Quick Answer
A carrying agreement governs a relationship in which one broker-dealer carries customer accounts for another broker-dealer. It identifies the respective responsibilities of the carrying and introducing firms. That allocation affects which firm performs relevant customer-account operational functions, but it does not remove either firm's assigned regulatory responsibilities.
After the firm's financial reporting and calculations, the remaining question is which firm performs customer-account operational functions when two broker-dealers work together.
What Is a Carrying Agreement?
- A carrying agreement governs an arrangement in which one broker-dealer carries customer accounts for another broker-dealer.
Which Responsibilities Must the Agreement Allocate?
- For accounts carried on a fully disclosed basis, the agreement assigns two duties to the carrying firm: safeguarding customer funds and securities, and preparing and transmitting account statements. For those accounts, the carrying firm may authorize the introducing firm to prepare or transmit statements on its behalf.
| Agreement effect | What it does not do |
|---|---|
| Identifies each firm's respective responsibilities | Eliminate a firm's regulatory responsibilities assigned to it |
| Helps determine which firm is responsible for each customer-account operational function | Transfer away accountability merely because another firm performs a function |
Think of the carrying agreement as a responsibility map: it identifies the firm responsible for each duty, which may differ from the firm performing the work.
Exam Tip: Gotchas
- A carrying agreement allocates responsibilities. It does not eliminate either firm's responsibility to meet the regulatory obligations assigned to it.
- For fully disclosed accounts, the carrying firm keeps safeguarding and account-statement responsibility. Other operational functions can be allocated. The carrying firm may authorize the introducing firm to prepare or transmit statements on its behalf.
What Must the Customer Be Told?
- A fully disclosed customer receives written notice that the carrying agreement exists and how responsibilities are allocated.
Exam Tip: Gotchas
- The customer notice is about responsibility, not performance. It tells the customer that an agreement exists and how the two firms allocate responsibility. It does not promise which firm performs any particular task.
What Should You Check on Exam Day?
- For accounts carried on a fully disclosed basis, confirm that the agreement preserves the carrying firm's safeguarding and account-statement responsibilities. The carrying firm may authorize the introducing firm to prepare or transmit statements on its behalf.
- Separately, confirm that the customer receives written notice of the agreement and the allocation.