Series 24 – General Securities Principal Exam Financial & Capital Requirements 1 — Questions and Answers
Question 1: Under SEC Rule 15c3-1, what is the minimum net capital requirement for a broker-dealer operating under the aggregate indebtedness standard?
- Net capital must equal at least 1/10 of aggregate indebtedness
- Net capital must equal at least 1/15 of aggregate indebtedness (Correct answer)
- Net capital must be at least $250,000
- Net capital must exceed total customer credits
Correct answer: Net capital must equal at least 1/15 of aggregate indebtedness
Under the aggregate indebtedness standard of SEC Rule 15c3-1, broker-dealers must maintain net capital of at least 1/15 of their aggregate indebtedness.
Question 2: The SEC's Customer Protection Rule (Rule 15c3-3) primarily requires broker-dealers to:
- File quarterly financial reports with FINRA
- Maintain possession or control of customer fully paid securities (Correct answer)
- Hold customer assets in money market funds only
- Segregate proprietary and customer trading accounts
Correct answer: Maintain possession or control of customer fully paid securities
SEC Rule 15c3-3 requires broker-dealers to maintain possession or control of customer fully paid and excess margin securities to protect customers.
Question 3: What is the purpose of the 'haircut' applied to securities positions when calculating net capital?
- To account for broker-dealer commissions
- To reduce the value of securities to reflect market risk (Correct answer)
- To adjust for foreign exchange fluctuations
- To subtract deferred tax liabilities
Correct answer: To reduce the value of securities to reflect market risk
Haircuts are percentage deductions applied to securities positions to account for potential market risk when computing net capital.
Question 4: A broker-dealer's net capital falls below the required minimum. What is the firm required to do immediately?
- File a Form BD amendment
- Cease conducting a securities business and notify its DEA (Correct answer)
- Increase customer margin requirements
- Liquidate all proprietary positions
Correct answer: Cease conducting a securities business and notify its DEA
When net capital falls below the minimum, the firm must immediately cease business operations and provide notice to its designated examining authority.
Question 5: Under FINRA Rule 4110, when must a member firm provide FINRA with advance written notice before making a capital withdrawal?
- When the withdrawal exceeds $1,000
- When the withdrawal would reduce net capital by more than 30% in 35 days (Correct answer)
- When the firm has been in business less than one year
- When the withdrawal is for compensation purposes
Correct answer: When the withdrawal would reduce net capital by more than 30% in 35 days
FINRA Rule 4110 requires advance written notice to FINRA before any capital withdrawal that would reduce the firm's net capital by more than 30% within a 35-calendar-day period.
Question 6: Which of the following is classified as an 'allowable asset' in a broker-dealer's net capital computation?
- Furniture and fixtures
- Cash in a bank account (Correct answer)
- Prepaid expenses
- Goodwill
Correct answer: Cash in a bank account
Cash in a bank account is an allowable asset in net capital computations; goodwill, furniture, and prepaid expenses are non-allowable assets that must be deducted.
Series 24 – General Securities Principal Exam Financial & Capital Requirements 1
Under SEC Rule 15c3-1, what is the minimum net capital requirement for a broker-dealer operating under the aggregate indebtedness standard?