A broker-dealer registered in State A wants to conduct business in State B. The Administrator of State B requires all broker-dealers to maintain a minimum net capital of $25,000. However, the broker-dealer is subject to SEC net capital rules which require $50,000. What is the broker-dealer's minimum net capital requirement in State B?
- AThe average of the two requirements, which is $37,500.
- BThe broker-dealer must maintain both minimums simultaneously, totaling $75,000.
- C$50,000, as federal requirements generally supersede state minimums if higher.
- D$25,000, as this is the state's specific requirement.
Show answer & explanationAnswer & explanation
Correct answer: C. $50,000, as federal requirements generally supersede state minimums if higher.
Under the Uniform Securities Act, if a broker-dealer is subject to federal net capital requirements, the Administrator cannot impose a state net capital requirement higher than the federal one. In practice, the broker-dealer must meet the higher of the federal or state requirement, but the state cannot mandate a higher one than the federal. Thus, the federal $50,000 requirement applies as it is higher.
Why the other options are wrong
- A. This is incorrect; an average is not used for net capital requirements.
- B. This is incorrect; only one minimum net capital requirement applies, which is the greater of the federal or state requirement.
- D. This is incorrect; federal requirements take precedence if they are higher.
BD Minimum Net Capital (Federal Precedence)
If a broker-dealer is subject to federal net capital requirements, the state Administrator cannot impose a net capital requirement greater than the federal standard. The broker-dealer must meet the higher of the federal or state requirement.
- Federal requirements can supersede state requirements
- Applies when federal requirement is higher
- Ensures adequate financial solvency
- Avoids conflicting regulations
Memory trick: Federal money rules the state's minimum if it's bigger.