Series 24 - Session Six Flashcards
What is net capital?
allowable assets minus liabilities
What are the minimum net capital requirements for a self-clearing or carrying firm?
1) minimum $250,000; 2) if acting as a prime broker $1.5 million 3) if acting as an executing broker $1 million
What defines a self-clearing or carrying firm?
1) holds customer funds and securities 2) participates in firm underwriting commitments
What defines an introducing or fully-disclosed firm?
1) cannot hold customer funds or securities 2) introduces accounts to the clearing firm 3) permitted occasional trades in its investment account
What are the net capital requirements for mutual fund/variable annuity contracts b/ds?
subscription only = $5,000; wire orders = $25,000
What are the net capital requirements for market makers?
$100,000 minimum; $1 million maximum; depends on number of markets made
What are the net capital requirements per stock?
$5 or less = $1,000; more than $5 = $2,500
How do you calculate net capital?
net worth + subordinated loans = total available capital; total available capital - nonallowable assets = tentative net capital (TNC); TNC - haircuts on securities positions = Net Capital (NC)
What are allowable assets?
1) cash and cash equivalents 2) current receivables 3) registered securities
What are non allowable (un allowable) assets?
1) unsecured receivables 2) unregistered securities 3) real estate 4) exchange memberhip 5) furniture
What are the haircuts on firm inventory?
1) common stock = 15%; 2) IPO = 30% 3) securities with limited trading markets (less than 4 market makers=40%
What is undue concentration?
When nonexempt securities make up 10% of the TNC you must add 15% of the excess
What is aggregated indebtedness? (AI)
For every 1 dollar in net capital, a firm cannot have more than 15 dollars in indebtedness
Ratio of AI to computed net capital can exceed what level for first year firms?
8:1
Ration of AI to computed net capital cannot exceed what level for established firms?
15:1
For an established carrying firm, what is the minimum net capital?
greater of $250,000 or 1/15 of AI
What are the requirements for subordinated debt?
1) minimum 1 year; 2) agreement must be in writing 3) must be for specific amount 4) copy must be filed with FINRA 30 days prior to the effective date and with the SEC 10 days prior to the effective date 5) secured demand note
What is temporary subordinated debt?
1) used to restore capital reduced by haircut 2) maximum duration 45 days 3) maximum of 3 per year 4) copy filed with FINRA and SEC 10 days prior to effective date
Trial balances must be prepared by all firms how often?
monthly
If a member terminates it’s independent accountant, regulatory authorities must be notified within how many days?
within 15 business days
If net capital falls below minimum, notification is required when?
immediately
If AI to NC ratio is greater than 15:1 (or 8:1 for a first year firm) when is noticed required?
immeditely
If debt equity ratio exceeds 70% for more than 90 days, notice is required when?
immediately
If books and records are not current, notice is required when?
immediately with follow-up within 48 hours with a plan for bringing the books and records into compliance
If there are material inadequacies in the accounting system, when is notice required?
within 24 hours with follow-up within 48 hours with plans for corrections
What is the % that capital must fall to trigger an early warning notice.
If capital falls below 120% of minimum or the AI to NC ratio is greater than 12:1
SEC requires firms to count all securities being held by the firm how often?
at least quarterly
What are example of good control locations?
1) commercial banks 2) DTC 3) clearing accounts at other broker/dealers 4) foreign custodian banks
What are examples of not good control locations?
1) S&Ls 2) credit unions 3) foreign bds
When are reserve calculation computed?
weekly
When computing reserves, if credits exceed debits, deposit into a bank within what time frame?
1 hours when bank opens on the second day
If securities are missing and no criminal action is suspected, what are the reporting requirements?
2 business days to location; 3rd business day report to SIC and transfer agent
If securities are missing and criminal action is suspected, what are the reporting requirements?
Notify FBI promptly (same day); 1 day to report to SIC and transfer agent
If securities are recovered, how many days to report?
1 business day
Inquiries of certificates are required unless what?
1) certificates are received from another b/d; 2) certificates are received from an existing customer (in that customer’s name and verified from previous sale) 3) the certificates are valued at $10,000 or less 4) came from the issuer
What does SIPC stand for?
Securities Investor Protection Corporation
What is SIPC coverage?
$500,000; no more than $250,000 in unrecovered cash
Fingerprinting is required for who?
1) registered persons 2) persons who handle customer funds or securities 3) person responsible for preparing firm’s original books and records
Fidelity bond amounts are based on the firms net capital requirements? How is it determined?
1) It is the highest net capital in previous 12 months or a minimum of 120% of net capital
What records are required to be kept for a lifetime?
S - stock certificate books; P - partnership articles; A-articles of incorporation; M- Minutes of meetings
What records are required to be kept for 6 years
1) blotters 2) general ledger 3) stock records 4) customer ledgers (statements) 5) customer account records 6) principal designation records
What records are required to be kept for 3 years?
1) U-4s 2) sales literature 3) focus reports 4) fingerprint cards 5) employment records
How long are complaint records kept?
4 years
The corporate money laundering program must be reviewed how often?
annually
The corporate money laundering program must be approved by whom?
senior management in writing
What form must be filed for currency receipts of more than $10,000?
Currency Transaction Report
Within how many days must form 112 (currency form for more than $10,000) be filed?
within 15 days of receipt
How long must copies of Form 112 (currency of $10,000) be kept?
5 years
SAR (suspicious activity reports) must be filed within what time frame?
30 days
SARs must be kept for how long?
5 years
SARs are required for deposits totaling what amount in one day?
$5,000
You cannot notify the customer if a SARs has been filed on them. True or False
True
Exception reports (unusual activity in customer accounts) must be reported when?
by July 31 of each year
How long must exception reports (unusual activity in customer accounts) be kept?
18 months
