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S27 Prep

Who What and How

Carrying broker-dealer has reserve deficiency – who must be notified? SEC and designated examining authority within 24 hours
Introducing broker without custody has net capital deficiency – who notified? SEC and designated examining authority within 24 hours
Alternative method firm tentative net capital below $5B – who notified? SEC within 24 hours
Aggregate indebtedness exceeds 1 200% – who notified?
Firm fails to maintain possession or control – who notified? SEC and designated examining authority within 24 hours
Change in independent accountant – who notified? SEC and designated examining authority within 10 business days
Material weakness in internal controls – who notified? SEC and designated examining authority within 30 days
FOCUS report filing – filed with whom? SEC and designated examining authority
Carrying firm weekly reserve computation required? Yes; introducing firms without custody are not
Introducing broker that does not hold customer funds – reserve required? No; not subject to 15c3-3 reserve formula
Clearing firm responsible for custody compliance? Yes; carrying/clearing broker has custody obligations
Net capital deficiency operational impact – which firms affected? All broker-dealers must cease business immediately
Appendix E alternative method eligibility – which firms? Large broker-dealers approved by SEC
Customer complaint alleging theft – report to whom? FINRA via FOCUS or required reporting channels
Broker-dealer books and records maintained under which authority? SEC oversight; examined by designated examining authority
Early warning capital triggers reported to whom? SEC and designated examining authority
Fully disclosed introducing broker capital rule? Subject to 15c3-1 but not 15c3-3 reserve
Carrying broker primary financial responsibility? Maintain net capital and customer reserve
Designated examining authority typically who? FINRA for most broker-dealers
SIPC involvement triggered when? Customer assets at risk due to firm failure
Notification memory rule? Capital or custody issue equals SEC plus DEA within 24 hours
Carrying broker-dealer – subject to customer reserve rule? Yes; subject to SEC Rule 15c3-3
Fully disclosed introducing broker – subject to reserve rule? No; does not maintain customer custody
Broker-dealer that holds customer securities – possession or control rule applies? Yes; subject to 15c3-3
Introducing broker without custody – possession or control required? No; clearing firm responsible
All broker-dealers – subject to net capital rule? Yes; SEC Rule 15c3-1 applies to all
Broker-dealer using alternative method – subject to Appendix E? Yes; if approved by SEC
Small broker-dealer without custody – reserve computation required? No; not subject to 15c3-3 formula
Clearing firm – responsible for reserve deposits? Yes; carrying firm must fund reserve
All broker-dealers – subject to FOCUS filing? Yes; Rule 17a-5 applies
All broker-dealers – subject to quarterly securities count? Yes; Rule 17a-13 applies
Broker-dealer with custody – subject to weekly reserve computation? Yes
Proprietary trading firm without customer accounts – subject to reserve rule? No; no customer credits
Market maker – subject to net capital rule? Yes; 15c3-1 applies
Alternative method firms – minimum tentative net capital requirement? At least $1 billion
Fully disclosed introducing broker – minimum net capital typically? Lower requirement; no custody
Broker-dealer with public customers – subject to complaint record rule? Yes; FINRA Rule 4513
Firms engaging in short sales – subject to Reg SHO? Yes
Firms participating in IPO distribution – subject to FINRA Rule 5130? Yes
Carrying broker-dealer – responsible for safeguarding fully paid securities? Yes
Introducing broker with omnibus clearing – custody responsibility? Clearing firm bears custody obligations
Fully disclosed introducing broker without custody – which rule does NOT apply? SEC Rule 15c3-3 customer reserve rule
Proprietary trading firm with no customers – which rule does NOT apply? SEC Rule 15c3-3 customer reserve rule
Introducing broker – which rule still applies? SEC Rule 15c3-1 net capital rule
Carrying broker-dealer – which rule does NOT apply? Exemption from 15c3-3; carrying firms must comply
Alternative method firm – which rule still applies? SEC Rule 15c3-3 reserve rule
Firm with no public customers – which rule may not apply? FINRA Rule 4513 complaint record rule if no customer complaints
Market maker – which rule does NOT disappear? SEC Rule 15c3-1 net capital rule
Fully disclosed IB – quarterly securities count required? Yes; Rule 17a-13 still applies
Introducing broker – weekly reserve computation required? No; unless it holds custody
Clearing firm – who cannot avoid reserve obligation? Carrying broker-dealer
Firm not engaging in short sales – which rule does NOT apply? Regulation SHO marking requirements
Firm not participating in IPOs – which rule does NOT apply? FINRA Rule 5130 new issue restrictions
Broker-dealer with custody – can it claim reserve exemption? No
Proprietary firm with no customer accounts – reserve deposit required? No
Introducing broker – possession or control responsibility? Clearing firm handles custody compliance
All broker-dealers – which rule always applies? SEC Rule 15c3-1 net capital rule
Alternative method firm – exempt from early warning notice? No; Rule 17a-11 still applies
Firm without independent audit – allowed? No; Rule 17a-5 audit requirement applies
Carrying firm – exempt from box count? No; Rule 17a-13 applies
Introducing broker – exempt from net capital? No; 15c3-1 always applies
Created by: sjameve
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