Chapter 2 Flashcards
What are blotters and by when should they be prepared?
Records of original entry. T+1
How often should the general ledger be prepared?
Monthly
What information do subsidiary records contain?
securities in transfer
securities/money borrowed/loaned
failed to r/d
dividends/interest received
What does securities position book / stock ledger contain?
long/short positions
Order tickets maintained if order not executed?
Yes
How do firms file Net capital computations ?
FOCUS form
Records preserved for 3y?
subsidiary, trial balance, employment app, order tickets, checkbooks/bank statements, FOCUS, U4 U5, manuals
Records preserved for 6y?
blotters, gen ledger, sec pos, customer ledger
Records preserved for life?
minutes, stock certif books, articles
How long records kept in readily accessible place?
2 years
Introducing BD record requirements?
None, unless clearing is done on omnibus basis
What are requirements if Introducing BD clears trades via bank?
If transactions are cleared through bank: bank statement that account is BD’s + bank provides notice to SEC that records available
Net capital formula
liquid assets - total liabilities
Clearing BD need to be member of?
DTCC & NSCC
NC for M&A, Inv co. subscription basis, no customer funds & securities
$5k
NC for Purchases inv co. shares on wire basis or sells stock for customers whose proceeds are immediately invested in open end inv co.
$25k
NC for Intro BD immediate delivery to clearing firm, best effort & all-or-none underwritings
$50k
NC for Market Makers, more than 10 prop trades / y, firm commitment underwriting
$100k
NC for General securities BD
$250k
NC for Prime broker
$1.5M
What kind of debt does Aggregate indebtedness include? What are AI/NC max ratios to be respected?
Aggregate indebtedness only includes debt related to customers & tax payable.
AI needs to be: 8:1 in Y1, 15:1 thereafter
What is a haircut and what are the levels?
Haircut: deduction from MV of securities for purpose of calculating NC requirements
Haircut = MV minus:
15% if 3 or more independant market makers
40% if 1 or 2
100% if unregistered or no market
Undue concentration haircut: additional 15% if prop position >10% of tentative net capital
30% for open contractual commitment (underwriting, delayed delivery)
What is a box count? How often? What impact can count differences have?
security counts to be made by certain exchange members, brokers, and dealers
if BD has custody => quarterly count
If count of certificates is below records => “short securities difference” situation => deduction of net capital of 25, 50, 75 or 100% after 1, 2, 3 or 4 weeks respectively
Long securities difference has not effect on NC.
Reporting of Missing & lost securities
Reporting with 1 biz day to SIC, TA and FBI if criminal activity
Otherwise: SIC & TA on 3rd biz day
