Financial and Operational Compliance
Financial and operational compliance
Financial questions center on two separate rules that candidates often merge: Rule 15c3-1 (net capital) and Rule 15c3-3 (customer protection). Net capital measures liquidity and requires a firm to maintain minimum net capital and a ratio of aggregate indebtedness to net capital. Rule 15c3-3 requires the firm to maintain possession or control of customer fully paid and excess margin securities and to compute a customer reserve, depositing required funds in a special reserve bank account. Supporting records must be current and accurate.
Operational compliance includes the quarterly securities count and verification under Rule 17a-13, the annual audit and financial statements under Rule 17a-5, FOCUS report filing, and early-warning notices under Rule 17a-11. Early warning is triggered when net capital falls below roughly 120% of the minimum requirement, when a customer reserve deficiency occurs, or when the firm fails to make or keep required records. Notice must be prompt, followed by written notice.
Traps
Do not confuse a firm's ordinary bank account with the special reserve account; commingling customer and firm funds is a classic violation. Another trap is assuming a net capital excess eliminates the need to compute the customer reserve. Also watch timing: annual audited statements are due within 60 days of fiscal year-end, and early-warning notice cannot wait for the next FOCUS filing.
Rule of thumb
Ask two questions separately: "Does the firm have enough capital?" for Rule 15c3-1, and "Are customer securities and funds protected?" for Rule 15c3-3.
Worked example: A firm's net capital drops to 115% of its minimum requirement. It must give prompt notice under Rule 17a-11 and file the required report, even though it has not yet fallen below the absolute minimum.