Securities Processing

Transcription

1 Securities Processing Section I - How to Process and Mail Securities (Stock Certificates) to Pershing Determine if Securities (certificate) are Eligible for Deposit (Negotiable). When accepting a sell order, it is advisable to discuss with your client both the proper registration and location of the securities being sold. o This will enable you to avoid selling securities for the wrong account, clarify the exact quantity and class of security and uncover potential delays in delivery due to the unavailability of the security itself or the registered owner endorsing the certificates. o It often reveals potential problems with split, merged or reorganized corporations and documents required on securities that are not in good delivery. If any doubt exists as to the identity of the security being sold, call Money Concepts Capital Corp. trading desk with the CUSIP number for a system check. Specifically, the NASD Rules of Fair Practice provides that no member or person associated with a member shall execute a sell for any customer unless: 1. Registered Representative has acknowledged that the client signed the certificate before the client mails to Pershing to be held in street name. 2. When the trade is placed, you must instruct the client to mail the certificate(s) either overnight or certified mail, in the blue lettered Pershing envelope (Securities Received Department). Be sure the account number is written on the certificate(s) next to where the client signed and a Pershing Stock Transmittal Form is attached. Note: Remember on the back of the certificate to appoint Pershing LLC power of attorney. See below the sample of the back of the certificate. 3. Registered Representative should examine the security certificate for negotiability. By this we mean Is the certificate properly signed? Are the required necessary forms required attached? 4. Be on the lookout for restricted or legend certificates. Proper documentation must be attached. Special precaution is necessary when an individual is holding certificate(s) registered under street name. (The name on the certificate has a title of a clearing broker/dealer not the individual s name) It is good business practice to insist on proof of ownership from persons tendering either stock in street name or bearer bond certificates, especially if the person is not well known to the firm. The customer must be asked to furnish a confirmation or bill of sale, including the certificate number and date of purchase. Ownership and certificate number can be checked with the firm from which it was purchased. When the client lacks this verification of ownership, it is prudent to notify the customer that the firm cannot handle the transaction immediately, pending verification of ownership. o The broker should wait until the client has deposited the certificate with the Pershing Securities Received department before selling the stock. o The registered representative can check the Pershing system to verify that the stock is in good order (negotiable). Securities, which are sold and have been received by Pershing, unendorsed or without a signed Irrevocable Stock or Bond Power, is NOT considered good delivery. 1

2 Section II - Certificate Endorsement Guidelines Registration on Front of Certificate How Back Should Be Endorsed 1. Individual Registration 1. John Doe 2. Joint Tenants, Tenants in Common 2. John Doe & Jane Doe Tenants by Entirety, Community Property 3. Uniform Gift or Transfer to Minors Act (State) 3. John Doe cust For Joe Doe UGMA (State) 4. Trust Registration 4. John Doe Trustee Jane Doe Trustee 5. Registration by Marriage 5. Jane Smith by Marriage 6. Partnerships and Investment Clubs 6. John Doe Partner 7. Estate Registrations (only when the name of the Executor of the estate appears on the certificate) 7. John Doe Executor Preparing Stock Certificates for Deposit - Securities delivered to Pershing should be in negotiable form. Ensure certificates are prepared as shown below: BACK OF CERTIFICATE For value received hereby sell, assign and transfer unto A B Of the Capital represented by the within Certificate and do hereby Irrevocably constitute and appoint Pershing LLC C Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. Dated D A. Social Security Field - Leave blank, Pershing will complete. B. Assignment Field, clients name and address - Leave blank Pershing will complete. C. Attorney Field - Must write (appoint) Pershing LLC. If your client accidentally signs this field, the Power of Attorney (POA) Release Form must be completed and signed by your client. Be sure the form is signature guaranteed before forwarding to Pershing Securities Received Department. D. Endorsement Field (Registered Holder signs exactly as registration appears on face of certificate; refer to Certificate Endorsement Guidelines above) The certificate is required to have the Pershing account number written next to the client s signature (endorsement field). On any documents accompanying the certificate write the Pershing account number in the upper right-hand corner. Staple the documents to the certificate. Leave the signature guarantee blank on the certificate, Pershing will signature guarantee prior to sending the certificate to the transfer agent. 2

3 Complete and attach a Pershing Stock Transmittal Form to the certificate. One transmittal for each account. If the registration on the certificate does not match exactly to the account title - A Notarized Third Party Release Letter by the Registered Holder is required to receive the security into the account.) If Pershing does not receive a third party release attached to the certificate, the securities will be held in pending papers. Bearer bonds and street name certificates require Proof of Ownership. Ensure all subsequent coupon(s) are attached to bearer bonds. Please Note: Pershing will return a stamped copy of the above transmittal to Money Concepts Capital Corp. as proof of receipt. Money Concepts Capital Corp. will mail the transmittal to the registered representative. Section II A - Where to Mail Securities The client should send securities (stock certificates) to Pershing by priority next day courier (e.g. FEDE) Place the securities in the blue-lettered Securities Receive envelope and place in the courier package. Pursuant to SEC Broker/Dealer Minimum Net Capital Rule 15c 3-1 (a)(2)(vi) Money Concepts Capital Corp. registered representatives are prohibited from accepting certificates from clients. Registered Representative's may assist the client in the preparation of mailing the certificate(s). Send package to: Pershing LLC Department: Securities Received One Pershing Plaza Jersey City, NJ Section II B - Securities Received Processing All securities received by Pershing s Securities Received Department after 2:00 p.m. (Eastern Time) will be held and processed into the customers account on the next business day. Presently approximately 90% of all securities sent to Pershing are received prior to 2:00 p.m. (Eastern Time) each day. We prefer the registered representative to check the Net Ex Pro Holdings screen to verify the stock is long in the account. Section II C - Legal Transfer Policies and Procedures Pershing charges $20 per issue, to process any legal transfer. A stock certificate that is mailed to Pershing Securities Received Department with paperwork attached is considered a legal transfer. There are two exceptions where Pershing will not charge the $ Irrevocable Stock & Bond Power When the client didn t sign the back of the certificate 2. Letter of Authorization (LOA) When an individual is depositing a certificate into a joint account, individual would need to attach a signed LOA. When Pershing receives a stock certificate titled with any of the following registrations it is considered a legal transfer: 3

4 a. POA Power of Attorney Agreement required b. Corporation Corporate Resolution required c. Trust - Trust Agreement required d. Estate Court Appointment documentation required e. TOD- Transfer on Death Agreement required f. Investment Club Investment Club Agreement required No proceeds of sale will be paid until the transfer agent notifies Pershing that the transfer is effective. Pershing undertakes all legal transfers on a best effort basis. 1. Their policy is to forward all depository eligible securities with legal papers attached, to either The Midwest Depository or The Depository Trust Company. Once the depositories release the securities Pershing will remove the legal transfer memo from the account allowing customers to sell securities before the certificates are actually re-registered by the transfer agent. This process takes approximately 72 hours from the time that the depositories receive the securities. 2. Pershing s legal transfer procedures, to reduce the risk of loss on legal transfers, are as follows: a. Depository eligible legal transfers with market values greater than $100,000 - Pershing s Legal Transfer Department will physically present these transfers to the issuers transfer agent. The Proceeds from any sale will be made available once the securities have been re-registered by the transfer agent, subject to other conditions in the account. This procedure will take approximately business days to complete. b. Depository eligible legal transfers with market values less than $100,000 -Proceeds from any sale will continue to be made available when the securities are released from the depository (within 72 hours), subject to other conditions in the account. c. Legal Transfer that is not depository eligible These transfers will be physically presented to the transfer agent for registration. Proceeds from any sale will be available when the transfer agent re-registers the securities. This procedure will take approximately business days to complete. 4

5 Section III - Corporation, Partnership, Sole Proprietorship, Nominee Corporation, Doing Business As Registration Corporation Religious Organization (Church) Non- Corporation Sole Proprietorship Endorsed Certificate or Stock Power Signed by: Authorized Officer Authorized Officer Sole Owner (2) Corporation Resolution or Certificate of Corporate Secretary dated within 6 months Signed by:(1) Officer other than the officer signing the stock power. The resolution must be signed and include the corporate seal Non- Corporate Resolution Signed by: Officer other than the officer signing the stock power. The resolution must be signed and dated within 6 months and include the non-corporate seal. Notarized Copy of Partnership Agreement Notarized Certificate of Sole Proprietor Ship (2) Partnership (3) General Partner (4) 1. The Corporate Resolution form must specify that the officer endorsing the securities be authorized to sell, assign, and transfer securities on behalf of the corporation. The authorized person who signs the corporate resolution may not be the same authorized officer who endorses the certificates. The corporate resolution must have a corporate seal affixed to the document. If the corporation does not have a corporate seal "NO SEAL must be written across the certificate. Most transfer agents generally accept the corporate resolutions. 2. Most transfer agents generally accept copies of corporate resolutions signed as sole proprietor or statements on company letterhead naming the sole owner. 3. When certificate(s) are registered in the name of a partnership or sole owner (i.e. John Smith, Partner or Mary Jones, Sole Owner), the partnership agreement or certificate of sole proprietorship is not required. 4. If the general partner is deceased or the partnership is disbanded, refer to the partnership, which indicates the provisions for the death of a partner and disbandment. All state-mandated conditions are listed in the State Legal Transfer Requirements 5

6 Section IV - Custodian Accounts Registration Type Endorsed Certificate or Stock Power signed by: Original Court Appointment dated within 60 days (including original court seal) Certified Copy of Minor s Birth Certificate Certified Copy of Death Certificate Notarized Affidavit of Domicile and Tax Waiver Custodian (minor is of age) Former minor Deceased Minor Minor (not UGMA or UTMA) Deceased Custodian (minor is younger than 14 years of age) Deceased Custodian (Minor is older than 14 years of age) Deceased Guardian, committee, or conservator(1) Legal representative of the estate Minor s guardian Successor custodian Successor custodian Successor guardian, tutor, committee, or conservator Court order appointing successor custodian Appointment of successor custodian by minor Court order appointing successor guardian tutor, committee, or conservator 1. If the original guardian is deceased, a new court appointment must be obtained naming a new guardian. Section V - Power of Attorney (POA) A copy of the POA agreement must be attached to each certificate with account number written on the POA. The POA will only be accepted when it is notarized and dated within 2 years. If a POA document is dated after 2years, an Affidavit of Full Force and Effect (notarized) must be signed by the appointee dated within 60 6

7 Section VI - Estate Account Registration Single Name Deceased Joint Name One Deceased Endorsed Stock Power or Certificate Signed By: Original Notarized Affidavit of Domicile (1) Certified Death Certificate (3) Tax Waiver (If Applicable) (2) Original Certified Certificate of Appointment Dated within 60 Days (include Court Seal) Executor or Administrator Surviving Tenant Joint Name Both Deceased 1 st Decedent Joint Name Both Deceased 2 nd Decedent Executor or Administrator Transfer on Owner Death (TOD) TOD - If owner is deceased Name of Executor or Administrator Tenants In Common (One Deceased) Tenants In Common-Both Deceased -1 st Decedent Tenants In Common-Both Deceased 2 nd Decedent Former coowner Executor or Administrator Survivor, Executor or Administrator Executor or Administrator Executor or Administrator 1. A declaration of transmission (Canadian version of an affidavit of domicile) is required for securities incorporated under the laws of Canada. 2. A tax waiver is required in the state where the trust was created and may not be required in some states. Refer to the State Legal Transfer Requirements for more information. 7

8 Section VII - Trust Account Registration Type Living Trust Name of Trust (trustee not named in registration) Trustee Under (1) Agreement One or More Trustees are Deceased or Resigned Death of the Trustier (1) Testamentary Trusts-Trustee Under Will One or more Trustees are Deceased, Resigned or Discharged Endorsed Certificate or Stock Power signed by: (1) Trustees Trustees Successor Trustee(s) or Survivor Trustee(s) Trustees Trustees Successor trustees Copy of Trust Agreement, Pension Plan or profit Sharing Plan (2) Trust Agreement Evidence of Incumbency or Letter(s) of Resignation or Incapacity of Domicile Original Court Appointment Dated with 60 Days including Original Court Seal (3) (or each decedent s certified copy of the will) Certified Death Certificate and/or tax Waiver (4) 1. Certificates where the trustees are named in the registration and endorsed by the trustee(s) are not processed as legal transfers. If the trustee is a corporation, a corporate resolution dated within 6 months is required and is processed as a legal transfer. 2. Under trust simplification rules, a complete copy of the Trust Agreement is not required. Refer to the State Legal Transfer Requirements for more information. 3. A tax waiver is required in the state where the trust was created and may not be required on other states. Refer to the State Legal Requirements. 4. Trust amendment document is required only if one or more trustees have resigned, been discharged or incapacitated. 8

9 Section VIII - State Legal Transfer Requirements State UTMA (age of majority) UGMA (age of majority) Tax Waiver (A) Trust Simplification (B) Small Estate Value (C) Court Certified Affidavit Fiduciaries Trustees AL Yes Yes 3,000 Yes All All AK No No 15,000 Yes All All AZ No No 30,000 Yes All Majority AR No No 50,000 Yes All All CA No No 60,000 No * Majority All CO No Yes 27,000 Yes All All CT No No 20,000 Yes Majority Majority DE No Yes 12,500 No * Majority Majority DC No Yes 10,000 Yes All All FL No Yes 25,000 Yes Majority Majority GA No Yes 2,500 Yes One All HI No No 20,000 Yes All Majority ID No No 25,000 Yes Majority Majority IL No No 50,000 No * Majority Majority IN Yes Yes 15,000 Yes Majority Majority IA Yes Yes 50,000 Yes All All KS No Yes 10,000 Yes All Majority KY Yes No 7,500 Yes Majority Majority LA Yes Yes 50,000 Yes All All ME No Yes 10,000 Yes All Majority MD No Yes 20,000 Yes All All MA No No 2,100 No * Majority Majority MI No Yes 5,000 Yes All All MN No No 20,000 No * All All MS No Yes 20,000 Yes All Majority MO No Yes 40,000 Yes All Majority MT Yes Yes 7,500 Yes All All NE No Yes 10,000 Yes All Majority NV No Yes 25,000 Yes Majority Majority NH Yes No 5,000 Yes All Majority NJ Yes Yes 5,000 Yes Majority Majority NM No Yes 20,000 Yes All Majority NY No Yes 10,000 Yes Majority Majority NC Yes Yes 20,000 Yes All All ND No Yes 15,000 Yes All All OH No Yes 15,000 Yes All All OK Yes No 60,000 Yes Majority Majority OR No No 25,000 Yes All All PA No No 25,000 Yes Majority Majority RI No Yes 10,000 Yes Majority Majority SC Yes Yes 10,000 Yes All Majority SD Yes Yes 10,000 Yes Majority Majority TN Yes Yes 10,000 Yes Majority Majority T No Yes 50,000 Yes One Majority UT No Yes 25,000 Yes Majority Majority VT No No 10,000 Yes All All VA No Yes 5,000 Yes All All WA No No 60,000 Yes All Majority WV No No 50,000 Yes All All WI No Yes 30,000 Yes All Majority WY No Yes 70,000 Yes All Majority A. Tax Waiver this document is issued by the State Tax Department and is required in some states to verify that estate taxes have been paid. 9

10 B. Trust Simplification States under trust simplification do not require a complete copy of the trust agreement; trust simplification only requires a copy of the trust agreement s first page, the signature page, and the pages naming the trustee(s) and successor trustee(s). C. Small Estate Value/Court Certified Affidavit Some states do not require the small estate affidavit to be court certified; however, the documents must be notarized. An asterisk identifies the states that require a notary. Section I - Transfer and Ship - Street Name 1. When a client mails a stock certificate to Pershing, it is immediately sent to the transfer agent to take the clients name off of the certificate and put in Pershing s name 2. When a client buys a stock through Pershing and the account is set up to: a. Hold in Street Name - the stock certificate stays at Pershing in street name. b. Send certificate - the client must send an extra $10 to pay to the transfer agent to put the certificate in client s name and mail to clients address of record. 3. If holding Pershing (street name) and there is no activity (buy s or sells) in the account for one calendar year, Pershing will charge a $25 inactive fee. How to initiate a transfer and ship of stock certificate held at Pershing in street name to clients name and mail to client s address of record - To request the certificate to be taken out of street name and mail to the client s address the registered representative needs to: b. Fax ( ) to MCC Pershing team the completed Transfer and Ship form with the account number, name of stock and how many shares, to be transferred and shipped out of street name, signed by the representative. c. To transfer a stock certificate from street name to clients address the cost to the client is $10 cash per transfer so make sure this amount is in account. d. Immediately verify with the MCC Pershing team that they received form and the initiation of the transfer and ship has started. e. After 4 business days go into the clients account in Net exchange Pro and click on Holdings, Then double click of the position being transferred. Details will appear on the bottom of your screen with 3 tabs. Click on Memo, the requested amount should appear in the transfer field. If not, please contact MCC Pershing team. f. The process to take a stock certificate out of street name and mail the certificate to the client usually takes 4 to 6 weeks. Stopping Transfer and Ship Request - A client may change their mind and decide they do not want the certificate mailed to them and want it to remain in street name. The only way MCC Pershing team can stop the transfer is if the transfer is in the pre-pending status (6 days after the initiation of transfer). 1. If you have caught the stop transfer 6 days or before then fax MCC Pershing desk the completed Transfer and Ship form Mark the instructions Urgent. Cancellations are processed on a best efforts basis. 2. Money Concepts Capital Corp. will wire Pershing (wire code PTFR) to stop the transfer. After 6 days MCC can not stop the transfer. 10

11 Section Safe Keeping Safe keeping is when a stock certificate is actually being placed in a safe deposit box vault and leaving the clients name on the certificate. To hold a certificate in safe keeping it will cost the client $2.00 per account, per position, each month. The following are the only two scenarios Pershing will hold a certificate in safe keeping vault section: Safe Keeping/Restricted stock - Restricted stock is usually non-negotiable and there is no time frame on how long they will hold in the vault. Safe Keeping/Pending Papers Pending Papers is when Pershing has not received all the required documents to make the stock certificate negotiable. If Pershing has not received the necessary paperwork to make the stock negotiable with-in 30 business days they will return the certificates to the client s address of record. How to mail a stock certificate held in safekeeping from Pershing to client s address To request the certificate to be taken out of safe keeping and mail to the client s address, the registered representative needs to: 1. Fax ( ) to MCC Pershing team the completed Transfer and Ship form with the account number, name of stock and how many shares, to be transferred and shipped out of street name, signed by the representative. 2. If the account is a retail account MCC Pershing team will need to send a wire to PMGN (After margin approves they will then notify the vault to mail to client). 3. If the account is a retirement account MCC Pershing team will need to send a wire to VLT (vault) to initiate the certificate(s) to be take out of safe keeping (safe deposit box) and mail to client s address of record 4. If the safekeeping section of the vault receives instruction from the Margin Department before 2:00 pm (ET), the item will be shipped that day. Securities valued over $100,000 are shipped via Federal express or by U.S. Post Office express. Section I Lost Stock Certificate If the stock certificate was mailed from Pershing to a client and the client never received certificate Pershing will reprocess the lost security if a client reports to them within 30 to 120 days of the date Pershing mailed the certificate. If more than 120 days have elapsed since the certificate was mailed to the client from Pershing, the client must then directly notify the transfer agent to receive the Affidavit of Loss paperwork. If you need the name of the transfer agent, call the Pershing Custody How to Report Lost Securities mailed to client from Pershing 1. Fax ( ) to MCC Pershing team the completed Transfer and Ship form with the account number, name of stock and how many shares, to be transferred and shipped out of street name, signed by the representative. 11

12 2. Once MCC receives the fax the Pershing team will send a wire to PTFR (Lost Security s Department) with the information provided requesting an Affidavit of Loss. 3. When Pershing receives the wire they will mail the Affidavit of Loss to Money Concepts Capital corp.(mcc) 4. Once Money Concepts receives the Affidavit of Loss it will be forwarded to the registered representative. 5. The client should complete, sign, notarize and return to Pershing Transfer Department 6. After Pershing receives they go through the insurance process (takes 4 to 6 days) and then over night to the transfer agent. 7. After the transfer agent receives the Affidavit of Loss it usually takes 60 to 90 days for the transfer agent to reissue another certificate in the clients name and mail back to Pershing. 8. Then Pershing mails the certificate according to the original instruction. Section II Employee Stock Option (ESO) Cashless Exercise The department at Pershing that handles ESOs is called Private Client Group. The group consists of the following: Alona Atkinson ( ) or Michelle Occimio ( ) or Chris Ramirez ( ). If you have any questions regarding how to process cashless options you may call any one of them. Employee Stock Option (ESO) Stock options granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. ESOs are slightly different from regular options, because they don t have puts and the employee typically must wait a specified period before he/she is allowed to exercise the option. The stock option may be used as collateral to extend credit for the purpose of exercising. Cashless Exercise A transaction that is used when exercising employee stock options (ESO). Essentially, what you do here is borrow enough money from your broker (Pershing) to exercise the options. You then simultaneously sell enough shares to pay for the purchase, taxes, and broker commissions. What you are doing is technically called buying on margin. The brokerage lets you buy on margin in this case because they know there will be a quick repayment. The advantage of this technique is you don t need the cash on hand. The company (employer) will not release the stock shares to Pershing until the stock is sold through Pershing because they want their payment for the stock they granted the employee. Employee Stock Ownership Plan (ESOP) An organized plan for the employees of a company to buy shares of its stock. A company offers the employees their stock at a discounted price. The employee would either receive a stock certificate or statement (book entry) for the shares. Pershing s Private Client Group only gets involved in ESO s not ESOP s. Do not get this ownership plan (ESOP) confused with an ESO. 12

13 Section II A How to Exercise ESO Careful coordination is required for Cashless Exercise among the client, the employer, and Pershing to ensure proper processing. Pershing must receive copies of all forms prior to any sale extension of credit. If your client wishes to exercise an employee stock option (ESO) and borrow the funds to do so, the following steps should be taken: 1. At the time the stock option is granted to the employee, the company (employer) gives a stock option agreement to the employee (client). Contact appropriate personnel within the company (usually employee stock administrator or Human Resources Department) to verify and confirm company s internal procedures. Employees are responsible for complying with all company procedures. Also verify with the company (employer): a. That the sale of the securities is not subject to Rule 144 If Rule 144 paperwork needed and credit committee approval. Find out if employee who is considered a control person or deemed an affiliate. b. The securities are margin-eligible & company intends to carry on margin. c. Which of the following two ways is the company (employer)going to deliver the stock certificate once the stock is sold:: Mail the stock certificate to Pershing Deliver the stock certificate through the DWAC system (Delivery Withdrawal at Custodian) and is linked through the DTC system 2. Have your client complete and sign the following documentation: a. Money Concepts Capital Corp. (MCC) New Accounts form b. Margin Agreement Before any sell trade agreement must be seen on Net Ex Pro. c. Irrevocable Stock and Bond Power Not needed if company (employer) transfers stock through the DWAC transfer agent system d. Stock Option Exercise and Sale Form e. Stock Option Letter of Instruction f. Client should already have Stock Option Agreement from employer 3. First you need to open a Pershing account. Fax ( ) the completed and signed MCC New Accounts form to obtain a 5MC account number. Then keep the original MCC New Account form in clients file. 4. Overnight the original completed and signed Margin Agreement to Pershing New account Department. If client is eligible for a margin account it usually takes 2 days from the day Pershing receives agreement to be seen on Net Ex Pro. To see if Pershing received Margin Agreement on Net Ex Pro click on the tab Account, click on the tab Profile Type the account number in the box above Profile, Then click on Form and Date. 5. Make sure the account number is written on all four of the following forms, completed and signed and fax ( ) to Pershing s ESO Department: a. Stock Option Exercise and Sale Form b. Stock Option Letter of Instruction c. Stock Option Agreement d. Irrevocable Stock and Bond power 6. Once Pershing receives all four of these faxed documentations they will call the company (employer) to verify the information. You may want to call Alona Atkinson ( ) or Michelle Occimio (

14 2836) or Chris Ramirez ( ) to verify they received all four faxed forms and they are in process to verify all information is correct. 7. The day you fax the above four documentations to you need to overnight the original completed and signed Irrevocable Stock and Bond Power to: Pershing 7 th Floor Attn: Employee Stock Option Exercise Department One Pershing Plaza Jersey City, NJ Make sure to complete the following before you overnight: a. The account number is written on the Power. b. You need to clearly mark on the envelope you mail to Pershing Stock Power for Employee Stock Option 8. Once Pershing verifies all information is correct they will call the registered representative to sell the stock. Remember the following: a. When the registered representative sells the stock it must be sold in type 2 (margin) b. The margin agreement must be on file at Pershing before the sell trade can be placed. c. Original Irrevocable stock and bond Power must be on file with: Pershing Attention: Employee Stock Option Dept., One Pershing Plaza, Jersey City, NJ d. Remember, the stock certificate is not at Pershing and the Registered Representative is selling stock when the employer is still holding the certificate. e. Fax Stock Option Agreement from employer along with the Pershing Equity & Trade Order ticket to Money Concepts Capital Corp when placing the sell order. f. If placing the sell order on Net Exchange Pro fax the Stock Option Agreement from employer so we can attach to the Net Exchange Pro sell order ticket. 9. The day or the day after the stock is sold (before Pershing receives the stock certificate from the employer) a. Pershing will cut a third party check or fed wire the money to the company the difference between the granted employee exercise price plus any taxes due the employer and the price the shares where sold. b. Also remember, if applicable interest is charged on debit balances or the market value of a technical short. c. Pershing charges the client a $50 processing fee to exercise the cashless option transaction. 2. The day the registered representative places the stock sell, he/she needs to fax Stock Option Letter of Instruction and Stock Option Exercise and Sale Form to employer so they will deliver the stock certificate: 3. After faxing call the company (employer) to verify the following: a. They received the instructions b. Remind them the stock certificate must be at Pershing three business days after trade date. (The date the stock was sold) c. If the company (employer) is mailing the stock certificate make sure they are mailing to the following address: Pershing 7 th Floor Attention: Department S One Pershing Plaza Jersey City, NJ d. Make sure they wrote the account number on the certificate before they delivered to Pershing. 14

15 e. If the company is delivery the stock certificates through the DWAC system: Pershing requires a copy of the employer s letter that was sent to transfer agent in order to receive shares. RR will need the Pershing s clearing number (0443) to give to the employer 4. Contact Private Client Group at Pershing to verify they contacted the clients company (employer) to ensure prompt delivery of the security, as required by Regulation T. 5. The client will not be able to receive the cash from the sale of the stock until: a. Pershing receives the stock certificate from the employer and every thing is in good order b. Pershing deducts $50 processing fee c. Pershing pays the employer the granted exercise price plus any taxes due 6. In order for the client to receive the cash from the sale of the stock the registered representative must do one of the following: a. To pay the client a check - Fax Money Concepts Capital Corp the form called Requesting a One Time Check for Non-Retirement b. To have the money Fed Wired to clients bank - Fax Money Concepts Capital Corp the form called Federal Wire Money Transfer For a Pershing Non Section II B - Client chooses to hold ESO stock in street name at Pershing and not to sell shares at this time The only way Pershing will allow a client to hold stock from an Employee Stock Options (ESO) at Pershing is if the client complies with the following: 1. Pershing has to pay the employer the predetermined price for the stock in order for customer to hold the stock on margin. 2. Pershing will only lend the money to the client if they meet the Pershing margin requirements. The amount of money that may be released by Pershing (under this cashless options arrangement) is limited to the amount permitted under Regulation T (50% of securities current market value). a. Pershing calculates the closing price from the previous day times the number of shares then divided by two to get 50%. 3. Complete the above five steps in order for Pershing to cut a third party check to the company (employer) for the granted employee exercise price and any taxes due. a. If this is enough to cover the cost and any taxes that are due Pershing would sent the full amount to company. 4. If the client doesn t have enough to meet the margin the client has an option to sell a portion of the stock to cover the margin requirement. 5. The Client is responsible for any deficiency (difference in amount to be released by Pershing and exercise price). 6. The borrowed stock will sit in the account until the client decides to sell the stock. 15

16 Section III - Sale of Restricted and Control Securities Mike Brantley ( ) and Michael Bruno ( ) at Pershing is the contact for any questions on how to process restricted securities. Restricted Securities - Restricted securities, in rather general terms, are securities acquired in a private placement from the issuer, a person in control relationship with the issuer or another in a chain extending back to such issuer or controlling person. A holder of restricted securities, and a broker for such holder, may sell securities without registration or compliance with the requirements of a private placement, if five requirements are met: 1. Restricted securities are held for at least two years and are paid for in full before resale; 2. Specified current information concerning the issuer is publicly available; 3. The amount of securities sold in any three-month period is limited; 4. Resale is effected in brokerage transactions 5. Notice of the proposed sale of Form 144 is transmitted to the SEC concurrently with placing the order to sell. The requirements applicable to a sale of restricted securities are generally the same as those for a sale of control securities, except for the addition of a holding period. Control Securities Control securities are securities held by a person in a control relationship which the issuer, i.e. a person who controls the issuer, is controlled by the issuer or is under common control with the issuer. Under Rule 144 a holder of control securities, and a broker for such holder, may sell such securities without registration or compliance with the requirements of a private placement, provided that the following four requirements are met: 1. Specified current information concerning the issuer is publicly available 2. The amount of securities sold in any three-month period is limited 3. Resale is effected in brokerage transactions 4. Notice of the proposed sale of Form 144 is transmitted to the SEC concurrently with placing the order to sell. Holding Period 1. Control Securities Under Rule 144 there is no required holding period for control securities that are not restricted securities. Thus, if a control person buys stock on the open market, or exercises a stock option to buy shares under the rule this may be a violation. However, if a control person acquired restricted securities or letter stock, then those shares are subject to the holding period requirements described In Limitations on Amount Sold. 2. Restricted Securities - Rule 144 specifies that the seller must have been the beneficial owner of restricted securities for at least two years before they can be sold. If the securities were purchased, they cannot be sold until two years after full purchase price has been paid. 3. Securities Received as a Gift If control stock is acquired as a gift from a control person, there is no required holding period before the donee can sell these securities, assuming that they were not restricted securities when held by the control person. However, for two 16

17 years from the date the shares are received as a gift, the donee sales must be aggregated with sales made by the donor and the aggregate sales must stay within the volume limitations described below. c. If restricted securities are acquired as a gift, the two-year holding period before the securities may be sold usually are assumed to begin on the date the donor acquired the shares. When the holding period is up, the donee may make sales, but sale the donee makes for two years after the shares are received must be aggregated with sales made by the donor. Rule Rule 144, which became effective on April 15, 1972, covers virtually all transactions involving the sale of restricted stock (so-called investment of letter stock) and securities held by persons who are affiliates or have a control relationship with the issuer. Conditions for Sale under Rule Rule 144 permits the sale of restricted or control securities only if current information about the company that issued the securities is readily available to the public and the financial community. In general, this requirement is met if the issuing company has been a reporting company for at least 90 days before a proposed sale date has filed all reports required by the Securities and Exchange Commission during the 12 months preceding the sale. Reporting companies generally include all exchange-listed companies and all OTC companies whose shares are quoted on NASDAQ, as well as many non-nasdaq companies. As a general rule, Pershing LLC will not process Rule 144 transactions for securities issued by nonreporting companies. Limitations on Amount Sold - Rule 144 also restricts amount of securities that may be sold during any threemonth period in calculating transactions in order to keep within the limits described below. The selling stockholder must include, in addition to securities, any of the following: 1. Relatives who live same house with stockholder 2. Any trust or estate in which he or such relative collectively own 10% or more of the beneficial interest, or serve as a trustee, or executor, or in similar capacity. 3. Any corporation or organization other than the issuer of the securities in which he or such relative collectively owns 10% or more of the equity interest. In addition, generally he must aggregate all sales in the three-month period made by persons in the following relationships to him: pledgor-pledgee, donor-donee, settler-trust, decedent-estatebeneficiary, and other persons acting in concert with him. If the securities are traded on a national securities exchange, the amount that may be sold in any three-month period is the greater of: 1. One percent of the shares outstanding as shown by the most recent or statement published by the issuer, or 2. The average weekly reported composite trading volume in such securities during the four full calendar weeks preceding either the filing of Form 144, as required by the SEC, or if no such filing is required, the receipt of the sell order by the broker, or the date of execution of the sale directly to a market maker. 17

18 If the securities are traded OTC and NASDAQ volume figures are available, he may sell in any threemonth period the greater of: 1. One percent of the shares outstanding or 2. The average weekly reported trading volume during the preceding four calendar weeks. If the securities are traded OTC and no volume figures are available, he may sell one percent of the shares outstanding in any three-month period. For control persons, these limits apply to nonrestricted as well as restricted securities. Manner of Sale - A selling stockholder can sell Rule 144 stock through a broker in brokers transactions on an agency basis or he can deal directly with a market maker including a block positioned. He is not allowed to solicit buy orders, nor can he make any payments in connection with the sale to any person other than the broker who executes the sell order. A broker who acts as his agent in the sale of securities in broker s transactions can receive no more than the usual and customary brokers commission. When a broker acts as a market maker or block positioned in the securities to be sold, such broker may purchase the securities in direct transactions. The broker cannot solicit buyers for the shares to be sold, but can make inquiries of other brokers or dealers who have indicated an interest in the securities within the preceding 60 days and also can make inquiries of customers who have indicated an unsolicited bona fide interest in the securities within the preceding 10 business days. The broker is required to conduct a reasonable inquiry to assure compliance with Rule 144 by the seller and the issuing company. Notice of Proposed Sale (Form 144) - If more than 500 shares are to be sold or if the aggregate sales price exceeds $10,000 during any three-month period, the seller must file three copies of a Notice of Proposed Sale (Form 144) with the SEC and, for listed companies, the seller also must file one copy with the principal exchange on which the securities are traded. The seller must sign the original copy, and the form must be filed when the sell order is placed with the broker or upon the execution of a sale directly with a market maker. 18