FULLY DISCLOSED CLEARING AGREEMENT BETWEEN TERRA NOVA TRADING, L.L.C. -and- Clayton, Dunning & Company
Exhibit
10.14
BETWEEN
TERRA NOVA TRADING, L.L.C.
-and-
Xxxxxxx,
Xxxxxxx & Company
This
agreement (the "Agreement"), dated as of July 6, 2004, by and between TERRA
NOVA
TRADING, L.L.C. ("Clearing Broker") and Xxxxxxx, Xxxxxxx & Company
("Correspondent"), sets forth the terms and conditions under which Clearing
Broker shall provide execution, clearing and settlement services, on a fully
disclosed basis, to Correspondent and its customers. Clearing Broker shall
provide such services only to the extent required by this Agreement, and shall
not be responsible for any duties or obligations not specifically allocated
to
Clearing Broker by this Agreement.
I.
APPLICABLE
LAWS AND RULES AND APPROVAL BY NASD
This
Agreement and the obligations of the parties hereunder are subject to all
applicable provisions of federal, state and local laws, rules and regulations
and the constitution, by-laws, rules, regulations and stated policies of the
National Association of Securities Dealers, Inc. ("NASD"), and any other
securities exchange or association or regulatory or self-regulatory organization
vested with authority or jurisdiction over the parties and/or the transactions
contemplated hereby (collectively, the "Laws and Rules"). This Agreement shall
be submitted by Clearing Broker or Correspondent, as required, for approval
by
the NASD in accordance with NASD Rule 3230, and shall become effective upon
such
approval. In the event of disapproval hereof, the parties shall bargain in
good
faith to obtain the requisite approval.
II.
SERVICES
A.
Services
to be Performed bv Clearing Broker
Subject
to compliance by Correspondent with its obligations under this Agreement and
the
Laws and Rules,
Clearing Broker shall perform the following services:
| 1. |
Clearing
Broker shall execute orders for Correspondent's proprietary accounts
and
for Correspondent's customers (the "Customers") whose cash or margin
accounts have been accepted by Clearing Broker (the "Accounts"),
but only
insofar as such orders are transmitted by Correspondent to Clearing
Broker
or are transmitted by a Customer to Clearing Broker in accordance
with
Section V.A. of this Agreement.
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| 2. |
Clearing
Broker shall prepare and distribute confirmations relative to transactions
in each of the Accounts in accordance with Section VILA. of this
Agreement, and Clearing Broker shall provide duplicates of such
confirmations to Correspondent; provided,
however, that
Clearing Broker may, with Correspondent's prior approval, delegate
such
responsibilities to Correspondent. In the event that such responsibilities
are delegated to Correspondent, Correspondent shall have sole and
exclusive responsibility for the preparation and distribution of
confirmations and for their compliance with the Laws and Rules.
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1
| 3. |
Clearing
Broker shall prepare and distribute summary monthly statements (or
quarterly statements if no activity in an Account occurs during any
quarter covered by such statement) to Accounts in accordance with
Section
VILA. of this Agreement, and Clearing Broker shall provide duplicates
of
such statements to Correspondent.
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| 4. |
Clearing
Broker shall clear and settle contracts and transactions in securities
(including options to buy or sell securities) (a) between Correspondent
and other brokers and dealers, (b) between Correspondent and the
Accounts,
and (c) between Correspondent and persons other than the Accounts
or other
brokers and dealers.
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| 5. |
Clearing
Broker shall engage in cashiering functions for the Accounts, including
the receipt, delivery and transfer of securities purchased, sold,
borrowed
and loaned, receiving and distributing payment therefor, holding
in
custody and safekeeping all securities and payments so received,
the
handling of margin accounts, including the paying and charging of
interest, the receipt and distribution of dividends and other
distributions, and the processing of exchange offers, rights offerings,
warrants, tender offers and redemptions. To the extent that any cashiering
functions with respect to the receipt of securities and the making
and
receiving of payments therefor may be relinquished to Correspondent,
Correspondent shall have full responsibility for such functions.
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| 6. |
Clearing
Broker shall prepare and maintain books and records of all transactions
executed or cleared through it and not specifically assigned to
Correspondent pursuant to the terms of this Agreement, including
a daily
record of required margin and ether information required by NASD
Rule
2520, or by similar provisions of the Laws and Rules.
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| 7. |
Clearing
Broker shall deliver or cause to be delivered prospectuses in connection
with public offerings of securities (both initial public and secondary
offerings) and sales of mutual funds.
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Any
additional services to be performed by Clearing Broker shall be subject to
the
mutual agreement of the parties. Such additional services shall be set forth
with related fees on Schedule A hereto. Schedule A is hereby incorporated into
and made an integral part of this Agreement.
B.
Services
Not to be Performed bv Clearing Broker
Unless
otherwise agreed to in a writing executed by the parties hereto, Clearing Broker
shall not perform any of the following services on behalf of Correspondent,
the
responsibility for which shall be solely that of Correspondent:
| 1. |
Accounting,
bookkeeping or recordkeeping, cashiering, or any other services with
respect to commodity transactions, and/or any transaction other than
securities transactions.
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| 2. |
Preparation
of Correspondent's payroll records, financial statements or any analysis
or review thereof or any recommendations relating thereto.
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| 3. |
Preparation
or issuance of checks in payment of Correspondent's expenses, other
than
expenses incurred by Clearing Broker on behalf of Correspondent pursuant
to this Agreement.
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| 4. |
Payment
of commissions, salaries or other remuneration to Correspondent's
salespersons, registered or associated personnel or any employees
of
Correspondent.
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| 5. |
Preparation
and filing of reports with the Securities and Exchange Commission
(the
"SEC"), any state securities commission, any national securities
exchange
registered under the Securities Exchange Act of 1934, as amended
(the
"1934 Act"), or other securities exchange or securities association
or any
other regulatory or self-regulatory body or agency of which Correspondent
is a member, with which Correspondent is associated and/or by which
Correspondent is regulated. Clearing Broker shall, at the request
of
Correspondent, furnish Correspondent with any necessary information
and
data contained in books and records kept by Clearing Broker and not
otherwise reasonably available to Correspondent if such information
is
required in connection with the preparation and filing of such reports
by
Correspondent.
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| 6. |
Making
and maintaining reports and records required to be kept by Correspondent
by the Currency and Foreign Transactions Reporting Act of 1970, and
the
regulations promulgated pursuant thereto, any anti-money laundering
laws
or regulations applicable to Correspondent, its activities or any
Accounts
opened or transactions effected hereunder, including without limitation
the USA PATRIOT Act (the "PATRIOT Act") and any rules or regulations
adopted thereunder, or any similar laws or regulations enacted or
adopted
hereafter.
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| 7. |
Verification
of the address changes of any Account.
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| 8. |
Verification
of the authority of, or changes in the identity or address, of any
person
holding any power of attorney over any Account.
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| 9. |
Verification
of the validity of, or proper authorization for, any orders or
instructions received by Clearing Broker from Correspondent or from
any
Customer in connection with an Account.
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| 10. |
Obtaining
and verifying new account information, and ensuring that such information
meets the requirements of NASD Rule 3110, and any other applicable
provision of the Laws and Rules.
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| 11. |
Maintaining
a record of all personal and financial information concerning any
Account
and all orders received therefrom, and maintaining all documents
and
agreements executed by any Account.
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| 12. |
Holding
for safekeeping the securities of any Account registered in the name
of
the Account.
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| 13. |
Holding
restricted or control securities in compliance with all SEC rules
and
regulations, and any other applicable provision of the Laws and Rules.
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| 14. |
Accepting
deposits from Correspondent in the form of coin or currency of the
United
States or of any other country, postal money orders or bank checks.
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| 15. |
Compliance
with the reporting, disclosure or record keeping requirements of
the
Employee Retirement Income Security Act of 1974, as amended (''ERISA''),
or any rules or regulations promulgated thereunder.
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C.
Exclusive
Clearing Arrangement
Correspondent
agrees. that, for the term of this Agreement, all transactions in all
securities, including, without limitation, listed and over-the-counter equities,
fixed income securities, options and mutual fund shares, for the Customer and
proprietary accounts of Correspondent, shall be cleared exclusively through
Clearing Broker, unless and except to the extent that: (1) Clearing Broker
agrees in writing otherwise; or (2) Clearing Broker has rejected a proposed
Account or has declined to clear a particular transaction in an Account. In
the
event that any transaction is cleared through any other firm, nothing herein
shall be construed as an agreement by Clearing Broker to assume any obligations
or liabilities arising from any such transaction.
III.
OPENING
AND SUPERVISION OF ACCOUNTS
A.
Account
Documentation
Clearing
Broker acknowledges and agrees that it is subject to a variety of obligations
(including, without limitation, certain review and reporting duties and other
responsibilities listed in Exhibit B hereto) imposed upon it pursuant to the
PATRIOT Act, the Bank Secrecy Act, The Currency and Foreign Transactions
Reporting Act of 1970, and the rules and regulations issued or adopted in
accordance therewith. Additionally, Correspondent shall be responsible for
obtaining and verifying all required information and the identity of each
potential Customer and for complying with all obligations applicable to the
opening of Accounts under the PATRIOT Act and the rules and regulations adopted
thereunder. Correspondent shall be responsible for the maintenance and retention
of all account applications and Correspondent hereby acknowledges its obligation
to retain account applications in an easily accessible place in accordance
with
the Laws and Rules and agrees to provide a copy of the original application
to
Clearing Broker (except that Correspondent shall provide originals of any
documents to which Clearing Broker is a direct party including, without
limitation, the margin agreement) by overnight delivery within 24 hours of
a
request from Clearing Broker, or as otherwise agreed. All account documentation
shall be on the forms provided by Clearing Broker for that purpose, or,
alternatively, prepared by Correspondent at its expense and approved in writing
by Clearing Broker, in either case in a format compatible with Clearing Broker's
computerized accounting and records maintenance systems. In accordance with
Clearing Broker's procedures, Correspondent shall notify Clearing Broker
promptly of any changes or corrections in any information, instructions or
documents previously forwarded to Clearing Broker. Correspondent shall be
responsible for obtaining, updating and maintaining correct customer addresses,
and Clearing Broker may for all purposes rely, without verification, on the
accuracy of such addresses and all other information and documents furnished
by
Correspondent to Clearing Broker regarding any Account. Correspondent shall
be
solely and exclusively responsible for complying with the requirements of Rule
15g-9 under the 1934 Act, if applicable. Correspondent also shall promptly
furnish Clearing Broker with such additional information or documentation as
Clearing Broker may request from time to time.
B.
Knowled2e
of Customer and Customer'" Investment Obiectives
Correspondent
shall be solely and exclusively responsible through a general partner, a
principal executive officer or a person designated for supervisory
responsibilities to use due diligence to learn the essential facts relative
to
every Customer and Account, every order for any Account, and every person
holding power of attorney or discretion over any Account, and to supervise
diligently all Accounts handled by Correspondent's registered representatives
so
as to be in full compliance with all Laws and Rules. The preparation or
possession of surveillance records, exception reports and other similar data
by
Clearing Broker shall not obligate Clearing Broker to establish policies,
practices or procedures relating to such materials. Correspondent shall be
solely and exclusively responsible for ensuring that the Customers are not
minors and do not otherwise lack the capacity to enter into a contract and
are
not prohibited from opening a securities account under the Laws and Rules.
4
C.
Acceptance
of Accounts
Each
Account accepted and approved by Correspondent and opened with Clearing Broker
shall be subject to Clearing Broker's acceptance (which shall not be construed
to include any due diligence on the part of Clearing Broker). Correspondent
shall not approve any Account unless all information required in Section IIl.A.
of this Agreement has been received and due diligence as set forth in Section
UI.B. has been performed by Correspondent. Clearing Broker reserves the absolute
right, exercisable in its sole discretion, without prior notice to Correspondent
or to the Customer, to reject any account that Correspondent may offer as an
Account, to terminate any account previously accepted by it as an Account,
or to
reject any order that may be transmitted to Clearing Broker for execution or
clearing in any Account. Without limiting the generality of the foregoing,
Clearing Broker shall be under no obligation to accept any Account as to which
any documentation or information required to be submitted to Clearing Broker
or
maintained by Correspondent pursuant to Sections UI.A. and III.B. of this
Agreement is incomplete. No action taken by Clearing Broker or any of its
personnel or employees, including, without limitation, clearing a trade in
any
Account, shall be deemed to be or shall constitute acceptance of such Account.
Without limiting the generality of any of the foregoing, in the event that
any
information or documentation requested by Clearing Broker relative to an Account
is not promptly provided to Clearing Broker, Clearing Broker may, without prior
notice to Correspondent or to the Customer, reject or terminate such account
as
an Account or refuse to execute or clear any further transactions therein.
If
Clearing Broker nevertheless accepts or continues to execute or clear
transactions in such Account, it shall not be deemed to constitute a waiver
of
Clearing Broker's right to receive such information or documentation or to
later
terminate or refuse to execute or clear transactions in such Account.
D.
Supervision
of Orders and Accounts
Correspondent
shall be solely and exclusively responsible for the conduct and supervision
of
the Accounts and all transactions therein and their compliance with the Laws
and
Rules, including, without limitation, any Laws and Rules relating to
Correspondent's fiduciary responsibility to Customers under ERISA.
Correspondent's responsibilities shall include, without limitation, the
following:
| 1. |
using
due diligence to learn and on a continuing basis to know the essential
facts relative to each Customer and each order in an Account, including
verifying the address changes of each Customer, knowing all persons
holding power of attorney over any Account and obtaining appropriate
documentation from each Account in accordance therewith, being familiar
with each order in any Account and otherwise complying fully with
all of
the requirements of NASD Rule 3110, any interpretations thereof,
the
PATRIOT Act and the rules and regulations adopted thereunder and
all
similar provisions of the Laws and Rules;
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| 2. |
selecting,
investigating, training, and supervising all personnel of Correspondent
who open, approve or authorize transactions in the Accounts;
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| 3. |
establishing
written procedures for the opening, supervision and conduct of the
Accounts and ongoing review of all transactions in the Accounts,
and
maintaining compliance and supervisory personnel adequate to implement
and
enforce such procedures;
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| 4. |
knowing
the investment objectives of each Customer and determining the suitability
of all transactions in the Accounts;
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| 5. |
ensuring
that there is a reasonable basis for any recommendations made by
Correspondent to Customers;
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| 6. |
determining
the appropriateness of the frequency of trading in an Account;
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| 7. |
determining
that each transaction in an Account has been duly authorized;
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| 8. |
authenticating
any instructions of the Customer, and forwarding such instructions
to
Clearing Broker;
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| 9. |
obtaining
and maintaining all documents necessary for the performance of
Correspondent's responsibilities under this Agreement and retaining
such
documents in accordance with the Laws and Rules;
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| 10. |
complying,
to the extent applicable to any transaction in an Account (and whether
or
not such transaction is executed by Clearing Broker), with the "three
quote rule" as set forth by the NASD;
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| 11. |
complying
with all "Blue Sky" requirements applicable to any transaction in
an
Account; and
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| 12. |
informing
Clearing Broker of the location of the securities which are the subject
of
any order transmitted to Clearing Broker for execution so that Clearing
Broker may comply with applicable provisions of the Laws and Rules.
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E. Accounts
of Emplovees of Member Organizations. Self-Regulatorv Organizations and
Financial Institutions
In
each
case in which a Customer is an employee of a member organization, a
self-regulatory organization or financial institution, the approval of which
is
necessary for the opening and maintenance of such Customer's Account,
Correspondent shall be solely and exclusively responsible for obtaining the
approval of such employer, and otherwise complying with NASD Rule 3050.
F.
Prime
Brokerage
No
Account in connection with which Correspondent is to act as an executing broker
in a prime brokerage arrangement shall be opened without the prior written
authorization of Clearing Broker and the execution of appropriate documentation
by the parties to such arrangement, including, without limitation, an agreement
in substantially the same form as the Addendum annexed hereto.
G.
Customers
Each
Customer shall remain the customer of Correspondent and nothing herein shall
cause any Customer to be construed as or deemed to be a customer of Clearing
Broker for any purpose whatsoever, except that, for the purposes of the
Securities Investor Protection Act and the "financial responsibility" rules
of
the SEC, Customers shall be deemed to be customers of Clearing Broker as
Correspondent's clearing firm, but only to the extent required by applicable
Laws and Rules.
H.
Screening
of Accounts
Clearing
Broker may in its discretion utilize at Correspondent's expense as set forth
on
Schedule B a third party service company to screen Customers and transactions
in
the Accounts, and the use thereof shall not relieve Correspondent of any of
its
obligations under this Agreement. Correspondent acknowledges that the
preparation or possession of surveillance rec0rds or any other data, including
exception reports, by
6
Clearing
Broker on behalf of or for the use of ·Correspondent shall neither obligate
Clearing Broker to review such material nor make Clearing Broker responsible
to
know their contents.
1.
Discretionary
Accounts
Correspondent
shall be solely and exclusively responsible for the handling and supervisory
review of any Accounts over which Correspondent's partners, officers, registered
or associated personnel or employees have discretionary authority, as required
by NASD Rule 2510, and any other provisions of the Laws and Rules. Correspondent
shall furnish Clearing Broker with such documentation with respect thereto
as
may be requested by Clearing Broker. Correspondent hereby warrants that with
regard to any orders or instructions given by Correspondent with respect to
such
discretionary Accounts, its partners, officers, registered or associated
personnel or employees shall have been fully and properly authorized relative
thereto and that the execution of such orders shall not be in violation of
the
Laws and Rules.
J.
Option
Accounts
Before
engaging in option trading or accepting an option order for any Customer,
Correspondent shall deliver to Customer a current disclosure statement of the
Options Clearing Corporation, the Special Statement for Uncovered Option
Writing, and any effective supplements thereto. Correspondent shall obtain
the
required signatures on all option agreements, shall obtain proper approval
for
the opening of all option accounts, and shall otherwise comply with the Laws
and
Rules applicable to options accounts and options trading. Correspondent shall
deliver to Clearing Broker a copy of a signed option agreement for each Customer
approved by it for options trading in a form acceptable to Clearing Broker.
K.
Accounts
for Which Agent Holds Power of Attorney
Upon
the
opening of any Account for which an agent holds a power of attorney on behalf
of
a principal, Correspondent shall provide Clearing Broker with the name of each
principal for whom such agent is acting and with written evidence of the agent's
authority to act on the principal's behalf. Correspondent hereby warrants that
any orders or instructions of such agent which are transmitted to Clearing
Broker pursuant to this Agreement shall have been fully and properly authorized
and that the execution of such instructions or orders shall not violate the
Laws
and Rules.
L.
Capital
Treatment of Assets Held in Proprietary Accounts of Correspondent
In
accordance with the No-Action Letter issued by the SEC on November 3, 1998
(the
"No-Action Letter"), Correspondent shall be permitted to include assets held
in
its proprietary accounts with Clearing Broker ("PAIB") as allowable assets
in
its net capital computations; provided,
however, that
Clearing Broker shall perform the PAIB calculation in accordance with the
provisions, procedures and interpretations set forth in the No-Action Letter
and
specified in Exhibit A hereto.
M.
Anti-Money
Laundering; Compliance
Clearing
Broker and Correspondent agree to comply with the anti-money laundering policies
and procedures established in Exhibit B hereto, as amended or updated from
time
to time.
7
IV.
EXTENSIONS
OF CREDIT
A.
Margin
Agreement
Prior
to
the execution or clearance of any margin transaction in an Account,
Correspondent shall obtain and provide Clearing Broker with a margin agreement,
hypothecation agreement and consent to loan of securities (collectively, "margin
agreement") executed by the Customer (or, in the case of any proprietary Account
of Correspondent, executed by Correspondent), such agreement to be in form
and
substance satisfactory to Clearing Broker. Clearing Broker shall have all rights
and remedies set forth in such margin agreement, in addition to those set forth
in this Agreement, with respect to Accounts which are margin accounts. All
transactions in an Account shall be considered cash transactions until Clearing
Broker has determined, in its sole discretion, to accept margin transactions
therein and the duly executed margin agreement has been received by Clearing
Broker. Clearing Broker may cancel and rebook as cash transactions any margin
transactions for an Account for which no such margin agreement has been received
prior to settlement date, and all transaction costs associated with each such
cancellation and rebooking shall be borne in their entirety by Correspondent.
Clearing Broker shall be responsible for compliance with Rule lOb-16 under
the
1934 Act. If Correspondent elects to instruct Clearing Broker not to have direct
communication or contact with its Customers, it shall obtain in advance of
dissemination the written approval of Clearing Broker of any document to be
provided to Customers in connection therewith.
B.
Margin
Requirements
Clearing
Broker shall comply with Regulation T, Section 12 of the Code of Federal
Regulations, Part 220, established by the Federal Reserve System, related
interpretive rulings and the NASD's rules and interpretations relative to
initial and maintenance margin requirements. In addition, Clearing Broker shall
advise Customers of changes to its credit terms and conditions (unless directed
otherwise by Correspondent). Correspondent shall be responsible to Clearing
Broker for the collection of initial margin and for maintenance at all times
of
margin in each Account sufficient to ensure compliance with Regulation T,
promulgated by the Board of Governors of the Federal Reserve System pursuant
to
the 1934 Act, and any interpretations thereof, with any other margin or margin-
maintenance rules under the Laws and Rules, and with Clearing Broker's house
margin rules. After initial margin has been received, maintenance margin calls
shall be generated by Clearing Broker and made by Clearing Broker or by
Correspondent at the instruction of Clearing Broker. Correspondent shall have
sale and exclusive responsibility for any loss, liability, damage, claim, cost
or expense, including but not limited to attorneys' fees, incurred or sustained
by Clearing Broker as a result of the failure of any Customer timely to comply
with any initial margin or maintenance margin requirements.
Correspondent
understands and acknowledges that Accounts shall be subject to any house rules
of Clearing Broker requiring initial margin or maintenance margin in amounts
greater than would otherwise be required under Regulation T or any other
provisions of the Laws and Rules. Clearing Broker may at any time, in its sole
discretion, and subject to market conditions and periods of extreme volatility,
change its house margin requirements as they pertain to any Account or class
of
accounts or specific securities or class of securities. Such changes shall
be
effective immediately upon the provision of notice to Correspondent and the
Customers. Clearing Broker shall be responsible for advising the Customers
of
any such changes (unless directed otherwise by Correspondent), and Correspondent
shall be responsible for the prompt collection of any additional margin
necessary to ensure compliance therewith.
C.
Interest
on Margin Accounts
Clearing
Broker shall charge interest on Accounts that are margin accounts in accordance
with the margin agreements applicable to such accounts, provided that such
interest and other charges shall not exceed amounts that may be charged under
applicable Laws and Rules. Clearing Broker may at any time, in its sole
discretion, revise its credit terms and conditions. Correspondent shall have
sole and exclusive responsibility
for any loss, liability, damage, claim, cost or expense, including but not
limited to attorneys' fees, incurred or sustained by Clearing Broker as a result
of the failure of any Customer timely to pay such charges.
8
V.
TRANSMISSION.
ACCEPTANCE AND EXECUTION OF ORDERS
A.
Transmission
of Orders
All
orders in Accounts shall be transmitted to Clearing Broker by Correspondent
in
accordance with such procedures as Clearing Broker may implement for that
purpose. Customers shall not place orders directly with Clearing Broker.
Notwithstanding the foregoing, Clearing Broker may, in its sole discretion,
on a
case-by-case basis, agree to accept orders directly from a particular Customer;
provided,
however, that
in
doing so Clearing Broker shall not assume or be deemed to have assumed any
of
the responsibilities for supervision of Accounts allocated to Correspondent
under this Agreement. Clearing Broker shall have no duty of inquiry or
investigation with respect to any orders transmitted to it for execution or
clearance. Correspondent shall be responsible for the timely and accurate
transmission of all orders to Clearing Broker, as well as for any errors or
discrepancies therein.
B.
Acceptance
of Orders
Orders
accepted by Clearing Broker for execution and clearance shall be executed and
cleared in accordance with Clearing Broker's standard practices and the Laws
and
Rules. Clearing Broker reserves the absolute right, exercisable in its sole
discretion, without prior notice to Correspondent or to the Customer, to reject
for execution and clearance any transactions which exceed established limits
or
are otherwise unacceptable to Clearing Broker due to such factors as adverse
market conditions, assumptions regarding the volatility and liquidity of the
subject securities, current market price, the financial condition or credit
worthiness of Correspondent or of the Customer, any regulatory problems of
Correspondent or of the Customer, or for any reason whatsoever which, in the
sole discretion of Clearing Broker, renders it advisable to reject a
transaction. Clearing Broker also reserves the right, exercisable in its sole
discretion, to restrict trading in Accounts in any manner, including but not
limited to restricting trading to liquidating orders only or cash transactions
only, or to prohibit certain trading strategies or trading of certain types
of
securities.
C.
Over-the-Counter
Transactions
For
all
over-the-counter transactions, Correspondent shall furnish Clearing Broker
with
the names of the respective purchasing and selling broker-dealers (except as
otherwise provided in the section below), and the wholesale and retail purchase
and sale prices necessary for confirmation in accordance with applicable Laws
and Rules.
D.
Designation
of Contra Brokers
Whenever
Correspondent directs Clearing Broker to route an order to a particular broker,
dealer or market for execution, including, without limitation, designating
the
contra broker in an over-the-counter transaction for an Account, Correspondent
shall be responsible to Clearing Broker for all aspects of the transaction,
including, without limitation, any duty of best execution or any failure by
such
contra broker or dealer to settle the transaction for any reason whatsoever,
and
Correspondent shall immediately reimburse Clearing Broker for any losses or
expenses sustained by Clearing Broker in connection therewith.
9
E.
Short
Sales
Correspondent
shall be responsible for determining and advising Clearing Broker whether each
order for the sale of securities for an Account is "long" or "short" within
the
meaning of the Laws and Rules. Correspondent also shall be responsible for
ensuring that each short sale for an Account complies with Rule 10a-1 under
the
1934 Act, NYSE Rule 440B, all provisions relating to short sales under NASD
rules and the interpretations of such rules, and any other applicable provisions
of the Laws and Rules regarding short sales.
F.
Low
Priced/Pennv Stocks
Clearing
Broker shall execute orders for "reported" issues or new issues approved for
listing on a "National Securities Exchange," as such terms are defined in SEC
Rule 3aSI-1. Correspondent shall not accept orders for transactions in
securities that do not meet such criteria, and the disclosure requirements
of
SEC Rule 3a5I-l do not apply except that, Correspondent may accept orders to
sell such securities if such securities were already held in a converted account
or accounts that were received via ACATS, provided that Correspondent shall
comply with all Laws and Rules relating to such sales, including, without
limitation, SEC Rule ISg-2.
G.
Order
Limits: Position and Credit Limits
Correspondent
shall be responsible for maintaining continuing familiarity and compliance
with
all limits on order size and all position and credit limits which have been
or
may be established by Clearing Broker with respect to transactions in the
Accounts, which limits may be changed from time to time by Clearing Broker
in
its sole discretion upon notice to Correspondent. Correspondent agrees to notify
Clearing Broker and obtain its approval prior to the entry of any trade in
an
Account which would exceed such limits.
H.
Deliverv
Versus Payment
Correspondent
agrees that its Customers shall utilize the facilities of a securities
depository for the confirmation, acknowledgment, and book entry settlement
of
all depository eligible transactions in connection with delivery versus payment
("DVP") transactions, and that Correspondent shall be solely and exclusively
responsible for causing any Customers engaging in such transactions to utilize
such facilities. Correspondent further agrees to ensure that its Customers
shall
provide their agent with instructions in accordance with the requirements set
forth in NASD Rule 11860.
I.
Buv-Ins
and Sell-Outs: Interest Charges
Upon
the
failure of any Customer (or Correspondent, in the case of Accounts which are
proprietary accounts) to make timely payment for securities purchased or timely
and good delivery of securities sold, or the failure timely to comply with
any
applicable margin requirements, Clearing Broker shall be entitled, but not
obligated, to take such remedial action, or direct Correspondent to take such
remedial action, as Clearing Broker, in its sole and absolute discretion, deems
appropriate, including but not limited to executing buy-ins or sell-outs for
an
Account. Clearing Broker shall provide prior verbal notice thereof to
Correspondent and an opportunity to cure, to the extent practicable in Clearing
Broker's sole and absolute discretion. Checks shall not constitute payment
until
they have cleared and the proceeds have been collected by Clearing Broker's
bank
and credited to Clearing Broker. The taking of any such remedial action by
Clearing Broker, or its failure to do so, shall not in any way affect or
diminish Correspondent's indemnification, reimbursement or payment obligations
pursuant this Agreement.
To
the
extent permitted by Regulation T, Rule ISc3-3 under the 1934 Act or any other
provisions of the Laws and Rules, Correspondent may request, in a writing signed
by an officer, partner or principal of Correspondent,
that Clearing Broker defer a buy-in or sell-out for an Account. The grant or
denial, in whole or in part, of any such request to defer a buy-in or sell-out,
or of any application for an extension of time for any Account to make any
payment required by Regulation T or any other provision of the Laws or Rules,
shall remain within the sale discretion of Clearing Broker. Correspondent shall
be liable to Clearing Broker for any loss or expense incurred by Clearing Broker
in connection with such request, whether or not granted.
10
Clearing
Broker may, at its option, charge Customers (and Correspondent, in the case
of
Accounts which are proprietary accounts) interest at the rate of 2% above the
broker's call rate, or such other rate as may be agreed in writing by
Correspondent and Clearing Broker, arising from any debit in an Account however
arising, including, without limitation, for late payments or late deliveries
of
securities. Correspondent shall be liable to Clearing Broker for such charges
to
the extent not paid by Customers.
J.
Option
Assignments, Tender Offers and Rights Offerings
Clearing
Broker may, in its sale discretion, either buy back in the cash market or borrow
shares on the day Clearing Broker is notified of option assignments affecting
shares which have been tendered and which have caused short positions in
Accounts as of either the proration or withdrawal date. Shares purchased for
cash or borrowed shall not be considered part of an Account's tendered position
until such shares are in Clearing Broker's actual possession. Clearing Broker
shall reduce the tender for Accounts by the size of the short or unreceived
shares.
During
a
tender period in which there are competing and counter tender offers for a
security, Clearing Broker shall tender only upon the written instructions of
Correspondent or the Customer and only on a trade date basis the number of
shares net long in the Account as of either the proration or withdrawal date,
which number shall, at Clearing Broker's request. be confirmed in writing by
Correspondent. At Clearing Broker's request, Correspondent also shall confirm
in
writing that such tender is being made upon the instructions of persons
authorized to direct the disposition of the shares.
In
connection with a rights offering, Clearing Broker shall exercise rights only
upon the written instructions of Correspondent or the Customer and only on
a
trade date basis the number of rights relating to shares net long in the
Account, which number shall, at Clearing Broker's request, be confirmed in
writing by Correspondent. At Clearing Broker's request, Correspondent also
shall
confirm in writing that such exercise is being made upon the instructions of
persons authorized to do so.
VI.
RECEIPT
AND DELIVERY OF FUNDS AND SECURITIES
A.
Receipt
and Deliverv in the Ordinary Course of Business
Clearing
Broker shall receive and deliver funds and securities for Accounts in accordance
with Correspondent's instructions to Clearing Broker, provided that
Correspondent shall be responsible for advising Customers of their obligations
to deliver funds or securities in connection with each transaction in an Account
and shall be responsible for any failure of a Customer to satisfy such
obligations. Correspondent agrees promptly to deliver to Clearing Broker any
and
all funds or securities received by Correspondent from Customers, together
with
such information as may be relevant or necessary to enable Clearing Broker
properly to record such deliveries in the appropriate Accounts. Clearing Broker
shall be responsible for the safeguarding of all funds and securities actually
received and accepted by Clearing Broker, subject to count and verification
by
Clearing Broker. Clearing Broker shall not be responsible for any funds or
securities delivered by a Customer to Correspondent or its agents or employees
until such funds or securities are physically delivered to and accepted by
Clearing Broker at its premises or deposited in Clearing Broker's bank accounts.
It is expressly understood and agreed, however, that Correspondent shall be
responsible for compliance with the Bank Secrecy Act and the rules and
regulations promulgated thereunder.
11
B.
Lost.
Stolen or Forged Securities
Correspondent
shall be responsible for any defect in title to any securities purchased, sold,
borrowed, delivered or transferred under this Agreement or any securities which
may have been forged, counterfeited, altered, lost or stolen.
C.
Custodv
Services
Whenever
Clearing Broker has agreed to act as custodian of securities in any Account,
or
to hold securities in "safekeeping," Clearing Broker may hold the securities
in
the Customer's name ("Customer Name Securities"), or may cause such securities
to be registered in the name of Clearing Broker or its nominee or in the names
or nominees of any depository used by Clearing Broker. In connection with
Customer Name Securities, Clearing Broker shall have no responsibility for,
among other things, collecting and paying of dividends, transmitting and
handling tenders or exchanges pursuant to tender offers and exchange offers,
transmitting proxy materials and other shareholder communications, and handling
exercises or expirations of rights and warrants or redemptions.
D.
Receipt
and Deliverv Pursuant to Special Instructions
Upon
special instructions from Correspondent or from a Customer, Clearing Broker
shall endeavor to make such transfers of securities or Accounts as may be
requested, consistent with the Laws and Rules. Any such special instructions
shall be in writing.
E.
Restricted
or Control Securities
Correspondent
shall be solely and exclusively responsible for determining whether any
securities in Accounts are restricted or control securities within the meaning
of Rule 144 under the Securities Act of 1933, as amended (the "1933 Act"),
and
for "ensuring that any transactions in such securities are in compliance with
the Laws and Rules. Prior to the time any such order shall be transmitted to
Clearing Broker, Correspondent shall notify Clearing Broker and Clearing Broker
may, in its sol6 discretion, charge such reasonable fees, in addition to the
clearing charges described below, as it deems appropriate for handling such
transactions.
VII.
CONFIRMATIONS
AND STATEMENTS
A.
Preparation
and Transmission
Clearing
Broker shall prepare and mail to Customers (and to Correspondent for its
proprietary accounts) confirmations and monthly or quarterly statements of
account in connection with all transactions executed or cleared through Clearing
Broker, on Clearing Broker's forms disclosing that the Accounts are carried
on a
fully disclosed basis for Correspondent: provided.
However,
that
Clearing Broker may, with the prior approval of Correspondent, delegate such
confirmation responsibilities to Correspondent. In the event that such
responsibilities are delegated to Correspondent, Correspondent shall have sole
and exclusive responsibility for confirmations and for their compliance with
the
Laws and Rules. In the event that such responsibilities are not delegated to
Correspondent, Correspondent acknowledges that such confirmations shall be
prepared and delivered on Correspondent's behalf and at its direction, and
that
such confirmations shall remain, for all purposes, the confirmations of
Correspondent. Correspondent further acknowledges that it shall have sole and
exclusive responsibility for the content of such confirmations and for their
compliance with the Laws and Rules. Accordingly, Correspondent shall provide
in
writing to Clearing Broker any information required by the Laws and Rules to
be
disclosed in its confirmations, including, without limitation, information
with
respect to the receipt of any payment for order flow. Clearing Broker shall
provide Correspondent with copies of all confirmations and statements sent
by
Clearing Broker to Customers
in connection with the Accounts. Except as expressly provided in this Agreement.
Correspondent shall not prepare or transmit confirmations or periodic account
statements or other communications to Customers without the prior written
consent of Clearing Broker.
12
B.
Examination
and Notification of Errors
Correspondent
shall examine promptly all confirmations, monthly and quarterly statements
of
account, the Reconciliation Statements (as defined below in Section IX.C.)
and
any other statements or reports provided to Correspondent by Clearing Broker.
All such confirmations, statements and reports shall be deemed accurate and
correct, and Correspondent shall be deemed to have waived any claim with respect
to the accuracy or correctness of the information therein, unless within ten
(10) business days of receipt thereof Correspondent notifies Clearing Broker
in
writing of any alleged errors or discrepancies therein. Any notice of error
or
discrepancy shall be accompanied by such documentation as may be necessary
to
substantiate Correspondent's claim. Upon the request of Clearing Broker,
Correspondent promptly shall provide any additional documentation Clearing
Broker reasonably believes is necessary or desirable to substantiate and correct
any such alleged error or discrepancy.
C.
Notations
on Confirmations, Monthlv and Ouarterlv Statements and Notices
Clearing
Broker shall make reasonable efforts to indicate on confirmations, monthly
and
quarterly statements, and notices to Customers that Customers are customers
of
Correspondent. Occasional or inadvertent omission of such notations shall not
be
deemed to constitute a breach of this Agreement, and shall not affect the
allocation of responsibilities between Clearing Broker and Correspondent
pursuant to this Agreement.
VIII.
BOOKS
AND RECORDS
Clearing
Broker shall prepare and maintain stock records and other prescribed books
and
records of the services performed and transactions effected by Clearing Broker
for the Accounts on a basis consistent with generally accepted practices in
the
securities industry and with the
Laws
and
Rules governing the activities of clearing brokers. Such books and records
shall
include, without limitation, records of daily margin requirements as required
by
NASD Rule 2520. Clearing Broker reserves the right, at its sole discretion,
to
amend its policies with respect to the retention of reports requested by or
provided to Correspondent. Any reports relating to the Accounts that, under
the
Laws and Rules, are required to be prepared and filed with the SEC or any other
regulatory or self-regulatory organization by Correspondent or Clearing Broker,
respectively, shall remain the responsibility of the respective parties, and
Clearing Broker and Correspondent each agrees promptly to provide the other
with
any information in its possession necessary to enable the other to prepare
and
file any such reports.
IX.
COMMISSIONS
AND CLEARING FEES
A.
Commissions
Correspondent
shall have sole discretion and responsibility for determining the amount of
commissions, xxxx-ups and similar charges (collectively, "Commissions") to
be
charged to Customers for transactions in the Accounts, and Clearing Broker
shall
not exercise any control or influence over the amount of such Commissions.
Correspondent shall be solely and exclusively responsible for the amounts of
such\
commissions
and their compliance with the Laws and Rules, including, but not limited to,
applicable xxxx-up and xxxx-down rules and any disclosures to Customers or
others required to be made in connection therewith. On or before the execution
of this Agreement, Correspondent shall have provided Clearing Broker with a
schedule (the "Commission Schedule") showing the amounts of Commissions to
be
charged to Customers. Correspondent may amend the Commission Schedule from
time
to time by written instructions to Clearing Broker. Clearing Broker shall debit
and collect from Accounts the amounts shown on the Commission Schedule, but
Clearing Broker shall be required to implement any amendments to the
Commission
Schedule only to the extent and over such time as is within the normal
capabilities of Clearing Broker's data processing and operations systems.
Notwithstanding anything herein to the contrary, Clearing Broker shall not
be
obligated to charge Customers any amounts which it believes to be violative
of
the Laws and Rules, but Clearing Broker shall have no obligation to determine
whether any such charges are violative of the Laws and Rules.
13
B.
Clearing
Fees
Correspondent
agrees to pay Clearing Broker the clearing fees and other amounts set forth
in
Schedule B hereto for the execution, clearing, settlement and related services
to be provided under this Agreement. Schedule B is hereby incorporated into
and
made an integral part of this Agreement. Schedule B may be amended by Clearing
Broker, in its sole discretion, at any time upon thirty (30) days' prior written
notice to Correspondent, or from time to time as may be agreed in writing by
the
parties.
C.
Collection
and Remittance of Commissions
Clearing
Broker shall collect all Commissions from the Accounts on behalf of
Correspondent and shall deduct and retain the following amounts from such
Commissions as shall be determined by Clearing Broker:
| 1. |
all
amounts payable to Clearing Broker In
accordance
with Schedule B and any amendments thereto;
|
| 2. |
any
expenses payable by Clearing Broker on Correspondent's behalf;
|
| 3. |
any
loss, liability, damage, claim, cost or expense (including but not
limited
to attorneys' fees), as incurred, in respect of which any Clearing
Broker
Indemnitee (as defined below) is entitled to indemnification by
Correspondent under this Agreement; and
|
| 4. |
all
other amounts owed by Correspondent or by any Customer to Clearing
Broker
pursuant to this Agreement or any other agreement between Clearing
Broker
and Correspondent or between Clearing Broker and any Customer (including,
without limitation, Customers' unsecured debit items, or unsecured
or
partially secured short positions).
|
On
or
before the 10th
business
day of the month following the end of the month in which the Commissions are
generated, Clearing Broker shall credit the Settlement Deposit Account (as
defined in Section X.B.) with the amount of Commissions collected by Clearing
Broker on Correspondent's behalf, net of all amounts to be deducted as set
forth
above and any other amounts due to Clearing Broker from Correspondent, however
arising, as determined by Clearing Broker. If the amount due to Clearing Broker
in any month exceeds the amount available in Correspondent's Settlement Deposit
Account, Correspondent shall, in accordance with the provisions of Section
X.A.,
immediately deposit with Clearing Broker additional cash so that the Settlement
Deposit Account shall always have a zero or credit balance. If Correspondent
fails to make such additional deposit, Clearing Broker shall have full rights
of
setoff, including, without limitation, the right to charge any other Account
maintained by Clearing Broker for Correspondent or any other assets of
Correspondent held by Clearing Broker, including, but not limited to, the
Security Deposit (as defined in Section X.B.) and positions and balances in
Accounts which are proprietary accounts of Correspondent, for the net amount
due
Clearing Broker. If Clearing Broker elects not to charge such other Accounts
or
assets, or such assets are insufficient to discharge the net amount due to
Clearing Broker, any amount due to Clearing Broker shall be paid to Clearing
Broker by Correspondent by wire transfer within ten (10) days of Correspondent's
receipt of a statement (the "Reconciliation Statement") showing the amount
due
to
Clearing Broker. If Clearing Broker does not receive payment within such period,
Clearing Broker shall charge Correspondent interest at 1%
above
the
broker's call rate, 'or such other rate as may be agreed in writing by Clearing
Broker and Correspondent, until paid in full. Any failure by Clearing Broker
to
charge the Settlement Deposit Account or any other Account or assets of
Correspondent held by Clearing Broker shall not constitute a waiver of Clearing
Broker's right to demand payment of, or to charge Correspondent's Accounts
for,
the full amount due at any time.
14
X.
SECURITY
FOR OBLIGATIONS OF CORRESPONDENT
A.
Lien
and Security Interest
In
order
to secure the performance by Correspondent of all of its obligations under
this
Agreement, including but not limited to its liability to Clearing Broker for
any
failures by Customers timely to pay for or deliver securities purchased or
sold
and for any losses resulting from unsecured debit balances or short positions
in
Accounts, Correspondent hereby grants Clearing Broker a continuing lien,
perfected first security interest in and right of setoff against (a) the
Settlement Deposit Account and the Security Deposit (as such terms are defined
below), (b) any Accounts which are proprietary accounts of Correspondent, and
(c) any Commissions, funds, securities or other property of Correspondent held
by Clearing Broker. Correspondent further agrees that Clearing Broker may debit
any cash balances and/or liquidate any securities held in the Settlement Deposit
Account or in any proprietary Account of Correspondent and credit the proceeds
to Clearing Broker in such amounts as are necessary to satisfy Correspondent's
obligations under this Agreement and at such times as Clearing Broker, in its
sole discretion, deems appropriate; provided, however, that Clearing Broker
has
complied with the notice and cure provisions of Section XVIII.G. hereof. The
lien, security interest and right of setoff created hereunder shall survive
the
termination of this Agreement until such time as, in the sole discretion of
Clearing Broker, security for the performance of Correspondent's obligations
is
no longer required.
B.
Settlement
Deposit Account and Security Deposit
On
or
before the execution of this Agreement, Correspondent shall have established
an
account (the "Settlement Deposit Account") with Clearing Broker. The Settlement
Deposit Account shall at all times contain cash and/or securities issued or
guaranteed as to principal and interest by the United States ("U.S. Government
Securities") having an aggregate present value of at least $25,000.00 (the
"Security Deposit"). Clearing Broker reserves the right, in its sole discretion,
on written notice to Correspondent, at any time, to increase the amount of
the
Security Deposit required to be maintained by Correspondent. Correspondent
shall
immediately transfer to the Settlement Deposit Account sufficient cash and/or
U.S. Government Securities to satisfy the increased amount of the Security
Deposit. If Correspondent fails to transfer such additional cash or U.S.
Government Securities to the Settlement Deposit Account, or if, for any other
reason, including but not limited to the exercise of any right of setoff
pursuant to the preceding section, the aggregate value of cash and U.S.
Government Securities in the Settlement Deposit Account is less than the
Security Deposit amount then in effect, Clearing Broker shall be entitled to
deposit in the Settlement Deposit Account such Commissions, funds, securities
or
other property of Correspondent in Clearing Broker's possession as are necessary
to satisfy the deficiency. Correspondent agrees that if this Agreement is
terminated for any reason, Clearing Broker may deduct from the Security Deposit
any amounts Correspondent owes Clearing Broker because of failure to meet any
of
Correspondent's obligations under this Agreement. The Security Deposit in no
way
represents any type of ownership in the Clearing Broker under this Agreement.
In
this regard, Correspondent also acknowledges that the Termination Fee referred
to in Section XVIII.D. is a non-allowable asset for purposes of its net capital
computation.
C.
Funds,
Securities and No Interest
All
funds
transferred to the Settlement Deposit Account shall be in immediately available
United States funds. All securities transferred to the Settlement Deposit
Account shall be (a) in suitable form for transfer or shall be accompanied
by
duly executed instruments of transfer or assignment in blank and such other
documentation
as Clearing Broker may request, (b) transferred on the book-entry system of
a
Federal Reserve Bank, or (c) transferred by any other method acceptable to
Clearing Broker. Clearing Broker shall not be obligated to pay interest to
Correspondent on any cash held in the Settlement Deposit Account. Neither the
Security Deposit nor the Settlement Deposit Account shall be deemed to' be
margin for any Account, nor shall they give rise to or constitute an ownership
interest in Clearing Broker.
15
XI.
INFORMATION
TO BE SUPPLIED BY CORRESPONDENT
A.
Financial
Statements and Other Reports
On
or
before the execution of this Agreement, Correspondent shall have supplied
Clearing Broker with copies of its most recent audited annual financial
statements and its most recent unaudited quarterly financial statements.
Throughout the term of this Agreement, Correspondent will, within five (5)
business days after their preparation, continue to provide Clearing Broker
with
copies of its audited annual and unaudited quarterly financial statements,
together with any amendments thereto, for each subsequent fiscal year and
quarterly period. Correspondent shall advise Clearing Broker in writing of
any
material errors in or omissions from such financial statements, or of any
material adverse change in its financial condition or business prospects,
immediately upon becoming aware of such error, omission or change. In addition,
simultaneously with their filing, Correspondent shall supply Clearing Broker
with copies of all financial information and reports filed by Correspondent
with
the SEC, the NASD and any national securities exchange or association of which
it is a member, including but not limited to its monthly and quarterly Financial
and Operational Combined Uniform Single ("FOCUS") Reports, any amendments or
supplement to its Form BD, and any reports on Disciplinary Reporting Pages
thereunder relating to Correspondent's principals, together with any amendments
or supplements to any of the foregoing information or reports. Correspondent
shall provide immediate oral and written notice to Clearing Broker in the event
that Correspondent's capital becomes subject to the "early warning" provisions
of SEC Rule 17a-1 1.
B.
Suspension
or Restriction
In
the
event that Correspondent learns that Correspondent or any principal of
Correspondent has become subject to revocation, suspension, bar, restriction,
censure or other formal disciplinary action by the SEC, NASD or any other
regulatory, self-regulatory or enforcement or governmental body having
jurisdiction over Correspondent or such principal, Correspondent shall notify
Clearing Broker immediately and, in addition to such other rights and remedies
as Clearing Broker may have under this Agreement and the Laws and Rules,
Correspondent authorizes Clearing Broker to take such steps as may be necessary
for Clearing Broker to maintain compliance by Clearing Broker with the Laws
and
Rules. Correspondent further authorizes Clearing Broker, in such event, to
comply with directives or demands made upon Clearing Broker by any such exchange
or regulatory or self-regulatory body. In connection with such directives or
demands, Clearing Broker may seek advice or legal counsel and Correspondent
shall promptly reimburse Clearing Broker for the reasonable fees and expenses
of
such counsel, as incurred.
16
C.
Additional
Information
Correspondent
shall promptly supply Clearing Broker, upon request, with such other information
or reports reflecting or relating to Correspondent's financial integrity,
including, without limitation, its aggregate indebtedness ratio and net capital;
Correspondent's registered principals and registered representatives; and
inquiries, investigations or disciplinary or enforcement action relating to
Correspondent or its registered principals or registered representatives by
the
SEC, NASD or any other regulatory; self-regulatory or governmental body.
XII.
COMMUNICATIONS
WITH CUSTOMERS
Correspondent
shall promptly notify its Customers in writing of the respective obligations
of
the parties under this Agreement and any other customer-related responsibilities
of the parties in accordance with NASD Rule 3230, such notification to be in
substantially the form of Exhibit C annexed hereto; provided,
However, that
Clearing Broker may, in its sole discretion, undertake such responsibilities
on
behalf of Correspondent. Correspondent shall be responsible for the payment
of
all costs incurred in connection with the preparation and mailing of such
notification.
Clearing
Broker agrees to forward promptly to Correspondent a copy of any written
inquiry, complaint or other correspondence received from a Customer with respect
to any Account. Correspondent agrees to forward promptly to Clearing Broker
a
copy of all of Correspondent's filings pursuant to NASD Rule 3070. Clearing
Broker also shall provide a copy thereof to Correspondent's designated examining
authority or self-regulatory organization and to advise the Customer that it
has
received the complaint and forwarded it to Correspondent and Correspondent's
designated examining authority or self-regulatory organization. Additionally,
Correspondent shall provide Clearing Broker with such additional information
as
Clearing Broker shall reasonably request, including, without limitation, a
copy
of any written inquiry, complaint or other correspondence from any Customer
of
Correspondent, whether or not such written inquiry, complaint or other
correspondence was disclosed by Correspondent in its filings pursuant to NASD
Rule 3070.
XIII.
ERRORS,
CONTROVERSIES AND ADDITIONAL INDEMNITIES
A.
Errors
and Controversies
Correspondent
shall be solely responsible for any error, controversy, dispute or discrepancy
between Correspondent, or any of its control persons, partners, shareholders,
directors, officers, employees, agents, affiliates, successors or assigns
(collectively, including Correspondent, the "Correspondent Parties"), and any
of
the Accounts. Correspondent shall indemnify, defend and hold Clearing Broker
and
its control persons, partners, shareholders, directors, officers, employees,
agents, affiliates, successors and assigns (collectively, including Clearing
Broker, the "Clearing Broker indemnities") harmless from and against any loss,
liability, damage, claim, cost or expense (including but not limited to
attorneys' fees), in each case as incurred, arising directly or indirectly
from
any such error, controversy, dispute or discrepancy, and from any action or
proceeding commenced by or against any of the Correspondent Parties by any
Customer, or from the settlement of any such claim, action or proceeding.
B.
Additional
Indemnities
Correspondent
hereby agrees to indemnify, defend and hold the Clearing Broker indemnities
harmless from and against any loss, liability, damage, claim, cost or expense
(including but not limited to attorneys' fees), in each case as incurred,
arising directly or indirectly from or related to the Accounts or any
transaction contemplated by or effected pursuant to this Agreement, or as a
result of any inquiry or investigation conducted in connection therewith or
in
the defense or settlement of any threatened or pending action or proceeding
brought by any regulatory or self-regulatory organization, governmental agency
or private person arising out of or in connection with the same, unless such
loss, liability, damage, claim, cost or expense, as finally determined by
arbitration or a court of competent jurisdiction, was caused primarily
by the fraudulent conduct or gross negligence of Clearing Broker (in which
case
Clearing Broker shall bear responsibility only for the proportion of any such
loss, liability, damage, claim, cost or expense finally determined by mutual
agreement of the parties, arbitration or a court of competent jurisdiction
to be
attributable to Clearing Broker's fraudulent conduct or gross negligence).
This
indemnity is supplemental to any other obligation of Correspondent in this
Agreement to pay or reimburse Clearing Broker for any fees, expenses, losses
or
liabilities. Without limiting its generality, the foregoing indemnity is
intended to include, among other things, any loss, liability, damage, claim,
cost or expense (including but not limited to attorneys' fees) arising from
or
relating to any of the following:
17
| 1. |
the
failure of any Customer to make timely payment for securities purchased
or
timely and good delivery of securities sold, the existence of an
unsecured
debit balance or unsecured short position in art Account, the failure
of
any Customer timely to comply with initial margin or maintenance
margin
requirements, or the failure of any Customer otherwise to fulfill
any of
its obligations in connection with any Account, whether or not such
failure is within the control of Correspondent;
|
| 2. |
the
failure of any of the Correspondent Parties fully and properly to
discharge their obligations and responsibilities with respect to
Accounts,
it being understood and agreed that the participation of any of the
Clearing Broker lndemnitees in any transaction shall not diminish,
reduce
or otherwise affect Correspondent's indemnification obligations hereunder,
except to the extent that such participation has been finally determined
by arbitration or a court of competent jurisdiction to have been
fraudulent or grossly negligent;
|
| 3. |
any
willful misconduct or negligent act or omission on the part of any
of the
Correspondent Parties or any Customer, including but not limited
to any
dishonest, fraudulent or criminal act or omission;
|
| 4. |
any
defect in title to any securities purchased, sold, borrowed, delivered
or
transferred under this Agreement (including, without limitation,
those
that may have been forged, counterfeited, altered, lost or stolen),
and
any adverse claims with respect to any securities purchased, sold,
borrowed, delivered or transferred under this Agreement, it being
understood that Clearing Broker shall be deemed to be solely an
intermediary between Correspondent and Customers with respect to
such
securities and shall be deemed to make no representations or warranties
other than as provided with respect to intermediaries in Section
8-306(3)
of the Uniform Commercial Code;
|
| 5. |
any
claim by any contra broker or any other person arising from or relating
to
Clearing Broker's rejection of a transaction for clearance and settlement
pursuant to the terms of this Agreement, or the failure by any contra
broker designated by Correspondent to settle any transaction for
an
Account;
|
| 6. |
any
errors or discrepancies in orders as transmitted by Correspondent
to
Clearing Broker;
|
| 7. |
the
use of check-writing privileges in accordance with Section XXI.C.
hereof;
|
| 8. |
any
request by Correspondent to defer a buy-in or sell-out for an Account,
or
to extend the time for the making of a required margin payment by
an
Account, whether or not granted in whole or in part by Clearing Broker;
|
| 9. |
any
guarantee by Clearing Broker of any signatures with respect to
transactions in the Accounts;
|
18
| 10. |
the
exercise by Correspondent Parties of discretionary authority over
any
Account;
|
| 11. |
any
action or inaction by an agent holding a power of attorney for
an Account
on behalf of a principal; or
|
| 12. |
the
breach by Correspondent of, or an untrue statement or omission
in, any
representation, warranty or covenant in this Agreement.
|
C.
Defense
of Claims and Actions
If
any
claim or action is asserted or commenced against any of the Clearing Broker
Indemnities in respect of which indemnity may be sought against Correspondent
pursuant to this Agreement, such Clearing Broker Indemnities shall notify
Correspondent in writing, and Correspondent shall assume the defense of such
claim or action, including the employment of counsel and payment of attorneys'
fees and expenses, as incurred, on behalf of such Clearing Broker Indemnities.
Each Clearing Broker Indemnitee against whom such claim or action is asserted
or
commenced shall have the right to employ its own separate counsel, but the
fees
and expenses of such separate counsel shall be at the expense of such Clearing
Broker Indemnitee unless: (1) the employment of such separate counsel shall
have
been authorized in writing by Correspondent; (2) Correspondent shall not have
employed counsel to conduct the defense of such Clearing Broker Indemnitee;
or
(3) such Clearing Broker Indemnitee, shall have reasonably concluded that as
between such Clearing Broker Indemnitee and Correspondent or between such
Clearing Broker Indemnitee and one or more of the other Clearing Broker
Indemnitees, there may be a conflict of interest requiring separate counsel.
In
the event that any of the circumstances referred to in clauses (1)-(3) of the
preceding sentence occurs, the fees and expenses of the separate counsel
employed by such Clearing Broker Indemnitee shall be borne in their entirety
by
Correspondent, and Correspondent shall not have the right to direct the defense
of such Clearing Broker Indemnitee. In any event, Correspondent shall cooperate
in the defense of any such claim or action against a Clearing Broker Indemnitee,
including, without limitation, in the effectuation of any settlement which
such
Clearing Broker Indemnitee, in its reasonable discretion, deems appropriate,
the
costs of which settlement shall be borne in their entirety by Correspondent.
D.
Survival
of Indemnities
All
indemnification, reimbursement and payment for expense provisions of this
Agreement shall survive the termination of the Agreement. Each indemnity under
this Agreement also shall extend to the costs and expenses (including but not
limited to attorneys' fees), if any, incurred by any of the Clearing Broker
Indemnitees in enforcing such indemnity.
XIV.
LIMITATION
OF LIABILITY OF CLEARING BROKER
A.
Indirect
or Consequential Dama2es
In
no
event shall Clearing Broker be responsible to Correspondent, to any Customer
or
to any other person for indirect or consequential damages arising from or
relating to any actual or alleged failure by Clearing Broker to perform the
functions or provide the services required by this Agreement, regardless of
whether Clearing Broker has been advised of or might otherwise have anticipated
the possibility of such damages. Clearing Broker's sole responsibility and
liability for any such actual or alleged failure shall be to Correspondent,
and
notwithstanding anything to the contrary in this Agreement, Clearing Broker
shall have no liability whatsoever for any losses, damages, costs or expenses
which are not finally determined by arbitration or a court of competent
jurisdiction to have been caused primarily by its own fraudulent conduct or
gross negligence (in which case Clearing Broker shall bear responsibility only
for the proportion of any such loss, damage, cost or expense finally determined
by arbitration or a court of competent jurisdiction to be attributable to
Clearing Broker's fraudulent conduct or gross negligence). Clearing Broker
shall
not be bound to make any investigation into the facts surrounding any
transaction that
it
may have with Correspondent or that Correspondent may have with or on behalf
of
any Customers or other persons, nor shall Clearing Broker be responsible for
compliance by Correspondent with the Laws and Rules in connection with any
Account or the performance by Correspondent of its obligations under this
Agreement. Correspondent acknowledges and agrees that this Agreement
significantly limits the liability of Clearing Broker and that such limitation
is fair and reasonable in light of the limited responsibilities of Clearing
Broker, and the amounts payable to Clearing Broker for its services, under
this
Agreement
19
B.
Svstems
and Communications Failures: Errors in Instructions
Clearing
Broker's sale responsibilities with respect to any systems or communications
failures, or any interruptions or delays in the services provided or to be
provided by Clearing Broker under this Agreement, shall be to use its best
efforts to make such systems and services available as promptly as reasonably
practicable. Clearing Broker shall have no responsibility whatsoever for the
accuracy of, or any errors or omissions in, any databases or securities
information and related market and statistical information displayed, carried
or
furnished by or through its equipment or systems. Clearing Broker shall have
no
responsibility whatsoever for any loss, expense or damage suffered by
Correspondent, any Customer or any other person by reason of any interruption
or
delay in the transfer or receipt of funds or securities through the Federal
Reserve Book Entry System, the Federal Funds Wire Transfer System or any similar
system or from any clearing agent, issuer, broker, dealer or other third party.
Clearing Broker shall have no responsibility whatsoever for any failures to
execute or "DKs" directly or indirectly resulting from incorrect, incomplete
or
untimely instructions or any other failure by Correspondent, or any other
person, to provide proper instructions.
XV.
ADDITIONAL
REPRESENTATIONS, WARRANTIES AND COVENANTS
A.
Representations,
Warranties and Covenants of Correspondent
Correspondent
represents, warrants and covenants to Clearing Broker as follows:
| 1. |
Correspondent
is and during the term of this Agreement shall be duly registered
and in
good standing as a broker-dealer with the SEC, a member firm in good
standing of the NASD, and a member in good standing of every national
securities exchange and association where such membership is required
in
light of Correspondent's activities.
|
| 2. |
Correspondent
has all requisite authority in conformity with all Laws and Rules
to enter
into and perform this Agreement and has taken all necessary actions
to
authorize the execution of this Agreement and the performance of
its
obligations hereunder.
|
| 3. |
Correspondent
and each of the other Correspondent Parties is and during the term
of this
Agreement shall remain in ful1 compliance with the Laws and Rules,
including but not limited to the registration, qualification, net
capital,
financial reporting, customer protection, and similar requirements
of the
SEC, the NASD, any other securities exchange or association of which
it is
a member, and every state to which jurisdiction it is subject.
|
| 4. |
Correspondent
has and during the term of this Agreement shall maintain excess net
capital in an amount that is the greater of 120%
of
the amount required under the Law and Rules, or an amount specified
in
writing by Clearing Broker to Correspondent. Correspondent shall
give
prompt written notice to Clearing Broker in the event that Correspondent's
excess net capital falls below 135%
of
the amount required under the Laws and Rules.
|
20
| 5. |
All
orders and instructions transmitted to Clearing Broker by Correspondent
shall be valid and shall have been duly and properly authorized.
|
| 6. |
There
is no action, suit, investigation, inquiry or proceeding (formal
or
informal) pending or to the best knowledge of Correspondent any material
action, suit, investigation, inquiry or proceeding, threatened, against
or
affecting Correspondent or any of the other Correspondent Parties,
by or
before any court or other tribunal, arbitrator, governmental agency,
instrumentality or authority or any self-regulatory or clearing
organization, as to which Clearing Broker has not been informed and
provided with copies of relevant documents. In the event any such
action,
suit, investigation, inquiry or proceeding is initiated or threatened
at
any time during the term of this Agreement, Correspondent shall promptly
notify Clearing Broker in writing and provide it with copies of all
relevant documents related thereto.
|
| 7. |
The
services provided by Clearing Broker do not and during the term of
this
Agreement shall not give rise to a prohibited transaction within
the
meaning of Section 406 of ERISA, and all applicable Prohibited Transaction
Class Exemptions (as defined thereunder), shall have been complied
with.
|
| 8. |
Correspondent
has and during the term of this Agreement shall maintain blanket
bond
insurance policies satisfactory to Clearing Broker covering any and
all
acts, errors and omissions of any of the Correspondent Parties and
adequate to fully protect and indemnify Clearing Broker against any
loss,
liability, damage, claim, cost or expense (including but not limited
to
attorneys' fees) which Clearing Broker may suffer or incur directly
or
indirectly as a result of any such act, error or omission. Coverage
to be
maintained under such policies shall be in an amount that is the
greater
of the amount required under NASD Rule 3020, or an amount specified
in
writing by Clearing Broker to Correspondent, and shall remain in
effect
during the term of this Agreement' and include coverage for any claims
discovered or made within at least ninety (90) calendar days following
the
termination of this Agreement. Clearing Broker shall be expressly
named as
the beneficiary of the errors and omissions policy required to be
maintained by Correspondent pursuant hereto.
|
| 9. |
On
or before the execution of this Agreement, Correspondent shall have
identified in writing to Clearing Broker each of its lines of business
and
any securities in which Correspondent makes a market. Correspondent
shall
give Clearing Broker at least ten (10) business days' prior written
notice
of any proposed changes in its market-making activities, including
but not
limited to any changes in the identity of securities in which it
proposes
to act as a market maker. Clearing Broker shall have the absolute
right,
in its sole discretion, to limit or prohibit Correspondent's market-making
activities with respect to any security.
|
| 10. |
Correspondent
shall give Clearing Broker at least ten (10) business days' prior
written
notice of any new lines of business that materially modify the mix
of
business that Correspondent is engaged in as of the date of this
Agreement. Such notice shall be required notwithstanding that such
new
business or different business mix does not affect the services to
be
performed by Clearing Broker under this Agreement. In connection
with any
such new business or different business mix, Clearing Broker shall
have
the absolute right, in its sole discretion, to request additional
assurances from Correspondent, to require Correspondent to increase
the
amount of its Security Deposit or to terminate this Agreement.
|
21
B.
Representations.
Warranties and Covenants of Clearing Broker
Clearing
Broker represents, warrants and covenants to Correspondent as follows:
| 1. |
Clearing
Broker is and during the term of this Agreement shall remain
duly
registered and in good standing as a broker-dealer with the
SEC, a member
firm in good standing of the NASD, and a member in good standing
of every
national securities exchange and association where such membership
is
required in light of Clearing Broker's activities.
|
| 2. |
Clearing
Broker has all requisite authority in conformity with
all Laws and Rules
to enter into and perform this Agreement and has taken
all necessary
actions to authorize the execution of this Agreement
and the performance
of its obligations hereunder.
|
| 3. |
Clearing
Broker has and during the term of this Agreement
shall maintain net
capital in an amount no less than that required
by the Law and
Rules.
|
| 4. |
Clearing
Broker has and during the term of this
Agreement shall maintain excess net
capital in an amount that is the greater
of 120% of the amount required
under the Law and Rules. Clearing Broker
shall give prompt written notice
to Correspondent in the event that Clearing
Broker's excess net capital
falls below 135% of the amount required
under the Laws and
Rules.
|
| 5. |
Clearing
Broker has and during the term of
this Agreement shall maintain insura.nce
policies as required under NASD Rule
3020. Clearing Broker is, and during
this Agreement shall remain, a member
of the Securities Investor
Protection Corporation ("SIPC").
In addition, Clearing Broker has
secured
additional protection through, an
independent insurance provider for
an
excess of $9,500,000 per customer
and $50,000,000 Clearing Broker SIPC
coverage (see Terra Nova Trading,
L.L.C. website and disclosures for
additional information).
|
XVI.
NO
PARTNERSHIP OR AGENCY; NO SPECIAL TREATMENT
Neither
this Agreement nor any activity hereunder shall create a general or limited
partnership, association, joint venture, branch or agency relationship between
Correspondent and Clearing Broker. Correspondent shall not hold itself out
as an
agent of Clearing Broker or of any subsidiary or company controlled directly
or
indirectly by or affiliated with Clearing Broker, nor shall it employ Clearing
Broker's name in any manner that creates the impression that the relationship
created or intended between them is anything other than that of clearing broker
and introducing broker. Correspondent shall not, without the prior written
approval of Clearing Broker, place any advertisement in any newspaper,
publication, periodical or any other media if such advertisement in any manner
makes reference to Clearing Broker or to the execution and clearing arrangements
contemplated by this Agreement. Should Correspondent in any way hold itself
out
as, advertise or otherwise represent that it is the agent of Clearing Broker,
Clearing Broker shall have the right, at its option, in addition to such other
rights and remedies as it may have, to immediately terminate this Agreement
and/or to obtain injunctive relief or any other provisional remedy in any
Illinois federal or state court, and Correspondent shall be liable for any
loss,
liability, damage, claim, cost or expense (including but not limited to
attorneys' fees) sustained or incurred as a result of such representation of
agency. No such application for a provisional remedy, however, nor any act
by
either party in furtherance of or in opposition to such application, shall
constitute a relinquishment or waiver of any right to have the underlying
dispute or controversy with respect to which such application is made settled
by
arbitration in accordance with Section XXI.L. of this Agreement.
22
This
Agreement is not intended, nor shall it be construed, to bestow upon
Correspondent any special treatment regarding any other arrangements, agreements
or understandings that exist or may hereafter exist between the parties. Neither
party shall have any obligation to deal with the other in any capacity other
than as set forth in this Agreement.
XVII.
CONFIDENTIALITY:
EMPLOYEES
A.
Confidentiality
Correspondent
and Clearing Broker shall each keep confidential any information acquired as
a
result of this Agreement regarding the business and affairs of the other, except
such information as may be required to be disclosed pursuant to subpoena, court
order or in any regulatory or self-regulatory inquiry, investigation, proceeding
or other matter (collectively, "Inquiry"). Except as otherwise prohibited by
law, Correspondent and Clearing Broker shall each give the other prompt notice
of the receipt of any Inquiry prior to such party's disclosing information
in
connection therewith. Correspondent agrees not to disclose the terms of this
Agreement to any person or entity except to regulatory bodies with appropriate
jurisdiction and to authorized employees of Correspondent on a need-to-know
basis. Any other publication or disclosure of the terms of this Agreement may
be
made only with the prior written consent of Clearing Broker. The confidentiality
provisions of this Agreement shall survive the termination of this Agreement.
B.
Emplovees
Without
the other party's prior written consent, neither party shall solicit any
employee who is, or within the preceding twelve (12) months has been, employed
by the other party or any affiliate thereof.
XVIII.
TERM
AND TERMINATION
A.
Term
and Termination bv Either Party
The
initial term of this Agreement shall be 2 years, commencing on (i) the date
Clearing Broker first receives and accepts an Account pursuant to Section
III.C., or (ii) its approval by the NASD, whichever occurs last, and shall
continue for successive one-year periods thereafter. The end of the initial
term
is referred to as the "Initial Expiration Date." This Agreement shall be deemed
to have been extended for an additional one-year period, and shall continue
to
be extended for one-year periods as of each anniversary of the Initial
Expiration Date, provided that written notice of termination is not provided
at
least sixty (60) calendar days in advance of the end of each subsequent term.
In
addition. either party may terminate this Agreement. in accordance with the
procedures set forth below, whether prior to or after the Initial Expiration
Date, upon the occurrence of an "Event of Default." For purposes hereof, an
"Event of Default" shall occur if:
| 1. |
Either
party fails to perform or observe any term, covenant or condition
to be
performed hereunder and such failure continues unremedied for a
period
often (10) business days· after receipt of written notice from the other
party specifying the failure and demanding that such party remedy
its
default;
|
| 2. |
Any
representation, warranty or covenant made by the other party
proves to be
incorrect at any time in any material respect;
|
| 3. |
The
other party is enjoined, disabled. suspended, prohibited,
or otherwise
unable to engage in the securities business as a result of
any
administrative or judicial proceeding or action by the SEC,
any state
securities law administrator, any national securities exchange
or any self-regulatory organization or governmental body
having
jurisdiction over such party;
or
|
23
| 4. |
The
other party is adjudicated bankrupt or insolvent or a trustee or
similar
creditors' representative is appointed by court order; or any property
of
such party is sequestered by court order and such order remains
in effect
for more than thirty (30) calendar days; or a petition is filed
by or
against such party either voluntarily or involuntarily under any
bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt,
dissolution or liquidation law of any jurisdiction, whether now
or
hereafter in effect, and is not dismissed within thirty (30) calendar
days
after such filing; or such party makes an assignment for the benefit
of
its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of
a
receiver, trustee or liquidator for itself or for any property
held by it.
|
The
defaulting party shall promptly advise the other party in writing upon the
occurrence of any event which constitutes, or with the passage of time would
constitute, an Event of Default under this Agreement. Upon the occurrence of
an
Event of Default under subsections (1) or (2) above, the non-defaulting party
may, at its option, by notice in writing to the defaulting party, declare this
Agreement terminated, and such termination shall be effective as of the date
such notice is delivered or such later date as may be designated by the
non-defaulting party in such notice. Upon the occurrence of an Event of Default
under subsections (3) or (4) above, this Agreement shall immediately and
automatically terminate without notice or any further
action by the non-defaulting party ..
B.
Termination
bv Clearing Broker
Clearing
Broker may terminate this Agreement at any time, with or without cause, whether
prior to or after the Initial Expiration Date, upon ninety (90) calendar days'
prior written notice to Correspondent.
C.
Changes
in Control. Management or Business Mix
Notwithstanding
any provision hereof, this Agreement may be terminated immediately by Clearing
Broker at any time, upon written notice to Correspondent, if there is a material
change in the control or management of Correspondent, or in the scope, nature
or
extent of the transactions effected in the Accounts or in the business mix
of
Correspondent, in each case without the prior written approval of Clearing
Broker. For purposes hereof, a change in the business mix of Correspondent
shall
include, without limitation, a change in the market-making activities of
Correspondent. Correspondent shall immediately advise Clearing Broker in writing
upon the occurrence of any of the events described in this Section.
D.
Termination
Fee
In
the
event that this Agreement is terminated prior to the Initial Expiration Date,
for any reason whatsoever other than Clearing Broker's termination without
cause
pursuant to Section XVIII.B., Correspondent shall pay to Clearing Broker a
termination fee (the "Termination Fee") equal to the sum of (1) the unamortized
costs and expenses of Clearing Broker incurred in connection with establishing
the systems, procedures and capacity for servicing the Accounts as contemplated
by this Agreement, which Clearing Broker shall specify to Correspondent in
writing, and (2) the costs and expenses of Clearing Broker incurred in
connection with the conversion of Accounts pursuant to Section XVIIE. of this
Agreement. In no event shall the Termination Fee be less than $10,000.
Correspondent shall pay the Termination Fee, in immediately available U.S.
funds, within ten (10) calendar days of receipt of a
written
statement from Clearing Broker setting forth in reasonable detail the costs
and
expenses comprising the Termination Fee.
24
At
each
time specified in the paragraph above, Correspondent shall promptly designate
in
writing to Clearing Broker which, if any, of such reports Correspondent requires
during the succeeding twelve (12) months, and Clearing Broker shall thereafter
provide such designated reports to Correspondent and shall advise
Correspondent's designated examining authority or self-regulatory organization
of the reports designated by Correspondent. It shall be the sole responsibility
of Correspondent to determine whether additional reports are necessary for
Correspondent to meet its regulatory obligations, and to obtain and use such
reports. Clearing Broker shall retain the data from which each of such reports
was produced in a manner sufficient for Clearing Broker to reproduce the report.
Notwithstanding
the foregoing, Correspondent shall itself maintain reports, records and
regulatory filings required to be kept by Correspondent by this Agreement.
c.
Check-
Writing Authority
Clearing
Broker may, but is not required to, authorize certain of Correspondent's
employees to issue checks drawn against a Clearing Broker account to Customers
for amounts due to and requested by them with respect to their Accounts.
Correspondent shall provide Clearing Broker with a written representation that
it has established, and shall maintain and enforce, supervisory procedures
with
respect to the issuance of negotiable instruments. Correspondent shall designate
in writing the names of any employees it wishes to receive the authorization
described in this Section. All checks must be signed by two employees of
Correspondent who have received authorization from Clearing Broker. No check
or
checks totaling more than $50,000 shall be provided to any Customer by
Correspondent on the same business day. All expenses incurred in connection
with
the issuance of checks under the authority described in this Section shall
be
charged to Correspondent. Correspondent remains responsible for the disbursement
and delivery of such checks to Customers. Any lien on the Customer's property
granted by the Customer to Correspondent or Clearing Broker shall extend to
any
funds which may be segregated in a separate account in connection with the
exercise of the authority described in this Section.
D.
Credit
Investigations
Both
Clearing Broker and Correspondent shall have the right to investigate, or to
cause a third party to investigate, the other party's credit.
E.
Tape
Recording
Both
Clearing Broker and Correspondent shall have the right to record telephone
conversations between and among themselves, and both Clearing Broker and
Correspondent waive any right to further notice of any such recording.
F.
No
Third-Party Beneficiaries
Except
as
otherwise provided in Section XXI
J
hereof,
this Agreement is between Clearing Broker and Correspondent only, and is not
intended to confer any benefits or rights upon any Customers or other persons
not expressly made parties hereto (other than Clearing Broker Indemnitees)
unless expressly agreed in writing otherwise.
G.
Competition
Nothing
herein shall restrict or be deemed to restrict the right of either party or
any
affiliate of either party to compete with the other party in any or all aspects
of such party's business, provided
that neither
party shall
use, or permit the use of proprietary information regarding the business and
affairs of the other party acquired as a result of this Agreement.
25
H.
Remedies
Cumulative
The
enumeration herein of specific remedies shall not be exclusive of any other
remedies. Any delay or failure by any party to this Agreement to exercise any
right or remedy under this Agreement or under the Laws and Rules, or the single
or partial exercise of any such right or remedy, shall not be construed to
be a
waiver of any such rights or remedies, or to limit the exercise of such rights
or remedies.
I.
Merger;
Amendment
This
Agreement represents the entire agreement between the parties and supersedes
all
other understandings and agreements between the parties with respect to the
subject matter hereof. This Agreement may not be amended except by a writing
signed by the parties hereto.
J.
Assignment
This
Agreement shall be binding upon and inure to the benefit of the respective
successors and authorized assigns of the parties. Correspondent shall provide
Clearing Broker with thirty (30) business days' prior written notice of any
proposed change in control of Correspondent. Correspondent may not assign this
Agreement, or assign or delegate any of its rights or obligations hereunder,
without the prior written consent of Clearing Broker. Clearing Broker may assign
this Agreement or assign or delegate any of its rights or obligations hereunder
to any affiliate of Clearing Broker without Correspondent's consent if such
affiliate executes and delivers to Correspondent an assumption agreement
pursuant to which such affiliate assumes all such obligations of Clearing Broker
under this Agreement as have been delegated to it. Correspondent consents and
agrees to the assignment and transfer by Clearing Broker of its rights and
obligations hereunder at any future time resulting from a merger, sale of
assets, liquidation or otherwise of all Accounts covered by this Agreement
(including all securities positions, credit and debit balances contained
therein) to any such successor organization or assignee, including any
registered broker and/or dealer that owns any of Clearing Broker's equity
securities, and such assignment shall be binding upon Correspondent, its
successors and assigns.
K.
Governing:
Law
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Illinois, without regard to its conflict of laws principles.
L.
Arbitration
Any
dispute or controversy arising out of or relating in any way to this Agreement
shall be submitted to arbitration before the NASD (conducted pursuant to the
Code of Arbitration of the NASD), or any other self-regulatory organization
or
exchange chosen by Clearing Broker that has jurisdiction over the dispute or
controversy. Arbitration must be initiated by service upon the other party
of a
written demand for arbitration or notice of intention to arbitrate. Judgment
upon any award rendered by the arbitrator may be entered in any court of
competent jurisdiction.
M.
Customer
Actions
In
the
event of an arbitration or court action in which a Customer has asserted a
claim
against Clearing Broker, Correspondent agrees that (1) it shall submit to the
jurisdiction of any such forum in which such claim
is
brought, and (2) it shall accept service of process for any such claim. Service
of process in any such action or arbitration shall be sufficient if served
on
Correspondent by certified mail, return receipt requested, at the address
provided for the delivery of notices under this Agreement.
26
N.
Temporary
or Provisional Relief
Notwithstanding
Section XXI.L. hereof, either party may, at any time prior to an initial
arbitration hearing with respect to any dispute or controversy relating to
or
arising out of this Agreement, obtain upon application to the United States
District Court for the Northern District of Illinois any temporary or
provisional relief or remedy that would be available in an action based upon
such dispute or controversy in the absence of an agreement to arbitrate. The
parties acknowledge and agree that it is their intention to have any such
application for provisional or temporary relief decided by the court to which
it
is made and that such application shall not be referred to or settled by
arbitration. Process in any such proceeding shall be sufficient if served on
the
other party by certified mail, return receipt requested, at the address provided
above for the delivery of notices under this Agreement. In this connection,
each
party expressly waives any defense (1) to personal jurisdiction, (2) to service
of process in the manner set forth above, and (3) to venue. No such application
to a court for provisional or temporary relief, nor any act or conduct by either
party in furtherance of or in opposition to such application, shall constitute
a
relinquishment or waiver of any right to have the underlying dispute or
controversy settled by arbitration in accordance with Section XXI.L. hereof.
O.
Force
Maieure
Clearing
Broker shall not be liable for losses caused directly or indirectly by
government restrictions, exchange or market rulings or conditions, suspension
or
halts of trading, labor strikes, war, acts of civil or military authority,
sabotage, terrorist attacks, epidemic, flood, earthquake, fire or other natural
disasters or acts of God, or any other similar conditions or occurrences beyond
Clearing Broker's reasonable control.
P.
Headings
The
headings contained herein have been inserted for convenience and ease of
reference only and shall not be construed to affect the meaning, construction
or
effect of this Agreement.
Q.
Enforceability
If
any
provision or condition of this Agreement is held to be invalid or unenforceable
by any court, arbitration tribunal or regulatory or self-regulatory agency
or
body, the validity of the remaining provisions and conditions shall not be
affected thereby and this Agreement shall be carried out as if any such invalid
or unenforceable provision or condition were not contained herein.
R.
Counterparts
This
Agreement may be executed in counterparts, each of which shall constitute an
original, and all of which together shall constitute one and the same agreement.
[SIGNATURE
PAGE FOLLOWS]
27
IN
WITNESS
WHEREOF
the parties have executed this Agreement as of the date first written above.
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TERRA
NOVA TRADING, L.L.C. (Clearing
Broker)
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|
BY________________________________
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|
Name:______________________________
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Title:_______________________________
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 |
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28
SCHEDULE
A
Additional
Services
NONE
29
EXHIBIT
A
PAIB
PROCEDURES
In
conformity with the SEC No-Action Letter dated November 3, 1998 and publicly
available November 10, 1998 (the "No-Action Letter") relating to the capital
treatment of assets in the proprietary account of an introducing broker
(''PAIB'') and to permit Correspondent to use PAIB assets in its net capital
computations, Clearing Broker and Correspondent agree as follows:
| 1. |
Correspondent
shall identify to Clearing Broker in writing all accounts that are,
or
from time to time may be, proprietary accounts of Correspondent.
Clearing
Broker shall perform a computation for P AIB assets of Correspondent
("PAIB Reserve Computation") in accordance with the customer reserve
computation set forth in Rule 15c3-3 under the 1934 Act ("Customer
Reserve
Formula") with the following modifications:
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A.
Any
credit (including a credit applied to reduce a debit) that is included in the
Customer Reserve Formula may not be included as a credit in the PAID Reserve
Computation;
B.
Note
E
(3) to Rule 15~3-3a which reduces debit balances by 1 %
under
the
basic method and subparagraph (a)(l)(ii)(A) of Rule 15c3-1 which reduces debit
balances by 3% under the alternative method shall not apply; and
C.
Neither
Note E (1) to Rule 15c3-3a nor Exchange Interpretation /04 to
Item
10 of Rule 15c3-3a regarding securities concentration charges shall be applied
to the PAID Reserve Computation.
| 2. |
The
PAIB Reserve Computation shall include all proprietary accounts of
Correspondent. All PAIB assets shall be kept separate and distinct
from
customer assets under the Customer Reserve Formula in Rule 15c3-3.
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| 3. |
The
PAIB Reserve Computation shall be prepared within the same time
frames as
those prescribed by Rule 15c3-3 for the Customer Reserve Formula.
|
| 4. |
Clearing
Broker shall establish and maintain a separate "Special Reserve
Account
for the Exclusive Benefit of Customers" with a bank in conformity
with the
standards of paragraph (f) of Rule 15c3-3 (''P AIB Reserve Account").
Cash
and/or qualified securities as defined in the . Customer Reserve
Formula
shall be m6.intained in the PAID Reserve Account in an amount
equal to the
XXx reserve requirement.
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| 5. |
Credits
included in the PAIB Reserve Computation that result from the use
of PAID
securities pledged to meet intra-day margin calls in a cross margin
account established between The Options Clearing Corporation and
any
regulated commodity exchange can be reduced to the extent that the
excess
margin held by the other clearing corporation in the cross margin
relationship is used the following business day to replace the P
AIB
securities that were previously pledged. In addition, balances resulting
from a cross margin account which are segregated pursuant to the
Commodities Future Trading Commission regulations need not be included
in
the PAIB Reserve Computation.
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30
| 6. |
Deposits
received prior to a transaction pending settlement which are
$5 million or
greater for any single transaction or $10 million in aggregate
can be
excluded as credits from the PAIB Reserve Computation if such
balances are
placed and maintained in a separate P AIB Reserve Account by
12:00 p.m.
Eastern Time on the following business day. Thereafter, the money
representing any such deposits may be withdrawn to complete the
related
transactions without performing a new P AIB Reserve
Computation.
|
| 7. |
If
the PAIB Reserve Computation results in a deposit requirement, the
requirement may be satisfied to the extent of any excess debit in
the
Customer Reserve Formula of the same date. However, a deposit requirement
resulting from the Customer Reserve Formula shall not be satisfied
with
excess debits from the P AIB Reserve Computation.
|
| 8. |
Within
two (2) business days of entering into this Agreement, Correspondent
shall
notify its designated examining authority in writing (with a copy
to
Clearing Broker) that it has entered into this Agreement regarding
the
capital treatment of Correspondent's P AIB assets.
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| 9. |
Commissions
receivable and other receivables of Correspondent from Clearing Broker
(excluding clearing deposits) that are otherwise allowable assets
under
Rule 15c3-1 may not be included in the PAIB Reserve Computation,
provided
the amounts have been clearly identified as receivables on the books
and
records of Correspondent and as payables on the books of Clearing
Broker.
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| 10. |
If
Correspondent is a guaranteed subsidiary of Clearing Broker or if
Correspondent guarantees Clearing Broker (i.e., guarantees all liabilities
and obligations) then the proprietary accounts of Correspondent shall
be
excluded from the PAIB Reserve Computation.
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| 11. |
Upon
discovery that any deposit made to the PAIB Reserve Account did not
satisfy its deposit requirement, Clearing Broker shall by facsimile
or
telegram immediately notify its designated examining authority and
the
SEC. Unless a corrective plan is found acceptable by the SEC and
the
designated examining authority, Clearing Broker shall provide written
notification within five (5) business days of the date of discovery
to
Correspondent that PAIB assets held by Clearing Broker shall not
be deemed
allowable assets for net capital purposes. The notification also
shall
state that if Correspondent wishes to continue to count its PAIB
assets as
allowable, it has until the last business day of the month following
the
month in which the notification was made to transfer all PAIB assets
to
another clearing broker. However, if the deposit deficiency is remedied
before the time at which Correspondent must transfer its PAIB assets
to
another clearing broker, Correspondent may choose to keep its assets
at
Clearing Broker.
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| 12. |
Clearing
Broker and Correspondent shall adhere to the terms of the No-Action
Letter, including the Interpretations as set forth therein, in all
respects.
|
AGREED
AND ACCEPTED:
By:
Name
Title:.CEO_________________
31
EXHIBIT
B
ANTI-MONEY
LAUNDERING COMPLIANCE
Each
of
the parties hereto agrees that it is responsible for complying with all
applicable anti-money laundering ("AML") legal and regulatory rules and
reporting requirements, including but not limited to the PATRIOT Act and
its
implementing regulations. With respect to the allocation of such AML
responsibilities between Clearing Broker and Correspondent under the Agreement,
the parties agree as follows:
A.
Correspondent's
AML Responsibilities
1.
In
addition to any other obligations Correspondent has under the Agreement or
the
PATRIOT Act, Correspondent represents and warrants to Clearing Broker that:
(a)
It
is not
doing business with foreign shell banks and is in compliance, as of the date
of
the - Agreement
and shall continue to be in compliance in the future, with Section 313 of
the
PATRIOT Act (Prohibition on United States Correspondent Accounts With Foreign
Shell Banks) and any corresponding regulations issued by the U.S. Department
of
the Treasury on foreign banks and foreign shell banks in furtherance of Section
313;
(b)
It is
responsible for and has appropriate procedures for: (i) determining which
of its
customers are foreign banks and properly identifying and coding such accounts
and obtaining the required ownership and agent information from any such
customers; (ii) determining whether any of its customers are, or are acting
on
behalf of, foreign shell banks; (iii) closing, or refusing to accept, as
applicable, accounts where Correspondent determines that a customer is, ()r
is
acting on behalf of, a foreign shell bank, or where Correspondent is unable
to
obtain the required information; and (iv) providing prompt notice to Clearing
Broker of any circumstances requiring Correspondent to terminate an account
pursuant to the PATRIOT Act (e.g., Section 313 and Section 319); and
(c)
It
has obtained from each foreign bank for which it currently maintains an account,
and shall obtain from any such accounts opened in the future, a completed
certification/recertification (in the form set forth in the PATRIOT Act and
its
implementing regulations) identifying: (i) the owners of such foreign bank;
and
(ii) the name and address of a person who resides in the United States and
is
authorized to accept service of legal process for records regarding the foreign
bank. Correspondent shall collect and maintain all such
certifications/recertifications and promptly forward copies thereof to Clearing
Broker. Clearing Broker shall review certifications/recertifications received
from Correspondent for completeness. Correspondent agrees that, in addition
to
any other rights Clearing Broker has under the Agreement, Clearing Broker
has
the right to close or restrict an account should such
certification/recertification not be obtained.
2.
Correspondent is, and shall remain throughout the term of this Agreement,
in
compliance with the Bank Secrecy Act ("BSA") and any amendments thereto,
which
now requires, or in the future may require, among other things:
(a)
Reports
of any transaction over $10,000 in currency, including multiple transactions
occurring during
the course of the same day, on a Currency Transaction Report, Form 4789 ("CTR");
(b)
Recordkeeping, including collecting and maintaining records concerning wire
fund
transfers of $3,000 or more and verification of the identity of transmitters
and
recipients of such funds that are not established customers; and
32
(c)
Reports of any transaction of more than $10,000 in currency or monetary
instruments into or outside of the United States on a Report of International
Transportation of Currency or Monetary Instruments Form 4790 ("CMIR").
3.
Correspondent will consult with Clearing Broker when required to file any
reports concerning an account and will provide Clearing Broker with any
information Clearing Broker requests relative to such reports. Correspondent
shall provide Clearing Broker with a copy of all Forms CTR, CMIR and Suspicious
Activity Report ("SAR"). as discussed below, that it files and any other
reports
Correspondent is required to file concerning any account, and shall attach
an
explanation of the action Correspondent has taken with respect to the account
internally.
4.
Correspondent will file on an annual basis a notice with the U.S. Department
of
the Treasury for purposes of sharing information. as described in Section
314(b)
of the PATRIOT Act. Correspondent will provide Clearing Broker with a copy
of
such notice.
5.
Correspondent represents and warrants that it is responsible for conducting
any
special due diligence with respect to any private banking accounts and
correspondent accounts as described in PATRIOT Act Section 312 and other
types
of accounts it introduces to Clearing Broker pursuant to the Agreement. and
that
it has appropriate procedures for: (i) determining which of its customers
are
subject to special due diligence requirements; (ii) determining the appropriate
level of due diligence to apply to various types of private banking customers;
(iii) performing the necessary due diligence; (iv) closing (or refusing to
accept, as applicable) accounts where Correspondent is unable to perform
adequate due diligence, or as otherwise appropriate; (v) preventing, detecting,
investigating and reporting suspicious or unusual activity; and (vi) making
and
maintaining the necessary or required documentation.
6.
Correspondent is responsible for obtaining and verifying all necessary customer
identification information and documentation and otherwise conducting all
AML
"know your customer" measures. Correspondent is responsible for providing
notice
(prior to account opening) to customers that it is requesting information
to
verify their identities. Correspondent also is responsible for maintaining
appropriate identification and verification procedures and implementing a
customer identification program that takes into account, among other things,
the
following factors: Correspondent's size; location and customer base; the
method
by which customers open accounts; and the types of accounts and transactions
offered by Correspondent.
7.
Correspondent is responsible for compliance with any special measures imposed
by
the Secretary of the Treasury for jurisdictions, financial institutions or
international transactions of primary money laundering concern (PATRIOT Act
Section 311).
B.
Clearing:
Broker's AML Responsibilities.
1.
Clearing Broker shall perform, where practicable, a non-documentary "negative
verification" function by screening customer names against a fraud database.
Clearing Broker shall provide any adverse information obtained from such
screening to Correspondent.
2.
Clearing Broker shall make available to Correspondent a package of AML reports
in order to assist Correspondent in identifying suspicious activity with
respect
to its accounts. Correspondent shall be responsible for setting relevant
parameters with respect to such reports based upon its business and present
and
anticipated customer activity. Clearing Broker will provide training to
Correspondent in the use of systems made available to Correspondent by Clearing
Broker.
3.
Clearing Broker will comply with all recordkeeping requirements in connection
with the foregoing responsibilities.
33
C.
Other
AML Responsibilities
1.
Each
of the parties agrees to comply with the BSA and its requirement to report
suspicious transactions to the Financial Crimes Enforcement Network (''FinCEN'')
by filing an SAR. Correspondent has the primary responsibility for monitoring
for suspicious activity and filing any SAR where warranted pursuant to Section
356 of the PATRIOT Act. To the extent Clearing Broker identifies any suspicious
activity, it will communicate the same to Correspondent, where permitted
by law.
In the event Clearing Broker identifies to Correspondent a transaction that
appears to be suspicious, Correspondent is responsible for undertaking the
appropriate follow--up measures, such as performing an investigation, blocking
or closing an account, notifying law enforcement or filing an SAR or other
report. Correspondent agrees to promptly report the results of any such
follow-up measures to Clearing Broker or, if applicable, provide an explanation
as to why it chose not to take any action. Notwithstanding the foregoing,
Clearing Broker reserves the right to undertake whatever follow-up measures
it
deems appropriate, including but not limited to, filing an SAR.
2.
Each
of the parties agrees to comply with the rules of the SEC and applicable
self-regulatory organizations relating to currency reporting, suspicious
activity reporting and related recordkeeping requirements; applicable state
reporting and record keeping requirements with regard to certain currency
transactions, transportation of currency or monetary instruments, or reports
of
suspicious activity; and to comply with federal, state and international
criminal and civil prohibitions against money laundering.
3.
Clearing Broker and Correspondent each have established, implemented and
shall
enforce and maintain a written anti-money laundering compliance program ("AML
Program") as required by the PATRIOT Act Section 352 and the rules of any
applicable self-regulatory organizations (e.g., NYSE Rule 445 and NASD Rule
3011). Such programs are reasonably designed to achieve and monitor such
party's
ongoing compliance with the PATRIOT Act and the BSA and the implementing
regulations promulgated thereunder. Such programs consist of, at a minimum:
establishment of policies, procedures and controls that can be reasonably
expected to detect and cause the reporting of suspicious transactions;
designation of an employee responsible for implementing and monitoring the
program; employee training; and independent testing for compliance.
Correspondent and Clearing Broker shall notify such party's relevant SRO
of its
designated AML officer.
4.
Each
of the parties agrees to respond to requests made by FinCEN on behalf of
a
federal law enforcement agency investigating terrorist or money laundering
activity; and to submit a notice to FinCEN concerning voluntary information
sharing, and to comply with all requirements concerning the confidentiality
of
shared information (PATRIOT Act Section 314).
5.
Clearing Broker agrees that it will screen for Office of Foreign Assets Control
("OFAC") purposes all new accounts and outgoing and incoming wires. If it
is
readily apparent from the initial screening that the individual or entity
is
subject to OFAC restrictions, Clearing Broker will not permit the account
to be
opened or an outgoing wire to be sent. In the case of an incoming wire, the
funds will be frozen in the client's account. If it is not readily apparent
that
it is subject to restriction, Clearing Broker will forward the information
to
Correspondent whose responsibility it is, in accordance with the Agreement
and
applicable laws and regulations, to determine whether the individual/entity
is
identified on the OF AC list and whether it is permissible for Correspondent
to
open an account and. transact business.
In
no way
does such screening by Clearing Broker relieve Correspondent of its obligation
to have in place policies, procedures and systems to screen for and to confirm
that Correspondent is not dealing with individuals, entities or countries
on the
OFAC list. Correspondent's continuing to do business with such individual/entity
certifies to Clearing Broker that Correspondent has complied with all applicable
laws, rules and regulations regarding Correspondent's ability to transact
business with the identified individual/entity.
34
EXHIBIT
C
Dear
Customer:
You
have
opened a securities account with __________________________________ ("Correspondent"),
a brokerage firm
that
has a contractual arrangement with Terra Nova Trading, L.L.C. ("Clearing
Broker"), for the performance of clearance and settlement services. In
accordance with NASD Rule 3230, this letter is intended to inform you of
the
allocation of responsibilities contained in that clearing agreement. It is
intended to be a general disclosure, not a definitive enumeration of each
and
every responsibility. We are not an affiliate or subsidiary of Clearing Broker,
its parent corporation, or any of Clearing Broker's affiliated companies;
nor
are we registered representatives or other employees employed by Clearing
Broker, its parent corporation or affiliated companies.
You
have
appointed our firm to act as your agent for the purpose of carrying out your
directions with respect to your purchase and sale of securities. Clearing
Broker
has been informed that we are authorized to open or close brokerage accounts,
place and withdraw orders and take such other steps as are reasonable to
carry
out your directions. Until receipt of your written notice to the contrary,
Clearing Broker may accept instructions for your account from our firm without
inquiry or investigation by Clearing Broker including, without limitation,
instructions with respect to the disbursement of funds and the transfer of
securities. Clearing Broker is not responsible or liable for any of our acts
or
omissions or those of our employees, nor is it responsible for any indirect
or
consequential damages under any circumstances caused by us. As between you
and
Clearing Broker, you shall be responsible for any action taken by Clearing
Broker in your account based upon instructions Clearing Broker received from
either you or our firm. In the event that you maintain a delivery versus
payment
("DVP") account, you agree to comply with NASD Rule 11860 by furnishing your
agent with instructions for the delivery or receipt of securities promptly
upon
receipt of confirmation (or the relevant data as to execution), which shall
be
no later than (i) the close of business on the second business day after
execution for purchases, and (ii) the close of business on the first business
day after execution for sales.
You
understand that Clearing Broker does not act as investment adviser or solicit
orders, that Clearing Broker does not advise you or us on any matters
pertl1ining to the suitability of any order, offer any opinion, judgment
or
other type of information pertaining to the nature, value, potential or
suitability of any particular investment, or review the appropriateness of
investment advice or transactions entered by our firm on your behalf. Clearing
Broker neither controls, audits or otherwise supervises the activities of
our
firm or its registered representatives, nor does it verify information provided
by our firm regarding your account, including any transactions therein.
Our
firm
shall at all times be exclusively responsible for:
Opening,
approving, servicing, and monitoring your account, including obtaining and
verifying your new account information.
Obtaining
personal information from you, including your investment objectives.
Reviewing
your account and all orders for that account, which includes supervising
all
recommendations made to you and, if your account is a discretionary account,
supervising the exercise of such discretion.
Accepting
and arranging for execution of your transactions, and establishing procedures
for reviewing and transmitting orders prior to execution.
Determining
commissions, xxxx-ups or other fees charged for your transactions.
35
Transmitting
instructions concerning your account to Clearing Broker either generally
or in
connection with tender or exchange offers or any other form of corporate
reorganization, unless Clearing Broker accepts instructions directly from
you.
Ensuring
that securities sold by you may be transferred without restriction or that
transfer restrictions have been complied with.
Complying
with all laws, rules, and regulations applicable to any arrangement or
understanding that we may have: (i)
to
rebate
to you any funds, including, without limitation, any portion of any commission,
xxxx-up, xxxx-down, fee or other charge or to pay on your behalf the cost
of any
service or product, or (ii) to provide research services to any fiduciary
exercising investment discretion with respect to your account.
The
conduct of your account and ensuring that all the transactions effected therein
are in compliance with all applicable laws, rules and regulations. Such
responsibility includes, without limitation: (i) knowing all persons holding
power of attorney over your account; (ii) selecting, investigating, training,
and supervising all personnel who open, approve, or authorize transactions
in
your account; (iii) establishing written procedures for the conduct of your
account and maintaining compliance and supervisory personnel adequate to
implement such procedures; (iv) determining the suitability and legality
of all
transactions in your account; and (v) determining the appropriateness of
the
frequency of trading in your account.
Receiving
and delivering funds and securities (except where you either deliver funds
or
securities directly to Clearing Broker or you receive a check directly from
Clearing Broker), and notifying you of Clearing Broker's margin requirements.
Supplying
all documentation required by Clearing Broker. Clearing Broker at all times
has
the right, reasonably exercisable in its sole discretion, to refuse to accept
orders for your account, which right it may exercise where, for example,
it has
not received the necessary documentation of funds for your account.
Clearing
Broker shall be responsible for the following services provided at the request
of our firm as contemplated by the contractual arrangement between our firms:
Any
extensions of credit to you, which includes complying with Regulation T of
the
Federal Reserve Board, determining maintenance margin, paying and charging
interest and rehypothecation or loan of any of your margin securities.
Maintaining
account records on your behalf with such name(s) and address(es) as provided
by
our firm.
Keeping
custody of funds and securities (while they are in Clearing Broker's physical
possession), and segregating such funds and securities as required by applicable
law.
Preparing
and transmitting to you confirmation of transactions and monthly or, if
appropriate, quarterly account statements. Such confirmations and statements
shall rely, in whole or in part, on information provided by our firm.
Both
Clearing Broker and we have the right to reject any proposed transaction.
Unless
we
receive a written communication to the contrary, your understanding of and
agreement with the clearing arrangement as described in this letter is
acknowledged.
Any
questions you may have concerning the conduct of your account should be
addressed directly to
.
at
______________________________ ,
Very
truly yours,
____________________________________
36
involved,
number of shares or number of units, and whether the transaction was a long
or
short sale or a purchase, by the morning of the next business day after trade
date.
| b) |
Clearing
Broker shall treat the customer as its own customer and record
the
transactions in a cash or margin account at Clearing Broker. Clearing
Broker shall treat all disaffirmed and "DKd" trades as normal customer
transactions. If the disaffirmed or "DKd" trade is a short sale,
Clearing
Broker shall treat the transaction as if it had been executed in
a
customer margin account.
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| c) |
Clearing
Broker shall be responsible for issuing confirmations directly
to the
customer for each trade executed by you at Clearing Broker unless
Clearing
Broker receives written instructions from the customer explicitly
requesting that the confirmations be sent to the customer in care
of its
prime broker, in which case Clearing Broker will send the confirmations
to
such customer in care of the prime broker. In the event that a
trade is
disaffirmed or "DKd", Clearing Broker shall promptly send a confirmation
of the transaction to the customer in the manner described above.
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| (d) |
If
a customer account introduced by you to Clearing Broker is managed
by an
investment advisor,
each confirmation may cover a single bulk trade or bunched order
representing transactions that have been combined with those
of other
accounts of such investment advisor.
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| 3. |
Clearing
Broker hereby represents, warrants and covenants that it has and
during
the term of this Addendum shall maintain the minimum net capital
required
by the applicable rules and No-Action Letters.
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| 4. |
All
of the terms and conditions of the Clearing Agreement remain in
full force
and effect except insofar as a conflict exists between the provisions
thereof and this Addendum, in which event the term or condition
of this
Addendum shall supersede the conflicting term or condition of the
Clearing
Agreement, only to the extent of the conflict.
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| 5. |
The
terms of this Addendum may not be amended or waived unless agreed
to in
writing by both parties.
|
Kindly
acknowledge receipt and acceptance of this Addendum by signing in the space
provided.
Very
truly yours,
____________________________ ____________________________
____________________________
(Date) ___________________________
(Date)
