You can have a large broker-dealer with a $250,000 minimum
net capital requirement but they keep a total of $33 million of net capital on hand while a smaller broker-dealer with the same $250,000 requirement may have only $500,000 of net capital.
There would also be a limit on debt financing which is part of their
net capital requirement.
"In the interests of our clients, we always suggested a maximum leverage of 20:1 while our maximum available leverage was 1:100." The rules also require CFTC registration of introducing brokers (IBs) and trading advisors, who need to maintain a minimum
net capital requirement or enter into a guarantee agreement with a Forex broker.
They also increase the minimum
net capital requirements for broker-dealers that use internal models to compute net capital (ANC broker-dealers).
* Audit procedures related to the computations of customer reserve and
net capital requirements;
Clients seeking internal model approval under Solvency II must now demonstrate sufficient
net capital requirements at the one in 200 year net aggregate exceedance probability level.
Pickard: In sum, they went from an objective standard to a subjective standard of measuring
net capital requirements, and in the process, the restraints on incurring indebtedness and the restraints on incurring positions were significantly lessened.
Banks and brokerages that want to comply with
net capital requirements have to hold assets rated by NRSROs.
* Securities firms incorporated in the United States that are broker-dealers registered with the Securities and Exchange Commission (SEC) and are in compliance with the SEC's
net capital requirementsFor example, most states require an audited balance sheet for investment advisers who hold client funds and many states require surety bonds or have
net capital requirements for investment advisers.
Arkansas Federal Savings Bank is teetering on the brink of insolvency, already well below
net capital requirements and with a sinking bottom line that appears headed for the deep end.
