Q: When is my Firm's annual audit due?
A: SEC Rule 17a-5 requires every broker/dealer to file its annual audit within 60 days after the its fiscal year-end.
Q: What level of net capital is required for a firm to participate in a "firm commitment" underwriting?
A: In general, a firm must operate pursuant to the provisions of the $100,000 net capital category in order to participate in any manner in a firm commitment underwriting. However, a $50,000 broker/dealer may participate in a firm commitment underwriting as long as it does not enter into a commitment to purchase shares relating to that underwriting.
Q: Our firm has no "retail" customers. To whom should we disclose how our BCP addresses the possibility of a future significant business disruption and how we plan to respond to events under Rule 3510?
A: The NASD has stated that each firm's BCP must be tailored to meet its specific needs, and this underlying principle applies to disclosure of how a firm plans to address a significant business disruption. Therefore, although there is no obligation to disclose how your BCP addresses the possibility of a future significant business disruption to non-customers, a copy of the disclosure should be made available to any non-customer with which you do business so that these individuals and firms can determine for themselves the efficiency of your firm's BCP.
Q: Do all business expansions require approval by NASD?
A: Only those changes specified by NASD Rule 1017 require approval. The purpose is to ensure that NASD is able to verify that significant changes in a firm's business or method of operation are accompanied by appropriate corresponding enhancements to supervisory, compliance, financial, and internal control systems and that appropriate personnel are qualified to handle the expansion. This, in turn, ensures that member firms will continue to meet all of the standards and criteria for membership in NASD.
Q: What is a "material change" in business that would trigger a review under NASD Rule 1017?
A: It depends on the specific facts and circumstances in each case. Generally, the NASD has advised firms that whether any particular business expansion, including the addition of a proposed new business line, is a "material change" in a member's operations ultimately depends on an assessment of such factors as: the nature of the proposed expansion; the relationship, if any, between the proposed new business line and the firm's existing business; the effect the proposed expansion is likely to have on the firm's capital; the qualifications and experience of the firm's personnel; and the degree to which the firm's existing financial, operational, supervisory, and compliance systems can accommodate the proposed expansion or addition. Under the Rules, members are responsible for deciding whether a particular change is material and notifying NASD in appropriate situations. Members are free to consult with NASD staff about individual situations, but they are not required to do so. (See NASD Rule 1011(i)).
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