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SEC Form 17-H

SEC Form 17-H
InvestingLaws and RegulationsSECSec and Regulatory Bodies

What Is SEC Form 17-H?

The term SEC Form 17-H alludes to a form that must be filed by all securities brokers with the Securities and Exchange Commission (SEC). This form, called the Risk Assessment Report for Broker-Dealers, comprises of six pages connecting with the broker's business activities and their risk profile. This SEC form requires broker-dealers to file the form according to Rules 17h-1T and Rule 17h-2T of the Securities and Exchange Act of 1934.

Grasping SEC Form 17-H

The Securities and Exchange Commission is an independent federal agency responsible for protecting investors and guaranteeing the fairness of U.S. securities markets. The agency, which was made in 1934, requires public disclosure and manages corporate takeovers in the U.S. while protecting investors from market manipulation and other types of risk.

The 17h rules (17h-1T and 17h-2T) were added to the Securities and Exchange Act provisions in 1992, illustrating certain requirements for recordkeeping and reporting for securities broker-dealers. In compliance with these rules, Form 17-H requires broker-dealers to uncover information in regards to the activities of certain affiliated elements, such as parent companies, holding companies, and subsidiaries.

The form is made out of six pages and is known as the Risk Assessment Report for Brokers and Dealers form. It demands things such as the investment company's current organizational chart, duplicates of all risk-the executives and related policies, information connected with any legal procedures, and the company's financial statements.

The SEC amended the filing requirements for Rule 17h in June 2020, expanding the threshold for reporting elements. This change exempted certain broker-dealers, which the agency said, would reduce the burden for more modest firms. Companies whose capital ranges between $20 million and $50 million are presently exempt from the rule, gave they keep up with under $1 billion altogether assets.

Broker-dealer firms must meet certain requirements before they can register with the Financial Industry Regulatory Authority (FINRA), including licensing, compliance, and continuing education.

Purpose of SEC Form 17-H

The primary purpose of Form 17-H is to permit the SEC to monitor expected wellsprings of systemic risk risks among broker-dealers. Each broker-dealer is required to list the number and types of assets under their influence, as well as any pending litigation, debt obligations, organizational charts, as well as the names of "Material Associated Persons," the company's principal employees and executives.

Many broker-dealers operate as part of a larger investment firm, with a family of parent companies, auxiliaries, and other members, that might make risky trades or depend on each other for credit. Broker-dealers in some cases depend on their parent companies for short-term liquidity, so a credit risk at one of these companies could influence the financial health of the others.

By disturbing market activities, such risks make it harder for investors and endeavors to access capital. As part of its risk-assessment program, the SEC currently centers around 50-75 firms every year — out of roughly 275 17-H filer firms — for in-person screening visits.

The SEC is likewise fostering an expanded liquidity survey process, which might bring increased examination of 17-H firms proceeding. Zeroing in on liquidity was one of the big examples mastered during the 2008 financial crisis.

History of SEC Form 17-H

The SEC adopted the 17-H rules and Form 17-H keeping the collapse of Drexel Burnham Lambert and its holding company, Drexel Burnham and Lambert Group. The two companies were shut down in 1990 due to insider trading and manipulation in the junk bond market.

During the 1980s, Drexel experienced a series of examinations and lawsuits for the high-yield bond trading practices multiplied by Michael Milken and others. In 1990, the company endeavored to fight off bankruptcy by transferring $220 million of BD capital to its parent as a short-term loan.

Neither the SEC nor the New York Stock Exchange (NYSE) was made aware of this critical capital transfer at that point. Very quickly, Drexel and its associated elements couldn't meet their financial obligations, and subsequently, DBL filed for bankruptcy.

As per the SEC, Drexel's collapse "showed the way that broker-dealers could experience serious financial difficulty due to the loss of market confidence, loss of access to the capital markets, or disappointment of the registered broker-dealer's subsidiaries or the holding company itself." Thus, Rule 17-H is an important way that the SEC might screen securities organizations to relieve or reduce risks, similar to the Drexel downfall refered to above.

Highlights

  • The form expects brokers to give financial information about their risk profile, including financial statements and information about any legal issues they face.
  • The SEC adopted rule and Form 17-H adhering to the collapse of Drexel Burnham Lambert and its holding company, Drexel Burnham and Lambert Group.
  • Broker-dealers must give information about a parent company, holding company, or auxiliary's activities that might influence its financial or operating conditions.
  • Certain broker-dealers must file SEC Form 17-H with the Securities and Exchange Commission.