Independent IBs are required to maintain an accounting system that records all of the firm's financial activity. The Financial Reports created from the accounting system must be prepared following U.S generally accepted accounting principles ("GAAP"), must be done on an accrual basis, and must be kept current. Additionally, NFA Financial Requirements and CFTC Regulation 1.17 include definitions which a member should fully understand in order to properly prepare its financial reports. Some of these requirements are much more restrictive than under GAAP with respect to the classification of current and non-current assets. See the 1-FR Instruction Guides for a detailed explanation of these requirements.
Independent IBs are required to maintain at all times Adjusted Net Capital greater than the minimum net capital requirement for that Independent IB. Adjusted Net Capital is computed as follows:
Current Assets – Liabilities – Charges against Capital = Adjusted Net Capital.
When computing Adjusted net capital, a firm may exclude a liability that is subordinated to the claims of all general creditors pursuant to a satisfactory subordination agreement. A subordinated loan agreement must be filed with NFA at least ten days prior to the proposed effective date of the agreement and cannot be considered "satisfactory" until NFA finds the agreement acceptable. In order to facilitate the approval process for subordinated loan agreements ("SLA"), NFA recommends that the IB use the templates below as a guide when drafting an SLA.
NFA Financial Requirements Section 5 defines the minimum net capital requirements for Independent IBs. If a member's adjusted net capital falls below its minimum net capital requirements, it must immediately notify the appropriate agencies of this deficiency. See Reporting Requirements for IBs.
An IB may choose to not be subject to capital requirements by entering into a guarantee agreement with the FCM that carries the IB's accounts.
Members subject to capital requirements should also be aware of restrictions imposed when adjusted net capital falls to a restrictive level. A member may not withdraw capital when it is below the Equity Withdrawal Restriction nor may it pay down a subordinated loan agreement if it is below the Suspended Repayment Restriction. Further, Members must maintain equity capital of at least 30% at all times.
Independent IBs must file financial reports with NFA on a periodic basis and most filings must be done electronically. See Reporting Requirements for IBs for what must be filed, when and how, and see the "Forms" list below for links to the appropriate financial reporting forms. Additionally, financial reports filed late will be subject to Late Filing Fees.
NFA Members can file many of their required documents electronically.