(B) A Form 1-FR-IB as of a date not more than 45 days prior to the date on which the report is filed and a Form 1FR-IB certified by an independent public account in accordance with §1.16 of this part as of a date not more than one year prior to the date on which the report is filed. Each person filing a Form 1-FR-IB in accordance with this section must inIclude with the financial report a statement describing the source of his current assets and representing that his capital has been contributed for the purpose of operating his business and will continue to be used for such purpose. (ii) Notwithstanding the provisions of paragraph (j)(8)(i) of this section or of §1.17(a) of this part, an introducing broker which is a party to a guarantee agreement which has been terminated in accordance with the provisions of paragraph (j)(5)(ii) of this section shall not be deemed to be in violation of the minimum adjusted net capital requirement of §1.17(a)(1)(ii) or (a)(2) of this part for 30 days following such termination. Such an introducing broker must cease doing business as an introducing broker on or after the effective date of such termination, and may not resume doing business as an introducing broker unless and until it files a new agreement or either: (A) A Form 1-FR-IB certified by an independent public account in accordance with §1.16 of this part as of a date not more than 45 days prior to the date on which the report is filed; or (B) A Form 1-FR-IB as of a date not more than 45 days prior to the date on pose. (k) Filing optio ducing broker. broker or applica an introducing b erating or inten ant to a guara comply with the section by filing paragraphs (a), ( tion) a Form 1-F 1-FR-FCM. (2) If an introd cant therefor av option available of this section, be filed in accor this part must b the Form 1-FR-1 an introducing therefor must records and ma computation of ital, as required a manner consis IB. (The information [43 FR 39967, Sept 21 $1.11 [Reserved] §1.12 Maintenance of minimum financial requirements by futures commission merchants and introducing brokers. (a) Each person registered as a futures commission merchant or who files an application for registration as a futures commission merchant, and each person registered as an introducing broker or who files an application for registration as an introducing broker (except for an introducing broker or applicant for registration as an introducing broker operating pursuant to, or who has filed concurrently with its application for registration, a guarantee agreement and who is not also a securities broker or dealer), who knows or should have known that its adjusted net capital at any time is less than the minimum required by §1.17 or by the capital rule of any self-regulatory organization to which such person is subject, if any, must: (1) Give telegraphic notice as set forth in paragraph (h) of this section that such applicant's or registrant's adjusted net capital is less than required by §1.17 or by such other capital rule, identifying the applicable capital rule. This notice must be given within 24 hours after such applicant or registrant knows or should have known that its adjusted net capital is less than is required by any of the aforesaid rules to which such applicant or registrant is subject; and (2) If the person is a futures commission merchant or applicant therefor, within 24 hours after giving such notice file a statement of financial condition, a statement of the computation of the minimum capital requirements pursuant to §1.17 (computed in accordance with the applicable capital rule), the statements of segregation requirements and funds in segregation for customers trading on U.S. commodity exchanges and for customers' dealer options accounts, and the statement of secured amounts and funds held in separate accounts for foreign futures and foreign options customers in accordance with § 30.7 of this chapter, all as of the date such applicant's or registrant's adjusted net capital is less than the minimum required; or (3) If the person is an introducing broker or applicant therefor, within 24 hours after giving such notice file a statement of financial condition and a statement of the computation of the minimum capital requirements pursuant to §1.17 (computed in accordance with the applicable capital rule) all as of the date such applicant's or registrant's adjusted net capital is less than the minimum required. (b) Each person registered as a futures commission merchant, or who files an application for registration as a futures commission merchant, who knows or should have known that its adjusted net capital at any time is less than the greatest of: (1) 150 percent of the appropriate minimum dollar amount required by §1.17(a)(1)(i); (2) 6 percent of the following amount: The customer funds required to be segregated pursuant to the Act and these regulations and foreign futures or foreign options secured amount, less the market value of commodity options purchased by such customers on or subject to the rules of a contract market or a foreign board of trade: Provided, however, That the deduction for each such customer shall be limited to the amount of customer funds in such customer's account(s) and foreign futures and foreign options secured amounts; or (3) For securities brokers or dealers, the amount of net capital specified in Rule 17a-11(b) of the Securities and Exchange Commission (17 CFR 240.17a11(b)) must file written notice to that effect as set forth in paragraph (h) of this section within five (5) business days of such event. Such applicant or registrant, must also file a Form 1-FR (or, if such applicant or registrant is registered with the Securities and Exchange Commission as a securities broker or dealer, it may file, in accordance with §1.10(h), a copy of its Financial and Operational Combined Uniform Single Report under the Securities Exchange Act of 1934, part II, in lieu of Form 1-FR) or such other financial statement designated by the National Futures Association, in the case of an applicant, or by the Commission or the designated self-regulatory organization, if any, in the case of a reg ་པ any time fails to make or keep current the books and records required by these regulations, such applicant or registrant must, on the same day such event occurs, give telegraphic notice of such fact, specifying the books and records which have not been made or which are not current, and within 5 business days after giving such notice file a written report stating what steps have been and are being taken to correct the situation. (d) Whenever any applicant or registrant discovers or is notified by an independent public accountant, pursuant to §1.16(e)(2) of these regulations, of the existence of any material inadequacy, as specified in §1.16(d)(2) of these regulations, such applicant or registrant must give telegraphic notice of such material inadequacy within 3 business days, and within 5 business days after giving such notice file a written report stating what steps have been and are being taken to correct the material inadequacy. (e) Whenever any self-regulatory organization learns that a member registrant has failed to file a notice or written report as required by this section, such self-regulatory organization must immediately report such failure as provided in paragraph (h) of this section. (f)(1) Whenever a clearing organization determines that any position it carries for one of its clearing members which is registered as a futures commission merchant or as a leverage transaction merchant must be liquidated immediately, transferred immediately or that the trading of any account of such futures commission 23 diately, transferr that the trading of futures commissio age transaction m for purposes of liq other futures com the leverage trans failed to meet a d make other requir rying futures co must give telegraj determination to the Commission within 24 hours. (3) Whenever a commission merch an account whic undermargined by ceeds the future chant's adjusted mined in accordan tures commission immediate telegra determination to regulatory organi cipal office of the ington, DC. This apply to any acco tures commission customer, noncus proprietary accou this paragraph (f) an interest of 10 ownership or equi more than one ac teed an account i account, all such combined. A desig organization may from the provisio to a futures comm respect to any pa continuous basis ignated self-regulatory organization documents the reasons for granting such an exemption and continues to monitor any such account. (g) A futures commission merchant required to file reports under §1.15 and any futures commission merchant affiliated with such a futures commission merchant shall provide written notice of any reduction in adjusted net capital in excess of 20 percent of the futures commission merchant's adjusted net capital as last reported in financial reports filed with the Commission pursuant to §1.10. This notice shall be provided as follows: (1) With respect to activities in the normal course of business (e.g., operating losses, proprietary trading losses, increased charges against net capital) that cause reduction, written notification must be received within two business days of such reduction; and (2) With respect to any extraordinary transaction or series of transactions that will cause such reduction, written notification must be received at least two business days in advance of the transaction or the first in the series of transactions. (3) Upon receipt of such notice from a futures commission merchant, the Director of the Division of Trading and Markets or the Director's designee may require that the futures commission merchant provide or cause a Material Affiliated Person (as that term is defined in §1.14(a)(2)) to provide, within three business days from the date of request or such shorter period as the Division Director or designee may specify, such other information as the Division Director or designee determines to be necessary based upon market conditions, reports provided by the futures commission merchant, or other available information. (h)(1) Every notice and written report required to be given or filed by this section (except for notices required by paragraph (f) of this section) by a futures commission merchant, an applicant for registration as a futures commission merchant or a self-regulatory organization must be filed with the regional office of the Commission nearest the principal place of business of the applicant or registrant (except that an applicant, registrant or self-regulatory organization under the jurisdiction of the Commission's Western Regional Office must file such notices and reports with the Southwestern Regional Office), with the designated self-regulatory organization, if any, with the Securities and Exchange Commission, if such applicant or registrant is a securities broker or dealer, and with the National Futures Association, if the firm is an applicant. In addition, every notice required to be given by this section must also be filed with the principal office of the Commission in Washington, DC. Each statement of financial condition, each statement of the computation of the minimum capital requirements pursuant to §1.17 of this part, and each schedule of segregation requirements and funds on deposit in segregation required by this section must be filed in accordance with the provisions of §1.10(d) of this part unless otherwise indicated. (2) Every notice and written report which an introducing broker or applicant for registration as an introducing broker is required to give or file by paragraphs (a), (c) and (d) of this section must be filed with the National Futures Association (on behalf of the Commission), with the designated selfregulatory organization, if any, and with every futures commission merchant carrying or intending to carry customer accounts for the introducing broker or applicant for registration as an introducing broker. Any notice or report filed with the National Futures Association pursuant to this paragraph (h) shall be deemed for all purposes to be filed with, and to be the official record of, the Commission. (Approved by the Office of Management and Budget under control number 3038-0024) [43 FR 39969, Sept. 8, 1978, as amended at 45 FR 6539, Jan. 29, 1980; 46 FR 63035, Dec. 30, 1981; 47 FR 41516, Sept. 21, 1982; 48 FR 35283, Aug. 3, 1983; 49 FR 5521, Feb. 13, 1984; 49 FR 39525, Oct. 9, 1984; 52 FR 28248, July 29, 1987; 52 FR 28995, Aug. 5, 1987; 53 FR 4612, Feb. 17, 1988; 58 FR 10953, Feb. 23, 1993; 59 FR 66688, Dec. 28, 1994] § 1.13-[Reserved] § 1.14 Risk assessment recordkeeping requirements for futures commission merchants. (a) Requirement to maintain and preserve information. (1) Each futures commission merchant registered with the Commission pursuant to Section 4d of the Act, unless exempt pursuant to paragraph (d) of this section, shall prepare, maintain and preserve the following information: (i) An organizational chart which includes the futures commission merchant and each of its affiliated persons. Included in the organizational chart shall be a designation of which affiliated persons are "Material Affiliated Persons" as that term is used in paragraph (a)(2) of this section, which Material Affiliated Persons file routine financial or risk exposure reports with the Securities and Exchange Commission, a federal banking agency, an insurance commissioner or other similar official or agency of a state, or a foreign regulatory authority, and which Material Affiliated Persons are dealers in financial instruments with off-balance sheet risk and, if a Material Affiliated Person is such a dealer, whether it is also an end-user of such instruments; (ii) Written policies, procedures, or systems concerning the futures commission merchant's: (A) Method(s) for monitoring and controlling financial and operational risks to it resulting from the activities of any of its affiliated persons; (B) Financing and capital adequacy, including information regarding sources of funding, together with a narrative discussion by management of the liquidity of the material assets of the futures commission merchant, the structure of debt capital, and sources of alternative funding; (C) Establishing and maintaining internal controls with respect to market risk, credit risk, and other risks created by the futures commission merchant's proprietary and noncustomer clearing activities, including systems and policies for supervising, monitoring, reporting and reviewing trading activities in securities, futures contracts, commodity options, forward contracts and financial instruments; policies for hedging or managing risks created by trading activities or supervising accounts carried for noncustomer affiliates, including a description of the types of reviews conducted to monitor positions; and policies relating to restrictions or limitations on trading activities: Provided, however, that if the futures commission merchant has no such written policies, procedures or systems, it must so state in writing; (iii) Fiscal year-end consolidated and consolidating balance sheets for the highest level Material Affiliated Person within the futures commission merchant's organizational structure, which shall include the futures commission merchant and its other Material Affiliated Persons, prepared in accordance with generally accepted accounting principles, which consolidated balance sheets shall be audited by an independent certified public accountant if an annual audit is performed in the ordinary course of business, but which otherwise may be unaudited, and which shall include appropriate explanatory notes. The consolidating balance sheets may be those prepared by the futures commission merchant's highest level Material Affiliated Person as part of its internal financial reporting process. Any additional information required to be filed under §1.15(a)(2)(iii) shall also be maintained and preserved; and (iv) Fiscal year-end consolidated and consolidating income statements and consolidated cash flow statements for the highest level Material Affiliated Person within the futures commission merchant's organizational structure, which shall include the futures commission merchant and its other Material Affiliated Persons, prepared in accordance with generally accepted accounting principles, which consolidated statements shall be audited by an independent certified public accountant if an annual audit is performed in the ordinary course of business, but which otherwise may be unaudited, and which shall include appropriate explanatory notes. The consolidating statements may be those prepared by the futures commission merchant's highest level Material Af 157-054 0-95--2 |