Series 28: Chapter One: Financial Responsibility And The Net Capital Rule

Chapter One

Financial Responsibility and the Net Capital Rule

In the late 1960s, an enormous increase in trading activity led to serious recordkeeping problems in the securities industry. This resulted in significant customer losses. To make matters worse, broker-dealers often used customer securities and funds for their own business purposes. If a firm went out of business, customers sometimes discovered that their securities had disappeared, either because the securities had been liquidated as pledged collateral for bank loans or the securities simply could not be located.

In response to this crisis, Congress enacted the Securities Investor Protection Act of 1970 (SIPA), which, among other things, required the SEC to strengthen the financial responsibility of broker-dealers. The SEC qu