1
Q
Rule 17a - 5
A
Places a number of reporting requirements on BDs.
BDs are required to prepare FOCUS Financial reports
FOCUS: financial and operational combined uniform single report
2
Q
A
3
Q
FOCUS reports
A
- financial and operational combined uniform single report
- required by FINRA
- required to be filed wiht the firms Designated Examing Authority (FINRA ) and the SEC
4
Q
FOCUS reports required for BDs that carry customer accounts / hold customer funds with $250K min net capital (clearing broker)
A
FOCUS II
must be filed by the 17th business day after month end and quarter end
5
Q
Focus Reports for non Clearing Firms ($50K and $5K BDs)
A
- Required to file a FOCUS IIA by the 17th business day after quarter end
- It is an abbreviated FOCUS II filing
- Not required to file a monthly FOCUS Part II
- this is beucase they do not carry customer accounts
6
Q
How are FOCUS reports filed?
A
FINRA has a web filing site and ONLY allows electronic filing of these reports
7
Q
If a firm cant meet reporting (FOCUS) deadlines what do they do?
A
it must make a wirtten application ot the designated examing authority (FINRA) which may but is not obligated to extend the time for filing
8
Q
what are the reporting requirements for non-clearing broker-dealer effects more than 10 trades / year out of its prop trading account?
A
considered to be dealers
- must file a quarterly FOCUS IIA monthy reports in addition to the quarterly reporting requirement.
9
Q
Monthly Trial Balance
A
- FOCUS reports are generated using hte latest trial balance
- BD Trial balances must be prepared within 10 business days of each month end to be considered current
10
Q
Required signatures for FOCUS reports
A
- manually signed by CEO (series 24 principal) of BD
- CFO (series 27 principal) of BD
- COO (series 27 principal) of BD
- in smaller firms the same person might hold all or more than one of these
11
Q
Form Custody
A
- a quarterly report that is required by all BDs
- provides information on whether the firm maintains custody of customer and non-customer assets and how (if so) they are maintained
- filed quarterly with the FOCUS reports
12
Q
Extension requests for reporting
A
if a firm needs an extension they ust file a written request to FINRA district office no later than 3 business days prior to due date
extensions require delays outside of the control of the member (i.e. technical issues)
13
Q
Supplemental FOCUS information
A
- FINRA Rule 4524 requires each member firm to file additional financial or operational scheudles
- one such schedule is hte SSOI (supplemental statement of income)
14
Q
SSOI
A
- supplemental statement of income
- supplement to the focus reports
- More detail on teh firms rev and expense items than is provided on FOCUS II or FOCUS IIA
- Requred for any line ittem that is greater than $5K or 5% of a firms total rev or expenses in that category
* FINRA rule 4524 requires member to provide supplmental reporting it de
15
Q
SSOI threshold
A
$5K or 5% of a firms total rev or expenses in that a category
16
Q
Who files a FOCUS II A
A
$50K and $5K BD
including: limited partnership dealers and investment company dealers
17
Q
SSOI for Private Placements
A
- FINRA requires SSOI for firms that derive more than 10% of their total rev from participation in provice palcements
- Must complete an “operational page” that gives more detail on each unregistered offering
18
Q
SIS Reporting
A
- Supplemental Inventory Schedule
- required for firms long and short inventory positions
- not required for:
- firms with no inventory position
- firms with Net Capital Requirements less than $100K
- fims that only have inventory positions in money market mutual funds
- Must be filed within 20 business days after quarter end
19
Q
When must the SSOI and SIS be filed
A
wihtin 20 business days after quarter end
20
Q
Annual Audit requirements
A
- all BDs must submit to an annual audit by a CPA
- Must be performed under the standards set by PCAOB
21
Q
Audit requirements for notification
A
- SEC must be notified annually by Dec 10th of the name of the accountant that will perform that years audit.
- each clearing firm signs a statement giving SEC and FINRA access to the odcumenation associated with any reports filed and authorizing the independent accountant to discuss with regulators matters related to any report filed.
22
Q
Year end reporting requirements
A
firms must file a certified (audited) FOCUS II or IIA with the DEA and SEC no later than 60 calendar days after fiscal year end
Fiscal year end is Dec 31 then the focuss II/IIA must be filed no later than March 1 of the next year
23
Q
Extensions for year yend filing
A
- If the required date would cause “undue hardship” the firm can request an extension from the DEA (FINRA).
- extension allows filing no later than 90 days from date of financial statements
24
Q
Requirements if account is changed, resigns, or terminated
A
- FINRA and SEC must be notified wihtin 15 business days of the change
- typically happens during the 60 day window between year end and audited focus II/IIA filing dates
- filing is done electronically:
- FINRA: rockville MD office
- SEC: both SEC regional office and principal office in D.C.
25
what is included in the change of auditor / cpa notice?
* Notice must include:
- date of notification of termination
- details of any problems within the prior 24 months
- whether the problems were resolved or unresolved.
- Notice must also be given to the accountant
- former accountant must rener a letter to the SEC as to whether they agree or disagree with the BD. the letter is given to the BD as well.
26
Customer reporting requirements
Annually:
* Each clearing BD must report its condition as disclosed in the audited / final FOCUS II/IIA to its customers.
* Customers recived audited blanace sheet and audited computed amount of net capital
* No later than 105 days from the firms fiscal year end
* for a firm with a dec 31st fiscal year end it is April 15th
Semi Annually:
* unaudited semi-anual balance sheet and computed amount of net capial
* no later than 65 days after is mid year end point
27
Definition of Customer for reporting requirements
Includes:
* any person that has cash or securities in custody of the firm
* anyone who has effected a securities transaction through the firm in the month before or after the balance sheet was issue.
Does NOT include:
- partners or subordinated lenders to the firm
**Fully disclosed boker dealers (either $50K, $25K, or $5K net cap min) are not subject to this requirement
28
What is required if a change of fiscal year occurs?
* Prompt notice to FINRA
* provide a detailed reason for the change
28
Reporting Due Dates
* **Dec 10** Notify DEA/SEC who the auditor will be
* If Auditor Terminates / quits: DEA/SEC notification within 10 business days
* Dec 31 Fiscal year ends
* Mar 1st - (60 days) File FOCUS II/IIA with DEA/SEC
* April 1 (90 days)- Filea audited FOCUS II/IIA on extension request
* April 15 (105 days) - send customer copy of auditd balance sheet & computed net cap requirement
29
Annual Filing requirements
* FOCUS report
* annual compliance report for Clearing BDs or Exemption Report for Non-Clearing BDs
30
Annual Compliance Report
* Required to be filed annualy by Carrying (clearing) BDs
* Covers internal controls over compliance with Net Capital Rules (15c3-1)
* Customer protection rule (15c3-3)
* Securitis Count Rule (17a-13)
* Customer acount satement rules
31
What must be included in the compliance report
must state that:
* the BD maintained internal control over compliance
* internal control over compliance was effective during, and as of, the end of the most reent fiscal year
* BD was in compliance with rule 15c3-1 and the special reserve provisions of 15c3-3 as of the end of the most recent fiscal year
* information used to detemrine compliance was derived from the firms books and records
if applicable:
* describe identifiable material weaknesses in the firms internal control over compliance
*
32
Reqiurment of carrying firm for compliance report
must have an independent accountant examine compliance report
Accountant must issue a report (opinion) using PCAOB standards
33
Exemption from rule 15c3-3
* BDs that claim an exemption (non-clearing BDs) must file an annual exemption report.
* states which exemption the firm is asserting (K1, K2i or K2ii)
* independent accountant must review the assertion
* exceptions to the assertion made by the BD must be noted in the report.
34
when must the compliance and exemption reports be filed?
the compliance and exemption reports as well as the independent accountant report must be filed at the same time as the audited FOCUS II/ IIA
60 calendar days after the year end date
35
What happens if the accountant finds material non-compliance
the accountant must notify the SEC and FINRA directly within 1 business day, by FAX or email, followed by first class mail to the SECs director of compliance inspections and examinations
notice is trigged when non compliance is found not at the completion of the examintation
36
What is required if a firm ceases to be a member in good standing with any self-regulatory organization (such as FINRA)
it must file a FOCUS II/IIA wiht the SEC and the self regulatory orgazation within 2 business days
37
Rule 17a-11
* Violations and Early Warning Reporting
* Requires reporting to FINRA and the SEC if a firm:
- violates the Net Capital Rule
- is getting close to violating the net capital rule
- is experiencing operational problems
38
Emergency Reports under 17a-11
* **Deficient Net Capital**: NC is below requi min
* **E****xcess AI/NC Ratio**: AI/NC exceeds 8:1 in 1st year or 15:1 after the first year
* **Alternate N/C < 2% of debits**: NC falls below 2% of debits in reserve formuls for firms using alternative method
* **Excess Debt/Equity Ratio**: exceeds 70% over 90 days
39
What happens if the firm exceeds an emergency reporting threshold?
firm must:
1. send electronic notice the same day to the DEA (FINRA) and SEC
2. Cease operations until corrected
40
What happens after emergency notification?
DEA (FINRA) or SEC will visit th firm or request that the principals come to the FINRA district office
the firm will be asked to show how it will bring itself into capital compliance
if the firm cant it will cease customer transactions
41
Early Warning Reporting
Thresholds
* Net capital below 120% of minimum
* AI/NC ratio >12:1 (after first year)
* Alternative N/C < 5% debists (firms under alternative computation)
* Repo / Reverse Repo balances >25 tmes tentative net capital
42
what happens if a firm exceeds the early warning reporting thresholds?
* Give electronic notice to the DEA and SEC within 24 hours of this occurance
* the DEA / SEC may require information needed to monitor the situation
* Notice is not required:
- if the BD discloses this to FINRA on a monthly basis
- repos involving treasury securities
43
Operational Problems Report
* firms must report if they are experiencing operational problems
1. material inadequacy in the firms accounting systems
2. books and records are not current
44
What is required if they firm has found there are operating problems
* Electronic notice to DEA (FINRA) and SEC within 24 hours for material inadequescies or same day for books and records not being current
* File a report on correction 48 hours later. filed by overnight delivery service
45
Rule 17a-3
states which records must be kept by the BD
46
Rule 17a-4
* details records retention
either:
1. life of firm
2. 6 years
3. 3 years
47
which records are kept for the life of the firm
* articles of incorporation or partnership agreement
* minutes of board meetings or partnership meetings
**last two years must be kept readily accessilbe for audit
48
what records are kept for 6 years
* general ledger
* purchase and sales blotters
* cash receipts and disbursement blotters
* stock received and deliver blotters
* customer account records (customer statements)
* stock record
* securities investors protection corporation assessment records
49
which blotters must be kept for 6 years
* 3 blotters
* daily transactions of firm
1. Purchase and Sale
2. cash receipts / disbursements
3. stock received / delivered
50
Definition of Current
* General ledger: posted no later than 10 business days after month end
* Blotters: posted no later than day after the event
* Customer account records: no later than settlement date
* stock record: shows the individual owners and physical locatoin of the stock certificates. Posted no later than business day after settlement
51
Posting requirment to keep "General ledger" current
posted no later than 10 business days after the month end
52
Posting requirment to keep blotters current
not later than the business day after the event
e.g P&S a day after the trade date
cash - day after it is received
53
Posting requirment to keep customer account records current
posted no later than settlement date
54
Posting requirement to keep stock records current
posted no later than the business day after settlement
55
examples of 3 year records
- 3 year records are everything else other than life and 6 year
- examples: copies of order tickets, trial balances, customer confirmations
- U4 forms
-
56
Electronic records requirements
electronic storage media must be:
* preserved in a non-rewriteable, non-erasable format
* verify automatically the quality and accuracy of the storage media recording process
* serialize, index and catalog the original and duplicate units of storage media with time date for the required period of retention
* be able to download indexes and records to any storage medium as required by SEC and FINRA
57
records retention requirements for records wit no SEC rule
if rules 17a-4 does not specficy a retention period for a record the default peirod is 6 years.
58
Records of foreign branch offices
* foreign branch offices must be registered and included in the firms written supervisory procedures
* foreign branches are not physically inspected
* records for foreign branches must be prepared i the branch but maintained in the main us office
59
Rule 17a-8
Requires BD to keep records of currency and foreign transactions if the firm falls under the current and foreign transaction reporting act of 70
60
Deposits / Withdrawals of over $10K
* US dept of treasury requires that any deposits of cash made by a customer or withdrawals over $10K must be reported to FinCEN within 15 calendar days o the event
61
If you avoid CTR (current transaction report)
must be reported by filing a SAR (suspicous activity report) with finCEN
i.e. structuring: mulstple transactions under 10K to avoid reporting
62
What is the retention for CTRs and SARs
* 5 years
* patriot act rule
*
63
Rule 17a-10
requires BDs to file an annual statement of income and loss within 17 business days after the close of each calendar year with SEC
SEC allows FINRA to collect this data and transmit it to the SEC
64
Rule 17a-8
Requires BDs to keep records of currency and foreign transactions if the firm falls under the currency and foreign transaction reporting act of 70
65
Reporting for deposits or withdrawals of cash in excess of $10K
* must be eported to FinCEN on the CTR (currency transaction report) within 15 days of the event
66
Structuring
making multiple cash withdrawals /deposits under $10K over several days
must be reported by filing a SAR (suspicious activity report) with FinCEN
67
Retention of CTRs and SARs
* 5 years
* patriot act rule
* different than other retention rules
68
Rule 17a-10
requires BDs to file an annual statement of income and loss within 17 business days after the close of each calendar year with the SEC
FINRA collects and transmits to SEC
69
Clearing Agreements
* FINRA requires firms to submit clearing agreements to FINRA for review and approval
**Clearing Member:**
* the clearing membre must submit the agreements to **FINRA (national office**) for -**review and approval **
* approval is required before its effective
**Introducing member**:
* files the agreement with the member's **local FINRA district office for review - no approval is required
70
Clearing agreements are not required to be filed with FINRA if:
* the clearing memeber files the agreement with another SRO
71
What must be specified in a clearing agreement
the responsibility of each party for:
* opening, approving, and monitoring accounts
* extension of credit
* maintenance of books and records
* receipt and delivery of funds and securities
* confirmations and statements
* acceptance of orders and execution of transactions
* whether customer is considered to be a a customer of the introducing BD or the clearing member for the purposes of SIPC and financial responsiblity rules
* the requirement to provide th customer notification at account opening of the existence of a clearing agreement
*
