Series 14: 4.1.4. Notification Of Net Capital Shortfall

Taken from our Series 14 Online Guide

4.1.4. Notification of Net Capital Shortfall

If a firm discovers in its regular computations that its aggregate indebtedness to net capital ratio is in excess of 12:1, it must notify FINRA and the principal and regional offices of the SEC within 24 hours. This warns the regulatory authority that the firm is getting close to hitting its maximum ratio and alerts the authorities to keep an eye on that firm. However, if the ratio exceeds 15:1, the firm must notify these offices on the same day as the discovery.

While the SEC requires the notification specified above, FINRA requires notification within 24 hours of a firm’s discovery that its aggregate indebtedness is more than 10:1 of its net capital.

A firm must suspend all business operations if it falls under its required net capital minimums.

SEC Rule 17a-11

Net Capital Notification Requirements
Type of Firm	Agency to Notify	Exceeds Criteria	Timetable
Firm that has been in business less than one year	FINRA	8:1 aggregate indebtedness	Within 24 hours of discovery; in writing
Established firm	FINRA	Below 150% of net capital	Within 24 hours of discovery; in writing
Established firm	FINRA	10:1 aggregate indebtedness	Within 24 hours of discovery; in writing
Established firm	SEC	Below 120% of net capital	Within 24 hours of discovery; in writing
Established firm	SEC	12:1 aggregate indebtedness

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