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§ 260.237.2. Minimum Financial Requirements.


Barclays Official California Code of Regulations Currentness
Title 10. Investment
Chapter 3. Commissioner of Business Oversight, Division of Corporations
Subchapter 2. Corporate Securities
Article 10. Licensing and Regulation of Investment Advisers (Refs & Annos)
10 CCR § 260.237.2
§ 260.237.2. Minimum Financial Requirements.
(a) Every investment adviser who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser who has discretionary authority over client funds or securities but does not have custody of client funds or securities, shall maintain at all times a minimum net worth of $10,000.
(b) Every investment adviser who accepts prepayment of more than $500 per client and six or more months in advance shall maintain at all times a positive net worth.
(c) Unless otherwise exempted, as a condition of the right to continue to transact business in this state, every investment adviser shall, by the close of business on the next business day following the discovery that the investment adviser's net worth is less than the minimum required, notify the Commissioner that the investment adviser's net worth is less than the minimum required. After transmitting such notice, by the close of business on the next business day each investment adviser shall file a report with the Commissioner of its financial condition, including the following:
(1) A trial balance of all ledger accounts;
(2) A statement of all client funds or securities which are not segregated;
(3) A computation of the aggregate amount of client ledger debit balances; and
(4) A statement as to the number of client accounts.
(d) For purposes of this rule, the term “net worth” shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets: prepaid expenses (except as to items properly classified as current assets under generally accepted accounting principles), deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.
(e) For purposes of this rule, a person will be deemed to have custody if said person directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.
(f) For purposes of this rule, an investment adviser shall not be deemed to be exercising discretion when it places trade orders with a broker-dealer pursuant to a third party trading agreement if
(1) the investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that the investment adviser must secure client permission prior to effecting securities transactions for the client in the client's brokerage account(s), and
(2) the investment adviser in fact does not exercise discretion with respect to the account, and
(3) a third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.
(g) The Commissioner may require that a current appraisal be submitted in order to establish the worth of any asset.
(h) Every investment adviser that has its principal place of business in a state other than this state shall maintain only such minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimum capital requirements.
(i) This section shall not apply to an investment adviser that has secured a certificate as a broker-dealer from the Commissioner under Section 25210 of the Code.
(j) For purposes of subsection (c) of this rule, if the failure to discover that an investment adviser's net worth is less than the minimum required is the result of the investment adviser's failure to keep true, accurate and current the books and records required under Section 260.241.3, the investment adviser will be deemed to have discovered that the investment adviser's net worth is less that the minimum required by this section.
Note: Authority cited: Sections 25237 and 25610, Corporations Code. Reference: Sections 25237 and 25613, Corporations Code.
1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).
2. Repealer of first paragraph and amendment of subsection (j) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).
This database is current through 1/1/21 Register 2021, No. 1
10 CCR § 260.237.2, 10 CA ADC § 260.237.2
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