Broker-Dealer Capital Requirements

Overview

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.

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Principal Statutory Provisions

Net Capital Rule and Appendices

Government Securities Dealers

FINRA Rules