Stamp Taxes
Some states charge a stamp tax on the transfer of securities. The seller member firm can pay the stamp tax by purchasing physical stamps and affixing them to a sale memorandum ticket. The stamps must then be cancelled after the transaction so that they can’t be used again. Thus, at the time of delivery, the seller will give the buyer a sale memorandum ticket with the cancelled state transfer stamps attached. The stamps must be in the correct amount as required by the state in which the sale occurs. Alternatively, the tax may be paid by the seller member firm through securities clearing organizations.
If the seller does not provide the correct amount of stamps, the buyer may provide and cancel the additional state transfer stamps and deduct the cost from the purchase price.
FINRA Rule 11340
Sample Question 1
An investor holds $10,000 of fully-paid-for and settled ABC stock in a cash account. The investor does not hold any additional cash or securities in the cash account. The investor sells all the ABC stock on Monday. On Thursday the investor buys $10,000 worth of XYZ stock. Which of the following is true?
A. The transaction involves freeriding and is a violation.
B. The transaction is permissible.
C. The transaction involves trade shredding and is a violation.
D. The transaction involves a wash sale and is a violation.
Answer: B. The transaction is permissible, because an investor can sell a fully-paid-for and settled security held in a cash account. The $10,000