Exhibit 10.4
FULLY DISCLOSED CLEARING AGREEMENT
This Agreement, made this 1st day of January, 1999, between XXXXXXXXX & COMPANY,
INC. (the "Clearing Broker") and ITG INC. (the "Introducing Broker"), sets forth
the terms and conditions under which the Clearing Broker will provide execution
and clearing services, on a fully disclosed basis, for certain customer and
proprietary accounts of the Introducing Broker.
I. SERVICES TO BE PROVIDED BY THE CLEARING BROKER
A. Subject to the terms and conditions of this Agreement and to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Investment Advisers Act of 1940, as amended, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
Government Securities Act of 1986, as amended, or any rules or regulations
thereunder, and to any other applicable law, rule or regulation, federal, state
or local, including the rules of the Board of Governors of the Federal Reserve
System, and to any applicable constitution, by-law, rule, regulation, or stated
policy or practice of any securities exchange or nation or other regulatory or
self-regulatory body or agency (collectively, the "Laws and Regulations"), the
Clearing Broker will provide the following services to the Introducing Broker:
1. The Clearing Broker will provide trade clearance of executions
for such customers or proprietary accounts of the Introducing Broker as have
been accepted by the Clearing Broker, but only insofar as such executions are
transmitted by the Introducing Broker or its authorized agents to the Clearing
Broker. Authorized modes of transmission shall include electronic host-to-host,
facsimile, e-mail and authorized telephonic instructions, but only as such modes
of transmission are mutually agreed upon by Clearing Broker and Introducing
Broker with respect to particular Customers (as defined herein). These
accounts, including any syndicate account for any underwriting of which the
Introducing Broker is manager, are hereinafter referred to as the "Introduced
Accounts" and the beneficial owners thereof (except for Introduced Accounts that
are proprietary accounts of the Introducing Broker) are hereinafter referred to
as the "Customers."
2. The Clearing Broker will prepare and mail, telex or fax, as
requested, confirmations and notices, and will prepare and mail monthly
statements (or quarterly statements if no activity in any Introduced Account
occurs during any quarter covered by such statement) directly to every
Introduced Account on the Clearing Broker's forms for such purposes.
3. Unless otherwise agreed, the Clearing Broker will supply the
Introducing Broker on each business day with copies of Customer
confirmations, money lines, and daily commission detail reports and such
other reports that the Clearing Broker has been providing Introducing Broker
in the ordinary course of business. In addition to the foregoing, Clearing
Broker will provide Introducing Broker with and Reference Data (as defined
herein) which Clearing Broker has been providing Introducing Broker,
PROVIDED, HOWEVER, that Clearing Broker may cease providing the Reference
Data or make changes to the types of reference data it provides in the event
that
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Clearing Broker is not allowed by a third-party provider of information
to provide the information to a non-affiliate or changes the types of
reference data which it receives. For purposes of this Section, the term
"Reference Data" means the name and address of the Customer and Institution,
and security master data. Unless the Introducing Broker notifies the
Clearing Broker within a reasonable time (and for the purposes hereof, a
period of one (1) business day after receipt of such information shall be a
reasonable time) of mistakes or discrepancies in the above-described reports
and information, the Clearing Broker shall be entitled to consider all such
information supplied to the Introducing Broker to be correct.
4. The Clearing Broker will settle contracts and transactions in
securities (including options to buy or sell securities) (i) between the
Introducing Broker and other brokers and dealers, (ii) between the Introducing
Broker and the Introduced Accounts of Customers, and (iii) between the
Introducing Broker and persons other than Customers or other brokers and
dealers.
5. The Clearing Broker will collect and pay SEC fees on behalf of
the Introducing Broker.
6. The Clearing Broker will engage in all cashiering functions for
the Introduced Accounts, including the receipt, delivery, borrowing, lending and
transfer of securities, the making and receipt of payments therefor, the custody
and safeguarding of securities and payments so received, the handling of margin
accounts, the receipt and distribution of dividends and other distributions, the
processing of exchange offers, rights offerings, warrants, tender offers, and
redemptions, and such other functions as may be agreed upon by the parties;
provided, however, that if mutually agreed to by the Introducing Broker and the
Clearing Broker, cashiering functions with respect to receipt of cash and
securities may be performed directly by the Introducing Broker.
7. The Clearing Broker will establish and maintain all prescribed
books and records of transactions executed or cleared through it that are not
specifically assigned to the Introducing Broker pursuant to the terms of this
Agreement, including a stock record, and a daily record of required margin, or
by the constitution, by-laws, rules, regulations, or stated policies or
practices of the National Association of Securities Dealers, Inc. ("NASD") or
any other securities exchange of which the Clearing Broker is a member (the
"Standards").
B. The Clearing Broker shall not provide to the Introducing Broker any
services that are not specifically set forth in this Agreement, including, but
not limited to, the following:
1. Clearing, execution, accounting, bookkeeping or cashiering, or
any other services with respect to commodities transactions, including contracts
for future delivery of commodities and options on such contracts or on
commodities, or any other transactions not involving securities;
2. Preparation of the Introducing Broker's payroll records,
financial statements or any analysis or review thereof or any recommendations
relating thereto:
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3. Preparation or issuance of checks in payment of the Introducing
Broker's expenses, other than expenses incurred by the Clearing Broker on behalf
of the Introducing Broker pursuant to this Agreement;
4. Payment of commission, salaries, or other remuneration to the
Introducing Broker's employees;
5. Preparation and filing of reports with the Securities and
Exchange Commission (the "SEC"), any state securities commission, any National
Securities Exchange, or other securities exchange, the NASD or any other
securities association or other regulatory or self-regulatory body or agency
with which the Introducing Broker or any Introduced Account is associated or by
which it is regulated, including compliance with any applicable reporting,
disclosure or requirements of ERISA in respect of transactions for Introduced
Accounts; provided, however, that (a) the Clearing Broker shall at the request
of the Introducing Broker, promptly cooperate in providing the Introducing
Broker with any necessary information and data contained in records kept by the
Clearing Broker and not otherwise available to the Introducing Broker for use in
Introducing Broker's preparation of such reports, and (b) the Introducing Broker
shall be responsible for all costs incurred by the Clearing Broker in connection
with the preparation and provision of such information.
6. Making and maintaining reports and records required to be kept by
the Introducing Broker by the Currency and Foreign Transactions Reporting Act of
1970 and the regulations promulgated pursuant thereto, or any similar law or
regulations enacted or adopted hereafter;
7. Verification of the address changes of any Introduced Account;
8. Obtaining, verifying, and interpreting account information, and
insuring that such information meets the requirements of any "know your customer
rule" of the Rules, the Standards and any other Laws and Regulations;
9. Maintaining records of personal and financial information
concerning any Introduced Account and orders received therefor, and maintaining
all documents and agreements executed by any Introduced Account (other than
those ordinarily maintained by the Clearing Broker);
10. Holding for safekeeping the securities of any Introduced Account
registered in the name of the Customer;
11. Accepting deposits from the Introducing Broker in the form of
cash; or
12. Verification of changes in the identity or address of any person
holding any power of attorney over any Introduced Account.
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C. The Clearing Broker shall limit its services pursuant to the terms of
this Agreement to that of clearing functions and the related services expressly
set forth herein. Neither this Agreement nor any operation hereunder shall
create a general or limited partnership, association, joint venture, branch, or
agency relationship between the Introducing Broker and the Clearing Broker.
D. The Clearing Broker will not be bound to make any investigation into
the facts surrounding any transaction that it may have with the Introducing
Broker on a principal or agency basis or that the Introducing Broker may have
with its Customers or other persons, nor will the Clearing Broker be under any
responsibility for compliance by the Introducing Broker with any Rules,
Standards or laws and Regulations that may be applicable to the Introducing
Broker or any Introduced Account.
E. The Clearing Broker shall use reasonable efforts to implement a plan
of contingency recovery and testing by June 30, 2000.
II. CLEARING FEES, INTEREST CHARGES, AND COMMISSIONS
A. The Introducing Broker agrees to pay the Clearing Broker for its
services pursuant to this Agreement such amounts as are set forth in Schedule A.
Said compensation schedules may be changed from time to time as may be agreed to
in writing by the Introducing Broker and the Clearing Broker. The Clearing
Broker will remit to the Introducing Broker 88% of the Introducing Broker's
weekly gross commission revenue based on trade date sent on the second business
day of the following week. Within twelve (12) business days after the trade
month end, the Clearing Broker will remit to the Introducing Broker the net
trade month commission balance (gross commissions, less weekly remittances,
service and clearing amounts, and other charges, including amounts due the
Clearing Broker by the Introducing Broker arising from any losses, liabilities,
or damages in accordance with the terms of this Agreement). All remittances
shall be made by the Clearing Broker to the Introducing Broker by wire transfer
of immediately available funds.
In the event that the Introducing Broker defaults (as defined in Article X
below), the Clearing Broker shall have the right to offset any and all
liabilities, costs, or expenses due it from the Introducing Broker that remain
unpaid as of the date of such Event of Default against commission revenue due
the Introducing Broker, the Clearing Deposit, or any other assets of the
Introducing Broker then in the possession of the Clearing Broker.
B. In the event that the monthly compensation otherwise payable to the
Clearing Broker for its services hereunder is not greater than $10,000 in any
calendar month, the Clearing Broker may deduct from the commission revenue due
the Introducing Broker and/or from the Collateral Account, an amount equal to
the difference between (i) $10,000, and (ii) the amount of fees mutually agreed
upon by the Clearing Broker and the Introducing Broker.
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C. Interest income earned through charges on debit balances in any
Introduced Account shall be proprietary to and fully retained by the Clearing
Broker. Interest paid or credit given for any credit balances which from time
to time may be left on deposit with the Clearing Broker shall be at the
discretion of the Clearing Broker unless otherwise specified by Schedule A
attached hereto.
D. It is expressly understood and agreed that the Clearing Broker may not
and will not exercise any control whatsoever over or influence in any way, the
commissions, xxxx-ups, or other charges or expenses between the Introducing
Broker and the Introduced Accounts. The Clearing Broker shall charge each of
the Introduced Accounts such commissions, xxxx-ups, charges, and expenses as the
Introducing Broker directs, in writing; provided, however, that such
commissions, xxxx-ups, charges, and expenses shall be implemented (i) only to
the extent they are within the usual and normal capabilities of the Clearing
Broker's data processing and operations systems, and (ii) only after such
reasonable time as the Clearing Broker may deem necessary to avoid disruption of
its normal operating capabilities. Further, the Introducing Broker shall be
responsible for all costs, if any, associated with any modifications to the
Clearing Broker's systems and procedures which may be necessary to accommodate
the Introducing Broker.
III. PROCEDURES FOR INTRODUCED ACCOUNTS
A. At the time of the opening of each Introduced Account, the Introducing
Broker shall supply to the Clearing Broker a new account form on such forms as
the Clearing Broker will supply to the Introducing Broker (unless otherwise
mutually agreed by the parties) and shall supply any other additional
orsupplementary documentation or information that the Clearing Broker may in its
sole discretion request the Introducing Broker to obtain from the Customer,
including, but not limited to, a cash account agreement on a form approved by
the Clearing Broker ("Cash Account Agreement"), and all other documents that the
Clearing Broker initially supplied to the Customer. If applicable, the
Introducing Broker shall furnish the Clearing Broker with appropriate Alert
and/or SID references for the Customer and the Clearing Broker will update such
information when updates are received from Alert and/or SID. At the time of the
opening of Introduced Accounts that are margin accounts, the Introducing Broker
shall furnish the Clearing Broker with executed customer agreements,
hypothecation and rehypothecation agreements, and consents to loans of
securities on forms to be provided by the clearing broker (collectively, the
"Margin Agreement"). If any Introduced Account has been opened without the
Clearing Broker having previously received the foregoing information or
documents, failure of the Clearing Broker to receive such information or
documents shall not be deemed to be a waiver of the information or documentation
requirements set forth herein. With respect to each Introduced Account that is
a proprietary account, an executed Margin Agreement shall be furnished to the
Clearing Broker. In addition, the terms of such Cash Account Agreement or
Margin Agreement, as amended from time to time, are incorporated by reference
herein. Upon the request of the Clearing Broker, the Introducing Broker shall
furnish the Clearing Broker with any other additional or supplementary documents
and agreements executed by the Introduced Account on form supplied by the
Clearing Broker that the Clearing Broker may require in connection with the
opening, operating or maintaining of Introduced Accounts. The Clearing Broker
may, at its option, mail Cash Account Agreements, Margin Agreements or other
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documentation directly to the Introduced Accounts upon notification by the
Introducing Broker. The Introducing Broker shall promptly provide the Clearing
Broker with basic data and copies of documents relating to each of the
Introduced Accounts, including, but not limited to, copies of records of any
receipts of the Introduced Accounts' funds or securities received directly by
the Introducing Broker, as shall be necessary for the Clearing Broker to
discharge its service obligations hereunder. The Clearing Broker shall provide,
upon request, any documentation and agreements related to the opening and
maintenance of any Introduced Accounts.
B. If the documents necessary to comply with the account documentation
requirements of the Rules, Standards and Laws and Regulations have not been
received by the Clearing Broker after request has been made therefor, the
Clearing Broker shall give the Introducing Broker notification that no orders
will be accepted (other than liquidating orders) for the Introduced Account
involved. If orders are placed for such account after this notice is given, no
commission credit will be granted on such orders. On receipt of the necessary
documents, this restriction will be lifted with respect to future commissions,
but any commissions withheld will not be credited or paid. This Agreement is
not in any way intended to limit the responsibility of the Clearing Broker under
the Rules, Standards, Laws and Regulations with respect to Introduced Accounts.
Further, acceptance of an order after notification has been given shall not
constitute a waiver of the Clearing Broker's right to reject any trade.
C. All transactions in any Introduced Account are to be considered cash
transactions until such time as the Clearing Broker has received and accepted
Margin Agreements, duly and validly executed in respect of such Introduced
Account.
D. At the time of the opening of any agency Introduced Account, the
Introducing Broker shall furnish the Clearing Broker with the name of any
principal for whom the agent is acting and written evidence of the agent's
authority.
E. The Introducing Broker shall be solely and exclusively responsible for
approval of all accounts and transactions therein and all similar applicable
Rules, Standards, Laws and Regulations and shall specifically approve the
opening of any new account before forwarding such account to the Clearing Broker
as a potential Introduced Account.
F. The Clearing Broker reserves the right to reject any account that the
Introducing Broker may tender to the Clearing Broker as a potential Introduced
Account. The Clearing Broker also reserves the right to terminate any account
previously accepted by it as an Introduced Account.
G. The Introducing Broker shall be solely and exclusively responsible for
ensuring that its Customers shall not be minors or subject to those prohibitions
existing under the Rules, Standards, Laws and Regulations generally relating to
the incapacity of any Introduced Account or any conflict of interest relating to
such Introduced Account.
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H. With respect to Introduced Accounts that are margin accounts, the
Clearing Broker is responsible for compliance with Regulation T, 12 C.F.R. Part
220, promulgated by the Board of Governors of the Federal Reserve System (the
"Board"), and any interpretive ruling issued by the Board, and the letter
rulings of the Federal Reserve Bank of New York, Rules and interpretations of
the NASD and any other applicable margin and margin maintenance requirements of
the Rules, Standards, Laws and Regulations. The Introducing Broker is
responsible to the Clearing Broker for the collection of the margin required to
support each transaction for, and to maintain margin in, each Introduced
Account, in conformity with the above margin and margin maintenance
requirements. After such initial margin on each transaction has been received,
maintenance margin calls shall be generated by the Clearing Broker and made by
the Clearing Broker or by the Introducing Broker at the instructions of the
Clearing Broker. The Clearing Broker shall have the absolute right to modify,
in its sole discretion, the margin requirements for any Introduced Account or
any security position from time to time so that the Clearing Broker may call for
additional margin and shall have sole discretion as to the amount of margin to
be required of and maintained by Introduced Accounts.
I. The Introducing Broker shall be solely and exclusively responsible for
the payment and delivery of all "when issued" or "when distributed" transactions
that the Clearing Broker may accept, forward, or execute for Introduced
Accounts.
J. The Introducing Broker agrees that all Customers of the Introducing
Broker who engage in DVP transactions (and their agents) will utilize the
facilities of a securities depository for the confirmation, acknowledgment, and
book entry settlement of all depository eligible transactions, subject to the
exceptions to Rules or Standards pertaining to "COD" or "DVP" transactions.
K. To facilitate the keeping of records by the Clearing Broker, the
Introducing Broker shall turn over promptly to the Clearing Broker any and all
payments and securities that the Introducing Broker receives from Customers.
Concurrently with the delivery of such payments or securities to the Introducing
Broker, it shall furnish the Clearing Broker with such information as may be
relevant or necessary to enable the Clearing Broker to record promptly and
properly such payments and securities in the respective Introduced Accounts.
L. On all Over-the-Counter transactions for Introduced Accounts, the
Introducing Broker shall furnish the Clearing Broker with the names of the
respective purchasing and selling broker-dealers (except as otherwise
provided below), the names of the purchasing and selling Customers, and the
wholesale and retail purchase and sale prices. When the selection of the
contra broker in an Over-the-Counter transaction is left to the Clearing
Broker's discretion, the Clearing Broker will assume responsibility for any
failure to pay by the contra broker. When the Introducing Broker executes
its own Over-the-Counter order or designates the contra broker, in the event
that the Over-the-Counter contra broker fails to perform its part of the
transaction, the Introducing Broker will reimburse the Clearing Broker for
any loss sustained thereby. The Clearing Broker reserves the right at any
time to limit the size of transactions that the Clearing Broker will accept
for clearance in these circumstances. The Clearing Broker will give the
Introducing Broker reasonable notice (i.e., at least 10 days' notice in most
circumstances, 30 days' notice for Credit Committee limitations and
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whatever notice is possible in the event of regulatory or self-regulatory
limitations) of such limitations. If, after the Introducing Broker has
received notice of such limitation (whether notice was reasonable or not),
the Introducing Broker executes an order in excess of the limit established
by the Clearing Broker, the Clearing Broker shall have the right to notify
the other party and other dealer that it will not accept the transaction for
clearance and settlement.
M. The Introducing Broker shall be solely and exclusively responsible for
approving all orders for the Introduced Accounts and for establishing procedures
to ensure that such approved orders are transmitted properly to the Clearing
Broker for execution. The Clearing Broker reserves the right to reject any
order that the Introducing Broker may transmit to the Clearing Broker for
execution or clearance.
N. The Introducing Broker shall be solely and exclusively responsible for
the supervisory review of all orders for the Introduced Accounts and shall
ensure that any orders and instructions given by it or any of its employees to
the Clearing Broker pursuant to the terms of this Agreement shall have been
properly authorized in advance.
O. The Introducing Broker shall be solely and exclusively responsible for
making every reasonable effort to ascertain the essential facts relative to any
Introduced Account and any order therefor, in compliance with "know your
customer" provisions of the Rules or the Standards, including but not otherwise
limited to ascertaining the authority of all orders for Introduced Accounts, and
the genuineness of all certificates, papers, and signatures provided by each
Introduced Account. Any investment advice furnished to an Introduced Account
shall be the sole and exclusive responsibility of the Introducing Broker.
P. The Introducing Broker shall be solely and exclusively responsible for
review of all Introduced Accounts and for compliance with any supervisory
responsibility with respect to the accounts introduced under this Agreement,
including but not otherwise limited to matters involving the investment
objectives of the Introduced Accounts, the suitability of the investments made
by the Introduced Accounts, the reasonable basis for recommendations made to
Introduced Accounts, and the frequency of trading in the Introduced Accounts,
whether or not such transactions are instituted by the Introducing Broker, its
partners, officers, employees or any registered investment adviser.
Q. The Introducing Broker shall be solely and exclusively responsible for
the handling and supervisory review of any Introduced Accounts over which the
Introducing Broker's partners, officers or employees have discretionary
authority, and any interpretations thereof and any other applicable Rules,
Standards, Laws and Regulations. The Introducing Broker shall furnish the
Clearing Broker with such documentation with respect thereto as may be requested
by the Clearing Broker. The Introducing Broker hereby warrants that with regard
to any orders or instructions given by the Introducing Broker with respect to
such discretionary accounts, its partners, officers or employees shall have been
fully and properly authorized relative thereto and that the execution of such
orders shall not be in violation of the Rules, Standards, Laws and Regulations.
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R. The Introducing Broker shall be solely and exclusively responsible for
the handling and supervisory review of any Introduced Account for an employee or
officer of any member organization, self-regulatory organization, bank, trust
company, insurance company, or other organization engaged in the securities
business, and any other applicable Rules, Standards, Laws and Regulations. The
Introducing Broker shall furnish the Clearing Broker with such documentation
with respect thereto as may be requested by the Clearing Broker.
S. The Introducing Broker shall be solely and exclusively responsible for
ensuring that it is authorized to do business in any jurisdiction in which any
Introduced Account resides or is domiciled.
T. The Introducing Broker shall be solely and exclusively responsible for
compliance with any and all disclosure documents and prospectus delivery
requirements in connection with Introduced Accounts that are option accounts and
with any principal training or registration requirements relating to options
trading in Introduced Accounts.
U. The Introducing Broker and the Clearing Broker shall each be
responsible for the respective compliance of each with any supervisory
procedures under Rule 3010 of the NASD Manual, Conduct Rules and, to the extent
applicable, any other related provisions of the Rules, Standards, Laws and
Regulations including but not otherwise limited to supervising the activities
and training of their respective registered representatives, as well as all of
their other respective employees in the performance of functions specifically
allocated to them pursuant to the terms of this Agreement.
V. The Introducing Broker shall be solely and exclusively responsible for
sales and purchases for the Introduced Accounts that may create or result in a
violation of any of the Rules, Standards, Laws and Regulations.
W. The Introducing Broker shall be solely and exclusively responsible for
compliance with the Rules, Standards, Laws and Regulations in the same manner
and to the same degree as if the Introducing Broker were performing the services
for the Introduced Accounts that have been assumed by the Clearing Broker
pursuant to this Agreement.
X. The Introducing Broker shall be solely and exclusively responsible for
compliance with any Rules, Standards, Laws and Regulations concerning transfers
of restricted or control securities in Introduced Accounts. Securities
delivered to the Clearing Broker on behalf of an Introduced Account for delivery
in respect of a sale shall not be in legended form.
Y. The Introducing Broker shall be solely and exclusively responsible for
compliance with Rule 10b-16 under the 1934 Act; provided, however, that any
document provided to Customers in connection therewith shall be approved in
writing by the Clearing Broker in advance.
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Z. In connection with all transactions for Introduced Accounts, the
Introducing Broker shall be solely responsible for compliance with all rules
relating to the Small Order Execution System ("SOES") of the NASD including,
without limitation, prohibitions on proprietary trading and volume restrictions.
AA. All transactions heretofore had between the Introducing Broker and the
Clearing Broker with respect to orders given by or for the Introduced Accounts
and cleared through the Clearing Broker shall be subject to the provisions of
this Agreement.
BB. For purposes of the Securities and Exchange Commission's financial
responsibility rules and the Securities Investor Protection Act, Introducing
Broker's customers will be considered customers of Clearing Broker and not
customers of Introducing Broker. Nothing herein shall cause Introducing
Broker's customers to be construed or interpreted as customers of Clearing
Broker for any other purpose, or to negate the intent of any other section of
the Fully Disclosed Clearing Agreement, including, but not limited to, the
delineation of responsibilities as set forth elsewhere in the Fully Disclosed
Clearing Agreement.
IV. INFORMATION TO BE PROVIDED BY THE INTRODUCING BROKER
A. The Introducing Broker shall provide the Clearing Broker with copies
of the Introducing Broker's annual audited financial statements as well as
copies of all financial information and reports filed by the Introducing Broker
with the NASD, the SEC, and any other National Securities Exchange (where a
member) (including but not otherwise limited to monthly and quarterly Financial
and Operational Combined Uniform Single Reports, i.e., "FOCUS" Reports)
simultaneously with the filing therewith.
B. The Introducing Broker shall submit to the Clearing Broker on a
monthly basis, or at more frequent intervals if so requested by the Clearing
Broker, information and reports relating to the Introducing Broker's financial
integrity, including but not otherwise limited to information regarding the
Introducing Broker's aggregate indebtedness ratio and net capital.
C. The Introducing Broker shall provide the Clearing Broker with all
appropriate data in its possession pertinent to the proper performance and
supervision of any function or responsibility specifically allocated to the
Clearing Broker pursuant to the terms of this Agreement.
D. The Introducing Broker shall provide the Clearing Broker with any
amendment or supplement to the Form BD of the Introducing Broker.
E. Upon the execution of this Agreement, the Introducing Broker shall
provide to the Clearing Broker a written list of all securities with respect to
which the Introducing Broker is a market-maker. The Introducing Broker shall
give the Clearing Broker prior written notice of any proposed changes in its
market-making activities, including changes in the identity of the securities
for which it makes a market. The Introducing Broker shall provide the Clearing
Broker on a timely
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basis with information sufficient to ensure that any confirmation sent to
Customers by the Clearing Broker on the Introducing Broker's behalf contain
correct information on the Introducing Brokers' role in the transaction. The
Clearing Broker shall have the right to limit or prohibit the Introducing
Broker's market-making activities with respect to any security.
V. INFORMATION TO BE PROVIDED BY THE CLEARING BROKER
A. The Clearing Broker shall provide the Introducing Broker with all
appropriate data in its possession pertinent to the proper performance and
supervision of any function specifically allocated to the Introducing Broker
pursuant to the terms of this Agreement. The Introducing Broker shall be
responsible for all costs incurred by the Clearing Broker in connection with the
preparation and provision of such information.
B. The Clearing Broker shall provide the Introducing Broker with copies
of the Clearing Broker's annual audited financial statements as well as copies
of all financial information and reports filed by the Clearing Broker with the
NASD, the SEC, and any other National Securities Exchange (where a member)
(including but not otherwise limited to monthly and quarterly Financial and
Operational Combined Uniform Single Reports, i.e., "FOCUS" Reports)
simultaneously with the filing therewith.
VI. COMMUNICATIONS WITH CUSTOMERS AND OTHERS
A. Any new Customers of the Introducing Broker shall be provided by the
Clearing Broker with a Welcome Letter, notifying the new Customer as to the
general nature of the services to be provided by the Clearing Broker pursuant to
this Agreement, the respective obligations of the parties hereto, and any other
Customer-related responsibilities of the parties to this Agreement prior to such
Customers becoming Introduced Accounts.
B. The Customers shall be informed pursuant to such Welcome Letter that
all inquiries and correspondence should be directed to the Introducing Broker.
In the event such correspondence is not directed to the party who is responsible
under the terms of this Agreement for the area to which the correspondence
relates, the Introducing Broker or the Clearing Broker shall expeditiously
forward such correspondence to the appropriate party which shall respond to it.
C. The Clearing Broker shall carry all Introduced Accounts in the name of
the Customer, with a notation on its books and records that such Introduced
Accounts were introduced by the Introducing Broker, and all monthly or quarterly
statements, confirmations, and notices of funds or securities due relating to
such Introduced Accounts shall also indicate that the Introduced Accounts were
introduced by the Introducing Broker, that the role of the Clearing Broker is
that of a clearing broker only, and that the Introducing Broker will continue as
broker for the Introduced Accounts. Inadvertent omission of such notations
shall not be deemed to constitute a breach of this Agreement. Copies of the
forms covering all of the foregoing shall be furnished by the Clearing Broker to
the Introducing Broker.
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D. The Introducing Broker shall not, without the prior written approval
of the Clearing Broker, place any advertisement in any newspaper, publication,
periodical or any other media or communicate with any customer or the public in
any manner whatsoever if such advertisement or communication in any manner makes
reference to the Clearing Broker or any affiliate of the Clearing Broker or to
the clearing arrangements and the services embodied in this Agreement. This
paragraph does not limit the Introducing Broker from informing prospective
clients or Customers that it has a clearing arrangement with the Clearing
Broker; provided, however, that such information was specifically requested by
the prospective client or Customer.
E. Should the Introducing Broker in any way hold itself out as, advertise
or represent that it is the agent of, affiliated with, or a branch of the
Clearing Broker, the Clearing Broker shall have the power, at its option, to
terminate this Agreement and the Introducing Broker shall be liable for any
loss, liability, damage, cost or expense (including but not otherwise limited to
fees and expenses of legal counsel) sustained or incurred by the Clearing Broker
as a result of such advertisement or representation. Notwithstanding the
provisions of paragraph C of Article X below that any dispute or controversy
between the parties relating to or arising out of this Agreement shall be
referred to and settled by arbitration, in connection with any breach by the
Introducing Broker of this paragraph, the Clearing Broker may, at any time prior
to the initial arbitration hearing pertaining to such dispute or controversy, by
application to the United States District Court for the Southern District of New
York or the Supreme Court of the State of New York for the County of New York
seek any such temporary or provisional relief or remedy ("provisional remedy")
provided for by the laws of the United States of America or the laws of the
State of New York as would be available in an action based upon such dispute or
controversy in the absence of an agreement to arbitrate. The parties
acknowledge and agree that it is their intention to have any such application
for a provisional remedy decided by the court to which it is made and that such
application shall not be referred to or settled by arbitration. No such
application to either said court for a provisional remedy, nor any act or
conduct by either party in furtherance of or in opposition to such application,
shall constitute a relinquishment or waiver of any right to have the underlying
dispute or controversy with respect to which such application is made settled by
arbitration in accordance with paragraph C of Article XI below.
VII. ERRORS, CONTROVERSIES AND INDEMNITIES
A. The Clearing Broker hereby agrees to indemnify, defend and hold
harmless the Introducing Broker and each person, if any, who controls the
Introducing Broker within the meaning of Section 20 of the 1934 Act, from and
against any and all losses, claims, damages, liabilities and expenses, including
attorneys' fees and costs, arising out of the bad faith, gross negligence or
criminal acts or omissions on the part of any of the Clearing Broker's
directors, officers, or employees with respect to the services provided by the
Clearing Broker under this Agreement.
B. The Introducing Broker hereby agrees to indemnify, defend and hold
harmless the Clearing Broker and each person, if any, who controls the Clearing
Broker within the meaning of
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Section 20 of the 1934 Act from and against any and all losses, claims,
damages, liabilities and expenses, including attorneys' fees and costs,
arising out of one or more of the following:
1. Failure of any Introduced Account to make timely payment for the
securities purchased by it or timely and good delivery of securities sold for
it, the existence in any Introduced Account of any unsecured debit or unsecured
short position, or the failure of any Introduced Account timely to comply with
margin or margin maintenance calls (if such calls are timely made by the
Clearing Broker), whether or not any margin extensions have been granted by the
Clearing Broker and whether or not such extensions have been requested by the
Introducing Broker;
2. Any check or draft given to the Clearing Broker by any Introduced
Account being returned to the Clearing Broker unpaid or any delivery versus
payment or receipt versus payment transaction being rejected by any Customer (or
its agent);
3. Failure of the Introducing Broker to properly perform its duties,
obligations and responsibilities as set forth in this Agreement; provided,
however, that the participation of any employee of the Clearing Broker in any
transactions referred to herein shall not affect the Introducing Broker's
Indemnification obligations hereunder unless such participation by such employee
of the Clearing Broker was in bad faith or grossly negligent;
4. Any dishonest, fraudulent, negligent or criminal act or omission
on the part of any of the Introducing Broker's officers, partners, employees,
registered representatives, agents or Customers;
5. All claims or disputes between the Introducing Broker and its
customers with respect to the matters set forth in this Agreement, it being
understood and agreed: (A) that the Introducing Broker guarantees the validity
of Customer orders in the form such orders are transmitted to the Clearing
Broker by the Introducing Broker and guarantees to the Clearing Broker that each
Customer will promptly and fully perform its commitments and obligations with
respect to all transactions in its accounts carried by the Clearing Broker and
(B) that checks received by the Clearing Broker from the Introducing Broker's
Customers shall not constitute payment until the proceeds have actually been
received and credited to the Clearing Broker by its bank;
6. Any adverse claims with respect to any Customer securities
delivered to or cleared by the Clearing Broker, it being understood and agreed
that the clearing Broker shall be deemed to be an intermediary between the
Introducing Broker and its Customers, and the Clearing Broker shall be deemed to
make no representations or warranties other than as provided in Section 8-306(3)
of the Uniform Commercial Code;
7. The default by any over-the-counter contra broker with whom the
Introducing Broker deals on a principal basis, giving the Clearing Broker for
clearance;
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8. The default by any third-party contra broker with whom the
Introducing Broker rather than the Clearing Broker executes a transaction for
itself or a Customer;
9. A claim by any third-party or contra broker arising out of the
Clearing Broker's rejection of any transaction pursuant to Article III of this
Agreement;
10. The breach by the Introducing Broker of any representation or
warranty made by it under this Agreement;
11. The Clearing Broker's guarantee of any signatures with respect to
transactions in the accounts of any customers; and
12. The failure of any Customers to fulfill their obligations to the
Introducing Broker or to the Clearing Broker, whether or not such failure is
within the Introducing Broker's control.
C. In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Article VII, such person (hereinafter called the
indemnified party) shall promptly notify the person against whom such indemnity
may be sought (hereinafter called the indemnifying party) in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
satisfactory to the indemnified party to represent the indemnified party. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for all such indemnified parties, and that all such fees and
expenses shall be reimbursed as they are incurred. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated in this Section, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (1) such settlement is
entered into more than thirty (30) days after receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which an indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
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D. The indemnification provisions in this Article VII, and the
indemnification provisions embodied within Article III hereof, shall remain
operative and in full force and effect, regardless of the termination of this
Agreement, and shall survive any such termination.
E. In no event shall the Clearing Broker be responsible to the
Introducing Broker, to any of its Customers or to any other person for indirect
or consequential damages arising out of any actual or alleged failure by the
Clearing Broker to perform the functions or provide the services to the
Introducing Broker required by this Agreement, even if notified of the
possibility thereof. The Clearing Broker's sole responsibility and liability
for any such actual or alleged failure will be to the Introducing Broker and
only to the extent expressly provided by this Agreement.
VIII. ADDITIONAL REPRESENTATIONS AND WARRANTIES
A. The Introducing Broker represents, warrants, and covenants as follows:
1. The Introducing Broker shall (a) maintain at all times a net
capital computed in accordance with Rule 15c3-1 of the 1934 Act of at least
$100,000 except during periods when it is in an underwriting syndicate, when it
shall have not less than $1,000,000 of net capital and (b) immediately notify
the Clearing Broker when (i) its net capital is less than the amount set forth
in (a) above, (ii) its Aggregate Indebtedness Ratio reaches or exceeds 10 to 1,
or (iii) if the Introducing Broker has elected to operate under paragraph (f) of
Rule 15c3-1, when its net capital is less than 5% of aggregate debit items
computed in accordance with Rule 15c3-3.
2. The Introducing Broker is a member in good standing of the NASD.
The Introducing Broker agrees to promptly notify the Clearing Broker of any
additional exchange memberships or affiliations. The Introducing Broker shall
also comply with whatever non-member access rules have been promulgated by any
National Securities Exchange or any other securities exchange of which it is not
a member.
3. The Introducing Broker is and during the term of this Agreement
will remain duly registered or licensed and in good standing as a broker-dealer
under all applicable laws and Regulations.
4. The Introducing Broker has all the requisite authority in
conformity with all applicable Rules to enter into this Agreement and to retain
the services of the Clearing Broker in accordance with the terms hereof and has
taken all necessary action to authorize the execution of this Agreement and the
performance of the obligations hereunder.
5. The Introducing Broker is in compliance, and during the term of
this Agreement will remain in compliance with (i) the capital and financial
reporting requirements of every National Securities Exchange or other securities
exchange and/or securities association of which it is a member, (ii) the capital
requirements of the SEC, and (iii) the capital requirements of every state in
which it is licensed as a broker-dealer.
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6. The Introducing Broker shall keep confidential any confidential
information the Introducing Broker may acquire as a result of this Agreement
regarding the business and affairs of the Clearing Broker, which requirement
shall survive the life of this Agreement.
7. The Introducing Broker warrants and represents that all
transactions introduced to the Clearing Broker on behalf of an Introduced
Account are authorized by the Introduced Account.
8. All orders or transactions for Introduced Accounts shall comply
in all respects with the Laws, Regulations, Rules and Standards.
9. The Introducing Broker shall not generate and/or prepare any
statements, bills, or confirmations respecting any Introduced Account unless
expressly authorized to do so in writing by the Clearing Broker.
10. The Introducing Broker shall maintain a $250,000 blanket brokers
bond insurance policy covering any and all acts of its employees, agents, and
partners to protect and indemnify the Clearing Broker against any loss,
liability, damage, cost or expense (including but not otherwise limited to fees
and expenses of legal counsel) that the Clearing Broker may suffer or incur,
directly or indirectly, as a result of any act of the Introducing Broker's
employees, agents, or partners.
11. The Introducing Broker agrees that the Clearing Broker shall be
its only clearing agent and that all transactions, in any customer or
proprietary account serviced by the Introducing Broker, shall be cleared
exclusively through the Clearing Broker.
B. The Clearing Broker represents, warrants, and covenants as follows:
1. The Clearing Broker is a member in good standing of the NASD.
2. The Clearing Broker is and during the term of this Agreement will
remain duly licensed and in good standing as a broker-dealer under all
applicable laws and Regulations.
3. The Clearing Broker has all the requisite authority, in
conformity with all applicable Rules, Standards, Laws and Regulations to enter
into and perform this Agreement and has taken all necessary action to authorize
the execution of this Agreement and the performance of the obligations
hereunder.
4. The Clearing Broker is in compliance, and during the term of this
Agreement will remain in compliance with (i) the capital and financial report
reporting requirements of every National Securities Exchange and/or other
securities exchange or association of which it is a member, (ii) the capital
requirements of the SEC, and (iii) the capital requirements of every state in
which it is licensed as a broker-dealer.
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5. The Clearing Broker represents and warrants that the names and
addresses of the customers of the Introducing Broker that have or may come to
its attention in connection with the clearing and related functions it has
assumed under this Agreement are confidential and shall not be utilized by the
Clearing Broker except in connection with the functions performed by the
Clearing Broker pursuant to this Agreement. Notwithstanding the foregoing,
should an Introduced Account request, on an unsolicited basis, that the Clearing
Broker become its broker, acceptance of such Introduced Account by the Clearing
Broker shall in no way violate this representation and warranty, nor result in a
breach of this Agreement.
6. The Clearing Broker shall keep confidential any confidential
information it may acquire as a result of this Agreement regarding business and
affairs of the Introducing Broker, which requirement shall survive the life of
this Agreement.
IX. TERM
Subject to the provisions of Article X hereof, the term of this Agreement
shall be a period of eighteen months from the date hereof, and shall renew
automatically for successive one (1) year terms unless terminated in accordance
with Article X hereof.
X. TERMINATION
A. Notwithstanding any provision of this Agreement, the following events
or occurrences shall constitute an Event of Default under this Agreement:
1. Either party hereto shall fail to perform or observe any term,
covenant, or condition to be performed hereunder (including, but not limited to,
any representation, warranty, or covenant relating to net capital requirements)
and such failure shall continue to be unremedied for a period of ten (10) days
after receipt of written notice from the nondefaulting party to the defaulting
party specifying the failure and demanding that the same be remedied; or
2. Any representation or warranty made by either party hereto shall
prove to be incorrect at any time in any material respect; or
3. A receiver, liquidator, or trustee of either party hereto or of
any property held by either party, is appointed by court order and such order
remains in effect for more than 30 days; or either party is adjudicated bankrupt
or insolvent; or a substantial amount of property of either party is sequestered
by court order and such order remains in effect for more than 30 days; or a
petition is filed against either party under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect, and is not dismissed
within 30 days after such filings; or
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4. Either party hereto files a petition in voluntary bankruptcy or
seeks relief under any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents to the filing of
any petition against it under any such law; or
5. Either party hereto makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts generally as they
become due, or consents to the appointment of a receiver, trustee or liquidator
of either party, or of any property held by either party; or
6. Either party hereto is enjoined, disabled, suspended, prohibited,
or otherwise unable to engage in the securities business as a result of any
administrative or judicial proceeding or action by the SEC, any state securities
law administrator, any National Securities Exchange, or any self-regulatory
organization having jurisdiction over that party.
B. Upon the occurrence of any such Event of Default, the nondefaulting
party may, at its option, by notice to the defaulting party declare that this
Agreement shall be thereby terminated and such termination shall be effective as
of the date such notice has been communicated to the defaulting party, If the
Introducing Broker defaults, the Clearing Broker shall have sole discretion to
determine what orders, if any, it shall accept for any Introduced Account, and
shall in addition to all rights it has under this Agreement, have all rights
granted to it under the Cash Account Agreement and Margin Agreement incorporated
by reference herein. In such event, the Clearing Broker shall be entitled, upon
the consent of the Customer, to accept instructions directly from the Customer.
C. This Agreement may be canceled by either of the parties hereto upon
180 days' written notice to the other, provided, however, that the first date
such written notice may be given is January 1, 2000.
D. This Agreement shall terminate automatically on the effective date of
termination of the Execution Agreement between the Introducing Broker and W & D,
Inc. without any further action by either party hereto.
E. Upon any termination of this Agreement for any reason whatsoever, the
Supplemental Account Agreement between the Clearing Broker and the Introducing
Broker relating to the Introducing Broker's use of Optimark services shall
terminate automatically without any further action by either party hereto.
XI. MISCELLANEOUS
A. This Agreement supersedes any previous agreement and may be modified
only by a writing signed by both parties to this Agreement. Such modification
shall not be deemed to be a cancellation of this Agreement.
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B. This Agreement shall be submitted to and/or approved by any National
Securities Exchange, or other regulatory and self-regulatory bodies vested with
the authority to review and/or approve this Agreement or any amendment or
modifications hereof. In the event of any such disapproval, the parties hereto
agree to bargain in good faith to achieve the requisite approval.
C. Any dispute or controversy between the Introducing Broker and the
Clearing Broker relating to or arising out of their relationship or this
Agreement shall be settled by arbitration before and under the Code of
Arbitration Procedures of the NASD, unless the transaction which gave rise to
such dispute or controversy was effected in another exchange or market which
provides arbitration facilities, in which case it shall be settled by
arbitration under such facilities.
D. This Agreement shall be binding upon all successors, assigns or
transferees of both parties hereto, irrespective of any change with regard to
the name of or the personnel of the Introducing Broker or the Clearing Broker.
Any assignment of this Agreement shall be subject to the requisite review and/or
approval of any regulatory or self-regulatory agency or body whose review and/or
approval must be obtained prior to the effectiveness and validity of such
assignment. No assignment of this Agreement by the Introducing Broker shall be
valid unless the Clearing Broker consents to such an assignment in writing. Any
assignment by the Clearing Broker to any subsidiary that it may create or
acquire or controlled directly or indirectly by the Clearing Broker will be
deemed valid and enforceable in the absence of any consent from the Introducing
Broker. Neither this Agreement nor any operation hereunder is intended to be,
shall not be deemed to be, and shall not be treated as a general or limited
partnership, association or joint venture or agency relationship between the
Introducing Broker and the Clearing Broker.
E. The construction and effect of every provision of this Agreement, the
rights of the parties hereunder and any questions arising out of the Agreement,
shall be subject to the statutory and common law of the State of New York
without reference to the conflict of law provisions thereof.
F. The headings preceding the text, articles, and sections hereof have
been inserted for convenience and reference only and shall not be construed to
affect the meaning, construction, or effect of this Agreement.
G. This Agreement shall cover only the types of services set forth herein
and is in no way intended nor shall it be construed to bestow upon the
Introducing Broker any special treatment regarding any other arrangements,
agreements or understandings that presently exist or which may hereafter exist
between the Introducing Broker and the Clearing Broker and any affiliate or the
Clearing Broker. The Introducing Broker shall be under no obligation whatsoever
to deal with the Clearing Broker or any of its subsidiaries or any companies
controlled directly or indirectly by or affiliated with the Clearing Broker, in
any capacity other than as set forth in this Agreement. Similarly, the Clearing
Broker shall be under no obligation whatsoever to deal with the Introducing
Broker or any of its affiliates in any capacity other than as set forth in this
Agreement.
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H. If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory agency
or body, such invalidity or unenforceability shall attach only to such provision
or condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this Agreement shall be carried out as if any such
invalid or unenforceable provision or condition were not contained herein.
I. The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party to this Agreement to
exercise any right, 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 or to limit the
exercise 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.
J. All notices, consents, directions, approvals, restrictions, requests,
or other communications required or permitted to be delivered hereunder shall be
given to the parties hereto, effective upon delivery, as follows:
If to the Clearing Broker: Xxxxxxxxx & Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
If to the Introducing Broker: ITG Inc.
000 Xxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Either party may change its address for notice purposes by giving written notice
pursuant to registered mail of the new address to the other party. Termination
shall not affect any of the rights and liabilities of the parties hereof
incurred before the date of receipt of such notice of termination.
K. The Clearing Broker shall not be liable for any loss caused, directly
or indirectly, by government restrictions, exchange or market rulings,
suspension of trading, war, strikes or other conditions beyond the control of
the Clearing Broker. In the event that any communications network, data
processing system, or computer system used by the Clearing Broker or by the
Introducing Broker, whether or not owned by the Clearing Broker, is rendered
inoperable, the Clearing Broker shall not be liable to the Introducing Broker
for any loss, liability, claim, damage or expense resulting, either directly or
indirectly, therefrom.
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L. The Clearing Broker shall have the right to investigate, or arrange
for an appropriate party to investigate, the Introducing Broker's credit.
Nothing in this paragraph shall be construed to relieve the Introducing Broker
of its obligation to oversee its financial integrity.
M. Without the prior written consent of the Clearing Broker, the
Introducing Broker will not during the period of this Agreement and for one year
following its termination, hire or attempt to hire any person who is employed by
the Clearing Broker or whose employment with the Clearing Broker terminated
within the one-year period prior to the termination of this Agreement.
Made and executed at New York, New York, on the date first hereinabove set
forth.
ITG INC. XXXXXXXXX & COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxxx, Xx. By: /s/ Xxxxxxxx X. Xxxxxxx
---------------------------- ----------------------------
Xxxxxxx X. Xxxxxxx, Xx. Xxxxxxxx X. Xxxxxxx
President Executive Vice President
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