The uniform net capital rule is a rule created by the U. Securities and Exchange Commission ("SEC") in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors.
The haircut values of securities are used to compute the liquidation value of a broker-dealer's assets to determine whether the broker-dealer holds enough liquid assets to pay all its non-subordinated liabilities and to still retain a "cushion" of required liquid assets (i.e., the "net capital" requirement) to ensure payment of all obligations owed to customers if there is a delay in liquidating the assets.
Shareholders of a corporation are taxed on dividends distributed by the corporation.
Corporations may be subject to foreign income taxes, and may be granted a foreign tax credit for such taxes.
On April 28, 2004, the SEC voted unanimously to permit the largest broker-dealers (i.e., those with "tentative net capital" of more than billion) to apply for exemptions from this established "haircut" method.
Since 2008, many commentators on the financial crisis of 2007-2009 have identified the 2004 rule change as an important cause of the crisis on the basis it permitted certain large investment banks (i.e., Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley) to increase dramatically their leverage (i.e., the ratio of their debt or assets to their equity).
P., (including its affiliates, “Rubenstein”), in partnership with Trammell Crow Company, is announcing several new lease commitments and expansions totaling nearly 33,000 square feet at Maryland Trade Center III, a 192,000-square-foot Class A office property […] Plans to Reposition and Re-Tenant Vacant Building in Reston Submarket of Northern Virginia; Appoints Newmark Grubb Knight Frank as Exclusive Leasing Agent and Takes Aim at Tech Users November 10, 2016 – Philadelphia – Rubenstein Partners, L.
Financial reports filed by those companies show an increase in their leverage ratios from 2004 through 2007 (and into 2008), but financial reports filed by the same companies before 2004 show higher reported leverage ratios for four of the five firms in years before 2004. The companies that received SEC approval to use its haircut computation method continue to use that method, subject to modifications that became effective January 1, 2010.
Beginning in 2008, many observers remarked that the 2004 change to the SEC's net capital rule permitted investment banks to increase their leverage and this played a central role in the financial crisis of 2007-2009.
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