Delivery of Notices and Deadlines

Quick Answer

FINRA's proxy material forwarding rule requires broker-dealers holding securities in street name to promptly forward issuer materials to beneficial owners. Key deadlines include a minimum of 20 business days for tender offers, and 30 to 60 days for rights offerings before those rights expire worthless.

When securities are held in street name, the issuer does not know who the beneficial owners are. Only the broker-dealer's (BD's) name appears on the books. This creates an obligation for BDs to forward all issuer-related materials to the actual owners.

FINRA's proxy material forwarding rule requires BDs holding securities in street name to promptly forward all issuer-related materials to beneficial owners. This includes:

  • Proxy materials and voting instructions
  • Annual reports and financial statements
  • Information statements
  • Dividend notices
  • Tender offer documents
  • Rights offering materials
  • Any other communications from the issuer

Think of it this way: The issuer mails everything to whoever is listed as the registered owner. When that registered owner is a BD (because shares are in street name), the BD becomes the middleman responsible for getting those materials into the hands of the person who actually owns the shares.

Exam Tip: Gotchas

  • The issuer does not know who the beneficial owners are when securities are held in street name. The BD is responsible for forwarding all materials.
  • The obligation is to forward promptly, not "when convenient" or "upon request."

Key Corporate Action Deadlines

Different corporate actions have specific deadlines that shareholders must meet.

Tender offers:

  • The SEC requires a minimum of 20 business days for tender offers to remain open
  • Shareholders must respond by the expiration date to participate
  • The offering company must keep the tender offer open for at least this minimum period
  • Shareholders can withdraw tendered shares at any time before the deadline

Exam Tip: Gotchas

  • Tender offer minimum is 20 business days, not calendar days. This distinction is frequently tested.
  • Shareholders can change their minds and withdraw tendered shares before the expiration date.

Rights offerings:

  • Rights have an expiration date and become completely worthless if not exercised or sold before that date
  • The rights period is typically 30 to 60 days
  • Shareholders have three choices: exercise the rights (buy additional shares at the subscription price), sell the rights on the market, or let them expire

Exam Tip: Gotchas

  • Rights that expire unexercised have zero value. There is no extension or refund.
  • A BD should make sure clients are aware of approaching rights expiration deadlines.

Record date and ex-date:

  • The record date determines which shareholders are eligible to participate in a corporate action
  • Only shareholders who own the stock as of the record date receive dividends, rights, or voting privileges
  • The ex-date (ex-dividend or ex-rights date) is set on the same day as the record date under the current T+1 settlement cycle (when the record date falls on a business day)

Think of it this way: If you buy a stock on or after the ex-date, the trade will not settle in time for you to be the registered owner by the record date. You will miss the dividend or rights distribution.

What Should You Check on Exam Day?

  • Can you explain why the broker-dealer, not the issuer, must forward proxy and dividend materials in street name accounts?
  • Do you know the minimum number of business days a tender offer must stay open under SEC rules?
  • Can you state what happens to the value of rights that are not exercised or sold before expiration?
  • Do you know how the record date determines who is eligible for a dividend, right, or vote?
  • Can you explain why buying stock on or after the ex-date can cause you to miss a dividend?