352-k. Broker dealer minimum capital requirements. 1. Every broker-dealer registered or required to be registered in this state shall have and maintain a net capital of not less than five thousand dollars. The term net capital shall be deemed to mean the net worth of a broker or dealer (that is, the excess of total assets over total liabilities), adjusted by
(a) adding unrealized profits (or deducting unrealized losses) in the accounts of the broker or dealer and, if such broker or dealer is a partnership, adding equities (or deducting deficits) in accounts of partners, as hereinafter defined;
(b) deducting fixed assets and assets which cannot be readily converted into cash (less any indebtedness secured thereby) including, among other things, real estate; furniture and fixtures; exchange memberships; prepaid rent, insurance and expenses; good will; organization expenses; all unsecured advances and loans; customers' unsecured notes and accounts; and deficits in customers' accounts, except in bona fide cash accounts within the meaning of section 4(c) of regulation T of the board of governors of the federal reserve system;
(c) deducting the percentages specified below of the market value of all securities, long and short (except exempted securities) in the capital, proprietary and other accounts of the broker or dealer, including securities loaned to the broker or dealer pursuant to a satisfactory subordination agreement, as hereinafter defined, and if such broker or dealer is a partnership, in the accounts of partners, as hereinafter defined:
(1) in the case of non-convertible debt securities having a fixed interest rate and a fixed maturity date which are not in default, if the market value is not more than five per cent below the face value, the deduction shall be five per cent of such market value; if the market value is more than five per cent but not more than thirty per cent below the face value, the deduction shall be a percentage of market value, equal to the percentage by which the market value is below the face value; and if the market value is thirty per cent or more below the face value, such deduction shall be thirty per cent;
(2) in the case of cumulative, non-convertible preferred stock ranking prior to all other classes of stock of the same issuer, which is not in arrears as to dividends, the deduction shall be twenty per cent;
(3) on all other securities, the deduction shall be thirty per cent; provided, however, that such deduction need not be made in the case of (1) a security which is convertible into or exchangeable for other securities within a period of thirty days, subject to no conditions other than the payment of money, and the other securities into which such security is convertible, or for which it is exchangeable, are short in the accounts of such broker or dealer or partner, or (2) a security which has been called for redemption and which is redeemable within ninety days.
(d) deducting thirty per cent of the market value of all "long" and all "short" future commodity contracts (other than those contracts representing spreads or straddles in the same commodity and those contracts offsetting or hedging any "spot" commodity positions) carried in the capital, proprietary or other accounts of the broker or dealer and, if such broker or dealer is a partnership, in the accounts of partners as hereinafter defined;
(e) deducting, in the case of a broker or dealer who has open contractual commitments, the respective percentages specified in subparagraph (c) above of the value (which shall be the market value whenever there is a market) of each net long and each net short position contemplated by any existing contractual commitment in the capital, proprietary and other accounts of the broker or dealer and, if such broker or dealer is a partnership, in accounts of partners, as hereinafter defined; provided, however, that this deduction shall not apply to exempted securities, and that the deduction with respect to any individual commitment shall be reduced by the unrealized profit, in an amount not greater than the percentage deduction provided for in subparagraph (c), (or increased by the unrealized loss) in such commitment; and that in no event shall an unrealized profit on any closed transactions operate to increase net capital;
(f) excluding liabilities of the broker or dealer which are subordinated to the claims of general creditors pursuant to a satisfactory subordination agreement as herein defined; and
(g) deducting, in the case of a broker or dealer who is a sole proprietor, the excess of (1) liabilities which have not been incurred in the course of business as a broker or dealer over (2) assets not used in the business.
(h) For the purposes of this section only the term "exempted securities" shall mean:
(1) obligations issued or guaranteed by the United States, a state, territory or any political subdivision thereof, or of any instrumentality, authority, commission, or agency, of the United States, a state, territory, or any political subdivision thereof, and
(2) any note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not more than nine months, exclusive of days of grace, or any renewal thereof, the maturity of which is likewise limited, and which is such as is sold in the open market in the usual course of business of broker-dealers.
(i) the term "accounts of partners", where the broker or dealer is a partnership, shall mean accounts of partners who have agreed in writing that the equity in such accounts maintained with such partnership shall be included as partnership property;
(j) the term "contractual commitments" shall include underwriting, when-issued, when-distributed and delayed delivery contracts, endorsement of puts and calls, commitments in foreign currencies, and spot (cash) commodities contracts, but shall not include uncleared regular way purchases and sales of securities and contracts in commodities futures; a series of contracts of purchase or sale of the same security conditioned, if at all, only upon issuance may be treated as an individual commitment;
(k) the term "satisfactory subordination agreement" shall mean a written agreement between the broker or dealer and a lender, which agreement is binding and enforceable in accordance with its terms upon the lender, his creditors, heirs, executors, administrators, and assigns, and which agreement satisfies all of the following conditions:
(1) it effectively subordinates any right of the lender to demand or receive payment or return of the cash or securities loaned to the claims of all present and future general creditors of the broker or dealer;
(2) it is not subject to cancellation at the will of either party and is for a term of not less than one year;
(3) it provides that it shall not be terminated, rescinded or modified by mutual consent or otherwise, if the effect thereof would be to make the agreement inconsistent with the conditions of this rule, or to reduce the net capital of the broker or dealer below the amount required by this section;
(4) it provides that no default in the payment of interest or in the performance of any other covenant or condition by the broker or dealer shall have the effect of accelerating the maturity of the indebtedness;
(5) it provides that any notes or other written instruments evidencing the indebtedness shall bear on their face an appropriate legend stating that such notes or instruments are issued subject to the provisions of a subordination agreement which shall be adequately referred to and incorporated by reference;
(6) it provides that any securities or other property loaned to the broker or dealer pursuant to its provisions may be used and dealt with by the broker or dealer as part of his capital and shall be subject to the risks of the business;
(7) the term "customer" shall mean every person except the broker or dealer; provided, however, that partners who maintain "accounts of partners" as herein defined shall not be deemed to be customers insofar as such accounts are concerned.
2. Every broker-dealer shall file, as required by the attorney-general, a financial statement setting forth its assets, liabilities and net worth as computed in subdivision one above.
3. The provisions of this section shall not be applicable to issuers of their own securities who are deemed to be broker-dealers solely for such reason or to banks, private banks, trust companies or other organizations engaged in a banking business and in the conduct of such banking business are subject to examination, supervision and control of the banking authorities of any state or of the United States or any insular possession thereof.
4. Upon a showing by the attorney-general that a broker-dealer has failed to maintain a net capital as hereinbefore prescribed, the supreme court after a hearing may issue an injunction in the form and manner provided for in subdivision one of section three hundred fifty-three of this article in the case of one who actually has or is engaged in any fraudulent practice, for such period of time during which such broker-dealer shall not have and maintain such minimum net capital. The failure, without reasonable cause therefor, of a broker-dealer to file financial statements as may be required by the attorney-general, shall be prima facie proof that such broker-dealer has failed to maintain the minimum net capital required hereunder and an injunction may issue from the supreme court as hereinbefore set forth without any further showing by the attorney-general.
5. The attorney-general may from time to time in the public interest make, amend and rescind such rules, regulations and forms as are necessary to carry out the provisions of this section, including rules, regulations and forms governing financial statements and filings thereof. For the purpose of such rules, regulations and forms, the attorney-general may classify securities, persons and matters within his jurisdiction and may prescribe different forms and requirements for different classes.
6. Any false statement of a material fact contained in any such financial statement, in any certificate attached thereto or any papers submitted in connection therewith shall constitute a violation of this section within the meaning of section three hundred fifty-nine-g of this article.
Last modified: February 3, 2019