NASAA Series 63Regulation of Broker-Dealers and AgentsMedium
A broker-dealer registered in State A wants to conduct business in State B. State B requires a minimum net capital of $25,000, while the SEC requires a minimum net capital of $10,000. Under the Uniform Securities Act, what is the minimum net capital requirement for this broker-dealer in State B?
- AThe broker-dealer must meet the lower of the two, which is $10,000.
- BThe broker-dealer must meet the higher of the two, which is $25,000.
- C$10,000, as federal requirements preempt state requirements.
- D$25,000, as State B has a higher requirement.
Show answer & explanationAnswer & explanation
Correct answer: C. $10,000, as federal requirements preempt state requirements.
Under the Uniform Securities Act, if a broker-dealer is subject to federal net capital requirements (e.g., SEC rules), the Administrator in any state in which the broker-dealer is registered cannot impose a higher net capital requirement than that imposed by federal law. Federal requirements preempt state requirements in this case.
Why the other options are wrong
- A. While $10,000 is correct, the reasoning is federal preemption, not simply choosing the lower amount.
- B. This is incorrect; federal preemption means the federal standard applies, even if lower.
- D. State B's higher requirement is preempted by the federal standard.
Net Capital Federal Preemption
For broker-dealers subject to federal net capital requirements, state Administrators cannot impose higher net capital requirements than those mandated by federal law, due to federal preemption.
- Applies specifically to net capital requirements.
- Federal law (SEC rules) takes precedence.
- States cannot impose more stringent requirements.
Memory trick: Federal law is the 'Capital King' – its rules rule over state minimums.