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S27 FINRA

Core Formulas

TermDefinition
Net capital formula order Net worth minus non allowable assets equals tentative net capital minus haircuts equals net capital
What reduces net worth first in net capital calc Non allowable assets
What reduces tentative net capital second Haircuts
AI ratio formula Aggregate indebtedness divided by net capital
Maximum AI to net capital ratio allowed 15 to 1
Early warning AI level 12 to 1
If AI equals 14 to 1 violation No violation but close to limit
If AI equals 16 to 1 violation Yes violation
Early warning capital formula 120 percent times minimum requirement
If net capital below 120 percent trigger Notify DEA
10 percent test for concentration Move decimal left one place on tentative net capital
When does concentration trigger When position exceeds 10 percent of tentative net capital
Undue concentration excess formula Market value minus 10 percent of tentative net capital
Concentration exclusion rule Subtract greater of 500 shares market value or 10000 dollars
Common stock concentration haircut percent 15 percent of adjusted excess
If position equals exactly 10 percent concentration No trigger only if greater than 10 percent
Alternate net capital method formula Greater of 250000 dollars or 2 percent of aggregate debit items
Alternate method based on what Reserve formula debit items not AI
Basic method based on what Aggregate indebtedness ratio
Early warning minimum example Minimum 250k early warning 300k
AI violation threshold number Greater than 15 to 1
Concentration first step always Calculate 10 percent of tentative net capital
Created by: sjameve
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