Sec. 260.241.2 - Reports by Broker-Dealers and Investment Advisers
§ 260.241.2. Reports by Broker-Dealers and Investment Advisers
(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 78 a 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 78 a 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 78 a 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.
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