What is tentative net capital?
Tentative Net Capital means the net capital of the broker-dealer before deductions for market and credit risk, increased by the balance sheet value (including counterparty net exposure) resulting from transactions in derivative instruments that otherwise would be required to be deducted.
What is a SEC net capital obligation?
The SEC has stated the net capital rule is intended to require “every broker-dealer to maintain at all times specified minimum levels of liquid assets, or net capital, sufficient to enable a firm that falls below its minimum requirement to liquidate in an orderly fashion.” The Basic Method tries to reach this goal by …
How is net capital calculated?
Net capital is an organization’s net worth, commonly calculated by total assets minus total liabilities. A variation on this formula is to deduct assets not easily converted to cash, such as notes receivable or inventory.
What is regulatory net capital?
Regulatory Obligations Exchange Act Rule 15c3-1 (Net Capital Rule) requires that firms must at all times have and maintain net capital at specific levels to protect customers and creditors from monetary losses that can occur when firms fail.
What is US OTC stock?
Over-the-counter (OTC) securities are securities that are not listed on a major exchange in the United States and are instead traded via a broker-dealer network, usually because many are smaller companies and do not meet the requirements to be listed on a formal exchange.
Are broker-dealers complying with the SEC’s net capital rule?
Less noted is that the five broker-dealers originally owned by those investment bank holding companies continue to compute their compliance with the SEC’s net capital rule using the alternative net capital computation method established by the 2004 rule change.
Did the 2004 SEC net capital rule cause the financial crisis?
Beginning in 2008, many observers remarked that the 2004 change to the SEC’s net capital rule permitted investment banks to increase their leverage and this played a central role in the financial crisis of 2007-2009 .
What is the net capital rule and how does it work?
The net capital rule focuses on liquidity and is designed to protect securities customers, counterparties, and creditors by requiring that broker-dealers have sufficient liquid resources on hand at all times to satisfy claims promptly.
What is the minimum net capital required to maintain a business?
Under no circumstances shall it have net capital less than that required by the provisions of paragraph (a) of this section, or be required to maintain net capital of more than $1,000,000 unless required by paragraph (a) of this section .