Net Capital Requirements

What this video covers

• Why the Securities and Exchange Commission (SEC) net capital rule cares only about liquid assets for wind-down, not revenue or profitability
• How to distinguish the Basic Method (6 2/3% of aggregate indebtedness, the 15:1 ratio) from the Alternative Method (2% of aggregate debit items) and which firm type typically elects each
• The procedural violation that stands alone when a firm switches computation methods without designated examining authority (DEA) approval
• Dollar minimums by firm category: $250,000 for carrying or clearing firms, $50,000 for introducing firms that receive customer funds, $5,000 for pure subscription-way introducing firms, and why hybrid firms must use the highest applicable floor
• The four-step net capital calculation: start with generally accepted accounting principles (GAAP) net worth, add allowable subordinated liabilities, subtract non-allowable assets in full, then apply securities haircuts
• Why subordinated loans require pre-approval from the DEA, a minimum one-year term, and a subordination agreement that blocks repayment if it would cause a capital deficiency
• The instant consequences of dropping below required net capital: cease all securities business immediately, same-day early warning notification, and FINRA business expansion restrictions until full restoration