§ 352-K — Broker dealer minimum capital requirements

§ 352-k. Broker dealer minimum capital requirements. 1. Every\nbroker-dealer registered or required to be registered in this state\nshall have and maintain a net capital of not less than five thousand\ndollars. The term net capital shall be deemed to mean the net worth of a\nbroker or dealer (that is, the excess of total assets over total\nliabilities), adjusted by\n (a) adding unrealized profits (or deducting unrealized losses) in the\naccounts of the broker or dealer and, if such broker or dealer is a\npartnership, adding equities (or deducting deficits) in accounts of\npartners, as hereinafter defined;\n (b) deducting fixed assets and assets which cannot be readily\nconverted into cash (less any indebtedness secured thereby) including,\namong other things, real estate; furniture and fixtures; exchange\nmemberships; prepaid rent, insurance and expenses; good will;\norganization expenses; all unsecured advances and loans; customers'\nunsecured notes and accounts; and deficits in customers' accounts,\nexcept in bona fide cash accounts within the meaning of section 4(c) of\nregulation T of the board of governors of the federal reserve system;\n (c) deducting the percentages specified below of the market value of\nall securities, long and short (except exempted securities) in the\ncapital, proprietary and other accounts of the broker or dealer,\nincluding securities loaned to the broker or dealer pursuant to a\nsatisfactory subordination agreement, as hereinafter defined, and if\nsuch broker or dealer is a partnership, in the accounts of partners, as\nhereinafter defined:\n (1) in the case of non-convertible debt securities having a fixed\ninterest rate and a fixed maturity date which are not in default, if the\nmarket value is not more than five per cent below the face value, the\ndeduction shall be five per cent of such market value; if the market\nvalue is more than five per cent but not more than thirty per cent below\nthe face value, the deduction shall be a percentage of market value,\nequal to the percentage by which the market value is below the face\nvalue; and if the market value is thirty per cent or more below the face\nvalue, such deduction shall be thirty per cent;\n (2) in the case of cumulative, non-convertible preferred stock ranking\nprior to all other classes of stock of the same issuer, which is not in\narrears as to dividends, the deduction shall be twenty per cent;\n (3) on all other securities, the deduction shall be thirty per cent;\nprovided, however, that such deduction need not be made in the case of\n(1) a security which is convertible into or exchangeable for other\nsecurities within a period of thirty days, subject to no conditions\nother than the payment of money, and the other securities into which\nsuch security is convertible, or for which it is exchangeable, are short\nin the accounts of such broker or dealer or partner, or (2) a security\nwhich has been called for redemption and which is redeemable within\nninety days.\n (d) deducting thirty per cent of the market value of all "long" and\nall "short" future commodity contracts (other than those contracts\nrepresenting spreads or straddles in the same commodity and those\ncontracts offsetting or hedging any "spot" commodity positions) carried\nin the capital, proprietary or other accounts of the broker or dealer\nand, if such broker or dealer is a partnership, in the accounts of\npartners as hereinafter defined;\n (e) deducting, in the case of a broker or dealer who has open\ncontractual commitments, the respective percentages specified in\nsubparagraph (c) above of the value (which shall be the market value\nwhenever there is a market) of each net long and each net short position\ncontemplated by any existing contractual commitment in the capital,\nproprietary and other accounts of the broker or dealer and, if such\nbroker or dealer is a partnership, in accounts of partners, as\nhereinafter defined; provided, however, that this deduction shall not\napply to exempted securities, and that the deduction with respect to any\nindividual commitment shall be reduced by the unrealized profit, in an\namount not greater than the percentage deduction provided for in\nsubparagraph (c), (or increased by the unrealized loss) in such\ncommitment; and that in no event shall an unrealized profit on any\nclosed transactions operate to increase net capital;\n (f) excluding liabilities of the broker or dealer which are\nsubordinated to the claims of general creditors pursuant to a\nsatisfactory subordination agreement as herein defined; and\n (g) deducting, in the case of a broker or dealer who is a sole\nproprietor, the excess of (1) liabilities which have not been incurred\nin the course of business as a broker or dealer over (2) assets not used\nin the business.\n (h) For the purposes of this section only the term "exempted\nsecurities" shall mean:\n (1) obligations issued or guaranteed by the United States, a state,\nterritory or any political subdivision thereof, or of any\ninstrumentality, authority, commission, or agency, of the United States,\na state, territory, or any political subdivision thereof, and\n (2) any note, draft, bill of exchange, or banker's acceptance which\narises out of a current transaction or the proceeds of which have been\nor are to be used for current transactions, and which has a maturity at\nthe time of issuance of not more than nine months, exclusive of days of\ngrace, or any renewal thereof, the maturity of which is likewise\nlimited, and which is such as is sold in the open market in the usual\ncourse of business of broker-dealers.\n (i) the term "accounts of partners", where the broker or dealer is a\npartnership, shall mean accounts of partners who have agreed in writing\nthat the equity in such accounts maintained with such partnership shall\nbe included as partnership property;\n (j) the term "contractual commitments" shall include underwriting,\nwhen-issued, when-distributed and delayed delivery contracts,\nendorsement of puts and calls, commitments in foreign currencies, and\nspot (cash) commodities contracts, but shall not include uncleared\nregular way purchases and sales of securities and contracts in\ncommodities futures; a series of contracts of purchase or sale of the\nsame security conditioned, if at all, only upon issuance may be treated\nas an individual commitment;\n (k) the term "satisfactory subordination agreement" shall mean a\nwritten agreement between the broker or dealer and a lender, which\nagreement is binding and enforceable in accordance with its terms upon\nthe lender, his creditors, heirs, executors, administrators, and\nassigns, and which agreement satisfies all of the following conditions:\n (1) it effectively subordinates any right of the lender to demand or\nreceive payment or return of the cash or securities loaned to the claims\nof all present and future general creditors of the broker or dealer;\n (2) it is not subject to cancellation at the will of either party and\nis for a term of not less than one year;\n (3) it provides that it shall not be terminated, rescinded or modified\nby mutual consent or otherwise, if the effect thereof would be to make\nthe agreement inconsistent with the conditions of this rule, or to\nreduce the net capital of the broker or dealer below the amount required\nby this section;\n (4) it provides that no default in the payment of interest or in the\nperformance of any other covenant or condition by the broker or dealer\nshall have the effect of accelerating the maturity of the indebtedness;\n (5) it provides that any notes or other written instruments evidencing\nthe indebtedness shall bear on their face an appropriate legend stating\nthat such notes or instruments are issued subject to the provisions of a\nsubordination agreement which shall be adequately referred to and\nincorporated by reference;\n (6) it provides that any securities or other property loaned to the\nbroker or dealer pursuant to its provisions may be used and dealt with\nby the broker or dealer as part of his capital and shall be subject to\nthe risks of the business;\n (7) the term "customer" shall mean every person except the broker or\ndealer; provided, however, that partners who maintain "accounts of\npartners" as herein defined shall not be deemed to be customers insofar\nas such accounts are concerned.\n 2. Every broker-dealer shall file, as required by the\nattorney-general, a financial statement setting forth its assets,\nliabilities and net worth as computed in subdivision one above.\n 3. The provisions of this section shall not be applicable to issuers\nof their own securities who are deemed to be broker-dealers solely for\nsuch reason or to banks, private banks, trust companies or other\norganizations engaged in a banking business and in the conduct of such\nbanking business are subject to examination, supervision and control of\nthe banking authorities of any state or of the United States or any\ninsular possession thereof.\n 4. Upon a showing by the attorney-general that a broker-dealer has\nfailed to maintain a net capital as hereinbefore prescribed, the supreme\ncourt after a hearing may issue an injunction in the form and manner\nprovided for in subdivision one of section three hundred fifty-three of\nthis article in the case of one who actually has or is engaged in any\nfraudulent practice, for such period of time during which such\nbroker-dealer shall not have and maintain such minimum net capital. The\nfailure, without reasonable cause therefor, of a broker-dealer to file\nfinancial statements as may be required by the attorney-general, shall\nbe prima facie proof that such broker-dealer has failed to maintain the\nminimum net capital required hereunder and an injunction may issue from\nthe supreme court as hereinbefore set forth without any further showing\nby the attorney-general.\n 5. The attorney-general may from time to time in the public interest\nmake, amend and rescind such rules, regulations and forms as are\nnecessary to carry out the provisions of this section, including rules,\nregulations and forms governing financial statements and filings\nthereof. For the purpose of such rules, regulations and forms, the\nattorney-general may classify securities, persons and matters within his\njurisdiction and may prescribe different forms and requirements for\ndifferent classes.\n 6. Any false statement of a material fact contained in any such\nfinancial statement, in any certificate attached thereto or any papers\nsubmitted in connection therewith shall constitute a violation of this\nsection within the meaning of section three hundred fifty-nine-g of this\narticle.\n