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

What is the maximum aggregate indebtedness to net capital ratio that can exceed for 15 consecutive business days before restrictions apply?

1. 8 to 1

2. 10 to 1

3. 12 to 1

4. 15 to 1

The correct answer is: 10 to 1

The maximum aggregate indebtedness to net capital ratio that can be exceeded for 15 consecutive business days before restrictions are enforced is set at 10 to 1. This ratio is fundamental as it is a regulatory measure designed to assess the financial health and stability of a broker-dealer. A higher ratio indicates that the company has more debts relative to its net capital, which can create risk for its operations. If a broker-dealer surpasses the 10 to 1 ratio for more than 15 consecutive business days, it prompts the need for heightened scrutiny and can lead to regulatory actions, including the potential for limitations on business operations. This threshold is significant because it creates a balance, allowing firms some leeway in their operations while also ensuring that they maintain sufficient capital to cover their obligations. Such guidelines are essential to protect investors and maintain trust in the financial system.