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

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When does a restriction on expansion occur due to a member firm's net capital being less than 150 percent of its minimum requirement?

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

The correct answer is: 15 consecutive business days

A restriction on expansion occurs when a member firm's net capital falls below 150% of its minimum requirement for a duration of 15 consecutive business days. This regulation is in place to ensure the financial stability of the firm and protect the interests of customers and the markets. If the net capital of the firm is not maintained above this threshold, it triggers a mandatory review and potential limitations on activities such as increasing business operations or hiring new employees. This helps maintain the integrity of the firm's financial health and ensures it can meet its obligations. Regulatory frameworks, such as those established by the Securities and Exchange Commission (SEC) and self-regulatory organizations, enforce these requirements to create a safe and sound financial environment. Understanding these thresholds is crucial for those in investment and variable contracts, as it affects operational decisions and compliance with regulatory standards.