In addition, under the client protection rule, a broker must obtain a written agreement from the bank in which the bank undertakes not to lend or recreate securities deposited in a broker-dealer reserve account. The SEC`s explanatory memorandum is that this „provides a certain degree of protection by requiring that the securities be available to the broker in the event of financial difficulties.“ The calculation of net assets is subject to certain changes, including for unrealized gains and unrealized losses, a value of securities put on the market, the exclusion of subordinated debt, the deduction of securities haircuts (generally indicated but subject to adjustment), money market instruments or options, deductions for „inappropriate concentration“ and deductions for „open contractual obligations“ (a concept of related obligations). ives at zeic 1998, 1988, 1988, 1985, 1 In general, these changes are very conservative (compared to GAAP) and require deductions from net assets to account for the dealer`s dealer`s risk activities. The rules relating to the inclusion of subordinated debt in the calculation of net capital, the amount of outstanding debt that may be held by a dealer`s broker and the withdrawal of equity by the dealer broker`s owner are also part of the net capital rule. In order to identify brokers heavily financed by borrowing due to equity lending transactions, the SEC also adopted an amendment to reporting rule 17a-11. This new provision requires a dealer broker to inform the SEC if the total amount of money payable (principally) for all securities borrowed or subject to a repo transaction or the total contractual value of all contracts lent or having been the subject of a reverse retirement transaction exceeds 2,500% of the provisional net capital. It is important that government bonds (including bonds) are excluded from this calculation. [2] See „Principles of Financial Responsibility for Dealer Dealers“ (SEC Release 34-55431, March 9, 2007) (proposed publication). (back) The net capital rule allows brokers to follow either a „simple“ method or an „alternative“ method to comply with the rule.
The „core“ method requires a broker to first calculate its „aggregate debt“ and then generally limit that aggregate debt to 800% of the broker`s net capital in the first fiscal year and 1,500% thereafter. In the case of an „alternative“ method, a broker must not allow its net capital to be lower than that of (a) USD 250,000 or (b) 2% of the aggregated drawdowns calculated in accordance with the client protection rule described below. A dealer broker must opt for the use of the alternative method of calculating net capital and inform his designated audit authority (usually finra) of this choice. The amendments codify the letter of the PAIB and require the transport of broker dealers: (i) to perform a separate calculation of the reserve for the own accounts of other brokers („PABs“) in addition to the calculation of client reserves currently required for client accounts in accordance with Rule 15c3-3; (ii) the establishment and financing of a separate reserve bank account for PAB account holders; and (iii) acquire and maintain physical ownership or control of non-marginal securities held for PAB accounts. After the rule changes, a PAB broker broker account may use PAB brokers account securities for its own purposes, provided that it informs the PAB account holder that it intends to do so and gives the PAB account holder the opportunity to object to such use. If the executive broker meets these requirements, the PAB account holder is not required to deduct the value of the PAB account from its net capital in accordance with the net capital rule. . .
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