How does the borrowing penalty extend to the clearing broker’s customers and introducing firms?
Generally, the borrowing penalty applies to short sales of all of the clearing broker’s customers and correspondent firms, regardless of whether they were responsible for the fail. As a result, investors may find that their clearing broker or executing brokers will act quickly to buy them in and may not provide advance notice, as has been customary in the past, in an effort by the brokers to avoid becoming subject to the borrowing penalty. However, the interim rules include two exceptions with respect to correspondent firms: • Allocation by Clearing Firms The interim rules provide that a clearing broker may reasonably allocate responsibility for a portion of the close-out requirement to another broker-dealer that is responsible for that portion of the fail position (e.g., an introducing broker or an executing broker, including a market maker). The ability to allocate responsibility in this context allows flexibility among the parties to use the execution capabilities of the broker-deal
Related Questions
- What are the reporting requirements for a clearing firm whose correspondent sends orders directly to other broker/dealers outside the clearing firm?
- How does the borrowing penalty extend to the clearing broker’s customers and introducing firms?
- Does the borrowing penalty extend to the clearing broker’s customers and introducing firms?
