Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Appendix B to Rule 15c3-1 -- Adjustments to Net Worth and Aggregte Indebtedness for Certain Commodities Transactions

---

1. Every broker or dealer in computing net capital pursuant to 17 CFR Rule 15c3-1 shall comply with the following:
   
   
   1. Where a broker or dealer has an asset or liability which is treated or defined in paragraph (c) of 17 CFR Rule 15c3-1, the inclusion or exclusion of all or part of such asset or liability for the computation of aggregate indebtedness and net capital shall be in accordance with paragraph (c) of 17 CFR Rule 15c3-1, except as specifically provided otherwise in this Appendix B. Where a commodity related asset or liability is specifically treated or defined in 17 CFR 1.17 and is not generally or specifically treated or defined in 17 CFR Rule 15c3-1 or this Appendix B, the inclusion or exclusion of all or part of such asset or liability for the computation of aggregate indebtedness and net capital shall be in accordance with 17 CFR 1.17.
      
      

      Aggregate Indebtedness

   2. The term aggregate indebtedness as defined in paragraph (c)(1) of this section shall exclude with respect to commodity-related transactions:
      
      
      1. Indebtedness arising in connection with an advance to a non-proprietary account when such indebtedness is adequately collateralized by spot commodities eligible for delivery on a contract market and when such spot commodities are covered.
         
         
      2. Advances received by the broker or dealer against bills of lading issued in connection with the shipment of commodities sold by the broker or dealer; and
         
         
      3. Equity balances in the accounts of general partners.
         
         

      Net Capital

   3. In computing net capital as defined in paragraph (c)(2) of this section, the net worth of a broker or dealer shall be adjusted as follows with respect to commodity-related transactions:
      
      

      Unrealized profit or loss for certain commodities transactions

      1. 1. Unrealized profits shall be added and unrealized losses shall be deducted in the commodities accounts of the broker or dealer, including unrealized profits and losses on fixed price commitments and forward contracts; and
            
            
         2. The value attributed to any commodity option which is not traded on a contract market shall be the difference between the option's strike price and the market value for the physical or futures contract which is the subject of the option. In the case of a long call commodity option, if the market value for the physical or futures contract which is the subject of the option is less than the strike price of the option, it shall be given no value. In the case of a long put commodity option, if the market value for the physical commodity or futures contract which is the subject of the option is more than the striking price of the option, it shall be given no value.
            
            
      2. Deduct any unsecured commodity futures or option account containing a ledger balance and open trades, the combination of which liquidates to a deficit or containing a debit ledger balance only: Provided, however, Deficits or debit ledger balances in unsecured customers', non-customers' and proprietary accounts, which are the subject of calls for margin or other required deposits need not be deducted until the close of business on the business day following the date on which such deficit or debit ledger balance originated;
         
         
      3. Deduct all unsecured receivables, advances and loans except for:
         
         
         1. Management fees receivable from commodity pools outstanding no longer than thirty (30) days from the date they are due;
            
            
         2. Receivables from foreign clearing organizations;
            
            
         3. Receivables from registered futures commission merchants or brokers, resulting from commodity futures or option transactions, except those specifically excluded under paragraph (3)(ii) of this Appendix B. In the case of an introducing broker or an applicant for registration as an introducing broker, include 50 percent of the value of a guarantee or security deposit with a futures commission merchant which carries or intends to carry accounts for the customers of the introducing broker.
            
            
      4. Deduct all inventories (including work in process, finished goods, raw materials and inventories held for resale) except for readily marketable spot commodities; or spot commodities which adequately collateralize indebtedness under paragraph (c)(7) of 17 CFR 1.17;
         
         
      5. Guarantee deposits with commodities clearing organizations are not required to be deducted from net worth;
         
         
      6. Stock in commodities clearing organizations to the extent of its margin value is not required to be deducted from net worth;
         
         
      7. Deduct from net worth the amount by which any advances paid by the broker or dealer on cash commodity contracts and used in computing net capital exceeds 95 percent of the market value of the commodities covered by such contracts.
         
         
      8. Do not include equity in the commodity accounts of partners in net worth.
         
         
      9. In the case of all inventory, fixed price commitments and forward contracts, except for inventory and forward contracts in the inter-bank market in those foreign currencies which are purchased or sold for further delivery on or subject to the rules of a contract market and covered by an open futures contract for which there will be no charge, deduct the applicable percentage of the net position specified below:
         
         

         A	Inventory which is currently registered as deliverable on a contract market and covered by an open futures contract or by a commodity option on a physical	No charge
         B	Inventory which is covered by an open futures contract or commodity option	5% of the market value
         C	Inventory which is not covered	20% of the market value
         D	Fixed price commitments (open purchases and sales) and forward contracts which are covered by an open futures contract or commodity option	10% of the market value
         E	Fixed price commitments (open purchases and sales) and forward contracts which are not covered by an open futures contract or commodity option	20% of the market value

      10. Deduct 4% of the market value of commodity options granted (sold) by option customers on or subject to the rules of a contract market.
          
          
      11. [Reserved]
          
          
      12. Deduct for undermargined customer commodity futures accounts the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or, if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding three business days or less. If there are no such maintenance margin requirements or clearing organization margin requirements on such accounts, then deduct the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding three days or less to restore original margin when the original margin has been depleted by 50 percent or more. Provided, To the extent a deficit is deducted from net worth in accordance with paragraph (a)(3)(ii) of this Appendix B, such amount shall not also be deducted under this paragraph (a)(3)(xii). In the event that an owner of a customer account has deposited an asset other than cash to margin, guarantee or secure his account, the value attributable to such asset for purposes of this paragraph shall be the lesser of (A) the value attributable to such asset pursuant to the margin rules of the applicable board of trade, or (B) the market value of such asset after application of the percentage deductions specified in paragraph (a)(3)(ix) of this Appendix B or, where appropriate, specified in paragraph (c)(2)(vi) or (c)(2)(vii) of Rule 15c3-1 of this chapter;
          
          
      13. Deduct for undermargined non-customer and omnibus commodity futures accounts the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or, if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding two business days or less. If there are no such maintenance margin requirements or clearing organization margin requirements, then deduct the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding two days or less to restore original margin when the original margin has been depleted by 50 percent or more. Provided, To the extent a deficit is deducted from net worth in accordance with paragraph (a)(3)(ii) of this Appendix B such amount shall not also be deducted under this paragraph (a)(3)(xiii). In the event that an owner of a non-customer or omnibus account has deposited an asset other than cash to margin, guarantee or secure his account, the value attributable to such asset for purposes of this paragraph shall be the lesser of (A) the value attributable to such asset pursuant to the margin rules of the applicable board of trade, or (B) the market value of such asset after application of the percentage deductions specified in paragraph (a)(3)(ix) of this Appendix B or, where appropriate, specified in paragraph (c)(2)(vi) or (c)(2)(vii) of Rule 15c3-1 of this chapter;
          
          
      14. In the case of open futures contracts and granted (sold) commodity options held in proprietary accounts carried by the broker or dealer which are not covered by a position held by the broker or dealer or which are not the result of a "changer trade" made in accordance with the rules of a contract market, deduct:
          
          
          1. For a broker or dealer which is a clearing member of a contract market for the positions on such contract market cleared by such member, the applicable margin requirement of the applicable clearing organization;
             
             
          2. For a broker or dealer which is a member of a self-regulatory organization 150% of the applicable maintenance margin requirement of the applicable board of trade or clearing organization, whichever is greater; or
             
             
          3. For all other brokers or dealers, 200% of the applicable maintenance margin requirement of the applicable board of trade or clearing organization, whichever is greater; or
             
             
          4. For open contracts or granted (sold) commodity options for which there are no applicable maintenance margin requirements, 200% of the applicable initial margin requirement;
             
             
          Provided, the equity in any such proprietary account shall reduce the deduction required by this paragraph (a)(3)(xiv) if such equity is not otherwise includable in net capital.

          Options

      15. In the case of a broker or dealer which is a purchaser of a commodity option which is traded on a contract market the deduction shall be the same safety factor as if the broker or dealer were the grantor of such option in accordance with paragraph (a)(3)(xiv), but in no event shall the safety factor be greater than the market value attributed to such option.
          
          
      16. In the case which is the subject of such option but in no event more than the value attributed to such option.
          
          
      17. Deduction 5% of all unsecured receivables includable under paragraph (a)(3)(iii)(C) of this Appendix B used by the broker or dealer in computing "net capital" and which are not receivable from
          
          
          1. a futures commission merchant registered as such with the Commodity Futures Trading Commission, or
             
             
          2. a broker or dealer which is registered as such with the Securities and Exchange Commission.
             
             
      18. A loan or advance or any other form of receivable shall not be considered "secured" for the purposes of paragraph (a)(3) of this Appendix B unless the following conditions exist:
          
          
          1. The receivable is secured by readily marketable collateral which is otherwise unencumbered and which can be readily converted into cash: Provided, however,That the receivable will be considered secured only to the extent of the market value of such collateral after application of the percentage deductions specified in paragraph (a)(3)(ix) of this Appendix B; and
             
             
          2. 1. The readily marketable collateral is in the possession or control of the broker or dealer; or
                
                
             2. The broker or dealer has a legally enforceable, written security agreement, signed by the debtor, and has a perfected security interest in the readily marketable collateral within the meaning of the laws of the State in which the readily marketable collateral is located.
                
                
      19. The term cover for purposes of this Appendix B shall mean cover as defined in 17 CFR 1.17(j).
          
          
      20. The term customer for purposes of this Appendix B shall mean customer as defined in 17 CFR 1.17(b)(2). The term "non-customer" for purposes of this Appendix B shall mean non-customer as defined in 17 CFR 1.17(b)(4).

	Notice to Users: The Deskbook is made available with the understanding that the University of Cincinnati College of Law is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. See Terms and Conditions of Use.   © Copyright 1998-2008, University of Cincinnati, All Rights Reserved  Contact: joseph.hodnicki@uc.edu