Series 27 flashcards
Series 27 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- FOCUS Report Part II
- A monthly regulatory report filed by broker-dealers that carry customer accounts; it includes net capital, the customer reserve formula, and financial statements.
- FOCUS Report Part IIA
- A quarterly regulatory report filed by broker-dealers that do not carry customer accounts; it presents net capital and condensed financial information.
- Annual audited financial statements
- Financial statements prepared under U.S. GAAP and audited by an independent PCAOB-registered accountant, due within 60 days of the broker-dealer's fiscal year end.
- PCAOB-registered accountant
- An independent public accounting firm registered with the Public Company Accounting Oversight Board; broker-dealers must use one for annual audited financial statements.
- Net capital reconciliation
- The process of confirming that net capital reported in the FOCUS Report agrees with the general ledger, stock record, and supporting workpapers.
- Stock record
- A record showing every security position held long or short by a broker-dealer, including the location of the securities such as vault, DTC, or street side.
- T+1 settlement
- The standard settlement cycle for most U.S. corporate securities, under which trades settle one business day after the trade date.
- Buy-in
- A procedure used when a seller fails to deliver securities; the buyer purchases the securities in the open market and charges the failing seller.
- Continuous Net Settlement
- A DTC clearing system that nets trades among clearing members and manages outstanding fails to deliver or receive.
- Due bill
- A claim used when a dividend or interest payment belongs to the buyer or seller because a trade is pending settlement around the record date.
- SEA Rule 17a-3
- The SEC rule that specifies the books and records a broker-dealer must create and keep current, including blotters, ledgers, and customer account records.
- SEA Rule 17a-4
- The SEC rule that sets retention periods for broker-dealer records, generally six years with the first two years readily accessible.
- WORM storage
- Non-rewriteable, non-erasable electronic recordkeeping required by Rule 17a-4(f), with an audit trail and the ability to download records.
- Order ticket retention
- Memoranda of orders must be kept for three years, with the first two years readily accessible to regulators.
- Complaint retention period
- Written customer complaints must be retained for four years under FINRA and SEC recordkeeping requirements.
- Life-of-enterprise records
- Partnership articles, charter documents, and minute books must be kept for the entire life of the broker-dealer.
- Special reserve bank account
- An account required by SEA Rule 15c3-3 that holds cash for the exclusive benefit of customers and is separate from firm funds.
- Customer reserve formula
- A calculation comparing customer credits with customer debits to determine the amount that must be deposited in the special reserve bank account.
- Possession or control
- The requirement that fully paid and excess-margin customer securities be held physically or in an approved depository so the firm can deliver them.
- Free credit balance
- Cash owed to a customer that the customer may withdraw on demand; it is customer money and cannot fund firm operations.
- PAB account
- A proprietary account of the broker-dealer that may be excluded from the customer reserve if the firm satisfies conditions in SEA Rule 15c3-3.
- Weekly reserve computation
- The customer reserve formula is computed as of the close of the last business day of each week, with the required deposit made by the rule's deadline.
- Net capital
- Net worth plus qualifying subordinated loans minus nonallowable assets and securities haircuts, computed under SEA Rule 15c3-1.
- Aggregate indebtedness ratio
- A standard test that limits aggregate indebtedness to 15 times net capital for firms using the basic net capital method.
- Haircut
- A percentage deduction from the market value of a security position to account for market, credit, and liquidity risk in net capital.
- Subordinated loan
- A loan that qualifies as net capital only if it meets SEA Rule 15c3-1d and is approved by FINRA, with repayment subordinated to customers.
- Early warning notification
- A broker-dealer must notify the SEC and FINRA if net capital falls below 120% of its required minimum, even before an actual deficiency.
- Nonallowable assets
- Assets such as goodwill, furniture, fixtures, and prepaid expenses that are excluded from net capital because they cannot readily be converted to cash.
- Customer segregation
- The practice of keeping customer cash and securities separate from firm assets, including in a special reserve bank account.
- Cash sweep program
- An arrangement that moves customer free credit balances into money market funds or bank deposits, requiring clear disclosure to customers.
- Stock loan rebate
- A payment made by a borrower of securities to the lender, reflecting the use of collateral and short-term funding economics.
- Unsecured borrowing
- A loan not secured by collateral; it counts as aggregate indebtedness and does not qualify as net capital.