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Series 24 Group Share > Chapter 16 study notes > Flashcards

Chapter 16 study notes Flashcards

1
Q

BD Net Equity Calculation

A

Book Equity + Year to Date Results
- Satisfactory Subordinated Loans = Total Capital
Total Capital - Non-Allowable Assets = Tentative Net Capital
Tenative Capital - Haircuts (Reductions on Securities Positions) = Net Capital

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2
Q

Net Capital

Carrying firm

A

250K

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3
Q

Net Capital

Carrying firm that does not hold customer assets or securities

A

100K

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4
Q

Net Capital

Prime Broker

A

1.5 Million

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5
Q

Net Capital

Block positioner Or BD executinf for a Prime Brokerage Agreement

A

1 Million

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6
Q

Net Capital

Firm Commitment Underwriter

A

100 K

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7
Q

Net Capital

Market Maker

A

100K or
2,500 pre stock above 5 and 1,000 for stock below 5
cap is 1 mill

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8
Q

Net Capital

Introducing firm

A

5K

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9
Q

Net Capital

Introducing firm that receives and forwards assets ans securities

A

50K

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10
Q

Net CApital

Mutual Fund Firm

A

5K

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11
Q

Net Capital

M&A and DPP firm

A

5K

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12
Q

aggregate indebtedness

A

In general, aggregate indebtedness
includes liabilities that are not secured by a specific asset of the broker-dealer.
Liabilities that are
secured by a broker-dealer’s assets are usually excluded from AI.

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13
Q

broker-dealer’s AI/NC ratio is calculated from

A

calculated from a trial balance. The trial balance is a listing of all
accounts in a firm’s general ledger, divided into two groups—debits and credits. From the trial
balance, the broker-dealer can construct its income statement, balance sheet, and other financial
statements, as well as its net capital. The trial balance must be prepared monthly.

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14
Q

AI to Net Capital Ratio

A

1/15 of its aggregate indebtedness.

First-Year Requirement 1/8

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15
Q

Net CApital under

Alternative Net Capital Requirement

A

Under this approach, a broker-dealer is required to maintain net capital of $250,000 or 2% of the
aggregate debit items, whichever is greater.

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16
Q

Summary of Net Capital Requirements

A
  1. Net capital of at least 1/15 of AI (1/8 of AI in the first year of operation)
  2. The minimum dollar requirement, depending on the type of business
  3. The market-maker requirement, depending on the number of stocks in which markets are
    made
17
Q

common stock haircut

A

15%

18
Q

TOC Stock Haircut with less then 3 mm

A

40$

19
Q

Undue Concentration Deduction

A

if any long or short position is more than 10%
The undue concentration
rule requires an additional deduction on the amount in excess of the 10% threshold. If the security
falls under the general rule for haircuts, the percentage applied is 15%

20
Q

Haircut

Secured demand note agreement

A

However, securities normally subject to a 15% haircut (such as
common stock) are subject to a deduction of 30% when used to back a secured demand note.

21
Q

broker-dealer’s equity must be

A

at least 30% of its debt-equity total.

22
Q

A broker-dealer’s debtequity

total is

A

equal to its net worth plus the amount of its satisfactory subordination agreements.

23
Q

Focus REports

A

Carrying and non carryin file focus report 2 quarterly within 17 days of quarter end.
Carrying firms file focus report 1 monthly within 10 business days of month end.

24
Q

Annual Report

Filing

A

The annual report must be filed no later than 60 days after the date of the financial statements

25
Q

Statements to Customers

A

Broker-dealers that hold client funds or securities are considered to have customers. Audited annual statements must be sent to customers within 105 days after the brokerdealer
files the annual report with the SEC.

26
Q

Net Capital

Violation

A

If a broker-dealer has a ratio of aggregate
indebtedness to net capital exceeding 12 to 1, or if the dollar amount of net capital is less than 120%
of its minimum net capital requirement, it must notify the SEC and its DEA within 24 hours.

27
Q

Non-Current Books and Records

A

If a broker-dealer fails to maintain books and records as required
by SEC rules, it must give notice to the SEC and its DEA that day. The broker-dealer must file a
report within 48 hours detailing the steps that are being taken to correct the situation. This report
must be transmitted by overnight delivery.

28
Q

Material Inadequacies

A

If a broker-dealer discovers, or is notified by an independent public accountant,
of the existence of any material inadequacy in the broker-dealer’s accounting system, internal
accounting controls, or procedures for safeguarding securities, the chief financial officer of the
broker-dealer must send telegraphic or facsimile notice to the SEC within 24 hours and must file a
report within 48 hours stating what steps are being taken to correct the situation. The broker-dealer’s
designated examining authority must also be notified.

29
Q

Tests for

Members Experiencing Financial and/or Operational Difficulties

A

 Reduction in excess net capital by 25% in the preceding two months or 30% or morethe preceding 3 months
 The broker-dealer is not in compliance with Customer Protection rules or cannot show that it is.
 The broker-dealer is unable to clear and settle transactions in a timely manner.
 Books and records have not been maintained under SEC regulations.
 The broker-dealer is not in compliance with net capital requirements or cannot show that it is.
 The firm has experienced a substantial change in the manner in which it processes its business,
which may increase the potential risk of loss to customers

30
Q

Special REserve Calculation Time Frames

A

Computations must be made weekly, as of the close of the last business day of the week
BD’s are allowed to make the computation monthly. If they deposit equal to at least 105% of the amount otherwise required. This method is only available to
broker- dealers whose ratio of aggregate indebtedness to net capital does not exceed 8 to 1 and that do not carry customer free credits exceeding $1,000,000.

31
Q

Making Inquiries of the SIC

Exemptions

A
  1. Is received from the issuer or issuer’s agent
  2. Is received from another reporting institution or Federal Reserve Bank
  3. Is registered in the name of the (existing) customer or that person’s nominee
  4. Was previously sold to the customer by the firm, as verified by the firm’s internal records
  5. Is received as part of a transaction that has an aggregate face value of $10,000 or less in the case
    of bonds, or market value of $10,000 or less in the case of stocks
    If stock that is delivered by a customer is registered in street name rather than the customer’s name,
    inquiry is required. If stock is delivered by a party who is not currently a customer of the brokerdealer,
    inquiry is required.
32
Q

Disclosure of Financial Condition

A

Member firms are required to send balance sheets to
customers every six months and (upon request) make available to customers a copy of the firm’s
most recent balance sheet. A customer is defined as any person having funds or securities in the
possession of the member firm.

Series 24 Group Share (42 decks)

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