Aggregate Indebtedness is the total amount of a broker dealer’s customer related obligations. A firm must calculate its aggregate indebtedness in order to determine its required net capital. A broker dealer’s financial solvency must be maintained at a level that is sufficient to protect its customers and to ensure the integrity of the financial markets as a whole.
Aggregate indebtedness (AI) is composed of the firm’s customer related liabilities. AI has a direct correlation to the firm’s minimum net capital requirement. A general securities firm must have minimum net capital of $250,000. However, that requirement may increase, as the firm can have no more than $15 in AI for every $1 of net capital. That ratio is even more stringent for a first year broker dealer; it can have no more than $8 in AI for every $1 of net capital. So it is foreseeable, and is usually the case, that a firm’s minimum net capital requirement could far exceed $250,000, if the firm carries a lot of AI on its books. For your exam make sure that you know that the minimum dollar requirements of $250,000 for a general securities broker dealer and $100,000 for a market making firm etc.. are just the numbers that will allow a firm to qualify to conduct the stated activities. Virtually all broker dealers in the real world have far greater capital requirements. Those capital requirements are driven by the firm’s aggregate indebtedness. If a firm’s AI:NC exceeds 15:1 or 8:1 for a first year firm, the firm is out of business. Make sure you are ready to pass your series 24 or series 26 exam with our greenlight pass guarantee.
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