NASAA Series 63Regulation of Broker-Dealers and AgentsHard
A state-registered broker-dealer's net capital falls below the minimum required by the state. Under the Uniform Securities Act's post-registration provisions, what is the firm's obligation upon discovering this deficiency?
- AThe firm may continue normal operations as long as it corrects the deficiency within one year
- BNo action is required unless the Administrator specifically requests updated financials
- CThe firm must immediately cease all operations permanently
- DThe firm must promptly notify the Administrator of the net capital deficiency
Show answer & explanationAnswer & explanation
Correct answer: D. The firm must promptly notify the Administrator of the net capital deficiency
Post-registration provisions require broker-dealers to promptly notify the Administrator if their net capital falls below the required minimum, since financial requirements are a condition of continued registration and investor protection depends on timely disclosure.
Why the other options are wrong
- A. A one-year grace period is not provided; prompt notice and corrective action are required.
- B. Waiting for an Administrator request would defeat the purpose of ongoing financial monitoring.
- C. Permanent cessation is an extreme remedy not automatically triggered by a deficiency notice requirement.
Net Capital Deficiency Notification
A broker-dealer whose net capital falls below the state's required minimum must promptly notify the Administrator, as maintaining minimum net capital is a continuing condition of registration.
- Net capital rules are a post-registration/financial responsibility requirement
- Deficiency triggers a prompt notice obligation, not automatic cessation
- Failure to notify can itself be grounds for disciplinary action
Memory trick: Capital drops, phone the Administrator, don't wait.