Sec Form X17a 5 Part Ii (Page 5 of 17) in pdf

Secured demand notes – satisfactory subordination agreements

Subordination agreements must conform with the minimum requirements of Rule 15c3-1 Appendix D in order that the

respective amounts may be included in Net Capital (satisfactory subordination agreements). See Appendix D, (c)(7) regarding

subordination agreements in effect prior to adoption of Rule 15c3-1. Subordinations which are not covered by satisfactory

subordination agreements will be included as non-allowable assets.

The collateral contained in each secured demand note collateral account shall relate only to the specific demand note that it

collateralizes. The excess collateral value in one account shall not be applied to the deficiency in another account. No collateral

value shall be given for secured demand note collateral which has no ready market.

Investment in and receivables from affiliates, subsidiaries and associated partnerships

Bona-fide transactions between brokers or dealers and guaranteed subsidiaries – un-subordinated amounts due from a

guaranteed subsidiary, provided that the books and records of the guaranteed subsidiary reflect the same exact liability to the

parent, shall be allowable assets. This applies when there is no consolidation of assets and liabilities for Net Capital purposes as

stipulated in Rule 15d3-1 Appendix C.

Property, furniture, equipment, leasehold improvements and rights under lease agreements, at cost

Report as allowable amounts of fixed assets and assets which cannot readily be converted into cash, equal to any indebtedness

adequately secured thereby. Such allowability is for those assets acquired for use in the ordinary course of the trade or business

of a broker or dealer. Also report as allowable in the amount of the liability, those assets not readily convertible into cash wherein

such assets are the sole recourse of the creditor for the non-payment of the related liability. Report as non-allowable any remainder

and/or asset which do not conform with the above provisions. See Rule 15c3-1(c)(2)(iv) and (c)(2)(viii).

Other Assets – Dividends and interest receivable

The amount reported as an allowable asset represents that portion of dividends receivable not outstanding longer than 30 days

from the payable date, and interest receivable not outstanding longer than 30 days from the date it arises. Dividends receivable

and payable are not to be netted; they are to be recorded in separate accounts

In addition, in cases where dividends are declared for the same security but at different intervals (i.e., quarterly dividends),

the claims for the different intervals shall not be netted.

Other Assets – Free Shipments

Receivables relating to free shipments of securities (other than mutual fund redemptions) in excess of $5,000 per shipment

are non-allowable assets. All free shipments, including mutual fund redemptions, are non-allowable assets if outstanding more

than 7 business days. See Rule 15c3-1(c)(2)(iv)(B).

Other Assets – Loans and Advances

Report amounts related to employees as allowable assets if secured by readily marketable securities and meet the margin

requirements of the designated Examining Authority. Loans and advances to partners, directors, officers and subordinated lenders

are to be included in the “Receivables from non-customers.”

Other Assets – Miscellaneous

Insurance claims receivable – report as non-allowable asset if (1) after 7 business days from date of discovery not covered by

opinion of outside counsel that claim is valid and covered by insurance policies presently in effect; (2) after 20 business days from

date of discovery claim is not acknowledged in writing as due and payable by the insurance carrier; or (3) claim is not paid within

20 business days following date of such acknowledgement by the carrier. See Rule 15c3-1(c)(2)(iv)(D).

Mutual fund concessions receivable and management fees receivable from registered investment companies – report as non-

allowable assets if outstanding for more than 30 days from the date they arise. See Rule 15c3-1(c)(2)(iv)(C).

Future income tax benefits arising as a result of unrealized losses may be recognized only to the extent such benefits do not

exceed the amount of income tax liabilities accrued on the books and records of the broker or dealer and only to the extent such

benefits could have been applied to reduce accrued tax liabilities on the date of the capital computation had the related unrealized

losses been realized on that date. Any other benefits of this type recorded on the books which do not conform with the above shall

be included as a non-allowable asset. See Rule 15c3-1(c)(2)(iv)(D).

Cash Surrender Value of Life Insurance Policies – report as an allowable asset if the cash surrender value and face value are

payable (1) to the estate of the sole proprietor – broker or dealer or (2) to the broker or dealer if a partnership or corporation.

Syndicate profits receivable shall be considered as unsecured receivables and therefore included as non-allowable. See Rule

15c3-1(c)(2)(iv)(C).

SEC1695A (02-04) 5 of 17

Sec Form X17a 5 Part Ii Page 5

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