Knowledge Associated with the Securities Industry and Broker-dealer Operations
Trace the trade, then trace the rule
Operations questions reward an orderly mental model: order entry → execution → comparison/affirmation → clearance → settlement → books and records. At each step know which entity owns the obligation - the introducing broker, the clearing broker, or the carrying firm - because the exam routinely tests the division of responsibility.
Attach a rule to every number you memorize. SEA Rule 15c3-1 sets net capital: either the aggregate indebtedness standard (net capital of at least 6⅔% of AI, a 15:1 ceiling) or the alternative standard (at least 2% of aggregate debit items), plus a minimum dollar floor that rises when the firm carries customer accounts or holds customer funds or securities. SEA Rule 15c3-3 requires the reserve formula and continuous possession or control of customer fully paid and excess margin securities, measured at the close of business. Rules 17a-3 and 17a-4 govern record creation and retention - generally six years, with the most recent two readily accessible. Rule 17a-13 mandates quarterly counts and verifications; Rule 15c3-5 requires risk-based market-access controls.
Settlement is T+1 for equities and for corporate and municipal bonds; Reg T governs extensions of credit (50% initial margin), and FINRA's 25% maintenance requirement is the floor for long positions.
Common traps: assuming the reserve formula and the net capital computation use the same inputs; forgetting free credit balances are customer credits, not firm money; confusing SIPC's $500,000 per-customer limit (with a $250,000 cash sublimit) with protection against market losses; and misjudging which records carry signature or three-year requirements.
Worked example: a firm carries $3,000,000 of aggregate indebtedness and $150,000 of net capital. The ratio is 20:1, above the 15:1 ceiling. Required net capital is $3,000,000 ÷ 15 = $200,000, so the firm is $50,000 short.
Rule of thumb: for any operations question, ask who holds the asset and when the obligation is measured.