Series 28 key terms

SEC rule that requires a broker-dealer to maintain a minimum amount of liquid net worth, calculated by deducting liabilities and non-allowable assets and then applying haircuts to securities positions.

The dollar floor of net capital a broker-dealer must maintain under Rule 15c3-1, commonly $250,000 for firms that carry customer accounts or hold customer funds.

Total money a broker-dealer owes to customers, other broker-dealers, and general creditors, excluding certain secured and subordinated liabilities, used to test compliance with the net capital ratio.

A broker-dealer's aggregate indebtedness divided by its net capital; most firms must keep the ratio at or below 15 to 1 to remain in compliance.

A percentage deduction from the market value of a security in the net capital computation, reflecting the risk that its value may decline or that it cannot be sold quickly.

An asset a broker-dealer may include in its net capital computation because it is liquid and readily convertible to cash, such as cash, good receivables, and qualified securities.

Net worth after deducting liabilities and non-allowable assets but before applying securities haircuts; it is used in early warning tests and as the base for net capital.

A written agreement that ranks the lender's claim behind customers and general creditors, letting the borrowing broker-dealer treat the funds as capital instead of a liability.

Rule 17a-11 requirement that a broker-dealer promptly notify the SEC and FINRA when net capital falls below warning thresholds or when other specified financial events occur.

A net capital deduction taken when a broker-dealer's position in one security or related group is large relative to its net worth, because such a position may be hard to liquidate.

The excess of a broker-dealer's assets over liabilities, adjusted to exclude non-allowable assets; it is the starting point for computing net capital.

SEC Rule 15c3-3, which requires a broker-dealer holding customer securities or cash to keep those assets safe through possession or control and a special reserve account.

A separate bank account for the exclusive benefit of customers into which a carrying broker-dealer deposits cash and qualified securities equal to its customer reserve formula requirement.

Requirement that a broker-dealer hold customer fully paid and excess margin securities itself or keep them where they can be promptly retrieved, such as at a clearing corporation.

Cash owed to a customer that is not needed to secure a debit or meet margin, and is therefore included as a credit in the customer reserve formula.

An amount a customer owes the broker-dealer, often from margin purchases or unpaid items, which is subtracted in the reserve formula to determine required deposits.

The calculation in Rule 15c3-3, often called Exhibit A, that compares customer credits and debits to determine how much must be held in the special reserve account.

A reserve computation under Rule 15c3-3 for proprietary accounts of other broker-dealers, requiring deposits to cover any excess of their credits over related debits.

A security eligible for deposit in the special reserve bank account because it is highly liquid and readily marketable, such as U.S. Treasury obligations and certain money market instruments.

The obligation to keep customer securities and cash separate from the firm's own property so customer assets remain identifiable and available if the firm fails.

The Securities Investor Protection Corporation, a nonprofit that protects customers of failed broker-dealers up to statutory limits when securities or cash are missing from their accounts.

Form X-17A-5, a periodic financial and operational filing in which a broker-dealer reports its net capital, reserve computations, and other financial data to regulators.

Requirement that a broker-dealer file audited financial statements, with an accountant's report on net capital and customer protection compliance, within a set period after year end.

A listing of all general ledger account balances at a date, used to check that total debits equal total credits and to prepare financial statements.

The master accounting record that contains all of a firm's accounts and transactions and from which financial statements and regulatory reports are prepared.

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

SEC rule setting how long broker-dealer records must be kept and in what form, including requirements for electronic storage and third-party recordkeeping services.

A chronological daily record of a broker-dealer's transactions, such as purchases, sales, and receipts and deliveries of cash and securities, required by Rule 17a-3.

A record showing each security's location and the names of its owners, including firm and customer positions, used to reconcile what the firm holds.

An internal control principle that no one person should control every stage of a transaction, so errors or fraud are less likely to go unnoticed.

A record of a customer order showing details such as security, quantity, price, time received, and account, kept for supervision and audit purposes.

A temporary account that holds items not yet assigned to a specific customer or firm account; it must be reviewed and cleared promptly.

The process by which trades are compared, netted, and settled through a clearing agency such as DTCC's NSCC, resulting in securities delivery and cash payment.

A situation in which a seller does not deliver securities by the settlement date, leaving a short position in the clearing system and possible buy-in exposure.

The Automated Customer Account Transfer Service, run by NSCC, which moves customer positions and balances between broker-dealers when a customer changes firms.

A firm's written system of procedures, reviews, and tests designed to ensure compliance with securities laws, summarized in the annual Rule 3120 report.

Documented procedures that assign supervisory duties and explain how the firm monitors and enforces compliance with applicable rules and its own policies.

Rule 3130 requirement that the chief executive officer certify each year that the firm has processes to establish, maintain, and review its compliance policies and supervisory procedures.

A written plan required by FINRA Rule 4370 describing how the firm will continue operations, protect customer data, and recover from a significant disruption.