Net Capital and the Reserve Formula Calculation
Chapters in this video
- 0:00 Two characters, two protections: body armor vs panic room
- 0:52 The aggregate-indebtedness standard and the 1,500% leash
- 2:23 The alternative standard: greater of $250,000 or 2% of aggregate debit items
- 3:33 Minimum net capital dollar thresholds by firm activity
- 4:46 Sam's trap: always apply the greatest requirement that applies
- 5:56 Reserve formula: comparing total credits and total debits
- 7:05 Net capital and reserve formula are separate calculations
- 7:37 Rapid-fire exam recap
What this video covers
- Which of the two net-capital standards applies to a given firm scenario: aggregate-indebtedness or alternative
- Why 1,500% and 800% are maximum debt ceilings, not minimum net-capital percentages, and which firms get the tighter 800% leash
- How to match firm activities to the correct minimum net-capital dollar requirement, from $250,000 for firms carrying accounts down to $5,000 for bare-bones operations
- Why the greatest-requirement rule matters when a firm engages in multiple activities at different threshold levels
- What the reserve formula calculation measures: comparing total credits with total debits to find any net credit excess
- Where the net credit excess must go: the special reserve account for customers, and why the firm cannot touch it
- Why net capital and the reserve formula are separate calculations that both use financial records but address entirely different aspects of broker-dealer financial responsibility
Read the full lesson, free
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