Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

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For how many consecutive business days must the aggregate indebtedness to net capital ratio exceed 12 to 1 before a member firm must reduce its business?

10 consecutive business days
15 consecutive business days
20 consecutive business days
30 consecutive business days

The correct answer is: 15 consecutive business days

The correct answer is 15 consecutive business days because the rules governing broker-dealers under the Securities and Exchange Commission (SEC) require firms to monitor their aggregate indebtedness to net capital ratio closely. When the ratio exceeds 12 to 1 for 15 consecutive business days, it indicates a significant imbalance between a firm's debt and its capital, which can lead to financial instability. As a protective measure, the firm must then take action to reduce its business activity to lower the risk associated with such a high ratio. This requirement ensures that firms maintain a proper level of financial health and stability, safeguarding their operations and protecting investors.