This topic page provides materials on broker-dealer capital requirements, including the basic requirements of SEA Rule 15c3-1 (commonly referred to as the "net capital rule") and related rules. A firm that does not meet the capital requirements of the rule, or that is otherwise "insolvent" (as that term is defined in SEA Rule 15c3-1(c)(16)) is required to immediately cease business. The net capital rule has four principal aspects:
First, it defines "net capital," an SEC-created risk-weighted measure of regulatory capital. This definition is dependent on a prior regulatory definition of "net worth," which must be first calculated in order to determine net capital. Second, the net-capital rule requires that a broker-dealer maintain a minimum amount of net capital. Third, a broker-dealer must limit its leverage by maintaining a minimum percentage of net capital to one of two measures of securities business-related indebtedness. Fourth, the rule prohibits rapid withdrawals of funds from a broker-dealer by its parent company or other affiliated entities. (The material in the Know section of this topic page provides a comprehensive overview of all of these requirements.
See also the topic page on Swap Dealer and SBSD Capital.
Lofchie's Guide to BD Regulation