United States

Treatment of operating leases under Rule 15c3-1


Upon its effective date, Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases, will require a lessee to recognize on its balance sheet assets and liabilities for all leases other than those that meet the definition of short-term leases. Under Exchange Act Rule 15c3-1, a broker-dealer would need to deduct the operating lease asset from net worth when computing its net capital because the asset would not be readily convertible to cash. Additionally, a broker-dealer using the 15-to-1 aggregate indebtedness to net capital ratio (i.e., the AI standard) for determining its minimum net capital requirement would be required to include the operating lease liability in its calculation.

In a letter to the Securities industry and Financial Markets Association dated Nov. 8, 2016, the staff of the Division of Trading and Markets stated it would not recommend enforcement action to the SEC under Exchange Act Rule 15c3-1 if a broker-dealer computing net capital adds back an operating lease asset to the extent of the associated operating lease liability. Further, the Division will not recommend enforcement action to the SEC if a broker-dealer determining its minimum net capital requirement using the AI standard does not include in its aggregate indebtedness an operating lease liability to the extent of the associated operating lease asset. Further information is available in the no-action letter.


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