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A broker dealer’s net capital requirement is based on its business activities and the relationship of aggregate indebtedness to its net capital.. The question you refer to is frequently seen on the series 24 exam. First you need to know that a broker dealer’s minimum capital requirement to qualify as a market maker is $100,000. Its maximum capital requirement based solely on its market making activities is capped at $1,000,000. With that said the question often centers around the number of securities the firm is making markets in. The capital requirement for each security is as follows:
• $2,500 for each stock with a bid price of $5 or more
• $1,000 for each stock with a bid price of less than $5
A typical series 24 question will provide you with the number of securities the firm makes markets in and information on the price of the securities. The question will be laid out as follows:
ABC broker dealers is an active market maker. The firm makes markets in 350 equity securities. 250 of these are trading with a bid of $5 or more. What is the firm’s capital requirement based on its market making activities ? the math is easy enough 250 securities x $5 = $125,000. The question implies that the remaining 100 securities are priced below $5 per share and are therefore subject to $1,000 requirement. 100 X $1,000 = $100,000. As a result ABC broker dealers has a capital requirement of $225,000 based solely on the market making activity.