Reporting and Recordkeeping Rules Flashcards
What is SEC Rule 17a-5
Broker-dealers are required to prepare financial reports known as FOCUS reports. Financial and Operational Combined Uniform Single report
These reports are required to be filed with the firms DEA - Designated Examining Authority (FINRA & SEC)
Clearing firms:
What FOCUS report do they file?
When is it filed?
Who is it signed by?
OBS stands for?
What info does it provide for FINRA?
When is it filed?
Clearing broker-dealer files FOCUS II by the 17th business day after month end and quarter end
- Detailed F/S from the firm with detailed schedules of financial and operational info.
- FOCUS report must be signed by the CEO, CFO, COO
OBS - Off Balance Sheet (quarterly) - OBS items including derivatives. Allows FINRA to determine impact of OBS activities on net capital, liquidity, leverage and ability to fulfil customer protection obligations.
Non- Clearing firms (5k & 50k): What FOCUS report do they file?
When is it filed?
Who is it filed to?
Non-clearing B/D files FOCUS IIA by the 17th business day after quarter end
Abbreviated FOCUS II filing.
This requirement is expanded if a non-clearing firm effects more than 10 trades/year out of its proprietary account.
FOCUS report must be signed by the CEO, CFO, COO
All broker-dealers are required to submit these quarterly forms (3)
Form custody (quarterly) - provides information on whether a firm maintains custody of customer or non-customer assets and how/where the assets are maintained.
SSOI (quarterly) - Supplemental Statement of Income - to assess the level of risk assumed by member firms. Supplies additional details on revenue and expense items that are not on FOCUS
SIS (quarterly) - Supplemental Inventory schedule -
Gives more info on the firms long and short inventory positions
No required for
1. firms that do not carry inventory
2. Firms with a net capital requirement less than 100k (market makers must file)
3. firms that only have an inventory position in market mutual funds
Process for extension request
written request to FINRA district office no later than 3 business days prior to the due date.
Only for delays outside the control of the member such as technical difficulties, contractor delays, auditor delays.
SSOI threshold
Only required for a line items that is greater than 5k or 5% of the firms total revenue or expenses in that category.
Firms that have more than 10% of revenue derived from participation in private placements and other unregistered offerings must report additional detail.
When do SSOI and SIS need to be filed
Filed with FINRA within 20 business days after quarter end
What information does a SLS provide
Supplemental liquidity schedule
Tells the FINRA whether the broker-dealer’s assets are liquid enough to promptly make cash payments to customers and creditors.
In what 2 situations must a SLS be filed
- The broker-dealer is a carrying firm with at least 25Mil in free credit balances.
- The broker-dealer has at least 1bil in debt from any or all of the following:
a. Repurchase agreements
b. Bank loans
c. borrowed securities
When must a SLS be filed
If required, filed within 24 hours of month end
What does SLS report stand for
Supplemental Liquidity Schedule
What does FOCUS report stand for
Financial and Operational Combined Unified Single Report
What does SSOI report stand for
Supplemental Statement of Income
What does SIS report stand for
Supplemental Inventory Schedule
What does DEA stand for
Designated Examining Authority
SLS disclosures include (5)
(Supplemental Liquidity Schedule)
- Repurchase agreements and reverse purchase agreements
- Securities borrowed or loaned
- Collateral in customer’ margin accounts
- Bank loans, including lines or credit that have not been used
- Deposits the broker-dealer has made with clearing houses
OBS Supplemental FOCUS report on gross exposures provides what information
requires BD’s to report their gross exposures in various financing transactions. reverse repos, repos and other transactions under GAAP that have been netted need to be unmasked
Also TBA (to be announced) securities, underwriting/financing commitments and the firms gross amount of derivative transactions
When must the OBS be filed
within 22 business days after calendar quarter end
If the aggregate of all gross amounts of OBS items is less than 10% of the firms excess net capital on the last day of the reporting period the firm does not need to file.
Who has to file form 17-H
- BDs that operate within a holding company (typically a sub of a bank) with at least 250k of net capital
- Large BDs with at least 20mil of net capital that do not operate within a holding company
How often is 17-H filed
Filed with SEC within 60 calendar days of each fiscal quarter end
What does form 17-H report
Discloses material information on MAPs (Material Associated Persons) whose activities could negatively impact the business either financially or operationally
Define MAP
Material Associated persons - affiliated entity such as a parent company, holding company, subsidiary
Annual Audit requirements
All Bds must submit an certified annual audit report to FINRA and SEC that must be performed under standards set by PCAOB
What is PCAOB
Public Company Accounting Oversight Board
Annual Notification of Accountant SEC requirements
SEC must be notified by December 10th of the name of the accountant who will perform that years audit.
Clearing firm must sign a statement, giving SEC and FINRA access to the reports filed and authorizing the public accountant to discuss with regulators.
FOCUS annual audit requirements
ALL BD must file an audited FOCUS II or IIA to FINRA and SEC no later than 60 calendar days after fiscal YE
Extension for annual audited FOCUS
If filing by 60 calendar days after fiscal YE would cause undue hardship, the firm can request an extension from FINRA no later than 3 business days from due date.
Max extension - 90 days from the date of Financial Statements
Only for delays outside of control - technical difficulties, contractor or auditor delays
Change in Accountant reporting requirements
15 business days to FINRA and SEC
FINRA - electronically made
SEC - both SEC regional office and principal Washington DC office
Change in accountant notice includes
- Date of notification of termination
-details of any problems during the 24 months preceding termination and whether they were resolved or not
-Must include letter from former accountant stating whether they agree or not
SSOi for private placements - what is required of firms that derive more than 10% of their total revenue from participation in private placements or other unregistered offerings
The firms must complete an operational page that gives more detail on each unregistered offering.
Clearing firm requirement to send customers financials
Each clearing firm must report its financial condition as disclosed in the FOCUS II to its customers.
Customers must be sent an audited B/S and computed amount of NC not later than 105 days from the firm’s fiscal year end
Firms must also send semi-annual unaudited B/S and computed NC to customers no later than 65 days after its mid-year point.
Definition of a customer for customer disclosure purposes
Any person that has cash or securities in custody of the firm.
Anyone who has effected a securities transaction through the firm in the month before or after the B/S is issued
Does not include partners or subordinate lenders
What must a firm do if it changes it’s fiscal year end
it must file a detailed reason with FINRA
What are additional annual reports that are required for clearing and non-clearing firms
Clearing firms: Annual compliance report
Non-clearing firms: Exemption report
what does the Annual compliance report cover?
internal controls over compliance with net capital rule (15c3-1)
customer protection rule (15c3-3
securities count rule 17a-13