Accounting and consolidating entry

The uniform net capital rule is a rule created by the U. Securities and Exchange Commission ("SEC") in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors.The haircut values of securities are used to compute the liquidation value of a broker-dealer's assets to determine whether the broker-dealer holds enough liquid assets to pay all its non-subordinated liabilities and to still retain a "cushion" of required liquid assets (i.e., the "net capital" requirement) to ensure payment of all obligations owed to customers if there is a delay in liquidating the assets.

In an April 9, 2009, speech ("2009 Sirri Speech") Erik Sirri, then Director of the SEC's Division of Trading and Markets, expanded on this explanation by stating (1) the 2004 rule change did not affect the "basic" net capital rule that had a leverage limit (albeit one that excluded much broker-dealer debt), (2) an "alternative" net capital rule established in 1975 that did not contain a direct leverage limit applied to the broker-dealer subsidiaries of the five largest investment banks (and other large broker-dealers), and (3) neither form of the net capital rule was designed (nor operated) to constrain leverage at the investment bank holding company level, where leverage and, more important, risk was concentrated in business units other than broker-dealer subsidiaries.

However, I have experienced the opposite in the past.

A few companies treated their foreign currency share capital as a monetary item, but they took foreign exchange differences to the statement of other comprehensive income, and not to profit or loss.

In practice, the ordinary share capital is viewed as and maintained at the historical rates.

The reason is that its retranslation to closing rate does not affect the cash flows of the company.

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