FINRA Rule 4150 — Guarantees by, or Flow Through Benefits for, Members

Overview

FINRA Rule 4150 governs the guarantees of accounts and obligations by FINRA member firms. The rule requires firms to provide prior written notice to FINRA before guaranteeing the obligations of another party and establishes the conditions under which "flow-through" capital benefits may be claimed under the SEC's Net Capital Rule (Rule 15c3-1, Appendix C).

Official citation: FINRA Rule 4150

Who It Applies To

Rule 4150 applies to all FINRA member firms that guarantee obligations of others or seek to claim flow-through capital benefits under SEC Rule 15c3-1, Appendix C.

Key Requirements

• 10 business days prior notice: Firms must provide written notice to FINRA at least 10 business days before they guarantee, endorse, or assume another person's obligations or liabilities.
• Content of notice: The notice must give the other person's address and general business, describe the arrangement, give details of the other person's capitalization (including the member's share of ownership or profits), and show the arrangement's actual and potential effect on the member's capital, including net capital, and on its operations.
• Routine guarantees excluded: Guarantees made routinely in the normal course of business, such as trade guarantees, signature guarantees, endorsements of securities, and the writing of options, aren't covered (Supplementary Material .05).
• Flow-through capital benefits: Firms seeking to claim flow-through benefits under Appendix C of Rule 15c3-1 must obtain FINRA's prior written approval. The request must include an opinion of counsel where Appendix C requires one.
• Ongoing reporting: FINRA may ask for information about the arrangement at any time. If the other person is a registered broker-dealer, the member must send FINRA copies of its FOCUS Reports when they're filed (Supplementary Material .02 and .04).

Recent Updates

• No amendments since adoption: FINRA's rulebook shows Rule 4150 adopted by SR-FINRA-2010-061, effective August 1, 2011, with no amendments since.

Official Sources

• FINRA Rule 4150 — Guarantees by Members
• SEC Rule 15c3-1, Appendix C