Quick Answer
The Uniform Practice Code (UPC) governs broker-to-broker mechanics for over-the-counter (OTC) trades between members: comparisons, delivery, and close-outs. Comparisons go out by trade-date end; a don't-know (DK) notice answers a missing comparison. Regular-way settlement is T+1. Good delivery needs proper unit, assignment, and guaranteed signature. Corporate and municipal bonds accrue interest 30/360; governments use actual/actual.
The whole unit on one sheet: what the UPC covers, comparisons and DK notices, the T+1 cycle, good delivery, bond settlement, marking to the market, and close-outs.
The One-Liners That Win Points
- The UPC governs OTC secondary-market trades BETWEEN members (street-side). It does NOT cover customer confirmations, trades cleared through a registered clearing agency, exempted securities, municipal securities, mutual funds, or Direct Participation Programs (DPPs).
- Continuous net settlement (CNS) nets each member's daily buys and sells per security into one net obligation; the clearing agency (typically NSCC, the National Securities Clearing Corporation) becomes the central counterparty. The UPC is the fallback rulebook for ex-clearing trades.
- Corporate-debt OTC trades clear through a registered clearing agency unless both accounts are carried by the same carrying member (the thin carve-out).
- Both members send a Uniform Comparison/Confirmation. It carries trade date, settlement date, security, quantity, price, parties, and capacity.
- A DK notice answers a missing comparison: no comparison or signed DK back by trade-date end. A term discrepancy gets the party in error's corrected comparison instead. The contra-member has one business day after receipt to confirm or DK; no response means the trade is DK'd and the confirming member has no further liability.
- Regular way = T+1; cash = same day; seller's option = the option-expiration date.
- Firm-commitment offerings priced after 4:30 p.m. Eastern default to T+2. Most-tested carve-out.
- Good delivery = correct unit + proper assignment + authenticated if mutilated + not from a prohibited owner. One defect kills the delivery; the seller pays to fix defects.
- A buy-in is the BUYER's remedy for a seller's failure to deliver. A sell-out is the SELLER's remedy for a buyer's failure to accept.
- The mark-to-market rule is INTER-MEMBER on uncompleted contracts, not customer margin. The deposit equals contract price minus current market price.
Numbers to Lock In
| Item | Value |
|---|---|
| Regular-way settlement | T+1 |
| Cash settlement / cash delivery | same day (trade date) |
| Firm-commitment offering priced after 4:30 p.m. ET | T+2 default |
| Comparison sent | by the end of the trade date (all transaction types) |
| DK response window | one business day after receipt |
| Stock unit of delivery | 100-share round lots or multiples |
| Bond unit of delivery | $1,000 par face amount or multiples |
| UIT unit of delivery | single unit |
| Corporate / municipal accrued interest | 30/360 day count |
| Government accrued interest | actual/actual |
| Accrued-interest rounding | 5 mills or more rounds up; less than 5 mills dropped |
| Buy-in notice | by 12:00 p.m. ET, at least two business days before execution |
| Buy-in execution notice | immediately upon execution, no later than 6:00 p.m. ET that day |
| Sell-out notification | as promptly as possible, no later than 6:00 p.m. ET on the day of execution (no advance notice) |
| Reclamation: minor / currency defect | 15 days |
| Reclamation: foreign securities | 45 days |
| Reclamation: lost / stolen / confiscated | 30 months after settlement |
| Return without a reclamation form | receiver may sell out within 3 business days |
| COD/DVP confirmation to customer | by end of trade date |
Top Gotchas
- Regular way is T+1, not T+2. T+2 was the prior standard; the current cycle is T+1 for equities and corporate bonds.
- Corporate and municipal bonds use the 30-day-month 30/360 convention; government securities use actual/actual. The exam gives a bond type and asks the day count.
- Accrued interest runs up to BUT NOT INCLUDING the settlement date (trade date for a cash trade).
- A DK notice is an inter-member concept only. There is no customer DK; a customer who disputes a confirmation files a complaint.
- The signature on an assignment must match the registered name exactly and be medallion-guaranteed. A genuine but unguaranteed signature fails good delivery.
- A certificate signed by a deceased registered owner is never good delivery. The estate must re-register to the executor; the fiduciary exception covers securities already registered in the fiduciary's name (domestic issuer, guaranteed signature).
- A due-bill is required when a security is sold before going ex-distribution but transferred too late for the record date. Due-bill = stock dividend, scrip dividend, or rights; due-bill check = cash dividend, registered-bond interest, or UIT interest. Not transferable by the buyer.
- The transfer fee is paid by whoever requested the transfer, not automatically the buyer or seller.
- Rights and warrants close-outs must be timed before the exercise period expires, or the value evaporates.
One-Breath Recap
The UPC is the street-side rulebook for OTC trades, stepping aside for continuous net settlement (CNS), municipals, exempted securities, mutual funds, or direct participation programs (DPPs). Members send Uniform Comparisons by trade-date end; a don't know (DK) notice answers missing comparisons within one business day, else DK'd. Regular way settles T+1 (cash same day; firm-commitment deals priced after 4:30 p.m. Eastern go to T+2). Good delivery needs the right unit and medallion-guaranteed assignment; seller cures defects. Bonds accrue interest 30/360 for corporates and municipals, actual/actual for governments. Marking to market demands a deposit on an uncompleted contract. Close-outs: buy-ins by noon Eastern two business days out for seller fails, sell-outs same day, no notice, for buyer fails; reclamation runs 15/45 days or 30 months.
Need more than the recap? Read the full Settlement and Clearance unit.