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News August 8, 2011 Issue

S&P Downgrade of U.S. Debt Doesn’t Affect the Haircut Calculation

Since we’re dipping our toes into broker-dealer waters in this issue, here’s another tidbit that reflects on the fallout from Standard & Poor’s (S&P) recent downgrade of the credit rating for U.S. debt.

FINRA issued Notice 11-38 today that emphasized that for purposes of the broker-dealer net capital rule (Exchange Act Rule 15c3-1), "the credit rating assigned to United States Treasury securities or other securities issued, or guaranteed as to principal or interest, by the United States or any of its governmental agencies (government securities), by a credit ratings agency, is not a factor in determining the net capital treatment for such securities."

FINRA noted that it had confirmed with the SEC that S&P’s action had no effect on the net capital treatment of government securities or the definition of "qualified security" under related Rule 15c3-3, which permits broker-dealers to use certain government securities to meet their deposit requirement.