A broker dealer "blanket" fidelity bond is an industry specific commercial crime policy which protects the clients of a broker/dealer from the dishonest acts of its employees and registered financial advisory representatives. The Financial Industry Regulatory Authority (FINRA) regulates broker dealers. It monitors the principal's financials stability and ensures that an appropriate blanket fidelity bond is in force. Known as a Securities Dealer Blanket Bond (SBDD) the more common instrument is the standardized "Form 14" for financial institutions. The coverage must include the following coverage provisions, at minimum:
There must be additional endorsements or wording specific to the broker dealer class, to wit; (2) The fidelity bond must include a cancellation rider providing that the insurance carrier will use its best efforts to promptly notify FINRA in the event the bond is cancelled, terminated or substantially modified; and, (3) A member's fidelity bond must provide for per loss coverage without an aggregate limit of liability.
The blanket fidelity bond must cover all persons associated with the member, except directors or trustees who are not performing acts within the scope of the usual duties of an officer or employee, and any defense costs for covered losses must be in addition to the minimum coverage requirements.
Per the Code (4360(b)), there is a formula for determining the appropriate amount for the broker dealer fidelity bond. "A member with a net capital requirement of less than $250,000 must maintain minimum fidelity bond coverage for all Insuring Agreements required by paragraph (a) of this Rule of the greater of (A) 120% of the member's required net capital under SEA Rule 15c3-1 or (B) $100,000. A member with a net capital requirement of $250,000 or more must maintain minimum fidelity bond coverage for all Insuring Agreements required by paragraph (a) of this Rule in accordance with the following table":
|Net Capital Requirement
under SEA Rule 15c3-1
|250,000 - 300,000||600,000|
|300,001 - 500,000||700,000|
|500,001 - 1,000,000||800,000|
|1,000,001 - 2,000,000||1,000,000|
|2,000,001 - 3,000,000||1,500,000|
|3,000,001 - 4,000,000||2,000,000|
|4,000,001 - 6,000,000||3,000,000|
|6,000,001 - 12,000,000||4,000,000|
|12,000,001 and above||5,000,000|
To apply for a broker dealer fidelity bond, we require the following:
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