Md. Code Regs. 31.04.09.03

Current through Register Vol. 51, No. 22, November 1, 2024

Section 31.04.09.03 - Terms of Custody Agreement

A. The terms of a custody agreement shall comply with the requirements of this regulation.

B. Certificated securities held by the custodian shall be held separate from the securities of the custodian and of all of its other customers.

C. Identification of Securities on Custodian's Records.

(1) Securities held indirectly by the custodian and securities in a clearing corporation shall be separately identified on the custodian's official records as being owned by the carrier.

(2) The records shall identify which custodied securities are held by the custodian or its agent and which securities are in a clearing corporation or in the Federal Reserve book-entry system.

(3) If the securities are in a clearing corporation, the records also shall identify:

(a) Where the securities are;

(b) If in a clearing corporation, the name of the clearing corporation; and

(c) If through an agent, the name of the agent.

D. All custodied securities that are in registered form shall be registered:

(1) In the name of the carrier or in the name of a nominee of the carrier;

(2) In the name of the custodian or a nominee of the custodian; or

(3) If in a clearing corporation, in the name of the clearing corporation or a nominee of the clearing corporation.

E. Withdrawal of Securities.

(1) Except as provided in §E(2) of this regulation, custodied securities shall be:

(a) Held subject to the instructions of the carrier; and

(b) Withdrawable on demand of the carrier.

(2) Custodied securities used to meet the deposit requirements set forth in Insurance Article, § 4-106, Annotated Code of Maryland, shall be under the control of the Commissioner and may not be withdrawn by the carrier without the approval of the Commissioner.

F. The custodian shall:

(1) Send or cause to be sent to the carrier a confirmation of all transfers of custodied securities to or from the account of the carrier; and

(2) Furnish, not less than monthly, the carrier with reports of holdings of custodied securities at times and containing information reasonably requested by the carrier.

G. Provision of Information to the Commissioner.

(1) The custodian shall be authorized and instructed by the carrier to honor any requests made by the Commissioner for information concerning the carrier's custodied securities.

(2) The Commissioner may, from time to time, request, and the custodian shall furnish, a detailed listing of the carrier's custodied securities.

(3) The custodian also shall provide an affidavit certifying the custodian's safekeeping responsibilities relative to the custodied securities.

(4) The custodian's response to a request for information from the Commissioner shall:

(a) Be made directly to the Commissioner; and

(b) Encompass all of the carrier's custodied securities.

H. The custodian and its agents shall send to the carrier:

(1) All reports that they receive from a clearing corporation on their respective systems of internal accounting control; and

(2) Reports prepared by outside auditors on the custodian's or its agent's internal accounting control of custodied securities that the carrier reasonably may request.

I. The custodian shall maintain:

(1) Records sufficient to demonstrate and verify information relating to custodied securities that may be reported in the carrier's annual statement; and

(2) Supporting schedules and information required in an audit of the financial statements of the carrier.

J. On written request from an appropriate officer of the carrier, the custodian shall provide the appropriate affidavits, substantially in a form designated by the Commissioner, with respect to custodied securities.

K. The custodian shall:

(1) Secure and maintain insurance protection at levels considered reasonable and customary for the custodian industry covering the custodian's duties and activities as custodian for the carrier's assets;

(2) Describe the nature and extent of the insurance protection; and

(3) Promptly disclose to the carrier any change in the insurance protection during the term of the custodial agreement.

L. The custodian shall indemnify the carrier for any loss of custodied securities caused by the negligence or dishonesty of the custodian.

M. If there is a loss of custodied securities for which the custodian is obligated to indemnify the carrier under §L of this regulation, the custodian promptly shall replace:

(1) The securities or the value of the securities; and

(2) The value of any loss of rights or privileges resulting from the loss of securities.

N. The agreement may provide that the custodian is not liable for failure to take an action required under the agreement in the event and to the extent that the taking of the action is prevented or delayed by:

(1) War (whether declared or not and including existing wars), revolution, insurrection, riot, or civil commotion;

(2) Act of God, accident, fire, or explosion;

(3) Stoppage of labor, strikes, or other differences with employees;

(4) Laws, regulations, orders, or other acts of any governmental authority; or

(5) Any other cause beyond the custodian's reasonable control.

O. Agreement between Custodian and Agent.

(1) Except as provided in §O(2) of this regulation, if the custodian gains entry in a clearing corporation through an agent, there shall be an agreement between the custodian and the agent under which the agent is subject to the same liability for loss of custodied securities as the custodian.

(2) If the agent is subject to regulation under the laws of a different jurisdiction than the custodian, the Commissioner may accept a standard of liability applicable to the agent that is different from the standard of liability applicable to the custodian.

P. Notice of Termination or Withdrawal.

(1) The custodian shall provide written notification to the Commissioner if:

(a) The custodial agreement with the carrier has been terminated; or

(b) 100 percent of the account assets in any one custody account have been withdrawn.

(2) The notification shall be given to the Commissioner within 3 business days after:

(a) The receipt by the custodian of the carrier's written notice of termination; or

(b) The withdrawal of 100 percent of the account assets.

Q. The agreement shall provide that the use of an agent by a custodian does not alter the custodian's obligations under the agreement and that the terms of the agreement may not be modified by the terms of any agreement between the custodian and the agent.

Md. Code Regs. 31.04.09.03

Regulations .03, Registration of Securities in the Names of Nominees and the Deposit of Securities in Depository Trust Company, repealed and Regulations .03, Custody Agreements and the Use of Clearing Corporations and Federal Reserve Book-Entry System, adopted effective April 26, 2004 (31:8 Md. R. 648)
Regulations .01 adopted effective September 22, 1997 (24:19 Md. R. 1339)