MFDA Staff Notices are intended to assist Members and their Approved Persons in the interpretation, application of and compliance with requirements under MFDA By-laws and Rules. Notices make reference to these requirements and set out MFDA staff's interpretation of how to comply with these requirements. Notices may also include best practices or guidance.
Member Regulation Notice MR-0026 provided for a transition period during which MFDA Rule 3.2.4, Related Member Guarantees, was suspended until such time as the MFDA Investor Protection Corporation (“IPC”) commenced coverage of client accounts. On June 17, 2005, the MFDA published Bulletin #0144-P advising Members that the IPC would commence coverage of client accounts effective July 1, 2005. Consequently, this Notice has been prepared to remind Members that the transition period relating to the suspension of Rule 3.2.4 has expired. In addition, attached to this Notice is a copy of the Uniform Guarantee by Members and Related Members agreement that is the prescribed form referenced under Rule 3.2.4(d).
In accordance with Rule 3.2.4, all “related Members”, as defined in MFDA By-law No. 1, are responsible for guaranteeing the obligations to clients incurred by each of its related Members. In order to comply with the requirements of this Rule, all related Members are required to complete and execute the prescribed agreement. Once executed, this agreement binds a related Member to guarantee a percentage of its regulatory capital to cover obligations to clients incurred by its related Member. The amount of the guarantee provided by the related Member is dependent upon the related ownership interest of each Member as detailed in Rule 3.2.4(a). To the extent related Members submit consolidated financial reports in accordance with Rule 3.5.2, an unlimited guarantee is required by each related Member.
The MFDA expects all Members affected by Rule 3.2.4 to complete and submit a copy of the executed agreement to the MFDA by February 28, 2006.