The 2017 edition gives up–to–date industry–specific guidance needed to be able to tailor operations with the most current standards and regulations. Included are new best practices and interpretive guidance to industry–specific considerations, this guide has you covered.
This edition offers best practice discussion of industry–specific issues such as fair value accounting and related disclosures, as well as compliance with regulatory requirements. Further, new guidance on initial margin has been approved in accordance with applicable AICPA requirements.Table of Contents
Table of Contents ix
Chapter Paragraph
1 The Securities Industry 01–144
Broker–Dealers 04–25
Discount Brokers 08
Investment Bankers 09–14
Government Securities Dealers 15
Designated Market Maker 16
Clearing Brokers 17
Carrying Brokers 18
Prime Brokers 19
Swap Dealers 20–21
Introducing Brokers 22
Brokers Brokers 23
Bank–Owned Brokers (Section 4k4(e) and Section 20
Brokers) 24
Independent Broker–Dealers 25
The Financial Markets 26–46
Exchange Market 29–34
OTC Market 35–39
Third Market 40
Alternative Trading Venues 41–46
Clearing Organizations and Depositories 47–53
Transfer Agents 54–57
Regulatory Overview 58–65
Business Activities 66–144
Brokerage 66–74
Firm Trading 75–111
Investment Banking 112–119
Financing 120–132
Other Activities 133–144
2 Broker–Dealer Functions, Books, and Records 01–177
Introduction 01–18
Overview 01–03
Original Entry Journals 04–06
General Ledger 07
Stock Record 08–12
Regulatory Recordkeeping Requirements 13–15
Trade Date and Settlement Date 16–18
Trade Execution 19–60
Customer Trades 19–48
Proprietary Trades 49–60
Clearance and Settlement 61–90
Overview 61–65
Comparison 66–70
Settlement 71–87
Bookkeeping 88–90
Specialized Clearance Activities 91–119
Mortgage–Backed Securities 91–95
Government Securities 96–98
Repos and Reverse Repos 99–100
Derivative Securities 101–103
Commodity Futures and Options on Futures 104–109
Forward Transactions 110
Municipal Securities 111–112
International Securities 113
Options on Securities 114–119
Reconciliation and Balancing 120–123
Custody 124–135
Possession or Control 125–129
Securities Transfer 130–135
Dividends, Interest, and Reorganization 136–149
Dividends and Interest 136–144
Reorganization 145–149
Collateralized Financing 150–164
Stock Loan and Stock Borrow 150–154
Bank Loan Financing 155–158
Reverse Repos and Repos 159–164
Regulatory Considerations 165–172
Tax Information Reporting for Certain Customer Transactions 173–176
Illustrative Stock Record Entries 177
3 Regulatory Considerations 01–188
Applicable Rules 05–10
Interpretations of Rules 09–10
Explanation of Significant SEC Financial Responsibility Rules 11–125
SEC Rule 15c3–3, "Customer Protection Reserves and Custody of Securities" 11–40
SEC Rule 15c3–1, "Net Capital Requirements for Brokers or Dealers" 41–60
SEC Rule 15c3–1(e), "Notice Provisions Relating to the Limitations on the Withdrawal of Equity Capital" 61–65
SEC Rule 17a–13, "Quarterly Security Counts to Be Made by Certain Exchange Members, Brokers, and Dealers" 66–70
SEC Rule 17a–3, "Records to Be Made by Certain Exchange Members, Brokers, and Dealers" 71
SEC Rule 17a–4, "Records to Be Preserved by Certain Exchange Members, Brokers, and Dealers" 72
Regulation T and Maintenance Margin 73–79
Account Statement Rule(s) 80–81
SEC Rules and CFTC Regulations Governing Customer Margin for Transactions in Security Futures 82
SEC Rules 17h–1T and 17h–2T 83–86
SEC Rule 17Ad–17, "Lost Securityholders and Unresponsive Payees" 87–92
SEC Rule 17Ad–22, "Clearing Agency Standards" 93–94
SEC Rule 17–248 Subpart C, "Regulation S–ID: Identity Theft Red Flags" 95
SEC Rule 506 of Regulation D and SEC Rule 144A 96–97
SEC Rule 15c3–5, "Risk Management Controls for Brokers or Dealers with Market Access" 98–101
SEC Rule 17a–5, "Reports to Be Made by Certain Brokers and Dealers" 102–122
Anti–money Laundering Regulations 123–125
Reporting Requirements 126–151
Consolidation of Subsidiaries 132–134
Form Custody 135
Other Periodic Reporting 136
The Annual Audited Financial Report 137–151
Filings Concurrent With the Annual Audited Financial Report 152–161
Compliance or Exemption Report Required by SEC Rule 17a–5 152–154
Report to State Regulatory Agencies 155
Financial Statements to Be Furnished to Customers of Securities Broker–Dealers 156–161
Other Reports 162–171
Reports on Securities Investor Protection Corporation Assessment 162–164
Reports on Agreed–Upon Procedures for Distributions 165
PCAOB Accounting Support Fee 166–171
Additional Requirements for Registered Investment Advisers 172–180
Rules Applicable to Broker–Dealers in Commodities and U.S. Government Securities 181
Commodities Brokers 182
Government Securities Broker–Dealers 183
OTC Derivatives Dealers 184–185
Swap Dealers and Swaps Marketplace Participants 186
Annual Compliance Certification 187–188
4 Internal Control 01–70
Introduction 01–06
The Control Environment 07–09
Risk Assessment for Financial Reporting Purposes 10–19
Control Activities 20–23
Information and Communication 24–30
Information and Communication Control Activities 27–30
Monitoring Activities 31–36
Broker–Dealer Control and Monitoring Activities 37–62
Sales and Compliance 41–44
Clearance 45–46
Securities Settlement 47–48
Custody 49–50
Dividends, Interest, and Reorganization 51–52
To–Be–Announced Securities 53
Principal Transactions 54–56
OTC Derivative Transactions 57
Commissions 58
Collateralized Financings 59–61
Period End Financial Reporting 62
SEC Requirements for Management s Report on Internal Control Over Financial Reporting for Issuers 63–70
Annual Reporting Requirements for Issuers 67
Quarterly Reporting Requirements for Issuers 68–70
5 Accounting Standards 01–124
Accounting Model 02–40
Definition of Fair Value 06–08
Application of Fair Value Measurement to Liabilities and Instruments Classified in a Reporting Entity s Shareholders Equity 09–11
Valuation Techniques 12–14
Inputs to Valuation Techniques 15–16
Application to Financial Assets and Financial Liabilities With Offsetting Positions in Market Risks or Counterparty Credit Risk 17–19
Inputs Based on Bid and Ask Prices 20
Present Value Techniques 21–24
The Fair Value Hierarchy 25–28
Fair Value Measurements of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) 29–32
Fair Value Determination When the Volume or Level of
Activity Has Significantly Decreased 33–37
Fair Value Option 38–40
Additional Fair Value Considerations 41–54
Financial Instruments Listed on a Recognized Exchange 41–45
Financial Instruments Not Listed on a Recognized Exchange but Having a Readily Available Market Price 46–48
Financial Instruments Not Having a Readily Available Market Price 49–54
Trade–Date Versus Settlement–Date Accounting 55–68
Proprietary and Principal Transactions 58–65
Agency Transactions 66–68
Statement of Financial Condition Considerations 69–112
Due From, and Due to, Other Broker–Dealers and Clearing Entities 69–70
Transfers of Financial Assets 71–85
Exchange Memberships Owned or Contributed 86
Suspense Accounts 87
Derivatives 88–97
Conditional Transactions 98
Leveraged Buyouts and Bridge Loans 99
Asset Securitizations 100–103
Variable Interest Entities 104
Soft–Dollar Arrangements 105–109
Mandatorily Redeemable Instruments 110–112
Statement of Income or Loss Considerations 113–124
Underwriting Revenues and Expenses 113–117
Mutual Fund Distribution Costs 118–119
Half–Turn Convention 120
Interest, Dividends, and Rebates 121–123
Costs Associated With Exit or Disposal Activities 124
6 Financial Statement Presentation and Classification 01–163
Introduction 01–12
Financial Statements 13–30
Statement of Financial Condition 13–15
Statement of Income or Operations 16–19
Statement of Cash Flows 20–21
Statement of Changes in Ownership Equity 22–23
Statement of Changes in Subordinated Borrowings 24
Consolidation of Subsidiaries 25–27
Going Concern 28–30
Supplementary Schedules 31–38
Computation of Net Capital Pursuant to SEC Rule 15c3–1 33
Computations for Determination of Reserve Requirements Pursuant to SEC Rule 15c3–3 34–35
Information Relating to Possession or Control Requirements Under SEC Rule 15c3–3 36–37
Schedules of Segregation Requirements and Funds in Segregation for Customers Trading Pursuant to the Commodity Exchange Act 38
Statement of Financial Condition Account Descriptions 39–96
Cash and Securities Segregated Under Federal and Other Regulations 40
Memberships in Exchanges 41–45
Securities Sold Under Agreements to Repurchase and Securities Purchased Under Agreements to Resell 46–52
Securities Borrowed and Securities Loaned 53–60
Securities Received as Collateral and Obligation to Return Securities Received as Collateral 61–63
Receivables From and Payables to Broker–Dealers, Clearing Organizations, and Others 64–72
Receivables From and Payables to Customers 73–76
Deferred Dealer Concessions 77
Securities Owned and Securities Sold, Not Yet Purchased 78–85
Other Borrowed Funds 86–88
Subordinated Borrowings 89–93
Commitments and Guarantees 94–95
Equity 96
Statement of Income or Operations Account Descriptions 97–120
Commission Income and Related Expense 98–101
Interest Income and Interest Expense 102–103
Dividend Income and Dividend Expense 104
Principal Transactions (Trading Gains and Losses) 105
Investment Banking Fees and Expenses 106–109
Asset Management and Investment Advisory Income 110
Mutual Fund Fees 111
Floor Brokerage, Exchange Fee, and Clearance Expenses 112–114
Occupancy and Equipment Expenses 115
Employee Compensation and Benefits Expenses 116–118
Technology and Communications Expense 119
Management and Allocated Corporate Overhead Expense 120
Disclosures 121–142
Fair Value Disclosures 121–124
Disclosures Related to Transfers of Financial Assets Accounted for as Sales 125–126
Disclosures Related to Transfers of Financial Assets Accounted for as Secured Borrowings 127
Disclosures of Certain Significant Risks and Uncertainties and Contingencies 128–138
Derivative Instruments Disclosures 139–142
Guarantee Disclosures 143–144
Related Party Disclosures 145–150
Subsequent Events Disclosures 151–153
Balance Sheet Offsetting Disclosures 154–159
Financial Statements and Schedules 160–163
Appendix
A Information Sources
B Illustrative Example of Compliance Report Required by SEC Rule 17a–5
C Illustrative Example of Exemption Report Required by SEC Rule 17a–5
D Overview of Statements on Quality Control Standards
E The New Revenue Recognition Standard: FASB ASC 606
F The New Leases Standard: FASB ASU No. 2016–02
G Accounting for Financial Instruments
H Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index
