BIRKELBACH INVESTMENT SECURITIES Inc.
2009/10
EMPLOYEE HANDBOOK
October 2009
OFFICE AND BROKER PROCEDURE
REGULATIONS *
1.
Birkelbach Investment Securities (BIS or the firm) operates as a fully disclosed correspondent of
Pershing LLC (Pershing), a wholly owned subsidiary of The Bank of New York. Pershing is
responsible for trade executions, confirmations, monthly statements, safekeeping of customer
funds and securities and for maintaining the rules, regulations and reporting requirements of the
FINRA, SEC and MSRB. Pershing will provide a Disclosure Statement to customers within 20
days of opening an account.
2.
BIS staff and brokers will follow the rules, regulations and reporting requirements for
broker/dealers as set forth by the FINRA, SEC, SIPC, MSRB, and various states in which BIS is
regulated. Registered Representatives (RR or Broker) agrees to offer and distribute only the
approved financial programs and services and agrees to comply with all applicable laws and
regulations. The FINRA and BIS require that written notice of any outside business activity is
required before entering that business. RR’s, Officers, managers and clerks give BIS the option of
reviewing IRS tax records to determine if any outside activity is occurring. BIS reserves the right
to end employment of Broker and staff where outside activity is not considered suitable .
3.
BIS will compute net capital monthly in accordance with SEC Rule 15C3-1 and report on Focus
Parts Ι, ΙΙ and Schedule A to FINRA and SEC on a timely basis.
4.
An audited annual report will be prepared and delivered to the FINRA, SEC and appropriate states
on a timely basis.
5.
Assessment reports for the FINRA and SIPC will be prepared, filed and paid on a timely basis.
6.
BIS will maintain all Fidelity Bonds in accordance with FINRA rules and State regulations.
7.
BIS will keep the FINRA manual, SEC rules, MSRB manual, Pershing manual and BIS
procedures manuals updated and available online.
8.
Carl M. Birkelbach is the Series 24 Principal and is the Officer responsible for BIS management.
All Series 24 principals can act as Managers with approval of Carl Birklebach. Operations clerk is
Ronald Gilbert. Order entry clerk is Thomas Zahn. Sales Manager is William J. Murphy.
Compliance Officer is Carl Birkelbach. Brian Lenhart is Compliance Consultant and oversees
trading of Carl Birkelbach. The Options principal is Sen and the Municipal Principal and
Financial Officer is Carl Birkelbach. These positions may change as circumstances dictates.
When appropriate the FINRA will be informed.
* See addendum procedure attached
SUITABILITY
A broker is charged with the responsibility of making recommendations consistent with the customer best
interests. The broker has an obligation to advise the customer of the risks. If the customer insists upon
trading actively, becomes over concentrated, or buys stocks that seem too risky for the customer, the
manager should be informed and the broker should:
1)
2)
3)
4)
Make sure the client understands the risks of trading actively and/or being over
concentrated and can assume those risks; or
If the customer insists on trading actively and/or being over concentrated
Advise the customer of the risks through an “activity letter” or “over concentration letter”
Get a letter of unsolicitation from the client before putting in the trade.
Do not accept the trade (be aware that there may be some liability issues for not accepting
an order).
2
5)
Change the objectives on the new account form with notes and have a manager enter
changes online under “Profile”. See page 13 account changes.
NON-PERSHING TRANSACTION PROCEDURE
1.
2.
3.
4.
All non-Pershing transactions and sales literature must be approved by manager before solicitation
and kept in file.
All non-Pershing transactions will be indicated in writing on the appropriate Trade Date
Statements.
Suitability forms must be filled out and approved by managers for all non-Pershing transactions if
client does not have a Pershing account form.
There are three Suitability Forms:
1)
2)
3)
Insurance and Annuities
Limited Partnerships (For all orders)
Non-Pershing Security Transactions (mutual funds, etc.)
5.
Suitability forms should be completed by the broker and two additional copies made. Broker is to
keep a copy, original will be placed in customer file and the other copy in the appropriate BIS
non-Pershing transaction file for each product
6.
For Limited Partnerships or contingent offerings, BIS, with broker, will determine if minimum or
maximum contingencies have been met, otherwise, provisions will be arranged to return funds to
investors.
NON-PERSHING SECURITY ORDER PROCEDURE
1.
2.
Procedure when BIS calls in order:
A.
Broker gets checks and application/or order (Staff files copy in customer file).
Broker gives to assigned staff member, who gives it to the Operations clerk.
B.
Broker gives order to Operation clerk or Trading Desk.
C.
If not already a Pershing Account with BIS, brokers will complete the
Suitability form.
Broker keeps a copy, original is filed in customer’s file and a copy is filed in
product file.
D.
BIS staff completes order:
1)
Confirm comes in
2)
In some cases the customer pays directly or requests by letter a check
from Pershing account to be issued.
3)
Staff staples confirm to ticket and files in customer file
4)
If fund order, BIS files fund’s first account statement in customer file
OR Procedure when BIS sends in check and application direct:
A.
Broker gives check and application to assigned staff member, who gives to
Operations clerk. Copy is put in customer file and Broker keeps copy.
B.
If not already Pershing account with BIS, broker fills out proper Suitability form
and gives original and copy to Operations clerk. Original Suitability form is
filed in customer file. Copy in Product File.
3
3.
4.
C.
Staff sends check and application to fund or directly to the product’s payment
office.
D.
Staff files first statement in customer file.
OR Customer deals directly with Fund and appoints BIS broker/dealer of record:
A.
Broker fills out Suitability form for customer files if not already a Pershing
account with BIS and gives original and a copy to Operations clerk.
B.
Original Suitability form and first statement are filed in customer’s file. Copy in
product file by clerk.
OR Client adds to their fund account on their own without our knowledge
A.
Staff keeps record of transactions in mutual fund files.
NEW PERSHING ACCOUNTS
1.
2.
Required new account forms for broker:
A.
Broker (obtaining information from customer) or customer fills out new account form.
New account form must be filled out for all customers (Even IRA and non-Pershing
accounts). Broker and customer must sign form. New Anti Money Laundering (AML)
procedures are to be followed. The Compliance officer will send a New Account letter
(listing objectives etc.) to each new customer.
B.
New account forms and first order ticket must be approved by signature of manager
before an order can be entered for new accounts.
C.
New option accounts must have all customer forms in hand and signed by customer,
broker and manager before new account number is assigned and order entered (See
”Special Approval”).
D.
Brokers are required to keep account information (address, phone number, instructions,
financial status and goals available and updated.
E.
For all New Pershing Accounts we will indicate objectives in the “new account letter”
and a request to inform BIS of any changes in objective. After 2007, we will repeat this
procedure annually, for all accounts. Pershing will charge $1.50 per statement, if on their
monthly statement.
Additional Forms Available:
A.
Separate Forms
Cash Account Agreement – 546
W-9 Form (not for IRA)
B.
Resource Checking Forms
C.
Margin Accounts
Margin Agreement – 545
D.
Option Accounts
Margin Agreement – 545
Option Agreement and Approval – 542
4
Option Prospectus – “Characteristics and Risks of Standardized Options” must
be delivered to client
E.
IRA, Pension or Profit Sharing, SEP and Rollover Accounts
Adoption Agreement IRA 104 when appropriate
Beneficiary Forms IRA 101
Contribution State IRA 102
Transfer Cash 151
F.
Miscellaneous Forms.
Account Transfers
Stock Powers
Corporate Resolutions
Discretionary Accounts
Employer’s Consent
Letter of Unsolicitation
Any other applicable forms must accompany New Account Form
G.
New Municipal Bond Accounts
MSRB Investor Brochure (must be delivered to client)
NEW ACCOUNT LETTER
Date:
Name & Address
Re: Account 078Dear:
Welcome to Birkelbach Investment Securities, Inc. We have provided a full range of brokerage services to investors for over
25 years. Through our correspondent, Pershing LLC, a division of the Bank of New York ($90 billion in assets), we offer
superior safekeeping and execution services. For your benefit, we combine these strengths with our own high level of
personalized customer service. Our investment advice is tailored to meet your goals and includes a full range of investment
alternatives and strategies. We will do our best to provide you with the kind of information, analysis and advice that will
assist you in making informed, suitable and comfortable decisions.
The FINRA investor education and protection rule requires us to inform you that the FINRA Regulation web site is
www.finra.org and their phone number is 1-800-334-0668. Should you require more information or a brochure about the
FINRA Public Disclosure Program, or have any questions/complaints regarding your account please call Carl Birkelbach at
312-853-2820, ext. 105. Our Privacy Policy, Contingency Plan and a list of Additional Fees That May Be Applied are
enclosed. In accordance with the USA Patriot Act we are required to establish procedure to detect and report suspicious
transactions. We may therefore use various identification services and ask for documents not previously required. And also we
check for the account holders name in the OFAC list provided by the US Treasury and the list provided by Fincen.
Our Business Continuity Plan is available for you on our website at www.my-broker.com. Please feel free to visit our website
for any updates or changes in our Business Continuity Plan, Privacy Policy, Additional Fees, Margin Disclosure, Pershing
Order Procedure, Commission Schedule, FINRA Regulation, SIPC, Excess Account Protection and our customer account link
to Pershing.
To ensure prompt, trouble free service, please make deposits to your account payable to “Pershing LLC” sent either to our
office or directly to Pershing at One Pershing Plaza, Jersey City, NJ 07399. Please remember to always put your account
number on your check. Do not make out check to Birkelbach Investment Securities, Inc. as they will be returned.
Securities should be sent directly to Pershing with account number on certificates to the Pershing address above.
Below is the financial information you provided your Investment Executive for this account:
Net-worth:
Annual Income:
Investment Objectives:
Risk Tolerance:
5
Years of Investment Experience:
If this information is incorrect, please contact your Investment Executive immediately to correct the information. Please keep
us informed of any changes in your financial situation or investment goals. We value a close Broker/Client relationship.
Should you have any questions, please feel free to call me or your Investment Executive. I sincerely hope that it will be
possible for you to visit our office and to meet you in person.
Yours Truly,
Carl Birkelbach
President
Birkelbach Investment Securities, Inc. may or may not receive compensation for directing order flow in
equity securities. Pershing may also receive such compensation. The source and nature of this
compensation, if any, received in connection with a trade will be furnished upon written request.
CONTINGENCY AND BUSINESS CONTINUITY PLAN
DEAR CUSTOMER
OUR FIRM HAS A PLAN OF BUSINESS CONTINUITY SHOULD FOR ANY REASON
WE EXPERIENCE A SIGNIFICANT BUSINESS DESCRIPTION (SBD). OUR CLEARING FIRM
PERSHING HOLDS ALL CUSTOMER FUNDS OR SECURITIES AND EXECUTES ALL
TRANSACTIONS. SHOULD WE EXPERIENCE AN SBD PERSHING CAN BE REACHED AT
(201) 413-3635 OR ON LINE AT WWW.PRESHING.COM or WWW.NETEXCLIENT.COM EMERGENCY
INSTRUCTIONS CAN BE OBTAINED AT (213) 624-6100 ext 500. OUR WEBSITE IS
WWW.MY-BROKER.COM
SHOULD A SBD OCCUR, WE HAVE FOUR BACK UP SITES 1) 330 S. MICHIGAN AVENUE,
SUITE 1712, CHICAGO, IL 60604, (312)663-9660 AND CELL PHONE: (312) 213-1916. 2) 102 BLUE HOUSE
LANE, SILVERTHORNE, CO 80498, (970) 513-0619 AND CELL PHONE: (312) 213-1916. 3) AN
ALTERNATIVE ARE THE OFFICE OF PERSHING AT 1515 WEST 22ND STREET, SUITE 1000, OAK BROOK,
IL. 60523, (630) 472-7400 AND 4) 3121 NORTH SHERIDAN ROAD, CHICAGO IL 60657, (773)832-9151
PRIVACY POLICY
Dear Valued Customer:
Birkelbach Investment Securities, Inc. collects nonpublic personal information about you from the
following sources:


Information we receive from you on applications or other forms; and
Information about your transactions with us or others;
WE DO NOT DISCLOSE ANY NONPUBLIC PERSONAL INFORMATION ABOUT YOU TO
ANYONE EXCEPT AS REQUIRED BY LAW, UNLESS OTHERWISE REQUESTED BY YOU.
Birkelbach Investment Securities Inc. restricts access to your personal and account information to those
employees who need to know that information to provide products or services to you. Birkelbach
Investment Securities, Inc., maintains physical, electronic and procedural safeguards to guard your
nonpublic personal information.
6
We may disclose all of the information we collect, as we described above, to Pershing, to whom we
have introduced your account. You should review the information it provides you regarding its policies
and practices.
Please do not hesitate to contact us with any questions or concerns you may have regarding this matter.
(312) 853-2820.
ADDITIONAL FEES THAT MAY BE APPLIED
Margin Extensions: $21.00 per event. Returned Checks: $31.00 per event. ACH and Resource Checking returned
checks: $20.00 per event. Resource Checking Stop Payment: $10.00 per event. Retail Customer Confirmation
charge: $5.50 per confirmation. Voluntary Reorganization Activities: $30.00 per event. Custody Fee: $50.00 per
inactive account per year. Legal, GNMA or Restricted Share Transfers: $60.00 per transfer. Register and Ship
Certificates: $60.00 per transfer. Accommodation/Courtesy Certificate Transfers: $40.00 per transfer. Outgoing
Account Transfers: $75.00 per transfer. Foreign EuroClear Receive/Deliver Securities: $50.00 per item. All
Other Foreign Securities: $75.00 per item. Customer Name Safekeeping: $2.00 per account, per position, per
month. Foreign Securities Safekeeping: $2.00 per account, per position, per month. Precious Metals Storage Fee:
75 Basis Points of market value per annum, pre-billed quarterly. Wired Funds: $30.00 per wire transfer. Mutual
Fund and SRS Exchanges (includes confirm fee): $10.00 per exchange. Fractional Share Equity Dividend Reinvestment: $1.00 per item. Overnight Delivery: $20.00 per item. Interest charges on short securities will be
passed through. Other interest charges may apply.
Note: The updated and current version of the “Contingency and Business Continuity Plan” will appear
annually on all customer statements in the March Monthly Statements.
NEW ACCOUNT CHECKLIST
ACCOUNT NAME
___________________________ DATE OPENED_________________
ACCOUNT NUMBER___________________________
RR____________________________
Check when complete FILE IN CUSTOMER FILE WHEN COMPLETE BY STAFF
___ 1.
New Account Form (5 pages)
A.
Filled out completely
1.
White to customer file
2.
Pink to broker
3.
Yellow to customer
4.
W-9 entered through PONA
5.
Scanned into system
( ) done
B.
Signed by broker and approved by manager. Must be accompanied
by order ticket okayed by manager. If customer has not signed Form
550 send to client after copying.
C.
Give New Account Number to Broker (Be aware of Special Approval
Requirements)
D.
Create Customer File
1.
Original new account form (after signing)
2.
New account checklist
3.
Copy of new account letter
4.
Margin/option forms (after signing)
5.
Misc forms/correspondence
6.
Change forms/request forms
_____2.Mailed New Account Welcome Letter with completed/signed yellow new account form
7
_____3. Mailed Privacy Policy, Client Contingency Plan and information on Additional Fees that may be applied.
_____4.1) Identification Received in connection to AML program
_____4.2) Equifax Check Done.
5. Other Needed Documentation
Sent
____
Received back
_____
A.
IRA Forms (Adoption Agreement, Rollover, etc)
____
____
_____
_____
B.
C.
Miscellaneous Forms _______________________
Trust Account Documentation, etc
____
_____
D.
Resource Checking Forms
____
_____
E
Margin Agreement our copy to file
____
_____
F.
Option Prospectus
____
_____
G.
Option Agreement and Approval Form (Must be signed by client and returned
before order can be entered ____ Copy to Pershing sent
____
Copy to Customer sent
____
_____
H.
Transfer of Account Forms (ACATS)
______
Notify Broker if signed forms are not received within 5 days
______
Notify Manager if signed forms are not received within 10 days
_______COMPLETED
_____Date
By_____________
MANAGER APPROVAL____________
ORDER ENTRY AND NET EXCHANGE PRO PROCEDURES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Sign in using password to NetExchange Pro.
Click on account.
Enter account number.
Click on Trade.
Enter stock, option or mutual fund.
For Stock: Click on either: ‘Buy’, ‘Buy to Cover’, ‘Sell from Position’, ‘Sell Short’ (Approval
needed), ‘Sell from Account’, ‘Change Order’ or ‘Cancel Order’.
For Options: Click on either: ‘Buy Calls to open’, ‘Sell Calls to open’, ‘Buy Puts to open’, ‘Sell
Puts to open’, ‘Close Calls &/or Puts’, ‘Sell Covered Calls’, ‘Change Order’, or ‘Cancel order’
(See special approval)
On Mutual Funds: Click on ‘Redeem’ or ‘Exchange’. Don’t forget to enter a commission even if
it is 0. Buy orders are to be written on a buy ticket, approved by manager and ENTERED BY
STAFF. (See Mutual Fund Procedure Section).
Fill out screen – “Use trailers on Confirm” or “Comments or Memo” section when appropriate.
Commissions: If left blank will be full commissions or put in actual amount, MLT: put in discount
or RTE: commission per share.
Click on Review Order
Our “Rules Engine” will ask for special approval on transactions that need manager’s approval.
(See trading desk and manager).
Click on Enter Order.
Check Orders to monitor.
Click on Execution for order execution.
Click on Activity for review of activity.
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SPECIAL APPROVAL
1.
All new accounts must be approved by manager before transaction can take place. Cash or
securities must be received in office, before a trade is entered.
a)
AND for all established accounts where cash or securities are not in account. (Exceptions
must be approved by manager before order entry).
2.
No option order can be entered until option forms are complete, signed by client, signed by broker
and approved by Requested Option Principal (ROP). Option prospectus must be delivered to
customer and customer must understand the risks of options before trading can begin. Option
orders can only be entered for approved type (e.g. covered) and a limited amount. Uncovered
option trades (naked) must comply with Pershing requirements and must have manager approval
before order entry. BIS discourages naked option trading. Settled cash must be in account for all
option trades (Exceptions must be approved by manager).
3.
Trades by brokers under special supervision as defined by the FINRA.
4.
All short sales must be approved by Pershing Stock Loan and manager before entry and ticket
initialed by manager before order entry. Effective January 3 rd, 2005 Regulation SHO significantly
changes the regulation on Short Sales. (See attachment from Pershing dated Dec 15th, 2004
attached)
5.
If stock has no listing or is 15c2-6 “penny stock” proper paperwork must be provided and ticket
approved by manager before order entry.
6.
All discretionary orders should be so marked by broker on the order ticket.
7.
All mutual funds orders: Be aware of suitability, breakpoints, reinstatement privilege and our rules
engine. (See Section on Mutual Funds).
8.
Watch list stocks.
9.
Mark ups on stock transactions.
ORDER DESK
1.
BIS Order Desk is responsible for bringing trades that need special approval to the attention of a
manager for approval. Any problems should be reported to a manager immediately.
2.
Order Desk should not enter order tickets that are not properly filled out where commission or
mark-up are too high or when special approval is required or when rejected by our Rules Engine.
3.
Order Desk will endeavor to comply with the best execution rule. Order desk, manager and the
broker will monitor trades. Problems with best execution are to be reported to a manager
immediately. Time and sales reports are to be requested when discrepancies occur and should be
viewed by a manager on a per item basis.
4.
Principal transactions will be done in compliance with the FINRA’s markup interpretation and
SEC Rule 15c2-11. BIS discourages “penny stock” purchases.
5.
Limit and open orders will be checked by order desk daily for possible review by manager.
6.
All orders tickets will be time-stamped upon receipt and against execution. .
7.
Long and short orders will be identified and short sales will comply with SEC Rule 10a-1.
9
8.
Market orders for customers will have precedence over broker or firm orders.
9.
Execute money market trades in accordance with Customer selection as indicated in the New
Account form.
10.
Manager must be informed of errors immediately. Errors should be handled as soon as possible
with appropriate Pershing trading managers.
The Rules Engine will kick back some orders for approval by manager. Such orders are to be given the
immediate attention of the Order Desk
Summary Order Desk Approval
To Trading/Brokers: Need manager approval BEFORE entry
 Watch list stocks.
 Buy Mutual fund orders.
 Rules Engine rejects.
 All new accounts (all option papers must be in)
 Not enough cash on buy.
 Not enough securities on sale.
 Short sales.
 Transactions away from Pershing
 Mark up transactions.
 Restricted accounts.
 Brokers under special (not Heightened Supervision because of 20% rule).
 Penny Stocks (15c2-6)
To Trading: Make judgment approval (bring to attention of manager) BEFORE entry
 Bulletin board stocks.
 NMS FINRAAQ.
To Trading/ Compliance: May need judgment approval (bring to attention of manager) BEFORE
execution
 Size
 Option orders (open, close)
 Account suitability.
 Discretionary Accounts
OPTION PROCEDURE
1.
Verification of Customer Background and Financial Information. The background and financial
information upon which the account of every new options customer that is a natural person has
been approved for option trading, unless the information is included in the customer’s account
agreement, shall be sent to the customer for verification within fifteen (15) days after the
customer’s account has been approved for options trading. A copy of the background and
financial information on file with the Firm shall also be sent to the customer for verification within
fifteen (15) days after BIS becomes aware of any material change in the customer’s financial
situation. It is the responsibility of BIS registered representatives to keep the Firm informed of
any material changes that comes to their attention with respect to an options customer’s financial
situation.
2.
Account Agreement. Within fifteen (15) days after a customer’s account has been approved for
option trading, the Firm shall obtain from the customer written agreement that the customer is
aware of and agrees to be bound by the rules of the FINRA applicable to the trading of option
contracts and, if the account desires to engage in transactions and options issued by The Options
10
Clearing Corporation, that the customer has received a copy of the current disclosure document(s)
required to be furnished and that the customer is aware of and agrees to be bound by the rules of
The Options Clearing Corporation.
3.
Diligence in Opening Accounts. In approving a customer’s account for option trading, the
Options principal (OP) shall exercise due diligence to ascertain the essential facts relative to the
customer, including the customer’s financial situation and investment objectives. Based upon
such information, the OP shall specifically approve or disapprove in writing the customer’s
account for option trading. The option customer’s New Account Information Form, with the OP’s
written approval or disapproval thereon, shall be maintained by the Firm as part of its permanent
records.
4.
Options –Related Complaints: The Firm shall maintain and keep current a separate log, index or
other file for options-related complaints through which such minimum, the file shall include an
identification of the complainant, the date the complaint was received, the identification of the
registered representative servicing the account, a general description of the matter complained of
and a record of what action, if any, has been taken by the Firm with respect to the complaint. For
the purposes of this policy, the term “Options-Related Complaint shall mean any written statement
by a customer or person acting on behalf of a customer alleging a grievance arising out of or in
connection with options.
Suitability and Requirements for Uncovered Options
All documents for uncovered options must have the approval of the Option Principal. Such accounts must
understand the risks of uncovered options and must be financially able to assume such risks. Also the
trading of uncovered options must be consistent with the client’s investment objectives.
Also the client must have free cash balances of at least $25,000 and have a net worth of over
$100,000 (minus home) in order to qualify for trading uncovered options. Our initial and maintenance are
the same as Pershing LLC requirements. Details of these requirements are in our Margin Addendum.
ACCURACY CHECK
1.
Broker is to check “filled” order ticket or execution on NetExchange Pro for accuracy.
Inform manager immediately of any errors.
2.
Broker is to communicate with customer. Any order misunderstanding or error must be
reported immediately.
3.
Broker is to check new account information against account profile (See “Account
Changes” form).
4.
Broker is to check confirmation against order ticket or execution on NetExchange Pro.
Errors, again, should be reported to manager immediately.
5.
Broker is to check confirm against money line, daily status reports and monthly
statements. Report errors to manager immediately.
ACCOUNT CHANGES
1.
Change in account information and instructions can be obtained by completing a “Change
Form”, and returning to Operations Department for approval and entry to system.
11
2.
Copy of approved form to customer file by Staff.
3.
All Address Changes will be verified by Pershing by sending out duplicate letters to both
addresses (Pershing Bulletin #2003-39 April 2003). Pershing will charge us $1.00 per
event. (attachment #14).
CONFIRMS
1.
Confirms (Office and RR copies) are issued by Pershing and are available online under
E-Document suite in Net exchange.
2.
Confirms are to be compared to order ticket or computer execution ticket and stapled to
Office Copy by Staff. Any Discrepancies are to be reported to manager immediately.
3.
Confirms and computer executed tickets are to be filed and kept for six years.
4.
Broker copy of confirms is to be given to the broker immediately upon receipt for error
review.
TRADE DATE STATEMENTS
1.
Trade date statements are delivered to BIS daily by messenger from Pershing.
2.
Green copies of trade tickets or copies of computer execution are to be stapled to confirm
as above and then to trade statement.
3.
Memorandum of non-Pershing transactions and checks received for non-Pershing items
are to be put on trade date report by staff.
4.
Trade statement is to be filed and kept for six years.
SETTLEMENT DATE STATEMENT
1.
Settlement date statements are delivered daily by messenger from Pershing Chicago.
2.
Information on settlement statement should be compared with trade date settlement.
3.
Discrepancies are to be reported to manager who will report to Pershing Chicago.
4.
Settlement statement is to be filed and kept for six years.
BOOKS AND RECORDS
BIS will keep records of trading books and records for seven (7) years and will be available for Regulators
within six hours.
VARIOUS DAILY STATUS REPORTS (Margin Calls, Option treatment, Deficient Accounts,
cash/Securities Due, Delinquent Accounts, Missing Forms, State Regulation, etc)
1.
Morning reports are produced by computer printout every morning.
12
2.
These reports are to be reviewed by the manager daily.
3.
Various reports are also available on Net Exchange.
MONTHLY STATEMENTS
1.
CDs of monthly statements are delivered to BIS each month by messenger from Pershing.
2.
Monthly statements are available to each broker on line.
3.
BIS will keep CD’s of monthly statements in fireproof box for reference in addition to
online access.
4.
Discrepancies are to be reported to manager who will report them to Pershing Chicago.
5.
Monthly statements CDs are to be kept for 6 years in fireproof box.
COMPLIANCE
Customer Complaints should be immediately reported to the Compliance Officer. Compliance
officer is to review and initial each order ticket original after each trading day to check for
compliance with FINRA/SEC/State rules. The responsibilities of the Compliance Officer are
generally outlined in our Internal Check List, Supervision Outline and the FINRA Compliance
Checklist. These are kept in BIS General Compliance File for reference. All complaints should
be reviewed immediately by manager and all complaints must be maintained in firm’s separate
“Complaint File”. BIS is required to electronically report all customer complaints received to the
FINRA (before the 15th day of the month proceeding the end of the quarter) or immediately if
there is the occurrence of ten (10) disclosure events. We have retained the services of attorney
James Moylan to assist with our procedures and have subscribed to compliance insights with daily
compliance update via the internet.
MONTHLY COMMISSION REPORTS
1.
Monthly commission reports are to be used to calculate monthly broker commissions are
paid monthly in accordance with Broker Procedure.
2.
BIS will follow Payroll Procedure.
ACCOUNT CHANGES
CONDITIONS
OF
OBJECTIVES,
MATERIAL
CHANGES
OF
FINANCIAL
1. Fill out “Change of Customer Account Form”.
2. Copy of approved form is filed in customer file and/or in general file.
3. Consider signing out a new “New Account Form” to be signed by the customer.
4. Manager will make changes on line under the “Profile” section
DISTRIBUTION REQUESTS
1.
2.
Requests for delivery of cash or securities out of customer’s account must be
accompanied with instructions signed by the customer by a “Letter of Instruction” and/or
a “Distribution Request Form”, to be forwarded to Operations clerk and approved by
manager. Form is held in general file. Requests are then entered into the Pershing
System.
Journals of cash securities between accounts must have manager’s approval on Broker
Request Form and appropriate authorizations.
13
HANDLING OF SECURITIES AND CHECKS
1.
Securities are not accepted and checks are to be delivered or mailed to Pershing by client.
Any checks received by BIS will be recorded on delivery blotter and be kept for three
years as per the record retention requirement.
2.
Checks in payment of purchases are to be made payable to Pershing-LLC. CHECKS
MADE OUT TO BIS WILL BE RETURNED. Third party checks and money orders are
not acceptable.
3.
Neither BIS or Pershing accepts cash. Under rule 17a8 any attempt to deliver cash above
$10,000 must be reported to the Commissioner of the IRS on form 4789 within 15 days
of attempt to receive said cash. Any attempt to deliver said cash will be scrutinized under
BIS Anti Money Laundering procedure.
4.
Any checks received by BIS will be delivered that day to Pershing for shipment overnight
(See “Dual Monitorship Procedure” below), or deposited in Pershing LaSalle National
Bank account in Chicago.
5.
Pershing acts as BIS Direct Inquirer with Securities Information Center under SEC Rule
17f-1.
OK DEPOSITS
•
Customer’s personal checks must be drawn on a domestic bank and payable to Pershing
LLC and can be deposited only into the same customer’s account. Checks drawn on joint
checking accounts may be deposited into either customer’s account.
•
Checks drawn on accounts of any party must be payable to the customer or to Pershing
(for the benefit of the customer) in order to be deposited into the customer’s account.
Business checks are an example of this type of check. Please use extra care when
handling these kinds of checks and if the check involves a large sum, we will verify in
accordance with BIS Anti Money Laundering Policy.
•
If our client uses a local deposit facility or forwards checks to Pershing or BIS, we must
ensure that the correct customer account number is written on check for accurate posting.
UNACCEPTABLE DEPOSITS
.
Checks made out to Birkelbach Investment Securities, Inc
•
Cash, money orders, and travelers checks.
•
Bank checks (non-personal) under $10,000.
•
Foreign items and thrift withdrawal orders.
•
Checks with a double endorsement (Endorsed by payee for the benefit of another party).
•
Checks returned by the bank for insufficient funds will not be re-deposited. These checks
must be replaced by either wired funds or a cashier/certified check.
•
Checks referring to more than one Pershing account number.
14
•
Checks drawn against lines of credit.
All funds deposited into customer’s accounts will be held for seven business days before any
withdrawals can take place. However, the funds may be invested or swept to a money market
fund and will be reflected in both the trade date and settlement date balances. They will be
displayed on the Broker View Moneyline (MLA) screen as “Funds Unavailable”. To arrange for a
ten-day hold option, broker should contact manager, who will contact the relevant Pershing
Account Manager).
DUAL MONITORSHIP
For safety purposes mail is to be opened by and checks and securities are to be given to an assigned staff
member. This staff member will keep a list of checks and securities received and then give the checks or
securities to the Operations clerk who will make out a blotter of checks and securities delivered to
Pershing. A third assigned person will monitor the two lists to make sure they coincide. Discrepancies are
to be reported to Carl Birkelbach immediately.
RULE 15C2-6 PENNY STOCK
BIS discourages the purchase of “penny stocks” as defined by SEC. Brokers should be aware of
SEC Rule 3a51-1 which defines any non-FINRAAQ security priced below $5, other than some
exceptions (SEC 15a-1), as a “penny stock”. Orders must be placed in accordance with SEC Rule
15c2-6. A Special Suitability letter must be signed by client and received by BIS before order
entry. Manager must approve each such purchase. SEC Rule 15c2-6 requires:
1)
2)
3)
4)
Disclosure document
Current bid/ask price
Commission or other compensation
Monthly statement with market value
EXTENSION/UNPAID DEBTS
Any problems of client non-performance are to be reported to a manager immediately.
1.
Brokers should check money line daily for unpaid debits and non-delivery of securities.
Pershing will be informed and given approval for necessary extensions. Pershing will
charge a fee for extensions and mail grams. Brokers are to communicate with Pershing
only with manager’s permission.
2.
All unpaid debits will be deducted from broker’s net commissions. All differences are to
be paid by broker to BIS.
3.
Interest charges arising from unpaid debits and inactive fees etc, will be charged to
broker’s net commission account as billed by Pershing or paid to BIS.
4.
All buy-ins and unsecured debts are the responsibility of the broker. Losses will be the
responsibility of the broker and deducted from brokers net commissions and if not
adequate to pay the debit, the broker is to pay BIS by check immediately.
ARBITRATION and DISPUTES
1.
Dispute and dollar claims of clients of the broker are the financial responsibility of the
broker, including legal fees. Costs associated with disputes are payable to BIS by broker
immediately and/or payable from net commissions earned by broker.
15
2.
BIS has the sole right to settle dispute or submit to arbitration or mediation. Costs
associated with settlement are payable as above.
3.
Broker agrees to abide by the decisions and awards of arbitrators and to pay attorney fees
and all costs associated with client claims and awards.
4.
Brokers and staff agree that all disputes between them and BIS (not settled by agreement)
can only be remedied through FINRA arbitration or mediation.
QUOTATION PRIVILEGES
Each computer that gives quotes etc. on Net Exchange Pro, costs BIS approximately
$500 per month. Some of these costs may be charged against brokers’ net commissions.
Independent contractors who use Net Exchange Pro out of the office may also be charged
for quotation privileges.
TELEPHONE
1.
2.
When making outbound telephone calls, the member must disclose promptly and in a
clear conspicuous manner to the called person the following information:
1)
The identity of the caller and the member firm;
2)
The telephone number or address at which the caller
may be contacted; and
3)
That the purpose of the call is to solicit the purchase of securities or
related services
Brokers will be charged against commission for all long-distance calls and appropriate
800 charges when they are extraordinary (to be determined by broker and manager).
2.
All collect calls will be charged against broker’s net commissions.
4.
BIS discourages cold calling. FCC rules will not permit cold calls except during the
hours of 8 a.m. to 9 p.m. In addition, telephone customers have the option of being on a
“do not call list”. BIS brokers will honor this FCC rule and abide by its implications.
Any fine imposed on the firm by the FCC because of the improper actions of the broker
will be the responsibility of the broker and deducted from net commissions. If a script is
used it must be approved by the compliance officer. A new law allows the public to be
put on a national “don’t call” list. We will abide by the law and not call those listed on
the national do not call list. We will keep our own “do not call” list.
MEDIA QUOTES:
Quotes of Birkelbach Investment Securities employees in the written media will be made
available online on our website at www.my-my-broker.com under “Media Quotes”link.
In addition when possible a hard copy will be kept and included in a file for records.
Radio quotes need not be recorded but TV interviews should be kept online
RESEARCH
1.
Only approved research by compliance officer is to be mailed to clients.
2.
BIS will maintain a file of all research with approved initials or signature and date of
approval.
16
3.
Research reports done “in house” by brokers will be approved as above. It will be the
responsibility of the broker/writer to maintain the file with:
1)
2)
3)
BIS reports and updates
Annual and quarterly reports
Any additional pertinent information
These files are the property of BIS and will remain with the firm should the broker leave.
4.
Broker who writes “in house” research (or those who help in the preparation of the
report) will refrain from trading in his/her own account on subject of research for 2 (two)
days before and 2 (two) after issuance of the report. All postings on our website must be
approved by the manager.
5.
Broker that has large positions in any one stock should maintain their own research file
on that stock. Keep for 6 (six) years.
RULE CHANGES
Brokers must be aware of all changes in FINRA regulations and changes in Birkelbach Investment
and Pershing procedures. Brokers must maintain a Broker Procedure file with updates. FINRA
announcements and Pershing bulleting notebooks are kept in the office library. It is broker’s
responsibility to keep current on all rule changes. The FINRA website come up automatically on
the Internet explorer in the office. We will have an annual meeting and other meetings as required
for review of rules, training and education.
INSIDE INFORMATION POLICY
The Insider Trading and Securities Fraud Enforcement Act of 1988 requires firms and individuals who are
in a position to be aware of information that is not generally known by the public, to keep such information
confidential. Generally speaking, the Supreme Court’s 1980 decision in Chiarella vs. United States holds
that “anyone in possession of material inside information…must abstain from trading in or recommending
the securities concerned while such information remains undisclosed”.
Since insider-trading restrictions come into play only when information is both material and non-public, it
is important to understand when these terms apply. As a practical matter, information whose disclosure
would affect the market price of a security is likely to be found material. This information remains “nonpublic” until it has been disseminated in a manner making it available to investors generally (i.e.: one or
more newspapers, news services, etc.) A small group of brokers or institutional employees should be
further cautioned that even after information is released to the press, insiders are required to wait a brief
period (24 hours) for the market to absorb the previous “non-public” information before they can act.
In the case where one of the firm’s employees does come in contact with “material non-public material
information”, the employee is required to disclose this information to the firms Compliance Officer. The
stock would then be put on a “restricted list.”
1)
2)
3)
4)
This information will be put in a sealed envelope in the research file of the
company for record keeping purposes.
This information will be restricted to as few people as possible and will
not be talked about so others can hear or discussed with anyone.
Any employee aware of insider information will be restricted from trading
in the security in their own account and for client accounts except on a strictly defined
“unsolicited” basis without discussing inside information with customer.
The definition of “employee” may include the employee’s spouse, minor
children, relatives or persons residing with the employee or to whose support the
employee contributes.
17
For monitoring purposes, a highly confidential “Watch List” will be maintained by the compliance office
on stocks which employees are likely to obtain insider information.
Daily monitoring of trades (called for under “Office Procedure”) will be used to watch for inappropriate
activity in employee accounts.
This policy statement is not intended to result in the imposition of liability that would not exist in the
absence of such policy statements and does not address all implications of the law, but is meant as a guide.
Each employee should be aware of the January 1989 summary by FINRA and full implications of the
Insider Trading and Securities Fraud Enforcement Act of 1988.
LETTERS
All letters to customers must be approved and initialed by manager before mailing. A
copy of all correspondence is to be held in special correspondence file.
SEMINARS
No seminars are to be held without the approval of manager
ADVERTISING
No advertising is to be done without prior approval of BIS manager and FINRA advertising department.
MEDICAL EXPENSES AND INSURANCE FOR BROKERS
All medical expenses and insurance are the responsibility of the broker. Special arrangements can be made
for insurance with the approval of management.
COMMISSIONS AND MARKUP POLICY
1.
2.
3.
4.
5.
6.
7.
The minimum commission on any agency trade is $65.
Our standard commission on stocks and options are 5% above our April 4, 1994 schedule and at
times for low priced trades may be above 5%.
There is a $5.50 handling fee charged for each transaction.
For mutual funds we shall charge only the allowed load on any load fund while allowing for
“breakpoints”, “reinstatements” and any other privileges. Sales on load funds can be charged a
commission to cover our cost. (See mutual Fund Section).
For both the corporate and municipal bonds, our commission is $5 per bond, we will mark up or
mark down the bonds appropriately keeping with the 5% general rule.
If transactions are only partially filled, we shall charge only pro-rated commission based on our
schedule.
Mark-up on stocks needs pre approval by manager. Mark-up is to appear on client confirmation by
Pershing.
PAYABLE COMMISSIONS
Brokers are paid on the 15th (or closest business day) of every month for the previous month’s
production. Deductions will be made for Pershing charges and net charges for extensions, interest,
state registration, unpaid debts, long distance phone calls, express mail, client disputes/debits and
any other appropriate charge. In November or December of each year, a FINRA and State reregistration fee will be deducted from net payable commissions. Upon registration or dismissal, a
U-5 form will be issued and a $100 handling fee will be deducted from broker’s commission
18
payout. It is understood and agreed that the broker waives commissions until BIS is in receipt of
cleared fund for such commissions. Broker payout is as scheduled below unless under “special
payout” is agreed to and recoverable as stated below.
Broker Payout
Standard Schedule
Monthly Adjusted Gross
After
Pershing Charges
0
to
$2000 to
$5500 to
$10,000 to
Above $20,000
$2000
$5499
$9999
$20,000
Independent Broker Payout (Outside office)
Monthly Adjusted Gross
Below $5000
Above $5000
Payout
25%
33%
40%
50%
55%
Payout
50%
55%
Taxes
Account Executive who agrees to be an independent contractor, thereby agrees to pay and report
appropriate Social Security, Federal Income, State and other taxes and waives any right for these
taxes to be paid by BIS.
RECOVERABLE
“SPECIAL
PAYOUTS”
REGISTRATION/EDUCATIONAL FEES
ABOVE
SCHEDULE
AND
If a broker leaves or is dismissed for any reason registration fees (FINRA etc.), promotional
payouts paid above the standard schedule and educational fees paid by BIS will be recoverable on
the following basis, for each current year and will be deducted from net commissions or payable
by check to BIS
Before 1 year 100%
After 1 year 50%
After 2 years -0•
.
New brokers registration fees and state fees are approximately $500.
U-5- Fees and handling $100.
OFFICE ETIQUETTE
Proper business attire and office decorum is required. There shall be no gender, sexual oriented, racial,
ethnic or religious, age related or any other type of discrimination. Swearing is not acceptable and will not
be tolerated. We must treat each other with respect. Each employee will act in accordance with our antiharassment policy and procedure. Any problems or suspected violations should be reported to manager.
Addendum: Anti Harassment Policy is attached
19
LOCK UP AND SECURITY

Computer Security
Do not download any software. At the end of the day close all Internet links.

General Security
1.
The last person to leave the office is in charge of shutting off all machines and equipment,
shutting off all lights and locking all doors.
2.
Computer monitors should be turned off at the end of each day.
3.
Turn off computer every weekend.
4.
Turn off the lights in your office when you leave at the end of the day.
5.
All personnel are responsible for secure maintenance of office keys and building security
passes.
SARSEP PROGRAM
After 6 months of full time employment, employees (not independent contractors) are eligible to
participate in our SARSEP program as regulated by IRS requirements.
BROKER/STAFF VACATION AND SICK DAYS
Commission brokers and staff must get permission and approval for all vacations 7 days prior to any
vacation. Sick days must be excused by a manager. Resigning requires a two-week notice.
Staff only:
Under 1 year- no paid sick days, no vacation
1-2 years- ½ paid for sick days (limit 10) one week paid vacation
Over 2 years-10 paid sick days. 2 weeks vacation
MEDICAL INSURANCE
Salaried staffs are entitled to participate in the firms Medical Insurance program on the 1 st of the month
after a 60-day waiting period of full time employment. Each entitled employee will share 50% in expenses
with BIS or 65% staff and 35% BIS in the case of family insurance. Employee must fill out proper forms,
meet enrollment standards and be accepted by our provider before coverage begins. We will inform
terminated employees promptly about Illinois States Health Continuation policy. (See Administrative
Guide for further information.) BIS will pay only for the first month of insurance costs for an employee
who is incapacitated. After the first month the employee is responsible for each monthly payment if absent.
If an employee is absent for six months the employee will be terminated. The employee will also be
terminated if insurance payments are not paid in full after the first month of incapacitation.
LARGE MAILINGS
Large mailings must be approved by a manager and in some cases will involve splitting the costs of such
mailings between BIS and broker. Overnight mail will usually be at the expense of the broker.
20
SHARING IN ACCOUNTS
Rule RFP Article lll Section 19 (f) and RFP Article lll, Section (b) (1) prohibits any FINRA member or any
associated person with a member firm from sharing directly or indirectly in the profit or losses in any
account of a customer.
MUTUAL FUNDS PROCEDURE
1.
Before entering an order for a mutual fund, broker should check with client to discuss with client
issues relating to mutual funds concerning suitability, right of accumulation, letter of intent, class
differences and breakpoints. In addition mutual fund clients should be aware of the following
a. Recent economic studies indicated that A shares, particularly if breakpoints are
obtainable, may be more appropriate than B shares, when objectives and time horizons
are considered.
b. C shares may also be inappropriate for longer time horizons, as they do not convert into
A shares, and may therefore on a long term basis, be more expensive.
c. Broker has examined if linkage exists to other same name accounts of the same mutual
fund family, to see if breakpoints can be obtained.
d. In addition, splitting of an order between various mutual fund families may be
inappropriate if breakpoints were obtainable had only one fund family been chosen.
e. Reinstatement privileges may apply if prior buying and selling of the same mutual fund
has been done within a period of 90 days to as much as one year.
f. Switching from one family of funds to another may be costly and inappropriate. Also if a
customer switches in and out of funds in the same family too often, the customer may
become restricted from such switches by the fund family.
g. A letter of intent can reduce breakpoints and Dividend and capital gains can be
automatically reinvested.
h. The firm and its brokers do not recommend the purchase of investment company
securities, before an ex dividend date or employ or state that such purchases are
advantageous unless there are specific clearly described reasons (such as tax advantages).
The firm and its brokers shall not represent that the distribution of long-term capital gains
should be reviewed as part of the income yield. Customers will be informed about the
cost of redemption, including any backload and the right to redeem shares directly
through the fund. Redemptions on load funds through our Pershing system will be done
as an accommodation at a maximum commission of $65 per trade.
i. MUTUAL FUNDS REINSTATEMENT POLICY: We can offer through Pershing the
“Reinstatement Privilege” for mutual funds.
Sample: The John Hancock Fund
Reinstatement Privilege: If you sell shares of a John Hancock fund, you may reinvest
some or all of the proceeds in the same share class of any John Hancock fund within 120
days without a sales charge, as long as Signature Services is notified before you invest. If
you paid a CDSC when you sold your shares, you will be credited with the amount of the
CDSC. All accounts involved must have the same registration.
Sample: The Sun America Fund
Reinstatement Privileges: If you sell shares of a Fund, within one year after the sale you
may reinvest some or all of the proceeds of the sale in the same share class of the same
fund without a sales charge. A shareholder may use the Reinstatement Privilege only one
time after selling such shares. If you paid a CDSC when you sold your shares, we will
credit your account with the dollar amount of the CDSC at the time of the sale. All
accounts involved must be registered in the same name(s).
21
Please note that we should make our mutual funds clients aware of this privilege. We will
watch for the mutual fund privilege through our Net Exchange Pro Rules Engine (120days) and through individual monitoring of account changes in mutual funds. Please
notify your manager for special instructions when placing a “Reinstatement Privilege”
Order.
2.
The Compliance Officer or a manager will conduct an interview with each broker before a Buy
mutual fund order is entered in which he will go over the points listed above of our procedure and
will follow Breakpoint Checklist and Worksheet (A shares) and will make notes about the
interview. These mutual fund order tickets, executions, confirms and notes will be kept and held
separately by the Compliance Officer. However, it is the broker’s responsibility to be in
compliance with the mutual fund rules. (See Mutual Funds addendum).
3.
We have a procedure that reminded our brokers of regulatory issues involving mutual funds and
procedure to send a letter to each client after a mutual fund purchase, outlining mutual fund issues
including a statement as follows: “You have examined if linkage to other same name accounts of
the same mutual fund family, to see if breakpoints can be obtained”. In October 2004 we began
sending the Breakpoints Disclosure Statement in addition to the letter. (See Mutual Funds
addendum).
4.
Our staff will enter the approved BUY order into the Pershing system. As stated above it is part of
our procedure to ask the client about linkage at other firms and we confirm that communication to
the client with our letter .If we find out after the trade (with newly obtained information) that
breakpoints were available to the client, but not exercised, we will credit the client’s account or
send a check to the client for the dollar difference, including interest.
5.
The broker is responsible for refunds and losses, interest and or fines that result because of the
non-compliance with the above procedure.
Orders Placed Directly by the Client with the Fund
Orders placed directly by the mutual fund are done by client sending a check directly to the fund
(sometimes without our knowledge) for purchases or in some case of sales, by giving instruction directly to
the fund. The firm will maintain separate records of these transactions. For new accounts, a client must fill
out and sign a new account form in which we (BIS) are designated as broker-dealer of record.
Commissions and statements are sent to us directly by the fund. All other compliance factors are the same
if the trade were out through directly.
MUNICIPAL BONDS (NTM – 94-34)
The firm will maintain a list of brokers doing business in municipal bonds. Brokers doing municipal bond
business must comply with MSRB Rule G-37 and disclose to the firms compliance officer any political
contributions of their or family members over $250.00. The firm will maintain a list from the daily trade
date sheets of States in which municipal bond business is done and of the political contribution over
$250.00. Any brokers doing municipal bond business will receive special training and instructions from
the compliance and sales manager.
MSRB RULE G-8, G9, G-19 AND G-27
Procedures for handling municipal accounts are the same as for equity accounts, as is monitoring
procedure. Other compliance information and procedures are kept in our Compliance File under Municipal
Bond Compliance.
22
GIFTS AND GRATUITIES
Rule RFP Article lll, Section 10 prohibits any FINRA member or any person associated with a member
firm from giving an employee of another member any gift or gratuity in excess of $100 per individual per
year. Such minor gifts as lunch, and small promotional gifts are acceptable. All BIS brokers are to report
receiving any gifts and/or gratuities to BIS manager, which will be maintained in our Gift, and Gratuities
file. There will be no “soft dollar” arrangements at BIS.
CONTINUING EDUCATION
Regulatory Element
A Continuing Education Training Program is mandatory for all Birkelbach Investment Securities (BIS)
Brokers (who are registered under the following FINRA Series 7,24,27,63). In addition, our brokers will
be required to take a three hour interactive computer training program administered by the FINRA within
120 days on their second registration anniversary of their initial registration and as required thereafter. If
any BIS broker does not complete the requirements of the program he/she will not be permitted to do
business until requirement is met. We will maintain a file for all RRs scheduled to complete the training
element and monitor the results. We will ask for feedback from RRs on our training program and the
FINRA administered program.
Firm Element
Continuing Education Training Program at a minimum will cover 1) general investment features and
associated risk factors; 2) suitability and sales practice consideration; 3) basic techniques for pricing
investment products, and features such as liquidity, taxability, callability and convertibility; 4) applicable
regulatory requirements; 5) any matter which may periodically be required by BIS; 6) RR feedback; 7) the
Anti Money Laundering Policy at BIS; 8) prohibition on using mortgages to fund investments; 9) ethics
and the anti–RR harassment policy.
Our program will be administered by Carl Birkelbach. In addition, to our annual compliance meeting, we
will have regular meetings in which we will give out educational and informational material and have
discussions about risks in the markets and rules and regulations, stressing suitability and sales practice
considerations. In addition, we will provide educational training in financial planning, which will stress the
long-term view of investments and we will discuss products associated with financial planning, such as
mutual funds, annuities and insurance. Discussion will also include ethics.
BIS will complete a Needs Assessment Report annually, which will coincide with our annual compliance
meeting. All Employees should be aware of these topics and request additional training where appropriate.
We will have an annual meeting based on our needs analysis
ANNUAL EVALUATION
Once a year we shall evaluate staff. These evaluation reports can be made the first week in January or July
and will be maintained by BIS in a permanent file.
INFORMATION UPDATES
Brokers must be aware of all changes in FINRA regulations and changes in BIS and Pershing procedures.
Brokers must maintain a Broker Procedure file with updates. FINRA announcements and Pershing bulletin
notebooks are kept on line and in the office library. It is broker’s responsibility to keep current on all rule
changes. We have an annual meeting and other meetings as required for review of rules, training and
education. Brokers are required to keep up to date on the FINRA web site.
23
The compliance officer will also, disseminate FINRA, Pershing and BIS information updates. However, the
broker remains responsible for absorbing such information. This procedure will be updated on our Website
www.my-broker.com under the section titled “BIS Office Procedures”, with
Username: birkelbach, Password: investments
CRD SYSTEM
The FINRA has initiated a new CRD system via computer modem. BIS will use this system via the
internet.
Compliance with the Order Trail Audit System (OATS) is complied with through Pershing.
ORDER FLOW
Order flow disclosure will appear on the new account welcome letters, every confirm and on the March
monthly statement. BIS will comply with SR-FINRA-2002-46 regarding TRACE reporting.
COMPLIANCE/OUTGOING CORRESPONDENCE
Absolutely no one is allowed to mail or fax any item without prior written approval (by initial on item)
from Carl M. Birkelbach or William J. Murphy. Also, after the item is approved, a staff member will fax it
for you, and if the item is to be mailed, please make sure that you do not seal your envelopes so that items
can be reviewed by the Compliance Officer.
This is in compliance with FINRA Rule 30-10, Section D which states, “Each member shall establish
procedures for the review and endorsement by a registered principal in writing, on an internal record, of all
transactions and all correspondence of it’s registered representatives pertaining to the solicitation or
execution of any securities transactions.”
SUPERVISION IN AN ELECTRONIC ENVIRONMENT
A.
FACSIMILE
All Fax communications both incoming and outgoing concerning BIS or its customers needs
to be pre-approved by a manager before transmission. These Fax transmissions will be
entered on only a designated Fax machine located in the BIS office and will be transmitted by
a staff member or manager. BIS will maintain a hard copy (with approval signature) in a file
for all these Fax transmissions. Any private communication via Fax that does not concern
BIS or its customers that uses these designated machines, need not be pre-approved or put in
our file.
B.
E-Mail
All our brokers and staff have been assigned office email addresses and these email IDs are
strictly for official purposes. Employee’s emails will be monitored on a daily basis by a senior
manager and if the email contains any misleading or promising phrases the email will not be
sent unless the wording is changed as per the requirements by FINRA. If any customer
complaint is received via email the necessary steps pertaining to FINRA filing and record
retention will be followed the same way as if the complaint was received via regular postal
mail. SECCAS will retain records in their database for a minimum period of three years as per
the record retention requirement by FINRA.
Our E-mail service is provided by SECCAS,(Secure Electronic Communication
Compliance Archive System). Seccas maintains all our emails on an archive system which
enables us to view all the sent and received emails on a supervisory basis. Also Seccas does
24
the necessary filing with FINRA with regards to Electronic Communication (E-Mails). The
contact person for us is Brian Parks and his contact details are
Brian Park
brian@seccas.com
SECCAS LLC
(212) 242-9308 x119
Also the individual email addresses for all our employees are listed below:
ajones@my-broker.com
akershner@my-broker.com
bkorsgard@my-broker.com
bcastille@my-broker.com
carlbis@my-broker.com
dfeldman@my-broker.com
jstone@my-broker.com
jstead@my-broker.com
jzurek@my-broker.com
lkopulos@my-broker.com
mjoyce@my-broker.com
rishi@my-broker.com
rbarczak@my-broker.com
rgilbert@my-broker.com
sen@my-broker.com
smann@my-broker.com
tmeany@my-broker.com
tzahn@my-broker.com
bill@my-broker.com
wturner@my-broker.com
Enclosures: Letters from Seccas in the Addendum Section
C.
WEB SITES
BIS brokers or staff members will not be allowed to have a private Web-Site without the
approval and supervision of a BIS manager. Reference to BIS or its brokers on any Web-Site
is not allowed without pre-approval and supervision of a BIS manager.
DAY TRADING
BIS does not encourage Day Trading. On July 10, 2000, the Securities and Exchange Commission (SEC)
approved rule changes proposed by the National Association of Securities Dealers, Inc. (FINRA) that
require a firm that is promoting a day-trading strategy to furnish a risk disclosure statement to a noninstitutional customer prior to opening an account for the customer. The firm will further be required to
either: (1) approve the customer’s account for a day-trading strategy; or (2) obtain from the customer a
written agreement that the customer does intend to use the account for day-trading purposes. As part of the
account approval process, the firm will be required to make a threshold determination that day trading is
appropriate for the customer. We define day trading as a regular strategy for buying and selling securities in
the same day on a regular basis. Any customer using a day trading strategy on a regular basis should be
reviewed and if appropriate approved by the Compliance Officer. (See Addendum #18 FINRA Rule 2520)
25
BUNCH ORDER PROCEDURE REMINDER
1.
2.
3.
4.
5.
When placing an order ticker (either buy or sell) in either the “average price account” 078-897774, or
the “principal trading account” 078-891009, ticket(s) for the assigned account(s) must be presented
with that order ticket.
When the order is executed and time stamped, either partial or complete, the assigned account(s) must
be marked and “time stamped” immediately. (90 seconds)
The order in which partial fills and complete fills are to be marked and time stamped, is determined by
either
3.1. Time in which order is received
3.2. Random basis
3.3. Rotational basis
3.4. Assigned method
Trader, broker and Compliance Officer should monitor execution price.
Compliance Officer will indicate procedure followed by initialing ticket.
IPO’s and SECONDARIES
IPO’s and Secondaries will be handled according to FINRA & SEC regulation and on a “best effort”
basis only. Distributions to clients can be determined as in #3 above or by management meeting.
Margin Disclosure Statement
As of June 4, 2001 we have begun to provide our new margin clients with the below Exhibit #1
“Margin Disclosure Statement” prior to our opening a margin account. The Margin Disclosure
Statement will be submitted to clients with the existing Account Margin Disclosure Statement.
Pershing plans to deliver the required abbreviated Margin Disclosure Statement to all of our margin
clients on an annual basis. We will monitor. (See Addendum Pershing 2004-75 dated Dec 3rd, 2004
and Pershing Margin Requirements).
Exhibit #1: Annual Margin Disclosure Statement
Dear Valued Customer:
The following are important facts to consider regarding your margin account.
Securities purchased on margin are your financial organizations and Pershing’s collateral for the loan to
you. If the securities in your account decline in value so does the value of the collateral supporting your
loan. And as a result your financial organization or Pershing can take such action such as issue a margin
call and or sell securities or other assets in any of your accounts held with Pershing in order to maintain the
required equity in the account. It is important that you fully understand the risks involved in trading
securities on margin. These risks include the following.
 You can lose more funds that you deposit in the margin account
 Your financial organization or Pershing can force the sale of securities or other assets in your
account(s)
Note: The Margin Disclosure appears on March Monthly statements annually on all customer
statements
 Your financial organization or Pershing can sell your securities or other assets without contacting
you.
 You are not entitled to choose which securities or other assets in your account(s) are liquidated or
sold to meet a margin call.
 Your financial organization or Pershing can increase its “house” maintenance requirements at any
time and is not required to provide you advance written notice.
 You are not entitled to an extension of time on a margin call.
26
PRIVACY POLICY
BIS has implemented procedures to comply with SEC privacy rules Regulations S-P, which are pursuant to
the Gramm-Leach Bliley Act (GLB Act) which apply to non-public personal information about individuals
who use financial products or services for personal, family or household use. The regulation requires a
financial institution to:
1.
Provide initial notices to customers at the time the customer relationship is established covering the
institutional policies and practices for sharing non-public personal information with affiliated companies
and non-qualified third parties
2.
Provide annual notices of such policies to customers and
3.
Provide consumers a reasonable opportunity to “opt out” of disclosure to non-affiliated third parties.
See SEC website, www.sec.gov/rules/final/34-42974.html.
The Firm’s Privacy Policy and provided to all new customers starting July 1, 2001 and thereafter, annually
by Pershing printing our Privacy Policy on statements. Pershing has provided their own Privacy Policy
(separate from BIS) and has done so on the March 2002 statement and will provide the same annually.
It is not only good business practice that we keep information that the Firm obtains from customers as
private, but it is also the law. Brokers may share personal private financial information when appropriate
only within house, business associates and Pershing.
Exhibit #2: Privacy Policy
“BIS collects nonpublic personal information about you from the following sources:


Information we receive from you on applications or other forms; and
Information about your transactions with us or others;
WE DO NOT DISCLOSE ANY NONPUBLIC PERSONAL INFORMATION ABOUT YOU TO
ANYONE EXCEPT AS REQUIRED BY LAW, UNLESS OTHERWISE REQUESTED BY YOU.
Birkelbach Investment Securities Inc. restricts access to your personal and account information to those
employees who need to know that information to provide products or services to you. Birkelbach
Investment Securities, Inc., maintains physical, electronic and procedural safeguards to guard your
nonpublic personal information.
We may disclose all of the information we collect, as we described above, to Pershing, to whom we have
introduced your account. You should review the information it provides you regarding its policies and
practices.
Please do not hesitate to contact us with any questions or concerns you may have regarding this matter.
(312) 853-2820.”
FACILITATING INVESTMENTS OF LIQUEFIED HOME EQUITY
Liquefying of homeowner’s equity to purchase securities may not be suitable. Heightened vigilance should
be initiated with manager, should broker believe that security purchases are funded with liquefied home
equity.
27
ORDER ROUTING AND EXECUTION PRACTICES
Rule 11 Ac 1-6 requires that we disclose the following information on a quarterly basis.
1. The identity of the market centers to which we route a significant percentage of our orders.
2. The nature of our relationship with market center to which our firm sends orders and
3. The material aspects of any internalization or payment for order flow arrangements.
The above-required information must be available to the public, via the Internet in a regulated format. As
Pershing executes all or our order flow, we have made arrangements with them to display this information
with a generic web site. When available we will make this web site known to our customers. The time and
method of notifying our customers is still to be determined. Pershing is now loading the proper information
and the site should be available September or October 2001. Order flow compensation disclosure is
provided to customers in 1) new account letters 2) on confirmations and 3) quarterly by Pershing on
customer statements.
OATS AUDIT TRAIL AND REGULAR AND RIGOROUS REVIEW FOR BEST EXECUTION
We are to audit all trades made through Pershing for accuracy and best execution, upon execution. Carl
Birkelbach or manager is responsible. This has been part of our regular broker and office procedure. This
can be done whenever a trader, broker, client or manager questions the execution price of the trade. We can
use our own ILX level 2 services to do this for the time and sales or we can check with the Pershing
Traders for explanation and time and sales. We are to check with other bond houses before any bond trade
to assure the best execution price.
On a daily basis Pershing will capture execution information from its own proprietary electronic order
systems. Pershing will develop a separate screen to capture the required fields and make the required
FINRA OATS “ Audit Trail Report” for us on a daily basis. We receive a copy of that report daily and
should monitor that all trades are being reported accurately once a week and documented with initials on a
regular basis. This information will appear (as mentioned above) on a generic web site. We should also
monitor this web site on a regular basis to assure compliance. Our market participation ID is BRKE.
PERSHING STATEMENT OF FINANCIAL CONDITION
In the past, the complete statement of financial condition of Pershing was distributed as a statement insert.
Due to an exemption granted by the SEC, this information has been summarized in a statement message to
be printed on client statements in March and September. We will monitor.
MSRB TRANSACTION REPORTS
Municipal Bond transaction reports are available through the Pershing System (PREP). These reports
identify the firms municipal bond trades reported to the Municipal Securities Rulemaking Board (MSRB).
Brokers participating in municipal bond trades and our Municipal Bond Principal should check these
reports for accuracy. This information can assist us in being compliant with the MSRB G-14. this rule
states that transactions in municipal securities must be appropriately formatted and provided within a
specific period of time so that the information can be collected by the Board to make public reports of
market activity and prices. We successfully completed Form RTRS which indicates Pershing will supply
Real-Time Municipal Securities Reporting for us.
UPDATING INFORMATION ON NEW ACCOUNTS
Brokers are obligated to keep up to date on changes in a client’s situation (financial, health etc) and to
indicate significant change on “Notice of Customer Change Form”. On a regular basis we will send out
new account forms to update information on our older accounts. We are proceeding broker by broker to
identify these accounts. The general information can be filled out by the broker, however suitability,
28
financial and employment information should be filled out by the client or by interview with the client in
person or over the phone.
MUTUAL FUND ADDENDUM
The FINRA is stressing regulatory issues relating to mutual funds concerning suitability,
rights of accumulation; letter of intent, class differences and breakpoints. Mutual fund clients should be
aware of the appropriateness of purchases. 1) Recent economic studies indicated that A shares, particularly
if breakpoints are obtainable, may be more appropriate than B shares, when objectives and time horizons
are considered. 2) C shares may also be inappropriate for longer time horizons, as they do not convert into
A shares, and may therefore on a long term basis, be more expensive. 3) You have examined if linkage
exists to other same name accounts of the same mutual fund family, to see if breakpoints can be obtained.
4) Splitting of an order between various mutual fund families may be inappropriate if breakpoints were
obtainable had only one fund family been chosen. 5) Reinstatement privileges may apply if prior buying
and selling of the same mutual fund has been done within a period of 90 days to as much as one year. 6)
Switching from one family of funds to another may be costly and inappropriate. 7) A letter of intent can
reduce breakpoints and 8) Dividend and capital gains can be automatically reinvested and also 9) Items
under The Mutual Fund Section of this procedure.
In order to address these issues, BIS requires that brokers pay particular attention to these issues
and Breakpoint Checklist attached and to document discussions with customers and to obtain the approval
of the compliance officer before a mutual fund order is processed.
In addition we will send a letter and Breakpoint Disclosure Statement to each mutual fund
customers, after the order has been placed, to make sure they have considered the above issues (Attached).
Please be aware that brokers are responsible for costs and losses related to cancellation of orders.
Account No: 078-xxxxxx (Regarding Trades of: Name/s of Funds)
Dear Valued Client,
Thank you for your purchase of mutual funds. In the regular course of business
we send this letter out automatically after all purchases of mutual funds. We want to
make sure this purchase was appropriate for you and meets your objective from the
information you have given us.
We understand that you have given consideration in your mutual funds purchase
to suitability, rights of accumulation, letters of intent, class differences and breakpoints.
Further, that you have read and understood the information available in the prospectus
and are aware of and have considered the following:
1) Recent economic studies indicated that A shares, particularly if breakpoints
are obtainable, may be more appropriate than B shares, when objectives and time
horizons are considered. 2) C shares may also be inappropriate for longer time horizons,
as they do not convert into A shares, and may therefore on a long term basis, be more
expensive. 3) You have examined if linkage exists to other same name accounts of the
same mutual fund family, to see if breakpoints can be obtained. 4) In addition, splitting of
an order between various mutual fund families may be inappropriate if breakpoints were
obtainable had only one fund family been chosen. 5) Reinstatement privileges may apply
if prior buying and selling of the same mutual fund has been done within a period of 90
days to as much as one year. 6) Switching from one family of funds to another may be
costly and inappropriate. 7) A letter of intent can reduce breakpoints and 8) Dividend and
capital gains can be automatically reinvested.
Should you feel you need further information or have any questions please feel free to
call me.
29
Sincerely,
Carl Birkelbach
Compliance Officer
Breakpoint Checklist
1.
Does the customer already hold shares of any funds within the same fund family in his
account?
a.
2.
Record the current value of the shares of the fund already held by the customer in his
account, or the historical cost of those shares, depending upon the rules of the fund
family.
Does the customer hold shares of any funds within the same fund family in any other
accounts outside the firm?
a.
Identify all accounts in which the customer holds shares of any fund within the same fund
family, whether these accounts are held:
i. At other broker/dealers, or
ii. In other types of accounts, such as 401(k) plans, 529 plans, or variable annuity
sub-accounts.
3.
b.
Record the BIN/TIN for each account in which the customer holds any funds within the
same fund family.
c.
Record the current value or historical cost, depending upon the fund family’s rules, of the
shares held by the customer in each account
d.
Record if the customer declines to provide such information or indicates that he or she
has no other holdings.
Do related parties of the customer hold shares of any funds within the same fund family in
accounts at this broker/dealer, other broker dealers, or in other platforms, such as 401(k)
plans or 529 plans?
a.
Identify all related parties who hold shares of any fund within the same fund family and
identify all accounts in which the customer holds shares of any fund within the same fund
family, whether these accounts are held:
i. At other broker/dealers, or
ii. In other types of accounts, such as 401(k) plans, 529 plans, or variable annuity
sub-accounts.
b.
Record the name of each party and their relationship to the customer.
c.
If the mutual fund allows a right of accumulation for the identified related parties:
i. Record the BIN/TIN for each account in which a related party holds any funds
within the same fund family; and
30
ii. Record the current value of the shares held by related parties in each account or
historical cost, depending upon the fund family’s rules.
d.
Record if the customer declines to provide such information or indicates that no related
parties hold shares of funds within the same fund family.
4.
How much is the current purchase?
5.
What are the customer’s total holdings that may be counted toward determining breakpoint
eligibility?
a.
6.
Determine whether the customer is entitled to a breakpoint based upon his total holdings
and the holdings of all related parties.
a.
7.
Add the total holdings identified in responses to questions 1-4 (i.e.: all holdings in the
customer’s accounts and the accounts of related parties), using either current market
value or historical cost, depending upon the fund family’s rules.
If applicable, record the breakpoint discount that is available to the customer.
Does the customer have a letter of intent on file that would entitle the customer to a further
discount?
a.
If yes, apply the appropriate discount, which is either the discount available pursuant to
the letter of intent or the discount available based upon total holdings, whichever is
greater.
b.
If the letter of intent can be applied retroactively, review other recent purchases to ensure
that the appropriate discount was applied.
c.
If the customer does not have a letter of intent, review whether his or her investment
patterns make a letter of intent appropriate.
Use of the above checklist does not constitute a “safe harbor” with respect to a member firm’s
continuing obligation to comply with applicable rules and regulations. Mutual Fund Breakpoint
Worksheet attached #19.
BREAKPOINT DISCLOSURE STATEMENT
Before investing in mutual funds, it is important that you understand the sales charges, expenses, and
management fees that you will be charged, as well as the breakpoint discounts to which you may be
entitled. Understanding these charges and breakpoint discounts will assist you in identifying the best
investment for your particular needs and may help you reduce the cost of your investment. This disclosure
document will give you general background information about these charges and discounts. However,
sales charges, expenses, management fees, and breakpoint discounts vary from mutual fund to mutual fund.
Therefore, you should discuss these issues with your financial advisor and review each mutual fund’s
prospectus and statement of additional information, which are available from your financial advisor, to get
the specific information regarding the charges and breakpoint discounts associated with a particular mutual
fund.
Sales Charges
31
Investors that purchase mutual funds must make certain choices, including which funds to purchase and
which class share is most advantageous. Each mutual fund has a specified investment strategy. You need
to consider whether the mutual fund’s investment strategy is compatible with your investment objectives.
Additionally, most mutual funds offer different share classes. Although each share class represents a
similar interest in the mutual fund’s portfolio, the mutual fund will charge you different fees and expenses
depending upon your choice of share class. As a general rule, Class A shares carry a “front-end” sales
charge or “load” that is deducted from your investment at the time you buy fund shares. This sales charge
is a percentage of your total purchase. As explained below, many mutual funds offer volume discounts to
the front-end sales charge assessed on Class A shares at certain pre-determined levels of investment, which
are called “breakpoint discounts.” In contrast, Class B and C shares usually do not carry any front-end
sales charges. Instead, investors that purchase Class B or C shares pay asset-based sales charges, which
may be higher than the charges associated with Class A shares. Investors that purchase Class B and C
shares may also be required to pay a sales charge known as a contingent deferred sales charge when they
sell their shares, depending upon the rules of the particular mutual fund.
Breakpoint Discounts
Most mutual funds offer investors a variety of ways to qualify for breakpoint discounts on the sales charge
associated with the purchase of Class A shares. In general, most mutual funds provide breakpoint
discounts to investors who make large purchases at one time. The extent of the discount depends upon the
size of the purchase. Generally, as the amount of the purchase increases, the percentage used to determine
the sales load decreases. In fact, the entire sales charge may be waived for investors that make very large
purchases of Class A shares. Mutual fund prospectuses contain tables that illustrate the available
breakpoint discounts and the investment levels at which breakpoint discounts apply. Additionally, most
mutual funds allow investors to qualify for breakpoint discounts based upon current holdings from prior
purchases through “Rights of Accumulation,” and future purchases, based upon “Letters of Intent.” This
document provides general information regarding Rights of Accumulation and Letters of Intent. However,
mutual funds have different rules regarding the availability of Rights of Accumulation and Letters of Intent.
Therefore, you should discuss these issues with your financial advisor and review the mutual fund
prospectus to determine the specific terms upon which a mutual fund offers Rights of Accumulation or
Letters of Intent.
Rights of Accumulation – Many mutual funds allow investors to count the value of previous
purchases of the same fund, or another fund within the same fund family, with the value of the
current purchase, to qualify for breakpoint discounts. Moreover, mutual funds allow investors to
count existing holdings in multiple accounts, such as IRAs or accounts at other broker-dealers, to
qualify for breakpoint discounts. Therefore, if you have accounts at other broker-dealers and
wish to take advantage of the balances in these accounts to qualify for a breakpoint discount, you
must advise your financial advisor about those balances.
You may need to provide
documentation establishing the holdings in those other accounts to your financial advisor if you
wish to rely upon balances in accounts at another firm.
In addition, many mutual funds allows investors to count the value of holdings in accounts of
certain related parties, such as spouses or children, to qualify for breakpoint discounts. Each
mutual fund has different rules that govern when relatives may rely upon each other’s holdings to
qualify for breakpoint discounts. You should consult with your financial advisor or review the
mutual fund’s prospectus or statement of additional information to determine what these rules are
for the fund family in which you are investing. If you wish to rely upon the holdings of related
parties to qualify for a breakpoint discount, you should advise your financial advisor about these
accounts. You may need to provide documentation to your financial advisor if you wish to rely
upon balances in accounts at another firm.
Mutual funds also follow different rules to determine the value of existing holdings. Some funds
use the current net asset value (NAV) of existing investments in determining whether an investor
qualifies for a breakpoint discount. However, a small number of funds use the historical cost,
32
which is the cost of the initial purchase, to determine eligibility for breakpoint discounts. If the
mutual fund uses historical costs, you may need to provide account records, such as confirmation
statements or monthly statements, to qualify for a breakpoint discount based upon previous
purchases. You should consult with your financial advisor and review the mutual fund’s
prospectus to determine whether the mutual fund uses either NAV or historical costs to determine
breakpoint eligibility.
Letters of Intent – Most mutual funds allow investors to qualify for breakpoint discounts by
signing a Letter of Intent, which commits the investor to purchasing a specified amount of Class A
shares within a defined period of time, usually 13 months. For example, if an investor plans to
purchase $50,000 worth of Class A shares over a period of 13 months, but each individual
purchase would not qualify for a breakpoint discount, the investor could sign a Letter of Intent at
the time of the first purchase and receive the breakpoint discount associated with $50,000
investments on the first and all subsequent purchases. Additionally, some funds offer retroactive
Letters of Intent that allow investors to rely upon purchases in the recent past to qualify for a
breakpoint discount. However, if an investor fails to invest the amount required by the Letter of
Intent, the fund is entitled to retroactively deduct the correct sales charges based upon the amount
that the investor actually invested. If you intend to make several purchases within a 13 month
period, you should consult your financial advisor and the mutual fund prospectus to determine if it
would be beneficial for you to sign a Letter of Intent.
As you can see, understanding the availability of breakpoint discounts is important because it may allow
you to purchase Class A shares at a lower price. The availability of breakpoint discounts may save you
money and may also affect your decision regarding the appropriate share class in which to invest.
Therefore, you should discuss the availability of breakpoint discounts with your financial advisor and
carefully review the mutual fund prospectus and its statement of additional information, which you can get
from your financial advisor, when choosing among the share classes offered by a mutual fund. If you wish
to learn more about mutual fund share classes or mutual fund breakpoints, you may wish to review the
investor alerts available on the FINRA Web site. See www.FINRAr.com/alert_mfclasses.htm, and
www.FINRAr.com/alert_breakpoints.htm or visit the many mutual fund Web sites available to the public.
CONTINGENCY PLANS / BUSINESS CONTINUITY
A. Emergency Contact Persons
Our firm’s emergency contact persons are: Carl M. Birkelbach, (312) 853-2820 ext. 105, Email:
CarlBIS@aol.com, William J. Murphy, (312) 853-2820 ext. 103 and Carl Birkelbach, (312) 853-2820 ext.
105. These names will be updated in the event of a material change, and will be reviewed within 17
business days of the end of each quarter.
B. Firm Policy
Our firm’s policy is to respond to a Significant Business Disruption (SBD) by safeguarding
employees’ lives and firm property, making a financial and operational assessment, quickly recovering and
resuming operations, protecting all of the firm’s books and records, and allowing our clients to transact
business. In the event that we determine, we are unable to continue our business, we will assure clients
prompt access to their funds and securities.
1.
Significant Business Disruptions (SBDs)
Our plan anticipates two kinds of SBDs – internal and external. Internal SBDs affect only
our firm’s ability to communicate and do business, such as a fire in our building.
External SBDs prevent the operation of the securities markets or a number of firms such
as a terrorist attack, a city flood, or a wide-scale regional disruption. Our response to an external
33
SBD relies more heavily on other organizations and systems, especially on the capabilities of our
clearing firm.
2.
Approval and Execution Authority
Carl M. Birkelbach, a registered principal, is responsible for approving the plan and for
conducting the required annual review. Carl M. Birkelbach and William J. Murphy in descending
order, all have the authority to execute this Business Contingency Plan (BCP).
3.
Plan Location and Access
Our firm will maintain copies of its BCP plan and the annual reviews, and the changes
that have been made to it for inspection. We maintain our BCP plan as an integral part of the BIS
Office Broker Procedure and Addendums in electronic and hard copy form.
4.
Business Description
Our firm conducts business in equity, fixed income, and derivative securities. Our firm is
an introducing firm and does not perform any type of clearing function for itself or others.
Furthermore, we do not hold customer funds or securities. We accept and enter orders. All
transactions are sent to our clearing firm, which executes our orders, compares them, allocates
them, clears and finally settles them. Our clearing firm, in addition to maintaining our customers’
accounts, can grant customers access to them, deliver funds as well as securities. Our firm services
retail and institutional customers. We may engage in private placements.
Our clearing firm is Pershing (One Pershing Plaza, Jersey city, NJ 07399), Web:
http://www.pershing.com/business_continuity.htm and our account representative at Pershing is
Mr. Mike Riordam (Tel: 630-472-7514,
Email: mirordam@pershing.com). We also have a
confidential Pershing Contingency Plan for interested Broker Dealers. Our clearing firm has given
us the following alternative contact information in the event the above cannot be reached:
Telephone Number: (800) – 433– 4342 (Main Office, NJ)
Alternative Physical Address:
1515 W. 22nd Street, Suite 1000, Oakbrook IL 60523
Emergency Instructions: (201)-413-3635,
Fax: (201)-413-5368
Website: http://www.pershing.com/ or http://www.netexchange.com
5.
Office Location
Our office has a single location at 208 South La Salle Street, Suite #1442, Chicago, IL
60604-1103. Its main telephone number is (312)-853-2820. Our employees may travel to that
office through the following transportation methods: foot, car, subway, train and bus. We engage
in order taking and entry at this location.
6.
Alternative Physical Location(s) of Employees
The 208 S. La Salle building management has provided BIS with a pamphlet of
emergency action. BIS conducts regular meetings go discuss these plans. The firm also
participates in the fire drills conducted by the management of the building and informs
employees of evacuation procedures. Mr. Carl Birkelbach is in charge of co-coordinating our
plan with the building.
34
The firm is in the process of researching an additional acceptable alternate location
for employees should an SBD occur. In the event of an SBD, we will relocate our staff to:
330, S. Michigan Ave
Suite 1712,
Chicago IL
(312)-663-9660 or,
(312)-213-1916
7.
Or
Pershing,
1515 W. 23rd Street,
Suite 1000
Oakbrook IL 60523
(630)-472-7400
Customers’ Access to Funds and Securities
BIS does not maintain custody of customers’ funds or securities. They are
maintained at Pershing. In the event of an internal or external SVD, the firm has several
contingency measures in place. BIS has a quotation system: Net Exchange Pro (with order
entry provisions) provided by Pershing and the firm has access though a T1 and DSL line.
The firm also has a direct private line to Pershing, which can be used for order entry and
account information. BIS can also access the Net Exchange Pro system using America
Online, and a regular telephone line from any location where a landline is available. Wireless
communications are being examined. BIS can also enter orders via direct telephone to
Pershing traders. The telephone numbers are posted next to the trading desk and are on the
firm’s Palm Pilot system and are as follows. These can be used with either land bases or
wireless phones.
General Operations: (888)-367-2563, Stock Loan: (800)-551-SHRT, Listed Desk
(201)-413-3575, OTC Desk: (201)-413-4920, Equity Options: (201)-413-4100, F/I
Desk: (201)-413-4970, Load MF Desk: (800)-266-1864.
If there is a blackout and we have permission to stay in the building, as long as the
telephone lines are unaffected the firm can assess market information through a laptop
computer. There firm has several cellular telephones; all of them may be used if the landline
telephone system is not operational. All of the clocks at BIS are battery powered.
BIS also has several remote locations where computers are available and allows BIS
to gain access to market information and Net Exchange. These locations are:
a.
b.
c.
d.
330 South Michigan Avenue, Suite 1712, Chicago, Illinois (Tel: 312-6639660)
102 Grouse Lane, Silverthorne Colorado
(Tel: 920-513-0619)
Pershing Oak Brook office
(Tel: 630-472-7400)
The Kenwood – 773-832-9151
In case the Securities Investor Protection Corporation (SIPC) determines that BIS is
unable to meet its obligations to customers or if the firm’s liabilities exceed assets in violation
of Securities Exchange Act Rule 15c3-1, SIPC may seek to appoint a trustee to disburse our
assets to customers. The firm will assist SIPC and the trustee by providing the firm’s books
and records identifying customer accounts subject to SIPC regulation.
8.
Data Back-Up and Recovery (Hard Copy and Electronic)
BIS maintains its primary hard copy books and records and its electronic records at
the office on 208 South LaSalle in fireproof boxes. Mr. Carl Birkelbach, our compliance
officer is responsible for the maintenance of these books and records.
35
The firm maintains its back-up hard copy books and records at 330 South Michigan
Avenue. These records are maintained in digital and hard copy formats. Carl Birkelbach is
responsible for the maintenance of these back-up books and records. BIS backs up records on
the server by copying them on a portable USB hard drive and taking them to our back-up site.
Records are backed-up on a weekly basis.
In the event of an internal or external SBD that causes the loss of our paper records,
the firm will physically recover them from the back-up site. If our primary site is inoperable,
we will continue operations from our back-up site or an alternate location. Pershing has given
us permission to use their Oakbrook office in an emergency situation as well as their remote
location in Melrose Park. The Pershing business continuity plan requires record back up of
all accounts and information from two remote locations.
In the case of loss of electronic records, the firm will either physically recover the
storage media or electronically recover data from a back-up site, or, if the primary site is
inoperable, continue operations from the back-up site or an alternate location. The firm’s
laptops can be used from any location, as can phones. It can also be used to connect to any
computer at the firm.
BIS continues to reflect upon the data back-up and recovery process and is currently
evaluating the EVault system offered through the FINRA.
9.
Financial and Operational Assessments
i. Operational Risk
In the event of an SBD, the firm will immediately identify what means will
permit us to communicate with our customers, employees, critical business
constituents, critical banks, critical counter-parties, and regulators. Although the
effects of an SBD will determine the means of alternative communication the firm
would be able to provide. The firm will, however, retrieve key activity records as
described in the section above, Data Back-Up and Recovery (Hard Copy and
Electronic).
ii. Financial and Credit Risk
In the event of an SBD, the firm will determine the value and liquidity of
our investments and other assets to evaluate our ability to continue to fund our
operations and remain in capital compliance. BIS will contact Pershing, critical
banks, and investors to apprise them of the firm’s financial status. If BIS determines
that it is unable to meet obligations to those counter-parties or otherwise continue to
fund the firm’s operations, BIS will request additional financing from our bank or
other credit sources to fulfill obligations to customers. If BIS cannot remedy a
capital deficiency, BIS will file appropriate notices with our regulators and
immediately take appropriate steps as advised by counsel.
10. Mission Critical Systems
The firm’s “mission critical systems” are those that ensure prompt and accurate
processing of securities transactions, including order taking, entry, and the maintenance of
customer accounts and access to customer accounts.
36
BIS has primary responsibility for establishing and maintaining its business
relationships with customers and has sole responsibility for mission critical functions of order
taking and entry. Pershing provides, through contract, the execution comparison, allocation,
clearance and settlement of securities transactions, the maintenance of customer accounts,
access to customer accounts, and the delivery of funds and securities.
Pershing represents that it backs up our records at a remote site.
11. Our Firm’s Mission Critical Systems
i. Order Taking
Currently, the firm receives orders from customers via telephone or
facsimile. During an SBD, either internal or external, we will continue to take orders
through any of these methods that are available and reliable, and in addition, as
communications permit, we will inform our customers when communications
become available to tell them what alternatives they have to send their orders to us.
Customers will be informed of alternatives by telephone. If necessary, we will
advise our customers to place orders directly with Pershing.
ii. Order Entry
Currently, the firm enters orders by recording them on paper or
electronically and sends them to our clearing firm either electronically or through
telephone.
In the event of an internal SBD, the firm will enter and send records to
Pershing by the fastest alternative means available, which include is dependent on
the nature of the SBD. In the event of an external SBD, we will maintain the order
in electronic or paper format, and deliver the order to Pershing by the fastest means
available when it resumes operations. In addition, during an internal SBD, we may
need to refer our customers to deal directly with Pershing for order entry.
12. Mission Critical Systems Provided by Our Clearing Firm
BIS relies on Pershing to provide order execution, order comparison, order
allocation, and the maintenance of customer accounts, delivery of funds and securities, and
access to customer accounts. As mentioned earlier, they have alternative systems in place.
C. Alternate Communications Between the Firm and Customers, Employees, and Regulators
1. Customers
BIS communicates with customers by telephone, facsimile, U.S. mail, and in person
visits at the firm or at the other’s location. In the event of an SBD, we will assess which
means of communication are still available to us, and use the means closest in speed and form
(written or oral) to the means that we have used in the past to communicate with the other
party.
2. Employees
BIS communicates with employees by telephone or in person. In the event of an
SBD, we will assess which means of communication are still available to us, and use the
means closest in speed and form (written or oral) to the means that we have used in the past to
communicate with the other party. The firm will also employ the call tree in the table below,
so that senior management can reach all employees quickly during an SBD.
The person to invoke use of the call tree is: Carl M. Birkelbach.
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BIRKELBACH INVESTMENT SECURITIES, INC.
BIS: (312)-853-2820
(800) 458-2358
FAX (312) 853-3183
EXT:
105
NAME:
Birkelbach, Carl M.
BROKER #:
055
HOME/CELL
President/
312-663-9660/
Compliance Officer 312-213-1916
103
Murphy, William J.
357
Manager
708-371-0639
102
Stone, Jack
690
Manager
312-943-2203
101
Joyce, Michael
217
Broker
847-991-3944
100
Padmanaban, Senthilkumar
056
Broker
312-804-4263
125
Kumar, Rishi
Staff
847-770-7887
121
Avello, Nick
Part Time
312-514-9357
117
Barczak, Ronald
Broker
847-255-2177
122
Gilbert, Ronald
Operations
773-677-3555
110
Jones, Allen
213
Broker
773-271-2079
106
Kopulos, Leonidas
029
Broker
773-548-3927
111
Castille, Brady
255
Broker
312-513-3251
108
Mann, Stephen
594
Broker
847-931-1989
118
Stead, James
324
Broker
815-469-3639
104
Turner, William
825
Broker
708-420-7204
107
Zahn, Thomas
003
Trading
630-250-7929
IC
Silverman, Howard
103
Broker
312-664-5857
IC
Zurek, James K.
106
Broker
847-487-2510
IC
Besler, Barbara
777
Broker
847-724-0556
IC
Feldman, Demitri
349
Broker
847-910-5963
IC
McLaughlin, Gerald T
Technical
773-472-3137/
067
773-296-6510
IC
Lenhart, Brian
Compliance
708-624-1982
Consultant
Conference Room
Compliance
Trading
Operations
113
105
107
122
Building Security
Help Desk
Pershing
Fixed Income
NetEx Pro Help
(312) 263-6650
125
1-888-367-2563
1-800-924-9696
1-888-878-3142
3. Regulators
BIS is a member of the FINRA and MSRB. The firm communicates with regulators
by telephone, facsimile, U.S mail and in person. In the event of an SBD, we will assess the
means of communication that are still available to us, and use the means closest in speed and
form (written or oral) to communicate with the other party.
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D. Critical Business Constituents, Banks, and Counter-Parties
1.
Business constituents
BIS has contacted our critical business constituents (businesses with which we have
an ongoing commercial relationship in support of our operating activities, such as vendors
providing us critical services), and determined the extent to which we can continue our
business relationship with them in light of the internal or external SBD. We will quickly
establish alternative arrangements if a business constituent can no longer provide the needed
goods or services when we need them because of a SBD to them or our firm. A list of these
business constituents is maintained in our Quicken file.
2.
Banks
BIS has contacted banks and lenders to determine if they can continue to provide the
financing that we will need in light of the internal or external SBD. The bank maintaining our
operating account is: Bank One, located at La Salle Street, Chicago IL. Our account
representative at Bank One is
Ms. Kitty Johnathan (Tel: 312-661-6889). The bank
maintaining our Proprietary Account of Introducing Brokers/Dealers (PAIB account) is La
Salle National Bank, located at 135 South La Salle Street, Chicago IL. If our banks and other
lenders are unable to provide the financing, we will seek alternative financing immediately
from La Salle National Bank as above. The Banks have Web sites, which would post
emerging information, should they experience an SBD (www.bankone.com) and
(www.lasallebank.com).
3.
Counter-Parties
BIS has contacted our critical counter-parties, such as other broker-dealers or
institutional customers, to determine if we will be able to carry out our transactions with them
in light of the internal or external SBD. Where the transactions cannot be completed, we will
work with Pershing or contact those counter-parties directly to make alternative arrangements
to complete those transactions as soon as possible.
E. Regulatory Reporting
BIS is subject to regulation by the FINRA and the Illinois State Securities Commission. We
now file reports with our regulators using paper copies in the U.S. mail, and electronically using
facsimile and the Internet. In the event of an SBD, we will check with the appropriate regulators to
determine which means of filing are still available to us, and use the means closest in speed and form
(written or oral) to our previous filing method. In the event that we cannot contact our regulators, we
will continue to file required reports using the communication means available to us.
F. Disclosure of Business Continuity Plan
BIS provides in writing, a BCP disclosure statement to customers at the time of opening an
account. We post the disclosure statement on our Web site as well as mail it to our customers on
request. Our disclosure statement is attached as follows.
DEAR CUSTOMER
OUR FIRM HAS A PLAN OF BUSINESS CONTINUITY SHOULD FOR ANY REASON
WE EXPERIENCE A SIGNIFICANT BUSINESS DESCRIPTION (SBD). OUR CLEARING FIRM
PERSHING HOLDS ALL CUSTOMER FUNDS OR SECURITIES AND EXECUTES ALL
TRANSACTIONS. SHOULD WE EXPERIENCE AN SBD PERSHING CAN BE REACHED AT
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(201) 413-3635 OR ON LINE AT WWW.PRESHING.COM or WWW.NETEXCLIENT.COM EMERGENCY
INSTRUCTIONS CAN BE OBTAINED AT (213) 624-6100 ext 500. OUR WEBSITE IS
WWW.MY-BROKER.COM
SHOULD A SBD OCCUR, WE HAVE FOUR BACK UP SITES 1) 330 S. MICHIGAN AVENUE,
SUITE 1712, CHICAGO, IL 60604, (312)663-9660 AND CELL PHONE: (312) 213-1916. 2) 102 BLUE HOUSE
LANE, SILVERTHORNE, CO 80498, (970) 513-0619 AND CELL PHONE: (312) 213-1916. 3) AN
ALTERNATIVE ARE THE OFFICE OF PERSHING AT 1515 WEST 22ND STREET, SUITE 1000, OAK BROOK,
IL. 60523, (630) 472-7400 AND 4) 3121 NORTH SHERIDAN ROAD, CHICAGO IL 60657, (773)832-9151
G. Updates and Annual Review of BCP
BIS will update this plan whenever a material change occurs to operations, organizational
structure, business or locations of our own or those of our clearing firm. In addition, the firm will
review this BCP at the time of reviewing the Office and Broker Procedure and Addendums; thereupon,
the firm as necessary will modify it for any changes in our operations, structure, business, or location
or those of Pershing.
H. Senior Manager Approval
I have approved this Business Continuity Plan as reasonably designed to enable our firm to meet its
obligations to customers in the event of an SBD.
Signed:
_________________________________
Name:
Carl M. Birkelbach
Title:
Chairman and Chief Executive Officer
Date:
_________________________________
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Acknowledgement of the year 2009/10
Office and Broker Procedure Manual and Addendums
I hereby acknowledge and consent to the policies of Birkelbach Investment Securities,
Inc. and confirm that I have read and fully understand the Office and Broker Procedure Manual
for 2008 (39 pages) and the following forms and addendums all of which have been distributed to
me. I acknowledge that I will obey the rules of the firm and our regulatory bodies.
Forms Attached:
1. Distribution Request
2. Notice of change in Customer Account
3. Non-Pershing Security Suitability form
4. Non-Pershing Security Annuity suitability form
5. Non-Pershing Limited Partnership form
6. Form I-9- Employment Eligibility Verification
7. Continuing Education
a. Continuing Education Fulfillment Disclosure
b. Continuing Education Self Assessment Form
8. Disclosure of Outside Employment Activities
9. Disclosure of Political Contribution /Gift and Entertainment.
10. Disclosure of Employee Related Accounts
Addendums Attached:
11. Anti Money Laundering (AML) Compliance and Supervisory Procedure
12. Anti Harassment Policy and Procedure
13. Variable Annuities Procedure
14. Procedure for detection and prevention of misuse of Material, Non Public Information.
15. Pershing Bulletin – Excess Account Protection.
16. Lloyds of London customer asset protection
17. Margin Disclosure Requirements
18. SECCAS-Representation Letter-Email System
19. Supplemental Material relating to ETFs
20. 2009/10 Supervisory Procedures and Compliance Manual dated October 01, 2009
21. Signature Page
Further, I agree to abide by these procedures under penalty of termination. I also agree to
keep myself up to date by regularly reviewing the FINRA regulation Web page located at
http://www.FINRAr.com for updates and rule changes through out the year and to regularly
attend education sessions of the firm when possible and to otherwise read continuing education
material provided by the firm and fulfill the FINRA requirements for continuing education by
various other educational means.
_______________________
_________________________
__________
Name
Signature
Date
41