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The Exchange is issuing this notice to remind members of the annual audited financial statements requirement of Securities Exchange Act Rule 17a-5(d). In general members that limit their business to acting as a specialist, market maker or floor broker and that transact business in securities solely with or for other members of a national securities exchange and who do not carry any margin account, credit balance or security for public customers are exempt from the annual filing requirements. Other members, including floor members who engage in off floor transactions that are not directly related to their primary on-floor business may be subject to the annual independent audit requirement.1
Please Note: If you are subject to the audit requirement on or before December 1, 2002, you will need to engage an independent accountant to conduct your annual audit for the following year.
Set forth below is an overview of the requirements of Rule 17a-5(d).
Annual Filing of Audited Financial Statements
Subpart (d)(i) of Rule 17a-5(d) sets forth the general requirement that every broker or dealer file annually, on a calendar or fiscal year basis, a report which shall be audited by an independent public accountant.
Designation of Accountant Rule 17a-5(f)(2) Notice
Every broker or dealer required to file an annual audit report is also required to file, no later than December 10 of each year, a statement that indicates the existence of an agreement dated no later than December first, with an independent public accountant covering a contractual commitment to conduct the broker's or dealer's annual audit during the following calendar year. The statement should be filed with the Securities and Exchange Commission in Washington, DC, the regional or district office of the Securities and Exchange Commission for the region or district where the broker or dealer has its principal place of business, and the principal office of the designated examining authority for such broker or dealer.
The agreement may be of a continuing nature, providing for successive yearly audits, in which case no further filing is required. If the agreement is for a single audit, or if the continuing agreement previously filed has been terminated or amended, a new statement must be filed each year by the required date.
The statement shall be headed Notice pursuant to Rule 17a-5(f)(2) and shall contain the following information:
- Name, address, telephone number and registration number of the broker or dealer;
- Name, address and telephone number of the accounting firm; and
- The audit date of the broker or dealer for the year covered by the agreement
Filing Due Date for Annual Audit Report
The annual audit report must be filed not more than sixty (60) calendar days after the date of the financial statements. For members reporting on a calendar year basis the next filing due date will be March 3, 2003.
The annual audit report must be filed at the regional or district office of the Securities and Exchange Commission for the region or district in which the broker or dealer has its principal place of business, the Securities and Exchange Commission's principal office in Washington, D.C. and the principal office of the designated examining authority for the broker or dealer. Copies thereof are also to be provided to all self-regulatory organizations of which the broker or dealer is a member.
Audit Extension Requests
Members designated to the Exchange for financial responsibility purposes that need to request an extension of time for filing of the annual audit report should make a written request to the Financial Regulatory Services Department of the Exchange signed by the Chief Financial Officer, Chief Executive Officer or Managing Partner. The extension request should be made at least ten (10) business days prior to the audit due date. The written request should provide the following information:
- the amount of time requested on the extension
- the specific reason(s) the extension is being requested and
- a letter from the outside independent auditors in which the auditors represent that the member is in compliance with SEC Rule
15c3-1, that an unqualified opinion is expected to be issued and that no material inadequacies or books and records problems exist.
1 Floor members that engage in more than an occasional off floor transaction, that are not directly related to their primary on-floor business. i.e. more than ten such transactions in any calendar year, should comply with the annual independent audit requirement unless such members limit their off-floor transactions that are not directly related to their primary on-floor business to 25% of their total transactions. See Phlx Examinations Department Memo No 2130-01, November 30, 2001.
Any questions concerning this Information Memo may be directed to Robert J. Devine at 212-858-4448 or Carl Bayer at 212-858-4447 of the Financial Regulatory Services Department.
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