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to the market price unless such broker or dealer knows or has reasonable grounds to believe that a market for such security exists other than that made, created, or controlled by him, or by any person for whom he is acting or with whom he is associated in such distribution, or by any person controlled by, controlling or under common control with him. Rule X-15C1-9. Use of Pro Forma Balance Sheets.
The term “manipulative, deceptive, or other fraudulent device or contrivance," as used in section 15 (c) (1) of the Act, is hereby defined to include the use of financial statements purporting to give effect to the receipt and application of any part of the proceeds from the sale of exchange of securities, unless the assumptions upon which each such financial statement is based are clearly set forth as part of the caption to each such statement in type at least as large as that used generally in the body of the statement. Rule X-15C2-1. Hypothecation of Customers' Securities.
(a) General provisions.—The term “fraudulent, deceptive, or manipulative act or practice,” as used in section 15 (c) (2) of the Act, is hereby defined to include the direct or indirect hypothecation by a broker or dealer, or his arranging for or permitting, directly, or indirectly, the continued hypothecation of any securities carried for the account of any customer under circumstances
(1) that will permit the commingling of securities carried for the account of any such customer with securities carried for the account of any other customer, without first obtaining the written consent of each such customer to such hypothecation;
(2) that will permit such securities to be commingled with securities carried for the account of any person other than a bona fide customer of such broker or dealer under a lien for a loan made to such broker or dealer; or
(3) that will permit securities carried for the account of customers to be hypothecated, or subjected to any lien or liens or claim or claims of the pledgee or pledgees, for a sum which exceeds the aggregate indebtedness of all customers in respect of securities carried for their accounts; except that this clause shall not be deemed to be violated by reason of an excess arising on any day through the reduction of the aggregate indebtedness of customers on such day, provided that funds or securities in an amount sufficient to eliminate such excess are paid or placed in transfer to pledgee for the purpose of reducing the sum of the liens or claims to which securities carried for the account of customers are subject as promptly as practicable after such reduc
but before the lapse of one-half hour after the commencement of banking hours on the next banking day at the place where the largest principal amount of loans of such broker or dealer are payable and, in any event, before such broker or dealer on such day has obtained or increased any bank loan collateralized by securities carried for the account of customers.
(6) Definitions.-For the purposes of this rule
(1) the term "customer” shall not be deemed to include any general or special partner or any director or officer of such broker or dealer, or any participant, as such, in any joint, group or syndicate account with such broker or dealer or with any partner, officer, or director thereof;
(2) the term "securities carried for the account of any customer" shall be deemed to mean:
(i) securities received by or on behalf of such broker or dealer for the account of any customer;
(ii) securities sold and appropriated by such broker or dealer to a customer, except that if such securities were subject to a lien when appropriated to a customer they shall not be deemed to be “securities carried for the account of any customer" pending their release from such lien as promptly as practicable;
(iii) securities sold, but not appropriated, by such broker or dealer to a customer who has made any payment therefor, to the extent that such broker or dealer owns and has received delivery of securities of like kind, except that if such securities were subject to a lien when such payment was made they shall not be deemed to be "securities carried for the account of any customer” pending their release from such lien as promptly as practicable;
(3) "aggregate indebtedness” shall not be deemed to be reduced by reason of uncollected items. In computing aggregate indebtedness, related guaranteed and guarantor accounts shall be treated as a single account and considered on a consolidated basis, and balances in accounts carrying both long and short positions shall be adjusted by treating the market value of the securities required to cover such short positions as though such market value were a debit; and
(4) in computing the sum of the liens or claims to which securities carried for the account of customers of a broker or dealer are subject, any rehypothecation of such securities by another broker or dealer who is subject to this rule or to rule X-8C-1 shall be disregarded.
(c) Exemption for cash accounts. The provisions of paragraph (a) (1) hereof shall not apply to any hypothecation of securities
carried for the account of a customer in a special cash account within the meaning of section 4 (c) of Regulation T of the Board of Governors of the Federal Reserve System, provided that at or before the completion of the transaction of purchase of such securities for, or of sale of such securities to, such customer, written notice is given or sent to such customer disclosing that such securities are or may be hypothecated under circumstances which will permit the commingling thereof with securities carried for the account of other customers. The term “the completion of the transaction” shall have the meaning given to such term by Rule X-15C1-1 (6).
(d) Exemption for clearing liens.—The provisions of paragraphs (a) (2), (a) (3), and (f) hereof shall not apply to any lien or claim of the clearing corporation, or similar department or association, of a national securities exchange, for a loan made and to be repaid on the same calendar day, which is incidental to the clearing of transactions in securities or loans through such corporation, department or association: Provided, however, That for the purpose of paragraph (a) (3) hereof, "aggregate indebtedness of all customers in respect of securities carried for their accounts" shall not include indebtedness in respect of any securities subject to any lien or claim exempted by this paragraph.
(e) Exemption for certain liens on securities of noncustomers.—The provisions of paragraph (a) (2) hereof shall not be deemed to prevent such broker or dealer from permitting securities not carried for the account of a customer to be subjected (i) to a lien for a loan made against securities carried for the account of customers, or (ii) to a lien for a loan made and to be repaid on the same calendar day. For the purpose of this exemption, a loan shall be deemed to be "made against securities carried for the account of customers” if only securities carried for the account of customers are used to obtain or to increase such loan or as substitutes for other securities carried for the account of customers.
(f) Notice and certification requirements.—No person subject to this rule shall hypothecate any security carried for the account of a customer unless, at or prior to the time of each such hypothecation, he gives written notice to the pledgee that the security pledged is carried for the account of a customer and that such hypothecation does not contravene any provision of this rule, except that in the case of an omnibus account the broker or dealer for whom such account is carried may furnish a signed statement to the person carrying such account that all securities carried therein by such broker or dealer will be securities carried for the account of his customers and that the hypothecation thereof by such broker or dealer will not contravene
any provision of this rule. The provisions of this clause shall not apply to any hypothecation of securities under any lien or claim of a pledgee securing a loan made and to be repaid on the same calendar day. Rule X-15C2–2. Prohibition of Trading During Suspension of
Trading on a National Securities Exchange. The term “fraudulent, deceptive, or manipulative act or practice," as used in Section 15 (c) (2) of the Act, is hereby defined to include any act of any broker or dealer designed to effect with or for the account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security during the period between (a) a public announcement by the Commission that it has suspended trading in such security on a national securities exchange pursuant to Section 19 (a) (4) of the Act in order to prevent fraudulent, deceptive, or manipulative acts or practices and (b) the expiration or lifting of such suspension. Rule X-15C2-3. Prohibiting Trading in German Securities Unless
Validated. The term “fraudulent, deceptive, or manipulative act or practice”, as used in Section 15 (c) (2) of the Act, is hereby defined to include any act of any broker or dealer designed to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security required to be validated under any applicable validation law of the Federal Republic of Germany unless (a) such security has been duly validated, and (b) if such security is a dollar security (other than an interest coupon detached from a bond which has been duly validated by the Validation Board for German Dollar Bonds) there is attached a document of the Validation Board for German Dollar Bonds certifying to the validation of such security. Rule X-15C3-1. Ratio of Aggregate Indebtedness to Net Capital.
(a) General provision.—No broker or dealer shall permit his aggregate indebtedness to all other persons to exceed 2,000 per centum of his net capital. (6) Exemptions. The provisions of this rule shall not apply to—
(1) any broker or dealer who (A) does not extend credit to any person to whom he sells or for whom he purchases any securities, and (B) does not carry money or securities for the account of customers or owe money or securities to customers, except as an incident to transactions with or for customers which are promptly consummated by payment or delivery: Provided, That credit shall not be deemed to be extended by reason of a bona fide delayed delivery of any such security against full pay
ment of the entire purchase price thereof upon such delivery within thirty-five (35) days after such purchase; or
(2) any member of the Boston Stock Exchange, Los Angeles Stock Exchange, Midwest Stock Exchange, New York Curb Exchange, New York Stock Exchange, Pittsburgh Stock Exchange, Salt Lake Stock Exchange, or San Francisco Stock Exchange, all of whose rules and settled practices are deemed by the Commission to impose requirements more comprehensive than the requirements of this rule: Provided, That the exemption as to the members of any exchange may be suspended or withdrawn by the Commission at any time, by sending at least ten (10) days' written notice to such exchange, if it appears to the Commission necessary or appropriate in the public interest
or for the protection of investors so to do. (c) Definitions. For the purpose of this rule
(1) The term "aggregate indebtedness" shall be deemed to mean the total money liabilities of a broker or dealer arising in connection with any transaction whatever, including, among other things, money borrowed, money payable against securities loaned and securities "failed to receive," customers's free credit balances, credit balances in customers' accounts having short positions in securities, and equities in customers' commodities futures accounts, but excluding
(A) indebtedness secured by exempted securities;
(B) amounts segregated in accordance with the provisions of the Commodity Exchange Act and the rules and regulations thereunder; and
(C) liabilities on open contractual commitments; (2) the term “net capital” shall be deemed to mean the net worth of a broker or dealer (that is, the excess of total assets over total liabilities), adjusted by
(A) adding unrealized profits (or deducting unrealized losses) in the accounts of the broker or dealer and, if such broker or dealer is a partnership, adding equities (or deducting deficits) in accounts of partners;
(B) deducting fixed assets and assets which cannot be readily converted into cash, including, among other things, real estate, less any indebtedness secured thereby; furniture and fixtures; exchange memberships; prepaid rent, insurance and expenses; good will; organizatic expenses; unsecured advances and loans to partne officers, directors, employees, and salesmen; custome