A 5865 - July 28, 2004

A#	5865
P&S #:	5435
DATE:	July 28, 2004
TO:	ALL PARTICIPANTS
ATTENTION:	MANAGING PARTNER/OFFICER; OPERATIONS PARTNER/OFFICER; CHIEF FINANCIAL OFFICER; COMPLIANCE OFFICER
FROM:	OFFICE OF CORPORATE AND REGULATORY COMPLIANCE
SUBJECT:	Participant Financial Responsibility and Operational Capability Notification Requirements

Pursuant to the Rules & Procedures of National Securities Clearing Corporation (“NSCC”), participants must demonstrate to NSCC adequate financial and operational capability to meet all of their anticipated obligations to the Corporation. Rule 15 (Financial Responsibility and Operational Capability) requires that participants furnish to the Corporation such adequate assurances of their financial responsibility and operational capability, as the Corporation may at any time deem necessary.

The purpose of this notice is to remind participants of their responsibilities under NSCC’s Rules & Procedures (the “Rules”) to furnish NSCC with required information. .

Addendum T (Interpretation of the Board of Directors – Continuing Responsibility of the Corporation) provides that participants have an affirmative duty to notify NSCC on an ongoing basis, of certain internal conditions that may cause NSCC to reevaluate the participant’s continued use of NSCC’s services. Accordingly, participants are required to timely notify the Corporation of events, which may impact a Member’s financial and operational capability and warrant reconsideration pursuant to Addendum T. Such events include, but are not limited to:

Material change in ownership, control or management,
Material change in business lines, including but not limited to, new business lines undertaken, (this includes, but is not limited to, commencement of clearing for other broker/dealers),
Participation as a defendant in litigation, which could reasonably have a direct negative impact on the Member’s business,
Failure to meet the current participant entrance standards (including but not limited to, having a decrease in capital to a level below minimum financial requirements for membership in the Corporation, and/or a decrease in capital to a level below minimum regulatory requirements)

In addition, each Member is required to provide the Corporation with annual audited financial statements, in a timely manner¹, in compliance with the Rules. Participants should refer to Rule 15 for additional information that must be furnished to the Corporation.

Most participants comply with these requirements. However, for those who are not in compliance, certain disciplinary sanctions may be imposed including, but not limited to, fines.

Questions regarding fines imposed by the Corporation should be addressed to Nancy Leo, General Counsel’s Office at (212) 855-5083.

Questions regarding the financial and operational information participants are required to provide under NSCC’s Rules should be addressed to Marie Rey, Vice President, Risk Management at (212) 855-5790.

Nancy J. Leo
Chief Officer
Office of Corporate and Regulatory Compliance
General Counsel’s Office

1 All broker/dealer participants to provide copies to NSCC of their most recent audited financial statements within 60 days after their fiscal year end, and all non-broker/dealer participants to provide copies to NSCC of their most recent audited financial statements within 90 days after their fiscal year end.