FINRA Rule 4311 — Carrying Agreements
Overview
FINRA Rule 4311 governs the carrying agreements between introducing broker-dealers and carrying (clearing) firms. These agreements are the contractual foundation of the correspondent clearing relationship, defining which firm is responsible for each function — from opening accounts and executing orders to confirmations, statements, and recordkeeping.
The rule requires that these agreements be in writing, approved by FINRA prior to implementation, and clearly allocate responsibilities between the parties. This ensures that no regulatory obligation falls through the cracks and that both firms understand their respective duties.
Official citation: FINRA Rule 4311
Who It Applies To
Rule 4311 applies to all FINRA member firms that enter into carrying agreements, whether as the introducing firm or the carrying (clearing) firm. This includes fully disclosed and omnibus clearing arrangements.
Key Requirements
- Written agreement required: All carrying arrangements must be documented in a written agreement signed by both parties.
- Prior FINRA approval: Carrying agreements must be submitted to and approved by FINRA before they take effect. FINRA reviews the agreement to ensure responsibilities are clearly allocated.
- Allocation of responsibilities: The agreement must say which firm handles each function the rule lists: opening and approving accounts; accepting, transmitting, and executing orders; extending credit; receiving and delivering funds and securities; preparing and sending confirmations; keeping books and records; and monitoring accounts. It must give the carrying firm the safeguarding of funds and securities under Rule 15c3-3, and the preparing and sending of account statements unless FINRA approves otherwise in writing.
- Advance notice: As early as possible, and no later than 10 business days before it starts carrying any accounts of a new introducing firm, the carrying firm must send FINRA a notice naming that firm and its CRD number.
- Amendment procedures: Material changes to an approved carrying agreement need FINRA's approval before they take effect.
- Customer notice: When a fully disclosed account is opened, the customer must be told in writing about the carrying agreement and how responsibilities are allocated, and must be told promptly in writing of later changes to the parties or material changes to that allocation.
Where Loffa Fits
Prime Broker Integrated Network (PBIN)
- Prime brokerage agreements: PBIN manages SIA-150 and SIA-151 prime brokerage agreements, which run under the SEC staff's 1994 no-action letter. Rule 4311 governs carrying agreements between a carrying firm and the firms whose accounts it carries, and PBIN doesn't manage those.
Recent Updates
- Rule 2231 cross-reference (January 1, 2024): Amendments to Rule 2231 added Supplementary Material .01, which reminds firms of their Rule 4311 obligations, including the carrying firm's responsibility for customer account statements under paragraph (c)(2).
- Last amended in 2011: FINRA's rulebook shows Rule 4311 last amended by SR-FINRA-2010-061, effective August 1, 2011.
Official Sources
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