Compliance with Financial Responsibility Rules
Net capital and customer protection
Securities Exchange Act Rule 15c3-1 sets minimum net capital: generally $250,000 for a firm carrying customer accounts, $100,000 for a firm that does not, and a much lower amount for a firm that never holds customer funds or securities and meets the rule's narrow conditions. Rule 15c3-3 requires the firm to maintain possession or control of customer securities and to compute the reserve formula, keeping required funds in a special reserve bank account.
Reporting and early warning
Rule 17a-5 requires FOCUS reports and an annual audited financial statement filed within 60 days of fiscal year end. Rule 17a-11 requires notice to the SEC and FINRA: immediately upon a capital deficiency, and within 24 hours if net capital falls below 120% of the minimum requirement. Books and records follow Rules 17a-3 and 17a-4; FINRA Rule 4110 addresses capital compliance, and Rule 4210 governs margin.
Special rules for DPP subscription money
When a DPP offering is contingent (all-or-none or part-or-none), Rule 15c2-4 requires subscription funds to be held in a separate bank account or escrow until the minimum is met. Rule 10b-9 requires prompt refunds if the contingency fails. Selling members must transmit customer funds promptly and must not net commissions against subscription checks.
Worked example
A firm with a $250,000 minimum computes net capital of $290,000. The 120% early-warning threshold is $300,000, so the firm must notify the SEC and FINRA within 24 hours even though it is not yet below the minimum.