Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) General Rule. Subject to the provisions
of subsection (c) of this section, every licensed broker-dealer, and every
licensed investment adviser subject to the provisions of Section
260.237.2 of these rules, shall
file an annual financial report, as follows:
(1) The annual report for a broker-dealer
shall contain a Statement of Financial Condition, a Statement of Income, a
Statement of Changes in Stockholders' or Partners' or Sole Proprietor's Equity
and a Statement of Changes in Liabilities Subordinated to Claims of General
Creditors. Supporting schedules shall include a Schedule of Securities, a
Computation of Net Capital under Rule 15c3-1 under the Securities Exchange Act
of 1934 (17 CFR
240.15c3-1), a Computation
for Determination of the Reserve Requirement under Rule 15c3-3(a)
(17 CFR
240.15c3-3(a)),
Information Relating to the Possession or Control Requirements under Rule
15c3-3 (17 CFR
240.15c3-3), and shall be
filed with the annual report.
(2)
The annual report for an investment adviser shall contain a balance sheet,
income statement, and computations of the minimum financial requirements
required under Section
260.237.2 of these
rules.
(3) The financial statements
included in the annual report shall be prepared in accordance with generally
accepted accounting principles and shall be audited by either an independent
certified public accountant or independent public accountant; provided,
however, the financial statements need not be audited if:
The broker-dealer or investment adviser has not held or
accepted custody of funds and securities for or owed money or securities to
customers or clients during the period covered by the report; and
(A) if the licensee is a broker-dealer, the
securities business has been limited to soliciting subscriptions for securities
of an issuer and the broker-dealer promptly forwarded the subscriptions to the
issuer, underwriter, sponsor or other distributor of the securities and
received checks, drafts, notes or other evidence of indebtedness payable solely
to the issuer, underwriter, sponsor or distributor who delivered the securities
purchased directly to the subscriber; and
(B) if the licensee is an investment adviser,
the investment adviser only has discretionary authority over client funds or
securities, the investment adviser has taken only limited powers of attorney to
execute transactions on behalf of its clients, or the investment adviser does
not accept prepayment of more than $500 per client for more than six months in
advance; or
(C) as otherwise
permitted by the Commissioner.
(4) The report shall be filed not more than
90 days after the investment adviser or broker-dealer's fiscal year
end.
(5) Whenever the Commissioner
so requires, a financial report shall be filed as of the date, and within the
period, and in the form specified in the Commissioner's request. The
Commissioner may require the financial report to be
audited.
(b) Verification
of Reports. Attached to each financial report filed with the Commissioner shall
be a verification that, to the best knowledge and belief of the person making
the verification,
(1) the financial statements
and supporting schedules are true and correct, and
(2) neither the broker-dealer nor any
partner, officer, or director thereof has any proprietary interest in any
account classified solely as that of a customer. If the broker-dealer or
investment adviser is a sole proprietorship, the verification shall be made by
the proprietor; if a partnership, by a general partner; or if a corporation, by
a duly authorized officer.
(c) Exemption. The provisions of subsection
(a) of this section shall not apply to any broker-dealer registered under the
Securities Exchange Act of 1934 (15 USC 78a et seq.), provided
that, upon request of the Commissioner, the broker-dealer files with, or
transmits for filing to, the Commissioner a copy of any report under Rule 17a-5
(17 CFR
240.17a-5).
(d) Interim Reports.
(1) Every broker-dealer subject to the
provisions of Section
260.216.12 of these rules shall
file a report within 15 days after
(A) its net
capital is reduced to 120% of its required minimum net capital or
(B) if the broker-dealer computes its net
capital pursuant to 17 CFR
240.15c3-1(c), its
aggregate indebtedness is in excess of 1200% of its net capital or
(C) if the broker-dealer computes its net
capital pursuant to 17 CFR
240.15c3-1(f), its net
capital is reduced to less than 5% of the aggregate debit items computed in
accordance with 17 CFR
240.15c3-3, Exhibit
A.
(2) Every investment
adviser subject to the provisions of Section
260.237.2 of these rules shall
file a report within 15 days after its net worth is reduced to less than 120%
of its required minimum net worth.
(3) The report required by subsections (d)(1)
and (d)(2) of this section shall be as of a date within the 15 day period.
Additional reports shall be filed within 15 days after each subsequent monthly
accounting period until three successive months have elapsed during which none
of the conditions specified in subsection (d)(1) or (d)(2) of this section have
occurred.
(4) For an investment
adviser, the interim report shall consist of a balance sheet, income statement,
and computation of the minimum financial requirement under Section
260.237.2 of these rules,
including the verification in subdivision (b) of this section.
(5) For a broker-dealer not registered under
the Securities Exchange Act of 1934 (15 USC 78a et seq.), the interim
report shall consist of a balance sheet, income statement, and a computation of
the minimum financial requirement under Section
260.216.12 of these
rules.
(6) For a broker-dealer
registered under the Securities Exchange Act of 1934 (15 USC
78a et seq.), the interim report shall
consist of a copy of the notice required pursuant to Rule 17a-11(c)
(17 CFR
240.17a-11(c)).
(e) Confidential Treatment.
All of the statements filed pursuant to subsections (a),
(c), and (d) shall be public, except that upon request an income statement that
is bound separately from the balance of the annual financial statements shall
be confidential, except in cases where the Commissioner determines that it is
in the public interest to direct otherwise.
1. Amendment
of subsection (d) filed 12-31-75 as an emergency; designated effective 1-1-76.
Certificate of Compliance included (Register 76, No. 1). For prior history, see
Register 75, No. 4.
2. Amendment filed 9-2-77; effective thirtieth
day thereafter (Register 77, No. 36).
3. Amendment filed 4-27-84;
effective thirtieth day thereafter (Register 84, No. 18).
4.
Amendment of subsections (a) (2), (c) and (e) filed 1-7-88 operative 2-6-88
(Register 88, No. 4).
5. Amendment of section and NOTE filed
3-4-2003; operative 4-3-2003 (Register 2003, No. 10).
6. Amendment
of section and NOTE filed 3-6-2008; operative 4-5-2008 (Register 2008, No.
10).
Note: Authority cited: Sections
25241
and
25610,
Corporations Code. Reference: Sections
25237,
25241
and
25613,
Corporations Code.
