market Timing .............................................................................................7
Compensation ..............................................................................................8
Non-Cash Compensation .............................................................................8
Receipt and Delivery of Funds ..................................................................10
7.
U.S. Government Securities ...................................................................................11
Government Securities Act Amendments of 1993 ....................................11
Sales ...........................................................................................................11
Government Sponsored Enterprise (GSE) Distributions ...........................12
Treasury Auction .......................................................................................13
Transaction Records (GSA Section 103; Exchange Act Section
15C[d][3]) ..................................................................................................13
Large Position Reporting (GSA Section 104; Exchange Act Section
15C[f])........................................................................................................13
Prohibited Activities ..................................................................................14
C.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Municipal Securities ..............................................................................................15
Administration and Operations ..................................................................15
Sales of Municipal Securities.....................................................................19
Advertising and Sales Literature ................................................................22
Official Statements.....................................................................................23
Trading and Handling Customer Orders ....................................................23
Reports of Transactions (G-14) .................................................................25
Gifts............................................................................................................27
Prohibited Activities ..................................................................................28
Political Contributions ...............................................................................30
D.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Variable Products ...................................................................................................34
Licenses and Appointments .......................................................................34
Sales Guidelines .........................................................................................35
Purchases....................................................................................................38
Deferred Variable Annuity Transactions ...................................................38
Communication with the Public Regarding Variable Contracts ................40
Replacements .............................................................................................41
Cash and Non-Cash Compensation Policy - Variable Contract Securities44
Contract Delivery .......................................................................................46
Life Settlements .........................................................................................47
E.
1.
2.
Options ...................................................................................................................48
General .......................................................................................................48
Types of Options ........................................................................................49
6.
v
Table of Contents
(continued)
Page
XI.
XII.
3.
4.
5.
6.
7.
8.
Options Position Limits and Reporting......................................................49
Opening of Accounts/Updating Accounts .................................................50
Supervision of Options Activity ................................................................52
Customer Complaints.................................................................................53
Front Running ............................................................................................54
Advertising, Sales Literature and Educational Material ............................54
F.
1.
2.
3.
4.
5.
6.
7.
8.
Limited Partnerships ..............................................................................................55
Due Diligence Procedures..........................................................................56
Required Documentation and Disclosure ..................................................57
Suitability Requirements ............................................................................58
Investor Representations and Warranties ...................................................59
Investor Commitments ...............................................................................60
Rollups .......................................................................................................60
Training ......................................................................................................61
Sales and Marketing Materials...................................................................61
Privacy Policies and Procedures ..........................................................................................1
A.
Privacy Procedures Generally ..................................................................................1
B.
Certain Definitions ...................................................................................................1
C.
Privacy Policy Notice ..............................................................................................2
D.
1.
2.
Disclosure of Nonpublic Personal Information .......................................................2
Consumers....................................................................................................2
Customers ....................................................................................................2
E.
Access to Nonpublic Personal Information .............................................................3
F.
Physical Safeguards .................................................................................................3
G.
Electronic Safeguards ..............................................................................................4
Branch Offices .....................................................................................................................1
A.
Offices of Supervisory Jurisdiction .........................................................................1
B.
Branch Offices Assigned To OSJs...........................................................................1
C.
Non-Branch Business Locations ..............................................................................1
D.
Supervision of Producing Office Supervisors..........................................................2
E.
Use of Office Space by Outsiders ............................................................................2
F.
1.
Office Records .........................................................................................................2
Regulatory Requests for Records.................................................................3
G.
Changes in Branch Offices ......................................................................................3
H.
Office Inspections ....................................................................................................3
vi
Table of Contents
(continued)
Page
XIII.
I.
Display of SIPC Symbol ..........................................................................................4
J.
Availability of Rules ................................................................................................4
Recordkeeping .....................................................................................................................1
Exhibits:
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
Assignment of Registered Persons
Customer Account Review Log
Employee Account Notification Form
Outside Business Activities Form
Private Securities Transaction Form
Gift and Gratuity Form
Annual Compliance Attestation Form
Disclosure Regarding Dispute Resolution
New Account Documents
New Account Information Form
Privacy Policy Notice
Appendices:
1.
2.
Preservation and Destruction of Records
Supervisory Personnel
vii
INTRODUCTION
The U.S. Securities and Exchange Commission (the “SEC”) has held that a violation of
securities laws committed by employees of a broker-dealer acting within the scope of their
employment may be a violation by the firm, and the degree of fault of the firm is a factor to be
considered in determining any sanction to be imposed. Under the securities laws, the firm may
not be liable if it exercises reasonable supervision. The firm will have provided reasonable
supervision if: (1) there are established written procedures, as required by Rule 3010 of the
Financial Industry Regulatory Authority (“FINRA”), which would reasonably be expected to
prevent and detect any such violation, and (2) a supervisory person has reasonably discharged
the duties and obligations incumbent upon him or her by reason of such procedures.
This is the Supervisory Procedures and Compliance Manual (the “Manual”) adopted by
Birkelbach Investment Securities, Inc. (“BIS” or the “Firm”). A copy of this Manual is provided
to each person registered with the Firm. A copy of this Manual must be maintained at each
office of the Firm and retained in the immediate work area of every registered person.
The primary responsibility for following the policies and procedures contained in this
Manual rests with the Firm’s personnel. A conscientious and professional attitude on each
employee’s or Registered Person’s part will assist the Firm in complying with the many rules,
regulations and customs of the securities brokerage business.
While every attempt has been made to summarize applicable requirements, each
employee’s or Registered Person’s good judgment is crucial for the success of the Firm’s
compliance program. As part of the development of appropriate compliance, each employee and
Registered Person should become familiar with the procedures and policies set forth in this
Manual. Failure to adhere to the policies and procedures described herein, or to applicable laws,
rules or regulations, may result in disciplinary action by the SEC, FINRA, and/or other
regulators, and/or also may result in the Firm taking action with respect to the employee or
Registered Person, including, among other things, fines, limitations on activities, special
supervision, suspension and/or termination.
From time to time, questions may arise which are not addressed by the Manual or cannot
be answered by an employee’s or Registered Person’s immediate supervisor. Such questions
should be brought immediately to the attention of the Compliance Officer before any action is
taken.
Contacts with the Compliance Officer regarding the Manual and applicable rules and
regulations are encouraged and welcomed, and may prevent questions from becoming problems.
I.
Description of the Firm’s Business Activities
The Firm acts as an introducing broker, routing order flow for institutional and retail
customers to a clearing firm on a fully disclosed basis. The Firm also executes customer orders
on an agency, riskless principal and principal basis. The Firm deals in corporate equities,
corporate bonds, mutual funds, U.S. government securities, municipal securities, variable
products, options, and limited partnerships.
The Firm introduces all such transactions on a fully disclosed basis to a clearing firm,
which clears and settles transactions effected by the Firm and acts as custodian of customer
accounts on behalf of the Firm for regulatory and SIPC purposes.
The Firm will not deal private placements or public direct participation programs. It will
not engage in market making or firm commitment underwritings or provide investment advisory
services to its customers. The Firm will not effect transactions in commodities, commodity
futures or commodity options nor will it engage in any other non-securities business activities.
The Firm does not (i) carry or maintain accounts for customers; (ii) handle or hold
customer funds or securities; (iii) clear or settle securities transactions on behalf of customers;
(iv) issue research reports regarding securities; (v) permit its personnel to exercise discretion
over customer accounts; (vi) engage in market making; (vii) engage in investment banking or
underwriting activities; or (viii) engage in investment advisory activities.
II.
Summary and Description of Supervisory Duties
A.
General Considerations
The activities of the Firm are subject to U.S. securities laws and to certain rules,
regulations and interpretations of the SEC, FINRA and other self-regulatory organizations
(“SROs”). Under these laws and regulations and under applicable case law and enforcement
actions, the Firm is required to establish and maintain adequate written supervisory procedures.
In addition, the Firm is required to supervise compliance with such procedures. This obligation
includes the duty to enforce the written supervisory procedures and take steps designed to ensure
that all registered personnel comply with such procedures and with applicable securities laws and
regulations. Consequently, it is the responsibility of all registered supervisory personnel
(collectively, “Principals”) to supervise the activities of the Firm’s employees and Registered
Persons and to monitor and enforce compliance with such procedures. Failure of Principals to
monitor and enforce compliance can result in fines, suspensions from the securities industry and
even permanent expulsion from the securities industries for the Principal, the Firm or both.
Implicit in such requirement is that Principals be experienced, responsible and vigilant
with respect to their supervisory duties and must impress upon Firm personnel the importance of
compliance with applicable laws, rules and policies, including Firm requirements. Principals
must immediately report any violations of this Manual or of applicable securities laws and
regulations to the Firm’s Compliance Officer. Upon review of the violation or suspected
violation and the circumstances relative thereto, Firm management, in consultation with the
Compliance Officer and the Principal responsible for a particular employee or Registered Person,
will determine what disciplinary measures, if any, should be imposed. The Compliance Officer
will promptly investigate, and maintain a written record of, all reports of violations or suspected
violations. He or she also will maintain a written record of all disciplinary measures imposed in
connection therewith.
The Firm is pledged to ongoing full compliance with all applicable requirements with
respect to its daily trading activities and to the avoidance of transactions which violate the
securities laws and which could be regarded as violating applicable rules and regulations. Every
Firm employee and Registered Person is expected to adhere to such requirements and to
principles of good business practice in the conduct of his or her business affairs.
The Firm’s commitment to full compliance with applicable securities laws, rules and
policies starts with the individual representatives, and also depends upon the Principals
effectively discharging their duties. It is important that the Principals implement and monitor
procedures and operations to, among other things:
1.
Ascertain that the Firm’s activities comply with applicable requirements;
2.
Advise, when necessary, Registered Persons, registered personnel and other Firm
employees of appropriate action in response to specific situations; and
Birkelbach Investment Securities, Inc.
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October 2009
3.
Assist Firm employees and Registered Persons in recognizing certain “red flags”
or circumstances requiring consultation with a Principal and/or the Compliance
Officer.
The Firm’s ability to meet its objective of ongoing full compliance with applicable
requirements is directly dependent upon the ability of the Principals not only to supervise
responsibly but also to be able to depend on the full cooperation of the employees and Registered
Persons under their supervision. Such cooperation is required in all cases, both (a) in response to
any requests by the Principals or the Compliance Officer and (b) whenever Firm personnel
encounter any potentially sensitive situations requiring advice and consultation of a Principal
before proceeding or have any questions arising in connection with trade-related activities. In
sum, full and absolute cooperation is not optional but essential.
B.
Determining Qualifications of Supervisory Personnel
All supervisory personnel must have sufficient knowledge, evidenced by examination
and experience, about the regulatory requirements affecting the Firm’s activities that they will
supervise. Each associated person with supervisory responsibilities must have at least one (1)
year of direct experience or two (2) years of related experience in the subject area to be
supervised. All supervisory personnel must also be capable of complying with all applicable
federal and state securities laws and the rules of FINRA as they apply to the Firm’s business.
Before final approval for employment is given, and before an application is submitted to
FINRA or to any other regulatory agency requesting principal registration, the Compliance
Officer will verify the applicant’s prior supervisory experience, qualifications and character by
(i) reviewing the individual’s registration record contained in Web CRD, the status of his
securities industry exams, the status of his regulatory element continuing education
requirements, and any disciplinary history recorded there; (ii) contacting in person, by telephone
or in writing, the applicant’s employers for the last three (3) years; (iii) contacting other
references who would have knowledge of the applicant’s supervisory experience, qualifications
and character; and (iv) making other investigations as the Firm may deem advisable. If the
applicant has previously been registered with FINRA, the Compliance Officer also will obtain
and review the Form U5 filed by the applicant’s prior employer.
C.
General Supervisory Requirements
The Firm’s supervisory structure, which is overseen by the Compliance Officer, is
designed to meet applicable requirements concerning supervision of the Firm’s activities and
personnel. All Firm personnel are expected to cooperate fully with the Principals in conducting
business within the spirit and meaning of the applicable securities laws and regulations and the
rules of FINRA.
D.
Specific Supervisory Duties of Principals
The specific supervisory duties of Principals, depending upon the business area they are
responsible for supervising, include the following:
Birkelbach Investment Securities, Inc.
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October 2009
1.
Each registered person is assigned to a particular registered Principal, as
detailed in Exhibit A. The Principals are responsible for the actions of employees,
Registered Persons and agents under their supervision taken on behalf of the Firm and for
supervising the activities of the Firm on a daily basis. Where noted in this Manual,
certain of their supervisory duties may be delegated to appropriately licensed (i.e., Series
24) designees.
2.
The Principals (with the assistance of appropriately licensed designees),
acting under the direction of the Firm’s President, are responsible for monitoring
compliance with this Manual and monitoring that the supervisory procedures established
herein, are at all times adequate for the nature of the Firm’s business activities and
methods of operation.
3.
The Principals (with the assistance of appropriately licensed designees)
are responsible for monitoring the Firm’s activities to see that they comply with the
Securities and Exchange Act of 1934, as amended, (the “Exchange Act”), the rules and
regulations promulgated there under and the rules and regulations of FINRA and any
other applicable statutes.
4.
The Principals (with the assistance of appropriately licensed designees)
are responsible for establishing a follow-up procedure to monitor that deficiencies noted
in supervisory reviews are remedied in a prompt and effective manner (in accordance
with Section II).
5.
The Principals (with the assistance of appropriately licensed designees)
are responsible for instituting and monitoring special supervision over any individual
who is registered with the Firm and who has been the subject of a membership
continuance proceeding or statutory deficiency.
6.
The Principals (with the assistance of appropriately licensed designees)
are responsible for overseeing the hiring, registration, training and termination of all
registered persons in their business area(s) (in accordance with Section III).
7.
The Principals (with the assistance of appropriately licensed designees)
are responsible for reviewing reports from the Compliance Officer regarding trading in
Employee Accounts and Employee-Related Accounts (in accordance with Section III).
8.
The Principals (with the assistance of appropriately licensed designees)
are responsible for reviewing outgoing correspondence, incoming correspondence and
communications with the public by employees and Registered Persons under the
supervision of the Compliance Officer (in accordance with Section VIII).
9.
The Principals (with the assistance of appropriately licensed designees)
are responsible for seeing that no unregistered person engages in activities that require
registration (in accordance with Section III).
Birkelbach Investment Securities, Inc.
2-3
October 2009
10.
The Principals (with the assistance of appropriately licensed designees)
are responsible for monitoring that applicable credit rules and controls are observed.
11.
The Principals (with the assistance of the Compliance Officer and
appropriately licensed designees) are responsible for arranging and conducting the Firm’s
annual compliance meeting and other meetings to discuss pertinent issues and review
applicable compliance procedures (in accordance with Section II).
12.
The Principals (with the assistance of appropriately licensed designees)
are responsible for investigating and immediately reporting any violations or suspected
violations of this Manual or of applicable securities laws and regulations by personnel
under the Principal’s supervision to the Compliance Officer, and assisting the
Compliance Officer if an investigation is warranted (in accordance with Section V).
13.
The Principals (with the assistance of appropriately licensed designees)
are responsible, on a periodic basis, for confirming that the Firm and the Firm’s clearing
broker, on the Firm’s behalf, are complying with applicable trade reporting obligations
(in accordance with Section VII).
14.
The Principals are responsible for confirming that, in the event the Firm
enters into a new clearing agreement, the Firm complies with the appropriate regulatory
requirements.
15.
The Firm’s Financial and Operations Principal is responsible for
performing the following duties relating to the financial record keeping and compliance
of the Firm:
a.
Final approval and responsibility for the accuracy of financial
reports submitted to any duly established securities industry regulatory body
(“Reports”). The Firm’s Chief Executive Officer shall review the FOCUS reports
prior to submission and evidence this review by initialing the file copy.
b.
Final preparation of Reports,
c.
Accurate computation of the Firm’s required net capital not less
frequently than monthly,
d.
Supervision of individuals who assist in the preparation of Reports,
e.
Supervision and responsibility for individuals who are involved in
the actual maintenance of the Firm’s books and records from which Reports are
derived,
f.
Supervision and/or performance of the Firm’s responsibilities
under all applicable financial rules,
Birkelbach Investment Securities, Inc.
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October 2009
g.
Overall supervision of and responsibility for the employees who
are involved in the administration and maintenance of the Firm’s back office
operations, and
h.
Any other matter involving the financial and operational
management of the Firm
16.
The Firm’s Chief Compliance Officer (with the Principals, where
applicable) will be responsible for performing the following duties:
a.
Maintaining these written compliance and supervisory procedures
so that they are at all times adequate for the nature of the Firm’s business
activities and methods of operation; amending them when necessary to
accommodate changes in the Firm’s business activities or to comply with new or
amended regulations; and communicating them to Firm personnel.
b.
Conducting an annual review of the Firm’s business for the
purpose of ensuring the adequacy of the Firm’s supervision and compliance
procedures
c.
Conducting an annual compliance meeting for the Registered
Persons of the Firm
d.
Developing and conducting the annual Firm Element Continuing
Education program.
e.
Investigating the backgrounds of all newly hired personnel to
determine their qualifications and disciplinary histories
f.
Identifying Firm personnel who need heightened supervision and
developing and implementing special supervisory programs for them.
g.
actions.
Investigating and resolving customer complaints and regulatory
h.
Monitoring compliance with the Firm’s insider trading policies
i.
Reviewing e-mail correspondence
j.
Reviewing reports of gifts and gratuities received and approving
the giving of gifts and gratuities.
k.
Maintaining the accuracy of the Firm’s Form BD
l.
Paying all required fees and assessment.
m.
Monitoring the adequacy of the Firm’s fidelity bond
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n.
Monitoring the Firm’s arrangement with its clearing firms
17.
On a quarterly basis, each Principal is responsible for reviewing five
percent (5%) of customer accounts of each registered representative assigned to such
Principal to confirm the suitability of the trading activity in the account, to monitor for
excessive trading losses and to detect and prevent instances of fraudulent, manipulative
or violative conduct (in accordance with Section IX) and, based upon such reviews,
completing the Customer Account Review Log attached as Exhibit B.
E.
Delegation of Principals’ Duties
Principals may designate another individual to perform routine daily reviews of
supervisory responsibilities on a regular or temporary basis. The designated person must have the
following qualifications:
1.
Appropriate registration (e.g., Series 24 Examination); and
2.
Sufficient experience in a supervisory capacity.
Although a Principal may delegate supervisory authority to an employee or Registered
Person, it is still the Principal’s responsibility to review the designated person’s performance and
effectiveness in surveillance. There should be physical evidence of such review either directly on
the specific items reviewed or in a log, which can be presented to the Compliance Officer and
regulators upon request.
F.
Designation of Supervisory Control Procedures Principal
The Firm has designated Carl Birkelbach, the Firm’s Compliance Officer, to be the
Supervisory Control Procedures Principal. In this capacity, he will be responsible for, among
other things, the establishment, maintenance, and enforcement of supervisory control procedures
that (a) test and verify that the Firm’s supervisory procedures are reasonably designed to achieve
compliance with applicable securities laws and regulations, and (b) amend or create additional
supervisory procedures where necessary.
G.
Annual Compliance Review
The Compliance Officer will conduct an annual compliance review to be completed not
later than 30 days after the close of each fiscal year of the Firm. This review shall include:

an on-site inspection of each of the Firm’s offices to determine each office’s level of
compliance with these policies and procedures during the past year,

a review of customer complaints, regulatory inquiries, arbitrations, litigation, and
other disciplinary procedures to identify trends in non-compliance,

a review of customer accounts with a view to detecting trading irregularities or
abuses,
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
discussion with the Firm’s Principals regarding problems they have identified during
the past year, including but not limited to the areas of supervision, operations, training
of personnel, detection of money laundering, and insider trading, and

Any other areas of inquiry the Compliance Officer deems appropriate.
The Compliance Officer shall prepare a written report of his findings and present it to the
Chief Executive Officer. The report shall contain:

a description of the review the Compliance Officer conducted,

the results of that review,

the Compliance Officer’s assessment of the adequacy of the Firm’s policies and
procedures in preventing and detecting violative conduct,

his proposals for changes to the Firm’s policies and procedures to improve the Firm’s
compliance with applicable securities laws and regulations,

a discussion of new and proposed regulatory and legislative changes that may require
the adoption of new policies and procedures or the modification of current policies
and procedures, and

A description of new businesses that the Firm intends to conduct and a proposal for
the adoption of policies and procedures applicable to those business areas.
A copy of the written report of the annual compliance review, dated and signed by the
Compliance Officer, shall be given to the Firm’s Chief Executive Officer and its managing
members. A copy of the report shall also be placed in the Firm’s files and shall be made
available to FINRA upon request.
The annual compliance review shall be conducted independent of any business
considerations that are countervailing to full compliance with applicable laws, regulations and
rules.
H.
Annual Certification
Following completion of his report on the annual compliance review, the Compliance
Officer shall meet with the Firm’s Chief Executive Officer to review the report. Other parties
may be invited to participate in this meeting, including other principals and employees of the
Firm, outside consultants, and/or the Firm’s lawyers or accountants. At this meeting, the
Compliance Officer and the Chief Executive Officer shall:

discuss and review the adequacy and effectiveness of the Firm’s compliance policies
and supervisory procedures;

identify and address significant compliance problems; and
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
Identify and address the Firm’s plans for new business endeavors.
At the conclusion of the annual meeting between the Compliance Officer and the Chief
Executive Officer, the Chief Executive Officer shall execute a certification substantially in the
following form:
Annual Compliance and Supervision Certification
The undersigned is the Chief Executive Officer of BIRKELBACH
INVESTMENT SECURITIES, INC. (the “Member”). As required by FINRA
Rule 3013(b), the undersigned makes the following certification:
1.
The Member has in place processes to:
(a)
establish, maintain and review policies and procedures
reasonably designed to achieve compliance with applicable FINRA
rules, federal securities laws and regulations, and the applicable
rules of any other self-regulatory organizations having jurisdiction
over the Member;
(b)
Modify such policies and procedures as business,
regulatory and legislative changes and events dictate; and
(c)
test the effectiveness of such policies and procedures on a
periodic basis, the timing and extent of which is reasonably
designed to ensure continuing compliance with FINRA rules,
federal securities laws and regulations, and the applicable rules of
any other self-regulatory organizations having jurisdiction over the
Member.
2.
The undersigned Chief Executive Officer has conducted one or more
meetings with the Chief Compliance Officer in the preceding 12 months, the
subject of which satisfy the obligations set forth in IM-3013.
3.
The Member’s processes, with respect to paragraph 1 above, are
evidenced in a report reviewed by the Chief Executive Officer, the Chief
Compliance Officer, and such other officers as the Member may deem necessary
to make this certification, and submitted to the Member’s managing members and
audit committee, if any.
4.
The undersigned Chief Executive Officer has consulted with the Chief
Compliance Officer and other officers as applicable (referenced in paragraph 2
above) and such other employees, outside consultants, lawyers and accountants,
to the extent deemed appropriate, in order to attest to the statements made in this
certification.
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DATED:
(Signature)
Print name:
The signed Certification shall be placed in the Firm’s files and shall be made available to
FINRA upon request.
I.
Annual Compliance Meeting
The Compliance Officer will be responsible for conducting a meeting, at least annually,
to discuss compliance matters. Each Principal and Registered Representative must attend the
annual compliance meeting or interview. The compliance meeting or interview will have three
main purposes:

to review the Firm’s business and methods of operation and the compliance issues
related thereto;

to provide each Principal and Registered Representative with an opportunity to ask
any questions he or she may have concerning compliance requirements and to receive
guidance on such questions; and

to communicate regulatory developments, Firm policies and related information to
the Principal and Registered Representative.
At each of such meetings, the Compliance Officer will record the date, location, attendees
and the subjects discussed. Such record shall be retained with other Firm records. This meeting
is extremely important and attendance is mandatory. If a person cannot attend the meeting,
an alternative meeting (or videotaping of the meeting for subsequent viewing) may be arranged.
If at any time a Firm employee or Registered Person wishes to ask a compliance related
question, he or she should contact a supervisor or contact the Compliance Officer directly.
J.
Revision and Distribution of the Manual
It is the responsibility of the Compliance Officer to amend this Manual as appropriate and
within a reasonable time after changes occur (i) in the business of the Firm, (ii) in applicable
securities laws and regulations, and (iii) in the rules of self-regulatory organizations having
jurisdiction over the Firm. The Compliance Officer will also amend the Manual when changes
are recommended in the Compliance Officer’s annual compliance review. When changes are
required or advisable, the Compliance Officer, under the supervision of the Firm’s Principals,
will make the changes and promptly distribute copies thereof to the Firm’s registered persons.
A copy of this Manual must be given to each registered person upon hiring and annually
at the annual compliance meeting. All registered persons must acknowledge their receipt of the
Manual upon hiring and annually by signing the form of Acknowledgment appearing at the
beginning of this Manual. The Compliance Officer must keep the signed Acknowledgments in
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each registered person’s file. In addition, a master copy of this Manual must be maintained at
every office of the Firm.
K.
Continuing Education
The Firm has developed its Continuing Education has developed this Continuing
Education Program (the “Program”) to satisfy FINRA Rule 1120, which establishes requirements
for the continuing education of certain individuals associated with the Firm. The Program
consists of two parts: the Regulatory Element and the Firm Element.
1.
Regulatory Element
Description: The Regulatory Element requires each registered individual
associated with the Firm to complete a prescribed computer-based training session within one
hundred twenty (120) days of the second anniversary of his or her registration and every three (3)
years thereafter. Failure to complete the Regulatory Element will result in a person’s registration
becoming inactive. The Regulatory Element focuses on compliance, regulatory developments,
ethics and sales practice standards. Individuals may sit for a Regulatory Element session at any
Sylvan/Prometric Technology Center at any time during a 120-day window beginning on an
anniversary date that triggers a session.
The Firm’s Compliance Officer will monitor FINRA’s electronic Central
Registration Depository system (“Web CRD”) to determine when a registered individual subject
to the Regulatory Element is approaching his or her next open window. Upon confirming an
individual’s requirement to complete a Regulatory Element session, the Compliance Officer will
issue a written memo to the individual and to his or her supervisor, informing them of the
requirement and the dates of the open window. This memo will be sent at least one (1) month
and again two (2) weeks before the “window” begins. The individual must inform the
Compliance Officer of his or her availability for the session and the location at which he or she
wishes to sit for the session, and the Compliance Officer will make an appointment with
Sylvan/Prometric for the session.
Upon completion of the training session, the Firm will be notified by Web CRD
of the individual’s satisfaction of the Regulatory Element. Copies of the notification will be
reviewed by the Compliance Officer and filed in the employee’s personnel file. The employee
will receive a copy of Web CRD’s notification.
Enforcement: Individuals who fail to complete the Regulatory Element
requirements will have their registrations become inactive. While their registrations are inactive,
such individuals will not be allowed to conduct any securities-related business requiring
registration. Upon notice of a representative’s failure to complete the Regulatory Element, the
Compliance Officer will notify the employee and his or her supervisor that his or her registration
is inactive and that he or she may not engage in securities-related business until the Regulatory
Element has been satisfied. Failure to complete the Regulatory Element may subject the
individual to additional sanctions such as withholding of commissions, suspension or
termination, as determined by the Compliance Officer and the individual’s supervisor.
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Recordkeeping: The Firm’s Compliance Officer, or his or her designee, will
maintain a log of persons subject to the Regulatory Element. The log will contain the name of
each individual subject to the Regulatory Element, the name of that person’s supervisor, the
dates of his or her next open window for a Regulatory Element session and the date he or she
completed the session.
2.
Firm Element
Description: The intent of the Firm Element component of the Continuing
Education Program is to provide ongoing, in-house training for those registered individuals who
have direct contact with the Firm’s customers and the supervisors of such persons (“Covered
Persons”). The Firm Element training is intended to enhance the knowledge, skill and
professionalism of such Covered Persons and to assist them in keeping informed about changes
in the industry. The Firm Element consists of an annual needs analysis, an annual training plan,
a program for delivering the actual training, and a system for collecting and evaluating feedback
from participants. Firm Element training will focus on educating the Firm’s Covered Persons
about requirements specific to the Firm’s business activities, as described in Section I above.
Needs Analysis. In order to determine what training is necessary, the Compliance
Officer will annually evaluate and prepare a written description of the Firm’s training needs (the
“Needs Analysis”). In conducting this analysis, the Compliance Office will consider such
factors as (i) the size, organizational structure and scope of the Firm’s business activities, (ii)
current economic and market conditions, (iii) current legal and regulatory developments, (iv)
current compliance issues and concerns, (v) the subject matter of any customer complaints,
regulatory inquiries, arbitrations, litigations or other disciplinary proceedings involving the
Firm’s personnel; (vi) input on critical issues from the managers of the Firm’s legal, compliance,
trading, audit, operations, management and sales functions; (vii) performance reviews
highlighting the development needs of the Firm’s employees; and (viii) the performance of
Covered Persons in the Regulatory Element.
Training Plan: Based on the results of the annual Needs Analysis, the
Compliance Officer will develop an annual training program (the “Training Plan”). The annual
Training Plan will: (i) state the overall objective of the training program; (ii) identify the topics
to be discussed and the knowledge or skills to be imparted; (iii) describe the form of the training
to be given, which may include, but is not limited to, lectures by Firm personnel or outside
experts, computer-based training, supervised independent study, internally developed training
materials, and externally developed programs purchased from outside vendors; (iv) determine
which Covered Persons must attend the training; (v) schedule time(s) and place(s) for the
training; and (vi) establish a method for receiving and evaluating feedback on the training’s
effectiveness.
Enforcement: Annually the Compliance Officer shall: (i) make a determination of
which registered individuals are Covered Persons subject to the Firm Element training; (ii)
advise such Covered Persons and their supervisors of their responsibility to complete the
training; (iii) maintain a listing of registered persons who have completed the training, and (iv)
recommend sanctions for individuals who fail to complete the training, which may include
withholding of commissions, suspension or termination.
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Recordkeeping: The Compliance Officer will make and keep written records
relative to its Firm Element Continuing Education Program, including copies of the annual needs
analyses, copies of the annual training plans, records of specific training materials used, lists of
persons scheduled to attend training sessions and evidence of their participation thereat, and
records of participants’ feedback.
3.
Oversight
The Continuing Education Program will be overseen by the Compliance Officer
under the supervision of the Firm’s President.
L.
Sanctions for Violations
Whenever the Compliance Officer, in consultation with the appropriate Principal (if
applicable), determines that a Firm employee or Registered Person (including a Principal) has
committed a violation of any policy established in this Manual or any violation of applicable
securities laws and regulations, he or she may recommend that disciplinary measures be imposed
upon the employee or Registered Person. Depending upon the circumstances with respect to the
violation (including, without limitation, the policy or regulation which was violated, the severity
of the violation, the position and seniority of the employee or Registered Person, the number and
frequency of prior violations of Firm policies or securities laws and regulations, any prior
disciplinary history, knowing or reckless conduct in connection with the violation, and
cooperativeness in the investigation of the violation), any or a combination of the following
sanctions may be imposed in the discretion of the Firm:
M.
1.
Termination;
2.
Suspension;
3.
Probation, including increased supervision and surveillance and increased
reporting obligations for the employee or Registered Person during the
probationary period; and/or
4.
Monetary fines.
Exceptions to Firm Policies and Procedures
The policies and procedures contained in this Manual are the result of careful thought and
planning. These policies and procedures were designed to assist Firm employees and Registered
Persons in complying with all applicable regulatory and legal requirements and to promote sound
business practices. Exceptions to certain of the policies and procedures contained in this Manual
may be granted for a valid reason if prior written approval from a Principal and the Compliance
Officer has been received.
From time to time, approval granting an exception may be given orally. In such
instances, however, such approvals should be evidenced in writing within a reasonable period of
time. Furthermore, any exceptions granted to Firm employees and Registered Persons shall not
be interpreted as establishing Firm precedent.
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N.
Amending Form BD
The Compliance Officer is responsible for keeping the Firm’s Form BD current at all
times by filing supplementary amendments thereto via Web CRD as the information contained
therein changes. Amendments must be filed no later than 30 days after learning of the facts or
circumstances giving rise to the amendment.
O.
Fees and Assessments
It is the joint responsibility of the Compliance Officer and the Financial and Operations
Principal, or their authorized designees, to:
a.
Pay all renewal FINRA registration fees and assessments on a timely
basis;
P.
b.
Pay all renewal state broker-dealer and sales agent registration fees on a
timely basis;
c.
Pay all SIPC assessments on a timely basis;
d.
Pay all MSRB assessments on a timely basis; and
e.
Pay all premiums necessary to maintain adequate fidelity bond coverage.
Clearing Agreement
The Compliance Officer has the following responsibilities regarding the Firm’s clearing
arrangements:
a.
Prior to executing a clearing agreement with a clearing firm, to review the
agreement to ascertain that it is in compliance with FINRA Rule 3230;
b.
at the time of executing a clearing agreement, and annually thereafter, to
designate in writing to the clearing firm those exception and other reports
that the Firm requires during the succeeding twelve (12) months to enable
the Firm to monitor and supervise its customer accounts;
c.
to monitor the clearing firm’s fulfillment of its obligations under the
clearing agreement, including the preparation and filing of reports, the
making and retention of books and records; and the reporting of customer
complaints received by the clearing firm; and
d.
To monitor the Firm’s fulfillment of its obligations under the clearing
agreement, including providing the clearing firm with customer
information, and copies of customer complaints received by the Firm.
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III.
Employment and Registration Matters
A.
Employee and Registered Person Trading Procedures
1.
Employee and Employee-Related Accounts
These policies apply to all employees, whether permanent or temporary, to all
Registered Persons and to all persons working for the Firm as consultants or seconds.
“Employee Accounts” include the following securities and/or commodities accounts:
a.
Any personal account of an employee or Registered Person;
b.
Any joint or tenant-in-common account in which the employee or Registered
Person is a participant;
c.
Any account of which the employee or Registered Person acts as the trustee,
executor or custodian;
d.
Any account over which the employee or Registered Person has investment
discretion or otherwise can exercise control (other than non-related customers’
accounts over which the employee or Registered Person has investment
discretion), including the accounts of entities controlled directly or indirectly by
the employee or Registered Person; and
e.
Any other account in which an employee or Registered Person is directly or
indirectly financially interested.
“Employee-Related Accounts” include the following securities commodities and/or
accounts, to the extent that they would not otherwise be Employee Accounts:
a.
The account of the employee’s or Registered Person’s spouse;
b.
The accounts of the employee’s or Registered Person’s children and children’s
spouses, parents, grandparents, in-laws, brothers and sisters and their spouses,
provided they reside in the same household as the employee or Registered Person,
or are financially dependent upon the employee or Registered Person; and
c.
The account of any individual over whose account the employee or Registered
Person has control or to who’s financial support the employee or Registered
Person materially contributes.
These policies do not apply to the following types of accounts: Keogh, 401(k), or
other collectively managed accounts for which the employee, Registered Person or family
member does not have or share the power to make investment decisions. If the employee,
Registered Person or family member has a self-directed Keogh or 401(k) account, these policies
apply.
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2.
Notification and Approval of Employee Accounts and EmployeeRelated Accounts
Every Firm employee and registered person must obtain prior written approval to
open a securities account at another broker-dealer by completing an Employee Account
Notification Form, a copy of which is attached as Exhibit C. The initial Form must be
completed at the time an employee or registered person becomes employed by the Firm with
respect to any then existing Employee Account and Employee-Related Account. Upon receipt of
an Employee Account Notification Form, the Compliance Officer will prepare for the
employee’s or registered person’s signature, a letter or letters to the executing broker-dealer
advising such other broker-dealer to provide contemporaneous duplicate confirmations and
statements to the Firm’s Compliance Officer. The employee or registered person is responsible
for ascertaining that such documentation has been sent to the Firm.
3.
Review of Employee and Registered Person Transactions
The Firm is required to review transactions in all Employee Accounts and
Employee-Related Accounts. The Compliance Officer reviews Employee Account and
Employee-Related Account confirmations and monthly account statements, and then forwards to
the designated Principals copies of monthly statements of such Employee Account and
Employee-Related Account trading activity for the employees and Registered Persons in their
business area. The designated Principals must evidence their review by initialing and dating the
document, which shall be maintained in the Firm’s files.
4.
Additional Principles Applicable to Employee and Registered Person
Trading
In addition to the specific requirements set forth above, Firm employees and
Registered Persons also are subject to, and must abide by, the requirements set forth below.
Exceptions to these requirements may be granted in limited circumstances by the Compliance
Officer.
a.
Employees and Registered Persons may not engage in any securities
transaction or recommend, advise or suggest a securities transaction for an
Employee Account or Employee-Related Account while the employee or
Registered Person is in possession of inside information or proprietary or
confidential information relating to the security. If an employee or
Registered Person has any doubt as to whether the information he or she
holds is material inside, proprietary or confidential information, he or she
should immediately contact the Compliance Officer. (See Policies and
Procedures Relating to Confidential Information, Section IV.)
b.
Employees and Registered Persons may not engage in “Frontrunning,”
i.e., Firm employees and Registered Persons may not buy or sell or
recommend the purchase or sale of any security or a derivative thereof for
their Employee Account or Employee-Related Account in anticipation of a
price change resulting from a contemplated or pending block transaction
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in the security or a derivative thereof for another account. If employees or
Registered Persons are aware that the Firm has accepted a customer’s firm
order (at a price which makes execution practical), they must not trade the
same way in that security or any related security for their Employee
Account or Employee-Related Account, until after the order or decision
has been executed or canceled. Customers’ interests are always
paramount. (See Section IX.)
c.
Employees and Registered Persons must avoid any conflict between their
own or the Firm’s interests and the interests of customers.
d.
Employees and Registered Persons may not obtain any benefit (e.g.,
access to securities at discounted prices or in greater amounts) from their
employment which would not be available to them as members of the
public.
5.
Private Investments, Co-investments and Outside Business Activities
Private investments, co-investments and outside business activities may violate
applicable regulations or create conflicts of interest for employees, Registered Persons and the
Firm. Thus, without the prior written consent of the employee’s or Registered Person’s
designated Principal and the Compliance Officer, the employee or Registered Person may not:








Own securities of or have directly or indirectly any financial interest in any
other organization whose stock is not publicly traded;
Make a co-investment with the Firm;
Be engaged in any other business activity;
Be employed or compensated by any other person, entity or organization;
Serve as an officer, partner or employee of another entity or organization;
Serve on the board of directors (or, in any similar capacity) of any unaffiliated
organization or on a formal or informal creditors committee;
Serve as an executor or trustee of an estate; or
Engage in investment-related public speaking, writing or teaching activities.
Prior to making such an investment or engaging in such activity, an employee or
Registered Person must submit to his or her designated Principal and to the Compliance Officer a
completed Outside Business Activities Form in the form attached as Exhibit D, describing in
detail all aspects of the proposed investment or proposed outside business activity. If the
designated Principal and the Compliance Officer approve the proposed investment or activity,
the Compliance Officer will notify the employee or Registered Person in writing. Such approval
may be given subject to restrictions or qualifications and is revocable at any time.
If an employee or Registered Person has received approval to engage in an
activity outside his or her regular employment:
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The employee or Registered Person may not imply that, in connection with that
activity, he or she is acting on behalf of, or as a representative of, the Firm.
The employee or Registered Person may not use the Firm’s offices, telephones,
equipment or stationery for any purpose not directly related to Firm business or
activities.
Employees and Registered Persons should note that use of the Firm’s telephones
or stationery for charitable or civic purposes is permitted only with the express prior approval of
the Compliance Officer. Employees and Registered Persons may not offer Firm services in lieu
of cash donations to charitable or civic organizations.
If an employee or Registered Person has received approval to serve on a board of
directors or creditors committee:
The employee or Registered Person may not participate in any manner in any
decision to buy, sell or hold for any customer any security of the entity on whose
board of directors or creditors committee the employee or Registered Person sits,
except as expressly approved in advance by the Compliance Officer.
The employee or Registered Person should be sensitive to situations in which he or
she may come into possession of material, nonpublic information in connection with
his or her service on the board of directors or creditors committee. If the employee or
Registered Person receives or thinks he or she may have received any such
information, the employee or Registered Person must immediately notify the
Compliance Officer and may not communicate the information to anyone else.
Employees and Registered Persons have an ongoing responsibility to report any
change in status with respect to a previously approved investment or activity.
Employees and Registered Persons should consult the Compliance Officer if they
are in doubt as to whether an investment or activity of any type is covered by this policy.
6.
Private Securities Transactions
No employee or Registered Person of the Firm may participate in a private
securities transaction outside the regular course of his or her responsibilities with the Firm
without giving prior written notice of such transaction to the Compliance Officer. A “private
securities transaction” is defined under FINRA rules to mean any securities transaction effected
by an employee, Registered Person or agent of the Firm outside the regular course or scope of
the associated person’s activities with the Firm; not including, however, transactions in
Employee Accounts, transactions among immediate family members for which no associated
person receives any selling compensation, and personal transactions in investment company and
variable annuity securities.
Prior to participating in a private securities transaction, an employee or Registered
Person must provide written notice of the transaction to the Firm’s Compliance Officer on the
form attached to this Manual as Exhibit E. The notice must contain a description of the
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transaction, the person’s role in the transaction, and the amount of selling compensation, if any,
to be received.
If selling compensation will be received, the employee or Registered Person may
not participate in the transaction until the Compliance Officer, in consultation with the Firm’s
Chief Executive Officer, approves the transaction in writing on the form and returns a signed
copy of the form to the employee or Registered Person. If such transaction is approved, the
Compliance Office must record the transaction on the Firm’s books and records, and the Chief
Executive Officer must supervise the person’s participation in the transaction.
If no selling compensation is to be received, the employee or Registered Person
may not participate in the transaction until the Compliance Officer, in consultation with the
Firm’s Chief Executive Officer, acknowledges the transaction in writing on the form and returns
a signed copy of the form to the employee or Registered Person. The Firm may impose
conditions on the employee’s or Registered Person’s participation in the transaction.
7.
Falsification of Books and Records
Firm employees, Registered Persons and other personnel are strictly prohibited
from signing another person’s name, or instructing any other individual to sign another person’s
name, on a document affecting a customer’s account or the books and records of the Firm. In no
circumstances may a Firm employee or Registered Person sign another person’s name on any
document whatsoever, including account agreements, New Account Information Forms,
acknowledgements, stock powers or authorizations to transfer funds, securities or accounts (such
as Automated Customer Account Transfer System or “ACATS” forms). Firm employees and
Registered Persons must not accommodate requests by customers or others to falsify signatures
on documents or other Firm records under any circumstances. Also, “blanket” approvals or
“after-the-fact” ratification of such actions are not permitted under any circumstances.
Similarly, it is Firm policy that customers may not pre-sign multiple copies of
documents for later use. All documents must be executed by customers within five (5) business
days of the time they are to be used unless a Principal has given prior approval for a document to
be used after such period.
Failure to comply with the foregoing policy will result in disciplinary sanctions
imposed by the Firm, which may include immediate termination of employment.
8.
Gifts, Gratuities and Loans
a.
Gifts and Gratuities
Firm policy and applicable rules and regulations prohibit payments (other
than those of nominal value) to customers or employees of other firms without Principal and
Compliance Officer Approval. Firm employees, Registered Persons and members of their family
may not accept gifts or special favors (other than of a nominal value) from any person or
organization with which the Firm has a current or potential business relationship. Firm policy
and applicable rules and regulations also prohibit Firm employees and Registered Persons from
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giving payments or gifts (in excess of nominal value) to third parties, including other Firm
employees, Registered Persons and persons associated with a securities exchange, financial
institution, brokers, dealers or the news or financial information media without approval from the
Compliance Officer. For the purposes of this policy, nominal value shall mean one hundred
dollars ($100) or less. All gifts and gratuities received, and all gifts and gratuities proposed to be
given must be reported to the Compliance Officer on the Gift and Gratuity Form attached as
Exhibit F. No gifts or gratuities in excess of nominal value may be given without the
Compliance Officer’s prior written approval. The Compliance Officer shall note his approval by
dating and initialing the Gift and Gratuity Form.
With regard to customers, suppliers and persons who have referred
business to the Firm, Firm employees and Registered Persons may give gifts of nominal value
that are consistent with accepted business practice, but such gifts may be given only when
permitted by law and generally accepted ethical standards. In no event should gifts be given or
received if public disclosure of the circumstances of such gift would embarrass the Firm or the
employee or Registered Person or alter the employee’s or Registered Person’s performance of
his or her duties. Firm employees and Registered Persons should note that special restrictions
often apply to gifts and to entertainment of government employees, even if of nominal value.
Complete and accurate expense reports are necessary for all gifts or
gratuities paid for by the Firm. Any questions concerning this Firm policy should be directed to
the Compliance Officer.
b.
Loans
Employees and Registered Persons are generally prohibited from
borrowing funds or securities from, or lending funds or securities to, a customer. Any exceptions
to this prohibition must be approved in writing by the employee’s or Registered Person’s
Principal and by the Compliance Officer prior to such borrowing or lending.
9.
Commitments on Behalf of the Firm
All contracts, fee letters, letters of intent or other documents creating an
obligation of the Firm to a third party must be approved by a designated Principal and the Firm’s
Compliance Officer prior to execution. Under no circumstances may personnel acting without
the approvals cited above make any commitments on behalf of the Firm with respect to the
matters cited above.
10.
Advance Fee Schemes
From time to time the Firm may be approached by individuals who claim to have
access to substantial sums of money, usually from foreign sources, that are available as a loan or
for investment purposes. Rates and terms are quoted which are generally much more favorable
than for funds obtainable from usual sources.
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Many of these solicitations are not backed by any assured source of funds, and
generally these contacts are made to involve the Firm or its customers in fraudulent advance fee
schemes either as a victim or to lend credibility to the perpetrators.
Any transaction having any of the above elements should be viewed with extreme
caution. Under no circumstances is any Firm employee or Registered Person to provide any of
the following documentation or information to anyone unless specific prior permission is
obtained from a Principal and the Compliance Officer:
a.
The name of the Firm’s banks;
b.
The names of officers at the Firm’s banks;
c.
Bank account numbers or other identifying numbers;
d.
Telex numbers;
e.
Letters acknowledging proposals; or
f.
Firm letterhead
Any questions should be directed to the Compliance Officer.
11.
Extensions of Credit
Firm personnel are not permitted to extend credit to Firm customers, and the Firm
may do so only in the form of margin loans pursuant to an appropriately established margin
account. Registered Persons also are prohibited from contacting third parties or other customers
to request extensions of credit to a customer and from discussing or negotiating the terms
thereof. Registered Persons who receive requests from customers regarding extensions of credit
should refer such customers to the Compliance Officer, which has established policies and
procedures regarding such extensions of credit. Any questions regarding this policy should be
directed to the Compliance Officer.
12.
Other Prohibited or Restricted Transactions and Activities Imposed
on Registered Persons
In addition to the other prohibitions and restrictions set forth above and/or
discussed in other sections of this Manual which are applicable to all employees of the Firm,
whether registered or non-registered, all personnel who are registered through the Firm
(“Registered Persons”) also are specifically prohibited from engaging in any of the following
transactions or activities. It is the responsibility of each Principal to supervise the actions of the
Firm’s employees, Registered Persons and agents under his supervision taken on behalf of the
Firm to detect the prohibited activities of the types described above. This supervision may
consist of a review of customer transactions, review of the employee’s correspondence and email, monitoring the employee’s telephone conversations, or other actions determined by the
Principal. The Principal must make a written record of any detected violation in the form of an
entry in a supervisory log or a memorandum to the Compliance Officer; but each such violation
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must be brought immediately to the attention of the Compliance Officer for resolution and
corrective action.
a.
Commission Splitting
Splitting with or rebating to, directly or indirectly, any person or entity any
part of the compensation received as a Registered Person is prohibited. The Registered Person
shall not pay such compensation or any part thereof, as a bonus, commission, fee, or other
consideration for business sought or procured.
b.
Commission Assignments and Contributions
Registered Persons are prohibited from advancing or assigning
compensation received from the Firm to any person or entity.
c.
Exaggerated, Untrue or Misleading Statements; Guarantees
Making any statement or representation which is untrue or which fails to
fully disclose the risks of investing in a security, or which exaggerates the advantages of any
security, is prohibited. Moreover, Registered Persons are prohibited from warranting or
guaranteeing the future value or price of any security, or indicating that any company, sponsor,
or issuer will meet its promises, predictions, projections, forecasts, or obligations. Registered
Persons also are prohibited from agreeing to repurchase at some future time a security from a
customer or guaranteeing or in any way representing that the Registered Persons or Firm will
protect any customer against loss in any account or on any transaction.
d.
Interest in Customer Accounts
Receiving, directly or indirectly, a share in the profits or losses of any
customer account or otherwise participating or having an interest in any customer account is
prohibited.
e.
Improperly Settling Customer Disputes or Claims
Settling errors or disputes directly with a customer without the express,
prior written approval of a Principal is prohibited.
f.
Custodian
Acting as personal custodian of securities, stock powers, money or other
property belonging to a customer is prohibited.
g.
Deliveries Other Than to the Customer’ Address
Forwarding money, confirmations, or account statements to any other
person or entity, or to other than the official post office address of the customer, is prohibited,
unless the customer has signed and delivered to the Firm a letter of authorization permitting
deliveries to such other address.
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h.
Failure to Properly Transmit Funds and Documents
Failing to properly and timely transmit funds and documentation to either
the Firm or other appropriate entity as required by Firm policy and industry standards of conduct
is prohibited.
i.
Tax/Legal Advice
Giving tax or legal advice to a customer is prohibited.
j.
Commingling
Commingling funds or securities belonging to the Registered Person with
those of a customer is prohibited.
B.
Annual Attestation
Each employee and Registered Person of the Firm must sign an annual attestation in the
form attached to this Manual as Exhibit G, verifying his or her continued compliance with the
Firm’s policies. The annual attestation may be signed at the annual compliance meeting. The
Compliance Officer is responsible for obtaining the signed attestation each year. The signed
attestation will be kept in the individual’s personnel file.
C.
Registration and Employment
1.
Registration
Firm personnel who accept or handle orders for securities from customers or who
supervise any such personnel must be registered with FINRA. The Compliance Officer is
responsible for identifying all persons who must be registered and for preparing and filing a
Form U4 with CRD. All such persons must be registered in the appropriate categories before
engaging in registrable activities for the Firm.
The Compliance Officer is also responsible for keeping the Forms U4 of the
Firm’s registered personnel current by filing amendments thereto via CRD as soon as possible
after learning of the change that gives rise to the amendment.
2.
Employment/Association
It is the responsibility of Principals to promptly notify the Compliance Officer
when any offer of employment or association as a Registered Person has been extended.
Furthermore, prior to the employment or association as a Registered Person by the Firm, the
Compliance Officer will obtain the prospective employee’s or Registered Person’s consent to
obtain the applicant’s CRD records and will review such records with the respective Principal.
To the extent possible, prior to such person’s employment by or association as a Registered
Person with the Firm, the Compliance Officer will have personal conversations with all of the
applicant’s employers during the previous three (3) years and will obtain written confirmation of
such employment.
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Adequate records will be maintained for each Firm employee and Registered
Person and will include the following items:

Name.

Home address.

Social Security number.

Date of birth.

Starting date of employment.

Title or position.

Signature.

Educational institutions attended, whether or not graduated and degrees
obtained.

A complete consecutive statement of all business connections for at least the
preceding ten (10) years, including reasons for leaving each prior employment
and whether employment was part-time or full-time, with all time accounted
for, including periods of unemployment, and residence while unemployed.

A record of any convictions misdemeanor, for any felony or misdemeanor,
except minor traffic offenses.

A record of federal and state authorities with whom the applicant is or has
been registered to sell securities.

A record of any other name or names by which the applicant has been known
or which he has used.

A record of any previous or current surety bonds under which the applicant
may have been covered, and whether such a bond has ever been denied,
revoked or surety paid because of the applicant.

A record of denial of membership or registration, and of any disciplinary
action taken, or sanction imposed, upon the applicant by any federal or state
agency or by any national securities exchange or national securities
association, including any finding that the applicant was a cause of any
disciplinary action or violated any law.

A record of any denial, suspension, expulsion or revocation of membership or
registration of any member, broker or dealer with which the applicant was
associated in any capacity when such action was taken.

A record of any permanent or temporary injunction entered against the
applicant or any broker or dealer with which the applicant was associated in
any capacity at the time such injunction was entered.

An executed acknowledgment that the applicant has read, understood, and
agrees to adhere to the provisions of this Manual.
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The Compliance Officer is responsible for preparing, administering and retaining
personnel files in accordance with the foregoing.
Certain Firm employees and Registered Persons involved in the Firm’s securities
business, (i.e., those involved in or having access to the keeping, handling or processing of the
Firm’s original books and records relative to securities transactions or with direct supervisory
responsibility over any such persons), may be required to be fingerprinted. These fingerprints are
forwarded by the Firm to CRD for review of the employee’s or Registered Person’s criminal
history, if any.
The Compliance Officer will notify those Firm employees or Registered Persons
who he or she determines are subject to this fingerprinting requirement. The Compliance Officer
also will establish appropriate procedures to permit those Firm individuals who are not involved
in the securities business to be exempt from the fingerprinting requirement and will maintain the
“notice” required to be prepared to make such exemption effective.
Every time a Registered Person signs an original or amended Form U4, the Firm
must give such Registered Person a written statement regarding the dispute resolution process for
the handling of customer complaints and employment discrimination claims. The notice will be
in the form of Exhibit H attached hereto.
Upon the termination of any Registered Person for any reason (whether or not
such termination is voluntary) such person’s Principal must promptly notify the Compliance
Officer of the termination and the date thereof as well as the reason for the termination and the
current home address of the terminated person. If the termination was not voluntary (i.e.,
“discharged” or “permitted to resign”), the Principal will provide the Compliance Officer with a
written summary of the reason for the termination.
The Compliance Officer is responsible for preparing and filing a Form U5 via
CRD for any Registered Person who leaves the Firm and responding to compliance information
requests from all regulatory agencies. If possible, the Compliance Officer (or his or her
appropriately licensed designee) also will conduct exit interviews with all Registered Persons
who leave the Firm.
FINRA rules prohibit a member firm from maintaining a registration for any
individual who is not engaged in activities for the firm that require such registration or where the
sole purpose of the registration is to avoid FINRA re-testing requirements or where there is no
intention to employ such individual in the firm’s securities business. It is the responsibility of
the Firm’s Compliance Officer to bring to the attention of the Chief Executive Officer any
request for registration received by him from any individual who will not perform registrable
activities for the Firm.
In no circumstances will such a registration be attempted.
Notwithstanding the foregoing, the Firm may register with FINRA any individual who performs
legal, compliance, internal audit, back-office or similar duties for the Firm and any individual
who performs administrative support functions for a Registered Person of the Firm.
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3.
Heightened Supervision
It is the responsibility of the Compliance Officer to identify registered individuals
who require special supervision. The Compliance Officer must make an initial determination as
to the need for special supervision upon the hiring of a new Registered Person. Thereafter, the
Compliance Officer, with input from the Principals, will monitor the activities of each Registered
Person during the course of his or her association with the Firm to be alert to events that may
warrant special supervision.
In general, persons who have been statutorily disqualified, or who are the subject
of numerous regulatory actions or customer complaints, may be subject to special supervision.
Listed below are some of the criteria that will trigger a determination as to whether special
supervision is warranted. Pending as well as resolved matters will be considered. The criteria
are subjective and the details and severity of the complaints must be considered.
a.
Three or more customer complaints (including written and verbal
complaints, arbitrations and other civil actions) alleging sales practice
abuses within the past two years.
b.
A complaint filed by a regulator.
c.
An injunction issued by a court or regulator in connection with an
investment-related activity.
d.
Termination from a prior employer for cause, or being permitted to resign
where the termination appears to involve a significant sales practice or
regulatory violation
e.
Employment with three or more broker-dealers in the past five years
When a Registered Person is identified for possible special supervision, the
Compliance Officer must discuss the situation with the Registered Person’s supervisor. The
Compliance Officer then must prepare a written memorandum outlining the results of that
discussion, including the information considered in conducting the review and the decision that
was reached. If it was decided that existing supervision provides adequate oversight of the
individual, the memorandum must document why such supervision is adequate. If it was decided
that special supervision is needed, the memorandum shall outline the type of special supervision
to be conducted, including the type and frequency of the special supervision, the time period
during which special Principals will be conducted, and how the special supervision will be
documented. The Compliance Officer must give a copy of this memorandum to the individual
and to his or her Principal, both of whom must sign a copy of the memorandum.
Examples of special supervision include: limiting the individual’s activities for
the Firm; limiting the types and sizes of transactions the individual may handle; requiring prior
approval of his or her outgoing communications including e-mails; monitoring or taping the
individual’s telephone calls; remedial training; and physically locating the individual near his or
her supervisor.
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IV.
Policies and Procedures Relating to Confidential Information
A.
Prohibition on Insider Trading
The Firm prohibits individuals from trading while in possession of material inside
information or from disclosing such information to others, so that they may act on such
information. Persons who are in possession of material inside information are prohibited
generally from:
1.
Purchasing, selling or exchanging such securities for Employee Accounts,
an account over which they have discretion or Employee-Related Accounts (as defined in
Section Ill);
2.
Soliciting customer orders to purchase, sell or exchange the securities;
3.
Making recommendations or comments which could be construed as
recommendations concerning the securities; or
4.
Disclosing such information or any conclusions based thereon to any other
person in or outside the Firm so that they may act on such information, except as
permitted by the Compliance Officer or these policies and procedures.
B.
Definitions
1.
Confidential Information
Includes “inside information” and “proprietary information”
2.
Inside Information
Generally means non-public information provided by an external source (such as
a customer, prospective customer, or other third party) with the expectation that the information
will be kept confidential and used solely for the business purposes of that third party. Inside
information relating to a particular security can come from a person who is an officer or
employee of the issuer, but also from a person who is not an official of the issuer, such as an
investment banker, accountant or attorney with a relationship to the issuer or a bidder or potential
bidder for the issuing company’s securities. It may also include “tips” received directly or
indirectly from corporate insiders, whether inside or outside of a customer relationship,
particularly where the recipient knows, or should know, that the corporate insider is disclosing
the information improperly, in breach of the insider’s duty to his or her own company.
In the context of a tender offer or contemplated tender offer, inside information
include any non-public information relating to the tender offer or contemplated tender offer that
the recipient knows or has reason to know has been acquired directly or indirectly from the offer
or, the issuer of the subject securities, or any person acting on behalf of the offer or issuer,
regardless of the immediate source of such information or the circumstances under which it was
conveyed or obtained.
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Material inside information may include, but is not limited to, significant
developments in the following areas: changes in projected earnings, write-offs or upward
adjustments in previously reported earnings, proposed or contemplated dividend changes,
proposed or contemplated stock splits or stock dividends, changes to key managerial personnel,
significant acquisitions, material litigation, labor disputes, a significant expansion or curtailment
of operations, extraordinary borrowing, a change in major product or product line or a change of
major customers or suppliers, significant new products or discoveries or the entering into of
significant contractual arrangements, or significant unreported changes of stock ownership, plans
regarding tender offers, joint ventures, other acquisitions, the control of an issuer’s securities, or
other purchasing or selling plans which could affect supply of and demand for a security, and in
particular regarding fixed income securities, decisions to “call” certain bonds, refunding or a
default regarding interest payments.
3.
Proprietary Information
This includes non-public information, analyses, and plans that are created or
obtained by the Firm for the Firm’s business purposes. It could include unpublished research
information, opinions and recommendations; pending or contemplated customer orders; and
investment banking transactions in which the Firm may participate (such as public securities
offerings).
4.
Material Information
Information is generally regarded as “material” if there is a substantial likelihood
that a reasonable investor would consider the information important in deciding whether to
purchase, sell or hold a security. It includes information that, if publicly disclosed, is reasonably
likely to affect the market value of a security. Information may be material even if it relates to
speculative or contingent events. Information that is material to a decision to trade a security
also is likely to be material to a decision to trade related derivatives.
5.
Non-public Information
Information is “non-public” unless and until it has been broadly disseminated or
made widely available to the general public, such as by means of a press release carried over a
major news service, a major news publication, a research report or publication, a public filing
made with a regulatory agency, materials sent to shareholders or potential investors or customers
such as a proxy statement or prospectus, or materials available from public disclosure services. It
is important to note that even following a public announcement relating to a matter, certain
aspects of the matter may remain non-public.
C.
Handling of Confidential Information
1.
Disclosure of Inside or Proprietary Information
Firm employees and Registered Persons should disclose inside information or
proprietary information only to employees and third parties (such as the Firm’s outside counsel)
who have a valid business reason for receiving the information, i.e., persons who have a need to
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know the information in order to serve the Firm or its customers. In no event may an employee
or Registered Person communicate inside or proprietary information to any person under
circumstance in which it appears likely that such person will misuse the information.
2.
Use of Inside or Proprietary Information
Material inside information obtained directly or indirectly from a customer or
other source may be used only for the specific purpose for which it was given; any other use
without the permission of the source which originally entrusted the Firm with the information is
a misuse. Except with the prior approval of the Compliance Officer, material proprietary
information may be used only for the business purposes for which the information was created or
obtained. Firm employees and Registered Persons may not use inside or proprietary information
for their personal benefit or for the benefit of any related person. Also, Firm employees and
Registered Persons are prohibited from utilizing confidential information regarding customer
accounts or transactions for personal benefit or gain.
3.
Trading While in Possession of Material Inside Information
Firm employees and Registered Persons are prohibited from buying or selling (or
recommending) the purchase or sale of a security (or a derivative of such security) for any
accounts (i.e., customer account, Employee Account or Employee-Related Account) while the
employee or Registered Person is in possession of material inside information relating to that
security or its issuer. In general, it is not a defense that a person would have made the same
purchase or sale or recommendation even without the information, and that, therefore, the person
did not rely on or use such inside information.
4.
Frontrunning
Firm employees and Registered Persons may not buy or sell (or recommend the
purchase or sale) of any security or a derivative thereof for any account in anticipation of a price
change resulting from a contemplated or pending block transaction in the security or a derivative
thereof for another account. For example, if a Registered Person becomes aware that a customer
of the Firm is interested in buying or selling a large block of securities and/or options, or is about
to effect such a transaction, the Registered Person must not trade on such information ahead of
the execution of such order or communicate such information to any person (including another
customer) who does not “need to know” such information for a legitimate business purpose.
5.
Manipulation
Firm employees and Registered Persons may not engage in any transaction for the
purpose of raising, lowering, or maintaining the price of a security or of creating a false
appearance of active trading in a security.
6.
Handling of Inside or Proprietary Information
Firm employees and Registered Persons should not discuss the Firms’ or its
customers’ business with, or in the presence of, persons who are not authorized to receive, or do
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not “need to know” such information (an “unauthorized” person). Firm employees and
Registered Person should avoid such discussions in hallways, elevators, trains, subways,
airplanes, restaurants, and other public places generally. Use of speakerphones should be avoided
in circumstances where material inside or proprietary information may be overheard by
unauthorized persons.
Documents and files that are confidential and, in particular, contain price sensitive
information must be secure in order to minimize the possibility that such information will be
transmitted to an unauthorized person. Confidential documents should be stored in locked file
cabinets or other secure locations. Confidential databases and other confidential information
accessible by computer should be maintained in computer files that are password protected or
otherwise secure against access by unauthorized persons.
7.
Personal Benefit
Firm employee and Registered Persons are reminded that any material inside or
proprietary information created or obtained by the Firm for its business purposes is the exclusive
property of the Firm. Firm employees and Registered Persons are prohibited from
misappropriating such information for personal use or benefit or for any other purpose.
8.
Rumors
Firm employees and Registered Persons should promptly report to the
Compliance Officer any rumor which, if true, might be considered material, non-public
information concerning any publicly-traded company. No action should be taken on the basis of
such a rumor, nor should it be communicated further, without the prior approval of the
Compliance Officer. This requirement applies to a wide variety of rumors, including those
regarding the economy as a whole, individual industries, or particular companies. It does not
apply to discussions of unsubstantiated information widely circulated in the public media, so
long as the source and unsubstantiated nature of the information are disclosed during the
discussions. Spreading rumors, trading or making recommendations on the basis of rumors in
violation of this policy may result in disciplinary action by the Firm and, in certain
circumstances, may violate the rules of FINRA and the various self-regulatory organizations.
If an employee or Registered Person believes that he or she or someone else may have
obtained or disclosed inside or proprietary information in a manner not permitted by the
policies and procedures set forth herein, he or she should contact the Compliance Officer
immediately and should not use or further disclose the information.
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V.
Regulatory Inquiries, Customer Complaints, Litigation and Arbitration
A.
Disciplinary Rule Violations
The Firm may fine or otherwise discipline, including terminate the employment of, an
officer, director, employee or Registered Person who is subject to any SEC, FINRA or other
SRO sanction, depending upon the facts of the particular case. In addition, if the Firm believes
that an employee or Registered Person has engaged in conduct which does not meet appropriate
standards, regardless of whether a violation of any law or regulation has occurred, the Firm may
independently discipline the employee or the Registered Person (for example, by fine or
suspension), impose other restrictions on employment or business activities, or dismiss the
employee or Registered Person.
B.
Regulatory Inquiries
The Firm has a policy of cooperating fully with any inquiry by FINRA or any other
governmental or regulatory body. In the usual case, regulators will direct any such inquiry
through the Firm’s Compliance Officer. If, however, any employee or Registered Person is
contacted directly by a regulator, he or she should not continue the conversation, but should
bring the conversation to a close, informing the regulator that all such inquiries must be handled
by the Compliance Officer. Such employee or Registered Person should thereafter promptly
notify his or her assigned Principal, who should contact the Compliance Officer.
C.
Customer Complaints
The Compliance Officer must be made aware of any customer complaint, whether verbal
or written, in which a customer (or a person on behalf of a customer) alleges a grievance
involving the Firm or a Firm employee or Registered Person in connection with the solicitation
or execution of any transaction or the disposition of securities or funds of that customer (a
“Complaint”). Each employee or Registered Person should immediately inform his or her
assigned Principal of any Complaint. A record of the Complaint must be made and filed as
described below.
1.
All Complaints must be communicated promptly to the relevant Principal or to his
or her appropriately licensed designee, who will decide how the Complaint will
be handled. A record of the Complaint must be made and filed at this time as
described below.
2.
A file of the Complaint should be made that contains (1) the name, address, and
account number of the customer making the Complaint; (2) the date the
Complaint was received; (3) the name of the employee or Registered Person that
received the Complaint; (4) a general description of the Complaint including the
name(s) of the associated person(s) identified in the Complaint; (5) steps taken to
resolve the Complaint, if it was resolved immediately, or other action(s) taken;
and (6) copies of all relevant documents, including the Complaint (if received in
writing), the New Account Information Form, the applicable order ticket and
confirmation, other account documents and any related correspondence with the
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customer. These files are to be kept by name of the associated person(s) named in
the Complaint.
3.
This file must be maintained at Firm headquarters for audit purposes.
4.
If it is a securities related matter, a copy of the Complaint file must be forwarded
immediately to the Compliance Officer. If the Complaint is a non-securities
related matter, it should instead be forwarded immediately to the Firm’s Chief
Operating Officer.
5.
The Compliance Officer will monitor the progress of the Complaint until
resolution and must be involved in resolving it. The Compliance Officer will
monitor that the Complaint is investigated fully and expeditiously and must
approve all written responses prior to the sending of such responses to customers.
6.
If possible, the Complaint should be resolved within ten (10) business days.
D.
Litigation, Arbitration and Other Matters
All correspondence, summonses and subpoenas concerning legal action, arbitration or
proceedings which involve a customer, a customer account, an employee, a Registered Person,
and/or the Firm must be referred to the Compliance Officer immediately upon receipt, and the
original document must be forwarded via overnight delivery. Furthermore, telephone inquiries
from customers’ attorneys must be referred to the Compliance Officer before any discussion of a
Complaint or its settlement takes place.
Employees and Registered Persons also are required to notify the Compliance Officer, as
well as their assigned Principal, immediately in the event any of the following matters occur:
1.
Any investigation, review or proceeding conducted by any regulatory authority is
commenced, including requests for testimony before any such organization.
2.
Any injunction, censure, fine, suspension, expulsion or other disciplinary action is
imposed by any governmental agency or regulatory authority .All such actions
must be reported, even if the conduct that prompted the action occurred prior to
the employee’s or Registered Person’s association with the Firm.
3.
Any litigation or arbitration in which the Firm or a Firm employee or Registered
Person is named is commenced, even if the dispute concerns the employee’s or
Registered Person’s actions or accounts at a previous firm.
4.
Any arrest or indictment of the employee or Registered Person for a felony
offense occurs.
5.
Any arrest of the employee or Registered Person occurs for a misdemeanor
involving investments or an investment-related business, fraud, false statements
or omissions, wrongful taking of property, forgery, counterfeiting, extortion or
gambling.
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E.
Other Reportable Matters
The following matters also must be reported immediately to the Compliance Officer:
1.
Any visit to a Firm office by a representative of any regulatory authority for any
purpose whatsoever;
2.
Any judgment (whether civil or pursuant to arbitration) against an employee or
Registered Person;
3.
Any suspension or revocation of an employee’s or Registered Person’s FINRA or
state registration;
4.
Any bankruptcy or other proceeding which names an employee or Registered
Person of the Firm, including formal orders of investigation by regulatory
agencies; and
5.
Any refusal of registration by any regulatory authority or administrative agency.
F.
Material Event and Customer Complaint Reporting
The Compliance Officer is responsible for reporting to FINRA, by means of FINRA’s
electronic Regulation Form Filing system, the occurrence of any of the following conditions, not
later than ten (10) business days after the Firm knows or should have known of the existence of
any of the following conditions:
a.
any instance in which the Firm, any employee or any Registered Person has been
found to have violated any provision of any securities law or regulation, any rule
or standard of conduct of any governmental agency, self regulatory organization,
or financial business or professional organization, or has engaged in conduct
which is inconsistent with just and equitable principles of trade;
b.
any instance in which the Firm, any employee or any Registered Person is the
subject of any written customer complaint involving allegations of theft or
misappropriation of funds or securities or of forgery;
c.
any instance in which the Firm, any employee or any Registered Person is named
as a defendant or respondent in any proceeding brought by a regulatory or selfregulatory body alleging the violation of any provision of the Securities Exchange
Act of 1934, or of any other federal or state securities, insurance, or commodities
statute, or of any rule or regulation thereunder, or of any provision of the ByLaws, rules or similar governing instruments of any securities, insurance or
commodities regulatory or self-regulatory organization;
d.
any instance in which the Firm, any employee or any Registered Person is denied
registration or is expelled, enjoined, directed to cease and desist, suspended or
otherwise disciplined by any securities, insurance or commodities industry
regulatory or self-regulatory organization, or is denied membership or continued
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membership in any such self-regulatory organization; or is barred from becoming
associated with any member of any such self-regulatory organization;
e.
any instance in which the Firm, any employee or any Registered Person is
indicted, or convicted of, or pleads guilty to, or pleads no contest to, any felony,
or any misdemeanor that involves the purchase or sale of any security, the taking
of a false oath, the making of a false report, bribery, perjury, burglary, larceny,
theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of funds or securities,
or a conspiracy to commit any of these offenses, or substantially equivalent
activity, in a domestic, military, or foreign court;
f.
any instance in which the Firm, any employee or any Registered Person is a
director, controlling stockholder, partner, officer or sole proprietor of, or an
associated person with, a broker-dealer, investment company, investment adviser,
underwriter or insurance company which was suspended, expelled or had its
registration denied or revoked by any agency, jurisdiction or organization; or is
associated in such a capacity with a bank, trust company or other financial
institution which was convicted of or pleaded no contest to, any felony or
misdemeanor;
g.
any instance in which any employee or Registered Person of the Firm is a
defendant or respondent in any securities or commodities-related civil litigation or
arbitration which has been disposed of by judgment, award or settlement for an
amount exceeding $15,000;
h.
any instance in which the Firm is a defendant or respondent in any securities or
commodities-related civil litigation or arbitration which has been disposed of by
judgment, award or settlement for an amount exceeding $25,000;
i.
any instance in which any employee or any Registered Person is the subject of
any claim for damages by a customer, broker or dealer which is settled for an
amount exceeding $15,000;
j.
any instance in which the Firm is the subject of any claim for damages by a
customer, broker or dealer which is settled for an amount exceeding $25,000;
k.
any instance in which the Firm, any employee or any Registered Person is
associated in any business or financial activity with any person who is subject to a
“statutory disqualification” and the Firm knows or should have known of the
association; and
l.
any disciplinary action taken by the Firm against any employee or Registered
Person involving the withholding of commissions or imposition of fines in excess
of $2,500, or suspension, termination or other limitation of the Associated
Person’s activities on a temporary or permanent basis.
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The Firm’s Principals shall notify the Compliance Officer promptly upon learning of the
occurrence of such an event.
G.
Statistical and Summary Information Reporting
The Compliance Officer is responsible for reporting to FINRA statistical and summary
information regarding customer complaints. Such reports must be transmitted electronically via
FINRA’s Regulation Form Filing system by the 15th day of the month following the calendar
quarter in which any complaints are received by the Firm. Additionally, any complaints which
are disclosable events on the Firm’s Form BD or on an Associated Person’s Form U4 must be
reported to FINRA by means of an appropriate amendment to the Form BD or Form U4 filed via
Web CRD.
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VI.
Opening Accounts -- Account Approval Procedures
A.
Forms of Accounts
The types of accounts the Firm currently opens on behalf of customers include cash
accounts, option accounts and margin accounts (Exhibit I contains copies of the different
account opening documents). Customers may obtain copies of the New Account Information
Form (Exhibit J) either in hard copy by requesting the form from the Firm, or on-line from the
firm’s website at www.my-broker.com.
B.
New Account Information Form
1.
General
Basic to the proper supervision of accounts and orders is the receipt and
maintenance of complete new account information on each prospective customer on the Firm’s
New Account Information Form. The Firm’s Principals have primary responsibility for seeing
that each New Account Information Form has been properly completed and executed by the
customer and that all necessary supporting documentation is provided, and must attest thereto by
signing the New Account Information Form.
Before any order may be entered for a new account, both the account and the
proposed order must be approved by the designated Principal, who will evidence his or her
approval by signing the New Account Information Form prior to the entry of the initial order.
2.
Responsibility of Registered Persons Concerning Their Customers’
Accounts
All New Account Information Forms must be filled in completely. It is the
Registered Person’s responsibility to confirm that required information is obtained. He or she
also should confirm that all signatures are obtained from the customer and any coapplicant or joint tenant.
The customer’s account information ordinarily should contain (in the case of a
joint account, the following account information must include personal information for each joint
owner who is a natural person, although financial information for the individual joint owners
may be combined):
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Name of the account.
Address and telephone number.
Tax identification number or social security number.
Customer’s date of birth (natural person accounts only).
Customer’s employment status (including occupation) (natural person
accounts only).
Customer’s annual income (natural person accounts only).
Customer’s net worth (excluding value of primary residence) (natural
person accounts only).
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(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
The account’s investment objectives.
Name and title of the individual authorized to act for the account, if
applicable.
Any specific considerations regarding the account, e.g., whether and what
type of trading authorization is required.
All required documentation (if relevant):
(i)
Corporate Charter or Resolution, if the entity is a corporation.
(ii)
Partnership Agreement, if the entity is a partnership.
(iii)
Operating Agreement, if the entity is a limited liability company.
(iv)
Trust Agreement, if the entity is a Trust.
(iv)
Margin Agreement.
(v)
Any other appropriate or necessary documentation.
Bank references.
Identity of accounts at other financial and investment institutions.
Instructions for any duplicate confirmations.
Whether any beneficial owners of the account are:
(i)
Employees of another broker-dealer.
(ii)
“Insiders” or material stockholders of any public company.
(iii)
Members of FINRA or any securities exchange.
For each account of a natural person, the Firm will furnish each such customer
with a copy of an account record that includes all of the account information required under
Section VI.B.2.b.(a) through (i), above, within 30 days of the opening of the account, and at least
every thirty-six months thereafter. Each Registered Person is responsible for sending the account
record for his or her accounts. Registered Persons will utilize a Firm-standard letter for this
purpose, which letter will include: (i) a prominent statement that the customer should mark any
corrections and return the account record to the Firm and should notify the Firm of any future
changes to information contained in the account record; (ii) definitions of the investment
objectives choices set forth on the New Account Information Form; and (iii) notification of the
address and telephone number of the department of the Firm to which any complaints as to the
account may be directed. Additionally, the Registered Person will provide each of his or her
customers with a copy of each written agreement entered into by the customer pertaining to the
account. The Registered Person will maintain, in the customer file, a copy of the account record
and the letter to evidence compliance with these requirements.
Additionally, the Firm will furnish each customer, and the Registered Person
responsible for that account, with notification of any change to the name or address of the
customer before the 30th day after the date the Firm received notice of the change. With respect
to address changes, the notifications will be sent to that customer’s old address. The Firm will
maintain copies of such notifications in the applicable customer files.
Moreover, for each change in an account’s investment objectives, the Firm will
furnish the customer and the applicable Registered Person responsible for that account with a
copy of the updated customer account record that includes all of the account information
required under Section VI.B.2.b.(a) through (i), above, on or before the 30th day after the date
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the Firm received notice of the change. The Firm will maintain copies of such notifications in
the applicable customer files.
Principals should monitor periodically customer accounts and review customer
orders in the light of each customer’s investment objectives and investment position in the
account.
3.
Approval of New Accounts
Applicable rules require the Firm to: (a) use due diligence to learn the essential
facts relative to every customer, order, or account accepted by the Firm and every person holding
power of attorney over any account with the Firm, and (b) to supervise diligently all such
accounts.
In addition, a Principal must specifically approve the opening of an account, after
being personally informed as to the essential facts relative to the customer and the proposed
account, prior to the completion of any transaction for the account of or with a customer.
Approval by the Principal must be in writing on the New Account Information Firm, which is to
be maintained in the Firm’s files.
4.
Suitability
The Firm’s Registered Persons have a responsibility to be familiar with FINRA’s
requirements regarding the suitability of a customer’s transactions.
FINRA Rule 2310 requires that in recommending to a customer the purchase, sale
or exchange of any security, a broker-dealer shall have reasonable grounds for believing that the
recommendation is suitable for such customer based upon the facts, if any, disclosed by such
customer as to his or her other security holdings, financial situation and needs. FINRA staff has
stated that Rule 2310’s provisions concerning suitability concerns are fundamental to fair dealing
and are intended to promote ethical sales practices, high standards of competence,
professionalism and good faith, regardless of the financial circumstances of the customer.
Certain of FINRA provisions concerning suitability requirements require the Firm to obtain
specified information from retail customers and institutional customers prior to executing a
recommended transaction for such customer. As a result, Firm policy requires that it and its
registered representatives know their customers in connection with executing any transactions
for such customers’ accounts, including knowledge of the investment objectives of such
customers and any investment restrictions or objections specifically applicable to a particular
customer.
Included in the Firm’s customer base are institutional investors who tend to be
sophisticated and experienced in investment matters. Nevertheless, the Firm’s registered
representatives have certain suitability obligations when making recommendations to such
customers. FINRA rules require that the registered representative determine the customer’s
ability to evaluate investment risk independently, the extent to which the customer is exercising
independent judgment in evaluating the recommendation, and the customer’s intent to exercise
such judgment in a particular transaction. In some cases, while the institutional customer may
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have the general ability to make investment decisions, its representative may not be able to
understand a particular investment or its risk — particularly if the investment involves a new
product or one that is either extremely complex or volatile.
Although a customer may be an institutional investor, these factors cannot be
assumed. In order to properly determine suitability in these circumstances, the registered
representative should take the following into consideration:





The customer’s use of consultants, investment advisors or bank trust
departments;
The customer’s general level of experience in financial markets and specific
experience with the type of security or transaction being recommended;
The customer’s ability to understand the economic features of the security or
transaction involved;
The customer’s ability to independently evaluate how market developments
would effect the security or transaction; and
The complexity, uniqueness and innovativeness of the security(ies) or
transaction(s) involved.
The determination that a customer is making independent investment decisions
will depend upon the nature of the relationship that exists between the registered representative
and the customer. Relevant considerations can include:




Any written or oral understanding that exists between the Registered
Representative or the Firm and the customer regarding the nature of the
relationship between them and the services to be rendered by the Firm;
The presence or absence of a pattern of acceptance by the customer of the
Registered Representative’s recommendations;
The use by the customer of ideas, suggestions, market views and information
obtained from other broker-dealer or market professionals, particularly those
relating to the same type of securities or transactions; and
The extent to which the Firm has received from the customer current,
comprehensive portfolio information in connection with discussing
recommended transactions or has not been provided important information
regarding its portfolio or investment objectives.
The registered representative also needs to ascertain whether the customer has the
legal capacity and authority to enter into a transaction. It may be appropriate to obtain a copy of
the investor’s by-laws, articles of incorporation or similar document(s), which manifests the
customer’s authority to enter into certain types of transactions, prior to entry of an order. It may
be illegal for some municipalities or other entities to deal in certain securities or enter into certain
types of transactions.
Any questions regarding suitability requirements should be directed to the
Compliance Officer.
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5.
Customer Addresses
No account may be opened without the Firm being provided the customer’s street
address or rural route address. If a customer wishes statements, confirmations of transactions,
etc. mailed to a P.O. Box, the Firm must, nonetheless, be provided a street address, except with
the prior written approval of the Compliance Officer and of the Firm’s clearing broker. No
check will be issued to an address other than the address of record.
6.
Anti-Money Laundering
During the account opening process, Firm Registered Persons and Principals are
required to monitor activities of potential and actual customers for indicators of potential money
laundering. The Firm’s Anti-Money Laundering Policy and Procedures provides examples of
circumstances that may be indicative of money laundering. Any Registered Person or other Firm
employee that becomes aware of suspicious activity must report such activity to the appropriate
Principal or to the Compliance Officer immediately.
C.
Account Documentation
Prompt receipt of all necessary supporting documentation is essential. The Firm
should obtain the required supporting documents at the time the account is opened and whenever
a transaction requiring additional documents for the transfer of securities is effected.
If the needed document is a court record, or is recorded officially in some
governmental agency, the copy of the document to support the account should be certified by the
appropriate record custodian. In receiving such account documentation, an employee or
Registered Person should be aware that:
1.
A copy of a document may be considered reliable when certified by an
acceptable bank, trust company, or broker to be a complete, correct and true copy of the
original, and still in full force and effect as of this date (date should be included).
2.
Applicable documents should be recent, original or properly certified
copies.
D.
Discretionary Authority; Third Party Accounts
General Requirements
For a discretionary account, an agent is granted written authority to enter orders
on behalf of a customer without contacting the customer prior to each transaction. The key
elements of discretionary account requirements include:
Discretionary accounts require specific written authorization from the customer
on a designated form.
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A Designated Supervisor must approve the account as discretionary prior to
effecting discretionary transactions.
Discretionary authority is NOT effective until the customer has signed the
discretionary agreement AND the account has been approved for discretion.
Option discretionary accounts also require the approval of the CROP. (Refer to the section
“Options” for specific requirements regarding discretionary option accounts.)
Every discretionary order must be approved promptly, in writing, by the
Designated Supervisor.
Approval of Accounts
At the time a discretionary account is established, the Designated Supervisor shall
approve or disapprove the discretionary status of the account.
A record of the approval will be included in the account file for the customer’s
account.
Limited Authority Only Permitted
Discretionary authority is permitted only on the limited basis, i.e., agents may
have authority to purchase and sell securities only. Full authority, which also authorizes the
withdrawal of money or securities, is not permitted except for accounts of family members of the
agent. Exceptions require the approval of Compliance.
Indication of Discretion Exercised or Not Exercised
Orders in discretionary accounts should indicate whether discretion is exercised or
not exercised on each order. Such indication is made by marking “DE” for discretion exercised
or “DNE” for discretion not exercised. Discretion not exercised means the agent discussed the
order with the customer BEFORE entering it.
Trusts and Other Fiduciary Accounts
Some trusts or other accounts governed by a legal instrument such as a trust
agreement may not allow the trustee to re-assign authority to a third party.
A copy of the trust agreement or other legal document should be provided to
Compliance for review prior to approval of trust or similar account as a discretionary account.
Principal Transactions Not Permitted
Principal transactions are not permitted when discretion is exercised in a
discretionary account. Specific approval for the order should be obtained from the customer and
the order marked “discretion not exercised” to execute on a principal basis, or the order should
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be executed on an agency basis if discretion is exercised. This includes syndicate transactions
which should be approved by the customer prior to execution and the order marked “DNE.”
Distributions Of The Company’s Or an Affiliate’s Securities
Transactions in securities sold in an underwriting and issued by the Company or
by a Company affiliate require the prior written approval of the customer. Discretion may not be
exercised for such transactions.
Approval of Orders and Monthly Review of Transactions
All discretionary orders require prompt approval by the Designated Supervisor.
Discretionary option orders require approval on the day entered by an ROP or the SROP.
Approval will be recorded by initialing the record of each order. In addition, the Designated
Supervisor is responsible for reviewing the monthly statements for all discretionary accounts and
retaining a copy of the statements (with initials denoting the review) in a file for the customer’s
account.
Annual Confirmation of Discretionary Authority
On an annual basis, Compliance will confirm the customer’s desire to continue
discretionary handling of the customer’s account. A negative response letter will be sent to each
discretionary account customer asking the customer to contact Compliance if discretion is to be
discontinued.
Cancellation of Discretionary Authority
Customers should provide instructions to cancel discretionary authority in writing.
All open orders will be cancelled, unless the customer specifically requests they remain open.
E.
Margin Accounts
When opening a margin account for a customer, the Principal should ascertain that:
1.
the customer clearly understands margin procedures and risks and is
financially able to bear those risks; and
2.
Based upon the customer’s financial background, resources and
experience, funds may be properly advanced to the customer.
In establishing a margin account, a Form of Disclosure of Credit Terms in Margin
Transactions must accompany the Margin Agreement. These documents are available from the
Firm’s clearing broker. A properly executed Margin Agreement must be on file with the Firm
prior to the first transaction for the account.
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F.
Customer Funds and Securities
The Firm will operate as an introducing broker pursuant to the exemptive provisions of
subparagraph (k)(2)(ii) of SEC Rule 15c3-3 (the Customer Protection Rule). The Firm will clear
all customer transactions on a fully disclosed basis with a clearing firm, which will carry all of
the accounts of such customers. The Firm will not receive customer funds or securities.
In all transactions introduced by the Firm, the buyers of the securities will be instructed in
writing that checks must be made payable and sent directly, to the clearing firm. If the Firm
receives a customer’s check payable to the clearing firm, the check will be forwarded to the
clearing firm no later than the close of business on the day the check was received. If the Firm
receives a customer check mistakenly made payable to the Firm, the check will be returned the
customer together with a letter instructing the customer as to the appropriate payee. The Firm’s
FINOP, or his designee, will keep a copy of all such correspondence with the customer’s records.
If the Firm receives certificates for a customer’s securities, the certificates will be
forwarded to the clearing firm no later than the close of business on the date the certificates were
received.
The FINOP, or his designee, will record all customer funds and securities received and
forwarded on blotters for that purpose.
G.
Accounts for FINRA and AMEX Employees
When an employee of FINRA or of the American Stock Exchange (“AMEX”) has a
financial interest in, or controls the trading in, a customer account, the Registered Person must
obtain a written instruction from such employee authorizing the Firm to send duplicate account
statements to FINRA or AMEX, as appropriate.
H.
Transactions for Employees of FINRA Members
When an employee of another FINRA member firm has a financial interest in, or controls
the trading in, a customer account; the registered representative for the account must notify the
Compliance Officer of this fact. The Compliance Officer must then send written notice of the
account to the other FINRA member firm prior to the execution of any transactions for such
account, with a copy to the employee. If requested by the other FINRA member firm, the Firm
will send duplicate confirmations, duplicate account statements or other information regarding
the account to the other FINRA member firm.
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VII.
General Order and Execution Rules
A.
Order Procedures Generally
The majority of the customer orders accepted and executed by the Firm are entered
electronically by the customer. However, when an order is accepted from a customer by
telephone, if possible the Registered Person should repeat the terms of the order to the customer
and confirm the identity and quantity of the security, whether the order is a buy or sell, whether
the order is a market order or limit order, and all other pertinent information. Registered Persons
should promptly compare the trade confirmation with the order ticket.
B.
Completing and Transmitting Order Tickets
1.
When a customer places orders with the Firm by telephone, the Registered
Person accepting the order must fill out completely an order ticket before
the order is transmitted for execution. Any order tickets that are not filled
out in their entirety will be returned for completion. The following
information must be indicated on each order ticket:
a.
Identification. The account number and customer name, must be
on every order ticket.
b.
Sales. Before entering a long sell order the Registered Person must
confirm that the security to be sold is in the customer’s account. If
the order is a short sale of a NASDAQ Small Cap or OTCBB
security, the Registered Person must contact the stock loan Officer
of the Firm’s clearing broker before entering the order to ascertain
if the security is available to be borrowed. The name of the person
contacted at the clearing broker must be annotated on the order
ticket, and the sale must be marked as “short.” If the order is a
short sale of a NASDAQ National Market or exchange-listed
security, the Registered Person must review the “Hard to Borrow”
list (See Section VII.E. below) provided by the Firm’s clearing
broker daily, to ensure that the security is not on the list. If the
security is not on the list, it can be borrowed and the sale must be
marked as “short.”
2.
All customer orders placed by telephone should be time-stamped,
manually and/or electronically, at the time the verbal order is received. All
such order tickets also should be time-stamped, manually and/or
electronically, when execution is reported as effected by the Firm’s
clearing broker.
3.
After execution of customer orders placed by telephone, the Registered
Person should promptly confirm the execution and the execution price. A
copy of the executed order thereafter will be returned to the Registered
Person with the execution price noted. This copy should be checked
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promptly to verify that the execution is correct. Errors in execution (such
as wrong quantity, security or price) must, on discovery, be immediately
reported to the Firm for corrective action. Delays in reviewing executed
orders involving an error in execution may result in adverse financial
consequences for the Firm if the market moves in a manner adverse to the
executed transactions.
C.
Transaction Recordkeeping and Review
1.
Recordkeeping
The Firm is required to comply with the recordkeeping and record preservation
requirements of SEC Rules 17a-3 and 17a-4, respectively, under the Exchange Act with respect
to, among other things, all of its customer transactions.
For example, Rule 17a-3(a)(1) requires that the Firm (1) maintain (or cause to be
maintained) a daily record of all purchases and sales and receipts and deliveries of securities, and
(2) identify (or cause to be identified), among other things,
a.
Each firm and customer account involved in each trade,
b.
The name and amount of such securities, and
c.
The trade date and the person on the contra side of the transaction.
Rule 17a-4(l) requires, among other things, that blotters or other original records of entry
for all purchases and sales of securities be retained for a minimum of six (6) years, the first two
(2) years in an easily accessible place.
Further, the Firm's computer generated P&S reports and order tickets relating to
transactions effected by the Firm are required to be maintained for a minimum of three (3) years,
and for two (2) years in an easily accessible place.
Therefore, it is important that employees and Registered Persons report required
information with respect to any transaction in which they participate; failure to do so may result
in, among other things, violation of applicable books and records requirements. (See Appendix 1
for books and records table.)
2.
Books and Records
The Firm requires that all books, records and accounts of the Firm be maintained in
reasonable detail and accurately and fairly reflect all transactions. In addition, the Firm requires
all Firm employees and Registered Persons to comply with the following policies with respect to
the Firm’s books and records:
a.
No Firm employee or Registered Person is permitted to make false or
artificial entries on the books, records and accounts of the Firm, for any
purpose whatsoever.
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b.
All funds and assets must be accurately recorded on the Firm’s books and
records.
c.
No Firm employee or Registered Person is permitted to enter into any oral
agreement or understanding that modifies the terms or conditions of any
contract, unless such agreement or understanding is promptly and
appropriately reflected on the books and records of the Firm.
d.
Firm employees and Registered Persons are not permitted to sign another
person’s name, or instruct any other individual to sign another person’s
name, on a document affecting a customer’s account or the Firm’s records.
Firm employees and Registered Persons may not accommodate requests
by customers or associates to falsify signatures on documents or other
Firm records.
Failure to comply with the foregoing policies may result in disciplinary sanctions
imposed by the Firm, which may include immediate termination of employment.
3.
Review of Trading Activity
A Firm Principal will review on-line a random sampling of daily securities transactions
for compliance purposes. The on-line sampling includes all the information that appears on order
tickets. A Principal also will review on a weekly basis a random sampling of hard copies of order
tickets and will evidence completion of this review by initialing and dating the document
reviewed.
4.
Review of Cancellations and Corrections (“C&Cs”)
No account name on an order ticket may be changed unless it is approved by a Firm
Principal. Firm procedure also prohibits corrections, other than for a purely administrative
purpose, for orders that have been forwarded for trade data input unless the correction is properly
documented. Such corrections are subject to review by a Principal. Such review is evidenced by
the Principal initialing and dating the order reviewed.
For further information, Firm employees and Registered Persons should contact the
Compliance Officer.
D.
Securities Borrowing Procedure -- Short Sales
On a daily basis the Firm receives a list of securities that are designated as “Hard to
Borrow” from its clearing broker. The Firm’s trading systems reflect the securities on this list
and will not permit a customer to enter a short sale for any security that appears on the list. The
Firm’s trading system will not permit a customer to enter a short sale for any NASDAQ Small
Cap or OTCBB security. These orders must be telephoned into the Firm’s trade desk so that an
affirmative determination can be made by the Registered Person that the security is available to
be borrowed.
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E.
Time Period for Payment
The customer information brochure provided to all Firm customers by the Firm’s clearing
broker includes detailed information regarding the clearing broker’s policies regarding time
periods for payment for securities transactions and Regulation T of the Federal Reserve Board.
Registered Persons should refer to this Brochure if they have any questions in this regard.
F.
Errors and Reneges
1.
Errors
Errors are generally a result of a Registered Person’s overbuying, overselling,
bought/sold wrong issue or buy vs. sell. Errors require the immediate attention of the relevant
Principal who is responsible for approval of action to remedy the error. All errors are to be
covered promptly, but in no event later than the market close on the next trading day. The Firm
does not allow errors to be “worked off’ without the prior approval of the Firm’s President. Such
approval must be noted, with the date, on the order ticket.
If the Firm commits an error in executing a transaction for a customer in connection with
a secondary market transaction, the employee or Registered Person involved in effecting the
transaction shall document the underlying facts in writing, setting forth a description of the error
and including the source and amount of the error and whether or not the error was in the Firm’s
or the customer’s favor. Errors in excess of $500 shall be reviewed by a Principal (or his or her
appropriately licensed designee), who may discuss such matter with the Compliance Officer.
Evidence of approval is required on the memorandum describing the error. To obtain approval,
the memorandum must contain a complete explanation of the circumstances surrounding the
error. Originals of approved memoranda are to be maintained in the Compliance Officer’s files,
and copies of such forms are to be immediately forwarded to the attention of the FINOP for
allocations of charges and central filing.
Customer positions resulting from an error may be transferred to one of the Firm’s
designated “error accounts” with the clearing broker, and will be resolved as soon as practicable
by either payment by the Firm to the customer or payment from the customer to the Firm. Only a
Firm Principal may authorize transfer of a position to a Firm error account. Customer losses
incurred as a result of customer error are the responsibility of the customer.
Since the purpose of error accounts is to isolate positions that have been erroneously
established, error accounts may not be used to avoid prompt payment for a position or any other
similar purpose. In addition, error accounts may not be used to affect fictitious trades, hide losses
or show false profits. Error accounts may be used only for trades executed erroneously.
2.
Reneges
When a customer reneges on a trade and the liquidation of the position would result in a
loss, that trade must be liquidated in the customer’s account. A renege that would result in a
profit requires that the trade be removed and placed in a Firm error account. All customer
reneges require immediate attention of a Principal, who is responsible for approval of action to
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remedy the renege (i.e., selling out the reneged trade). Prior written approval of a Principal is
required before covering a renege.
G.
Best Execution
Broker-dealers have an obligation to act in their customers’ best interests and to seek to
obtain the best execution reasonably available under the circumstances for all customer orders.
The SEC has stated that this “best execution” obligation requires broker-dealers to “periodically
assess the quality of competing markets to assure that order flow is directed to markets providing
the most beneficial terms for their customers’ orders.” The following policies apply to the Firm
in this regard:
a.
When executing customer orders, the Firm must consider whether sending
the order to another market, or market maker, would result in better prices for the
customer. Moreover, where appropriate, the Firm must consider sending different types
of orders or orders for particular types of securities to different markets.
b.
Best execution obligations cannot be satisfied simply by looking to the
principal market for the stock and trading at the inside price in that market. In deciding
where to route or execute a customer order, the Firm must carefully evaluate the extent to
which a different market or market maker may offer price improvement opportunities.
c.
The Firm must “regularly” and “rigorously” examine quality likely to be
obtained from different markets or market makers, evaluating factors such as:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
price improvement opportunities across markets;
quality of executions across markets;
procedures for handling limit orders;
likelihood of execution
accessibility of competing systems;
confidentiality of trades;
liquidity available on different markets;
cost of execution;
speed or promptness of execution;
Preferred markets or market makers and the ability to handle
orders of certain sizes or for certain securities.
In fulfilling the Firm’s best execution obligations, the Compliance Officer must, on a
monthly basis, review the execution quality obtained by the Firm, taking into account the
foregoing factors, and by:
d.
Interviewing at least 10% of all traders with respect to their order routing
decisions for approximately 5% of randomly selected trades during the previous month
and recording the results of such interviews in a log maintained for that purpose.
e.
Reviewing FINRA’s price improvement report for the Firm’s performance
during the previous month based upon the information therein.
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f.
Comparing the best reported prevailing price across markets with the
actual execution price of at least 5% of transactions effected by the Firm on securities
exchanges or ECNs or through other broker/dealers during the previous month to confirm
price improvement opportunities and the appropriateness of order routing decisions.
g.
Reviewing reports prepared by broker/dealers through whom the Firm
executes orders pursuant to SEC Rule 11Ac1-5 and SEC Rule 11Ac1-6.
Based upon the results of such reviews, the Compliance Officer Committee will determine if
changes to the Firm’s order routing decisions are appropriate.
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VIII. Advertising, Sales Literature and Correspondence with Customers
A.
Policy
Prior to use, each item of advertising, sales literature and any independently produced
reprint must be approved in writing by the Compliance Officer, who will maintain a file of all
such advertisements, sales literature and independently prepared reprints, including the names of
the persons who prepared them and approved their use. Compliance Officer Approval will be
evidenced by initialing and dating the communication in question.
B.
General Standards
a.
All communications with the public (including correspondence and
public speaking appearances) must satisfy the guidelines set forth in FINRA Rule
2210(d)(1) and FINRA IM-2210-1, including that all such communications must
be based on principles of fair dealing and good faith and should provide a sound
basis for evaluating the facts offered therein. With respect to any particular
security or securities or any services described therein, no material fact or
qualification may be omitted if the omission would cause the communication to
be misleading.
b.
In all public communication exaggerated. Unwarranted or
misleading statements or claims are prohibited. No employee or Registered
Person of the Firm may publish, circulate or distribute any public communication
that the individual knows or has reason to know contains any untrue statements or
is otherwise false or misleading.
c.
In judging whether a communication or a particular element of a
communication may be misleading, several factors should be considered,
including:
i.
The overall context in which the statement(s) is made;
ii.
The sophistication and investing experience of the audience
to which the communication is directed; and
iii.
The overall clarity of the communication
d.
Some examples of basic disclosures to be made by the Firm
include the following:
i.
The Firm’s name;
ii.
The Firm’s basic commission rate schedule (including rate
variations for larger transactions) if commission rates are discussed;
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iii.
Any applicable:
(a)
(b)
(c)
(d)
iv.
Minimum commission;
Minimum transaction size;
Registration fee; or
Initial deposit requirement
Any special service charges applicable to:
(a)
(b)
(c)
(d)
(e)
(f)
Limit orders;
Safekeeping of securities;
Transfer or issue of certificates;
Odd-lot transactions;
Special research; or
Other special services
Additionally, the Firm’s advertisement and sales literature will comply
with any and all applicable content requirements, including those set forth in
FINRA Rule 2210, FINRA IM-2210-1 and FINRA Rule 2211.
C.
Definitions
1.
Advertising includes, but is not limited to, materials, other than an
independently prepared reprint (defined below), published or used in any electronic or
other public media, including any website, newspaper, magazine or other periodical,
radio, television, telephone or tape recording, video display, signs or billboards, motion
pictures or telephone directories (other than routine listings).
2.
Sales literature is defined as any written or electronic communication
distributed or made generally available to customers or the public concerning the Firm’s
products or services, which communication does not: (a) meet the foregoing definition of
advertising; (b) constitute an independently prepared reprint; or (c) constitute
correspondence (i.e., a written letter or electronic mail message distributed to one or more
existing retail customers and fewer than 25 prospective retail customers, within any 30
calendar day period). Sales literature includes, but is not limited to circulars, research
reports, market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints (other than independently prepared reprints) or excerpts of
any other advertisement, sales literature or published article, and press releases.
3.
An independently prepared reprint is any reprint or excerpt of any
article issued by a publisher, provided that: (a) the publisher is not an affiliate of the
Firm; (b) the Firm has not commissioned the reprinted or excerpted article; and (c) the
Firm has not materially altered its contents except as necessary to make the reprint or
excerpt consistent with applicable regulatory standards or to correct factual errors.
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D.
Advertising Files
The Compliance Officer maintains a file for copies of all advertising, sales literature and
independently prepared reprints distributed by the Firm.
Each item placed in the files should include:
(a)
The name(s) of the person(s) who prepared it;
(b)
The name(s) of the person(s) who approved it and the date of
approval;
(c)
The date the item was first and last used; and
(d)
Any FINRA comments regarding the advertisement, if applicable.
The foregoing should be maintained for a period of three (3) years from the date of last
use.
E.
Filing of Advertisements with FINRA
The Firm will file its initial advertisement with FINRA’s Advertising Regulation
Department at least 10 business days prior to use, and will continue to file its advertisements at
least ten (10) business days prior to use, for a period of one year after its initial filing.
F.
Special Considerations for Options
Given the level of risk associated with options trading generally, special requirements
apply to advertising relative to options. Thus, in addition to the general standards that apply to
communications with customers, because option trading involves special risks and may involve
complex investment strategies, the following additional rules apply.
All advertisements, sales literature and educational material (i.e., explanatory material
made available to the public that is limited to information describing the general nature of
standardized options markets or one or more strategies) relating to options trading must comply
with the requirements of FINRA Rule 2220 and must:

Inform customers that options are not suitable for all investors and must balance the
opportunities of options trading with the corresponding risks involved.

Contain no false statements or omit any material facts.

Indicate that investors should discuss tax treatment of the possible options strategies
with their tax advisers prior to undertaking such transactions.

Contain no hedge clauses or disclaimers that are confusing or that attempt to disclaim
responsibility for the literature.

Indicate that exercise and/or closing transactions are subject to commission charges.
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October 2009

Clearly state that annualized returns apply only if there is no appreciable change in
the price of the underlying security or options premium, of which there is no
certainty.

Not use any currently traded option as an example. Instead, a hypothetical example
with a fictitious company and fictitious prices should be used, or an example of an
option that has expired may be used, provided this fact is stated.

Indicate that interest charges are incurred where the underlying securities are
purchased on margin.

Contain no promises of specific results or exaggerated, unwarranted or unreasonable
claims, opinions or forecasts.

Contain no suggestion that a secondary market for options is necessarily available.
In addition to the approval requirements applicable to all communications with the
public, communications regarding options also require the prior approval of the SROP and the
CROP (and in some instances, an options exchange). Firm employees and Registered Persons
must consult with the SROP and the CROP with respect to any questions regarding
communications relative to options.
G.
Media Interviews and Public Presentations
This policy concerns all Firm personnel who may be interviewed by the media or who
may give a public presentation in connection with securities transactions in which the Firm is
involved:

Employees and Registered Persons may only be interviewed by a media
representative if authorized to do so by the Firm’s President. For senior personnel,
such authorization may be on a general basis.

Interviewed personnel are expected to use their best judgment in responding to media
questions, in conformity with the general concepts of advancing principles of fair
dealing and good faith, and providing a sound basis for evaluating the facts regarding
subject securities, industries discussed, or service offered. Statements made must not
be false or misleading, or contain exaggerated, unwarranted or misleading claims. In
appropriate circumstances, Firm personnel may wish to discuss an interview with the
Compliance Officer.
The foregoing standards are applicable to presentations (seminar, lectures, etc.) as well.
The script for any such presentation, if one is prepared, should be initialed by the Compliance
Officer, and a copy should be retained in the files of the Firm.
A log of all single talks and lecture series given by personnel of the Firm should be kept
by the Compliance Officer for at least three years. The log should contain the following
information for each speaking assignment: (a) the name of the sponsoring group, (b) its
presiding officer (or program chairman) and its mailing address, (c) the subject discussed, (d) the
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date, (e) approximate attendance, (f) any presentation used or handouts distributed, and (g) the
speaker’s name.
H.
Correspondence Review Procedures
In accordance with applicable rules and regulations, Registered Persons are required to
maintain copies of all incoming and outgoing correspondence relating to the Firm’s securities
business, including typewritten, word processed and handwritten letters, faxes, newspaper or
magazine articles, and computer generated printouts and notes, in a centralized chronological
correspondence file. The chronological correspondence file must be available for review at any
time by a Principal (or an appropriately licensed designee). Any such review is evidenced by the
person conducting the review initialing and dating the correspondence reviewed.
With respect to electronic correspondence (i.e., e-mails or instant messages), the Firm has
implemented an electronic review system whereby Registered Persons’ electronic
correspondence is reviewed after transmission or receipt, as the case may be, to determine
compliance with applicable laws and rules and the Firm’s policies. This system automatically
forwards all incoming and outgoing electronic communications to the Registered Person’s
Principal, who, on a weekly basis, will review at least twenty-five percent (25%) of all such
communications. The system automatically identifies each item of correspondence that is
reviewed and records the date and time of such review. If the Principal conducting the review
determines that the transmission may violate applicable rules or regulations or the Firm’s internal
policies or guidelines, he or she must alert the Compliance Officer immediately so that
appropriate remedial measures can be implemented. Originals (or printed hard copies, in the case
of electronic communications) of any correspondence that might be deemed to contain a
customer complaint (see Section V for the definition of “customer complaint”) will be
maintained in a central file and copies thereof will be distributed to the appropriate Registered
Person.
Correspondence unrelated to Firm business should not be sent to the office.
Registered Persons are required to send electronic or other correspondence to customers
or prospective customers only from the Firm’s offices, in the case of electronic correspondence,
only utilizing the Firm’s proprietary e-mail systems except as approved by the Firm’s CEO.
Registered Persons are not permitted under any circumstances to send correspondence to
customers from their home or from other locations or to use their own e-mail systems for such
correspondence.
The Compliance Officer, on an annual basis, will audit the records relative to each
Principal’s review activities to confirm that they have complied with the foregoing review
obligations and taken appropriate steps to correct any deficiency identified in the review of
correspondence. The Compliance Officer also shall maintain a complete record of all electronic
communications and their review. The Firm’s policies regarding use of electronic
correspondence shall be reviewed on at least an annual basis at the periodic compliance meeting
held with Firm personnel pursuant to Section II hereof.
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I.
Websites
Websites generally are considered by FINRA to be a form of advertising, and thus are
subject to the Firm’s policies applicable to advertising. An employee or Registered Person who
desires to construct a web site on the World Wide Web must first notify the Compliance Officer
and receive written approval from the Compliance Officer to do so. Any employee or Registered
Person operating an unauthorized website will be subject to disciplinary action, including
possible termination. Each request to establish a website must include:

the intended purpose of the website;

proposed disclosures and types of anticipated communications;

a copy of the actual website pages;

any proposed hyperlinks or “hot links” to other websites; and

A written certification that the website will be in strict compliance with all Firm
policies and procedures.
The Compliance Officer will review each request and determine if the proposed website
complies with the Firm’s policies and applicable rules and regulations. The Compliance Officer
will evidence such review by sending written approval to the person seeking to develop the
website.
Also, if an employee or Registered Person wishes to modify, amend, update or add to a
website (including the addition of new hyperlinks or “hot links”) that has been approved
previously in accordance with these policies, the proposed modification, amendment, update or
addition must be approved as specified above.
J.
Chat Rooms
Online “chat rooms” (computer forums for interactive conversations among multiple
users) are considered by securities regulators to be a public forum using an electronic medium; in
this regard, they are similar to, and subject to the same guidelines as, radio and television
appearances. Interactive, extemporaneous conversations (i.e., discussions held without the use of
a script or without prior preparation) occurring in a chat room generally are not considered to be
correspondence, sales literature or advertising. However, as with other oral communications,
Registered Persons are responsible for complying with applicable rules when discussing
securities or services when participating in chat rooms.
K.
Electronic Bulletin Boards
An electronic bulletin board is a site hosted by a sponsor that permits users to post
statements or questions for comment or response by others. Any Registered Person wishing to
sponsor an electronic bulletin board must obtain the prior written approval of their assigned
Principal and the Compliance Officer. To obtain such approval, the person wishing to sponsor
the bulletin board must submit a written request detailing the purpose of the bulletin board and
agreeing to comply with applicable rules and regulations and the Firm’s policies. In this regard,
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the Firm does not permit discussion by Firm personnel of specific securities products or trading
strategies or any recommendations thereof on electronic bulletin boards.
L.
Seminars and Outside Teaching Activities
Any Firm employee or Registered Person who wishes to conduct a seminar or lecture or
to teach a course to potential customers or investors must receive approval from the appropriate
Principal and the Compliance Officer prior to conducting such seminar or lecture or teaching
such course. To obtain such approval, the person requesting the approval must submit a written
request for approval together with the exact script to be utilized to the Principal, who will
forward the request and script to the Compliance Officer after their approval is granted.
Approval will be evidenced by the Compliance Officer sending written notice thereof to the
person requesting the approval.
M.
Misuse of Firm Systems
E-mail, Internet access and telephones provided by the Firm to employees and Registered
Persons are to be used only for Firm-related business and to advance and facilitate legitimate
Firm business purposes. Under no circumstances should e-mails contain material that could
reasonably be considered to be offensive to others or material that is insulting, harassing,
offensive or sexually-based. Inappropriate use of Internet access includes, but is not limited to,
accessing sites containing offensive material, such as sites that promote hatred or violence or that
contain lewd or pornographic material. Also, receipt by Firm personnel of inappropriate material
over the Internet is not a violation of this policy, but forwarding such material to others does
constitute a violation. Violations of this policy can result in disciplinary action, including
termination.
N.
Advertising Arrangements
Firm personnel who wish to enter into advertising arrangements with third parties, such
as internet banner advertising arrangements, hyperlinks or “hot links” at other websites, must
obtain the prior approval of their assigned Principal and the Compliance Officer. To obtain such
approval, the person requesting the approval must submit a written request for approval together
with the exact text of the proposed advertisement or banner, information regarding the other
party to the arrangement and details regarding the proposed compensation arrangements. Only
proposed advertising arrangements that are in writing (a copy of the proposed agreement must be
attached to the approval request) and that comply with the Firm’s policies and applicable rules
and regulations (including rules regarding payment of transaction-based compensation to
unregistered persons) will be approved. Approval of any such arrangement will be evidenced by
the Compliance Officer sending written notice thereof to the person requesting the approval.
O.
Cold-Calling
The Firm will not use cold-calling to expand its customer base. However, should the
Firm decide in the future to utilize cold-calling, all cold-calling activities will be conducted in
accordance with the Telephone Consumer Protection Act of 1991, as amended, and the rules of
the Federal Communications Commission promulgated thereunder.
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IX.
Securities Trading Activities
A.
Manipulative Practices
The Firm prohibits any trading activity or conduct that is manipulative, anti-competitive
or unprofessional. Listed and described below are a number of general problem areas to which
all Firm employees or Registered Persons should be sensitive. It is the responsibility of each
Principal to supervise the activities of the Firm’s employees, Registered Persons and agents
under his supervision to detect such prohibited conduct, and to immediately report the discovery
of such conduct to the Compliance Officer and the Chief Executive Officer.
1.
Anti-Manipulative Principles
Certain transactions are considered to be manipulative, regardless of intent, and
are, therefore, prohibited. Below is a general description of when conduct may be considered to
be manipulative.
a.
Manipulation: The term “manipulation” in the context of the U.S.
securities laws covers activity that is intended to, does or is deemed to affect the
price of a security artificially or to convey a misleading impression of trading
activity in or the depth of the market or demand for a security.
b.
Purpose of Trading: Whether particular conduct will be deemed
to be manipulative depends upon the factual context in which it occurs. If market
activity is for a bona fide trading purpose, and if any change in the appearance of
the market (e.g., an increase or decrease in the market price of the security)
resulting from the activity can be characterized fairly as an incidental or an
unavoidable by-product of the activity, no manipulative activity is likely to be
imputed or implied. If, however, the market activity is engaged in primarily or
solely for the purpose of creating a false market appearance --especially one that
benefits a customer’s financial interest that existed prior to engaging in the
activity --manipulative intent is likely to be inferred.
c.
Implication of Manipulative Purpose: In circumstances in which
a customer has a discernible incentive to bring about or prevent a change in the
price of a security, or to convey to others a false impression of the demand for a
security or trend in the price of a security (where doing so would advance a
financial interest or protect an existing securities position), market activity having
any of those effects may be found to be manipulative.
2.
Specific Prohibitions
a.
Creating False or Misleading Market Appearance: No Firm
employee or Registered Person (alone or with or through others) may engage in
any transaction solely for the purpose of creating (i) a false or misleading
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appearance of supply or demand in a security, (ii) an artificial price or price trend,
or (iii) a false or misleading appearance of trading volume, market depth or
liquidity.
b.
Prohibited Activities: Firm employees and Registered Persons are
prohibited from engaging in any of the following activities:
i.
Wash Sales: Trades, considered together, resulting in no
change in the beneficial ownership of a security or that “cancel each other
out” and are entered into for the purpose of creating a false or misleading
appearance of active trading.
ii.
Matched Orders: Entering one or more buy (sell) orders
with knowledge that one or more sell (buy) orders for the same security in
substantially the same size and at substantially the same price have been
(or will be) entered at substantially the same time by or for the same or
different parties for the purpose of creating a false or misleading
appearance of active trading.
iii.
Prearranged Trades: Trades involving an offer to sell
(buy) a security coupled with an offer to buy (sell) back that security at the
same or better price without any bona fide trading purpose.
iv.
Marking the Close: Affecting a trade on an “up tick” or
“down tick” at or near the close of trading for the purpose of changing the
closing price in order to protect or alter the value of overnight inventory or
of an existing position in a stock or to avoid a net capital deficiency.
v.
Fictitious Quotations: Disseminating (orally, in writing or
by entry of a bid or offer into any quotation system or medium) any bid or
offer price and/or bid or offer size that is not bona fide.
vi.
Interpositioning: Placing a third party between the Firm
and a customer, thus depriving the customer of the best available market.
vii.
Circular Transactions: Pre-arranged transactions among a
series of participants in which the initial seller (buyer) of the security also
is the ultimate buyer (seller) so as to create a false or misleading
impression of active trading.
viii. Parking: Engaging in transactions for or with, or holding
securities in, fictitious accounts to disguise the beneficial ownership of the
securities. (See Subsection A.4. of this Section.)
ix.
Painting the Tape: Reporting fictitious trades in order to
inflate the apparent trading volume of a security.
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x.
Reporting Violations: Intentionally failing to report
transactions or intentionally failing to report them in a timely or
completely accurate manner.
xi.
Circulating Rumors Likely to Affect the Market:
Passing on or circulating unsubstantiated rumors that reasonably may be
expected to affect market conditions, including price, demand or volume
xii.
Frontrunning: Trading ahead of a customer order (see
Section IV above).
3.
Elements of Manipulative Activity
a.
Bona Fide Trading: If a Firm employee or Registered Person is
engaging in buying or selling activity solely for the purpose of establishing or
disposing of a position, knowledge that such activity will or is likely to raise or
lower the price and necessarily will increase trading volume does not make such
trading unlawful absent a manipulative purpose.
b.
Misleading Market Appearance: Trading that (i) increases the
general level of market activity with regard to a particular security or (ii) raises or
lowers the market price of a security, may be deemed to be manipulative under
the circumstances described below.
i.
Trading to Induce Others to Buy or Sell: Bids and
purchases (offers and sales) of a security undertaken solely for the purpose
of inducing others to bid for or buy (to offer or sell) the same security
(e.g., by creating the misleading appearance of active trading in the
security) will be viewed as manipulative. Such a purpose may be inferred
from the particular circumstances surrounding the trading.
ii.
Trading for the Purpose of Creating a Particular
Appearance: Trading in a way that is intended to enhance the appearance
of market activity or to raise or lower the price of a security --e.g., for the
purpose of creating an opportunity for profit on the opposite side of the
market or to protect against loss in a market affected by such trading -will be deemed manipulative. Similarly, bids and purchases (offers and
sales) intended to disguise the true state of the market (as to price, price
trend, trading volume or otherwise) will be viewed as manipulative.
4.
Proper Identification of Accounts --Prohibitions Against “Parking”
The securities laws and rules require the accurate maintenance and disclosure of
beneficial ownership of securities. These requirements are dependent on the accurate recording
of the name of the beneficial owner in connection with the purchase, sale, delivery and/or
holding of securities. The Firm strictly prohibits the misidentification of accounts, including so-
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called “parking” of securities by, for example, identifying securities which are beneficially
owned by one person or entity as being beneficially owned by another person or entity.
A Firm Principal will review on-line a random sampling of daily securities
transactions for detection of the foregoing prohibited activities. The on-line sampling will
include all the information that appears on order tickets. The Principal also will review on a
weekly basis a random sampling of hard copies of order tickets and will evidence completion of
this review by initialing and dating the document reviewed. Transactions which might raise a
possible “parking” or related concern must be discussed promptly with the Compliance Officer.
B.
High Volume and High Volatility; Trading Halts
A fast market is a high-volume trading session marked by extreme price fluctuations and
order imbalances resulting from numerous investors entering buy or sell orders for the same
security simultaneously. Because of these imbalances, wide price variances in short periods of
time are common. On any given day, fast markets can affect a particular security, groups of
securities or the market as a whole. Fast markets can be caused by material news
announcements, market developments, and sometimes trading halts in less volatile securities.
The ability to execute orders in a timely manner in fast market conditions may be severely
limited and order execution may be delayed significantly. Furthermore, market orders entered in
fast market conditions may be executed at prices that are significantly different from the prices
quoted at the time the orders were entered. The foregoing risks of trading during periods of high
volume or high volatility must be disclosed to customers. This disclosure should be made orally
to all Firm customers, and also will be made in writing in a document provided by the Firm’s
clearing broker. Registered Persons of the Firm must be able to discuss these risks in response to
customers’ questions.
Trading may be halted temporarily for a single issue of securities or for all securities
listed on NASDAQ or on an exchange (a circuit breaker halt). All trading in a halted security
must cease immediately. No transactions in a halted security may be effected directly or
indirectly until the halt has ended. During trading halts that will be lifted so as to allow trading to
resume on the same trading day, pending and new customer orders will be forwarded to the
appropriate market for execution upon resumption of trading, unless the customer indicates
otherwise. During trading halts that close the market for the remainder of the trading day,
pending and new customer orders will be handled as follows:



Orders that are pending at the time of the halt, and new orders received during
the halt, will be treated as “Good Till Cancelled” orders and held for
execution at the reopening of the next trading session, unless the customer
indicates otherwise.
“At the Close” orders pending at the time trading is halted will be treated as
cancelled orders.
New orders related to closing prices will not be accepted or forwarded to a
market during a trading halt.
The Firm’s Registered Persons must be able to discuss these procedures in response to
customers’ questions
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C.
Fair Prices and Commissions
Commissions on agency transactions and mark-ups on principal transactions must be
reasonable and fair and will be charged solely in accordance with the written schedule
established by the Firm. Commissions will be determined after taking into account current
market conditions at the time of the transaction, the expense of executing the order, the value of
any services rendered by the Firm. Mark-ups will be determined after taking into account
current market conditions, execution expenses, and the expectation of a profit. All commissions
and mark-ups charges by the Firm will take into account the 5% policy set forth in FINRA IM2440. The Chief Executive Officer with periodically review the Firm’s commission and mark-up
schedule at least quarterly, or more frequently in times of rapid change in market conditions, to
ensure the continued reasonableness of the charges. The Chief Executive Officer will evidence
his review by dating and initialing the schedule.
D.
OATS Reporting
FINRA Rules 6950 through 6957 (the “OATS Rules”) require the Firm to electronically
capture specific information related to orders for securities traded in NASDAQ Stock Market
(“NASDAQ Securities”), record this information to the hour, minute and second, and
electronically report this information to FINRA’s Order Audit Trail System (“OATS”).
NASDAQ Securities include convertible bonds, Small Cap Securities and National Market
Securities, but do not include OTC Bulletin Board, OTC Pink Sheets and listed securities. In
addition, the Firm is required to synchronize its business clocks to a source designated by
FINRA.
1.
Recording of Order Information
In addition to any other information which is required to be recorded pursuant to
this Manual, the Firm must record a variety of information, as required under the OATS Rules,
whenever an order for a NASDAQ Security is originated, including the following:











the identification symbol of the security to which the order applies;
the Firm’s market participant symbol;
the identification number of the department with the Firm that originates the
order;
the identification of the Transmitting Firm (defined below) which reports to
OATS on behalf of the Firm;
the number of shares to which the order applies;
the designation of the order as a buy or sell order;
the designation of the order as a short sale order;
the designation of the order as a market order, limit order, stop order or stop limit
order;
any limit or stop price prescribed in the order;
the date on which the order expires, and, if the time in force is less than one day,
the time when the order expires;
the time limit during which the order is in force;
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



special handling requests;
the date and time the order is originated;
an identification of the order as related to a Program Trade1 or an Index Arbitrage
Trade2; and
The type of account (i.e., proprietary, employee, etc.) for which the order is
submitted.
2.
Order Transmittal
Electronic (Non-ECN): When the Firm transmits an order for a NASDAQ
Security electronically to another broker-dealer for execution (other than to an ECN), the Firm
must record, in addition to any other information which may be required to be recorded pursuant
to this Manual, a variety of information, as required under the OATS Rules, including the
following:






the order identifier assigned to the order by the Firm;
the Firm’s market participant symbol;
the market participant symbol of the broker-dealer to which the order was
transmitted;
the date the order was first originated by the Firm;
the date and time the order is transmitted to the other broker-dealer; and
The number of shares to which the transmission applies.
Electronic (ECN): When the Firm electronically transmits an order for a
NASDAQ Security for execution on an ECN, the Firm must record, in addition to the
information required under D.1. above, the fact that the order was transmitted to an ECN.
Manual: When the Firm manually (i.e., by telephone) transmits an order for a
NASDAQ Security to another broker-dealer, other than to an ECN, the Firm must record, in
addition to the information required under D.1. above, the fact that the order was transmitted
manually, and, if applicable, the bunched order route indicator assigned to the bunched order by
the Firm.
3.
Other Modifications and Cancellations
Modifications: When the Firm modifies the terms of an order in a NASDAQ
Security, it must record, in addition to the information that would apply if the modified order
1/
FINRA Rule 6951 defines a Program Trade as a trading strategy involving the related purchase or sale of a
group of 15 or more securities having a total market value of $1 million or more (as further defined in NYSE Rule
80A).
2/
FINRA Rule 6951 defines an Index Arbitrage Trade as an arbitrage trading strategy involving the purchase
or sale of a “basket” or group of securities in conjunction with the purchase or sale, or intended purchase or sale, of
one or more cash-settled options or futures contracts on index stock groups, or options on any such futures contracts
in an attempt to profit by the price difference (as further defined in NYSE Rule 80A).
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were originated at the time of the modification, the identity of the order prior to such
modification, the date and time of such modification and the date the order first originated.
Cancellations: When the Firm cancels an order for a NASDAQ Security, in
whole or in part, it must record the identity of the order and the Firm’s name, the date the order
was first originated and the number of shares cancelled.
4.
Supervisory Reviews of OATS Procedures
On a daily basis, a designated Principal shall review the OATS transmission from
the previous day for any rejections or errors. This designated Principal shall have a login and
password for the OATS site. If the designated Principal is unavailable, an alternate Principal
shall have a login and password to conduct the review. The review shall consist of the following
steps:
a.
Go to https://oats.finra.org/oatsweb
b.
Click on firm (under “Entering OATS”)
c.
Change the “Begin Date” to the previous day’s date
d.
Click on “FORE Status Notification”
e.
Print
f.
Click “Back”
g.
Click on “Firm Reporting Statistics”
h.
Print
i.
Click “Back”
j.
Go to ROE Rejections by FORE
k.
Select the previous day’s date
l.
If any events exist, click on Firm Fore ID
m.
Click on “Rejection Reason”
n.
Click on “Event Type”
o.
Print
p.
Change the fields which are highlighted in red
q.
Click on “Repair”
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r.
Repeat steps 12 –17 if necessary
s.
Once all Rejected ROES are repaired, they must be resent. Print
page showing all Repaired ROES.
t.
Click on “Send” for each Repaired ROE to be resent.
u.
Click on “Submit All Checked Values.”
v.
Initial and date all print-outs to document review
w.
File all print-outs in OATS folder.
In addition to the foregoing procedures, on a quarterly basis the designated
Principal shall review the OATS reporting system of the third party reporting agent used by the
Firm, to verify that the system’s codes, designations and indicators are set properly and to verify
the system’s and the Firm’s compliance with applicable OATS reporting rules and procedures,
and also shall review all default fields and codes to confirm the accuracy of the OATS data that
the Firm has transmitted. The designated Principal shall document the findings of such review in
a signed or initialed memorandum addressed to the Compliance Officer. The designated
Principal also shall maintain a copy of the memorandum in the OATS folder.
5.
Synchronization Procedures
The Firm has synchronized its business clocks that are used for purposes of
recording the date and time of any event that the Firm is required to record, with reference to a
source within three (3) seconds of the National Institute of Standards and Technology standard
(the “NIST”), as designated by FINRA. The Firm also is required to maintain the
synchronization of such business clocks to the NIST. In this regard, a designated person, acting
under the direction of a Principal (or an appropriately licensed designee), shall confirm that the
Firm’s computer system and mechanical time clocks are synchronized to the NIST, on a daily
basis before the market open, and, if necessary to maintain such synchronization, resynchronized at pre-determined intervals throughout the trading day (i.e., 10:00 a.m., 12:00 noon
and 2:00 p.m.). Firm personnel must use only the Firm’s business clocks to record the time of
any security transaction required to be recorded or reported to FINRA, and the time recorded
must be expressed in terms of hours, minutes and seconds. Additionally, the Firm will maintain
a written and initialed log of the times when the Firm’s business clocks are synchronized and the
results of the synchronization process. In this regard, following such synchronization the
designated person, acting under the direction of a Principal (or an appropriately licensed
designee) shall promptly enter into the synchronization log the date time such synchronization
occurred, his or her initials and any problem of which he or she becomes aware, including any
time drifts of more than three (3) seconds.
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Recordkeeping Requirements
6.
The Firm shall maintain and preserve records of the information required to be
recorded under the OATS Rules, either in paper, micrographic media or electronic storage media
format, for a period of at least three (3) years, the first two (2) years in an easily accessible place.
E.
TRACE Reporting
FINRA Rules 6210 through 6260 require the Firm to report certain transactions in overthe-counter secondary market transactions in eligible fixed income securities (“TRACE eligiblesecurities”) by means of FINRA’s electronic Trade Reporting and Compliance Engine. The term
“TRACE-eligible security” means all United States dollar denominated debt securities that are
depository eligible securities under Rule 11310(d); Investment Grade or Non-Investment Grade;
issued by United States and/or foreign private corporations; and either (1) registered with the
Securities and Exchange Commission or (2) issued pursuant to Section 4(2) of the Securities Act
of 1933 (the “1933 Act”) and purchased or sold pursuant to Rule 144A of the 1933 Act. The
term does not include debt issued by government-sponsored entities, mortgage- or asset-based
securities, collateralized mortgage obligations, and money market instruments (debt securities
having a maturity of one year or less).
If the Company is a party to a transaction involving a non-member, including a customer,
in a "TRACE-eligible security" it must report the transaction to FINRA within 15 minutes of the
time of execution. . If the Company is a party to a transaction involving another-member, both
companies must report the transaction to FINRA within 15 minutes of the time of execution
The Compliance Officer, or his qualified designee, is responsible for making trade reports
in TRACE in a timely manner. The URL for TRACE trade reporting is:
https://www.finratrace.org.
All questions regarding TRACE procedures should be directed to the Compliance
Officer.
TRACE Eligible Securities
Securities required to be reported to the TRACE system include corporate debt
securities that are:





U.S. dollar denominated and depository eligible;
investment grade or non-investment grade;
issued by U.S. and/or foreign private corporations; and,
registered with the SEC; or,
Issued under Section 4(2) of the '33 Act and bought or sold under Rule
144A.
Securities Excluded From TRACE Requirements
Securities excluded from TRACE reporting requirements are:
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October 2009




debt issued by government-sponsored entities
mortgage- or asset-backed securities
CMOs
money market instruments (debt securities with a maturity of one year or
less)
Reportable Transactions
Any secondary market transaction in a TRACE-eligible security must be reported
to TRACE unless the security is executed on and reported to a national exchange.
Transactions in convertible debt securities reported to NASDAQ also are
excluded as well as securities that are part of a primary distribution.
Transaction Reporting
BIS is obligated to report all required transactions to TRACE. TRACE is open
between 8:00 a.m. ET through 6:29:59 ET. Transactions must be entered on the
clearing firms system at online.penson.com then reported by the clearing firm
within fifteen minutes of the time of execution. Trades executed less than 1 hour
15 minutes before 6:30 p.m. ET may be reported the next business day within 1
hour 15 minutes after TRACE opens with "as/of" and the actual transaction date.
The NASD 6200 Rule series should be consulted for other variations and details
of trade reporting obligations including what must be reported.
Who Reports
When the buyer and seller are both FINRA members, both members must report
to TRACE. For transactions between a member and a non-member, including a
customer, the member must report. BIS' clearing firm has the responsibility of
reporting the firm’s trades to TRACE after entering the trade via the electronic
interface provided on online.penson.com.
System Outages
System outages involving fixed income transactions and TRACE reporting will be
reported to the FINRA by e-mail to bondreporting@finra.org. The clearing firm
is responsible for determining whether to report outages and will retain copies of
e-mail communications sent to FINRA. The clearing firm is to notify the firm of
any errors, outages or discrepancies.
Information to Be Reported
Information that will be reported by the clearing firm includes the following:


the date(s) the system problem occurred;
the specific systems that were affected (e.g., internal systems, third party
vendor system);
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October 2009







the exact nature of the problem (e.g., complete outage, slow transmission
times);
the time the problem began;
the time the problem was first detected;
the time the problem was resolved and a brief description of the resolution;
the level of activity impacted (e.g., the approximate number of trades not
reported) and a description of how the impact will be addressed (e.g., trade
reports to be submitted on an as of basis the next business day);
contact name and telephone number; and,
Any additional information deemed relevant.
Prohibited Activities
Prohibited Activities
Responsibility


Carl Birkelbach
Designated Supervisor

Trading reports
Notification from clearing firm
Monthly trader reviews
Frequency

Ongoing
Action

Take corrective action depending on the nature of the
prohibited activity
Resources


Inside Information
Employees are prohibited from acting on, passing on, or discussing any inside
information regarding any fixed income security issues, including any material
non-public information regarding, for example, a credit-rating change, default or
advance refunding. Any knowledge of such information must be brought to the
attention of the designated supervisor and Compliance. No Firm proprietary
account or employee account may enter a transaction in a security based on
material non-public information about that security.
Financial Arrangements
Employees are prohibited from entering into financial arrangements with
customers or issuers (i.e., sharing in profits or losses, sharing in commissions,
rebating commissions, etc.).
Market Manipulation
No purchase or sales order shall be entered or executed that is designed to raise or
lower the price of a security or to give the appearance of trading for purposes of
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inducing others to buy and sell. No purchase or sale order shall be entered or
executed with the intent to corner a market or create a squeeze in a security.
Frontrunning
No Firm proprietary or employee account may trade a security while in
possession of material information about an imminent block-sized transaction in
that security or a derivative security.
Parking Securities
No arrangement may be used to conceal the true ownership of securities through a
fictitious sale or transfer to another party or nominee who agrees to later sell or
transfer the securities to the true owner (or his agent) at the agreed upon time at
essentially the same terms. Legitimate repurchase or repo transactions, usually
entered into as financing transactions, are not included in this prohibition if they
are not entered for a manipulative purpose.
Secret Profits
A trader may not permit the charging of a mark-up or mark-down in addition to a
commission on any transaction.
Adjusted Trading
Adjusted trading or overtrading is a prohibited practice that involves the sale of a
security by a customer for a price above the prevailing market price and the
simultaneous purchase of a different security at a price lower than the prevailing
market price. The purpose of an adjusted trade usually is to assist a customer in
avoiding, disguising, or postponing losses.
Other scenarios of adjusted trading include:

permitting a customer to sell a security at an inflated price and re-selling the
security to another customer at the inflated price;
 Interpositioning the broker-dealer between two customers where the brokerdealer acts as a conduit allowing the two customers to swap losing positions
by paying an inflated price for each other's securities
All transactions must be executed at prices reasonably related to current market
prices and all books and records of the firm must show an accurate price for
securities purchased or sold.
Review of Transactions
All trades are forwarded on to the designated supervisor on the day entered for
review and approval.
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October 2009
X.
Special Products/Services
A.
Mutual Funds
All customer accounts shall be reviewed at least annually by Carl Birkelbach to ensure
compliance with Rule 2310 of FINRA Conduct Rules and related policies of the Board of
Governors. It is the Company's position that trading in mutual fund shares on a shortterm basis is an improper sales practice. Additionally, customer accounts will be
reviewed to ensure that no sales of Mutual Fund Shares are made in an amount below the
breakpoint.
It shall be a policy of the Company that since mutual funds are designated as long-term
investments rather than vehicles for quick, speculative profit-making, associated persons
are to be discouraged from switching a customer from one mutual fund to another.
No associated person may recommend that a customer switch from one mutual fund to
another except in rare circumstances where there has been a clear change in the
customer's investment objectives and the investment objectives of the fund into which the
customer is switching meets his changed needs and objectives. An associated person may
not recommend a "switch" on the basis of fund performance or management capabilities
nor may he/she recommend a "switch" from one mutual fund to another, which has the
same investment objective. Further, Carl Birkelbach shall review mutual fund
transactions on a daily basis and compare said transactions with the schedule of when the
respective fund pays its dividends to ensure no sales of mutual funds are made based
upon dividend expectation.
In instances where a customer's investment objectives have actually changed, so that a
fund with a different investment objective has become more suitable to his needs, the
transaction will be processed only if accompanied by a letter from the customer.
Where a customer, on his own initiative, and without any solicitation by the associated
person, decides to effect a change of investment, such transaction will be processed only
if accompanied by a letter prepared by the customer requesting such change. Where an
associated person submits such a letter from several customers within a 60-day period,
Carl Birkelbach shall be responsible for contacting such customers to assure that the
transactions were in fact unsolicited.
Any transaction that is found not to comply with the foregoing requirements will be
reversed, with a full charge-back of commissions against the associated person's
commissions earned.
1.
Breakpoint Sales
Breakpoint sales are specified levels of dollar investment established by a mutual
fund company where a front-end sales charge is reduced. Breakpoint levels vary
from fund to fund and can be reached by a single investment or through aggregating
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investments in specified related and linked accounts. In order for the Company to
ensure that the correct sales load is charged to a customer on a mutual fund
transaction the Company must obtain complete information pertaining to the
customer’s account and specified related and linked accounts. This information
includes the dollar size of the pending transaction, the dollar size of anticipated
transactions, and amounts previously invested in the fund and other related funds as
stated in the prospectus.
It shall be a policy of the Company that the Company shall prohibit the sale of
mutual fund shares to prospective investors for an amount just below the point at
which sales charges are reduced on quantity transactions unless the customer has
been made aware of the economic consequences of such a purchase. Associated
persons are required to advise customers of the savings available in a purchase above
the breakpoint.
Where an application for a purchase is submitted which may raise a breakpoint
question either with respect to the current purchase itself, or in conjunction with
prior or future purchases, Carl Birkelbach shall be responsible for making an
investigation, based on the information available from the customer's client file, into
the circumstances of such sale(s), including, where necessary, communication with
the customer. Carl Birkelbach shall take remedial action on behalf of the Company,
where warranted.
It shall be a policy of the Company for representatives to disclose to customers the
breaks in sales charges due to letters of intent and rights of accumulation at the time
of sale. Further it shall be the responsibility of Carl Birkelbach to review mutual
fund transactions to make sure that such notifications have been made by registered
representatives and a review to make sure that break points are credited to a
customer's account(s) in the event they are applicable.
Customers may also be able to receive a reduction in the sales load charged by using
a letter of intent (“LOI”) or a right of accumulation (‘ROA”). A LOI is a statement
signed by the investor indicating his intent to purchase a certain amount of fund
shares over a stated period of time. An ROA is the breakpoint received in a current
mutual fund transaction based on the cumulative value of previous transactions. In
either case related or linked accounts may be aggregated to reduce the sales charge.
It is Company policy that customers be informed of the availability of LOIs and
ROAs when a fund offers such.
If a fund offers a “reinstatement privilege,” (the ability of a shareholder to redeem or
sell shares in the fund and subsequently allow the shareholder to reinvest some or all
of the proceeds, by paying a reduced sales charge within a specified period of time in
the same share class of that fund or another fund within the same fund family) Carl
Birkelbach will be responsible to ensure that the customer is notified of this
privilege. Carl Birkelbach or his designee will maintain and update a listing of all
funds that the Company sells that have reinstatement privileges with the applicable
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October 2009
reinstatement period. Carl Birkelbach will review all repurchases to ascertain if a
reduced sales charge is applicable.
Carl Birkelbach will be responsible to ensure that all registered representatives and
other personnel responsible for the input of mutual fund transactions into FundSERV
or any other automated system are properly trained to in the accurate transmission of
mutual fund orders to include breakpoint information. Carl Birkelbach or his
designee will review reports of mutual fund transmission on the day following
submission and indicate his approval by initialing and dating the report.
As part of its annual review for supervisory controls, the Company will verify that it
has policies and procedures in place to ensure that customers are charged the correct
sales charge.
In order to ensure that a customer purchasing mutual fund shares is aware of
breakpoint possibilities, Rights of Accumulation, and Letters of Intent, the customer
shall be provided a copy of the “Mutual Funds Breakpoint Discounts Disclosure
Statement”. In order to ensure that a customer purchasing mutual fund shares
receives the lowest possible sales charge, the associated person handling the
transaction will utilize and complete the “Breakpoint Checklist” and the Breakpoint
Worksheet”. In order to document the customer’s receipt of the “Mutual Funds
Breakpoint Discounts Disclosure Statement”, a notation shall be made on either the
“Breakpoint Checklist” or the Breakpoint Worksheet”. The notation shall include
the date that the customer was given the statement and the name of the person that
gave the statement to the customer. Prior to approving a mutual fund purchase, Carl
Birkelbach or his designee will ensure that the “Breakpoint Checklist” and the
Breakpoint Worksheet” were properly completed. He shall evidence his review by
initialing or signing the mutual fund application or order ticket.
2.
NAV Transfers
Through a NAV transfer, certain mutual fund families allow the investor to purchase
Class A shares of a mutual fund without paying a front-end sales charge, if the
investor is using proceeds from the sale of a mutual fund in another mutual fund
family for which a front-end or contingent deferred sales charge has already been
paid. These sales charge reductions are not available on all funds and can only be
determined by reading the prospectus. Carl Birkelbach will be aware of which fund
families allow such transfers and prior to approving a mutual fund purchase will
ensure that the charge made is correct for the fund. He shall evidence his review by
initialing or signing the mutual fund application or the order ticket.
3.
Selling Dividends
In presenting investment recommendations to clients, the representative will be
careful not to “sell dividends.” This is the practice whereby a representative uses the
fact that the fund in question is about to pay a dividend as a selling point. In reality,
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October 2009
the majority of the dividend is already reflected in the fund’s price and will only be a
return of principal to the investor when paid because the fund’s Net Asset Value will
be reduced by the amount of the dividend. In addition, the dividend payment will be
a taxable event for the client, even though he/she received no economic benefit from
it. During Carl Birkelbach’s review of order tickets and mutual fund applications, He
shall look for evidence of selling dividends. The review shall be evidenced by the
Carl Birkelbach initialing the order ticket or the mutual fund application.
4.
Contingent Deferred Sales Charge
In addition to the requirements for disclosure on written confirmations of
transactions contained in Rule 2230, if the transaction involves the purchase of
shares of an investment company that imposes a deferred sales charge on
redemption, such written confirmation shall also include the following legend: “On
selling your shares, you may pay a sales charge. For the charge and other fees, see
the prospectus.” The legend shall appear on the front of the client confirmation.
5.
Prospectus Review
Carl Birkelbach will review each prospectus of any open-end investment company to
determine if sales charges are excessive. Carl Birkelbach shall evidence his review
by initialing the Firm’s file copy of the prospectus.
6.
Change of Address
Carl Birkelbach or his designee will confirm in writing any requests to change a
customer’s address. A copy of the change of address document will be forwarded to
the old address.
7.
Signature Guarantees
If the Firm can guarantee signatures, it will obtain appropriate identification from the
person who is signing the document. Copies of the ID documents will be made and
maintained in the customer file. In addition, the instruments that are used to
guarantee the signature will be secured at all times and kept on the premises of the
Firm.
8.
Suitability
The Firm and its representatives will take steps to ensure all recommendations are
suitable for the customer. This includes obtaining all required information on the
customer to complete in full the new account form and reviewing investment
objectives with the customer. The final suitability will be determined and approved
by Carl Birkelbach. All reviews will be evidenced by the reviewing principal
initialing all documents reviewed. Reviews will also be evidenced by the principal
initialing account statements or listing all accounts reviewed on the log referred to in
“New Accounts”
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October 2009
The Firm reviews accounts for switching, order splitting, letters of intent and rights
of accumulation by the following methods:
 Daily Exception Reports will be reviewed for any account that has two or
more mutual fund transactions to detect any of the above-mentioned
practices. Exception Reports will be reviewed by Carl Birkelbach or his
designee.
 A daily review of mutual fund liquidations is performed. Any
liquidating transaction will result in a Principal of the Firm monitoring
the account for a period of time to determine whether the client is
reinvesting in another mutual fund. In addition, the account holdings
will be reviewed to see if multiple fund families are present, which may
indicate that the client is missing the opportunity to receive lower load
fees by combining funds into one fund family. This review takes place
daily by Carl Birkelbach or his designee. Questioned account activity
will be investigated promptly and appropriate action will be taken.
 During monthly or quarterly account reviews, the presence of holdings
within an account of multiple load mutual fund families will be also
investigated.
It is important to note that simply having a switch letter on file does not necessarily
mean the switching was appropriate or permissible. An abundance of switch letters
for any particular registered representative in the switch letter file will be an
automatic red flag.
9.
Redemption Procedures
Clients must be made aware that they can redeem shares directly with the mutual
fund company directly so they may avoid paying a ticket charge assessed by the
company for the handling of their redemption transaction. When customers redeem
mutual funds through the Firm, a notation shall be made on the order ticket or
transaction blotter that such disclosure was made.
10.
Prospectus Delivery
Most mutual funds are "open-ended" which means that new shares are continuously
being issued by the fund company at the public offering price. Consequently, these
mutual fund shares are considered new issue securities and a prospectus must be
delivered to all customers buying shares of the fund before the transactions settle.
The firm shall cause its Clearing Firm to print on mutual fund confirmations,
“Prospectus provided under separate cover”. The designated principal shall
photocopy a sample of such, circle the legend, initial the confirmation, and file the
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October 2009
document. When an application is used, a notation shall be made on the application
that a prospectus was provided.
11.
Suitability for Class A, B, or C Mutual Fund Classes
Before selecting a particular fund class for a customer, all registered representatives
will become familiar with each class of fund offered. Registered representatives
must determine the investor’s goals, objectives and time horizons. Investors looking
to avoid front-end charges should be informed of the potential long-term effect of
the higher ongoing sales charges associated with Class B or C shares.
Class A shares impose a front-end sales load, but may impose no (or a low) on going
fee to pay for sales and marketing expenses (12B-1 fee). Breakpoints in the sales
load structure will cause the front-end load percentage to decrease as the investment
amount increases. Investors may also take advantage on subsequent purchases of
rights of accumulation and letters of intent.
Class B shares may not impose a front-end sales charge, but instead may impose a
contingent deferred sales charge on share redemptions and a relatively high 12B-1
fee. The amount of the contingent deferred sales charge will usually decline the
longer the shares are held. In some instances Class B shares may convert to Class A
shares and therefore reduce the 12B-1 fee.
Class C shares may impose neither a front-end nor a back-end sales load, but may
impose a relatively high 12B-1 fee.
In order to ensure that the Firm recommends the share class that is in the customer’s
best interest, associated persons shall access either FINRA’s or the SEC’s expense
analyzer, enter the required data, and recommend the share class that produces the
best return for the customer. A print out of the analyzer’s findings shall accompany
the subscription or order ticket. When Carl Birkelbach or his designee reviews the
transaction, the expense analyzer print out shall be one of the item’s reviewed. Carl
Birkelbach or his designee shall evidence the transaction review by initialing or
signing the order ticket or subscription agreement and the analyzer print out shall be
filed in the customer’s file. The expense analyzers can be accessed at:
http://www.finra.org/Investor/Tools/calculators/FundCalc/expense_analyzers.asp
http://www.sec.gov/investor/tools/mfcc/get-started.htm
12.
Late Trading
FINRA Notice to Members 03-50 states in part:
“It is a violation of FINRA Rule 2110, and may be a violation of the federal
securities laws and FINRA Rule 2120, for member firms and their associated
persons to knowingly or recklessly effect mutual fund transactions that are priced
Birkelbach Investment Securities, Inc.
10-6
October 2009
based on NAV that is computed prior to the time the order to purchase or redeem
was given by the customer. Furthermore, it may be a violation of FINRA Rule
2110 and the federal securities laws to knowingly or recklessly facilitate certain
mutual fund transactions, such as market timing transactions, in conjunction with,
or with the acquiescence of, a mutual fund sponsor, fund administrator,
investment adviser, underwriter, or any other affiliated personnel where those
other parties acted contrary to a representation made in the prospectus or
statement of additional information pursuant to which the mutual fund shares are
offered.”
On a daily basis Carl Birkelbach or his designee will review all mutual fund order
ticket time stamps (or similar document that records the time that an order is
received and the time that it was executed). Any trades executed after the close will
be investigated and a notation made on the reviewed document or via a memo that
notes the reason for the late execution. If the reason is not satisfactory or otherwise
deemed to be inadequate Carl Birkelbach shall take appropriate disciplinary action
that includes any or a combination of: verbal warning, written warning, fine,
suspension, loss of commissions for the trades in question, termination. Carl
Birkelbach or his designee shall evidence his trade reviews by initialing the reviewed
documents.
On a daily basis Carl Birkelbach or his designee will also review all trade
cancellations and corrections. Mutual fund cancellations and corrections shall be
investigated as described in the preceding paragraph and the reviewed document
shall be initialed by the reviewer.
13.
Market Timing
FINRA Notice to Members 03-50 states the following regarding market timing:
“...certain mutual fund companies represent in their prospectuses or SAIs that they engage in practices that
are intended to prevent or control market timing transactions. Market timing transactions include mutual
fund trades that occur when the purchaser or seller believes that the mutual fund's NAV does not fully reflect
the value of the fund's holdings for example, when the fund has in its portfolio particular holdings, such as
foreign or thinly traded securities, which are priced on a basis that does not include the most updated
information possible. In order to retard the efforts of investors who seek to profit on these pricing
inefficiencies by executing mutual fund trades on a day when the NAV likely will not fully reflect the value of
a fund's holdings and realizing the profit by trading the next day, some mutual fund companies have
implemented measures to counteract the efforts of timers and have represented in their prospectuses or SAIs
that they are conducting these measures. Consequently, where the mutual fund company and/or its affiliated
persons have represented that they have taken steps to protect investors from market timers, a member firm
and its associated persons may not knowingly or recklessly act in conjunction with, or with the acquiescence
of, the fund and/or its affiliated persons to undertake, effect, or facilitate a market timing transaction.”
Neither the Company nor its associated persons are permitted to collude with mutual
funds and their affiliated persons to circumvent the mutual funds stated procedures.
Carl Birkelbach or his designee will attempt to detect such by reviewing
correspondence (including e-mails) and by eaves dropping on conversations. On a
daily basis, He shall also review all large mutual fund transactions ($1,000,000 and
Birkelbach Investment Securities, Inc.
10-7
October 2009
over) and if the fund experiences a large price change the day following the
transaction, He shall investigate the trade. The results of the investigation shall be
noted on the order ticket, trade journal, or via a memo. The reviewer shall initial the
document that was reviewed and on which a notation was made to evidence their
review. If the investigation does not yield a satisfactory answer for the reason and
timing of the trade, Carl Birkelbach shall take appropriate disciplinary action that
includes any or a combination of: verbal warning, written warning, fine, suspension,
loss of commissions for the trades in question, termination. Carl Birkelbach or his
designee shall evidence his trade reviews by initialing the reviewed documents.
14.
Compensation
Revenue sharing arrangements, in which an investment adviser or other offeror
agrees to pay the Company cash compensation not otherwise disclosed in the
prospectus fee table (such as payments for "shelf space" to distribute the investment
company's shares); and differential cash compensation arrangements, typically
occurring when the Company provides higher payouts to its registered
representatives for the sale of certain investment company products are strictly
prohibited unless disclosures are made to customers. Disclosures would include; that
information about the fund’s fees may be found in the fund’s prospectus; or that the
company receives cash payments from fund offerors other than those listed in the
prospectus fee table; and that associated persons receive different rates of
compensation depending on which company share are purchased by a customer. If
the Company enters into any of these arrangements, Carl Birkelbach will insure that
a written disclosure is provided to all customers purchasing investment company
shares. A copy of the signed disclosure document will be placed in the customer file
and approved by Carl Birkelbach.
15.
Non-Cash Compensation
It shall be the responsibility of Carl Birkelbach to review all compensation
arrangements with mutual fund sponsors to ensure that they meet the following
compensation requirements and restrictions on non-cash compensation
arrangements.
1. Except as described below, no associated person of the Company shall accept
any compensation from anyone other than the Company. This requirement will
not prohibit arrangements where a non-member company pays compensation
directly to associated persons of the Company, provided that:
(A) The arrangement is agreed to by the Company;
(B) The Company relies on an appropriate rule, regulation,
interpretive release, interpretive letter, or "no-action" letter
issued by the Commission or its staff that applies to the
specific fact situation of the arrangement;
Birkelbach Investment Securities, Inc.
10-8
October 2009
(C) The receipt by associated persons of such compensation is
treated as compensation received by the Company for
purposes of the Rules of the Association; and
(D) The record keeping requirement in paragraph (l)(3) is
satisfied.
2. No member or person associated with the Company shall accept any
compensation from an offeror, which is in the form of securities of any kind.
3. Except for items described in subparagraphs (l)(5)(A) and (B), the Company
shall maintain records of all compensation received by the Company or its
associated persons from offerors. The records shall include the names of the
offerors, the names of the associated persons, the amount of cash, the nature and,
if known, the value of non-cash compensation received.
4. The Company shall not accept any cash compensation from an offeror unless
such compensation is described in a current prospectus of the investment
company. When special cash compensation arrangements are made available by
an offeror to the Company, which arrangements are not made available on the
same terms to all members who distribute the investment company securities of
the offeror, the Company shall not enter into such arrangements unless the name
of the Company and the details of the arrangements are disclosed in the
prospectus. Prospectus disclosure requirements shall not apply to cash
compensation arrangements between:
(A) Principal underwriters of the same security; and
(B) The principal underwriter of a security and the sponsor of a
unit investment trust which utilizes such security as its
underlying investment.
5. No member or person associated with the Company shall directly or indirectly
accept or make payments or offers of payments of any non-cash compensation,
except as provided in this provision. Notwithstanding the provisions of
subparagraph (l)(1), the following non-cash compensation arrangements are
permitted:
(A) Gifts that do not exceed an annual amount per person fixed
periodically by the Association 1and are not preconditioned
on achievement of a sales target.
(B) An occasional meal, a ticket to a sporting event or the
theater, or comparable entertainment which is neither so
frequent nor so extensive as to raise any question of
propriety and is not preconditioned on achievement of a
sales target.
(C) Payment or reimbursement by offerors in connection with
meetings held by an offeror or by the Company for the
purpose of training or education of associated persons of
the Company, provided that:
(i) The record keeping requirement in paragraph (l)(3) is
satisfied;
(ii) associated persons obtain the Company's prior approval
to attend the meeting and attendance by the Company 's
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10-9
October 2009
associated persons is not preconditioned by the Company
on the achievement of a sales target or any other
incentives pursuant to a non-cash compensation
arrangement permitted by paragraph (l)(5)(D);
(iii) The location is appropriate to the purpose of the meeting,
which shall mean an office of the offeror or the
Company, or a facility located in the vicinity of such
office, or a regional location with respect to regional
meetings;
(iv) The payment or reimbursement is not applied to the
expenses of guests of the associated person; and
(v) The payment or reimbursement by the offeror is not
preconditioned by the offeror on the achievement of a
sales target or any other non-cash compensation
arrangement permitted by paragraph (l)(5)(D).
(D) Non-cash compensation arrangements between the
Company and its associated persons or a non-member
company and its sales personnel who are associated persons
of an affiliated member, provided that:
(i) The Company's or non-member's non-cash compensation
arrangement, if it includes investment company securities,
is based on the total production of associated persons with
respect to all investment company securities distributed by
the Company;
(ii) The non-cash compensation arrangement requires that the
credit received for each investment company security is
equally weighted;
(iii) No unaffiliated non-member company or other unaffiliated
member directly or indirectly participates in the
Company's or non-member's organization of a permissible
non-cash compensation arrangement; and
(iv) The record keeping requirement in paragraph (l)(3) is
satisfied.
(E) Contributions by a non-member company or other
member to a non-cash compensation arrangement
between the Company and its associated persons,
provided that the arrangement meets the criteria in
paragraph (l)(5)(D).
16.
Receipt and Delivery of Funds
It shall be a policy of the Company that where a mutual fund is handled on a
subscription basis, all applications and customer checks shall be forwarded by noon
the following business day to the Issuer. Carl Birkelbach shall be responsible for
reviewing the cash receipts and delivered blotter to ensure that all customer checks
Birkelbach Investment Securities, Inc.
10-10
October 2009
are promptly forwarded to their respective recipients and that all customer mutual
fund applications are promptly forwarded to the respective Issuer.
B.
U.S. Government Securities
This section outlines general requirements when offering government securities to
customers.
1.
Government Securities Act Amendments of 1993
The original Government Securities Act was limited in scope. The amendments
of 1993 gave authority to the SEC to oversee certain aspects of the governments
markets and imposed requirements on broker-dealers selling government
securities. This section summarizes key sections of the amendments.
Sections 102, 105, and 106 – Rulemaking Authority
These sections grant regulators the authority to establish rules governing
the sale of government securities.
Section 103 – Transaction Records
BIS is obligated to prepare and maintain records regarding its government
securities transactions. Books and records requirements are included in
Appendix 1.
Section 104 – Large Position Reporting
The designate supervisor is responsible for ensuring large position reports
are filed with the Treasury Dept. as required.
Section 107 – Market Information
Regulators are directed to provide for timely dissemination of market
information about government securities.
2.
Sales
Sales
Responsibility

Carl Birkelbach
Frequency

Daily
Action

Review transactions for appropriate
markups/markdowns, suitability of transactions in
accordance with designation
Birkelbach Investment Securities, Inc.
10-11
October 2009

Take corrective action which may include adjusting
the trade, conferring with Compliance, or other
appropriate action
The general sales practice procedures included in the sections titled General
Order and Execution Rules apply to the sales of government securities.
3.
Government Sponsored Enterprise (GSE) Distributions
Trading Tickets
A ticket will be completed by the government securities trader for each
order entered. Tickets will include the date and time the
order was entered and when the order was executed.
Types of Orders Accepted
When an order is accepted from a customer, the RR should repeat the
terms of the order to the customer and confirm the identity and quantity of
the security, whether the order is a buy or sell, whether the order is a
market order or a limit order, and all other pertinent information. RRs
should promptly compare the trade confirmation with the order ticket.
The Trading Manager will conduct quarterly random reviews of the
trading activity, and will document such review by initialing the trade
sampling document. The purpose of such review is primarily to detect
operational problems, trading errors, and trades which may be
questionable in terms of size or frequency.
Delivery of Offering Materials
The firm’s procedures regarding delivery of offering materials will
conform to the Guidelines on Delivery of Offering Materials Relating to
Securities of Government-Sponsored Enterprises.
Prospectuses
When BIS participates in a distribution (as selling group member), the
firm will request, prior to settlement date, prospectuses from the issuer or
principal dealer in an amount sufficient to provide to purchasers or others
who request prospectuses.
Prospectuses will be provided with the customer’s confirmation. If
prospectuses are not included with confirmations, confirmations will bear
the notation: “Offering documentation will follow” or a similar notation.
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10-12
October 2009
For all new issues of REMICs, whether or not BIS participates in the
underwriting, BIS will provide purchasers with prospectuses for the period
up to 120 days after settlement. This includes secondary market
transactions in the new issue for the 120-day period.
A record of to whom and what date prospectuses were sent will be
retained by the designated supervisor.
BIS must report the Concession, and as a member of a selling group, must
report the revenue in FOCUS.
Distribution Periods
Distribution periods differ depending on the security. Refer to the
Guidelines for an explanation of distribution periods.
4.
Treasury Auction
BIS performs its Treasury Action process, and its orders are presented through the
service of a bank. BIS aggregates the orders through the back and BIS is given an
average execution among all orders. BIS is transparent through the bank for large
position reporting purposes when and if appropriate through the auspices of the
bank.
5.
Transaction Records (GSA Section 103; Exchange Act Section
15C[d][3])
Records of government securities transactions will be provided to the SEC or
other appropriate regulator upon request, in a form acceptable to the regulator. A
record will be retained of transaction information provided to regulators.
6.
Large Position Reporting (GSA Section 104; Exchange Act Section
15C[f])
Periodically, the Treasury Department asks government securities dealers to
provide information on large positions in specific issues of government securities.
The designated supervisor (or someone delegated by the supervisor) is responsible
for compiling the information and submitting it to the Treasury Department by the
date due. Records of all reports filed will be retained in the supervisor’s files.
A sample of the Large Position Report is available at:
http://www.treas.gov/press/releases/docs/FormulaSampleReport.doc
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10-13
October 2009
7.
Prohibited Activities
Prohibited Activities
Responsibility

Carl Birkelbach
Frequency

Ongoing
Action

Take corrective action depending on the nature of the
prohibited activity
Inside Information
Employees are prohibited from acting on, passing on, or discussing any
inside information regarding any fixed income security issues, including
any material non-public information regarding, for example, a creditrating change, default or advance refunding. Any knowledge of such
information must be brought to the attention of the designated supervisor
and Compliance. No Firm proprietary account or employee account may
enter a transaction in a security based on material non-public information
about that security.
Financial Arrangements
Employees are prohibited from entering into financial arrangements with
customers or issuers (i.e., sharing in profits or losses, sharing in
commissions, rebating commissions, etc.).
Market Manipulation
No purchase or sales order shall be entered or executed that is designed to
raise or lower the price of a security or to give the appearance of trading
for purposes of inducing others to buy and sell. No purchase or sale order
shall be entered or executed with the intent to corner a market or create a
squeeze in a security.
Front running
No Firm proprietary or employee account may trade a security while in
possession of material information about an imminent block-sized
transaction in that security or a derivative security.
Parking Securities
No arrangement may be used to conceal the true ownership of securities
through a fictitious sale or transfer to another party or nominee who agrees
to later sell or transfer the securities to the true owner (or his agent) at the
Birkelbach Investment Securities, Inc.
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October 2009
agreed upon time at essentially the same terms. Legitimate repurchase or
repo transactions, usually entered into as financing transactions, are not
included in this prohibition if they are not entered for a manipulative
purpose.
Secret Profits
A trader may not permit the charging of a mark-up or mark-down in
addition to a commission on any transaction.
Adjusted Trading
Adjusted trading or overtrading is a prohibited practice that involves the
sale of a security by a customer for a price above the prevailing market
price and the simultaneous purchase of a different security at a price lower
than the prevailing market price. The purpose of an adjusted trade usually
is to assist a customer in avoiding, disguising, or postponing losses.
C.
Municipal Securities
1.
Administration and Operations
BIS will maintain an accurate RTRS MSRB filing.
Fees and Assessments
Responsibility
Resources


Frequency


Action



Carl Birkelbach
Data regarding inter-dealer sales transactions in
municipal securities and municipal underwriting
activity (MSRB Rule A-13)
MSRB Rule A-14 regarding annual fee
Inter-dealer transactions and underwriting assessments
as required
Annual fee - annually by October 31
Calculate and pay inter-dealer transaction and
underwriting assessment fees
Pay annual fee for receipt by the MSRB by October
31
The designated supervisor is responsible for reporting required
information and paying assessment fees to the MSRB. The designated
supervisor is also responsible for paying the annual fee to the MSRB.
Municipal Securities Representatives
Birkelbach Investment Securities, Inc.
10-15
October 2009
All agents who solicit orders or sell municipal securities will be qualified
as municipal securities representatives. Generally, individuals who
successfully complete the Series 7 General Securities Sales examination
will satisfy this requirement.
Apprentices
Responsibility
Resources
Frequency
Action




Carl Birkelbach
N/A
As required
Ensure apprentices are limited to permitted activities
during period of apprenticeship
Individuals who have not previously qualified as municipal securities
representatives are required to complete a 90-day “apprenticeship” period
during which the individual is prohibited from soliciting or transacting
business with the public. This includes a prohibition against soliciting new
accounts on behalf of the Company. In addition, apprentices may not be
compensated from transactions in municipal securities.
The designated supervisor to whom the apprentice reports is responsible
for ensuring apprentices does not solicit or transact business with the
public. Compensation to the apprentice will not include remuneration from
transactions in municipal securities.
Municipal Securities Sales Supervisors
Municipal securities sales supervisors are permitted to supervise
customers' transactions in municipal securities. Individuals who complete
the Series 8 General Securities Sales Supervisor examination are qualified
as municipal securities sales supervisors. Supervision is limited to sales of
municipal securities to customers.
Municipal Securities Principals
The Series 53 examination qualifies individuals for the registration status
of municipal securities principal which permits the individual to supervise
all aspects of the Company's municipal business. Qualified municipal
principals will be designated to supervise the areas of underwriting,
trading, and pricing of inventories. In addition, the Municipal Securities
Principal will be responsible for reviewing and updating the Municipal
Securities Supervisory Procedures as required by MSRB Rule G-27.
Financial and Operations Principal
Birkelbach Investment Securities, Inc.
10-16
October 2009
The Company will designate a financial and operations principal as
required under MSRB rules.
Non-Registered Employees
Responsibility
Resources
Frequency
Action




Record

Carl Birkelbach
N/A
Ongoing
Ensure non-registered employees engage in only
permissible activities
N/A
Employees who are not registered are limited to clerical and ministerial
functions when contacting public customers including:



the recording and transmission of orders through normal channels;
the reading of approved quotations; and,
The giving of reports of transactions.
Non-registered employees, including apprentices, are not permitted to
solicit new accounts on behalf of the Company. The designated supervisor
to whom the non-registered employee reports is responsible for reasonably
ensuring the employee does not exceed the limitations listed above.
Fidelity Bonding Requirements
The designated supervisor is responsible for arranging, maintaining, and
verifying the adequacy of appropriate fidelity bond coverage.
Recordkeeping
Refer to Appendix 1 regarding the Company's recordkeeping policies.
Confirmations
The FINOP is responsible for establishing procedures regarding the
preparation and transmission of customer confirmations, including
information required under MSRB Rule G-15.
Control Relationships
A “control relationship” exists when the Company controls, or is
controlled by, or is under common control with the issuer of a municipal
security or a person (other than the issuer) who is obligated, directly or
indirectly, with respect to debt service on the municipal security.
Birkelbach Investment Securities, Inc.
10-17
October 2009
Where a control relationship exists, the Company will provide disclosure
to any customer who effects a transaction in the subject municipal security
prior to effecting the transaction. Written disclosure will be provided
before or at the time the transaction is confirmed to the customer. In the
case of a new issue of municipal securities, disclosure will be made in the
official statement. In the case of other transactions, disclosure will be
included on the customer confirmation or by separate written disclosure
included with the confirmation.
In addition, for discretionary accounts, discretion may not be exercised for
a transaction in a security subject to a control relationship. The customer
must specifically authorize the transaction before it is entered on
Disclosure of Interest in Distribution.
Rule 15c1-6 of the Securities Exchange Act of 1934 specifies
requirements for disclosures when the Company is involved in a primary
or secondary distribution of municipal securities. The Company will
provide the required disclosure on or with the customer's confirmation of a
transaction in the subject securities.
Reciprocal Dealings
The Company and its employees are prohibited from soliciting municipal
transactions from accounts for investment companies in return for sales of
shares in the investment company.
Use of Ownership Information
The Company is prohibited from using information regarding the owners
of municipal securities obtained in a fiduciary or agency capacity (i.e., as
paying agent, transfer agent, registrar, indenture trustee, safekeeping
agent, correspondent of another municipal dealer, etc.) for the purpose of
soliciting purchases, sales or exchanges of municipal securities. The
Company is also prohibited from using the information for financial gain
except with the consent of the issuer or other broker or dealer or the
person on whose behalf the information was given.
Customer Account Transfers (Rule G-26)
Transferring Company Accounts To another Company
When a customer wishes to transfer an entire account to another
broker-dealer and presents a properly-executed transfer
notification, the Clearing Company is responsible for processing
the transfer in accordance with the requirements of MSRB Rule G26 and other regulators’ applicable requirements.
Birkelbach Investment Securities, Inc.
10-18
October 2009
Transfer-agenting An Account From Another Company
For transfers to the Company from another broker-dealer,
operations personnel should be consulted for instructions on
completing transfer instructions which will be submitted to the
carrying broker-dealer.
Transactions for Employees of Other Municipal Dealers (Rule G-28)
When an account is opened for the employee of another municipal dealer,
the Company is obligated to notify the other dealer, in writing, and send
confirmations and statements to the other dealer. The Agent is responsible
for identifying on new account documentation that the customer is
employed by another broker-dealer. The Operations Dept. is responsible
for sending written notice to the other Company and coding the account
for duplicate confirmations and statements to the other Company.
2.
Sales of Municipal Securities
Conduct of Municipal Securities Business
It is the Company's policy to deal fairly with all persons. Deceptive,
dishonest, or unfair practices are prohibited.
Suitability
Responsibility
Resources
Frequency
Action







Carl Birkelbach
Order tickets
Daily Transaction Report
Customer Monthly Statements
Daily (order tickets and Daily Transaction Report)
Semi-annually (Customer Monthly Statements)
Review municipal transactions for suitability with
particular consideration of:

Non-rated issues

Long-term bonds [>10 years to maturity]
Agents are required to obtain pertinent information about customers
(depending on the type of customer) regarding financial background, tax
status, investment objectives, and other information to assist in the
evaluation of suitability of recommendations. If the customer refuses to
provide the requested information, the new account form should be so
marked. Changes to customer suitability information should be made by
Birkelbach Investment Securities, Inc.
10-19
October 2009
amending existing new account information or submitting a new New
Account Form.
Agents are required to have a reasonable basis to believe
recommendations are suitable based both on information available from
the issuer and on the facts disclosed or otherwise known about the
customer.
Required Disclosures When Making Recommendations
Responsibility Carl Birkelbach
Disclosure Dissemination System called for by SEC Rule 15cResources
2-12 (“NRMSIR”)
As required when municipal securities are recommended to
Frequency
customers
Check NRMSIR for material event notices
Action
Communicate any material event information to the customer
Agents are required to disclose material information to customers when
recommending municipal securities. Rule 15c2-12 of the Securities
Exchange Act of 1934 imposes certain requirements on municipal
underwriters and dealers to disclose “material events” regarding municipal
securities sold to customers.
When the Company participates in an underwriting, required information
is included in the official statement provided to purchasers, when an
official statement is available. When making recommendations in
secondary market transactions, the municipal trading desk will do the
following for each order received for a municipal security:



Check for material events by accessing a NRMSIR authorized to
provide material events notices
Notify the Agent of any material events identified
Make a notation on the order record of the NRMSIR contacted and
the date of inquiry and if any material event was communicated to
the Agent
It is the Agent’s responsibility to immediately communicate any material
event to the customer. The Agent should include a notation in his or her
records (the order record, a Day timer, etc.) that the material event
information was provided to the customer.
Customer Accounts
Customer accounts must be reviewed on a regular basis. The designated
supervisor is responsible for reviewing daily transactions as well as
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10-20
October 2009
patterns of account activity by reviewing monthly statements or
comparable reports or electronic records that show cumulative activity.
Refer to the Section II of this Manual for details of the Company’s
policies regarding supervision of accounts.
The frequency and scope of the account reviews depend on a number of
factors which may include the number of transactions in the account;
profitability of the account; types of municipal products being purchased
or sold; and the experience of the Agent handling the account. The review
of cumulative account activity should take into consideration suitability of
overall recommendations compared to the customer’s investment
objectives, the volume of activity; patterns of cancelled transactions; and
other factors such as complaints.
Complaints





Responsibility
Resources
Frequency
Action
Carl Birkelbach
Incoming correspondence
Oral or written complaints
As required.
Immediately refer original copy of complaint to
Compliance.
Retain copy for branch files.
Contact Compliance regarding oral complaints, if
needed.
Compliance will respond to the complaint, in
consultation with the branch manager.



The handling of customer complaints is described in the section
“Customer Complaints” in this Manual.
Upon receipt of a complaint involving a municipal security, Compliance
will send to the customer a copy of the investor brochure designated by
the MSRB, and will record the date when the investor brochure was
provided.
MSRB Rules (Rule G-29)
A copy of the MSRB rules is available in each office where municipal
securities business is conducted.
Non-Rated Municipal Securities
Responsibility
Resources
Birkelbach Investment Securities, Inc.


10-21
Carl Birkelbach
Daily Transaction Report
October 2009



Frequency
Action




Daily
Review customer transactions in non-rated securities
Where appropriate depending on the size and
frequency of transactions, whether orders are solicited
vs. unsolicited, and the manager’s knowledge of the
customer:
review the account’s investment objectives
consult with the Agent about the suitability of
recommended purchases
consult with the customer
take corrective action, if necessary which may include
consultation with Compliance
Non-rated municipal securities may represent a higher level of risk to the
investor. Agents should discuss the risks of purchasing non-rated bonds
when such bonds are recommended for purchase. Risks may include less
liquidity; more price volatility; and higher risk of default. As required by
MSRB Rule G-15, customer confirmations include a disclosure when a
municipal security is not rated.
Advertising and Sales Literature
3.
Responsibility
Resources
Frequency
Action
Carl Birkelbach
Requests to advertise
Requests to distribute sales literature
Unapproved advertising/sales literature brought to the Branch
Manager’s attention
As required
Refer all requests and unapproved items to Compliance
All advertising involving municipal securities will be approved by a designated
municipal securities principal or general securities principal. General
requirements included in the section of this manual titled “Advertising and Sales
Literature” apply to municipal advertising.
MSRB Rule G-21 includes specific requirements that apply to the advertising of
municipal securities. Some specific requirements under this Rule include the
following:


Advertising that includes yield is subject to certain requirements regarding
disclosing the basis of the yield
Advertising regarding new issues are subject to certain disclosures
regarding price or yield and must include an indication, if applicable, that
securities shown may no longer be available at the time of publication or
Birkelbach Investment Securities, Inc.
10-22
October 2009

may be available from the syndicate at a price or yield different from that
shown in the advertisement
If bonds are subject to the alternative minimum tax, a statement is to be
included in the advertisement to that effect
Compliance should be consulted regarding questions about advertisements
including municipal securities.
4.
Official Statements
Providing Official Statements to Dealers, Purchasers, And Others (Rule G-32)
Responsibility
Resources
Frequency
Action
Carl Birkelbach
New Issue Report
As required
Review underwriting checklist
The following charts summarize some of the requirements for providing official
statements (OS), presuming an OS is prepared for the issue.
Description
Request for a preliminary OS (except
competitive deals)
Purchasers of new issue where final OS
available
Purchasers of new issue where a
preliminary OS is prepared and a final
OS is not prepared
Purchasers of variable rate demand
obligations (VRDO) under an SEC
exemption
Request for final OS
5.
What and When to Provide
Preliminary OS by next business day by first
class mail or comparable means
Final OS by settlement date
Preliminary OS by settlement date with
notice no final OS will be prepared
Preliminary OS by settlement date and final
OS within one business day of receipt from
issuer
By first class mail or comparable means from
the time the final OS becomes available until
the earlier of:

90 days from end of underwriting
period, or

until the OS is available from a
NRMSIR
But for no less than 25 days from the end of
the underwriting period.
Trading and Handling Customer Orders
Responsibility
Carl Birkelbach
Birkelbach Investment Securities, Inc.
10-23
October 2009
Resources
Frequency
Action
Trade Data
Daily and Ongoing
Oversee trading and execution activities
Establish procedures for maintaining records of orders
Review fairness of mark-ups and mark-downs
Review daily inventory positions for compliance with Company
limits
The Company will handle orders in accordance with MSRB Rule G-18 and will
make reasonable efforts to obtain prices for customers that are fair and reasonable
in relation to prevailing market conditions.
Quotations
All quotations must be bona fide quotations other than a nominal
quotation which is an indication of the price given solely for information
purposes. Quotations must represent the trader's best judgment of the fair
market value taking into account factors such as the Company's inventory
position and anticipated market movement.
On joint accounts, quotations must not indicate more than one market in
the same security, If quotations are distributed outside the Company in
writing, a record of the written quotations will be retained by the
designated supervisor including the quotation, the date of the quotation,
and the person giving the quotation and to whom the quotation was
provided. If quotations are included in Company advertising, records will
be retained in accordance with the Company's advertising policy.
Fair Prices
Traders are responsible for making a reasonable effort to obtain a price for
the customer that is fair and reasonable in relation to prevailing market
conditions.
Records of Orders
The trading department will maintain a record of orders in municipal
securities consistent with the requirements of MSRB Rule G-8. The
designated supervisor is responsible for daily review of transactions in
municipal securities.
Mark-Ups and Mark-Downs
The designated supervisor is responsible for reviewing the reasonableness
of mark-ups and mark-downs on customer trades. In determining fair and
equitable mark-ups or mark-downs, relevant factors may include:
Birkelbach Investment Securities, Inc.
10-24
October 2009









the best judgment of the Company as to the fair market value of
the securities at the time of the transaction and of any securities
exchanged or traded in connection with the transaction
the expense involved in effecting the transaction
total dollar amount of the transaction
availability of the security
the price or yield of the security
the maturity of the security
resulting yield to the customer, as compared to the yield on other
securities of comparable quality, maturity, coupon rate, and block
size then available in the market
the nature of the Company's business
any other relevant facts at time of execution
MSRB Rule G-30 also includes the factor that the Company is entitled to a
profit on the transaction.
Compliance will review mark-ups and mark-downs on at least a spotcheck basis. Transactions deemed excessive will be canceled and re-billed
to reflect an acceptable mark-up or mark-down
Commissions on Agency Transactions
The designated supervisor is responsible for reviewing the reasonableness
of commissions on agency transactions. Relevant factors in determining
the reasonableness of commissions may include:





6.
the expense of executing and filling the customer's order
the value of the services rendered by the Company
the amount of any other compensation received by the Company in
connection with the transaction
factors considered in principal transactions
any other relevant factors at the time of execution
Reports of Transactions (G-14)
Inter-Dealer and Customer Transactions
Responsibility
Resources
Frequency
Action
Birkelbach Investment Securities, Inc.
Carl Birkelbach
Trade data
Daily
Establish a system for reporting customer transactions.
Designate qualified employees to ensure required reporting is
10-25
October 2009
made.
Periodically test the system.
Notify the MSRB of the name and phone number of the
person responsible for testing the Company’s system to
report customer transaction information.
Inter-dealer transactions are submitted to NSCC by the Company’s
clearing firm Company. The Company has established procedures for
reporting customer transactions daily, by midnight of trade date, to the
MSRB.
Fictitious Reports [G-14(a)]
Reports of transactions must represent bona-fide purchases or sales. No
dealer may report a trade that it knows or has reason to know is fictitious
or misleading.
Inventory Positions
The Company has established guidelines for maintaining inventory
positions. The designated supervisor is responsible for monitoring
positions daily to ensure limits are maintained.
Errors
All errors in customer orders must be resolved immediately when
discovered. No overnight positions should be maintained in the error
account. Errors in customer accounts are documented on the Cancel &
Rebills/Error Report form which requires a designated principal's
approval.
Cancels and Rebills
Cancellations and Rebills in customer accounts are documented on the
Cancel & Rebills/Error Report form which requires a designated
supervisor's signature.
Traders' Personal Accounts
Traders are required to maintain their personal securities accounts with the
Company. Traders may not effect personal transactions in municipal
securities from Company inventory. Purchases or sales must be made on
an agency basis with other dealers. Exceptions require the approval of the
designated supervisor.
Birkelbach Investment Securities, Inc.
10-26
October 2009
7.
Gifts
Responsibility
Resources
Frequency
Action
Record
Carl Birkelbach
Requests to give gifts
As required
Review and approve or disapprove gift requests
Maintain record of gifts
Compliance maintains a file of gift requests and gifts given
Introduction
MSRB Rule G-20 prohibits the giving of gifts or gratuities, directly or
indirectly, in excess of $100 per year per person. These are gifts related to
municipal securities business conducted by the Company and as defined in
the Rule.
Employees are required to notify Compliance of gifts relating to customers
or prospective customers. Compliance is responsible for maintaining a
record of gifts; the record is subject to review by regulators.
For further information, refer to Section 3-8 of this manual.
Gift Recordkeeping Log
(Birkelbach Investment Securities, Inc.)
GIFT RECORDKEEPING LOG
Branch:
Municipal
Securities
Professional
Birkelbach Investment Securities, Inc.
Customer/
Prospect
(Acct # if
applicable)
10-27
Gift Given
Amount/ Type
Date
Gift Given
Reason
October 2009
8.
Prohibited Activities
Responsibility Carl Birkelbach
Trading reports
Resources
Observation of traders’ activities
Ongoing
Frequency
Take corrective action depending on the nature of the prohibited
Action
activity
Inside Information
Traders are prohibited from acting on, passing on, or discussing any inside
information regarding municipal issues, including confidential information
regarding advance refundings. Any knowledge of such information must
be brought to the attention of the designated supervisor and Compliance.
No Company proprietary account or employee account may enter a
transaction based on material non-public information about the issuer of
that security.
Fraud or Misrepresentation (SEC Rule 15c1-2)
The Company and its employees are prohibited from engaging in any
activity that may be deemed fraudulent or engaging in misrepresentation.
This is a general standard that applies to all securities and prohibits
making untrue statements about material facts or omitting to state a
material fact that is necessary so information presented is not misleading.
This applies when the person has reasonable grounds for knowing a
statement is untrue or misleading.
Improper Use of Assets (G-25)
Birkelbach Investment Securities, Inc.
10-28
October 2009
Rule G-25 provides general prohibitions applicable to municipal securities
transactions as well as other types of securities and accounts. The
following summarizes the prohibitions under G-25:



No improper use of municipal securities or funds held on behalf of
someone else
No guarantees against loss
No sharing by employees, indirectly or directly, in the profits or
losses of a customer’s account
The chapter “Employment and Registration Matters” includes similar
prohibitions and limitations on activities.
Financial Arrangements
Traders are prohibited from entering into financial arrangements with
customers or issuers (i.e., sharing in profits or losses, sharing in
commissions, rebating commissions, etc.).
Market Manipulation
No purchase or sales order shall be entered that is designed to raise or
lower the price of a security or to give the appearance of trading for
purposes of inducing others to buy and sell.
Parking Securities
No arrangement may be used to conceal the true ownership of securities
through a fictitious sale or transfer to an accommodator who agrees to
later sell or transfer the securities to the true owner (or his agent) at the
agreed upon time at essentially the same terms.
Secret Profits
A trader may not permit the charging of a mark-up or mark-down in
addition to a commission on any transaction.
Adjusted Trading
Adjusted trading is a prohibited practice where a broker-dealer is involved
in a swap transaction with a customer at prices not reasonably related to
the current market value of the securities. An example is a customer sale
to a broker-dealer at a price below market value and the simultaneous
purchase and booking of a different security at a price above the current
market value. The purpose of an adjusted trade is to assist one party in
avoiding, disguising, or postponing losses.
Birkelbach Investment Securities, Inc.
10-29
October 2009
9.
Political Contributions
Responsibility
Resources
Frequency
Action
Carl Birkelbach
Requests to make political contributions
Quarterly certifications
As required (requests)
Quarterly (certifications and filing G-37/38 report)
Review requests and determine permissibility
Identify municipal securities professionals covered by
Rule G-37
Maintain list of current municipal securities
professionals
Request quarterly certifications from municipal
securities professionals
Prepare and file Form G-37/38
Notify appropriate department managers if the
Company’s activities must be restricted
Introduction
MSRB Rule G-37 specifies restrictions and requirements regarding
political contributions to individuals who may influence the placement of
municipal securities business as defined in the rule. The purpose of the
rule is to sever any connection between political contributions and the
awarding of municipal business. The rule does not prohibit political
contributions; it is does, however, prohibit the Company from engaging in
municipal business for two years with any issuer where contributions
subject to this rule are made. Because the Company does not want to be
subject to a two-year restriction on its municipal business, employees are
required to adhere to the requirements of the rule. Rule G-38 requires the
disclosure of consultants retained by the Company to obtain municipal
securities business.
Because the rules are extensive and there may be different interpretations
depending on the circumstances, it is important to consult with
Compliance regarding any questions about the effect of the rule.
Summary of Key Requirements
Some of the key requirements that apply to the Company and Company’s
agents are summarized below.

The types of public finance business included in this rule are acting
as a negotiated underwriter (as manager or syndicate member),
Birkelbach Investment Securities, Inc.
10-30
October 2009






financial advisor or consultant, placement agent, and negotiated
remarketing agent.
The rule applies to contributions made by the Company, any PAC
controlled by the Company, public finance professionals,
municipal traders and professionals, the Company's executive
committee, salespersons whose primary (>50%) income is derived
from selling municipal securities, and anyone who solicits public
finance business on behalf of the Company.
Political contributions by the Company or affected employees must
be cleared through Compliance prior to making the contribution.
“Contributions” are defined by rule and the recipient of
contributions (“official of the issuer”) is also defined. Some
minimal contributions ($250 or less) by affected employees who
are contributing to officials for whom they may vote are excluded
from the rule.
The Company and its employees are prohibited from soliciting
others to make contributions to an official of an issuer.
The Company will be required to maintain internal records of
affected employees and their contributions and report quarterly to
the MSRB.
The Company is required to have written agreements with
consultants and disclose consulting arrangements directly to
issuers and to the MSRB for public disclosure.
Definition of Municipal Securities Business
The types of business subject to the rule include acting as a negotiated
underwriter (as manager or syndicate member), financial advisor or
consultant (on a negotiated underwriting), placement agent, and negotiated
remarketing agent. The rule does NOT apply to acting as a competitive
underwriter or competitive remarketing agent. Note that if the Company
engages a consultant to secure municipal business, the consultant's
contributions will affect the Company's ability to handle municipal
business on behalf of the issuer. “Seeking to engage in municipal
securities business” is also included under the rule and includes
responding to Requests for Proposals, making presentations of public
finance capabilities, and other soliciting of business with issuer officials.
Definition of Municipal Finance Professional
Municipal finance professional is defined as an employee primarily
engaged in municipal underwriting, trading or sales of municipal
securities, financial advisory or consultant services for issuers in
connection with the issuance of municipal securities, and research or
investment advice with respect to municipal securities. It also includes
anyone else primarily engaged in any other activities which involve
Birkelbach Investment Securities, Inc.
10-31
October 2009
communication, directly or indirectly, with public investors in municipal
securities.
The definition also includes direct supervisors of municipal finance
professionals including branch managers; the CEO or similarly situated
official; and members of the executive or management committee or
similarly situated official.
Definition of Non-MFP Executive Officer
Non-MFP Executive officer is defined as an employee who is NOT
deemed a municipal finance professional and is in charge of one of the
Company’s principal business units, division or department or an
employee who performs similar policy making functions for the Company.
For purposes of this definition, a “principal” business unit, division or
department will be defined as one that generates more than 5% of the
Company’s annual revenues.
For purposes of MSRB Rule G-37, Non-MFP Executive Officers are
required to report their political contributions but their contributions
would not result in a prohibition on municipal securities business.
Reporting Requirements for Consultants
In addition to requirements for employees of the Company, consultants
who communicate with issuers to obtain municipal securities business on
behalf of the Company are required to report applicable contributions and
payments. Refer to the section “Consultants” in this chapter for a
discussion of these requirements.
Approval
Political contributions to officials of issuers must be cleared through
Compliance prior to making the contribution. In addition, any political
activities (volunteer work, etc.) on behalf of an official of an issuer must
be cleared through Compliance prior to participation.
Prohibitions
A dealer or any municipal finance professional may not solicit others,
including employees, family members, PACs, and any others outside the
Company, to make contributions to an official of an issuer with whom the
dealer engages or is seeking to engage in municipal securities business, or
to coordinate such contributions. The Company and municipal finance
professionals may not engage in fund-raising activities for officials of
issuers.
Birkelbach Investment Securities, Inc.
10-32
October 2009
G-37 Records to Be Maintained By the Company
The Company is required to maintain information in its files identifying
affected employees and the states in which the dealer is engaged or is
seeking to engage in public finance business; issuers with whom the
Company is doing and has done business for the past 2 years; consultants
engaged to obtain business; and all contributions made to issuer officials
subject to Rule G-37, including contributions of affected employees, the
Company, and any PAC controlled by the Company. This does not include
the minimal $250 contributions allowed under the rule. This will be an
internal record subject to scrutiny by regulatory authorities. Records are
also not required for affiliate companies and their employees, spouses of
covered employees, or any other person or entity unless the contributions
were directed by persons or entities subject to Rule G-37. These records
will be retained for six years per MSRB Rules G-8 and G-9.
Quarterly Report
The Company will file Form G-37/G-38 within 30 days of the end of each
calendar quarter, as required. The Company is not required to file a report
under the No Business Exemption of MSRB Rule G-37 for the calendar
quarter if:



the Company has not engaged in municipal securities business;
there are no reportable political contributions to issuer officials or
payments to state and local political parties; and,
The Company has had no reportable use of consultants.
The following procedures apply:





The designated supervisor is responsible for determining if a report
is required or whether the No Business Exemption obviates the
need for filing.
Employees subject to political contribution reporting will complete
a quarterly certification regarding their contributions during the
quarter to be reported (see next section for the certification form).
Form G-37/G-38 will be completed and signed by the appropriate
supervisor.
Two copies will be sent to the MSRB by certified or registered
mail or by some other method where a receipt of sending is
retained.
A copy of the signed form and proof of sending is retained in a file
for Form G-37/G-38.
Employee Certification
Birkelbach Investment Securities, Inc.
10-33
October 2009
TO: [Distribution List]
DATE:
RE: Quarterly G-37/G-38 Political Contribution Certification
The following is a record of my political contributions during the past
calendar quarter.
______ I have made no political contributions during the past calendar
quarter nor have I requested anyone else to make political contributions.
______ I have made the following political contributions during the past
calendar quarter or someone else has made political contributions at my
request:
Return this form to Compliance.
Date:
Signature:
D.
Variable Products
This chapter describes policies and procedures that apply to the sale of insurance
products.
1.
Licenses and Appointments
Licenses And Appointments
Responsibility
Carl Birkelbach
Resources
Requests from RRs or managers
Insurance applications
Inquiries from insurance companies whose products are sold
Frequency
As required
Action
Review insurance applications prior to submission to determine
whether RR is licensed and appointed
Obtain licenses and appointments where necessary
To offer insurance products, the RR must have a state license for the type of
insurance product. The RR must also have a non-resident license for the
customer’s state of residence, if different from the RR’s resident state. In addition,
the RR must be “appointed” with the insurance company whose product is being
sold.
An RR engaged in the sale of insurance products requires the following:

Licensing with the state insurance regulator as an insurance agent for the
type of insurance business (ordinary life, variable annuity, etc.). Some
Birkelbach Investment Securities, Inc.
10-34
October 2009



states require successful completion of an examination for the type of
license requested.
Licensing in the state where the RR resides as well as the state of domicile
of the client.
Appointment with the insurance company whose product is being sold.
Insurance business cannot be dated prior to the RR’s insurance company
appointment in certain states.
Continuing education, depending on the state where licensed.
RRs may not engage in the sale of insurance products or receive commissions
from such sales unless properly licensed and appointed.
Requests for Licenses
RRs should contact the Insurance Dept. to request insurance licensing and
appointment. The RR will be notified when insurance licenses are
effective. Licenses are sent to the RR’s home by the state licensing
agency; a copy should be forwarded to the Insurance Dept. as soon as
possible after receipt.
Non-Resident Licenses
There are some states where the Firm is unable to conduct insurance sales
activities. In other states, RRs may obtain non-resident licenses. The
Insurance Department should be contacted to clarify requirements before
offering insurance products to out-of-state clients.
Unsolicited Insurance Transactions
If an unlicensed IE receives an unsolicited order to purchase an insurance
product, the transaction must be referred to a properly licensed insurance
agent. Commissions will not be transferred to an unlicensed RR.
Additions to Existing Annuity Policies
If a client wishes to make an additional contribution to an existing annuity
policy, the RR must be licensed in the state where the customer
currently resides.
2.
Sales Guidelines
There are differences between insurance and securities products; it is important
that the RR understand these differences when discussing insurance products with
customers. The following sections discuss sales guidelines for offering insurance
products.
Birkelbach Investment Securities, Inc.
10-35
October 2009
General Guidelines






All insurance product purchases and sales MUST be conducted
through the Firm, i.e., RRs are not permitted to accept any direct
commission payments from insurance companies.
Discussion of benefits of an insurance product should include
disclosure of fees and charges.
Focus on tax advantages must be balanced with disclosure of tax
consequences.
Avoid excessive focus on gross interest rate or investment
performance rate without disclosure of product expense charges
that serve to effectively reduce the return rate. Life insurance
products may have significant front-end and/or back-end load
structures; they are designed as long-term vehicles.
Encourage customers to review their periodic statements received
from the insurance company.
Make a prior determination that a recommended purchase or sale
of an insurance product is appropriate for the customer depending
on the customer’s financial circumstances and reasons for
considering the insurance product.
Life Insurance and Other Non-Annuity Products








Do Not Refer To Life Insurance As An “Investment” Or
“Investment Product”.
One Primary Need Satisfied By Life Insurance Is Providing Death
Benefit Protection (Including Income To Heirs Directly For DayTo-Day Living Expenses Or Providing Funds To Pay Estate
Taxes).
Another Use Of Life Insurance Is To Accumulate Cash Value On
A Tax-Advantaged Basis.
The RR Should Ensure The Customer Fully Understands The
Difference Between Guaranteed And Non-Guaranteed Elements
Of Life Insurance.
Illustrations Of Return Are Projections Only And Not Guaranteed.
Positioning Life Insurance As A Way To Get Tax-Free Income
Through Policy Cash Value Should Be Carefully Evaluated. Other
Financial Products May Be A Better Source Of Tax-Advantaged
Cash Flow.
Life Insurance Purchased For Pension Or Educational Funding
Planning Purposes Must Be Disclosed As Life Insurance.
Replacing An Existing Policy (Or Reducing Its Value To Raise
Funds) To Purchase A New Policy Must Be Considered Carefully
For Its Suitability And The Costs That Will Be Incurred By The
Birkelbach Investment Securities, Inc.
10-36
October 2009

Customer. Refer To The Section “Replacements” For The Policies
And Procedures That Apply To Such Transactions.
RR’s will not mislead the holder of a life insurance policy into
letting it lapse so that the insured will replace it with one of a
company represented by the agent (Twisting).
Annuities













Some primary needs satisfied by annuities include tax deferral;
providing income that cannot be outlived; and enhanced death
benefit features.
Annuities are designed for customers with long-term investment
objectives, typically as a source of retirement income.
Variable annuities cannot be represented as short-term or liquid
investments. References to liquidity must disclose the effect of
liquidating (e.g., tax consequences; surrender charges).
Surrender charges and tax penalties generally make annuities
unsuitable for short-term investors. Customers should have
adequate sources of liquidity apart from the money paid into the
contract.
While it may seem that most customers have a need for tax
deferral, taxable investments may be more appropriate for
customers in lower tax brackets, depending on the contract’s
mortality/expense fees and other charges.
Be alert to the investment experience of customers purchasing
variable annuities. Customers should be comfortable with the risks
of the sub-accounts in which they invest.
Variable annuities cannot be described as “mutual funds”.
Purchasers must receive a prospectus. The RR should provide a
prospectus when a variable annuity is recommended. Many
applications include a box to check to indicate a prospectus has
been provided or whether the customer would like one to be sent.
Guarantees on death benefits cannot be represented as applying to
investment return or principal value of the account.
Discussion of investment features and insurance features should be
balanced, i.e., do not neglect either feature.
Illustrations of return are projections only and not guaranteed.
Once a contract is annuitized, it is generally irreversible.
Accordingly, there should be an income objective and no need for
access to principal.
Replacing an existing policy (or reducing its value to raise funds)
to purchase a new policy must be considered carefully for its
suitability and the costs that will be incurred by the customer.
Refer to the section “Replacements” for the policies and
procedures that apply to such transactions.
Birkelbach Investment Securities, Inc.
10-37
October 2009
3.
Purchases
The following is a summary of how insurance contracts are purchased and
processed. Refer to the section “Replacements” for further policies and
procedures if the value of one policy is used to purchase a new policy.
Life Insurance and Other Non-Annuity Products
RRs may offer insurance products available from designated wholesalers.
The Firm must have a sales agreement with the insurance carrier prior to
effecting sales. The RR may call approved wholesalers directly for the
following:




Quote on the requested product
Appointment of the RR with the insurance company
Applications and forms to purchase the policy
Brochures on products available
Annuities
The Firm must have a signed selling agreement with the insurance
company to permit sales of products of that company. The Insurance Dept.
should be contacted to obtain a list of approved insurance companies or
verify whether a particular company has an agreement with the Firm.
The following are steps for purchasing annuities:



4.
Both the customer and the RR must sign the application and the
RR sends the application to the Insurance Dept.
The Insurance Dept. will review for availability of funds and
required licensing and appointment of the RR.
If funds are available and licensing/appointment is in effect, the
customer’s account at the Firm will be debited and the proceeds
wired to the individual insurance carrier.
Deferred Variable Annuity Transactions
Deferred variable annuities are hybrid investments containing both securities and
insurance features. They offer choices among a number of complex contract
options, which can be confusing for both the individuals who sell them and
customers who buy them. FINRA developed Rule 2821 to enhance brokerdealers' compliance and supervisory systems and provide more comprehensive
and targeted protection to investors who buy or exchange deferred variable
Birkelbach Investment Securities, Inc.
10-38
October 2009
annuities.
Registered Representative Requirements for Recommended
Transactions
When recommending a deferred annuity transaction, a registered
representative must:

Make a reasonable effort to obtain and consider various types of
customer-specific information, including age, income, financial
situation and needs, investment experience and objectives,
intended use of the deferred variable annuity, investment time
horizon, existing assets, liquidity needs, liquid net worth, risk
tolerance and tax status.

Have a reasonable basis to believe the customer has been informed
of the material features of a deferred variable annuity, such as a
surrender charge, potential tax penalty, various fees and costs, and
market risk.

Have a reasonable basis to believe that the customer would benefit
from certain features of deferred variable annuities, such as taxdeferred growth, annuitization or death or living benefits.

Make a customer suitability determination as to the investment in
the deferred variable annuity, the investments in the underlying
sub-accounts at the time of purchase or exchange, and all riders
and other product enhancements and features contained in the
annuity contract.

Have a reasonable basis to believe that a deferred annuity
exchange transaction is suitable for the particular customer,
considering, among other factors, whether the customer would
incur a surrender charge, be subject to a new surrender period, lose
existing benefits, be subject to increased fees or charges, and has
had another exchange within the preceding 36 months.
Principal Review and Approval Obligations for All Transactions
Carl Birkelbach, CEO, will review and determine whether to approve the
customer's application for a deferred variable annuity before transmitting
the application to the issuing insurance company, but no later than seven
business days after the customer signs the application. Mr. Birkelbach
will treat all transactions as if they have been recommended for purposes
of review and can approve the transaction only if it is suitable based on the
factors that a registered representative must consider when making a
Birkelbach Investment Securities, Inc.
10-39
October 2009
recommendation. However, the principal may authorize the processing of
the transaction even if he or she does not approve it based on suitability if,
but only if, the following two determinations are made: (1) the transaction
was not recommended and (2) the customer, after being told why the
principal found it to be unsuitable, still wants to proceed with the purchase
or exchange.
Firm Supervisory Procedures
FINRA Rule 2821 specifically requires broker/dealers to establish and
maintain written supervisory procedures reasonably designed to achieve
compliance with the standards set forth in the rule. This part of the rule
includes the requirements that the broker/dealer implement surveillance
procedures to determine if any “associated persons have rates of effecting
deferred variable annuity exchanges that raise for review whether such
rates of exchanges evidence conduct inconsistent with the applicable
provisions of this Rule, other applicable FINRA rules, or the federal
securities laws (‘inappropriate exchanges’) and have policies and
procedures reasonably designed to implement corrective measures to
address inappropriate exchanges.”
To comply with this rule, Mr. Birkelbach will review of each exchange
transaction as explained in the “Principal Review and Approval
Obligations for All Transactions” section above. By reviewing each
transaction prior to transmitting the application to the issuing insurance
company, the firm will address and correct exchanges that do not comply
with FINRA Rule 2821 to avoid any inappropriate exchanges.
Firm Training Program
The firm trains all associated persons on deferred variable annuity
transactions during the Annual Compliance Meeting. This ensures that all
registered representatives who sell deferred variable annuities and
registered principals who review deferred variable annuity transactions
receive adequate training.
Any new registered representative or registered principal will receive
specific product training before selling or approving any product offered
by the firm to its clients, including deferred variable annuities.
5.
Communication with the Public Regarding Variable Contracts
Only pre-approved vendor material should be provided to customers. Written
communications regarding variable annuities are subject to limitations that apply
to investment companies. Correspondence originated by an RR requires the prior
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approval of Compliance.
6.
Replacements
Replacements
Responsibility
Resources
Frequency
Action
Carl Birkelbach
Insurance applications and order records
Replacement Letters
Daily and as required
Review insurance transactions to identify potential replacements
Require Replacement Letters where required
Review proposed replacement and, if appropriate, sign Letter
indicating approval
Notify RR the replacement was not approved and cancel purchase
and sale, if necessary.
The term “replacement” refers to using the value of an existing annuity or life
insurance policy to fund the purchase of a new annuity or life insurance policy. If
the RR is aware of a replacement, certain procedures must be followed, as
explained in the following sections.
Definition
Replacement occurs when an existing life insurance or annuity has been
or is to be:





Terminated;
Converted to reduced paid-up insurance, continued as extended
term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;
Amended to effect either a reduction in benefits or in the term for
which coverage would otherwise remain in force or for which
benefits would be paid;
Reissued with any reduction in cash value; or,
Pledged as collateral or subjected to borrowing, whether in a single
loan or under a schedule of borrowing over a period of time for
amounts in the aggregate exceeding 25% of the loan value of the
policy.
Common transactions that constitute replacements include Internal
Revenue Code section 1035 exchanges; loans on existing life insurance
policies used to fund new purchases; and note transactions involving the
same insurer (commonly known as internal replacements), depending on
state law.
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Suitability of Replacements
The RR must have a reasonable basis for determining the suitability of
recommending a replacement. The following are some items that may be
considered.
For a change in investment objective/risk tolerance (e.g. existing fixed rate
annuity replaced by variable annuity), consider the following:





Has surrender charge period in the old annuity expired?
What is the composition of the customer’s overall portfolio? Will a
new variable annuity represent a significant asset in the portfolio?
Will the customer need the money soon? What is the length of the
surrender charge period in the new annuity? To what extent does
the new annuity provide access to funds without penalty?
Is disclosure to the customer clear that all investment risk in a
variable contract is borne by the customer?
What is the customer’s age? Older customers may have greater
liquidity need.
If the new life insurance provides a higher death benefit for truly same or
lower premium cost than under old life insurance policy consider:





Surrender charges, if any, under old policy
Surrender charges, and duration, in new policy
Imposition of new contestability/suicide period. Has there been a
change in the customer’s health?
Premium payment period of new policy compared to old policy
Possible variability of future premium payments
Replacement Procedures
If a replacement is to be effected, the RR must:





Be appointed with the new insurance company and licensed in the
state of the customer’s residence prior to effecting the replacement.
Complete the appropriate insurance original application.
Check with the Insurance Dept. to determine whether the insurance
carrier requires its own surrender form or state replacement form.
Complete a state replacement form where required (check with the
Insurance Dept. regarding states requiring their own replacement
form).
Obtain the surrendering carrier’s original policy or complete a lost
policy statement, signed by the customer.
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October 2009


Complete the Replacement Letter including signatures of the
customer, the RR, and the RR’s supervisor
Send all original paperwork to the Insurance Dept. for processing.
1035 Exchanges
A 1035 Exchange refers to a section of the IRS Code that allows for the
non-taxable exchange of non-qualified funds from one insurance carrier to
another. 1035 exchanges are not allowed for liquidations from annuity
contracts to purchase life insurance contracts.
When a customer exchanges an annuity or life insurance contract to
purchase an annuity contract, in addition to the requirements listed in the
prior section, a specific 1035 exchange form may be required. The
Insurance Dept. should be contacted regarding questions on 1035
exchanges.
Sample Replacement Letter
Customer Name:
Account Number:
As owner of (product name), (contract or policy no.), $(approximate contract value),
(purchase date of current contract), I wish to effect a:
surrender of
withdrawal from
loan from
effect 1035 exchange on
qualified transfer on
the above insurance product, in order to:
purchase annuity: (name of annuity)
purchase life insurance: (name of product)
purchase other product: (name of other product)
Customer reasons for requesting transaction (please describe): Product name:
I understand that, as a result of the above transaction, the following may occur:
(1) I will incur a surrender charge for terminating the above product.
YES
NO
If YES, I have discussed this charge with my RR. The surrender charge is $___________ or
___________% of the product’s value.
(2) I will be subject to a new surrender charge on the new product.
YES
NO
(3) My RR may receive compensation from the purchase of the new product.
YES
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NO
In addition, the above transaction may be a taxable event. I am aware that I should contact my
tax advisor for more complete information.
Owner
Date
Joint owner (if applicable)
Date
RR signature and RR number
Date
RR’s supervisor
Date
7.
Cash and Non-Cash Compensation Policy - Variable Contract
Securities
Cash And Non-Cash Compensation Policy - Variable Contract Securities
Responsibility Carl Birkelbach
Requests from RRs, managers, or outside firms regarding
Resources
sponsorship of cash or non-cash compensation relating to the sale of
investment company or variable contract securities
As required
Frequency
Review request and ensure compensation is consistent with rule
Action
requirements and limitations
Approve or disapprove compensation in writing
Establish and maintain required records of approved compensation
programs
FINRA regulations include restrictions on compensation relating to the sale and
distribution of investment company securities and variable annuity and variable
life products. RRs may not accept (directly or indirectly) cash or non-cash
compensation from outside firms or persons. The only exception includes
compensation arrangements specifically approved by the Firm.
Definitions
Cash compensation is defined as follows:
Any discount, concession, fee, service fee, commission, asset based
sales charge, loan or override, or cash employee benefit received in
connection with the sale and distribution of investment company and
variable contract securities.
Cash compensation relating to investment company securities must be
disclosed in the prospectus for the securities with only few exceptions
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permitted under the rule.
Non-cash compensation is defined as follows:
Any form of compensation received in connection with the sale and
distribution of investment company and variable contract securities,
other than cash compensation, which includes, but is not limited to,
merchandise, gifts and prizes, travel expenses, meals and lodging.
Approval
Any compensation as defined in this section and paid directly to the RR
requires the approval of the designated supervisor. The following section
outlines types of non-cash compensation permitted without specific
approval, unless otherwise noted.
Types of Permissible Non-Cash Compensation
The following types of non-cash compensation are allowed provided they
are not preconditioned on achieving a sales goal:





Gifts amounting in aggregate value not exceeding $100 annually,
per person.
An occasional meal, ticket to a sporting event or show, or
comparable entertainment that is not so frequent or so extensive as
to raise any question of propriety.
Payment or reimbursement in connection with training or
educational meetings, subject to several conditions. Note: Prior
approval must be obtained from the designated supervisor before
participating in such meetings.
The location of the meeting is appropriate for its purpose, e.g., at
or near the sponsoring company’s home office; offices of the Firm
or facility near an office; or a regional location for a regional
meeting. The designated supervisor will determine the
appropriateness of the meeting.
Only expenses incurred by the Firm or its employees are eligible
for payment. Expenses for guests of employees (spouse, etc.) will
not be reimbursed.
Non-cash sales incentive programs may be preconditioned on achieving a
sales goal provided they are pre-approved in-house incentive programs
sponsored by the Firm and meet the following criteria:

The program must be based on the RR’s total production with
respect to all investment fund or variable contract securities sold
by the Firm.
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October 2009



Credit received for each investment company or variable contract
security is equally weighted.
Only Firm employees may participate.
Other firms may make contributions to the program, provided they
do not participate, directly or indirectly, in the organization of the
program. However, the outside entity may provide a speaker for
the meeting.
Recordkeeping
The designated supervisor will retain the following records, in a file for
Cash/Non-cash Compensation arrangements:



8.
names of participating companies
amount of cash and the nature and value, if known, of any noncash compensation including whether the non-cash compensation
was received in connection with a sales incentive program or a
training and education meeting
for training and education meetings:
 date and location of meeting
 names of employees approved to attend meetings
 the fact that attendance at the meeting is not preconditioned
on achieving a previously-specified sales goal
 the fact that payment is not applied to expenses of guests of
employees
Contract Delivery
Supervisory Review Procedures and Documentation
A prospectus provides information on the features, risks, investment
options and structure of an investment; therefore, delivery of the
prospectus is mandatory prior to or at the time of soliciting a specific
investment. (Clients should be advised to maintain the prospectus so as to
have it available for future reference).
Prior to the application being submitted to the insurance company, it is
required that we obtain, in writing, documentation verifying the
customer’s receipt of the prospectus and their understanding of early
redemptions and the associated tax consequences and penalties thereof.
The supervising principal will review the customer verification (by initials
and date), ensuring that all appropriate disclosures have been made.
We have requested that insurance companies send all contracts to us for
forwarding to the client. All contracts forwarded by us will be
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accomplished by utilizing a mail delivery service which will give receipt
notification (the date on which the “free look” provision begins).
This documentation is required to be maintained in each client’s file, such
files to be reviewed quarterly by our CCO or a specifically designated
individual. Disciplinary actions will be taken against individuals not
appropriately obtaining this required material. Continued failures to
adhere to our policy in this regard may result in termination.
In addition to supplying customers with a current prospectus, discussions
should take place which are balanced and cover potential risks as well as
possible rewards. A client’s understanding of information contained in the
prospectus should be increased; associated costs must be discussed and
clients are to be reminded that when investments are sold, contract values
may be either higher or lower than when purchased.
Additionally, disclosure must be made on:











9.
Sales charges
Administrative expenses
Mortality expenses
Surrender periods and charges
Sub-account options and investment management fees
Death benefit features and amounts
Long-term care features, if applicable
Critical care features, if applicable
Contingent deferred sales loads
Variability of contract values - risk of loss of principal
Policy premium lapse periods
Life Settlements
Background
FINRA issued Notice to Members 06-38 to express concern that Life
Settlements may not being supervised appropriately, and that any life
settlement involving variable insurance policies are securities and subject
to all applicable regulatory rules.
Designated Supervising Principal
Our CCO is responsible for undertaking sufficient surveillance activities to
ensure that all transactions of variable products are suitable and in
compliance with all the relevant rules and regulations.
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In addition, on an ongoing basis, our designated supervising principals are
responsible for overseeing all activities undertaken by individuals for
whom they have direct supervision related to variable product transactions
undertaken, including monitoring all individuals to ensure they are fully
aware of the rules, regulations, and regulatory concerns, surrounding this
product. Designated principals must guard against aggressive marketing
tactics, which may be fueled by high commissions and which may lead to
inappropriate sales practices.
Supervisory Review Procedures and Documentation
Our CCO will, during annual reviews, ensure that all Life Settlements
involving variable insurance policies have been handled as a securities
transaction in terms of the documentation indicating efforts to ensure
suitability, due diligence, supervision and training.
Best execution will also be a focus of these reviews to ensure that
reasonable diligence was utilized to ascertain the best market for the
security and that the most favorable price possible was obtained, by
reasonable efforts to gather bids from multiple licensed providers, either
directly or through a life settlement broker. Any determination that there
appears to be an exclusivity arrangement between an associated person
and one life settlement provider will be investigated as it would most
likely be inconsistent with our firm’s best execution obligations.
Documentation concerning all such reviews will be maintained by our
CCO including dates, names of individuals conducting the review, scope
of the review and any findings.
E.
Options
Options
Responsibility

Carl Birkelbach
Frequency

Continuous
In the daily course of business
Upon approval of advertising or sales literature


Action



1.
Options Contract Review
Account Approval Trade Reviews
Advertising Pre-review
General
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The options market is generally governed by the Options Clearing Corporation.
The OCC issues and guarantees the options, serves as a clearing house for options
transactions and establishes rules and regulations for options trading. The
exchanges are where actual trading takes place.
2.
Types of Options
The two types of options that are traded are calls and puts. A call gives the holder
the right to purchase a fixed number of shares of a stock in a specified period of
time at a given price. A put gives the holder the right to sell a fixed number of
shares of a stock in a specified period of time at a given price. It is this fixing of
prices to buy or sell that allows an investor to speculate on moves on the market
prices of the underlying security. The exercise price or strike price is the fixed
price at which the security may be bought or sold. Equity options may be
exercised by the holder at any time prior to expiration. The price for an option is
referred to as the premium and is the price paid to purchase an option or the price
the seller receives for selling the option.
3.
Options Position Limits and Reporting
FINRA regulates the maximum amount of options that can be held by a single
holder or group by establishing maximum position limits on the number of
“standardized” and “conventional” equity options contracts in each class on the
same side of the market (i.e., aggregating long calls and short puts or long puts
and short calls) that can be held by a broker-dealer, a Registered Representative,
customer or group of customers or controlled entities.
"Standardized" equity options are exchange-traded options traded by the Options
Clearing Corporation ("OCC") that have standardized terms for strike prices,
expiration dates and the amount of the underlying security.
"Conventional" equity options are any other option contracts not issued, or subject
to issuance, by the OCC. These are also often referred to as "over the counter
options.”
"FLEX Options" are exchange-traded options issued by the OCC that give
investors the ability, within specified limits, to designate certain terms of the
option (i.e., exercise price, exercise style, expiration date or option type).
FINRA limits apply to (a) “standardized” options transactions by members who
are not also exchange members (“Access Firms”) and (b) “conventional” (non
“standardized”) options transactions for all members, whether or not exchange
members. Limits are established for various levels of option activity within each
category, depending on size of public float, trading volume, etc. The OCC
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designates within each category which limit applies to a particular option.
Exemptions from the position limits are available for accounts that have
established hedge positions.
Under a further Rule change in February 2003, position and exercise limits for
standardized equity options are eliminated for qualified hedge strategies that are
established solely with standardized options. In addition, the Rule change
establishes standardized equity option position and exercise limits of five times
the standard limit when one component of a qualified hedge strategy is a
conventional equity option. The Rule change also modifies FINRA conventional
equity option position and exercise limits. For further information on recent Rule
changes, consult NTMs 01-01, 03-19, 05-22, and -31. The designated Principal
will ensure that the Rule changes, where applicable, will be implemented by BIS.
The designated Principal is required to review position reports daily in order to
confirm that no customer has exceeded established position limits.
BIS is required to report to FINRA within 24 hours as to the establishment,
increase or decrease in (a) each account in which it has an interest and (b) each
customer account which has an aggregate position of 200 or more option contracts
(whether long or short) of the put class and the call class on the same side of the
market covering the same underlying security or index. “Long” calls should be
combined with “short” puts; “short” calls with “long” puts. “Netting out” of long
and short positions is not permitted. BIS must complete an Option Position
Summary Report in the format required by Code of Conduct Rule 2860.
On February 15, 2001, certain amendments to Rule 2860 became effective.
Approved by the SEC in December 2000, the amendments:




4.
apply FINRA's options position and exercise limits to members that effect
trades for non-member brokers and non-member dealers;
require members to report the options positions that they effect for nonmember brokers and non-member dealers where such positions meet the
reporting thresholds under FINRA rules;
codify an interpretive position with respect to which firms are required to
report standardized options positions under the FINRA's options position
reporting requirements; and
Clarify that a member may have its clearing firm report options positions
to FINRA on the member's behalf.
Opening of Accounts/Updating Accounts
BIS shall not accept an order from a customer to purchase or write an option
contract or approve the customer’s account for trading of such option, until BIS
has furnished to the customer the appropriate options disclosure document(s) and
the customer’s account has been approved for trading.
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In approving a customer’s account for options trading, BIS shall exercise due
diligence to ascertain the essential facts relative to the customer, his financial
situation and investment objectives. Based upon this information, the ROP shall
approve or disapprove in writing the customer’s account for options trading.
Such approval or disapproval shall be maintained as part of BIS records.
The background and financial information shall be sent to the customer for
verification within fifteen (15) days of BIS approval for options trading. Also,
within fifteen (15) days of BIS approval for options trading, BIS shall obtain from
the customer a written agreement that states, among other things, that the
customer is aware of and agrees to be bound by the rules of the OCC. In addition,
the customer should indicate on such written agreement that he is aware of and
agrees not to violate the established position limits.
BIS is required to deliver the options risk disclosure document entitled
"Characteristics and Risks of Standardized Options" at or prior to the time a
customer's account is approved for options trading. BIS must provide customers
with revised versions of the disclosure document as it is amended. The options
risk disclosure document discusses the effect that corporate actions, such as a
stock dividend, stock distribution, stock split, reverse stock split, rights offering,
distribution, reorganization, recapitalization, reclassification or similar event in
respect to an underlying security, or a merger, consolidation, dissolution or
liquidation of the issuer of the underlying security, may have on the terms of an
options contract.
BIS must inform customers about adjustments to their options contracts that arise
from corporate actions. The determinations of adjustments to particular contracts
are disseminated to each options exchange as they are made. The OCC also
provides information about adjustments to contracts on its Website at
http://www.optionsclearing.com/market/info_memos.jsp. Each options exchange,
in turn, provides for the dissemination of information concerning these
adjustments to specific option contracts to the exchange's members. The
designated Principal will periodically review these sources of adjustments and
will require RR to alert customers to such changes.
Special procedures govern BIS approval for customer accounts to write uncovered
short options contracts. No such activity or account shall be undertaken without
the prior written approval of the CROP, based on an evaluation of the depth of the
customer’s investment experience, net worth, and annual income and investment
objectives. It shall be explained to the customer that approval of any such activity
is discretionary and may be withdrawn at any time. The CROP shall review each
account engaged in such activity not less than once per week to verify that the
guidelines are being followed and shall require positions outside acceptable limits
to be immediately closed out.
(i)
Trading for the Client’s Account
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Once a client has been approved for trading by the designated Principal of
BIS the account is established through an opening transaction. This
position can be closed out either through exercise, assignment or through a
closing transaction.
(ii)
Discretionary Accounts
BIS shall not exercise any discretionary power in a customer’s option
account without specific written authorization from the customer on a
designated form. The requirements for discretionary accounts are further
detailed in Section VI. Paragraph D of this manual
(iii)
Exercise Procedures
All of the BIS options trades are cleared through its clearing firm via
CMTA (clearing member trade assignment). BIS does not allocate
exercise notices and therefore does not have procedures related to
allocation. BIS, in its agreement with its clearing firm, expects it to
properly allocate exercise notices and complete all required
disclosure/reporting associated with such allocations. The designated
Principal will make sure that BIS maintains work papers, exercise reports,
etc., if received, relating to the allocation of exercise assignment and
notices.
(iv)
Margin Procedures
Customer accounts shall be checked to ensure that all options purchases
are current and that uncovered short options, option straddles, short
options covered by exchangeable or convertible securities and
conventional options meet the requirements for margin maintenance. The
ROP will review margin calculations in order to confirm compliance with
applicable rules regarding margin procedures for options transactions.
5.
Supervision of Options Activity
The SROP of BIS shall implement these Supervisory Procedures in accordance
with FINRA and other regulations for oversight of options transactions
undertaken by BIS. The Compliance Registered Options Principal (CROP) (who
shall have no sales functions except as set forth in NASD Rule 2860), shall be
responsible to review and propose appropriate action to secure compliance by BIS
with these procedures and the regulations. The CROP shall regularly report to the
CCO as to the implementation of supervisory procedures.
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At the branch office level, any branch office having over three (3) RRs shall not
transact any options business unless the Branch Office Manager is a ROP.
Options business at branches with less than three (3) RRs shall be supervised by a
ROP.
If BIS has a single ROP, it will promptly notify the NASD in the event such
person is terminated, resigns, becomes incapacitated or is otherwise unable to
perform the duties of an Options Principal. BIS will then refrain from engaging
in any options-related activities requiring Options Principal approval, such as the
opening of new options accounts or the execution of discretionary orders for
option contracts, until such time as a new ROP has been qualified. Should BIS
fail to qualify a new ROP within two weeks following the loss of its sole ROP, or
by the earliest available date for administration of the Series 4 Options Principal
examination, whichever is longer, it will cease doing an options business;
provided, however, that it may effect closing transactions in order to reduce or
eliminate existing open options positions in its own account as well as the
accounts of its customers. The CCO will ensure prompt notification and
subsequent replacement of BIS sole ROP, if applicable and should the need arise
as described above.
BIS shall maintain a Home Office capability to access, retrieve and review on an
ongoing basis data on all customer options accounts in such a way as to permit
determination of:
 background and financial objectives;
 compatibility of options transactions with investment objectives;
 compatibility of options transactions with types of transactions approved
for the account;
 size and frequency of options transactions;
 commission activity in the account;
 profit or loss in the account;
 undue concentration in any option class or classes;
 compliance with exercise limits and position limits on market opening
transactions;
 delivery of required disclosure documents;
 delivery of amended disclosure documents; and
 Informing customers of adjustments to options contracts (i.e., based on
corporate actions).
6.
Customer Complaints
A separate complaint file shall be maintained and kept current for all optionsrelated customer complaints that shall contain all necessary and reasonable
information for the designated Principal to conduct an investigation and take any
appropriate action. At a minimum, the complaint file shall maintain the
identification of the complaint, date complaint was received, identification of the
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Representative servicing the account, a general description of the complaint and a
record of action taken, if any.
7.
Front Running
BIS and its associated persons must not trade options or an underlying security
when they have material non-public market information concerning an imminent
block transaction in the underlying security or in the overlying option. This front
running policy, as described in detail in IM-2310-3, applies to BIS proprietary
accounts, accounts in which BIS or its associated persons have an interest or
discretionary authority, and customer accounts when BIS or an associated person
has shared material, non-public market information with a customer.
RRs are not permitted to purchase or write options with the knowledge that a
large transaction in the underlying security is about to be effected, so as to benefit
from the expected price change in the underlying security. Any transaction
involving 10,000 or more shares of an underlying security (or multiple
transactions for portions totaling 10,000 or more shares) should be viewed as a
block transaction and must be brought to the attention of the designated Principal
for approval. The designated Principal, in his or her reviews of trade activity, will
note instances of block transactions not receiving prior review and approval, and
instances of apparent front running, and will investigate each case in order to
properly educate, and discipline, if necessary, the associated persons involved.
8.
Advertising, Sales Literature and Educational Material
Every "Advertisement" and all "Sales Literature" and "Educational Material"
issued by BIS and pertaining to options shall be approved in advance by the
CROP. Copies of same, together with the names of persons originating and
approving and the source of any recommendations shall be retained in BIS
records in an easily accessible place for at least three (3) years.
In addition FINRA ten (10) day advance approval shall be required for every
Advertisement and all Educational Material.
Review of Advertisements, Sales Literature and Educational Material by BIS and
FINRA shall be conducted so as to make sure that such material complies with
detailed FINRA guidelines set out in the rules. These guidelines concern full and
fair presentation, not omitting material facts, disclosure of risks, compensation to
BIS and RRs treatment of past performance and availability of backup material. It
is the responsibility of all RRs of BIS to verify that these approvals have been
obtained before using any material (including modifications to existing material)
and to check with the CROP if there is any doubt.
"Advertisement" is defined as any material that reaches a mass audience through
public media or through written sales communications to customers or the public
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that are not required to be accompanied or preceded by one or more current
options disclosure documents.
"Educational Material" is defined as any explanatory material distributed or made
generally available to customers or the public that is limited to information
describing the general nature of the standardized options markets or one or more
strategies.
"Sales Literature" is defined as any written communication (not defined as
"Advertising" or "Educational Material") distributed or generally available to the
public that contains any analysis, performance reports, projections or
recommendations with respect to options, underlying securities or market
conditions, any standard form of work sheets or seminar text which pertains to
options and which is communicated to customers or the public at seminars,
lectures or similar events.
F.
Limited Partnerships
Name of Supervisor:

Carl Birkelbach
Frequency of Review:

Periodically, before and throughout offering
process;
During review and approval of
correspondence and sales materials.
Review all documents related to offerings
Attend meetings, Approve suitability,
Supervise sales activities
Sales materials review, Correspondence
review
Separate records related to hedge funds
marketing and offerings
Due diligence questionnaire, Suitability
forms/NAF
FINRA filings, if necessary
Initials on blotters;
memorandum/disclosures distribution logs;
subscription docs; sales materials and
correspondence



How Conducted:


How Documented:



BIS may act as placement agent in select private offerings of interests in limited
partnerships. A limited partnership (LP) offering is a type of investment whereby
the income would generally flow through to the investors, or limited partners,
who are viewed as passive investors with little or no say in the managerial
decision-making.
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October 2009
BIS will examine the suitability of these investments since they may not be
appropriate if an individual does not meet certain accredited or sophisticated
investor requirements. Since LP’s are not liquid investments BIS views them as
long-term investments.
During the course of offerings, the designated Principal will supervise RR activity
in LP sales in order to ensure that all necessary requirements and procedures are
adhered to.
1.
Due Diligence Procedures
BIS, prior to committing to participate in the solicitation of a potential
offering of LP interests, must first perform certain due diligence in order
to assess the integrity and experience of the offering manager, and the
viability of the proposed offering. Such due diligence may include, but
not be limited to, the following:





Background checks on investment manager;
Review of manager’s past experience, including review of specific
offerings undertaken and/or completed by the manager;
Review of the performance results of past offerings of the
manager;
The characteristics of the potential offering, including a review of
the LP entity or fund, and its (or its component companies’)
management, business strategy, competition, market opportunity,
growth strategy, financial history and capital requirements; and
Review of the investment strategies, including hedging, leverage
and arbitrage techniques, typically used by the manager in
managing his other LP’s or funds.
In deciding whether or not to participate in an offering, BIS will also rely
on its familiarity with the proposed manager, based on past business
dealings and personal relationships.
Once BIS has chosen to participate in an LP offering, neither BIS nor any
person associated with it will offer interests to customers without first
having reasonable grounds to believe, based on information provided by
the sponsor/manager through a memorandum and other materials, that all
material facts are adequately and accurately disclosed and provide a basis
for evaluating the LP or fund.
Pursuant to the above, in determining the adequacy of disclosed facts, BIS
or any person associated with it shall obtain information on material facts
relating at a minimum to the following, if relevant in view of the nature of
the LP or fund:
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






The characteristics of each LP or fund, including the details of
each component company’s management, business strategy,
competition, market opportunity, growth strategy, financial history
and capital requirements;
Tax aspects;
Financial stability and experience (historical management results)
of general partner or managing member;
The LP’s or fund’s investment strategies, including hedging,
leverage and arbitrage techniques, and their inherent conflicts and
risk factors;
Proper establishment of escrow account and correct language in
escrow agreement to reflect contingencies and investor funds
return provisions;
Form D filed with SEC by general partner or managing member;
and
Appraisals and other pertinent reports, if applicable.
BIS will also adequately review and make sufficient inquiries into the
possible disqualification of the issuer and other sellers to the Regulation D
exemption.
The designated Principal will adequately review the results of the inquiries
and document them in a due diligence file. The due diligence file will be
maintained with the other records of the offering.
2.
Required Documentation and Disclosure
In offering interests in LP’s BIS will provide (or will confirm that the fund
manager provides) potential investors with offering memorandums, which
make extensive disclosures regarding the nature, character and risk factors
relating to each offering. RRs must convey, for instance, the specific risks
associated with investments in funds, such as:



High fees and expenses—fees such as management, placement and
performance fees may have a greater than average effect on
investment returns;
Lack of liquidity—both registered and unregistered funds are
illiquid investments, subject to restrictions on transferability and
resale, and are not subject to specific pricing rules; and
Adverse Tax Consequences—in the case of registered funds of
funds, the tax structure may be complex and may result in delays
of necessary filing information.
Although not subject to the pre-registration requirements of public
offerings, these offerings are subject to federal and state "anti-fraud" laws
and regulations giving investors the right to claim damages and rescission
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in the event of false or misleading statements or omissions. The
designated Principal will make every effort to ensure that the offering
memorandums used in its offerings do not contain materially misleading
disclosures (see “Due Diligence” above).
Additional required documents include the following:


Subscription Documents, required to be completed by potential
investors and including investor representations and warranties and
suitability information. The fund managers will not accept
subscriptions without the receipt and approval by the fund manager
of completed subscription documents. Subscription documents
will normally include an “Investor Questionnaire” or similar
suitability form used to qualify the investor.
Disclosure Document, required to be distributed to offerees. This
document discloses and describes the compensation paid to BIS in
exchange for its solicitation of the interests. BIS must receive
written acknowledgement of each offeree’s receipt of the
Disclosure Document.
When BIS is responsible for distribution of offering documents to
potential investors, distribution of offering memorandums and other
offering documents will be strictly monitored. All memorandums will be
numbered; file copies will be labeled as such. A distribution control sheet
will be created and maintained, which will include the memorandum
numbers and the respective Representatives assigned.
Copies of
completed subscription documents and acknowledgments of receipt of
disclosure documents will be maintained in customer files.
During the course of the offering, any supplementary or corrective
material necessary to update the offering materials will be provided to
potential investors by Representatives. The designated Principal shall
verify that all such amendments have been sent to offerees and that the
files are accurate and complete.
3.
Suitability Requirements
In offering to a customer the purchase, sale or exchange of any LP
investment, RRs must have reasonable grounds for believing that the
recommendation is suitable for such customer upon the basis of the facts,
if any, disclosed by such customer as to his or her other security holdings
and as to his financial situation and needs, among other criteria. While
clients may be generally asked about their potential desire for limited
partnerships, no discussion of any particular partnership may be
undertaken unless the Registered Representative has reason to believe the
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customer will meet the respective offering’s expressed suitability
standards.
In determining suitability prior to offering these securities to individual
investors Representatives must not rely solely on the investor’s wealth as
an indication of suitability—wealth does not provide a basis for investing
in risky investment products. RRs must examine the suitability factors
(reference Rule 2310) described in this section when recommending these
securities. RRs should note that bringing a security to the attention of an
investor may be considered making a recommendation.
Prior to the execution of a transaction by a non-institutional customer, RRs
of BIS shall make reasonable efforts to obtain, or shall confirm that the
fund manager has made reasonable efforts to obtain, the following
information:






Completed “Investor Questionnaire” or similar form used in
conjunction with subscription documents;
The customer’s financial, and, if available, tax status,
The customer’s investment objectives,
Regulation D suitability,
Compliance with Regulation D limitation of manner of sale, and
Such other information used or considered to be reasonable by BIS
fund manager in making recommendations to the customer.
The designated Principal must approve of each subscriber prior to his or
her investment in LP offerings. Such approval must be noted by the
designated Principal’s initials on the respective subscription agreement.
4.
Investor Representations and Warranties
As a general investor suitability standard, it will be the policy of BIS to
ensure that fund managers require that prospective subscribers for LP’s
investments make certain written representations and warranties that may
include, but not be limited to, the following: (i) the subscriber is acquiring
the investment for the subscriber’s own account, for investment only, and
not with a view toward the resale or distribution thereof; (ii) the subscriber
possesses sufficient knowledge of business, finance, securities and
investments, and sufficient experience and skill in investments based on
actual participation, to evaluate the risks and merits of an investment in
the investment; (iii) the subscriber has no need for liquidity with respect
to this investment; and (iv) the subscriber’s investment will not exceed
20% of the subscriber’s net worth (or joint net worth with the subscriber’s
spouse).
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The suitability standards referred to above, however, represent minimum
requirements for a prospective purchaser, and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the
purchase is a suitable investment for the purchaser. Accordingly, each
prospective purchaser must rely on his or her own judgment and advisors
in making a decision to invest.
5.
Investor Commitments
RRs will review and record all incoming subscription agreements prior to
forwarding them to the general partner or managing member for
acceptance (file copies will be retained). Checks received will be
reviewed for acceptability, recorded on BIS receipts blotter, and
forwarded to the individual bank escrow account. BIS will confirm that
Form D and/or other required forms are filed, if applicable, on a timely
basis by issuer’s counsel. The designated Principal shall ensure that a
complete file of all documents related to each offering is maintained as
part of BIS records, including records of each transaction process,
including:







Date customer's check and subscription were received
Name of customer
Number of units/interests subscribed
Description of issuer
Price per unit
Aggregate principal amount of units
Date customer's check and subscription agreement were forwarded
to escrow agent.
When conducting an “all or none” or “part or none” offering, BIS will
comply with the strict requirements under SEC Rules 10b-9 and 15c2-4
relating to the maintenance of an escrow account. All monies paid for the
purchase of securities will be returned to investors if the specified
number/dollar amount of securities is not sold within a specific time.
Also, if applicable, all monies received from investors will be deposited
into a separate segregated bank account at a commercial bank and held for
the investors’ benefit until the offering terms have been complied with and
until all funds have cleared; if the terms are not met or if all funds have not
cleared by the stated date, funds will be returned to subscribers. Where
applicable, the designated Principal will ensure compliance with these
SEC rules by supervising the flow of monies and the status of offerings.
6.
Rollups
BIS will not participate in a "limited partnership rollup transaction".
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7.
Training
BIS must train its associated persons about the characteristics of and risks
associated with LPs before associated persons are permitted to recommend
them. The designated Principal must ensure implementation of this
required procedure.
8.
Sales and Marketing Materials
In conducting private LP offerings, RRs shall adhere to the following:

Cold calling and general solicitation by means of advertisements is
not permitted; and

No seminars or meetings may be held with regard to any current
offering.
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XI.
Privacy Policies and Procedures
A.
Privacy Procedures Generally
The Firm is committed to full compliance with all applicable laws and regulations
regarding the privacy of customer nonpublic personal information, the Firm’s policies
and procedures are designed to:
Ensure the security and confidentiality of customer records and information;
Protect against any anticipated threats or hazards to the security or integrity of
customer records and information; and
Protect against unauthorized access to or use of customer records or information that
could result in substantial harm or inconvenience to any customer.
B.
Certain Definitions
1.
Sources and Examples of Nonpublic Personal Information:
a.
Information provided by a customer to the Firm to obtain a
financial product or service (e.g., information provided on an account opening
application), such as a customer’s name, address, tax identification number, age,
marital status, assets, debts, employment history and personal bank account
information.
b.
Information resulting from a customer’s transactions with the
Firm, such as trading history and account balances.
c.
Information about a customer obtained from others such as
information on a consumer credit rating report.
Nonpublic personal information also includes: a list of Firm customers and information
collected on an internet “cookie.”
2.
Customer: For purposes of the Firm’s privacy policies and procedures, a
customer is any individual who either (a) has a continuing relationship
with the Firm (e.g., has an open securities brokerage account); or (ii) is a
former customer of the Firm (i.e., had an account with the Firm, which is
now closed).
3.
Consumer:
Is any individual who provides nonpublic personal
information to the Firm in an attempt to establish a continuing relationship
with the Firm (e.g., an individual who submits a completed account
opening application), even if such relationship (or account) is never
established.
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October 2009
C.
D.
Privacy Policy Notice
1.
The Firm has developed a privacy policy notice (attached hereto as
Exhibit K), which summarizes the Firm’s privacy policies and
procedures.
2.
It is the Principals’ responsibility for ensuring that the privacy policy
notice is delivered to each new customer at or before the time the Firm
opens such customer’s account or otherwise establishes a continuing
relationship with the customer. Thereafter, the Firm will annually
re-deliver a privacy policy notice to each customer
3.
The privacy policy notice must be delivered in a method that the customer
can be reasonably expected to receive actual notice. Oral notice of the
Firm’s privacy policies and procedures is not sufficient. The privacy
policy notice may be delivered electronically if such customer agrees to
electronic delivery.
Disclosure of Nonpublic Personal Information
1.
Consumers
In general, employees may not disclose consumer nonpublic personal information to
anyone outside the Firm without the express consent of the Compliance Officer. In addition,
disclosure of consumer nonpublic personal information within the Firm is restricted to those
employees who have a business need to know such information.
2.
Customers
It is the Firm’s policy not to disclose customer nonpublic personal information to anyone
outside the Firm except as permitted by applicable law. In general, customer nonpublic personal
information may be disclosed only in the following circumstances:
a.
The disclosure is necessary to effect, administer or enforce a
transaction that the customer requested or authorized.
b.
The disclosure is made to a nonaffiliated third party necessary for
such third party to perform services or other functions on behalf of the Firm;
provided that the Firm has a contractual agreement with such third party that
prohibits the third party from disclosing or using such nonpublic personal
information other than to carry out the purposes of the contractual arrangement.
c.
Other disclosures of nonpublic
permissible so long as such disclosure is made:
personal
information
i.
With the consent or at the direction of the customer;
ii.
To protect the confidentiality of the Firm’s records;
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October 2009
iii.
To prevent actual or potential fraud, unauthorized
transactions, claims or other liability;
iv.
To a consumer credit reporting agency in accordance with
the Fair Credit Reporting Act; and
v.
To the extent specifically permitted or required under other
provisions of law.
Disclosure of customer nonpublic information within the Firm also is restricted to those
employees who have a business need to know such information.
E.
Access to Nonpublic Personal Information
No Firm employee is permitted access to nonpublic personal information unless such
employee needs access to such information either to provide services to customers or conduct
Firm operations.
For those Firm employees with access to nonpublic personal information, such
employees may not give out such information over the telephone or in response to an e-mail
unless such employee has identified the person to whom they are communicating as either the
customer, a fiduciary representative of the customer, or a party that needs the information to
complete a transaction for the customer (e.g., an executing broker-dealer or a custodian). To
confirm the identity of persons requesting nonpublic personal information over the telephone or
by e-mail, employees shall request personal identifying information, such as mother’s maiden
name or social security number, before releasing such nonpublic personal information.
F.
Physical Safeguards
To protect against unauthorized access or use of customer nonpublic personal
information, all employees should take the following precautions:

Nonpublic personal information should not be left in offices or conference rooms
unattended;

Customer records must be kept in locked cabinets or desks when not in use;

Lock office doors at the close of business;

All security procedures regarding access to Firm property must be followed;

Visitors should not be permitted to walk unattended in areas where customer
information is accessible; and

Destroy or shred documents containing nonpublic personal information prior to
disposal.
The Compliance Officer will periodically test physical safeguards to confirm they are
working properly and will inquire as to the security measures of any off-site record maintenance
facilities.
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October 2009
G.
Electronic Safeguards
To protect against unauthorized electronic access or use of customer nonpublic personal
information, all employees should take the following precautions:

PC’s with customer information should be accessible only on a password protected
basis and should not be left unattended, or in the alternative, screen saver/sleep mode
functions should incorporate password protection;

When sending customer information electronically, such information should be
encrypted; and

If electronic data containing nonpublic personal information is saved to a back-up
system, access to the back-up system should be limited to authorized personnel.
The Firm also will implement other security precautions with respect to its electronic
systems, including monitoring the Firm’s network for unauthorized access and limiting network
access to those employees who need access to such information to service customers or conduct
Firm operations.
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October 2009
XII.
Branch Offices
A.
Offices of Supervisory Jurisdiction
Certain offices that meet the OSJ requirements will be established as such. A designated
supervisor/principal will be assigned to each OSJ.
All business transacted by OSJs will be conducted through the firm's main office or
approved electronic systems including account openings, deposits, withdrawals, transfers,
and trading.
On an exception basis an OSJ may execute securities transactions out side of the firm's
system as long as it is in the best interest of the customer. Transactions that may be
executed outside of the firm's approved systems include transactions in Municipal
Securities or Bonds. Such exceptions must be approved by the Compliance Officer or
Chief Operations Officer, further, a trade ticket or order memorandum must be sent to
Carl Birkelbach on the day the trade is placed.
B.
Branch Offices Assigned To OSJs
Each branch office that is not an OSJ will be assigned to the supervision of an OSJ. The
designated supervisor is required to visit non-OSJ branch offices on a periodic basis and
record the visit in a memorandum or other record to be retained by the designated
supervisor for the branch location. All business transacted by non-OSJ branch offices
must be processed through the supervising OSJ. The designated supervisor is responsible
for supervision of the branch office's activities and maintaining files for complaints,
correspondence, new accounts, option accounts, advertising, and transactions originating
from the branch office.
C.
Non-Branch Business Locations
Non-Branch Business Locations
Responsibility

Carl Birkelbach
Frequency

Ongoing
Action

Conduct ongoing supervisory reviews
Visit the non-branch location at least quarterly or
require the RR(s) to visit the OSJ at least quarterly
Complete the Branch Manager's Checklist and submit
monthly to Compliance


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October 2009
Locations used occasionally and exclusively for appointments from time to time between
RRs and customers and where BIS has no other tangible presence are not deemed
"branch offices". RRs conducting business at such locations are required to provide each
customer with the address and telephone number of the branch office or office of
supervisory jurisdiction that supervises the RR.
Each non-branch business location will be assigned to a branch office or OSJ for
supervision. This includes RRs who are assigned to a branch office but transact business
at a separate location. These RRs are referred to as off-site RRs. The designated principal
is required to visit non-branch business locations and off-site RRs on a periodic basis and
record the visit in a memorandum or other record to be retained by the designated
supervisor in a file for the location. Off-site RRs are required to process all business
through the assigned branch office or OSJ. The designated supervisor is responsible for
supervision of the non-branch office's activities and maintaining files for complaints,
correspondence, new accounts, option accounts, advertising, and transactions originating
from the office.
FINRA Notice to Members 98-38 should be considered part of this manual and consulted
regarding supervisory obligations.
Supervision of Producing Office Supervisors
D.
A designated supervisor is responsible for supervising office supervisors who are
engaged in sales activities. Supervision includes reviewing customer correspondence and
daily transactions. The producing office supervisor will forward copies of his or her
customers' correspondence for review on the day sent or received.
Use of Office Space by Outsiders
E.
Persons not affiliated with BIS are not permitted to conduct business or maintain offices
on Firm premises. Office-sharing arrangements require the prior approval of Compliance.
Office Records
F.
Each office is required to maintain or have access to certain records relating to the
business conducted in the office. Office, for records purposes, means any location where
an associated person conducts business (not including a home office or the office of a
customer that an RR visits regularly). Conducting business includes handling funds or
securities or soliciting/accepting orders. Each office is required to designate someone
who can explain the office records to regulators.
Following is a list of office records that must be produced in office locations, upon
request by regulators:

Order records (daily trade blotters, order tickets/memoranda, including for the
firm account)
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October 2009









Receipts/deliveries of securities, receipts/disbursements of cash, all other
debits/credits. All items are to be forwarded to the firm’s main office.
Employee records (U-4, employment application, compensation agreements, CRD
numbers, internal identifying numbers, offices where RR conducts business)
Customer account records. All account documents are to be forwarded to the
firm’s main office.
Complaints. All complaints are to be forwarded on to main office.
Transactions, by RR, including compensation earned, commission schedules,
method by which compensation is determined
Communications with the public (originals of communications received, copies of
communications sent; approval of outgoing communications including
correspondence, advertising and sales literature, sales scripts, and other outgoing
communications requiring the supervisors approval)
Record naming the person in the office who can explain records
Record listing the person responsible for policies and procedures
Compliance and supervisory manuals, including updates and revisions, until three
years after termination of use of the manual
For the most recent two-year period, the above records must be maintained or produced
promptly at the office to which they relate.
1.
Regulatory Requests for Records
If a regulator (SEC, SRO, state regulator, or other) requests office records (in
person or by another means), Compliance should be contacted immediately. BIS
is obligated to provide prompt response to regulators requests for information;
therefore it is important the record retrieval process begin immediately or as soon
as possible after receipt of the request.
Changes in Branch Offices
G.
Compliance is responsible for updating the Firm's Form BD when there are changes in
BIS branch offices.
Compliance will submit the necessary information to FINRA if there is a material change
in business.
Office Inspections
H.
BIS guidelines for office inspections include the following:



OSJs will be inspected annually by Compliance.
Non-OSJ branch offices will be inspected every 3 years according to a schedule
established by Compliance.
For branch offices that supervise one or more non-branch offices, the supervising
office will be inspected at least annually.
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October 2009


I.
Other business locations will be inspected in accordance with a schedule
established by Compliance.
Compliance will establish the scope of the inspection program and will retain
records associated with each inspection including the date and location of each
inspection.
Display of SIPC Symbol
In authorized branch locations, the SIPC symbol will be displayed. Compliance is
responsible for identifying the office locations that require the necessary SIPC display.
J.
Availability of Rules
Each office that deals with public customers will maintain copies of rules for regulators
where BIS is a member. Where Internet access is available, this requirement is satisfied
by providing access to the rules published on the regulators' web sites.
www.finra.org
www.sec.gov
www.msrb.org
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October 2009
XIII. Recordkeeping
The Firm is committed to full compliance with all SEC rules and regulations applicable
to the preparation and preservation of documents relative to its business and to the corresponding
rules and regulations of those self regulatory organizations with jurisdiction over the Firm’s
activities. In accordance therewith, the Firm has adopted a program for the preparation,
preservation and destruction of records. The preservation and destruction requirements of such
program are detailed below.
This program applies to all originals, copies and other reproductions of all documents,
agreements, filings, correspondence, drafts, memoranda, books, papers, notices, accounts,
records, files and reports, whether handwritten, typed, computer generated, or in hard copy, email, CD, microfilm, electronic or other form or recording medium, made or received by the
Firm in the course of its business, including those generated for internal use only, such as
internal e-mails and other internal communications (all of such documents and records are
referred to herein collectively as “Records”). This program applies to all Firm Records that are
maintained in the Firm’s offices, at residences or other off-site locations, on desktop computers,
laptop computers, personal computers, hand-held devices or other devices or systems of the Firm
or any of its employees or associated persons.
Upon the expiration of the applicable retention period for a Firm Record detailed in the
Appendix hereto, all copies of such Firm Record will be destroyed promptly.
Notwithstanding anything herein to the contrary, if any employee or associated person of
the Firm becomes aware or receives notice of any pending or threatened litigation, lawsuit,
regulatory or judicial action, subpoena, arbitration, hearing, order, proceeding, inquiry or
investigation, whether civil, criminal, governmental, administrative, regulatory, self-regulatory,
investigative, informal or otherwise, such person shall promptly report the details of such matter
to the Compliance Officer. Upon receipt of the details of such matter, the Compliance Officer
shall promptly provide written notice to all Firm employees and associated persons instructing
such persons to immediately cease any destruction of Firm Records and to preserve and maintain
all Firm Records until instructed otherwise. All employees and associated persons shall comply
with any such instructions relating to the preservation, maintenance or destruction of Firm
Records.
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EXHIBIT A
ASSIGNMENT OF REGISTERED PERSONS TO REGISTERED PRINCIPALS
ASSIGNMENT OF REGISTERED PERSONS TO REGISTERED PRINCIPALS
Registered Person
All Registered Persons are supervised by:
Supervisor
Carl Birkelbach
EXHIBIT B
CUSTOMER ACCOUNT REVIEW LOG
CUSTOMER ACCOUNT REVIEW LOG
Name or
Account
Account
Number
Registered
Person
Number
Date of
Review
Initials of
Principal
Deficiencies/Concerns
Identified (specify)
EXHIBIT C
EMPLOYEE/REGISTERED PERSON
ACCOUNT NOTIFICATION FORM
EMPLOYEE/REGISTERED PERSON ACCOUNT NOTIFICATION FORM
All Firm employees, whether new or existing, must complete this Employee/Registered Person
Account Notification Form for all Employee and Employee-Related Accounts over which he/she
exercises control. This form must be submitted to the employee’s or Registered Person’s
designated Principal who will prepare for the employee’s or Registered Person’s signature, a
letter or letters to the executing firm advising such other firm to provide contemporaneous
duplicate confirmations and account statements to the Firm. The employee or Registered Person
is responsible for ascertaining that such documentation has been sent to the Firm.
Please provide the following information for all Employee/Registered Person and EmployeeRelated Accounts over which you exercise control:
Account Name
Account Number
Name of Broker/Dealer Where
Account is Maintained
As additional accounts are opened, a new Employee/Registered Person Account
Notification Form must be submitted.
I acknowledge that the above account information is accurate to the best of my
knowledge and that I understand that I must submit a new form as new accounts are opened.
Signature:
Printed Name:
Date:
EXHIBIT D
OUTSIDE BUSINESS ACTIVITIES FORM
OUTSIDE BUSINESS ACTIVITIES FORM
Pursuant to the Rules of FINRA, you are required to inform the Firm of any outside
business activities you engage in, whether or not for compensation. For purposes of this Form,
the term “outside business activities” includes private investments in an organization whose
stock is not publicly traded but does not include private securities transactions.
Check one:
I am not currently engaged in any outside business activity or investment.
I am engaged in, or propose to engage in, the following outside business activity
(complete the following):
Description of the activity
or investment:
Name and address of
organization or issuer:
Amount of compensation to be received, if any
(if none, so state):
Amount of time to be spent on the activity per week
during the Firm’s business hours (if none, so state):
Signature
Date
EXHIBIT E
PRIVATE SECURITIES TRANSACTIONS FORM
PRIVATE SECURITIES TRANSACTIONS FORM
Pursuant to the Rules of FINRA, you are required to inform the Firm of any private
securities transactions you intend to participate in, whether or not for compensation. If for
compensation, the Firm may approve or disapprove your participation in the transaction. The
term “private securities transaction” means any transaction in a security outside the regular
course or scope of your employment by the Firm. The term does not include securities accounts
maintained by you or by members of your immediate family with other securities firms,
transactions among immediate family members for which you do not receive any selling
compensation, and your personal transactions in investment company and variable annuity
securities.
Check one:
I am not currently engaged in any private securities transactions.
I am engaged in, or propose to engage in, the following private securities transactions:
Description of
the transaction:
Amount of compensation received or to be received, if any
(if none, so state):
Amount of time spent on the activity per week during
the Firm’s business hours (if none, so state):
Signature
Date
FIRM ACKNOWLEDGMENT/APPROVAL
On behalf of the Firm, the undersigned
(a)
Acknowledges receipt of this Form disclosing your participation in the proposed private
securities transaction(s) described herein; AND
(b)
If you will receive compensation in connection with the proposed private securities
transaction (initial one as appropriate):
Approves your participation in the proposed private securities transaction; OR
Disapproves your participation in the proposed private securities transaction.
Signature of the Chief Compliance Officer
Date
EXHIBIT F
GIFT AND GRATUITY FORM
GIFT AND GRATUITY DISCLOSURE FORM
In accordance with FINRA Rule 3060 and the Firm’s compliance policies, all employees and associated
persons are required to disclose any gifts or gratuities (including meals, travel, tickets to sports events,
etc.) with a value of $100 or more that they have received from, or that they propose to give to, any other
person in relation to the Firm’s business. This form must be completed any time an employee or
associated person has received or proposes to give any such gift or gratuity. Any questions regarding this
policy or the completion of this form should be directed to Compliance Officer.
1.
Gifts and Gratuities Received
Gift or Gratuity
Received
2.
Date
Received
Person Giving the
Gift or Gratuity
Approximate
Value of Gift or
Gratuity
Supervisory
Approval
Approximate
Value of Gift
or Gratuity
Supervisory
Approval
Gifts and Gratuities Proposed to be Given
Gift or Gratuity
To Be Given
Date Gift
or
Gratuity
is to be
Given
Name and Affiliation of
Recipient of Gift
or Gratuity
EXHIBIT G
ANNUAL COMPLIANCE ATTESTATION
BIRKELBACH INVESTMENT SECURITIES, INC.
ANNUAL COMPLIANCE ATTESTATION
For the Calendar Year _____________
Instructions: Please answer the following questions, providing complete explanations on
the appropriate Form and copies of relevant documents where necessary. Return the
signed Attestation and attachments to the Compliance Officer no later than the time of
your annual compliance meeting. If your responses change at any time in the future, you
are obligated to advise the Firm immediately.
1.
Do you or your spouse have any personal securities accounts at any other brokerage firms
or financial institutions (including accounts in which you have a beneficial interest or
over which you have decision-making authority), not previously disclosed to the Firm?
_____ YES
_____ NO
If YES, provide a completed Employee/Registered Person
Account Notification Form.
Have you arranged for duplicate confirmations to be
delivered to the Firm? _____ YES _____ NO
2.
Are you engaged in any outside business activities, whether or not for compensation, not
previously disclosed to the Firm? _____ YES _____ NO If YES, provide a completed
Outside Business Activities Form.
3.
Have you effected any private securities transactions outside the scope of your
responsibilities for the Firm, whether or not for compensation, not previously disclosed to
the Firm?
_____ YES
_____ NO
If YES, provide a completed Private Securities
Transactions Form.
4.
Have you been the subject of a complaint from a customer or regulator not previously
reported to your supervisor? _____ YES _____ NO If YES, provide complete details
and copies of relevant documents.
5.
Have you been the subject of any other event that might result in an affirmative answer to
a disciplinary question on your Form U4, not previously reported to your supervisor?
_____ YES
_____ NO
If YES, provide complete details and copies of relevant
documents.
6.
Have you given to or received from any other person any gift or gratuity with a value of
$100 or more in connection with the Firm’s business, not previously disclosed to the
Firm? _____ YES _____ NO
If YES, provide a completed Gift and Gratuity Form.
I acknowledge that the foregoing information is accurate and complete. I further
acknowledge that I have received, read and understand the Supervisory Procedures and
Compliance Manual of BIRKELBACH INVESTMENT SECURITIES, INC. as currently in
effect, including its policies on insider trading. I hereby agree to adhere to the provisions thereof
at all times during my association with the Firm.
_______________________________
Signature
_______________________________
Print Name
_______________________________
Date
EXHIBIT H
DISCLOSURE REGARDING DISPUTE RESOLUTION
DISCLOSURE REGARDING DISPUTE RESOLUTION
(1)
You are agreeing to arbitrate any dispute, claim or controversy that may arise between
you and your firm, or a customer, or any other person that is required to be arbitrated
under the rules of the self-regulatory organizations with which you are registering. This
means you are giving up the right to sue a member, customer, or another associated
person in court, including the right to a trial by jury, except as provided by the rules of
the arbitration forum in which a claim is filed.
(2)
A claim alleging employment discrimination, including a sexual harassment claim, in
violation of a statute is not required to be arbitrated under FINRA rules. Such a claim
may be arbitrated at FINRA only if the parties have agreed to arbitrate it, either before or
after the dispute arose. The rules of other arbitration forums may be different.
(3)
Arbitration awards are generally final and binding. A party’s ability to have a court
reverse or modify an arbitration award is very limited.
(4)
The ability of the parties to obtain documents, witness statements and other discovery is
generally more limited in arbitration than in court proceedings.
(5)
The arbitrators do not have to explain the reasons for their award.
(6)
The panel of arbitrators may include arbitrators who were or are affiliated with the
securities industry, or public arbitrators, as provided by the rules of the arbitration forum
in which a claim is filed.
(7)
The rules of some arbitration forums may impose time limits for bringing a claim in
arbitration. In some cases, a claim that is ineligible for arbitration may be brought in
court.
EXHIBIT I
NEW ACCOUNT DOCUMENTS
NEW ACCOUNT DOCUMENTS
(Use Clearing Firm Forms)
EXHIBIT J
NEW ACCOUNT INFORMATION FORM
NEW ACCOUNT INFORMATION FORM
(Use Clearing Firm Forms)
EXHIBIT K
PRIVACY POLICY NOTICE
Birkelbach Investment Securities, Inc.
July 2008
Privacy and Personal Information
To our Clients:
Birkelbach Investment Securities, Inc. has a strict policy of protecting the confidentiality
and security of information we collect about our clients. We do not share information about you
outside of Birkelbach Investment Securities, Inc. without your expressed consent except as
described.
In establishing an account with Birkelbach, it is necessary that you provide the firm with
certain personal information necessary to ensure that your account is managed consistent with
your investment objectives and personal financial goals. This information will generally be
derived from the following sources.

Information we receive from you on the New Account Form or other forms, and:

Information about your securities transactions with the firm or advisers that may be
providing financial services to you.
It is the policy of Birkelbach that we do not disclose any non-public personal information
about you to anyone except as required by law or court order. Information is shared with third
party service providers only as necessary to settle transactions in your account.
If you decide to close your account(s) with Birkelbach, or become an inactive customer,
Birkelbach will adhere to the privacy policies and practices as described in this notice.
Birkelbach restricts access to your personal and account information to those employees
who need to know that information to provide service to you. The firm maintains physical,
electronic, and procedural safeguards to guard your non-public personal information.
Should you have any questions regarding Birkelbach’s policy, please contact your
Birkelbach representative.
Sincerely,
Birkelbach Investment Securities, Inc.
APPENDIX 1
PROGRAM FOR THE PRESERVATION
AND DESTRUCTION OF RECORDS
Description of Record
Aggregate indebtedness computations
Agreements and authorizations relative to:
Cash accounts
Margin accounts
Omnibus accounts
Partnership accounts
Corporation accounts
Joint accounts
Guaranty of accounts
Home communication consents
Identification of numbered accounts
Stock loans
Powers of attorney
Trading authorizations
Transfers of segregated commodity funds
Audit reports
Bank loans, collateral record
Bank reconciliations
Bank statements
Bank waiver on segregated commodity funds
Bills receivable and payable
BLOTTERS
Receive and deliver
Debits and credits
Borrowed and loaned securities record
Box count of securities
Branch office reconciliations
Brokers’ commissions, records, bills
Cancelled bank checks, notes and drafts
Capital computations
Cash book, journal and entries
Cashier’s check authorizations, daily bank deposit
Slips, etc.
Certificate record
Check books
Clearing house sheets
Close-outs on commodity trades
Collateral café daily business
Comparison tickets
CONFIRMATION, PURCHASE AND SALE
Contract book on, puts, calls, etc.
Contract book on purchases and sales
of cash commodities
Correspondence with customers
Preserve in Easily
Accessible Place
Destroy After
2 years
3 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
Preserve permanently
3 years
6 years
6 years
6 years
3 years
2 years
2 years
2 years
1 year
2 years
2 years
2 years
2 years
2 years
6 years
6 years
3 years
1 year
3 years
3 years
10 years
3 years
6 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
6 years
6 years
3 years
6 years
6 years
3 years
6 years
2 years
3 years
2 years
2 years
6 years
Correspondents’ debit and credit notices, called bond
notices, Margin calls, open order confirmations,
telegrams, etc.
Correspondents’ waiver agreements on customers’
segregated Commodity funds
Coupon records
Credit reports on new accounts
Customers’ confirmations of open and safekeeping
account
Customers’ report of new account and
identification records Preserve permanently
Debit and credit memos (dividends, interest,
transfer of funds, etc.)
Delivery ticket
Dividend records:
Closed items
Unclaimed items
Employees’ time records
Employment applications
(following termination of employment)
Expense vouchers
Failed to receive and deliver confirmations and
contracts
Financial statements
Holding cards, customers and securities
Insurance policies
Insurance receipts
Interest and dividends received
Interoffice reconciliations, memoranda
and communications
Investment record covering customer segregated
Commodity communications
JOURNAL
Purchase
Receive and deliver
Entries and cash
Entries, commodities
Leases 3 months after expiration
LEDGERS
Customers’ accounts
General and private
Long and short record (commodity futures
and securities)
Market letters and research material
Open order confirmations
Orders and reports (filled)
Paid invoices
Partnership articles, articles of incorporation, charters,
minute Books, and stock certificate books
Payroll record
Personnel records, employees
2 years
6 years
2 years
1 year
5 years
6 years
6 years
Preserve permanently
1 year
6 years
2 years
6 years
6 years
2 years
7 years
2 years
3 years
6 years
10 years
6 years
Preserve permanently
2 years
6 years
2 years
2 years
5 years
2 years
3 years
3 years
Preserve permanently
Expiration
Keep latest receipt
3 years
2 years
3 years
2 years
6 years
2 years
2 years
2 years
2 years
6 years
6 years
6 years
6 years
5 years
5 years
Preserve permanently
Preserve permanently
2 years
3 years
2 years
2 years
2 years
6 years
2 years
2 years
Preserve permanently
Preserve permanently
Preserve permanently
3 years
6 years
3 years
Petty cash vouchers
Point of balance of open commodity futures contracts
PROXY MATERIALS
Purchase and sale statements, close-outs of
Commodity futures transactions
Receipts for cash and securities, customers
Receipts for prospectuses, customers
Record of collateral deposited to margin commodity
Transactions
Registered mail receipts from U.S.P.O.
Registered mail return receipts from customers
Safekeeping and will-call records
Salesmen’s commission records
Salesmen’s expense vouchers
SECURITIES STOCK RECORD
Segregation records, stocks
Segregation records, regulated commodity cash
Stamp tax, daily record and slips for stamp purchase
Stamp tickets, memoranda of sales not used
Statements, customers’ equities or deficits in
Commodity accounts
Stenographers’ notebooks
Syndicate material:
Where manager
Where participant
Trading cards, commodities futures transactions
Transfer instructions form customers
Transfer instructions, interoffice Transfer record,
securities In transfer
TRIAL BALANCES, CUSTOMERS
TRIAL BALANCES, GENERAL
Wire messages, communications received and sent
(including Intra-office memoranda and
communications)
Regulatory Report
Books and records indication fully paid and excess
margin securities over which the Firm has (and
does not have) possession and control
LOST OR STOLEN SECURITIES
REPURCHASE AND REVERSE REPURCHASE
AGREEMENTS
Ledgers or other records re: transactions in repurchase
and reverse repurchase agreements
1. Transactions not completed on settlement date,
specifying
(a) description and aggregate par value of such
securities;
(b) the purchase price or sale;
(c) name of contra party and the date such securities
are received or delivered
2 years
2 years
3 years
5 years
2 years
2 years
2 years
6 years
Preserve permanently
Preserve permanently
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
2 years
5 years
6 years
6 years
6 years
3 years
3 years
6 years
6 years
5 years
6 years
6 years
2 years
2 years
5 years
1 year
2 years
2 years
2 years
2 year
Preserve permanently
6 to 10 years
5 years
6 years
2 years
2 years
2 years
3 years
6 years
6 years
2 years
2 years
3 years
3 years
3 years
2 years
3 years
2 years
3 years
2. Books and records maintained by firm as syndicate
manager including
(a) description and aggregate par value of securities;
(b) mane and percent participation of each
syndicate member;
(c) terms and conditions governing formation
and operation of syndicate;
(d) purchases order received
(e) securities allotments and price at which sold;
(f) date and amount of any good faith deposit
made to issuer;
(g) date of settlement with issuer;
(h) date of closing the account;
(i) reconciliation of profits and expenses of the account
3. Customer Account Information
(a) New account information, including, e.g., personal
financial background and investment objectives
(b) name of beneficial owner(s) if other than
customer and orders are confirmed to such
beneficial owner
(c) signatures of representative introducing the
account and of the principal approving the
account
(d) customer’s written authorization re his
discretionary account(s); written approval for
account and each transaction therein by
supervising principal (including time and
date of approval)
(e) whether customer is employed by another
broker or dealer
(f) written authorization of, or notice provided to,
customer re hypothecation of his securities
4. Record of written complaints re municipal and
any action taken re complaint
5. Deliveries to purchasers of new issues and
disclosures re underwriting arrangements required
under MSRB rule G-32
(“Disclosures in Connection with New Issues”)
2 years
6 years
2 years
6 years
2 years
6 years
2 years
6 years
2 years
6 years
2 years
6 years
2 years
6 years
2 years
3 years
APPENDIX 2
SUPERVISORY PERSONNEL
Principals
Exams Taken
(Name, CRD No., Title/Position)
(Type, Date)
Series 4, 08/04/83
Series 7, 08/04/83
Series 24, 08/04/83
Series 27, 08/04/83
Series 52, 08/04/83
Series 53, 08/04/83
Series 63, 12/11/1992
Series 65, 04/13/1998
Carl Birkelbach (CRD 1177843)
Chief Executive Officer, ROP, CROP
Location
208 S. LaSalle St., Suite 1442
Chicago, IL 60604 (Home
Office)
315 Elm St.,
Glenview, IL 60025
3518 Hale Lane
Island Lake, IL 60042
OSJ?
OFFICES
If a non-OSJ,
the responsible
OSJ
Date Assumed
Supervisory Duties
August 1983
Office Manager
Date Assumed
Supervisory
Duties
Yes
NA
James W. Murphy
June 2006
No
Home Office
James W. Murphy
February 2007
No
Home Office
James Zurek
November 2006
PRODUCTS AND SERVICES
Product/Service
Exchange-listed securities
NASDAQ securities
Corporate bonds
Mutual Funds
U.S. Government Securities
Municipal Securities
Variable Products
Options
Limited Partnerships
Responsible Principal
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Date Assumed
Supervisory Duties
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
April 1998
August 1983
August 1983
SUPERVISORY FUNCTIONS
Function
FINRA Executive Representative
Chief Executive Officer
Chief Operating Officer
Financial and Operations Principal
Chief Compliance Officer
Senior Registered Options Principal
Compliance Registered Options Officer
Anti-Money Laundering Officer
Continuing Education
Primary Emergency Contact Person
Secondary Emergency Contact Person
Supervisory Control Procedures Principal
Primary CRD Account Administrator
Chief Technology Officer
Responsible Principal
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Thomas Zahn
Carl Birkelbach
Carl Birkelbach
Carl Birkelbach
Date Assumed
Supervisory Duties
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
August 1983
April 2007
August 1983
August 1983
August 1983