Financial Management Flashcards
A Carrying BD must have how much minimum net capital (regardless of method of calculating required net capital)?
Minimum of $250k
A firm that has only _______% of its required net capital must ______ send notice to the SEC
120%
Promptly (within 24 hours)
E.g., if the net capital required is $250k, a firm with $300k of net capital (120% of $250k) must notify the SEC
An Introducing (Non-Carrying) BD must maintain net capital of $_____ if the firm receives client assets to pass to a Carrying BD
$50k
An Introducing (Non-Carrying) BD must maintain net capital of $_____ if the firm never touches client assets
$5k
Note - these firms may NOT participate as a syndicate member in an underwriting
A Qualified Block Positioner must have how much in minimum net capital?
$1mm
A QBP is a type of firm which purchases a block of securities at below market terms w intention to sell securities
A prime broker must maintain how much net capital?
minimum of $1.5mm
Under SEC rules, a BD’s indebtedness to net capital (debt + equity) ratio cannot exceed ___% for ___days
70%
90 days
Must be promptly reported to the SEC on the 91st day as a net capital violation
E.g., if a firm has debt + equity of $2mm, then its equity must be at least $600k to avoid tripping threshold
What is the Alternate Method for Net Capital Calculation?
Alternate method of net capital calculation:
The greater of
1) $250k; or
2) 2% of the debits in the reserve computation (early warning is at 5% of the debits in the reserve computation)
Under SEC Net Capital Rules, a securities dealer is a firm that effects more than _____ proprietary transactions in a _____ month period. This firm is subject to a net capital requirement of $______
10 proprietary transactions
12 month period
$100k
FOCUS reports, along with all the working papers and memos used in prep, must be retained for how long? Are these filed with FINRA or the SEC?
three years
Filed w the sec
Note a FOCUS report (Financial and Operational Combined Uniform Single report) is form that BDs report to the SEC its net capital position
Who must sign FOCUS reports on behalf of a BD?
CEO and CFO
True / false: RR (S24 holder) must prepare the FOCUS reports?
False - must be prepared by a Series 27 FinOp principal
How frequently must Carrying Firms and Introducing Firms file the FOCUS forms?
Carrying Firms - file the FOCUS Part 1 MONTHLY and Focus Part 2 QUARTERLY
Introducing Firms - file the FOCUS Part 2A QUARTERLY
True / false: BDs must provide customers with copies of both balance sheet and income statement upon request
False - firm are only required to provide balance sheet upon request
Under SOX, who must annually certify the scope and adequacy of the firm’s internal controls?
CEO and CFO
If a BD is notified by outside auditor that it will end service to the firm, how quickly must the BD notify SEC and FINRA?
Within 15 business days of receiving the notification
How often are securities counts (e.g., in the vault) conducted?
quarterly
How is the amount of a BD’s fidelity bond set?
based on the highest net capital requirement of the preceding 12 months (not last calendar year)
If the NC requirement of a BD is <$250k, how much fidelity bond is required?
the GREATER of
1) 120% of the BD’s net capital requirement or
2) $100k
True / false: fidelity bonds cover losts in client accounts due to external identity theft or losses in the event of firm bankruptcy
False
Fidelity bonds protect customers against losses arising from:
-Check forgery
-Lost or stolen securities
-Embezzlement
-Employee theft
-Misappropriation of funds
It does NOT cover errors / omissions (i.e., honest mistakes)
True / false: short interest reports must contain net positions and are reported twice a year
false 2x
short interest reports must contain gross short positions, not net positions
Reports of short interests (in all customer and proprietary accounts in all equities) must be reported twice a MONTH
A customer’s uninvested cash in a brokerage account is called
A free credit balance
What must be true for a BD to use customers’ free credit balance in firm’s ordinary course of business?
Must provide customers notice QUARTERLY of
1) the amount of their free credit balance
2) that the free credit balances are NOT segregated; and
3) that they are payable to the customer on demand (i.e. can be immediately withdrawn)
A ______ occurs when an executing firm provides a trade counterparty with the name of a clearing firm that will settle the transaction
a “give up”
Note - this arrangement often exists in a primer brokerage arrangement in which multiple firms execute trades which all settle through the centralized primer broker (whose name is “given up”)
