Net capital
17.—(1)  For the purposes of these Regulations —
“net capital” means the amount by which current assets exceed liabilities and in determining “net capital” —
(a)unrealised profits shall be added and unrealised losses shall be deducted in the accounts of the commodity futures broker including unrealised profits and losses on fixed price commitments and forward contracts; and
(b)all long and all short commodity futures contract positions shall be marked to their market value;
“current assets” means cash and other assets which are reasonably expected to be realised in cash or sold during the next 12 months and shall —
(a)exclude any unsecured commodity futures contract account containing a debit balance which has remained unpaid for more than one business day;
(b)exclude all unsecured advances, loans and other receivables except for dividends, interest and commissions due within 30 days and receivables from merchandising incurred in the normal course of business due within 90 days;
(c)exclude all assets doubtful of collection or realisation except for any reserves established therefor; and
(d)include receivables from clearing houses and from commodity futures brokers arising out of commodity futures contract transactions and shares and securities which are listed on a stock market and have not been suspended.
(2)  A loan or advance or any other form of receivable shall not be considered “secured” unless the following conditions exist:
(a)the receivable is secured by collateral which is otherwise unencumbered and which can be readily converted into cash:
Provided that such receivable will be considered only to the extent of the market value of such collateral after publication of such percentage deductions as are prescribed in regulation 18; and
(b)
(i)the collateral is in the possession or control of the commodity futures broker; or
(ii)the commodity futures broker has a legally enforceable written security agreement executed by the debtor in its favour under which the commodity futures broker shall have the power to readily sell or otherwise convert the collateral into cash.
(3)  For the purposes of computing “net capital”, the term “liabilities” —
(a)excludes liabilities of a commodity futures broker which are subordinated to the claims of all general creditors of the futures broker pursuant to a satisfactory subordination agreement, as defined in paragraph (4);
(b)excludes the amount of money, securities and property due to customers which are held in segregated accounts in accordance with regulations 22 and 23:
Provided that such exclusion may be made only if such money, securities and property held in segregated accounts have been excluded from current assets in computing net capital; and
(c)excludes liabilities which would be classified as longterm liabilities in accordance with generally accepted accounting principles to the extent of the net book value of plant, property and equipment which are used in the ordinary course of the futures broker’s business, provided that such plant, property and equipment are not included in current assets.
(4)  For the purpose of paragraph (3)(a), a “satisfactory subordination agreement” means an agreement between the futures broker and its lender (referred to in these Regulations as the subordinated creditor) which agreement shall be in such form and shall contain such terms as the Board may from time to time require but shall at a minimum contain the following terms:
(a)the subordinated creditor will not claim or receive from the commodity futures broker by set-off or in any other manner, any subordinated debt unless and until all senior debt has been paid or except with the prior written approval of the Board, or in the case of a commodity futures broker which is a member of a Commodity Futures Exchange, with the prior written approval of the Commodity Futures Exchange;
(b)in the event of any payment or distribution of assets of the commodity futures broker, in cash, in kind or in securities (referred to in these Regulations as a distribution), upon any dissolution, winding-up, liquidation or re-organisation of the commodity futures broker —
(i)the senior creditors shall first be entitled to receive payment in full of the senior debt before the subordinated creditor receives any payment in respect of the subordinated debt;
(ii)any distribution to which the subordinated creditor would be entitled but for the provisions of this Agreement shall be paid or delivered by the liquidator, Official Assignee in bankruptcy or any other person making the distribution directly to the senior creditors rateably according to their senior debt until they have been paid in full (taking into account other distributions to the senior creditors); and
(c)if, notwithstanding paragraphs (a) and (b), any distribution is received by the subordinated creditor in respect of the subordinated debt, such distribution shall be paid over to the senior creditors for application rateably against their senior debt until the senior debt has been paid in full (taking into account other distributions to the senior creditors) and until such payment in full shall be held in trust for the senior creditors.