CaseMark Broker-Dealer Customer Agreement
Drafts the master contractual agreement between a registered broker-dealer and its customers, covering all regulatory requirements under SEC, FINRA, Reg BI, and AML frameworks.
Prerequisites
Gather before drafting:
- Firm registration — Form BD, FINRA CRD, state registrations, dual-registrant status
- Business model — execution-only vs. full-service, order routing, PFOF, principal trading
- Product catalog — all offered security types (equities, options, mutual funds, ETFs, penny stocks, alternatives)
- Fee schedule — commissions, account fees, margin rates, revenue sharing
- Existing docs — current applications, margin/options agreements, privacy policy, Form CRS
- Regulatory history — exam findings, deficiency letters, enforcement actions
Quick Start
- Confirm firm's business model and capacity (execution-only, recommendation-making, or dual registrant)
- Identify all offered products and applicable special rules
- Draft agreement sections per the structure below
- Tailor provisions to firm's actual services — omit inapplicable sections
- Verify all statutory/rule citations against current law
- Ensure margin and arbitration warnings use prominent formatting (bold/caps, separate signature)
- Cross-check consistency with Form CRS, Reg BI disclosure, fee schedule, and privacy policy
Agreement Sections
1. Party Identification & Account Establishment
- BD identification: legal name, principal office, SEC reg number, FINRA CRD
- Customer identification per CIP Rule (USA PATRIOT Act §326): name, address, DOB, SSN/TIN, citizenship
- Entity customers: beneficial owners ≥25% or control persons
- Account types: cash (Rule 15c3-3), margin (Reg T), retirement, joint (JTWROS/TIC)
- KYC/suitability data per FINRA Rules 2090/2111
- Firm reserved rights: reject applications, restrict activities, close accounts
2. Service Relationship & Obligations
- Capacity disclosure: execution-only, recommendation-making (Reg BI), or dual registrant (BD vs. IA)
- If recommendations made: Reg BI four obligations — Disclosure, Care, Conflict of Interest, Compliance
- Product-specific rules: penny stock (Rules 15g-2–15g-9), options (Rule 2360 + ODD), mutual funds (share class/12b-1), leveraged ETFs (compounding risk), day trading ($25K minimum)
3. Trading Authorization & Order Handling
- Order channels with authentication requirements (MFA, recording disclosure)
- Best execution obligations: price, speed, execution likelihood, order size, total cost
- Order routing disclosure per SEC Rule 606; PFOF conflict disclosure
- Order type risks: market (no price protection), limit (no fill guarantee), stop (becomes market), GTC (monitor intent)
- Discretionary authority per FINRA Rule 3260 if applicable
4. Fee & Compensation Disclosure
- Commissions, markups/markdowns, account fees (exact amounts or fee schedule reference)
- Margin interest: base rate, spread, calculation method, tiered rates
- PFOF, revenue sharing, 12b-1 fees, underwriting concessions, proprietary product conflicts
- Cross-reference Reg BI disclosure and Form CRS
5. Margin Lending
- Regulatory framework: Reg T (50% initial), FINRA 4210 (25% maintenance), house requirements
- Include concrete margin call example showing equity erosion and call trigger
- Firm rights: charge interest, hypothecate securities per Rule 15c3-3, no lending of fully paid without consent
- Liquidation rights (PROMINENT): firm may sell without notice/consent; sole discretion on securities/timing; not required to minimize loss
- Bold risk warnings (require separate signature): losses can exceed investment; may owe more than deposited; firm can force sale; customer cannot choose securities sold
6. Risk Disclosures & Acknowledgments
- Product-specific risks: market, liquidity, equity, options (unlimited on uncovered writes), fixed income, penny stock, leveraged ETFs, international
- Required acknowledgments (signature/initial): understood agreement, received ODD/penny stock disclosure, total loss possible, sole responsibility in non-discretionary accounts
7. Corporate Actions & Account Maintenance
- Dividends, mandatory/voluntary actions, proxy voting, securities lending
- Confirmations (T+1) and statements (monthly/quarterly); must review for errors
- Error reporting deadlines: confirmations 5 business days, statements 30 days
8. Privacy & Data Security
- Draft per SEC Regulation S-P
- Cover: information collected, uses, sharing categories (providers, regulators, affiliates, non-affiliates)
- Opt-out procedures, security measures, breach notification per state laws
9. Amendment, Assignment & Termination
- Amendments: 30 days' notice; continued use = acceptance; regulatory changes may take immediate effect
- Assignment: customer needs consent; firm may assign in mergers/acquisitions
- Termination: customer-initiated (settle trades, ACATS 5-7 days) and firm-initiated (violations, suspicious activity, death)
- Records retained per SEC Rule 17a-4 (6 years post-close)
10. Mandatory Arbitration
- Include FINRA-required all-caps disclosure (waiver of jury trial, limited discovery, binding awards)
- Scope: all controversies, all legal theories
- Forum: FINRA Dispute Resolution; >$100K three arbitrators (majority public); ≤$100K single arbitrator
- Limited judicial review: vacatur only for fraud, partiality, or excess of powers
- Preserved rights: customer may still file with SEC/FINRA/state regulators
- Governing law and severability provision
11. Execution & Acknowledgments
- Customer representations: legal capacity, accurate information, understands risk
- Entity-specific: signatory authorization, governing document compliance, supporting docs
- Signature requirements by account type (individual, joint, entity)
- E-signature compliance per E-SIGN Act/UETA; click-to-agree accepted; right to withdraw e-delivery consent
- Integration clause: agreement + incorporated documents = entire agreement
- Non-waiver provision
Key Regulatory Citations
| Citation | Subject |
|---|---|
| USA PATRIOT Act §326 / CIP Rule | Customer identification |
| FINRA Rules 2090/2111 | KYC and suitability |
| Regulation Best Interest | Recommendation standard (four obligations) |
| SEC Rule 15c3-3 | Customer protection / segregation |
| Reg T / FINRA Rule 4210 | Margin requirements |
| SEC Rules 15g-2–15g-9 | Penny stock requirements |
| FINRA Rule 2360 | Options |
| SEC Rule 606 | Order routing disclosure |
| FINRA Rule 3260 | Discretionary authority |
| SEC Regulation S-P | Privacy |
| SEC Rule 17a-4 | Records retention |
| E-SIGN Act / UETA | Electronic signatures |
| Federal Arbitration Act | Arbitration enforceability |
Pitfalls
- Omitting penny stock provisions — required if firm offers penny stocks (Rules 15g-2–15g-9); must not be skipped
- Weak margin warnings — liquidation rights and risk warnings must be prominent (bold/caps) with separate signature/initial
- Inconsistent documents — agreement must align with Form CRS, Reg BI disclosure, fee schedule, and privacy policy
- Unverified citations — always verify statutory and rule citations against current law before finalizing
- State law variations — enforceability varies by jurisdiction, especially arbitration; flag issues
- Retail comprehensibility — agreement must be understandable by investors with limited financial sophistication
- Including unused provisions — omit provisions for services the firm does not offer
For detailed per-section drafting specifications including field-level requirements, example language, and product-specific tables, see references/SECTION-SPECS.md.