Series 27 key terms

The Financial and Operational Combined Uniform Single report, a regulatory filing broker-dealers submit to FINRA and the SEC monthly or quarterly showing net capital, customer reserve computations, and financial results.

SEC rule requiring a broker-dealer to file annual audited financial statements, a compliance report on net capital and customer protection, and for some firms a report on internal control.

A firm's total assets minus total liabilities as shown on its balance sheet; this figure is adjusted for non-allowable assets and other items before it becomes regulatory net capital.

A deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility a material misstatement of the financial statements will not be prevented or detected on a timely basis.

SEC Rule 15c6-1 generally requires standard securities transactions to settle on the business day after the trade date, so firms must have cash and securities in place to meet that deadline.

SEC rule requiring a broker-dealer to send written notification at or before settlement disclosing the security, price, capacity, compensation, and settlement date for each customer transaction.

A record showing, for each security, the firm's long and short positions and where the securities are held, whether by the firm, at another broker-dealer, or at a transfer agent.

A firm that handles settlement, custody, and recordkeeping for another broker-dealer's trades; the introducing firm typically remains responsible for its customers and for its own books and records.

A transaction in which securities are lent to another party, usually against collateral, often to cover short sales or fails to deliver; the borrower pays a fee or rebate.

Federal Reserve Board rule governing extension of credit by broker-dealers to customers for securities purchases, including the initial margin requirement and the timing for payment.

FINRA rule setting margin requirements for customer accounts, including maintenance margin levels, and imposing special requirements on certain high-risk, concentrated, or volatile positions.

Rule 203(b) of Regulation SHO, requiring a broker-dealer to borrow or locate borrowable securities before executing a short sale, in order to reduce fails to deliver.

The Securities Investor Protection Corporation, a nonprofit that covers customer claims up to $500,000, including up to $250,000 for cash, when a member broker-dealer fails and customer assets are missing.

Insurance against employee dishonesty and related losses that FINRA member firms holding customer assets must maintain in specified minimum amounts under FINRA Rule 4360.

SEC rule listing the books and records a broker-dealer must create and keep current, such as trade blotters, ledgers, stock records, order tickets, and customer account records.

SEC rule prescribing retention periods for broker-dealer records, generally six years with the most recent two years readily accessible, and setting standards for storing electronic records.

SEC rule requiring a broker-dealer to count and verify its securities positions at least quarterly and reconcile any differences, with a report reviewed by a designated officer.

FINRA rule requiring member firms to make and preserve books and records in conformity with the Exchange Act recordkeeping provisions and the SEC's related rules.

The SEC's Customer Protection Rule, requiring a broker-dealer to keep customer securities in its possession or control and to hold cash owed to customers in a segregated reserve account.

The special reserve bank account for the exclusive benefit of customers required by Rule 15c3-3, funded with cash or qualified securities equal to the customer reserve computation.

Money owed to a customer in a securities account that is immediately available for withdrawal on demand and is not being held as collateral for a margin loan.

The condition under which a firm physically holds fully paid and excess margin securities, or holds them in a manner, such as an account at a depository, that permits prompt retrieval.

Customer securities that have been paid for in full and are not serving as collateral for a margin loan, so the firm must keep them in its possession or control.

Customer securities worth more than the amount needed to support the customer's debit balance under the maintenance margin requirement, so the excess must be held in possession or control.

The periodic calculation under Rule 15c3-3 comparing credits to customers, such as free credit balances, with debits, such as customer securities held, with any shortfall deposited into the reserve account.

Pledging customer securities as collateral for a loan, permitted only up to the amount of the customer's debit balance under SEC Rules 8c-1 and 15c2-1.

A regulatory liquidity measure calculated as net worth plus permitted subordinated debt, minus non-allowable assets, haircuts on securities positions, and other required charges.

Net capital before deducting haircuts on securities positions; falling below specified levels requires prompt notice to regulators even though the firm may still be in compliance.

A percentage deduction from the market value of a securities position to cushion against price volatility and liquidity risk when the firm computes its net capital.

The total of a broker-dealer's money liabilities after specified deductions, used as the denominator in the standard net capital ratio test.

The ratio used to test liquidity under the standard net capital method; a firm must keep aggregate indebtedness at or below 15 times its net capital.

Under the standard method, a firm must maintain net capital of at least $250,000 or 6 2/3% of aggregate indebtedness, whichever is greater; alternative methods set different minimums.

An asset that cannot be counted in net capital because it cannot readily be converted to cash, such as fixed assets, prepaid expenses, and unsecured receivables.

A borrowing that counts as capital for net capital purposes because the lender agrees to be repaid only after other creditors, under SEC-approved terms and a minimum required term.

A net capital charge applied when a firm holds a large position in a single security or in a group of related securities, imposing extra deductions beyond the normal haircut percentages.

SEC rule requiring a broker-dealer to notify the SEC and FINRA promptly when net capital falls below 120% of its minimum requirement or aggregate indebtedness exceeds 800% of net capital.

An arrangement that automatically moves customer cash out of a brokerage account into an interest-bearing vehicle, such as a money market fund or bank deposit, until the cash is needed.

A sweep in which idle customer cash purchases money market fund shares; because those shares are securities, the firm must hold them in its possession or control.

A sweep that places customer cash into FDIC-insured bank accounts, often at an affiliated bank, requiring disclosure of the program and careful handling under customer protection rules.

A short-term financing in which a firm sells securities and agrees to buy them back at a set price and date, raising cash to support inventory or customer settlement.