Most broker-dealers rely on another member firm to provide clearing, custody, and execution services. Where needed, a carrying firm may provide prime brokerage, exception reports, stock lending and borrowing, financing margin, risk monitoring, direct market access (DMA), and much more. In short, an introducing firm outsources many important jobs. By allowing other firms to perform these critical functions, a fully disclosed introducing firm can focus on its core activities while its clearing firm may look to providing its clients with good service, economies of scale, and expertise in technology.
All carrying agreements between an introducing firm and its carrying agent must, at a minimum, specify the responsibilities of each party with respect to:
- Opening and approving accounts.
- Acceptance of orders.
- Transmission of orders for execution.
- Execution of orders.
- Extension of credit.
- Receipt and delivery of funds and securities.
- Preparation and transmission of confirmations.
- Maintenance of books and records.
- Monitoring of accounts.
Give Up Carrying Arrangement
A give up carrying arrangement is an agreement that allows the introducing firm to entering orders through firms other than the carrying broker, aka execute away. When executing away, the introducing firm gives up the name of its carrying broker to each firm with which it enters orders. This alerts these firms that payment for purchases and delivery of securities sold will be handled by the carrying broker, not the introducing firm.
The agreement must require the carrying broker to immediately forward all customer complaints concerning the introducing firm to both the introducing firm and FINRA. The carrying firm must notify the customer that the complaint was received and forwarded.
Exception Reports
Carrying firms, when they enter into carrying agreements, must immediately, and annually thereafter by July 1 of each year, provide the introducing firm with a list of exception reports available to assist the introducing firm in supervising its business. The list of available exception reports must be given to the introducing firm’s chief executive officer and its compliance officers as well as to FINRA.
Check out FINRA Rule 4311 for more information
MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting for your firm’s compliance responsibilities. If there are any areas where you would like to explore additional assistance or services, please contact us.