Brokers and Dealers in Securities 2017
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More About This Title Brokers and Dealers in Securities 2017

English

The 2017 edition gives up-to-date industry-specific guidance needed to be able to tailor operations with the most current standards and regulations. Included are new best practices and interpretive guidance to industry-specific considerations, this guide has you covered.

This edition offers “best practice” discussion of industry-specific issues such as fair value accounting and related disclosures, as well as compliance with regulatory requirements. Further, new guidance on initial margin has been approved in accordance with applicable AICPA requirements.

English

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession's technical and ethical standards.
The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

English

Table of Contents ix

Chapter Paragraph

1 The Securities Industry  01-144

Broker-Dealers 04-25

Discount Brokers 08

Investment Bankers 09-14

Government Securities Dealers 15

Designated Market Maker 16

Clearing Brokers 17

Carrying Brokers 18

Prime Brokers 19

Swap Dealers 20-21

Introducing Brokers 22

Brokers’ Brokers 23

Bank-Owned Brokers (Section 4k4(e) and Section 20

Brokers) 24

Independent Broker-Dealers 25

The Financial Markets 26-46

Exchange Market 29-34

OTC Market 35-39

Third Market 40

Alternative Trading Venues 41-46

Clearing Organizations and Depositories 47-53

Transfer Agents 54-57

Regulatory Overview 58-65

Business Activities 66-144

Brokerage 66-74

Firm Trading 75-111

Investment Banking 112-119

Financing 120-132

Other Activities 133-144

2 Broker-Dealer Functions, Books, and Records  01-177

Introduction 01-18

Overview 01-03

Original Entry Journals 04-06

General Ledger 07

Stock Record 08-12

Regulatory Recordkeeping Requirements 13-15

Trade Date and Settlement Date 16-18

Trade Execution 19-60

Customer Trades 19-48

Proprietary Trades 49-60

Clearance and Settlement 61-90

Overview 61-65

Comparison 66-70

Settlement 71-87

Bookkeeping 88-90

Specialized Clearance Activities 91-119

Mortgage-Backed Securities 91-95

Government Securities 96-98

Repos and Reverse Repos 99-100

Derivative Securities  101-103

Commodity Futures and Options on Futures 104-109

Forward Transactions 110

Municipal Securities  111-112

International Securities 113

Options on Securities 114-119

Reconciliation and Balancing 120-123

Custody  124-135

Possession or Control 125-129

Securities Transfer 130-135

Dividends, Interest, and Reorganization 136-149

Dividends and Interest 136-144

Reorganization 145-149

Collateralized Financing 150-164

Stock Loan and Stock Borrow 150-154

Bank Loan Financing 155-158

Reverse Repos and Repos 159-164

Regulatory Considerations 165-172

Tax Information Reporting for Certain Customer Transactions 173-176

Illustrative Stock Record Entries 177

3 Regulatory Considerations  01-188

Applicable Rules 05-10

Interpretations of Rules 09-10

Explanation of Significant SEC Financial Responsibility Rules  11-125

SEC Rule 15c3-3, "Customer Protection—Reserves and Custody of Securities" 11-40

SEC Rule 15c3-1, "Net Capital Requirements for Brokers or Dealers" 41-60

SEC Rule 15c3-1(e), "Notice Provisions Relating to the Limitations on the Withdrawal of Equity Capital"   61-65

SEC Rule 17a-13, "Quarterly Security Counts to Be Made by Certain Exchange Members, Brokers, and Dealers" 66-70

SEC Rule 17a-3, "Records to Be Made by Certain Exchange Members, Brokers, and Dealers"    71

SEC Rule 17a-4, "Records to Be Preserved by Certain Exchange Members, Brokers, and Dealers"    72

Regulation T and Maintenance Margin 73-79

Account Statement Rule(s) 80-81

SEC Rules and CFTC Regulations Governing Customer Margin for Transactions in Security Futures      82

SEC Rules 17h-1T and 17h-2T 83-86

SEC Rule 17Ad-17, "Lost Securityholders and Unresponsive Payees" 87-92

SEC Rule 17Ad-22, "Clearing Agency Standards"  93-94

SEC Rule 17-248—Subpart C, "Regulation S-ID: Identity Theft Red Flags" 95

SEC Rule 506 of Regulation D and SEC Rule 144A 96-97

SEC Rule 15c3-5, "Risk Management Controls for Brokers or Dealers with Market Access" 98-101

SEC Rule 17a-5, "Reports to Be Made by Certain Brokers and Dealers" 102-122

Anti-money Laundering Regulations 123-125

Reporting Requirements 126-151

Consolidation of Subsidiaries 132-134

Form Custody 135

Other Periodic Reporting 136

The Annual Audited Financial Report 137-151

Filings Concurrent With the Annual Audited Financial Report 152-161

Compliance or Exemption Report Required by SEC Rule 17a-5 152-154

Report to State Regulatory Agencies 155

Financial Statements to Be Furnished to Customers of Securities Broker-Dealers 156-161

Other Reports 162-171

Reports on Securities Investor Protection Corporation Assessment 162-164

Reports on Agreed-Upon Procedures for Distributions 165

PCAOB Accounting Support Fee 166-171

Additional Requirements for Registered Investment Advisers 172-180

Rules Applicable to Broker-Dealers in Commodities and U.S. Government Securities 181

Commodities Brokers 182

Government Securities Broker-Dealers 183

OTC Derivatives Dealers 184-185

Swap Dealers and Swaps Marketplace Participants    186

Annual Compliance Certification 187-188

4 Internal Control  01-70

Introduction 01-06

The Control Environment 07-09

Risk Assessment for Financial Reporting Purposes    10-19

Control Activities 20-23

Information and Communication 24-30

Information and Communication Control Activities  27-30

Monitoring Activities 31-36

Broker-Dealer Control and Monitoring Activities 37-62

Sales and Compliance 41-44

Clearance 45-46

Securities Settlement  47-48

Custody 49-50

Dividends, Interest, and Reorganization 51-52

To-Be-Announced Securities 53

Principal Transactions 54-56

OTC Derivative Transactions 57

Commissions 58

Collateralized Financings 59-61

Period End Financial Reporting 62

SEC Requirements for Management’s Report on Internal Control Over Financial Reporting for Issuers 63-70

Annual Reporting Requirements for Issuers 67

Quarterly Reporting Requirements for Issuers 68-70

5 Accounting Standards  01-124

Accounting Model 02-40

Definition of Fair Value 06-08

Application of Fair Value Measurement to Liabilities and Instruments Classified in a Reporting Entity’s Shareholders’ Equity 09-11

Valuation Techniques 12-14

Inputs to Valuation Techniques 15-16

Application to Financial Assets and Financial Liabilities With Offsetting Positions in Market Risks or Counterparty Credit Risk 17-19

Inputs Based on Bid and Ask Prices 20

Present Value Techniques 21-24

The Fair Value Hierarchy 25-28

Fair Value Measurements of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)  29-32

Fair Value Determination When the Volume or Level of

Activity Has Significantly Decreased 33-37

Fair Value Option 38-40

Additional Fair Value Considerations  41-54

Financial Instruments Listed on a Recognized Exchange 41-45

Financial Instruments Not Listed on a Recognized Exchange but Having a Readily Available Market Price 46-48

Financial Instruments Not Having a Readily Available Market Price 49-54

Trade-Date Versus Settlement-Date Accounting 55-68

Proprietary and Principal Transactions 58-65

Agency Transactions  66-68

Statement of Financial Condition Considerations      69-112

Due From, and Due to, Other Broker-Dealers and Clearing Entities 69-70

Transfers of Financial Assets 71-85

Exchange Memberships Owned or Contributed  86

Suspense Accounts 87

Derivatives 88-97

Conditional Transactions 98

Leveraged Buyouts and Bridge Loans 99

Asset Securitizations  100-103

Variable Interest Entities 104

Soft-Dollar Arrangements 105-109

Mandatorily Redeemable Instruments 110-112

Statement of Income or Loss Considerations 113-124

Underwriting Revenues and Expenses 113-117

Mutual Fund Distribution Costs 118-119

Half-Turn Convention 120

Interest, Dividends, and Rebates 121-123

Costs Associated With Exit or Disposal Activities    124

6 Financial Statement Presentation and Classification  01-163

Introduction 01-12

Financial Statements 13-30

Statement of Financial Condition 13-15

Statement of Income or Operations  16-19

Statement of Cash Flows 20-21

Statement of Changes in Ownership Equity 22-23

Statement of Changes in Subordinated Borrowings 24

Consolidation of Subsidiaries 25-27

Going Concern 28-30

Supplementary Schedules 31-38

Computation of Net Capital Pursuant to SEC Rule 15c3-1 33

Computations for Determination of Reserve Requirements Pursuant to SEC Rule 15c3-3 34-35

Information Relating to Possession or Control Requirements Under SEC Rule 15c3-3 36-37

Schedules of Segregation Requirements and Funds in Segregation for Customers’ Trading Pursuant to the Commodity Exchange Act 38

Statement of Financial Condition Account Descriptions   39-96

Cash and Securities Segregated Under Federal and Other Regulations 40

Memberships in Exchanges 41-45

Securities Sold Under Agreements to Repurchase and Securities Purchased Under Agreements to Resell   46-52

Securities Borrowed and Securities Loaned 53-60

Securities Received as Collateral and Obligation to Return Securities Received as Collateral 61-63

Receivables From and Payables to Broker-Dealers, Clearing Organizations, and Others 64-72

Receivables From and Payables to Customers 73-76

Deferred Dealer Concessions 77

Securities Owned and Securities Sold, Not Yet Purchased 78-85

Other Borrowed Funds 86-88

Subordinated Borrowings 89-93

Commitments and Guarantees 94-95

Equity  96

Statement of Income or Operations Account Descriptions  97-120

Commission Income and Related Expense 98-101

Interest Income and Interest Expense 102-103

Dividend Income and Dividend Expense 104

Principal Transactions (Trading Gains and Losses)  105

Investment Banking Fees and Expenses 106-109

Asset Management and Investment Advisory Income   110

Mutual Fund Fees 111

Floor Brokerage, Exchange Fee, and Clearance Expenses 112-114

Occupancy and Equipment Expenses 115

Employee Compensation and Benefits Expenses  116-118

Technology and Communications Expense 119

Management and Allocated Corporate Overhead Expense 120

Disclosures 121-142

Fair Value Disclosures 121-124

Disclosures Related to Transfers of Financial Assets Accounted for as Sales 125-126

Disclosures Related to Transfers of Financial Assets Accounted for as Secured Borrowings 127

Disclosures of Certain Significant Risks and Uncertainties and Contingencies 128-138

Derivative Instruments Disclosures 139-142

Guarantee Disclosures  143-144

Related Party Disclosures 145-150

Subsequent Events Disclosures 151-153

Balance Sheet Offsetting Disclosures 154-159

Financial Statements and Schedules 160-163

Appendix

A Information Sources

B Illustrative Example of Compliance Report Required by SEC Rule 17a-5

C Illustrative Example of Exemption Report Required by SEC Rule 17a-5

D Overview of Statements on Quality Control Standards

E The New Revenue Recognition Standard: FASB ASC 606

F The New Leases Standard: FASB ASU No. 2016-02

G Accounting for Financial Instruments

H Schedule of Changes Made to the Text From the Previous Edition

Glossary

Index of Pronouncements and Other Technical Guidance

Subject Index

 

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