- StudyBlue
- California
- University of San Diego
- Security And Risk Analysis
- Security And Risk Analysis 101
- Abc
- Subordinated Loans - FINRA Capital Rules
Subordinated Loans - FINRA Capital Rules
Security And Risk Analysis 101 with Abc at University of San Diego
About this deck
By: morgan mckay
Created: 2011-01-26
Size: 37 flashcards
Views: 45
Created: 2011-01-26
Size: 37 flashcards
Views: 45
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A properly structured Subordinated Loan is an increase/decrease to Available Capital?
increase
What is the H/C applied to a Secured Demand Note?
30% since banks lend 70% of against collateral
__________ ____________ also applies to securities pledged as collateral
Undue concentration haircut
How much could $100,000 in securities collateral potentially increase a firms capital?
$70,000 via a subordinated loan.
If securities collateral falls below the required amount, what must be done?
The firm must pay up the difference by 12 noon the next day after demand ("
Demand Note")
Demand Note")
In the case of a collateral deficiency, who is notified?
Immediate electronic notice to the lender and FINRA.
In place of a collateral deficiency, the loan agreement can provide for what to happen to the principal amount of the loan?
It can be reduced by up to 15% in place of making a demand for collateral.
What conditions must be met first to allow a reduction to principal in place of a collateral demand?
- AI/NC at 10:1 or below;
- Firm has at least 120% NCR; and
- prior approval of the firm's DEA is obtained.
What is the maximum debt/equity ratio permitted for a BD?
70% for 90 days - it really is the ratio of Subordinated Debt to Total Available Capital
Loans made by an owner in the firm, must have what length of life with how long remaining to be considered equity?
3 yrs with 1 yr remaining
If an owner of the firm borrows money to inject as capital, what 3 requirements are there?
- FINRA approval (signed copy of loan agreement)
- Loan must have a 12 month duration
- No recourse to the BD by the lender in default
Subordinated Loans from a parent bank to a BD are not an allowable asset for NC purposes if deposited in what?
Checking account or CD. OK if it is sent to a 3rd party bank though.
A firm cannot repay a Subordinated Loan at maturity if repayment puts the firm into?
Early warning
- NC < 120%
- AI/NC > 12:1
A firm cannot prepay a Subordinated Loan if what ratios are busted?
- NC < 120%
- AI/NC > 10:1
- NC < 5% of Debits in the Reserve Formula <--- if under the Alternate Method
Prepayments of Subordinated Loans need approval from who?
FINRA
Withdrawals of equity capital are prohibited if AI/NC ratio exceeds ___ or if the ___ ______ is below 5% of Debits under the alternate method
- 10:1
- Net Capital
The Drexel Burnham Rule applies to withdrawals above how much?
$500,000 or 20% of Excess Capital in 30 days.
30% of Excess Capital cannot be withdrawn under the Drexel Burnham Rule within what time period?
30 days
2 business days notice is required if a withdrawal will reduce NC below how much? Or if it will increase AI/NC over how much?
- 120%
- 10:1
The SEC can bar a proposed withdrawal for how long?
20 business days, if it believes it would be detrimental.
A firm is limited to a maximum of three _______ loans per year
three
To receive a temp loan a firm must be in solid financial shape meaning?
AI/NC < 10:1 and Net Capital must exceed 120% of the minimum.
A revolving loan may be entered into with the prior approval of FINRA, and it may allow for prepayment in less than __ year
1 year
A revolving loan prepayment may not be approved if it would do what to NC and AI?
If it would cause NC to drop below 200% of the minimum or cause AI/NC to be over 9:1.
What must happen if in the next 6 months of subordinated loan payments, NC is forecast to drop below 120% of the minimum, and AI/NC is forecast to exceed 12:1?
Immediate notice to FINRA and SEC.
Also if the firm uses the alternative method, the reporting threshold is 5% of debits in the reserve formula.
Also if the firm uses the alternative method, the reporting threshold is 5% of debits in the reserve formula.
To count as Capital, a Subordinated Loan Agreement must be filed with which SEC office? How many copies?
- Regional Office
- two
To count as Capital, a Subordinated Loan Agreement must be filed with which FINRA office? How many copies? When (sub & temp)?
- DC, Regional
- Two, 1 at each office.
- 30 days for sub loans, 10 days prior for temp loans
A Subordinated Loan from a customer that is unapproved counts as?
AI until it is approved by FINRA, or unless it comes from an owner.
FINRA prohibits business expansion if NC falls below?
150% of the minimum
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA prohibits business expansion if AI/NC exceeds?
10:1
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA prohibits business expansion if under the alternative NCR Net Cap falls below ___% of debits in the reserve formula?
5% of Debits in the reserve formula.
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA requires that a member reduce its level of business if NC is less than ?
125% of the minimum
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA requires that a member reduce its level of business if AI/NC exceeds ?
12:1
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA requires that a member reduce its level of business if under the alternative requirement...?
Net Capital falls below 4% of Debits in the Reserve Formula
- This condition must exist for over 15 days before FINRA imposes this requirement
FINRA can also restrict a firm from expanding or reduce it's business for any financial or operational reason such as?
- Falling capital levels
- Books and records are not current
- Firm is unable to clear transactions properly
About this deck
By: morgan mckay
Created: 2011-01-26
Size: 37 flashcards
Views: 45
Created: 2011-01-26
Size: 37 flashcards
Views: 45
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj