“current assets”, in relation to a commodity broker or spot commodity broker, means cash and other assets which are reasonably expected to be realised in cash or sold within a period of 12 months and shall —
(a)
exclude any unsecured commodity contract or spot commodity 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 the commodity broker or spot commodity broker arising out of commodity contract or spot commodity contract transactions, and shares and securities which are listed on a stock market and have not been suspended;
“net capital”, in relation to a commodity broker or spot commodity broker, 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 broker or spot commodity broker, including unrealised profits and losses on fixed price commitments and forward contracts; and
(b)
all long and all short commodity contract or spot commodity contract positions shall be marked to their market value.
(2) A loan or advance or any other form of receivable shall not be treated as “secured” unless —
(a)
the receivable is secured by collateral which is unencumbered and can be readily converted into cash; and
(b)
the commodity broker or spot commodity broker —
(i)
is in the possession or control of the collateral; or
(ii)
has a legally enforceable written security agreement executed by the debtor in his favour under which he shall have the power to readily sell or otherwise convert the collateral into cash.
(3) A receivable referred to in paragraph (2) shall be considered only to the extent of the market value of such collateral after publication of such percentage deductions as are set out in regulation 4.
(4) For the purposes of computing “net capital”, the term “liabilities” shall exclude —
(a)
liabilities of a commodity broker or spot commodity broker which are subordinated to the claims of all general creditors of the broker pursuant to a satisfactory subordination agreement as defined in paragraph (5);
(b)
the amount of money, securities and property due to customers which are held in segregated accounts in accordance with regulations 21 and 22 if such money, securities and property have been excluded from current assets in computing net capital; and
(c)
liabilities which would be classified as long term liabilities in accordance with generally accepted accounting principles to the extent of the net book value of plant, property and equipment used in the ordinary course of the broker’s business, provided that such plant, property and equipment are not included in current assets.
(5) In paragraph (4)(a), “satisfactory subordination agreement” means an agreement between the commodity broker or spot commodity broker and his lender (referred to in these Regulations as the subordinated creditor) which shall be in such form and shall contain such terms as the Board may, from time to time, require.
(6) Without prejudice to the generality of paragraph (5), a subordinated agreement shall contain the following terms:
(a)
the subordinated creditor will not claim or receive from the commodity broker or spot commodity broker by set-off or in any other manner, any subordinated debt unless and until all senior debt has been paid or the Board has given it prior written approval;
(b)
in the event of any payment or distribution of assets of the commodity broker or spot commodity 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 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; and
(ii)
any distribution to which the subordinated creditor would be entitled but for this paragraph 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 sub-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 is made, such distribution shall be held on trust for the senior creditors.