The SEC's Net Capital Rule (5): correct answers - Covers the financial responsibility of brokerdealers.
- Net Capital rule is a Liquidity rule
- intended to protect customers and other BDs by requiring that all BDs have sufficient liquid capital (net capital) on hand at all times.
- requires BD...
Series 24 Chapter 11 || Already Graded A+.
The SEC's Net Capital Rule (5): correct answers - Covers the financial responsibility of
brokerdealers.
- Net Capital rule is a Liquidity rule
- intended to protect customers and other BDs by requiring that all BDs have sufficient liquid
capital (net capital) on hand at all times.
- requires BDs to provide a cushion of liquid assets in excess of liabilities to cover risks.
Total assets - total liabilities = tentative net capital. - haircut (shaves off part of value of
securities) = net capital
The minimum requirement for firms that carry customer accounts (2): correct answers - $250k
for firms that:
a. carry own customer accounts or carry accounts of other broker dealers
b. receive or hold funds or securities for customers or other BDs
c. BD must not allow its aggregate indebtedness to exceed 1,500% of its Net Capital (15:1)
d. 8:1 is imposed for 'newly formed bd's' operating in their first 12 months.
- $100,000 for a carrying firm that does NOT hold customer funds or securities beyond
settlement of a transaction and is exempt from net capital rules by using K(2)(i) exemptions.
Market Makers minimum requirement is: correct answers the GREATER of:
- $100k for firm engaged in market making or firm commitment underwritings or that executes
more than 10 trades per year for own account. (firms which also carry customer accounts are
subject to the 250k requirement)
- $2500 for each security which it makes a market with a market value of more than $5 per share
and $1000 for each security with a market value of $5 per share or less, with a max requirement
of $1,000,000.
Introducing firms or fully disclosed firms are firms which do NOT carry their own customer
accounts and have a minimum requirement of: correct answers - $50k for fully disclosed firms
which receive but do not hold customer securities (such firms MAY participate in firm
commitment underwritings but only as selling group members)
- $5k for fully disclosed firms which do NOT receive or owe funds or securities from or for
customers and do not participate in firm commitment underwritings, act as a market maker, or
handle wire order mutual funds.
A broker dealer with a $5k net capital requirement can (5): correct answers - participate in
underwritings on a best efforts or all or none basis
- effect an occasional transaction in securities for their own investment account
- act as a floor broker on an exchange.
- a $5k BD CANNOT act as a MM.
, - A $5k BD engaged in underwriting must promptly forward all customer checks to an escrow
agent and checks must be made payable to the escrow agent.
When an introducing member firm and a clearing member firm enter into a fully disclosed
clearing agreement, the clearing member and the introducing firm must: correct answers - submit
the agreement to FINRA for review and approval. this agreement must be disclosed in writing to
customers when they open a new account
- a clearing firm would only be allowed to solicit transactions from customers of an introducing
firm if the introducing firm gives their consent to the clearing firm.
Clearing/carrying member firms additional components (4): correct answers - clearing members
do NOT have to inspect or audit introducing firms books and records
- fully disclosed sharing agreements will not include a list of all clearing member's introducing
firms.
- if introducing firm is given authority to issue checks to customers from clearing firm's checking
account, clearing firm must review and accept introducing firm's procedures for safeguarding of
checks and issuance of checks.
- carrying BDs are responsible for sending customer account statements for their fully disclosed
firms.
Minimum requirements for firms that transact business in mutual fund shares ONLY & process
wire orders through a bank (k)(1) account: correct answers $25k for firms that are engaged in
this activity only and do not engage in any other dealer activity.
Qualified block positioner & its minimum net capital requirement: correct answers - engages in
buying and selling from or for a customer a block of stock with a current market value of 200k or
more in a single transaction or in several transactions done at same time from a single source to
facilitate a sale or purchase by such customer, and sells the shares as rapidly as possible
depending on circumstances.
- minimum net capital requirement of $1,000,000.
International prime broker-dealers have a minimum net capital requirement of: correct answers
$1,500,000
Capital Acquisition Brokers (CABs) (2): correct answers - firms that engage in limited range of
activities, essentially advising companies and private equity funds on capital raising and
corporate restructuring, and acting as placement agents for sales of unregistered securities to
institutional investors under limited conditions.
- firms that elect to be governed under the CAB rule set are NOT permitted to carry or maintain
customer accounts, handle customer's funds or securities, accept customers trading orders, or
engage in proprietary trading or market making.
The term 'capital acquisition broker' means any broker that SOLELY engages in any one or more
of the following activities: (6,long) correct answers - advising an issuer, including a private fund,
concerning its securities offerings or other capital raising activities.
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