July 24, 2003
The Division of Market Regulation of the U.S. Securities and Exchange Commission has provided guidance concerning the application of the financial responsibility rules when a parent, holding company, affiliate of a broker/dealer or another third-party agrees to assume responsibility for payment of the broker/dealer's expenses.
In its July 11 letter (PDF 223 KB), the SEC states that broker/dealers are required to prepare certain financial statements in accordance with generally accepted accounting principles (GAAP). A broker/dealer is also required to make and keep current certain books and records relating to its business, including records "reflecting all assets and liabilities, income and expense and capital accounts." A broker/dealer must also retain copies of all written agreements entered into by the broker/dealer relating to its business.
This letter clearly sets forth broker/dealers' responsibilities with regard to any such expense sharing arrangements and all broker/dealers are advised to read this statement.