FULLY DISCLOSED CLEARING AGREEMENT
OF
PERSHING DIVISION
XXXXXXXXX, XXXXXX & XXXXXXXX SECURITIES CORPORATION
THIS AGREEMENT is made and entered into this 30th day of April, 2002 ("Effective
Date") by and between the Pershing Division of Xxxxxxxxx, Xxxxxx & Xxxxxxxx
Securities Corporation ("Pershing"), a Delaware Corporation, and Xxxxxx Xxxxxxx
& Co., Inc. ("Broker"), a Delaware Corporation.
1.0 APPROVAL
This Agreement shall be subject to approval by the New York Stock
Exchange, Inc. ("NYSE") and by any other self-regulatory organization vested
with the authority to review or approve it. Pershing shall submit this Agreement
to the NYSE and Broker shall submit the Agreement to any other such organization
from which Broker is required to obtain approval. In the event of disapproval,
the parties shall bargain in good faith to achieve the requisite approval.
2.0 AGREEMENT
From the date of this Agreement until the termination of this Agreement
as provided in Paragraph 22 hereof, Pershing shall carry the proprietary
accounts of Broker and the cash and margin accounts of the customers of Broker
introduced by Broker to Pershing, and accepted by Pershing, and shall clear
transactions on a fully disclosed basis for such accounts, in the manner and to
the extent set forth in this Agreement. The accounts of Broker shall incude the
accounts of its divisions. Pershing shall also provide to Broker, including its
divisions, systems hereinafter described, that provide Broker's customers the
ability to trade, view their accounts and related information online via the
Internet.
3.0 ALLOCATION OF RESPONSIBILITY
3.1 Responsibilities of the Parties.
Pursuant to NYSE Rule 382, responsibility for compliance with
applicable laws, rules, and regulations of the Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers, Inc.
("NASD"), the NYSE, and any other regulatory or self-regulatory agency or
organization (collectively the "Rules") shall be allocated between Pershing and
Broker as set forth in this Agreement. To the extent that a particular function
is allocated to one party under this Agreement, the other party shall supply
that party with information in its possession pertinent to the performance and
supervision of that function.
3.2 Relationship with Customers.
Except as provided in Paragraph 27.11 of this Agreement, all customers
receiving services pursuant to this Agreement shall remain customers of Broker.
Pershing shall provide services under this Agreement to Broker only to the
extent explicitly required by specific provisions contained in this Agreement
and shall not be responsible for any duties or obligations not specifically
allocated to Pershing pursuant to this Agreement. Broker shall enter into
appropriate contractual arrangements with customers on its own behalf, and such
agreements shall make Broker, and not Pershing, responsible to customers for the
provision of services. Broker shall not be deemed to be an agent of Pershing for
any purpose, nor shall Pershing be deemed to have a fiduciary relationship with
any of Broker's customers. Broker acknowledges that Pershing does not control
the business or operations of Broker.
4.0 REPRESENTATIONS AND WARRANTIES
4.1 Broker. Broker represents and warrants that:
4.1.1 Corporation Duly Organized. Broker is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation.
4.1.2 Registration. Broker is duly registered and in good standing as a
broker-dealer with the SEC.
4.1.3 Authority to Enter Agreement. Broker has all requisite authority, whether
arising under applicable federal or state law or the rules and regulations of
any regulatory or self-regulatory organization to which Broker is subject, to
enter into this Agreement and to retain the services of Pershing in accordance
with the terms of this Agreement.
4.1.4 Material Compliance with Rules and Regulations. Except as otherwise
disclosed, Broker and each of its employees is in material compliance with, and
during the term of this Agreement shall remain in material compliance with, the
registration, qualification, capital, financial reporting, customer protection,
and other requirements of every self-regulatory organization of which Broker is
a member, of the SEC, and of every state to the extent that Broker or any of its
employees is subject to the jurisdiction of that state.
4.1.5 No Pending Action, Suit, Investigation, or Inquiry. Broker has disclosed
to Pershing every material action, suit, investigation, inquiry, or proceeding
(formal or informal) pending or threatened against or affecting Broker, any of
its affiliates, or any officer, director, or general securities principal or
financial and operations principal of Broker, or their respective property or
assets, by or before any court or other tribunal, any arbitrator, any
governmental authority, or any self-regulatory organization of which any of them
is a member. Broker shall notify Pershing promptly, of the initiation of any
such action, suit, investigation, inquiry, or proceeding that may have a
material impact on the capital of Broker.
4.1.6 Broker Responsibility. Broker shall be responsible for all internal
operations related to its business including without limitation (i) all
accounting, bookkeeping, record-keeping, cashiering, commodity transactions, or
any other transactions not involving securities; or any matter not contemplated
by the Agreement; (ii) preparation of Broker's payroll records, financial
statements, or any analysis thereof; (iii) preparation or issuance of checks in
payment of Broker's expenses, other than expenses incurred by Pershing on behalf
of Broker pursuant to this Agreement; and (iv) payment of commissions to
Broker's sales personnel.
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4.2 Pershing. Pershing represents and warrants that:
4.2.1 Corporation Duly Organized. Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities
Corporation ("DLJ") is a corporation duly organized, validly existing, and in
good standing under the laws of the state of Delaware.
4.2.2 Registration. DLJ is duly registered and in good standing as a broker
dealer with the SEC and is a member firm in good standing of the NYSE and the
NASD.
4.2.3 Authority to Enter Agreement. DLJ has all requisite authority, whether
arising under applicable federal or state law, or the rules and regulations of
any regulatory or self-regulatory organization to which DLJ is subject, to enter
into this Agreement and provide services in accordance with the terms of this
Agreement.
4.2.4 Compliance with Registration. Pershing and each of its employees is in
material compliance with, and during the term of this Agreement shall remain in
material compliance with the registration, qualification, capital, financial
reporting, customer protection, and other requirements of every self-regulatory
organization of which Pershing is a member, of the SEC, and every state.
4.2.5 No Pending Action, Suit, Investigation, or Inquiry. Pershing has disclosed
to Broker every material action, suit, investigation, inquiry, or proceeding
(formal or informal) pending or threatened against or affecting Pershing, any of
its affiliates, or any officer, director, or general securities principal or
financial and operations principal of Pershing, or their respective property or
assets, by or before any court or other tribunal, any arbitrator, any
governmental authority, or any self-regulatory organization of which any of them
is a member. Pershing shall notify Broker promptly, of the initiation of any
such action, suit, investigation, inquiry, or proceeding that may have a
material impact on the capital of Pershing.
4.2.6 Pershing Responsibility. Pershing shall be responsible for all internal
operations related to its business including without limitation (i) all
accounting, bookkeeping, record-keeping, cashiering, commodity transactions, or
any other transactions not involving securities; or any matter not contemplated
by the Agreement; (ii) preparation of Pershing's payroll records, financial
statements, or any analysis thereof; and (iii) preparation or issuance of checks
in payment of Pershing's expenses, other than expenses incurred by Broker on
behalf of Pershing pursuant to this Agreement.
5.0 ESTABLISHING AND ACCEPTING NEW ACCOUNTS
5.1 Acceptance of New Accounts. Broker shall be responsible for opening and
approving new accounts in compliance with the applicable Rules.
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5.1.1 Pershing reserves the right, upon advising Broker with an explanation
(confirmed in writing or by electronic message in a manner as agreed by the
parties), to reject any account which the Broker may forward to Pershing as a
potential new account. Pershing also reserves the right, upon advising Broker
with an explanation (confirmed in writing or by electronic message in a manner
as agreed by the parties) to terminate any account previously accepted by it as
a new account.
5.1.2 At the time of the opening of any new account, the Broker must obtain
sufficient information from its customer to satisfy itself as to the identity of
its client and the source of its funds to satisfy itself that opening the
account would not violate the provisions of various Executive Orders and
regulations issued thereunder by the Office of Foreign Assets Control (OFAC),
which enforces economic and trade sanctions against foreign countries and their
agents, terrorism sponsoring agencies and organizations and international
narcotics traffickers.
5.2 Maintenance of Account Information. Pershing may rely without inquiry on the
validity of all customer information furnished to it by Broker. Possession of
any such documents or information, however provided, concerning Broker's
customers does not create a duty on the part of Pershing to review or understand
the content of those documents.
5.3 Pershing Operations Manual. Broker acknowledges receipt and familiarity with
the Pershing "Quick Reference Guide" and "Bulletins" and agrees to familiarize
itself with any modifications or supplements to such documents that may be
issued from time to time. Pershing will comply with its operations manual to the
extent necessary to perform its obligations under this Agreement.
6.0 SUPERVISION OF ORDERS AND ACCOUNTS
6.1 Responsibility for Compliance. Broker shall be solely responsible for
compliance with applicable suitability, "Know Your Customer" rules, and other
requirements of federal and state law and regulatory and self-regulatory rules
and regulations governing transactions and accounts. Possession by Pershing of
surveillance records, exception reports, or other similar data shall not
obligate Pershing to review or be aware of their contents. Pershing shall not be
required to make any investigation into the facts surrounding any transaction
that it may execute or clear for Broker or any customer of Broker.
6.2 Compliance Procedures. Broker agrees to supervise compliance with the
applicable Rules. Broker shall review transactions and accounts to assure
compliance with prohibitions against manipulative practices and xxxxxxx xxxxxxx
and other requirements of federal and state law and applicable regulatory and
self-regulatory rules and regulations to which Broker or its customer are
subject. Without limiting the above, Broker shall be responsible for compliance
with the supervisory requirements in Section 15(b)(4) of the Securities Exchange
Act of 1934, as amended, NASD Rule 3010, NYSE Rules 342, 351 and 431, and
similar rules adopted by any other regulatory or self-regulatory agency or
organization, to the extent applicable.
6.3 Knowledge of Customer's Financial Resources and Investment Objectives.
Broker shall comply with Rule 405(1) of the NYSE or comparable requirements of
similar Rules of any other regulatory or self-regulatory organization to which
Broker is subject. Broker shall obtain all essential facts relating to each
customer, each cash and margin account, each order, and each person holding a
power of attorney over any account, in order to assess the suitability of
transactions (when required by applicable Rules), the authenticity of orders,
signatures, endorsements, certificates, or other documentation, and the
frequency of trading. Broker warrants that, to the best of its knowledge, Broker
will not open or maintain accounts for persons who are minors or who are
otherwise legally incompetent and that Broker will comply with NYSE Rule 407 and
other laws, rules, or regulations that govern the manner and circumstances in
which accounts may be opened or transactions authorized.
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6.4 Furnishing of Investment Advice. Broker shall be solely responsible for any
recommendation or advice it may offer to its customers.
6.5 Discretionary Accounts. Broker shall be solely responsible for obtaining
customer approval for and supervising discretionary accounts.
6.6 Obligations Regarding Certain Disclosures. Broker shall make any disclosures
and obtain any agreements from its customers required by applicable law or
regulation, including, without limitation, any disclosures or agreements
required for listed options, xxxxx stocks, derivative securities, account
transfers or conversions. The cost of making such disclosures or obtaining such
agreements shall be borne by Broker.
7.0 EXTENSION OF CREDIT
7.1 Presumption of Cash Account. Pershing may, but is not required to, permit
customers of Broker to purchase securities on margin, but all transactions for a
customer will be deemed to be cash transactions, and payment for those
transactions will be required in the manner applicable to cash transactions,
unless, on or prior to settlement, Broker has furnished Pershing with an
executed margin agreement and consent to loan of securities.
7.2 Margin Requirements. Margin accounts introduced by Broker shall be subject
to Pershing's margin requirements as in effect from time to time. Pershing
reserves the right to refuse to accept any transaction in a margin account
without the actual receipt of the necessary margin and to impose a higher margin
requirement for a particular account when, in Pershing's discretion, the past
history or nature of the account or other factors or the securities held in it
warrant such action. In all instances, Broker may require higher margin than
imposed by Pershing for any particular account, group of accounts, or all
accounts introduced by Broker to Pershing. In the event that Pershing decides to
change its margin requirements, Pershing will provide Broker reasonable advance
written notice describing the change and its implementation date. This shall not
apply to Pershing's modification of individual security margin requirements
which may change daily or intra-day.
In any case where Broker requests Pershing to extend credit upon control or
restricted securities, pursuant to Rule 144 under the Securities Act of 1933, as
amended, or otherwise, Broker shall submit to Pershing such documentation,
agreements and information as shall be reasonably required by Pershing to decide
to extend such credit. Any extension of credit so approved shall be subject to
Pershing's credit policies as shall be in effect from time to time.
7.3 Margin Maintenance and Compliance with Regulation T and SEC Rule 15c3-3(m).
7.3.1 Initial Margin. Broker shall be responsible for the initial margin
requirement for any transaction until such initial margin has been received by
Pershing in acceptable form.
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7.3.2 Margin Calls. After the initial margin for a transaction has been
received, subsequent margin calls may be made by Pershing at its discretion but
in a prompt and timely manner. Pershing shall calculate the maintenance
requirement and promptly notify Broker of any amounts due. Broker shall be
responsible for issuing the margin call to its customer and obtaining the amount
due directly from Broker's customer. If Broker fails to take the appropriate
action, Pershing reserves the right to collect the amount due directly from
Broker's customer. Broker agrees to cooperate with Pershing in complying with
and obtaining margin in response to such calls.
7.3.3 Actions Upon Failure to Meet Margin Calls or Deliver Securities. In the
event that satisfactory margin is not provided within the time specified by
Pershing, or securities sold are not delivered as required, Pershing may take
such actions as Pershing deems appropriate, including, but not limited to,
entering orders to buy in or sell-out. Broker shall cooperate with Pershing by
entering orders to buy-in or sell-out securities. Compliance with a request to
withhold action shall not be deemed a waiver by Pershing of any of its rights
under this Agreement.
7.4 Charging of Interest and Disclosures Pursuant to Rule 10b-16. Interest
charged with respect to debit balances in customers' accounts shall be
determined in accordance with Schedule A attached to this Agreement. Broker
shall send each margin customer a written disclosure statement, in a form
acceptable to Pershing, at the time of the opening of a margin account as
required by SEC Rule 10b-16.
7.5 Unsecured Debits or Unsecured Short Positions. Pershing shall charge against
the accounts of Broker an amount equal to the value of any unsecured debit or
short position (on a "xxxx to market" basis) in a customer account if that
position has not been promptly resolved by payment or delivery, provided that
Pershing and Broker have first engaged in good faith discussions regarding the
responsibility for the unsecured debit or short position. Any remaining debit
may be charged against Broker pursuant to Paragraph 19 of this Agreement.
8.0 MAINTENANCE OF BOOKS AND RECORDS
8.1 Stock Records. Pershing shall maintain stock records and other prescribed
books and records of all transactions executed or cleared through it in
accordance with applicable Rules.
8.2 Regulatory Reports and Records. Broker shall prepare, submit, and maintain
copies of all reports, records, and regulatory filings required of Broker by any
entity that regulates it, including, but not limited to, copies of all account
agreements and similar documentation obtained pursuant to Paragraph 5.0 of this
Agreement and any reports and records required to be made or kept under the
Currency and Foreign Transactions Reporting Act of 1970, (the "Bank Secrecy
Act"), and any rules and regulations promulgated pursuant thereto.
8.3 Broker's Anti-Money Laundering and OFAC Reporting and Recordkeeping and
Obligations. Broker recognizes that it is obligated to comply with, among
others, the following anti-money laundering and OFAC legal and regulatory rules,
and reporting and recordkeeping requirements including:
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8.3.1 SEC Rule 17a-8 relating to "Financial record keeping and reporting of
currency and foreign transactions".
8.3.2 Rules of the self-regulatory organizations relating to currency reporting,
suspicious activity reporting, and related record keeping requirements.
8.3.3 Applicable state reporting and record keeping requirements with regard to
certain currency transactions, transportation of currency or monetary
instruments, or reports of suspicious activity.
8.3.4 Federal, state, and international criminal and civil prohibitions against
money laundering, including, among others, the Money Laundering Act of
1986 as applicable. The federal regulations and Executive Orders imposed
by the OFAC which prohibit, among other things, the engagement in
transactions with and the provision of services to certain embargoed
foreign countries and specially designated nationals, specially
designated narcotics traffickers and other blocked parties.
8.3.5 To the extent permissible by law, at the time of filing of any required
reports or other communication, or at such time as requested by Pershing,
Broker will provide Pershing with copies of all reports or other
communications with regard to the introduced accounts filed with the U.S.
Treasury Department or any regulatory body or organization relating to
the reporting of currency transactions, the transfer of currency or
monetary instruments into or outside of the United States, suspicious
activity, including, but not limited to, Currency or Monetary
International Reports (CMIRs), Cash Transaction Reports (CTRs), and
Suspicious Activity Reports (SARs). Broker also shall advise Pershing of
all reports made to OFAC with regard to the introduced accounts.
8.3.6 Pershing reserves the right to make and file such reports where it deems
it appropriate for its own protection. Broker recognizes that when
Pershing does so, Pershing does not thereby assume any responsibility for
such services and/or relieve the Broker of any responsibility for such
services. Furthermore, to the extent that Pershing is required to prepare
or submit any reports or records by any entity that regulates it, Broker
shall cooperate in providing Pershing with any information needed in
order to prepare such reports or records.
8.4 Audio Taping of Telephone Conversations. Each party understands that for
quality control, dispute resolution or other business purposes, the parties may
record some or all telephone conversations between them. Each party hereby
consents to such recording and will inform its employees, representatives and
agents of this practice. It is further understood that all such conversations
are deemed to be solely for business purposes and shall be maintained
confidential in accordance with Paragraph 23. Pershing shall, upon the request
of Broker, make available to Broker all such recordings taken and saved by
Pershing.
9.0 RECEIPT AND DELIVERY OF FUNDS AND SECURITIES
9.1 Receipt and Delivery of Funds and Securities.
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9.1.1 Cashiering Functions. Pershing shall perform cashiering functions for
accounts introduced by Broker and, notwithstanding anything stated in this
Agreement to the contrary, shall remain responsible for any errors made by
Pershing in performing those cashiering functions. These functions shall include
receipt and delivery of securities; receipt and payment of funds owed by or to
customers; and provision of custody for securities and funds. Broker shall
provide Pershing with the data and documents that are necessary or appropriate
to permit Pershing to perform its obligations under this Paragraph, including
but not limited to copies of records documenting receipt of customers' funds and
securities received directly by Broker. Such data and documents must be
compatible with the requirements of Pershing's data processing systems.
9.1.2 Purchases. Broker shall be responsible for purchases (including
transactions on a "when issued" basis) made for customers until actual and
complete payment has been received by Pershing. Broker shall not introduce
accounts requiring settlement on a "delivery versus payment" or "receive versus
payment" basis unless such account utilizes the facilities of a securities
depository or qualified vendor as defined in NYSE Rule 387, for all depository
eligible transactions.
9.1.3 Sales. Broker shall be responsible for sales (including those on a "when
issued" basis), until Pershing has received, in acceptable form, the securities
involved in the transaction. If Pershing does not receive delivery of securities
in an acceptable form, Pershing may buy-in all or part of the securities
9.1.4 Funds and Securities Received by Broker. Broker shall promptly deposit
with Pershing funds or securities received by Broker from its customers,
together with such information as may be relevant or necessary to enable
Pershing to record such remittances and receipts in the respective customer
accounts.
9.1.5 Failure to Settle or Pay. In the event of a failure to timely deposit
required funds or securities, Pershing may take appropriate remedial action.
Without waiving or otherwise limiting its right to take other remedial action,
Pershing may at its option charge interest at rates as agreed in Schedule A
("Fully Disclosed Pricing Schedule") to this Agreement. Broker may pass such
charges on to its customers but Broker remains responsible therefor until
actually paid.
9.1.6 Check Writing Authority. Pershing may, but is not required to, authorize
certain of Broker's employees to sign checks to Broker's customers for amounts
due to, and requested by them, with respect to their accounts. Broker shall
designate, in writing, the names of any employees it wishes to receive the
authorization described in this subparagraph. All checks must be signed by two
employees who have received written authorization from Pershing. No check or
checks totaling more than $100,000 shall be provided to any customer by Broker
on the same business day. All expenses incurred in connection with the issuance
of checks under the authority described in this subparagraph shall be charged to
Broker. Broker remains responsible for the disbursement and delivery of such
checks to its customers. Any lien on the customer's property granted by the
customer to Broker or Pershing shall extend to any funds which may be segregated
in a separate account in connection with the exercise of the authority described
in this subparagraph. Broker has established, and will maintain and enforce,
supervisory procedures with respect to the issuance of such instruments that are
satisfactory to Pershing.
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9.2 Restricted and Control Stock Requirements. Broker shall be responsible for
determining whether any securities held in Broker's or its customer accounts are
restricted or control securities as defined by applicable laws, rules, or
regulations, except where Pershing receives the securities which are marked as
restricted and should be reasonably able to determine that they are restricted
shares from such markings, in which case this responsibility shall be with
Pershing. Broker is responsible for assuring that orders and other transactions
executed for such securities comply with such laws, rules, and regulations,
except as specified in the preceding sentence.
9.3 Corporate Action Requests/Soliciting Dealer Agreements. Broker requests and
authorizes Pershing to execute as Broker's agent-in-fact any and all Soliciting
Dealer Agreements for corporate actions involving securities or other interests
held by Broker's customers on the books of Pershing. Pershing agrees to provide
notice in a prompt and timely manner of the pending corporate action to Broker
at its designated locations. Pershing further agrees to collect and submit
corporate action requests from Broker and submit them to the soliciting party in
accordance with the instructions received from the soliciting party in a prompt
and timely manner. Pershing agrees to use its best efforts to communicate
corporate action information to Broker and, where applicable, Broker's
customers, but shall not be liable for a) any delays in the communication of
corporate action information or b) delays in the transmission of collected
corporate action requests to the soliciting party, in either case unless caused
by Pershing's negligence. All fees received from the soliciting party will be
credited to Broker. In consideration of providing this service to Broker, Broker
agrees to indemnify and hold harmless Pershing, its affiliates, officers, agents
and employees from all claims, suits, investigations, damages and defense costs
(including reasonable attorney's fees) that arise in connection with this
paragraph and are not caused by Pershing's negligence
10.0 SAFEGUARDING OF FUNDS AND SECURITIES
Except as otherwise provided in this Agreement, Pershing shall be
responsible for the safekeeping of all money and securities received by it
pursuant to this Agreement. However, Pershing will not be responsible for any
funds or securities delivered by a customer to Broker until such funds or
securities are actually received by Pershing or deposited in bank accounts
maintained by Pershing.
11.0 CONFIRMATIONS AND STATEMENTS
11.1 Preparation and Transmission of Confirmations and Statements. Pershing
shall prepare confirmations and summary periodic statements and shall, to the
extent required, transmit them to customers and Broker in a timely fashion
except to the extent Broker has agreed to transmit confirmations to customers.
Confirmations and statements shall be prepared on forms disclosing that the
account is carried on a fully disclosed basis for the Broker in accordance with
applicable rules, regulations, and interpretations. Broker will have the
ultimate regulatory responsibility for compliance with the prospectus delivery
requirements of the Securities Act of 1933, as amended, regardless of its
retention of a prospectus fulfillment service to perform delivery of same.
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11.2 Examination and Notification of Errors. Broker shall examine all
confirmations, statements, and other reports in whatever medium provided to
Broker by Pershing. Broker must advise Pershing orally or in writing of any
error claimed by Broker in any account reasonably promptly upon learning of such
error. Pershing shall not be responsible for any amount in excess of the actual
loss that would have occurred had Broker acted reasonably in the examinations
and notification required under this paragraph.
12.0 ACCEPTANCE AND EXECUTION OF TRANSACTIONS
12.1 Responsibility to Accept or Reject Trades. Pershing shall execute
transactions in customers' accounts and release or deposit money or securities
to or for accounts only upon Broker's instructions. Pershing reserves the right,
provided it has advised Broker with an explanation (confirmed in writing or by
electronic message in a manner as agreed by the parties), to accept written or
oral transaction orders from Broker's customers in extraordinary circumstances
where it determines that either (i) the customers are unable to execute those
transactions through Broker (ii) or Pershing is required to do so by applicable
or relevant law. Notwithstanding any instructions to the contrary, Pershing may,
after advising Broker orally or in writing with an explanation ; (i) refuse to
confirm a transaction or cancel a confirmation, (ii) reject a delivery or
receipt of securities or money; (iii) refuse to clear a trade executed by
Broker; or (iv) refuse to execute a trade for the account of a customer or
Broker; however, if Pershing elects any of the aforementioned (i) through (iv),
Pershing shall remain responsible for the damages arising from its election if
its election were not reasonable under the circumstances.
12.2 Responsibility for Errors in Execution. Broker shall be responsible for any
errors by Broker in its recording and transmission of orders it transmits to
Pershing pursuant to this Agreement.
13.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF BROKER
13.1 Other Clearing Agreements. Commencing after the conversion of all Broker
accounts to Pershing, and continuing for the remainder of the term of this
Agreement, for its retail brokerage business as of the Effective Date, Broker
shall not enter into any other similar agreement or obtain the services
contemplated by this Agreement from any other party, or supply the services
contemplated by the Agreement without prior written consent of Pershing, except
where (i) Pershing refuses or is unable to clear a certain type of business or
transaction in accordance with this Agreement, or (ii) Broker acquires a
business or merges with a business not clearing through Pershing.
13.2 Disciplinary Action, Suspension, or Restriction. If Broker or any of its
affiliates, or any officer, director, or general securities principal or
financial and operational principal of Broker, becomes subject to disciplinary
action, suspension, or restriction by a federal or state agency, stock exchange,
or regulatory or self-regulatory organization having jurisdiction over Broker or
Broker's securities or commodities business, Broker shall give notice to
Pershing immediately, orally and in writing, and provide Pershing a copy of any
decision relating to such action, suspension, or restriction. Pershing may take
any action reasonably necessary (i) to assure that it will continue to comply
with all applicable legal, regulatory, and self-regulatory requirements,
notwithstanding such action, suspension, or restriction; and (ii) to comply with
any requests, directives, or demands made upon Pershing by any such federal or
state agency, stock exchange, or regulatory or self-regulatory organization.
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13.3 Provision of Financial Information. Broker shall furnish Pershing copies of
FOCUS Reports, financial statements for the current fiscal year, the executed
Forms X-17a-5 (Parts I and IIA) filed with the SEC, any amendments to Broker's
Form BD, and any other regulatory or financial reports Pershing may from time to
time require. Broker shall provide such reports to Pershing at the time Broker
files such reports with its primary examining authority. Broker shall also
notify Pershing in advance of withdrawals of more than 10 percent of its net
capital.
13.4 Executing Brokers. If Broker wishes to act as an "Executing Broker" as such
term is understood in that certain letter dated January 25, 1994, from the
Division of Market Regulation of the Securities and Exchange Commission, as the
same may be amended, modified or supplemented from time to time (the "No-Action
Letter"), then all terms herein shall have the same meaning as ascribed thereto
either in the Agreement or in the No-Action Letter as the sense thereof shall
require. Broker may, from time to time, execute trades (either directly or
through Pershing) for Prime Brokerage Accounts in compliance with the
requirements of the No-Action Letter. (The No-Action Letter requires, inter
alia, that a contract be executed between Pershing and Prime Broker, and between
Broker and Prime Brokerage Customer prior to the transaction of any business
hereunder.) Broker shall promptly notify Pershing, but in no event later than
5:00 p.m. New York time, of trade date in a mutually acceptable fashion, of such
trades in sufficient detail for Pershing to be able to report and transfer any
trade executed by Broker on behalf of a Prime Brokerage Account to the relevant
Prime Broker. Broker understands and agrees that if Prime Broker shall disaffirm
or "dk" any trade executed by Broker on behalf of a Prime Brokerage Account;
Broker shall open an account for such Prime Brokerage Account in its range of
accounts and shall transfer or deliver the trade to such account at the risk and
expense of Broker to the same extent as for any account introduced by Broker
pursuant to this Agreement. Broker understands and agrees that all Prime
Brokerage Accounts shall be conducted in accordance with the requirements of the
No-Action Letter and any relevant agreement between Broker and a Prime Brokerage
Customer or between Pershing and relevant Prime Broker. Broker further agrees to
supply Pershing with such documents, papers and things, which from time to time
are reasonably required by Pershing to carry out the intention of this
Paragraph. Broker agrees that it shall know its customer, obtain appropriate
documentation, including new account form, conduct its own credit check and
determine the availability of shares as required for processing of any short
sales. Broker shall maintain facilities to clear any disaffirmed trades.
13.5 Protection of Intellectual Property. Broker shall use all reasonable
efforts to preserve and protect (short of litigation) Pershing's and its
affiliates' patent, trade secret, copyright and other proprietary rights in
Pershing's or its affiliates' products, services, trademarks and tradenames, at
least to the same extent used by Broker to preserve and protect its own
proprietary data or information, and to notify Pershing of any action by any
third party known by Broker to constitute an infringement of Pershing's or any
of its affiliates' proprietary rights and to cooperate with Pershing in
protecting such rights. Without limiting the foregoing, and subject to the
permission required by Paragraph 21 hereof, Broker shall note Pershing's or its
affiliates' patent, trade secret, copyrights, trademarks and trade names when
Broker makes reference to or distributes products or services provided by
Pershing or its affiliates, as applicable.
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Pershing shall use all reasonable efforts to preserve and protect
(short of litigation) Broker's and its affiliates', agents' and contractors'
(including any business entity with which it has entered into a strategic
alliance or is otherwise doing business) (a "Broker Associate") patent, trade
secret, copyright and other proprietary rights in its products, services,
trademarks and tradenames, at least to the same extent used to preserve and
protect its own proprietary data or information, and to notify Broker of any
action by any third party known to constitute an infringement of the Broker's or
any Broker Associate's proprietary rights and to cooperate with Broker and
Broker Associate in protecting such rights. Without limiting the foregoing, and
subject to the permission required by Paragraph 21 hereof, Pershing shall note
Broker's and Broker Associate's patent, trade secret, copyrights, trademarks and
trade names when Pershing makes reference to products or services provided by
Broker or Broker Associate, as applicable.
14.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF PERSHING
14.1 Use of Third-Party Services. Subject to Paragraph 16 hereof, Pershing may,
at its reasonable option, and consistent with common industry practice, retain
one or more independent data processing or other service bureaus to perform
functions (including, but not necessarily limited to, pricing services or proxy
mailing services) assigned to Pershing under this Agreement, provided such
independent data processing or other service bureaus maintain confidentiality
consistent with Pershing's obligations hereunder.
14.2 Tax Withholding. Broker hereby agrees to take necessary measures to comply
with the income tax withholding requirements of Section 3406 and Sections 1441
through 1446 (the nonresident alien withholding requirements) of the Internal
Revenue Code of 1986, as amended ("IRC") with respect to its customer accounts.
Broker agrees to furnish to Pershing any tax information, e.g. taxpayer
identification numbers and certifications provided by the customer on IRS Forms
X-0, X-0XXX, X-0XXX, X-0XXX, W-8ECI, W-9, or any acceptable substitute) in its
possession relating to each customer account transferred to Pershing and to each
future customer account opened. Broker acknowledges that Pershing will rely on
such information for purposes of determining Pershing's obligation to withhold
federal income tax pursuant to Sections 1441 through 1446 and 3406 of the
Internal Revenue code. Broker hereby authorizes Pershing to employ any
procedures permitted under applicable law or regulation to achieve compliance
with its withholding obligations under federal income tax law.
14.3 Retirement Account Distributions. For retirement accounts for which
Pershing makes designated distributions pursuant to Section 3405 of the IRC or
any successor provision thereto, Broker shall (1) obtain customer authorization
to execute Form W-4P (or an acceptable substitute) on behalf of such customer,
and (2) electronically provide such Form W-4P or a copy thereof to Pershing.
14.4 Services/Service Levels. Without limiting Pershing's obligations hereunder,
Pershing shall (i) maintain continuous monitoring of service performance so as
to identify and correct any problems in the System and/or Software Products; and
(ii) provide the services, software and materials contemplated by this
Agreement, and maintain the security of the Systems, in accordance with the
procedures manual and the terms set forth in the Statement of Work and Service
Level Agreement. A non-material breach of the Statement of Work or Service Level
Agreement will not, in an of itself, give rise to a material default under
Paragraph 22.2 of this Agreement.
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15.0 ORDER AUDIT TRAIL SYSTEM (OATS)
Pursuant to NASD Rules 6950 through 6957 (Order Audit Trail System ("OATS")
Rules) and the OATS Reporting Technical Specifications, it is hereby agreed
between Broker and Pershing that Pershing shall synchronize Pershing system
clocks in accordance with the National Institute of Standards and Technology
clock and periodically monitor such clocks for performance within any deviation
time frame tolerance level permitted by the OATS Rules.
Unless otherwise directed in writing by Broker, Pershing will record and
transmit to the NASD, on Broker's behalf, all order information that is required
to be recorded pursuant to the OATS Rules and the OATS Technical Specifications
(including any modifications thereto) (the "Order Information") for orders
entered on or linked to Pershing's proprietary electronic order entry systems
(including Trade Order Processing System, BrokerView Order Entry, BrokerView
Direct Order, NetExchange ProTM, NetExchange ClientTM, Telexchange ProTM, and
Telexchange Clienttm, and any other electronic order entry system as Pershing
may develop and implement from time to time) (collectively "the Front-End
Products") and routed to a market using Pershing's routing routine. Pershing
will also record and transmit to the NASD information that is received via the
Products by Pershing in connection with modification or cancellation of any
Order Information previously entered into the system. Unless specifically agreed
to in writing, Pershing will not capture information or transmit Order
Information for orders that are not entered on the Front-End Products or called
in for execution or where Pershing does not determine the order routing routine.
For trades not entered on Front-End Products, Broker is responsible for
providing information necessary for Pershing to report on Broker's behalf.
Broker agrees that Pershing may pass any out-of-pocket costs associated with
development and/or maintenance of this system on to Broker.
Broker acknowledges and agrees that Pershing shall not be responsible for any
Order Information that is not received by Pershing.
Notwithstanding the foregoing, nothing contained herein shall relieve Broker of
its reporting obligations under paragraph (c)(3) of OATS Rule 6955.
16.0 LIABILITY OF PERSHING
DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, (i)
NEITHER PERSHING NOR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
CONTRACTORS, AFFILIATES, INFORMATION PROVIDERS, LICENSORS, OR OTHER SUPPLIERS
PROVIDING DATA, INFORMATION, SERVICES OR SOFTWARE, INCLUDING BUT NOT LIMITED TO
THE NYSE, WARRANTS THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR FREE; NOR DO
ANY OF THEM MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED FROM THE
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USE OF THE SERVICES OR AS TO THE TIMELINESS, SEQUENCE, ACCURACY, COMPLETENESS,
RELIABILITY OR CONTENT OF ANY DATA, INFORMATION, SERVICES, OR TRANSACTIONS
PROVIDED AND, (ii) PROVIDED THAT PERSHING IS NOT NEGLIGENT, PERSHING SHALL NOT
BE RESPONSIBLE FOR ANY LOSSES, LIABILITIES OR DAMAGES CAUSED BY THE ACTS OR
OMISSIONS OF THOSE THIRD PARTY AGENTS, CONTRACTORS, INFORMATION PROVIDERS OR
OTHER SUPPLIERS BEYOND ANY AMOUNT WHICH PERSHING IS ABLE TO RECOVER PURSUANT TO
ITS AGREEMENT WITH SUCH ENTITY AND ANY APPLICABLE INSURANCE COVERAGE. EXCEPT AS
SPECIFICALLY SET FORTH IN THIS AGREEMENT INCLUDING THIS PARAGRAPH 16, PERSHING'S
SERVICES ARE PROVIDED ON AN "AS IS," "AS AVAILABLE" BASIS, WITHOUT WARRANTIES OF
ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THOSE OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT, OTHER
THAN THOSE WARRANTIES WHICH ARE IMPLIED BY AND INCAPABLE OF EXCLUSION,
RESTRICTION OR MODIFICATION UNDER THE LAWS APPLICABLE TO THIS AGREEMENT. NOTHING
N THIS PARAGRAPH IS INTENDED TO LIMIT PERSHING'S LIABILITY, NOR TO LIMIT
BROKER'S REMEDIES, FOR PERSHING'S NEGLIGENCE.
16.1 Pershing Indemnification. In addition to any other obligations it may
possess under other provisions of this Agreement, Pershing shall indemnify,
defend, and hold harmless Broker and each of its divisions, and any controlling
person of Broker, from and against all third party claims, demands, proceedings,
suits, actions, liabilities, expenses, and reasonable attorney's fees, and costs
in connection therewith arising out of any (i) negligent, reckless, dishonest,
fraudulent, or criminal act or omission on the part of any of its officers or
employees or agents or representatives with respect to the services provided by
Pershing under this Agreement; (ii) infringement or violation of the rights of
any third party relating to any services, software or materials provided by
Pershing in connection with this Agreement; (iii) act or omission of Pershing,
its agents or employees which infringes on any patent, trade secret, copyright,
trademark, or other intellectual property right of Broker or Broker's agents or
parties with whom Broker has contracted or any violation of the terms set forth
in paragraph 28 hereof; (iv) breach of any of its representations and warranties
in this Agreement; (v) breach of its obligations under Paragraph 23
(confidentiality); (vi) failure to exercise due diligence in reviewing checks
received from customers to ensure that same are in proper form, or in the
issuance of instructions regarding the accounts into which checks are to be
deposited; and (vii) negligent, dishonest, fraudulent, or criminal act or
omission on the part of any of Pershing's officers, directors, employees or
agents. In the event that any services, software or materials provided by
Pershing in connection with this Agreement become unavailable to Broker because
of an infringement or violation of the rights of any third-party, as a
non-exclusive remedy, Pershing shall promptly modify or replace the infringing
services, software or materials with non-infringing services, software or
materials of equal quality, features and functionality.
16.2 Damages. Except for its breach of Paragraph 23 (confidentiality), and to
the extent recoverable by third parties for claims falling within its
indemnification obligations in Paragraph 16.1, neither party shall be liable for
special, indirect, incidental, consequential or punitive damages, whether such
damages are incurred or experienced as a result of entering into or relying on
this Agreement or otherwise, even if that party has been advised of the
possibility of such damages. Broker and Pershing each agree not to assist any
claim for punitive damages against the other.
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16.3 Pershing Right to Compete. Nothing in this Agreement shall be deemed to
restrict in any way the right of Pershing or any affiliate of Pershing to
compete with Broker in any or all aspects of Broker's business.
16.4 Injunctive Relief. In the event of a breach or threatened breach of any of
the provisions of this Agreement pertaining to confidentiality or proprietary
rights by Pershing or any employee or representative of Pershing, Pershing
acknowledges that Broker shall be entitled to seek from a court of competent
jurisdiction preliminary and permanent injunctive relief to enforce the
provisions hereof without posting bond. In addition, Pershing acknowledges that
a breach of the terms regarding confidentiality of information and ownership of
Broker's and its affiliates', agents' and contractors' (including any business
entity with which it has entered into a strategic alliance or is otherwise doing
business) intellectual property may cause irreparable and incalculable damage to
Broker or its affiliate, agent or contractor (including any business entity with
which it has entered into a strategic alliance or is otherwise doing business).
Nothing herein shall preclude the parties from pursuing any action or other
remedy for any breach or threatened breach of this Agreement, all of which shall
be cumulative.
17.0 LIABILITY OF BROKER
17.1 Broker Indemnification. In addition to any other obligations it may possess
under other provisions of this Agreement, Broker shall indemnify, defend, and
hold harmless Pershing, and any controlling person of Pershing, from and against
all third party claims, demands, proceedings, suits, actions, liabilities,
expenses, and reasonable attorney's fees, and costs in connection therewith
arising out of one or more of Broker's or any of its employee's negligent,
dishonest, fraudulent, or criminal act, or omission or any of the following:
17.1.1 Failure to Make Payment or Deliver Securities. A check received by
Pershing from a customer shall not constitute payment until it has been paid and
the proceeds are actually received and finally credited to Pershing (without any
subsequent charge back) by its bank.
17.1.2 Margin Calls. Failure of a customer to meet any initial margin call or
any maintenance call, except that Pershing shall be responsible for the portion
of any such loss or damage that Broker establishes was directly attributable to
Pershing's failure to give notification to Broker as required in Paragraph 7.3.2
of this Agreement.
17.1.3 Broker's Failure to Perform. Failure of Broker to perform any duty,
obligation, or responsibility with respect to customer accounts as set forth in
this Agreement. Broker's indemnification obligation under this subparagraph
shall not be affected by the participation of Pershing or any person controlling
it or controlled by it within the meaning of the Securities Exchange Act of
l934, as amended, in any transaction giving rise to such an obligation, unless
such participation constitutes recklessness, fraud, or criminal conduct.
17.1.4 Improper Conduct by Agents. Any negligent, dishonest, fraudulent, or
criminal act or omission on the part of any of Broker's officers, directors,
employees, or agents.
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17.1.5 Failure of a Customer to Perform Obligations. Any failure by any of
Broker's customers to perform any commitment or obligation with respect to a
transaction carried by Pershing under this Agreement, whether or not such
failure was under the control of Broker.
17.1.6 Customer Claims and Disputes. Any claim or dispute between Broker and a
customer with respect to services provided under this Agreement (except where
that claim or dispute results from an act or omission of Pershing), including,
but not limited to, any claim or dispute concerning the validity of a customer
order in the form the order was transmitted to Pershing by Broker and any claim
arising in connection with Pershing's guarantee of any signature of any customer
of Broker or at the request of Broker.
17.1.7 Warranties. Any adverse claim with respect to any security delivered or
cleared by Pershing, including a claim of a defect in title with respect to
securities that are alleged to have been forged, counterfeited, raised or
otherwise altered, or if they are alleged to have been lost or stolen. The
parties agree that Pershing shall be deemed to be an intermediary between Broker
and customer and shall be deemed to make no warranties other than as provided in
Section 8-306(3) of the Uniform Commercial Code.
17.1.8 Default of Third-Party Broker. Any default by a third-party broker with
whom the Broker deals on a principal or agency basis in a transaction either not
executed by Pershing or not cleared by Pershing even if permitted by Pershing as
provided herein.
17.1.9 Check Signing. Any negligence, fraud, malfeasance, or error of any
employee of Broker with respect to the use of the checksigning authority granted
under Paragraph 9.1.6 of this Agreement.
17.1.10 Prior Self-Clearing Arrangements. Any guarantee, indemnification, or
hold harmless agreement in connection with Broker's business or customers that
Pershing may provide to the National Securities Clearing Corporation, the
Depository Trust Company, or any other clearing, depository, or self-regulatory
organization with respect to transactions self-cleared by Broker prior to
transfer of such functions to Pershing.
17.1.11 Breach of Warranty by Broker. Any breach by Broker of any representation
or warranty made by it under this Agreement.
17.1.12 Deposit of Checks to Customer Accounts. Any failure to exercise due
diligence in reviewing checks received from customers to ensure that same are in
proper form, or in the issuance of instructions to Pershing regarding the
accounts into which checks are to be deposited.
17.1.13 Omitted.
17.1.14 Infringement of Intellectual Property Rights. Any act or omission of
Broker, its agents or employees which infringes on any patent, trade secret,
copyright, trademark, or other intellectual property right of Pershing or any
violation of the terms set forth in paragraph 28 hereof.
17.1.15 Misuse of Passwords and Unauthorized Access. The misuse, loss or
unauthorized access to the Systems and Software Products using the
Identification Devices (as that term is defined in Paragraph 28.4 of this
Agreement) by Broker or its customers.
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17.2 Injunctive Relief. In the event of a breach or threatened breach of any of
the provisions of this Agreement pertaining to confidentiality or proprietary
rights by Broker or any employee or representative of Broker, Broker
acknowledges that Pershing shall be entitled to seek from a court of competent
jurisdiction preliminary and permanent injunctive relief to enforce the
provisions hereof. In addition, Broker acknowledges that a breach of the terms
regarding confidentiality of information and ownership of Pershing's
intellectual property may cause irreparable and incalculable damage to Pershing.
Nothing herein shall preclude the parties from pursuing any action or other
remedy for any breach or threatened breach of this Agreement, all of which shall
be cumulative.
18.0 FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
18.1 Commissions. Pershing shall charge each of Broker's customers the
commission, markup, and any other charge or expense that Broker instructs it to
charge for each transaction. If instructions are not received with respect to a
transaction in the time period required by Pershing to implement those
instructions, Pershing shall charge the customer the commission, markup, or
other charge or expense prescribed in the basic commission schedule delivered to
Pershing by Broker. This basic schedule may be amended from time to time by
Broker by written instructions delivered to Pershing. Pershing shall only be
required to implement such amendments to the basic schedule to the extent such
amendments are within the usual capabilities of Pershing's data processing and
operations systems and only within such reasonable time limitations as Pershing
may deem necessary to avoid disruption of its normal operating capabilities.
Pershing shall remit payment of commissions to Broker once every two (2) weeks
or as otherwise agreed by the parties.
18.2 Miscellaneous Charges. Broker agrees to pay Pershing the fees and charges
described in Schedule A hereto. Notwithstanding the foregoing, Broker may
instruct Pershing to pass through such fees to Broker's customers.
18.3 Fees for Clearing Services. As compensation for services provided pursuant
to this Agreement, Pershing shall deduct from the commissions, xxxx-up,
xxxx-down, or fees charged Broker's customers the amounts set forth in the
fully-disclosed pricing schedule attached hereto as Schedule A.
19.0 DEPOSIT ACCOUNT
19.1 Establishment of Deposit Account. To further assure Broker's performance of
its obligations under this Agreement, including but not limited to its
indemnification obligations under Paragraph 17, Broker shall, on or before the
execution of this Agreement, establish an account at Pershing to be designated
as the Broker's Deposit Account (the "Deposit Account"). The Deposit Account
shall not represent an ownership interest by Broker in Pershing. The Deposit
Account shall at all times contain cash, securities, or a combination of both,
having a market value of at least the amount set forth in Schedule A. The
securities placed in the Deposit Account shall consist only of direct
obligations issued by or guaranteed as to principal and interest by the United
States Government. In the event of a substantial change in the nature and extent
of Broker's business operations, Pershing may require immediately that an
additional amount be deposited in the Deposit Account. If such a deposit is not
made in the amount specified, whether or not Broker agrees that the amount is
justified under this subparagraph, Pershing may terminate this Agreement
forthwith. The parties agree that Broker's deposit into the Deposit Account does
not represent ownership interest in Pershing by Broker.
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19.2 Pershing's Right to Offset. If (i) Pershing shall have any claim against
Broker or a customer of Broker which has not been resolved within ten (10)
business days after Pershing presents such claim to Broker; or (ii) if Pershing
shall suffer any loss or incur any expense for which it is entitled to be
indemnified pursuant to this Agreement, and Broker shall fail to make such
indemnification within ten (10) business days after being requested to do so,
Pershing may deduct the amount of such claim, loss, or expense from any account
of Broker. Pershing may withdraw cash or securities (or both) having a market
value equal to the amount of such claimed deficiency. If those funds are
withdrawn from the Deposit Account, then Broker shall be obligated to promptly
make a deposit in the Deposit Account of cash or securities sufficient to bring
the Deposit Account back to a value of at least the amount required by Schedule
A.
19.3 Termination of Deposit Account. Upon termination of this Agreement, and
transfer of all customer and proprietary accounts of Broker or as soon
thereafter as practical, but in all cases within thirty (30) days of
termination, Pershing shall pay and deliver to Broker, the funds and securities
in the Deposit Account, less any amounts to which it is entitled under the
preceding paragraph; provided, however, that Pershing may retain in the Deposit
Account such amount for such period as reasonably appropriate for its protection
from any claim or proceeding of any type, then pending or threatened, until the
final determination of such claim or proceeding is made. If a threatened claim
or proceeding is not resolved or if a legal action or proceeding is not
instituted within a reasonable time after the termination of this Agreement, any
amount retained with respect to such claim, proceeding, or action shall be paid
or delivered to Broker.
20.0 PROPRIETARY ACCOUNTS OF INTRODUCING BROKERS AND DEALERS (PAIB)
Pershing shall establish a separate reserve account for proprietary
assets held by Broker so that Broker can treat these assets as allowable assets
under SEC Rule 15c3-1. Pershing agrees to perform the required computation on
behalf of Broker in accordance with the following provisions, procedures, and
interpretations set forth in the SEC's No-Action Letter regarding Proprietary
Accounts of Introducing Brokers and Dealers (PAIB) dated November 3, 1998:
20.1 Pershing will perform a separate computation for PAIB assets (PAIB reserve
computation) of Broker in accordance with the customer reserve computation set
forth in SEC Rule 15c3-3 (customer reserve formula) with the following
modifications:
A. Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula will not be included as a
credit in the PAIB reserve computation;
B. Note E(3) to Rule 15c3-3a, which reduces debit balances by one
percent under the basic method and subparagraph (a)(1)(ii)(A) of
Rule 15c3-1, which reduces debit balances by three percent under
the alternative method will not apply; and
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C. Neither Note E(I) to Rule 15c3-3a nor NYSE Interpretation /04 to
Item 10 of Rule 15c3-3a regarding securities concentration charges
is applicable to the PAIB reserve computation.
20.2 PAIB reserve computation will include all the proprietary accounts of
Broker. All PAIB assets will be kept separate and distinct from customer assets
under the customer reserve computation set forth in SEC Rule 15c3-3.
20.3 PAIB reserve computation will be prepared within the same time frames as
those prescribed by Rule 15c3-3 for the customer reserve formula.
20.4 Pershing will establish and maintain a separate "Special Reserve Account
for the Exclusive Benefit of PAIB Customers" with a bank in conformity with the
standards of Rule 15c3-3(f) (PAIB Reserve Account). Cash and/or qualified
securities as defined in the Rule will be maintained in the PAIB Reserve Account
in an amount equal to the PAIB reserve requirement.
20.5 If the PAIB reserve computation results in a deposit requirement, the
requirement can 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 cannot be satisfied with excess debits from the
PAIB reserve computation.
20.6 Within two business days of entering into this Agreement, Broker must
notify its designated examining authority (DEA) in writing that it has entered
into a PAIB agreement with its clearing broker-dealer.
20.7 Upon discovery that any deposit made to the PAIB Reserve Account did not
satisfy its deposit requirement, Pershing will immediately notify its DEA and
the SEC. Unless a corrective plan is found to be acceptable by the SEC and the
DEA, Pershing will provide written notification within five business days of the
date of discovery to Broker that PAIB assets held by Pershing will not be deemed
allowable assets for net capital purposes.
20.8 To the extent applicable, commissions receivable and other receivables of
Broker from Pershing (excluding clearing deposits) that are otherwise allowable
assets under the net capital rule are not to be included in the PAIB reserve
computation, provided the amounts have been clearly identified as receivables on
the books and records of the Broker and as payables on the books of Pershing.
21.0 COMMUNICATION
21.1 Notice to Customers. Pershing shall, upon the opening of an account
pursuant to paragraph 5 of this Agreement, mail to each customer a copy of the
notice to customers required by NYSE Rule 382(c), provided Broker has first had
an opportunity to review the letter.
21.2 Customer Complaint Reporting and Customer Notification. Broker authorizes
and instructs Pershing to forward promptly any written customer complaint
received by Pershing regarding Broker and/or its associated persons relating to
functions and responsibilities allocated to Broker under this Agreement to a)
Broker and b) Broker's designated examining authority ("DEA") designated under
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Section 17 of the Securities and Exchange Act of 1933 or, if none, to Broker's
appropriate regulatory agency or authority. Further, Broker authorizes Pershing
to notify the customer, in writing, that Pershing has received the complaint,
and the complaint has been forwarded to Broker's DEA (or, if none, to the
appropriate regulatory agency).
21.3 Restriction on Advertising. Neither Pershing nor Broker shall utilize the
name of the other in any way without the other's prior written consent except to
disclose the relationship between the parties. Neither party shall employ the
other's name in such a manner as to create the impression that the relationship
between them is anything other than that of clearing broker and introducing
broker. Neither party shall hold itself out as an agent of the other party or as
a subsidiary or company controlled directly or indirectly by or affiliated with
the other party except as provided in this paragraph.
21.4 Linking Between Sites. Without express written authorization, neither party
may provide or allow an electronic hyperlink directly from its service or site
on the Internet or another site over which that party has control to the service
or site on the Internet of the other party.
22.0 TERMINATION OF AGREEMENT
This Agreement shall continue until terminated as hereinafter provided:
22.1 Termination Upon 180-Day Notice. After the three (3) year period from the
date this Agreement was entered, this Agreement may be terminated by either
party without cause upon one hundred eighty days prior Notice. If either party
terminates the Agreement pursuant to this subparagraph, (i) Pershing shall have
the right to impose reasonable limitations upon Broker's activities during the
period between the giving of Notice and the transfer of Broker's accounts,
provided such limitations do not materially impact Broker's ability to continue
its business, (ii) Pershing shall provide reasonable opportunity and assistance
to Broker in transitioning and converting to another clearing firm and online
transaction provider service at Broker's cost and expense, and (iii) each party
will return to the other party any confidential information it has acquired from
the other party.
22.2 Default. If either party defaults in the performance of its obligations
under this Agreement, or otherwise violates the provisions of this Agreement,
the non-defaulting party may terminate this Agreement by delivering Notice to
the defaulting party (i) specifying the nature of the default; and (ii)
notifying the defaulting party that unless the default is cured within a period
of twenty days from receipt of the Notice, this Agreement will be terminated
without further proceedings by the non-defaulting party. However, if either
party terminates the Agreement pursuant to this subparagraph, Pershing shall
provide reasonable opportunity and assistance to Broker in transitioning and
converting to another clearing firm and online transaction provider service at
Broker's cost and expense, and each party will return to the other party any
confidential information it has acquired from the other party.
22.3 Disability. This Agreement may be terminated by Pershing or Broker
immediately in the event that the other party is enjoined, disabled, suspended,
prohibited, or otherwise becomes unable to engage in the securities business by
operation of law or as a result of any administrative or judicial proceeding or
action by the SEC, any state securities law administrator, or any regulatory or
self-regulatory organization having jurisdiction over such party.
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22.4 Conversion of Accounts. In the event that this Agreement is terminated for
any reason, Broker shall arrange for the conversion of Broker's and its customer
accounts to another clearing broker or to Broker if it becomes self-clearing.
Broker shall give Pershing Notice (the "Conversion Notice") of: (i) the name of
the broker that will assume responsibility for clearing services for Customers
and Broker; (ii) the date on which such broker will commence providing such
services; (iii) Broker's undertaking, in form and substance satisfactory to
Pershing, that Broker's agreement with such clearing broker provides that such
clearing broker will accept on conversion all Broker and customer accounts then
maintained by Pershing; and (iv) the name of an individual or individuals within
new clearing broker's organization whom Pershing may contact to coordinate the
conversion. The Conversion Notice shall accompany Broker's notice of termination
given pursuant to this paragraph. If Broker fails to give Conversion Notice to
Pershing, Pershing may notify Broker's customers as Pershing deems appropriate
of the termination of this Agreement and may make such arrangements as Pershing
deems appropriate for transfer or delivery of customer and Broker accounts. The
reasonable expense of notifying those customers and making such arrangements
shall be charged to Broker.
22.5 Survival. Termination of this Agreement in any manner shall not release
Broker or Pershing from any liability or responsibility with respect to any
representation or warranty or transaction effected on the books of Pershing.
22.6 Termination Fee. If Broker terminates this Agreement pursuant to Paragraph
22.1 above, or Pershing terminates this Agreement pursuant to Paragraph 22.2 or
22.3 within the period specified in Schedule A, Broker shall pay to Pershing a
termination fee and will reimburse Pershing for Deconversion Expenses as stated
in Schedule A.
22.7 Termination by Broker. Broker may, upon notice to Pershing, terminate this
Agreement in the event (a) DLJ or Pershing voluntarily suspends transaction of
business or otherwise ceases to offer any services contemplated by this
Agreement; (b) DLJ or Pershing becomes insolvent or unable to pay any
indebtedness as it matures; (c) DLJ or Pershing commences a voluntary case in
bankruptcy or a voluntary petition seeking reorganization or to effect a plan or
other arrangement with creditors; (d) DLJ or Pershing makes an assignment for
the benefit of creditors; (e) DLJ or Pershing applies for or consents to the
appointment of a receiver or trustee for it, or for any substantial portion of
its property; (f) DLJ or Pershing makes an assignment to an agent authorized to
liquidate any substantial part of its assets; (g) DLJ or Pershing has an
involuntary case commenced against it with any court or other authority seeking
liquidation, reorganization or a creditor's arrangement; (h) of a change in
control of DLJ or Pershing; or (i) that an order of any court or other authority
appoints any receiver or trustee for DLJ or Pershing or for any substantial
portion of its property. If Broker terminates this Agreement pursuant to this
Paragraph 22.8, (i) Pershing shall promptly refund to Broker any remaining
amounts not already refunded of the $1,500,000 Internet Development Costs
identified in Schedule A; (ii) Pershing shall provide reasonable opportunity and
assistance to Broker in transitioning and converting to another clearing firm
and online transaction provider service at Broker's cost and expense, and (iii)
each party will return to the other party any confidential information it has
acquired from the other party except as required by law and to the extent
reasonably possible. If not exercised within ninety (90) days after receiving
written notice of a change in control of DLJ or Pershing, Broker's right to
terminate pursuant to Paragraph 22.7(h) shall expire.
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23.0 CONFIDENTIAL NATURE OF DOCUMENTS AND OTHER INFORMATION
Neither Pershing nor Broker shall disclose the terms of this Agreement
or information obtained as a result thereof or information regarding the
identity of or transactions of the other's customers to any outside party except
to regulatory or self-regulatory organizations, pursuant to judicial process or
as otherwise required by law or to authorized employees of the other. Any other
publication or disclosure of the terms of this Agreement may be made only with
the prior written consent of the other party. Broker and Pershing shall each
maintain the confidentiality of documents, data, business methods, customer
information and other information received from the other party pursuant to this
Agreement.
Broker acknowledges that the services Pershing provides hereunder
involve Broker access to proprietary technology, trading and other systems, and
that techniques, algorithms and processes contained in such systems constitute
trade secrets and shall be safeguarded by Broker, and that Broker shall exercise
reasonable care to protect Pershing's interest in such trade secrets. Broker
agrees to make the proprietary nature of such systems known to those of its
consultants, staff, agents or clients who may reasonably be expected to come
into contact with such systems. Broker agrees that any breach of this
confidentiality provision may result in its being liable for damages as provided
by law.
Pershing acknowledges that the services Broker provides hereunder
involve Pershing access to proprietary technology, trading and other information
constituting trade secrets and shall be safeguarded by Pershing, and that
Pershing shall exercise reasonable care to protect Broker's interest in such
trade secrets. Pershing further acknowledges that the software and services it
is providing in connection with this Agreement will be used by Broker, its
customers and its agents to transmit confidential and sensitive financial and
personal information, and that Pershing shall exercise reasonable care to
protect the privacy of such information. Pershing shall comply with all
applicable laws, including without limitation, the Xxxxx-Xxxxx-Xxxxxx Act.
Xxxxxxxx agrees that any breach of this confidentiality provision may result in
its being liable for damages as provided by law.
24.0 ACTION AGAINST CUSTOMERS BY XXXXXXXX
Xxxxxxxx may, in its sole discretion and at its own expense and, upon
reasonable prior written notice to Broker, institute and prosecute in its name
any action or proceeding against any of Broker's customers in relation to any
controversy or claim arising out of Pershing's transactions with Broker or with
Broker's customers. Nothing contained in this Agreement shall be deemed either
(a) to require Pershing to institute or prosecute such an action or proceeding;
or (b) to impair or prejudice its right to do so, should it so elect, nor shall
the institution or prosecution of any such action or proceeding relieve Broker
of any liability or responsibility which Broker would otherwise have had under
this Agreement. Broker assigns to Pershing its rights against its customer as
necessary to effectuate the provisions of this paragraph.
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25.0 NOTICES
Any Notice required or permitted to be given under this Agreement shall
be sufficient only if it is in writing and sent by hand or by certified mail,
return receipt requested, to the parties at the following address:
Broker:
Xxxxxx Xxxxxxx & Co., Inc.
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx Xxxxxxx
with copies to:
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx, Esq.
Pershing:
Pershing Division of Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
Xxx Xxxxxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
Attn: Mr. Xxxxx Xxxxxxx, Managing Director
cc: Legal Department
26.0 ARBITRATION
26.1 Arbitration Requirement. Any dispute between Broker and Pershing that
cannot be settled shall be taken to arbitration as set forth in paragraph 26.3
below.
26.2 ARBITRATION DISCLOSURE.
EXCEPT AS OTHERWISE STATED IN THIS AGREEMENT:
o ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
o THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL.
o PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
o THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS
OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
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o THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
26.3 ARBITRATION AGREEMENT.
EXCEPT AS OTHERWISE STATED IN THIS AGREEMENT:
ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS
AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE
NEW YORK STOCK EXCHANGE, INC., OR NASD REGULATION INC., AND IN
ACCORDANCE WITH THE RULES OBTAINING OF THE SELECTED ORGANIZATION
AND SHALL BE CONDUCTED AS A BROKER TO BROKER OR MEMBER VS MEMBER
DISPUTE. ARBITRATION MUST BE COMMENCED BY SERVICE UPON THE OTHER
PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN NOTICE OF
INTENTION TO ARBITRATE, THEREIN ELECTING THE ARBITRATION TRIBUNAL.
NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION
AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE
CLASS ACTION AND WHO IS A MEMBER OF A PUTATIVE CLASS AND WHO HAS
NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED
BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS CERTIFICATION IS
DENIED; (ii) THE CLASS IS DECERTIFIED; OR (iii) THE CUSTOMER IS
EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE
AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
27.0 GENERAL PROVISIONS
27.1 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and assigns of Broker and
Pershing. No assignment of this Agreement or any rights, including those to
indemnification hereunder by Broker shall be effective unless Pershing's written
consent shall be first obtained.
27.2 Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, the validity or enforceability of the remaining
provisions and conditions shall not be affected thereby.
27.3 Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute a single agreement.
27.4 Entire Agreement Amendments and Duties Not Specifically Enumerated Herein.
This Agreement and all other agreements mutually signed by the parties represent
the entire agreement between the parties with respect to the subject matter
contained herein and all prior discussions, agreements, and promises, written or
oral, are merged herein. This Agreement may not be changed orally, but only by
an agreement in writing signed by the parties, as expressly stated in another
written agreement signed by the parties or as required by law.
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27.5 Captions. Captions herein are for convenience only and are not of
substantive effect.
27.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the conflicts of laws or principles thereof. This Agreement shall not
be governed by the United Nations Convention on the International Sale of Goods.
27.7 Citations. Any reference to the rules or regulations of the SEC, NASD, the
NYSE, or any other regulatory or self-regulatory organization are current
citations. Any changes in the citations (whether or not there are any changes in
the text of such rules or regulations) shall be automatically incorporated
herein.
27.8 Construction of Agreement. Neither this Agreement nor the performance of
the services hereunder shall be considered to create a joint venture or
partnership between Pershing and Broker or between Broker and other brokers for
whom Pershing may perform the same or similar services.
27.9 Third-Parties. This Agreement is between the parties hereto and is not
intended to confer any benefits on third-parties including, but not limited to,
customers of Broker or each of Broker's divisions.
27.10 Non-Exclusivity of Remedies. The enumeration herein of specific remedies
shall not be exclusive of any other remedies. Any delay or failure by a party to
this Agreement to exercise any right, power, remedy, or privilege herein
contained, or now or hereafter existing under any applicable statute or law,
shall not be construed to be a waiver of such right, power, remedy, or
privilege. No single, partial, or other exercise of any such right, power,
remedy, or privilege shall preclude the further exercise thereof or the exercise
of any other right, power, remedy, or privilege.
27.11 SEC Release 34-31511 Provision. Pursuant to the interpretation of
Introducing Accounts on a Fully-Disclosed Basis contained in SEC Release
34-31511, it is hereby agreed between Broker and Pershing that, insofar as the
"financial responsibility rules" of the SEC and Securities Investor Protection
Act only are applicable, the accounts Broker introduces to Pershing on a
fully-disclosed basis shall be considered to be accounts of Pershing and not
Broker's accounts.
27.12 United States Postal Service Documents. Broker hereby appoints Pershing as
its attorney-in-fact for the purpose of executing such documents as are
necessary to allow Broker and its customers to participate in the FASTforward
program of the United States Postal Service. This may include, but not be
limited to Pershing's execution, on an annual basis, on Broker's behalf, of the
FASTforward Processing Acknowledgment Form.
27.13 Provision of Reports and Exception Reports. On or before the effective
date of this Agreement, Pershing shall provide to Broker, Pursuant to NYSE Rule
382(e), a list of all reports (e.g. exception-type reports) it offers to Broker.
Broker shall promptly notify Pershing, in writing, of those specific reports it
elects to receive. Pershing and Broker each represent that their obligations
relative to exception reports, pursuant to NYSE Rule 382(e) have been completed.
(NYSE Information Memo 99-33)
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28.0 OWNERSHIP AND LICENSES
28.1 License to Use Systems. In order to effectuate the terms of this Agreement
and to allow each party to perform its duties hereunder, Pershing hereby grants
to Broker a non-exclusive, non-transferable, non-assignable limited license for
the term of this Agreement (i) to access and use the various account
information, trading and order entry systems to which access is contemplated
pursuant to this Agreement, whether pursuant to the schedules attached hereto or
otherwise ("the Systems"), and (ii) for Broker to allow its agents and customers
to access and use the Systems in accordance with the provisions herein and as
stated in (i) immediately above. Said license shall be limited to the use of the
most recently updated version of Systems (provided that any additional charge
for to implement or utilize the most recently updated version is not
inconsistent with any pricing agreement between Pershing and Broker currently in
effect and such additional charge is reasonable under the circumstances, and
that Broker has had a reasonable opportunity to transition to the most recently
updated version) in accordance with the written manuals and procedures provided
by Pershing in effect from time to time (provided that Broker has been made
aware of such procedures). Pershing and Broker agree that changes in written
manuals and procedures shall reasonably relate only to the functionality of the
Systems and that Pershing shall not remove or materially change functionality of
the Systems by changing such manuals or procedures and removing or materially
changing such functionality without Broker's written consent, except where
changing such functionality is required by law. Broker shall not, directly or
indirectly, modify the features or functionality of, copy or create derivative
works using all or any portion of, peel semiconductor components, decompile, or
otherwise reverse engineer or attempt to reverse engineer or derive source code
from the Systems or authorize or encourage any third-party to do so.
28.2 License to Software Products. Subject to receipt by Pershing of the fees
set forth in the pricing schedules attached hereto and approval by Pershing as
to technical and legal attributes (such approval not to be unreasonably
withheld) of any customized version created by Broker, Pershing will provide or
arrange for the provision of software and other services, features of which will
enable Broker's customers or its representatives to contact Broker and transact
business through Broker via various media, as may be agreed upon by the parties,
including a site or pages of a site located on the World Wide Web and reached
through an Internet address, which shall be unique to Broker (but which shall
not be required to be a domain name unique to Broker) (the "Software Products").
Upon Broker's request from time to time, Pershing shall modify the Software
Products as mutually agreed by the parties. To the extent required, Pershing
hereby grants to Broker a non-exclusive, non-transferable, non-assignable
limited license for the term of this Agreement to access and use the Software
Products solely for the purposes for which they were created and provided to
Broker: to enable its customers and representatives (a) to communicate with
Broker and access the Systems; and (b) access financial information and transact
business with Broker through the various media (as may be agreed to by the
parties from time to time, which currently include via a website, wireless
device and telephone). Said license shall be limited to the use of the most
recently updated version of the Software Products (provided that any additional
charge to implement or utilize the most recently updated version is not
26
inconsistent with any pricing agreement between Pershing and Broker currently in
effect and such additional charge is reasonable under the circumstances and that
Broker has had a reasonable opportunity to transition to the most recently
updated version) in accordance with the written manuals and procedures provided
by Pershing in effect from time to time (provided that Broker has been made
aware of such procedures). Pershing and Broker agree that changes in written
manuals and procedures shall reasonably relate only to the functionality of the
Software Products and that Pershing shall not remove or materially change
functionality of the Software Products by changing such manuals or procedures
and removing or materially changing such functionality without Broker's written
consent, except where changing such functionality is required by law. Except as
specifically permitted pursuant to the first sentence of this Paragraph 28.2 or
as otherwise authorized by Pershing, Broker shall not, directly or indirectly,
modify the features or functionality of, copy or create derivative works using
all or any portion of, peel semiconductor components, decompile, or otherwise
reverse engineer or attempt to reverse engineer or derive source code from the
Software Products or authorize or encourage any third-party to do so.
28.3 Ownership of the Systems and Software Products. Except as provided by this
Agreement, nothing herein shall be construed to transfer to Broker any rights,
title and/or interest in and to the Systems or to the Software Products,
including without limitation, the intellectual property rights therein. Pershing
represents that the Systems and Software Products are considered the trade
secrets of Pershing and its affiliates. As between Broker and Pershing, Pershing
shall at all times be and remain the sole and exclusive owner of the Systems and
Software Products, including any and all home page design(s), methodologies,
techniques, software libraries, and know-how used by Pershing or incorporated
into the Systems and Software Products, including all improvements,
modifications, or enhancements thereto. Except with respect to intellectual
property rights in trademarks and copyrights belonging to Broker, Pershing and
its affiliates retains all rights, title, and interest in and to Systems and
Software Products, including without limitation, all applicable copyrights
(including without limitation, the exclusive right to reproduce, distribute
copies of, display and perform the copyrighted work and to prepare derivative
works), copyright registrations, and applications, trademark rights (including
without limitation, registrations and applications), patent rights, trade-names,
mask-work rights, trade secrets, moral rights, authors' rights, and all renewal
and extensions thereof, regardless of whether any of such rights arise under the
laws of the United States or any other state, country or jurisdiction. If at any
time Broker proposes or makes modifications to its customized version of any
System or Software Product ("Modification"), all right, title and interest in
the Modifications shall be deemed to be a work made for hire. To the extent that
title to any such Modification may not vest in Pershing by operation of law, or
such Modifications may not be considered works made for hire, all right, title,
and interest to therein are hereby irrevocably assigned to Pershing. All such
Modifications shall belong exclusively to Pershing, with Pershing having the
right to obtain and to hold in its own name copyright registrations, patents,
and such other intellectual property protection as may be appropriate to the
subject matter, and any extensions and renewals thereof. Broker agrees to give
Pershing and any person designated by Pershing reasonable assistance, at
Pershing's expense, required to perfect the rights defined in this Section.
Unless otherwise directed by Pershing, upon the termination of this Agreement,
Broker shall immediately turn over to Pershing all Modifications, including, but
not limited to, computer programs, working papers, descriptions, reports, and
data. Nothing contained in this Paragraph 28.3 shall be construed as preventing
Pershing from assigning any intellectual property right with respect to any
27
Modification to any third-party. Notwithstanding anything to the contrary
herein, this Paragraph 28.3 shall not apply to materials, content, software or
other intellectual property owned or developed by or on behalf Broker, its
agents or affiliates, or any business entity with which Broker has entered into
a strategic alliance or is otherwise doing business ("Non-Pershing Property").
Nothing in this Agreement shall be construed as transferring to Pershing any
rights, title and/or interest in or to any such Non-Pershing Property, and all
such rights, title and interest shall at all times remain with Broker, its
agents or affiliates, or any business entity with which Broker has entered into
a strategic alliance or is otherwise doing business. This Paragraph 28.3 shall
survive any termination of this Agreement.
28.4 Protection of the Systems and Software Products. Pershing shall, from time
to time, provide Broker with passwords, codes, certificates, and other
identification devices and security measures (the "Identification Devices")
necessary to access and use the Systems and Software Products. Broker shall
determine whether and which of its customers, employees,or agents shall have
access to the Systems and Software Products. Broker shall be solely responsible
for the assignment, distribution, and maintenance of all Identification Devices
such that it will grant access to the Systems and Software Products only to
those individuals who are authorized by Broker. Nothing in this paragraph shall
affect or diminish Pershing's right to refuse to provide any or all the Systems
and Software Products to Broker, its agents or employees or any customers of
Broker for default as set forth in this Agreement, provided that Pershing
complies with its obligations to give notice of default as required pursuant to
Paragraph 22.2 and the default has not been cured as permitted by that
Paragraph. Broker shall be responsible for and shall provide the same level of
security as Broker applies to its own source code and trade secrets in the
protection, maintenance, and distribution of those Identification Devices and
codes within its organization and to its agents and customers, but in no case
less than reasonable security. Any loss, theft, or discovery of any
Identification Devices shall be reported to Pershing immediately and Broker
shall be responsible for any unauthorized use, and for any loss resulting from
unauthorized use, of any Identification Device prior to the time the loss,
theft, or discovery of the Identification Device is reported to Pershing, except
where such security breach is due to an act or omission of Pershing. Pershing
shall be responsible for and shall provide the same level of security as it
applies to its own confidential information and trade secrets in the protection
of personal and financial information transmitted through the System and
Software Products, but in no case less than reasonable security.
28.5 Restricted Use of Data. Broker acknowledges that certain information
available via the Systems and Software Products cannot be viewed by or otherwise
distributed to an individual who is a member of any exchange or the NASD, or of
any corporation of which an exchange owns a majority of the capital stock, or of
a member firm or member corporation of any exchange or the NASD or of any
corporation, firm or individual engaged in the business of dealing either as a
broker or a principal in securities, bills of exchange, acceptances, or other
forms of commercial paper (hereinafter "Professional User"). Broker acknowledges
that it will not use or knowingly permit any other Professional User to access
or view the restricted information except in their capacity as public customers.
In addition, certain information available through the Systems cannot be viewed
by or otherwise distributed to Broker's customers. Broker acknowledges that
Broker will not knowingly authorize such individual to view the restricted
information. Pershing's or its affiliates' mere creation and license of the
Systems and Software Products to be used by Broker as tools for conducting its
business does not diminish Broker's responsibility for compliance with all
applicable rules as set forth in paragraph 6 of this Agreement.
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28.6 Options Price Reporting Authority Requirements. In providing the Systems
and Software Products, Broker may allow access to information concerning options
contracts to its customers or itself, which information has been licensed to
Pershing. Broker hereby certifies that, for each customer to whom it instructs
Pershing to provide access to information concerning options contracts, it has
obtained a written agreement in which the customer agrees that he or she: (1)
shall receive options information solely for such person's own use; (2) shall
not retransmit or otherwise furnish options information to any other person; (3)
shall acknowledge that options information is and shall remain the property of
the respective exchange or other market on which a reported transaction took
place or a reported quotation was entered; and (4) shall acknowledge that; (i)
neither the Options Price Reporting Authority (OPRA), OPRA's processor, nor any
OPRA Participant guarantees the timeliness, sequence, accuracy, or completeness
of any options last sale price, quotation information, or other market
information provided by OPRA; (ii) neither OPRA, OPRA's processor nor any OPRA
Participant shall be liable in any way to such customer, broker or any other
person for any loss, damages, cost, or expense which may arise from any failure
of performance by OPRA, OPRA's processor, or any OPRA Participant, or from any
delays, inaccuracies, errors in or omissions of, any Options Information, or in
the transmission or delivery thereof, whether or not due to any negligent act or
omission on the part of OPRA, OPRA's processor or any OPRA Participant; and
(iii) in no event shall OPRA, OPRA's processor or any OPRA Participant be liable
for any incidental, special, indirect, or consequential damages, including but
not limited to, lost profits, trading losses, or damages resulting from
inconvenience, or loss of use of the Service. Such written agreement shall state
that it is for the express benefit of OPRA, OPRA's processor, and each OPRA
Participant. In addition, Broker, on its own behalf, acknowledges its
understanding of OPRA's responsibilities under this Paragraph 28.6. In addition,
Broker agrees that it shall maintain and preserve for at least three years
sufficient records to identify the names and addresses of its customers to whom
it is authorized to provide the Service, together with copies of all customer
agreements and billing records. At the request of OPRA, Broker agrees to permit
representatives of OPRA to have access to such records, and to provide to OPRA
any information that OPRA may reasonably request concerning its customers.
Broker further acknowledges that its acknowledgments and agreements as stated
above should are for the express benefit of OPRA, OPRA's processor, and each
OPRA participant.
28.7 Receipt of Information from Third-Parties and Reality Online Inc. In
providing the Systems and Software Products, Broker may allow access to
information to its customers or itself, which information has been licensed to
Pershing by a third-party, including without limitation Reality Online Inc.
IN WITNESS WHEREOF the parties have hereto affixed their hands and seals by
their duly authorized officers on the day and date first above written.
This Agreement contains a pre-dispute arbitration clause in Paragraph
26 beginning on page 20. Broker acknowledges receiving a copy of this Agreement.
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XXXXXX XXXXXXX & CO., INC.:
/s/ Xxxxxxxx X. Xxxxxxxx
---------------------------------
By: Xxxxxxxx X. Xxxxxxxx
Title:
PERSHING/ DIVISION OF XXXXXXXXX, XXXXXX & XXXXXXXX
SECURITIES CORPORATION
/s/ Xxxxx X. Xxxxxxx
---------------------------------
By: Xxxxx X. Xxxxxxx
Title:
30
