Financial Responsibility Rules
The net capital rule requires that broker-dealers maintain sufficient liquid assets at all times to minimize the likelihood of default. The other financial responsibility rules focus on the proper maintenance and use of its customers’ financial assets. More specifically, they require that broker-dealers maintain possession or control of all fully paid and excess margin securities. They restrict a broker-dealer’s right to borrow securities from its customers’ cash and margin accounts to use as collateral for its own loans. Finally, they require that borrowed securities be maintained in separate accounts and not be commingled with the broker-dealer’s own accounts.
NASD Rule 3140
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Financial Responsibility Rules |
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SEC/SEA Rule |
Designation |
Purpose |
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Rule 15c3-1 |
Net Capital Rule |
Designates minimum net capital requirements for member firms: mutual fund brokers, $5,000; carrying firms, $250,000; dealers, $100,000 |
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Rule 15c3-3 |
Customer Protection Rule |
Requires that firms maintain custody of customer securities in separate account; places limits on borrowing from customers’ margin accounts |
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Rules 17a-3 and 17a-4 |
Books and Records Rules |
Requires firms to make and maintain certain customer account and other business records |