ments set forth in paragraph (b)(11) of this § 240.15c3-1d, as if such broker or dealer's net capital were below the minimum standards specified by each of the aforementioned paragraphs.

(2) For purposes of this paragraph (c)(2)(x), equity in each such specialist's market marker account shall be computed by (i) marking all securities positions long or short in the account to their respective current market values, (ii) adding (deducting in the case of a debit balance) the credit balance carried in such specialist's market maker account, and (iii) adding (deducting in the case of short positions) the market value of positions long in such account.

(C) For purposes of this paragraph (c)(2)(x), a bona fide hedged position shall mean either (1) a long position in a security other than an option (an "underlying security"), or in a security which is currently exchangeable for or convertible into the underlying security if the conversion or exchange does not require the payment of money, which is offset by a short call option position or a long put option position for the same number of units of the same underlying security, or (2) a short position in an underlying security which is offset by a long call position or a short put position for the same number of units of the same underlying security.

(D)(1) For purposes of this paragraph (c)(2)(x), a bona fide spread position shall mean long and short positions in the same type (that is, put or call) of option contracts for the same number of units of the same underlying security.

(2) For purposes of this paragraph (c)(2)(x), a bona-fide straddle position shall mean long put and long call (or short put and short call) positions for the same number of units of the same underlying security.

(E) For purposes of applying the deductions required by paragraph (A) of this paragraph (c)(2)(x) in respect of positions in each such specialist's market maker account, long and short positions in each such account shall be allocated in the following sequence:

(1) Bona fide hedged positions as defined in paragraph (C) of this paragraph (c)(2)(x) shall be constituted by

first matching long or short positions in securities, other than options, against offsetting long or short call options positions taken in order of increasing exercise value and any remaining long or short positions in securities, other than options, against offsetting long or short put options positions taken in order of decreasing exercise values; provided, that in the case of long (or short) options of equal exercise value, the option possessing the greatest time to expiration shall be matched first.

(2) Thereafter, bona fide spread positions as defined in paragraph (D) of this paragraph (c)(2)(x) shall be constituted by matching long options taken in order of increasing exercise values (decreasing exercise values in the case of puts) against offsetting short options taken in order of increasing exercise values (decreasing exercise values in the case of puts); provided, that in the case of long (or short) options of equal exercise value, the option possessing the greatest time to expiration shall be matched first.

(3) Thereafter, bona-fide straddle positions as defined in paragraph (D) of this paragraph (c)(2)(x) shall be constituted by matching long (or short) call options taken in order of increasing exercise values against offsetting long (or short) put options taken in order of decreasing exercise values; provided, that in the case of long (or short) call (or put) options of equal exercise value, the option possessing the greatest time to expiration shall be matched first.

(4) Thereafter, long or short positions not allocated pursuant to paragraphs (1), (2) or (3) above shall be treated in the manner prescribed by paragraphs (A), (A)(1) or (A)(9) of this paragraph (c)(2)(x).

(F) If at any time the deductions required in respect of any such specialist's market maker account pursuant to paragraph (A) of this paragraph (c)(2)(x) exceed the equity in the account computed pursuant to paragraph (B)(2) of this paragraph (c)(2)(x), then the broker or dealer guaranteeing, endorsing, or carrying options transactions in such account:

(1) Shall not extend further credit in the account, and

(2) Shall issue a call for additional equity which shall be met by noon of the following business day, and

(3) Shall notify by telegraph the principal office of the Commission in Washington, D.C., the regional office of the Commission for the region in which the broker or dealer maintains its principal place of business, and the Designated Examining Authorities of the specialist and the broker or dealer if the specialist fails to deposit any required equity within the time prescribed in (2) above; said telegraphic notice shall be received by the Commission's Washington, D.C. office, the Commission's regional office, and the Designated Examining Authorities not later than the close of business on the day said call is not met.

(G) If at any time a liquidating deficit exists in any such specialist's market maker account, then the broker or dealer guaranteeing, endorsing or carrying options transactions in such account shall take steps to liquidate promptly existing positions in the account.

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(H) Upon written application to the Commission by the specialist and the broker or dealer guaranteeing, endorsing, or carrying options transactions in such specialist's market maker count, the Commission may approve upon specified terms and conditions lesser adjustments to net worth than those specified by paragraph (A) of this paragraph (c)(2)(x).

(xi) Brokers or Dealers Carrying Specialists or Market Makers Accounts. With respect to a broker or dealer who carries a market maker or specialist account, or with respect to any transaction in options listed on a registered national securities exchange for which a broker or dealer acts as a guarantor or endorser of options written by a specialist in a specialist account, the broker or dealer shall deduct, for each account carried or for each class or series of options guaranteed or endorsed, any deficiency in collateral required by subparagraph (a)(6) of this section.

(xii) Deduction from net worth for certain undermargined accounts. Deducting the amount of cash required

in each customer's or non-customer's account to meet the maintenance margin requirements of the Examining Authority for the broker or dealer, after application of calls for margin, marks to the market or other required deposits which are outstanding 5 business days or less.

(xiii) Deduction from net worth for indebtedness collateralized by exempted securities. Deducting, at the option of the broker or dealer, in lieu of including such amounts in aggregate indebtedness, 4 percent of the amount of any indebtedness secured by exempted securities or municipal securities if such indebtedness would otherwise be includable in aggregate indebtedness.

EXEMPTED SECURITIES

(3) The term "exempted securities" shall mean those securities deemed exempted securities by section 3(a)(12) of the Securities Exchange Act of 1934 and rules thereunder.

CONTRACTUAL COMMITMENTS

(4) The term "contractual commitments" shall include underwriting, when issued, when distributed and delayed delivery contracts, the writing or endorsement of puts and calls and combinations thereof, commitments in foreign currencies, and spot (cash) commodities contracts, but shall not include uncleared regular way purchases and sales of securities and contracts in commodities futures. A series of contracts of purchase or sale of the same security conditioned, if at all, only upon issuance may be treated as an individual commitment.

ADEQUATELY SECURED

(5) Indebtedness shall be deemed to be adequately secured within the meaning of this section when the excess of the market value of the collateral over the amount of the indebtedness is sufficient to make the loan acceptable as a fully secured loan to banks regularly making secured loans to brokers or dealers.

CUSTOMER

(6) The term "customer" shall mean any person from whom, or on whose

behalf, a broker or dealer has received, acquired or holds funds or securities for the account of such person, but shall not include a broker or dealer or a registered municipal securities dealer, or a general, special or limited partner or director or officer of the broker or dealer, or any person to the extent that such person has a claim for property or funds which by contract, agreement, or understanding, or by operation of law, is part of the capital of the broker or dealer. Provided, however, That the term "customer" shall also include a broker or dealer, but only insofar as such broker or dealer maintains a special omnibus account carried with another broker or dealer in compliance with 12 CFR 220.4(b) of Regulation T under the Securities Exchange Act of 1934.

NON-CUSTOMER

(7) The term "non-customer" means a broker or dealer, registered municipal securities dealer, general partner, limited partner, officer, director and persons to the extent their claims are subordinated to the claims of creditors of the broker or dealer.

MARKET MAKER

(8) The term "market maker" shall mean a dealer who, with respect to a particular security, (i) regularly publishes bona fide, competitive bid and offer quotations in a recognized interdealer quotation system; or (ii) furnishes bona fide competitive bid and offer quotations on request; and, (iii) is ready, willing and able to effect transactions in reasonable quantities at his quoted prices with other brokers or dealers.

PROMPTLY TRANSMIT AND DELIVER

(9) A broker or dealer is deemed to "promptly transmit" all funds and to "promptly deliver" all securities within the meaning of paragraphs (a)(2)(v) and (a)(3) of this section where such transmission or delivery is made no later than noon of the next business day after the receipt of such funds or securities. Provided, however, That such prompt transmission or delivery shall not be required to be ef

fected prior to the settlement date for such transactions.

FORWARD AND PROMPTLY FORWARD

(10) A broker or dealer is deemed to "forward" or "promptly forward" funds or securities within the meaning of paragraphs (i) through (vi) of paragraph (a)(2) only when such forwarding occurs no later than noon of the next business day following receipt of such funds or securities.

READY MARKET

(11) (i) The term "ready market” shall include a recognized established securities market in which there exists independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined for a particular security almost instantaneously and where payment will be received in settlement of a sale at such price within a relatively short time conforming to trade custom.

(ii) A "ready market" shall also be deemed to exist where securities have been accepted as collateral for a loan by a bank as defined in section 3(a)(6) of the Securities Exchange Act of 1934 and where the broker or dealer demonstrates to its Examining Authority that such securities adequately secure such loans as that term is defined in paragraph (c)(5) of this section.

EXAMINING AUTHORITY

(12) The term "Examining Authority" of a broker or dealer shall mean for the purposes of 17 CFR 240.15c3-1 and 240.15c3-1a-d the national securities exchange or national securities association of which the broker or dealer is a member or, if the broker or dealer is a member of more than one such self-regulatory organization, the organization designated by the Commission as the Examining Authority for such broker or dealer, or if the broker or dealer is not a member of any such self-regulatory organization, the Regional Office of the Commission where such broker or dealer has its principal place of business.

EQUITY

(13) [Reserved]

(14) The term “municipal securities” shall mean those securities included within the definition of "municipal securities" in section 3(a)(29) of the Securities Exchange Act of 1934.

(d) Debt-Equity Requirements. No broker or dealer shall permit the total of outstanding principal amounts of its satisfactory subordination agreements (other than such agreements which qualify under this paragraph (d) as equity capital) to exceed 70 percent of its debt-equity total, as hereinafter defined, for a period in excess of 90 days or for such longer period which the Commission may, upon application of the broker or dealer, grant in the public interest or for the protection of investors. In the case of a corporation, the debt-equity total shall be the sum of its outstanding principal amounts of satisfactory subordination agreements, par or stated value of capital stock, paid in capital in excess of par, retained earnings, unrealized profit and loss or other capital accounts. In the case of a partnership, the debt-equity total shall be the sum of its outstanding principal amounts of satisfactory subordination agreements, capital accounts of partners (exclusive of such partners' securities accounts) subject to the provisions of paragraph (e) of this section, and unrealized profit and loss. In the case of a sole proprietorship, the debt-equity total shall include the sum of its outstanding principal amounts of satisfactory subordination agreements, capital accounts of the sole proprietorship and unrealized profit and loss. Provided, however, That a satisfactory subordination agreement entered into by a partner or stockholder which has an initial term of at least three years and has a remaining term of not less than 12 months shall be considered equity for the purposes of this paragraph (d) if: (1) It does not have any of the provisions for accelerated maturity provided for by paragraphs (b)(9)(i), (b)(10)(i) or (b)(10)(ii) of Appendix (D) (17 CFR 240.15c3-1d) and is maintained as capital subject to the provisions restricting the withdrawal thereof required by paragraph (e) of

this section or (2) the partnership agreement provides that capital contributed pursuant to a satisfactory subordination agreement as defined in Appendix (D) (17 CFR 240.15c3-1d) shall in all respects be partnership capital subject to the provisions restricting the withdrawal thereof required by paragraph (e) of this section.

(e) Limitation on withdrawal of equity Capital. No equity capital of the broker or dealer or a subsidiary or affiliate consolidated pursuant to Appendix (C) (17 CFR 240.15c3-1c) whether in the form of capital contributions by partners excluding securities in the securities accounts of partners and balances in limited partners' capital accounts in excess of their stated capital contributions), par or stated value of capital stock, paid-in capital in excess of par, retained earnings or other capital accounts, may be withdrawn by action of a stockholder or partner, or by redemption or repurchase of shares of stock by any of the consolidated entities or through the payment of dividends or any similar distribution, nor may any unsecured advance or loan be made to a stockholder, partner, sole proprietor or employee if, after giving effect thereto and to any other such withdrawals, advances or loans and any Payments of Payment Obligations (as defined in Appendix (D) (17 CFR 240.15c3-1d) under satisfactory subordination agreements which are scheduled to occur within six months following such withdrawal, advance or loan, either aggregate indebtedness of any of the consolidated entities exceeds 1000 percentum of its net capital or its net capital would fail to equal 120 per centum of the minimum dollar amount required thereby or would be less than 7 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 7% of the funds required to be segregated pursuant to the Commodity Exchange Act, and the regulations thereunder, if greater or in the case of any broker or dealer included within such consolidation if the total outstanding principal amounts satisfactory subordination agreements of the broker or dealer

(other than such agreements which qualify as equity under paragraph (d) of this section) would exceed 70% of the debt-equity total as defined in paragraph (d). Provided, That this provision shall not preclude a broker or dealer from making required tax payments or preclude the payment to partners of reasonable compensation.

(f) Alternative net capital requirement. (1)(i) A broker or dealer who is not exempt from the provisions of 17 CFR 240.15c3-3 under the Securities Exchange Act of 1934 pursuant to paragraph (k)(1) or (k)(2)(i) may elect not to be subject to the limitations of paragraph (a) of this section respecting aggregate indebtedness as defined in paragraph (c)(1) of this section and certain deductions provided for in paragraph (c)(2) of this section. Provided, That in order to qualify to operate under this paragraph (f), such broker or dealer shall at all times maintain net capital equal to the greater of $100,000 ($25,000 in the case of a broker or dealer effecting transactions solely in municipal securities) or 4 percent of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for Brokers and Dealers (Exhibit A to Rule 15c3-3, 17 CFR 240.15c3-3a), or, if registered as a futures commission merchant, 4 percent of the funds required to be segregated pursuant to the Commodity Exchange Act, and the regulations thereunder, if greater, and shall notify the Examining Authority for such broker or dealer and the Regional Office of the Commission in which the broker or dealer has its principal place of business, in writing, of its election to operate under this provision. Once a broker or dealer has determined to operate pursuant to the provisions of this paragraph (f), he shall continue to do so unless a change is approved upon application to the Commission.

(2) In the case of a broker or dealer who has consolidated a subsidiary pursuant to Appendix C (17 CFR 240.15c3-1c), such broker's or dealer's minimum net capital requirements shall be the sum of the greater of $100,000 or 4 percent of the parent broker's or dealer's aggregate debit items computed in accordance with 17

CFR 240.15c3-3a, or, if the parent is registered as a futures commission merchant, 4 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, if greater, and the total of each consolidated broker or dealer subsidiary's minimum net capital requirements. The minimum net capital requirements of a subsidiary electing to operate pursuant to paragraph (f) of this section shall be the greater of $100,000 or 4 percent of its aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 4 percent of the funds required to be segregated by the subsidiary pursuant to the Commodity Exchange Act and the regulations thereunder, if greater. Where the subsidiary which has been consolidated has not elected to operate pursuant to paragraph (f) of this section, its minimum net capital requirement is the greater of its requirements under paragraph (a) of this section or 6 percent of its aggregate indebtedness.

(3) A broker or dealer electing to operate pursuant to this paragraph (f) shall be subject to the deductions set forth in paragraph (c)(2) of this section, except that he shall not be subject to the deductions required by paragraphs (c)(2)(vi)(G), (c)(2)(vi)(J), (c)(2)(vi)(K)(i), and (c)(2)(vi)(M) and shall in lieu thereof deduct the following amounts under subparagraph (c) (2) of this section in its computation of net capital:

(i) Convertible Debt Securities. In the case of a debt security not in default which has a fixed rate of interest and a fixed maturity date and which is convertible into an equity security, the deduction shall be as follows: If the market value is 100 percent or more of its principal amount, the deduction shall be determined as specified in (ii) below; if the market value is less than its principal amount the deduction shall be determined as in paragraph (c)(2)(vi)(F) of this section if such securities are rated as required by paragraph (c)(2)(vi)(F) of this section;

(ii) Other Securities. In the case of all securities or evidence of indebtedness, except as provided in Appendix (A), 17 CFR 240.15c3-1a, which are not