2023 New York Laws › GBS - General Business › Article 23-A - Fraudulent Practices in Respect to Stocks, Bonds and Other Securities › 352-K - Broker Dealer Minimum Capital Requirements.

§   352-k.  Broker  dealer  minimum  capital  requirements.  1.  Every
broker-dealer registered or required to  be  registered  in  this  state
shall  have  and  maintain  a net capital of not less than five thousand
dollars. The term net capital shall be deemed to mean the net worth of a
broker or dealer (that  is,  the  excess  of  total  assets  over  total
liabilities), adjusted by
(a)  adding unrealized profits (or deducting unrealized losses) in the
accounts of the broker or dealer and, if such  broker  or  dealer  is  a
partnership,  adding  equities  (or  deducting  deficits) in accounts of
partners, as hereinafter defined;
(b)  deducting  fixed  assets  and  assets  which  cannot  be  readily
converted  into  cash (less any indebtedness secured thereby) including,
among other  things,  real  estate;  furniture  and  fixtures;  exchange
memberships;   prepaid   rent,   insurance   and  expenses;  good  will;
organization expenses; all  unsecured  advances  and  loans;  customers'
unsecured  notes  and  accounts;  and  deficits  in customers' accounts,
except in bona fide cash accounts within the meaning of section 4(c)  of
regulation T of the board of governors of the federal reserve system;
(c)  deducting  the percentages specified below of the market value of
all securities, long and  short  (except  exempted  securities)  in  the
capital,  proprietary  and  other  accounts  of  the  broker  or dealer,
including securities loaned to  the  broker  or  dealer  pursuant  to  a
satisfactory  subordination  agreement,  as  hereinafter defined, and if
such broker or dealer is a partnership, in the accounts of partners,  as
hereinafter defined:
(1)  in  the  case  of  non-convertible debt securities having a fixed
interest rate and a fixed maturity date which are not in default, if the
market value is not more than five per cent below the  face  value,  the
deduction  shall  be  five  per cent of such market value; if the market
value is more than five per cent but not more than thirty per cent below
the face value, the deduction shall be a  percentage  of  market  value,
equal  to  the  percentage  by  which the market value is below the face
value; and if the market value is thirty per cent or more below the face
value, such deduction shall be thirty per cent;
(2) in the case of cumulative, non-convertible preferred stock ranking
prior to all other classes of stock of the same issuer, which is not  in
arrears as to dividends, the deduction shall be twenty per cent;
(3)  on  all other securities, the deduction shall be thirty per cent;
provided, however, that such deduction need not be made in the  case  of
(1)  a  security  which  is  convertible  into or exchangeable for other
securities within a period of thirty  days,  subject  to  no  conditions
other  than  the  payment  of money, and the other securities into which
such security is convertible, or for which it is exchangeable, are short
in the accounts of such broker or dealer or partner, or (2)  a  security
which  has  been  called  for  redemption and which is redeemable within
ninety days.
(d) deducting thirty per cent of the market value of  all  "long"  and
all  "short"  future  commodity  contracts  (other  than those contracts
representing spreads or  straddles  in  the  same  commodity  and  those
contracts  offsetting or hedging any "spot" commodity positions) carried
in the capital, proprietary or other accounts of the  broker  or  dealer
and,  if  such  broker  or  dealer  is a partnership, in the accounts of
partners as hereinafter defined;
(e) deducting, in the  case  of  a  broker  or  dealer  who  has  open
contractual   commitments,   the  respective  percentages  specified  in
subparagraph (c) above of the value (which shall  be  the  market  value
whenever there is a market) of each net long and each net short position
contemplated  by  any  existing  contractual  commitment in the capital,

proprietary and other accounts of the broker  or  dealer  and,  if  such
broker  or  dealer  is  a  partnership,  in  accounts  of  partners,  as
hereinafter defined; provided, however, that this  deduction  shall  not
apply to exempted securities, and that the deduction with respect to any
individual  commitment  shall be reduced by the unrealized profit, in an
amount not  greater  than  the  percentage  deduction  provided  for  in
subparagraph  (c),  (or  increased  by  the  unrealized  loss)  in  such
commitment; and that in no event  shall  an  unrealized  profit  on  any
closed transactions operate to increase net capital;
(f)   excluding   liabilities  of  the  broker  or  dealer  which  are
subordinated  to  the  claims  of  general  creditors  pursuant   to   a
satisfactory subordination agreement as herein defined; and
(g)  deducting,  in  the  case  of  a  broker  or dealer who is a sole
proprietor, the excess of (1) liabilities which have not  been  incurred
in the course of business as a broker or dealer over (2) assets not used
in the business.
(h)  For  the  purposes  of  this  section  only  the  term  "exempted
securities" shall mean:
(1) obligations issued or guaranteed by the United  States,  a  state,
territory   or   any   political   subdivision   thereof,   or   of  any
instrumentality, authority, commission, or agency, of the United States,
a state, territory, or any political subdivision thereof, and
(2) any note, draft, bill of exchange, or  banker's  acceptance  which
arises  out  of a current transaction or the proceeds of which have been
or are to be used for current transactions, and which has a maturity  at
the  time of issuance of not more than nine months, exclusive of days of
grace, or any  renewal  thereof,  the  maturity  of  which  is  likewise
limited,  and  which  is such as is sold in the open market in the usual
course of business of broker-dealers.
(i) the term "accounts of partners", where the broker or dealer  is  a
partnership,  shall mean accounts of partners who have agreed in writing
that the equity in such accounts maintained with such partnership  shall
be included as partnership property;
(j)  the  term  "contractual  commitments" shall include underwriting,
when-issued,   when-distributed   and   delayed   delivery    contracts,
endorsement  of  puts  and calls, commitments in foreign currencies, and
spot (cash) commodities  contracts,  but  shall  not  include  uncleared
regular   way  purchases  and  sales  of  securities  and  contracts  in
commodities futures; a series of contracts of purchase or  sale  of  the
same  security conditioned, if at all, only upon issuance may be treated
as an individual commitment;
(k) the term  "satisfactory  subordination  agreement"  shall  mean  a
written  agreement  between  the  broker  or  dealer and a lender, which
agreement is binding and enforceable in accordance with its  terms  upon
the   lender,  his  creditors,  heirs,  executors,  administrators,  and
assigns, and which agreement satisfies all of the following conditions:
(1) it effectively subordinates any right of the lender to  demand  or
receive payment or return of the cash or securities loaned to the claims
of all present and future general creditors of the broker or dealer;
(2)  it is not subject to cancellation at the will of either party and
is for a term of not less than one year;
(3) it provides that it shall not be terminated, rescinded or modified
by mutual consent or otherwise, if the effect thereof would be  to  make
the  agreement  inconsistent  with  the  conditions  of this rule, or to
reduce the net capital of the broker or dealer below the amount required
by this section;
(4) it provides that no default in the payment of interest or  in  the
performance  of  any other covenant or condition by the broker or dealer
shall have the effect of accelerating the maturity of the indebtedness;
(5) it provides that any notes or other written instruments evidencing
the  indebtedness shall bear on their face an appropriate legend stating
that such notes or instruments are issued subject to the provisions of a
subordination agreement  which  shall  be  adequately  referred  to  and
incorporated by reference;
(6)  it  provides  that any securities or other property loaned to the
broker or dealer pursuant to its provisions may be used and  dealt  with
by  the  broker or dealer as part of his capital and shall be subject to
the risks of the business;
(7) the term "customer" shall mean every person except the  broker  or
dealer;  provided,  however,  that  partners  who  maintain "accounts of
partners" as herein defined shall not be deemed to be customers  insofar
as such accounts are concerned.
2.    Every   broker-dealer   shall   file,   as   required   by   the
attorney-general,  a  financial  statement  setting  forth  its  assets,
liabilities and net worth as computed in subdivision one above.
3.  The  provisions of this section shall not be applicable to issuers
of their own securities who are deemed to be broker-dealers  solely  for
such  reason  or  to  banks,  private  banks,  trust  companies or other
organizations engaged in a banking business and in the conduct  of  such
banking  business are subject to examination, supervision and control of
the banking authorities of any state or of  the  United  States  or  any
insular possession thereof.
4.  Upon  a  showing  by the attorney-general that a broker-dealer has
failed to maintain a net capital as hereinbefore prescribed, the supreme
court after a hearing may issue an injunction in  the  form  and  manner
provided  for in subdivision one of section three hundred fifty-three of
this article in the case of one who actually has or is  engaged  in  any
fraudulent   practice,  for  such  period  of  time  during  which  such
broker-dealer shall not have and maintain such minimum net capital.  The
failure,  without  reasonable cause therefor, of a broker-dealer to file
financial statements as may be required by the  attorney-general,  shall
be  prima facie proof that such broker-dealer has failed to maintain the
minimum net capital required hereunder and an injunction may issue  from
the  supreme court as hereinbefore set forth without any further showing
by the attorney-general.
5. The attorney-general may from time to time in the  public  interest
make,  amend  and  rescind  such  rules,  regulations  and  forms as are
necessary to carry out the provisions of this section, including  rules,
regulations   and  forms  governing  financial  statements  and  filings
thereof. For the purpose of  such  rules,  regulations  and  forms,  the
attorney-general may classify securities, persons and matters within his
jurisdiction  and  may  prescribe  different  forms and requirements for
different classes.
6. Any false statement of  a  material  fact  contained  in  any  such
financial  statement,  in any certificate attached thereto or any papers
submitted in connection therewith shall constitute a violation  of  this
section within the meaning of section three hundred fifty-nine-g of this
article.