Broker-Dealer Settles NYSE Texas Charges for Net Capital Deficiencies

A broker-dealer settled NYSE Texas ("NYSE") charges for failing to maintain minimum net capital requirements as a result of its undermargined repo transactions with affiliates.

According to the AWC, the firm entered into reverse repurchase agreements with affiliates involving U.S. Treasuries but failed "to collect the required five percent margin" due to a misunderstanding of the requirements. Consequently, the firm failed to deduct the necessary cash amounts from its net worth calculations, resulting in the company operating "a securities business while net capital deficient on over 300 separate days."

NYSE found that because of the calculation errors, the firm maintained inaccurate books and records and filed 16 financial reports containing "inaccurate net capital computations." NYSE stated the firm failed to provide timely or complete notice of its net capital deficiencies to the SEC and the exchange. Additionally, NYSE found that the firm failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, "reasonably designed ... to ensure the firm included all required deductions in its net capital calculations."

The NYSE charged the firm with violating SEA Sections 15(c)(3) ("Registration and regulation of brokers and dealers") and 17(a) ("Records and Reports"), as well as SEA Rules 15c3-1 ("Net capital requirements for brokers or dealers"), 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), 17a-5 ("Reports to be made by certain brokers and dealers"), and 17a-11 ("Notification provisions for brokers and dealers"). NYSE also charged the firm with violating NYSE Texas Rules 11.3110 ("Supervision") and NYSE Texas Article 6, Rule 5; Article 7, Rule 3 ("Net Capital and Aggregate Indebtedness"); Article 10, Rule 3 ("Initial Margin Rule"); and Article 11, Rule 2 ("Maintenance of Books and Records").

To settle the charges, the firm agreed to (i) a censure, and (ii) a fine of $100,000.