(a) Coverage Required
Each member required to join the Securities Investor Protection
Corporation who has employees and who is not a member in good
standing of the American Stock Exchange, Inc.; the Boston Stock
Exchange; the Midwest Stock Exchange, Inc.; the New York Stock
Exchange, Inc.; the Pacific Stock Exchange, Inc.; the Philadelphia
Stock Exchange, Inc.; or the Chicago Board Options Exchange shall:
(1) Maintain a blanket fidelity bond, in a form substantially
similar to the standard form of Brokers Blanket Bond promulgated
by the Surety Association of America, covering officers and
employees which provides against loss and has agreements covering
at least the following:
(A) Fidelity
(B) On Premises
(C) In Transit
(D) Misplacement
(E) Forgery and Alteration (including check forgery)
(F) Securities Loss (including securities forgery)
(G) Fraudulent Trading
(H) Cancellation Rider providing that the insurance carrier
will use its best efforts to promptly notify the National
Association of Securities Dealers, Inc. in the event the
bond is cancelled, terminated or substantially modified.
(2) Maintain minimum coverage for all insuring agreements
required in this paragraph (a) of not less than $25,000;
(3) Maintain required minimum coverage for Fidelity, On Premises,
In Transit, Misplacement and Forgery and Alteration insuring
agreements of not less than 120% of its required net capital
under SEC Rule 15c3-1 up to $600,000. Minimum coverage for
required net capital in excess of $600,000 shall be determined
by reference to the following table:
| Net
Capital Requirement under Rule 15c3-1
|
Minimum Coverage |
| $600,0001,000,000 |
$750,000 |
| $1,000,0012,000,000 |
$1,000,000 |
| $2,000,0013,000,000 |
$1,500,000 |
| $3,000,0014,000,000 |
$2,000,000 |
| $4,000,0016,000,000 |
$3,000,000 |
| $6,000,00112,000,000 |
$4,000,000 |
| $12,000,001and above
|
$5,000,000 |
(4) Maintain Fraudulent Trading coverage of not less than
$25,000 or 50% of the coverage required in paragraph (a)(3),
whichever is greater, up to $500,000;
(5) Maintain Securities Forgery coverage of not less than
$25,000 or 25% of the coverage required in paragraph (a)(3),
whichever is greater, up to $250,000.
(b) Deductible Provision
(1) A deductible provision may be included in the bond of
up to $5,000 or 10% of the minimum insurance requirement established
hereby, whichever is greater.
(2) If a member desires to maintain coverage in excess of
the minimum insurance requirement then a deductible provision
may be included in the bond of up to $5,000 or 10% of the
amount of blanket coverage provided in the bond purchased,
whichever is greater. The excess of any such deductible amount
over the maximum permissible deductible amount described in
subparagraph (1) above must be deducted from the member's
net worth in the calculation of the member's net capital for
purposes of SEC Rule 15c3-1. Where the member is a subsidiary
of another Association member the excess may be deducted from
the parent's rather than the subsidiary's net worth, but only
if the parent guarantees the subsidiary's net capital in writing.
(c) Annual Review of Coverage
(1) Each member, other than members covered by subparagraph
(2), shall annually review, as of the anniversary date of
the issuance of the bond, the adequacy thereof by reference
to the highest required net capital during the immediately
preceding twelve-month period, which amount shall be used
to determine minimum required coverage for the succeeding
twelve-month period pursuant to subparagraphs (a)(2), (3),
(4) and (5).
(2) Each member which has been in business for one year shall,
as of the first anniversary date of the issuance of its original
bond, review the adequacy thereof by reference to an amount
calculated by dividing the highest aggregate indebtedness
it experienced during its first year by 15. Such amount shall
be used in lieu of required net capital under SEC Rule 15c3-1
in determining the minimum required coverage to be carried
in the member's second year pursuant to subparagraphs (a)(2),
(3), (4) and (5). Notwithstanding the above, no such member
shall carry less minimum bonding coverage in its second year
than it carried in its first year.
(3) Each member shall make required adjustments not more
than sixty days after the anniversary date of the issuance
of such bond.
(d) Notification of Change
Each member shall report the cancellation, termination or substantial
modification of the bond to the Association within ten business
days of such occurrence.
(e) Definitions
For purposes of fidelity bonding the term "employee" or "employees"
shall include any person or persons associated with a member
firm (as defined in Article I, paragraph (q) of the By-Laws)
except:
(1) Sole Proprietors
(2) Sole Stockholders
(3) Directors or Trustees of member firms who are not performing
acts coming within the scope of the usual duties of an officer
or employee.
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