2.8.1.2. Notification Requirements
We mentioned before that if a broker-dealer’s net capital falls below the required minimum, it must suspend all business operations. In addition, the SEC and FINRA require broker-dealers to notify them if their net capital gets too close to the minimum.
Requirements for all broker-dealers. If a firm discovers that its net capital is less than 120% of its required minimum, it must notify FINRA and the SEC within 24 hours of the discovery. This notifies the regulatory authority that the firm is getting close to hitting its minimum requirement so that they keep an eye on that firm.
If the firm discovers its net capital is below the minimum amount required, it must notify FINRA and the SEC the same day. The notification must include the amounts of the required minimum net capital and the current net capital.
Finally, FINRA requires a firm to notify it within 24 hours of discovering its net capital has fallen under 150% of its minimum requirement.
Requirements when using the aggregate indebtedness standard. If a firm discovers that its aggregate indebtedness to net capital ratio is in excess of 12:1, it must notify FINRA and the SEC within 24 hours. This notifies 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 of the discovery.
These notifications to FINRA and the SEC are required by SEC rules. In addition, FINRA rules require notifying FINRA within 24 hours of a firm’s discovery that its aggregate indebtedness is more than 10:1 of its net capital. So if this ratio rises from 10:1 to over 15:1, the firm will notify FINRA three times and the SEC twice.
Requirements when using the alternative standard. If a firm discovers that its net capital is below 5% of customer receivables, it must notify FINRA and the SEC within 24 hours. If net c