Regulatory and Financial Reporting
SEC financial responsibility requirements:
- SEC 15c3-1 is the principal rule by which the financial health of US broker-dealers is regulated and monitored. The net capital rule requires US broker-dealers to maintain “net capital” (i.e., capital in excess of liabilities) in specified amounts that are determined by the types of business conducted by the broker-dealer. The net capital rule is designed to ensure the ready availability of funds and securities to customers, and that a broker-dealer that is forced to liquidate will have sufficient assets to be able to return funds and securities promptly to creditors and customers.
- SEC 15c3-3 is the customer protection rule, which is intended to protect customers’ funds held by their broker-dealers and prohibit broker-dealers from using customer funds and securities to finance any part of their business that is unrelated to servicing securities customers. The rule requires a broker-dealer that maintains custody of customer securities and cash to comply with two primary requirements.
- SEC 17a-3 & 17a-4 rules require broker-dealers to make and maintain certain business records to assist the firm in accounting for its activities, and assist securities regulators in compliance examinations.
- SEC 17a-11 is the notification rule, which requires broker-dealers to give notice to the SEC when certain events occur, such as the firm’s net capital falling below its required minimum.
SEC custody-related requirements:
- SEC 17a-5 requires broker-dealers to file schedules, including computations of net capital, customer reserve requirement, and information concerning possession and control of customer securities.
- SEC 17a-13 is the quarterly security count rule, which requires broker-dealers on a quarterly basis to count, examine, and verify the securities it physically holds (or otherwise controls) and compare those results against their records. If there are unreconciled items, the broker-dealer must take capital charges.
- Account Statement Rules require broker-dealers to send, at least quarterly, an account statement to each customer reflecting that customer’s securities positions, cash balances, and account activity during the period.
The FED reporting requirements
- FED FR Y-14A report annually collects large bank holding companies' (BHCs) quantitative projections of balance sheet, income, losses, and capital across a range of macroeconomic scenarios and qualitative information on methodologies used to develop internal projections of capital across scenarios. The BHCs are required to complete the following FR Y-14A schedules: the Summary, Scenario, Counterparty Credit Risk (CCR), Basel III/Dodd-Frank, Regulatory Capital Instruments, and Operational Risk. The number of schedules each BHC completes is subject to materiality thresholds and certain other criteria.
- FED FR Y-9C report collects basic financial data from a domestic bank holding company (BHC), a savings and loan holding company (SLHC), and a securities holding company (SHC) on a consolidated basis in the form of a balance sheet, an income statement, and detailed supporting schedules, including a schedule of off balance-sheet items