About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

72 Geo. L. J. 1 (1983-1984)
Broker-Dealers' Financial Responsibility under the Uniform Net Capital Rule--A Case for Liquidity

handle is hein.journals/glj72 and id is 9 raw text is: Broker-Dealers' Financial Responsibility under the Uniform Net Capital Rule-A Case for Liquidity* STEVEN L. MOLINARI** AND NELSON S. KIBLER*** Recent operational and regulatory reforms, the high cost of capital, and the ever-increasing diversity of investment mechanisms have called into question the Securities and Exchange Commission's use of a liquidity standard to ensure the continuing viability of broker-dealers. In their article Mr. Molinari and Mr. Kibler examine the liquidity concept un- derlying the uniform net capital rule andfind that the Commission's reli- ance on a liquidity standard is well-founded The authors initially discuss the development of net capital requirements and the responsive- ness of net capital rules to the changes taking place in the securities industry. The authors next analyze the liquidity concept in light of sev- eral developing investment mechanisms and conclude that the continued emphasis on liquidity is proper given the increasing leverage permitted by these mechanisms. Mr. Molinari and Mr. Kiblerfinally discuss al- ternatives to the liquidity standard The authors conclude that, at least for the present, the un/form net capital rule's continued emphasis on liquidity is the superior method of ensuring thefinancial stability of bro- ker-dealers and the protection of investors. Since its inception in 1975, the uniform net capital rule' has been the main- stay of the financial responsibility program of the Securities and Exchange Commission (the Commission).2 The rule is premised on concepts of liquid- * The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any publications by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission. ** Staff attorney, Division of Corporation Finance, Office of Disclosure Policy, Securities and Ex- change Commission, Washington, D.C. Formerly Staff attorney, Division of Market Regulation, Of- fices of Chief Counsel and Financial Responsibility. B.S. (Economics) 1977, University of Santa Clara; J.D. 1980, University of San Francisco School of Law; LL.M. (Taxation), expected June 1984, Ge- orgetown University Law Center. Member, California and District of Columbia Bars. *** Partner with the accounting firm of Touche Ross & Company, Washington, D.C. Formerly Assistant Director in the Division of Market Regulation, Office of Financial Responsibility, Securities and Exchange Commission, Washington, D.C. B.S. (Business Administration) 1972, American Univer- sity; J.D. 1983, George Mason University School of Law. C.P.A.; Member, Virginia Bar. We would like to thank George Beliakow, Egon Guttman, Colette Kimbrough, Mike Macchiaroli, and Alexander Shtofman for their assistance and helpful comments. In addition, Harry Melamed's suggestions regarding several conceptual ideas discussed in the article are deeply appreciated. Finally, we would also like to express our gratitude to Barbara Smith for her diligent preparation of several drafts of this article. 1. 17 C.F.R. § 240.15c3-1 (1983). 2. Section 3(a)(40) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(40) (Supp. V 1981), defines the term financial responsibility rules of the Commission. These rules include the uniform net capital rule, 17 C.F.R. § 240.15c3-1 (1983), the customer protection rule, 17 C.F.R. § 240.15c3-3 (1983), the financial reporting rule (FOCUS), 17 C.F.R. § 240.17a-5 (1983), the hypothecation rules, 17 C.F.R. §§ 240.8c-1, .15c2-1 (1983), the initial margin requirements of the Board of Governors of the Federal Reserve System (the Federal Reserve Board), 12 C.F.R. § 220.3(b) (1983), and the mainte-

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most