4.1.4. Notification of Net Capital Shortfall
If a firm discovers in its regular computations that its aggregate indebtedness to net capital ratio is in excess of 12:1, it must notify FINRA and the principal and regional offices of the SEC within 24 hours. This warns the regulatory authority that the firm is getting close to hitting its maximum ratio and alerts the authorities to keep an eye on that firm. However, if the ratio exceeds 15:1, the firm must notify these offices on the same day as the discovery.
While the SEC requires the notification specified above, FINRA requires notification within 24 hours of a firm’s discovery that its aggregate indebtedness is more than 10:1 of its net capital.
A firm must suspend all business operations if it falls under its required net capital minimums.
SEC Rule 17a-11
|
Net Capital Notification Requirements |
|||
|
Type of Firm |
Agency to Notify |
Exceeds Criteria |
Timetable |
|
Firm that has been in business less than one year |
FINRA |
8:1 aggregate indebtedness |
Within 24 hours of discovery; in writing |
|
Established firm |
FINRA |
Below 150% of net capital |
Within 24 hours of discovery; in writing |
|
Established firm |
FINRA |
10:1 aggregate indebtedness |
Within 24 hours of discovery; in writing |
|
Established firm |
SEC |
Below 120% of net capital |
Within 24 hours of discovery; in writing |
|
Established firm |
SEC |
12:1 aggregate indebtedness | |