After a security count, the operations group at Ravenswood Capital cannot resolve a several-hundred-share break in one issue. How must the firm handle the unresolved break?
- A.Carry it on the stock record until the next count, which may resolve it.Wrong. Leaving a break unbooked is the outcome the difference-account requirement exists to prevent.
- B.Write it off to the error account of the firm immediately.Wrong. That account absorbs trading mistakes, and nothing has yet established this break as a loss to the firm.
- C.Enter it into a difference account as a long or short position within seven business days of the count.Correct. The rule fixes both the destination of the entry and the deadline for making it.
- D.Notify each customer holding the issue before making any entry on the books.Wrong. No customer notice conditions the bookkeeping entry, and the break is a records problem until it is traced to an account.
Why: FINRA Rule 4522 requires members to make the counts, examinations, verifications, comparisons and entries set out in SEA Rule 17a-13, and it adds that unresolved differences must be entered into a difference account within seven business days after each security count, identified as long or short. The point is that a break stops being invisible: it takes up a named position on the books where it can be aged, researched and, if necessary, charged. Resolution and the entry are separate obligations, so tracing the shares afterwards does not excuse missing the deadline. Only a break the firm has actually cleared before the deadline escapes the entry.