Series 28 Quick Reference

Last revised: June 29, 2026

Compact FINRA Series 28 quick reference for introducing broker-dealer FINOP candidates, covering net capital, customer protection, books and records, reporting, clearing relationships, and exam traps.

Exam Identity and Scope

This independent Quick Reference supports preparation for FINRA’s Series 28 — Introducing Broker-Dealer Financial and Operations Principal Qualification Examination (Series 28). It focuses on the financial and operational principal responsibilities of an introducing broker-dealer, especially firms that introduce customer accounts to a carrying/clearing firm rather than carrying accounts themselves.

High-yield Series 28 themes:

Area	What to know cold
Net capital	Computation, aggregate indebtedness, nonallowable assets, haircuts, early warning logic
Customer protection	15c3-3 exemptions, reserve concept, custody red flags
Books and records	Creation, preservation, financial records, order/customer records
Financial reporting	FOCUS, annual audit, supplemental reports, notices
Introducing/clearing relationship	Fully disclosed clearing agreements, responsibility allocation, receivables/payables
FINOP supervision	Accuracy of books, capital withdrawals, expense sharing, subordinated debt
Operational risk	Fails, suspense, reconciliations, customer funds/securities handling

Core FINOP Role for an Introducing Broker-Dealer

FINOP responsibility	Practical Series 28 meaning
Maintain required capital	Net capital must be maintained at all times, not only at month-end.
Supervise financial books	General ledger, trial balance, accruals, capital computation, clearing receivables/payables.
File required reports	FOCUS, annual audited financials, SIPC-related filings, and other required notices.
Monitor regulatory triggers	Net capital deficiency, early warning levels, books-and-records failures, withdrawals, business changes.
Oversee 15c3-3 status	Confirm the firm fits its claimed exemption and handles customer funds/securities consistently.
Control withdrawals and liabilities	Distributions, loans, expense-sharing arrangements, and guarantees can affect capital.
Coordinate with clearing firm	Reconcile commissions, deposits, fails, customer activity, and proprietary balances.

Exam trap: A fully disclosed introducing firm may rely on a carrying firm for custody and account carrying, but it does not outsource its own net capital, books-and-records, reporting, or supervisory obligations.

Net Capital Framework

Main Net Capital Formula

[ \text{Net Capital} = \text{Net Worth}

\text{Allowable Subordinated Liabilities}

\text{Nonallowable Assets}
\text{Haircuts and Other Charges} ]

Term	Exam meaning
Net worth	GAAP assets minus liabilities before regulatory adjustments.
Allowable subordinated liabilities	Subordinated loans or notes that meet regulatory requirements and are properly approved.
Nonallowable assets	Assets not readily convertible to cash or not collectible under regulatory standards.
Haircuts	Deductions for market, credit, concentration, or other risk on proprietary positions.
Net capital	The final regulatory capital amount compared with required minimums.

Aggregate Indebtedness Method

Introducing broker-dealers are commonly tested under the aggregate indebtedness framework.

\[ \text{Minimum Net Capital} = \max(\text{Applicable Fixed-Dollar Minimum},\ 6\tfrac{2}{3}\% \times \text{Aggregate Indebtedness}) \]\[ \text{AI Ratio} = \frac{\text{Aggregate Indebtedness}}{\text{Net Capital}} \]

Concept	High-yield point
Aggregate indebtedness	Generally the firm’s money liabilities arising from its business.
Ratio test	The firm must keep aggregate indebtedness within the permitted ratio to net capital.
Fixed minimum	Depends on the firm’s business activities. Know that business model drives the base requirement.
Excess net capital	Net capital minus required minimum net capital.
Early warning	A firm can be above minimum but still below an early warning threshold requiring notice/action.

Net Capital Computation Sequence

Step	Action	Common mistake
1	Start with GAAP net worth.	Ignoring accrued expenses or known liabilities.
2	Add only qualifying subordinated liabilities.	Treating ordinary loans as capital.
3	Deduct nonallowable assets.	Leaving prepaid expenses, fixed assets, or unsecured receivables in capital.
4	Apply securities haircuts and charges.	Using market value without haircut deductions.
5	Compare to required minimum.	Testing only fixed minimum and ignoring aggregate indebtedness.
6	Check early warning status.	Assuming “not deficient” means no notice issue.
7	Document and retain computation.	Treating the computation as informal workpaper only.

Net Capital Adjustment Reference

Common Nonallowable Assets

Asset	Usual treatment for exam purposes	Why it matters
Furniture, equipment, leasehold improvements	Nonallowable	Not liquid regulatory capital.
Prepaid expenses	Nonallowable	GAAP asset, but not available to meet obligations.
Goodwill and intangibles	Nonallowable	No reliable liquidation value.
Unsecured receivables	Often nonallowable if not promptly collectible	Collection risk reduces capital.
Employee advances	Usually nonallowable unless secured/collectible under rules	Not firm liquidity.
Affiliate receivables	High scrutiny; often nonallowable if unsecured or unsupported	Related-party credit risk.
Aged fails/receivables	May become nonallowable or require charges	Timeliness affects capital.
Deficits in customer or proprietary accounts	Deducted/charged	Represents exposure to loss.

Common Allowable or Potentially Allowable Assets

Asset	Treatment depends on	Exam focus
Cash in bank	Proper ownership, availability, reconciliation	Restricted or improperly titled cash may be problematic.
Receivable from clearing broker	Collectibility and reconciliation	Fully disclosed firms often rely on clearing receivables.
Marketable proprietary securities	Market value less haircut	Allowable value is not full market value.
Secured receivables	Adequacy of collateral and enforceability	Documentation matters.
Clearing deposit	Terms, collectibility, and restrictions	Do not assume every deposit is fully allowable.

Liability and AI Classification

Item	Capital impact
Accounts payable and accrued expenses	Usually liabilities and part of aggregate indebtedness.
Commissions payable	Liability when earned/owed.
Taxes payable	Liability; ignoring tax accruals overstates capital.
Rent, technology, professional fees	Must be accrued if incurred or contractually owed.
Subordinated debt	Liability for GAAP, but may be added back only if qualifying.
Contingent liabilities	Evaluate whether accrual or disclosure is required.
Guarantees	May create a capital charge or liability exposure.

Haircuts and Securities Positions

Position type	Exam treatment
Proprietary securities owned	Mark to market, then apply required haircut.
Equities	Subject to market risk haircut; do not use full value as net capital.
Debt securities	Haircut depends on type, maturity, rating, and marketability.
Options	Charges can be strategy-specific and more complex.
Concentrated positions	May require additional deductions.
Illiquid or restricted securities	May be nonallowable or heavily charged.
Short positions	Create market exposure and may affect aggregate indebtedness/capital charges.

Exam trap: A profitable proprietary position can still reduce net capital through haircuts. Net capital is a regulatory liquidity calculation, not simply GAAP equity.

Early Warning and Deficiency Logic

Status	Meaning	FINOP action
Adequately capitalized	Net capital exceeds required minimum and early warning levels.	Continue monitoring and documentation.
Early warning	Firm is above minimum but below regulatory comfort threshold.	Provide required notice and limit risky changes.
Net capital deficiency	Net capital is below required minimum.	Immediate escalation, required notice, business restriction/cessation as applicable.
Books-and-records failure	Firm cannot determine capital accurately.	Treat as serious regulatory event; notify/escalate as required.
Withdrawal concern	Distribution or repayment would impair capital.	Block, recalculate, and obtain required approvals/notices.

Practical Early Warning Checklist

Has net capital fallen close to the required minimum?
Has the AI-to-net-capital ratio deteriorated?
Are liabilities missing from the trial balance?
Are receivables aging into nonallowable status?
Did the firm make, or plan to make, a capital withdrawal?
Are proprietary positions more volatile or concentrated?
Are clearing firm balances reconciled?
Has the firm changed business lines, products, or custody practices?

Capital Contributions, Withdrawals, and Subordinated Debt

Topic	Series 28 point
Capital contribution	Increases equity if actually contributed and properly recorded.
Capital withdrawal	Can create deficiency or early warning issue; may require notice or restriction.
Partner/member distribution	Must be tested before payment, not after.
Repayment of subordinated loan	Cannot be made if it causes or worsens capital problems.
Ordinary loan	Does not count as regulatory capital merely because proceeds are cash.
Qualifying subordination	Must meet regulatory form, approval, maturity, and subordination requirements.
Expense paid by affiliate	Requires written support; otherwise the broker-dealer may need to accrue the expense.

Situation	Correct exam approach
Parent company pays rent/payroll/technology	Determine whether a written agreement clearly assigns responsibility.
No agreement or unclear agreement	Broker-dealer may need to accrue the expense.
Affiliate says it will “cover costs” informally	Not enough; documentation and ability to pay matter.
BD omits expenses to improve capital	Capital is overstated; regulatory issue.

Customer Protection Rule Concepts

15c3-3 High-Yield Distinction

Firm type	Customer protection issue
Carrying broker-dealer	Carries customer accounts; subject to possession/control and reserve requirements unless otherwise exempt.
Introducing broker-dealer	Typically does not carry accounts; may rely on an exemption if it promptly transmits funds/securities and follows clearing arrangement.
Exempt introducing firm	Exempt from certain 15c3-3 mechanics, not from net capital, books, reporting, or supervision.
Non-exempt or custody-like activity	May trigger reserve/possession-control concerns and higher risk.

Common 15c3-3 Exemption Patterns

Pattern	Key condition
Prompt transmittal model	Firm does not hold customer funds/securities and promptly forwards them.
Fully disclosed introducing model	Customer accounts are carried by another broker-dealer under a clearing agreement.
Check handling	Checks should be handled consistently with exemption; payee and timing matter.
Securities handling	Customer securities should not be held or controlled outside the permitted process.

Exam trap: “We usually forward checks quickly” is not the same as a controlled process that supports the firm’s claimed exemption.

Customer Reserve Formula Concept

For firms subject to the reserve requirement:

\[ \text{Required Deposit} = \max(\text{Customer Credits} - \text{Customer Debits},\ 0) \]

Component	Meaning
Customer credits	Amounts the firm owes customers or customer-related credits.
Customer debits	Amounts customers owe the firm or permitted offsets.
Special reserve bank account	Account maintained for the exclusive benefit of customers.
Deficit result	If debits exceed credits, no deposit is required from the formula, but other rules still apply.

Introducing firms often test this concept through exemption analysis, not full carrying-firm computation.

Introducing vs Carrying Firm Responsibilities

Function	Introducing firm	Carrying firm
Customer relationship	Often owns front-end relationship and suitability/supervision obligations.	Provides account carrying infrastructure.
Account custody	Generally no custody if fully disclosed/exempt.	Holds customer funds/securities.
Confirms/statements	May be allocated by agreement/rule.	Often sends as carrying firm.
Books for own business	Must maintain its own books.	Maintains its own books and customer records it carries.
Net capital	Computes its own requirement.	Computes its own requirement.
Clearing receivable/payable	Reconciles with clearing firm.	Reconciles reciprocal balances.
Customer complaints	Introducing firm may have supervisory/reporting obligations.	Carrying firm may have records/operational role.

Fully Disclosed Clearing Agreement Checklist

Allocation of responsibilities is written.
Customer accounts are carried in the name of the carrying firm.
Confirmations and statements identify roles as required.
Customer funds/securities are transmitted to the proper party.
Introducing firm reconciles clearing balances.
Commission revenue and clearing charges are accrued correctly.
The agreement does not eliminate the introducing firm’s regulatory duties.

Books and Records Reference

SEC Books-and-Records Structure

Rule concept	Practical meaning
Make records	Required records must be created accurately and timely.
Preserve records	Required records must be retained for prescribed periods.
Easy accessibility	Certain records must be readily accessible for examination.
Electronic storage	Must meet regulatory requirements for preservation, indexing, and retrieval.
Supervisory accountability	FINOP must ensure records support financial reporting and capital computations.

Core Financial Records

Record	Why it matters
General ledger	Source for financial statements and net capital.
Trial balance	Detects posting errors and supports FOCUS.
Cash receipts/disbursements blotter	Tracks money movement.
Securities record/stock record, if applicable	Tracks securities positions and possession/control issues.
Customer ledgers, if applicable	Supports customer balances and 15c3-3 status.
Proprietary trading records	Supports haircuts and gains/losses.
Payables and accrual schedules	Prevents understated aggregate indebtedness.
Receivable aging	Identifies nonallowable assets.
Net capital computation	Must be retained and supportable.
Bank reconciliations	Detects errors, restrictions, and missing cash.

Operational Records

Record	Exam relevance
Order tickets/memoranda	Required trading records; time and terms matter.
Confirmations	Evidence of transaction details.
Customer account records	Support identity, authority, and account terms.
Written agreements	Clearing, expense sharing, subordinations, leases, service agreements.
Complaint records	Can trigger reporting and supervisory review.
Associated person records	Registration, employment, compensation, and disciplinary records.
Communications	Must be retained if business-related.

Reporting and Filing Framework

Report/notice	High-yield purpose
FOCUS report	Periodic financial and operational report filed with regulators.
Annual audited financial statements	Independent audit of broker-dealer financial statements and related reports.
Exemption or compliance report	Relates to customer protection rule status.
SIPC filings	Assessment/reporting obligations for SIPC members.
Early warning notice	Alerts regulators to deteriorating financial condition.
Net capital deficiency notice	Required when firm is below required capital.
Material event notices	Certain operational, financial, or business events require notification.
Supplemental schedules	Support net capital, reserve formula, possession/control, and other financial responsibility items.

Filing Exam Traps

Trap	Correct approach
Waiting until month-end to fix capital	Capital must be maintained continuously.
Filing FOCUS from unreconciled books	Report must agree to accurate books and records.
Ignoring post-close adjustments	Accruals and corrections may affect the report period.
Treating audit as regulator’s responsibility	Firm management remains responsible for financial statements.
Missing exemption report logic	Exempt firms must still support why they are exempt.
Assuming no customer accounts means no SIPC issue	SIPC status depends on membership and activities, not just carrying status.

SIPC Concepts

Concept	Exam point
SIPC purpose	Protects customers when a member broker-dealer fails and customer property is missing.
Not insurance against market loss	Decline in investment value is not a SIPC claim.
Cash vs securities	Coverage distinguishes cash awaiting investment from securities positions.
Customer property	Focus is return/replacement of customer assets held by failed firm.
Introducing firm relevance	Even non-carrying firms may have SIPC reporting/assessment responsibilities depending on status.
Disclosures	Customers must not be misled about what SIPC covers.

FINRA and SEC Rule Areas to Recognize

Rule area	What Series 28 candidates should recognize
SEA Rule 15c3-1	Net capital rule.
SEA Rule 15c3-3	Customer protection rule.
SEA Rule 17a-3	Records to be made.
SEA Rule 17a-4	Records to be preserved.
SEA Rule 17a-5	Financial reporting and annual audit framework.
SEA Rule 17a-11	Notices for net capital and related financial issues.
FINRA capital rules	FINRA financial responsibility, notification, and restriction framework.
FINRA books-and-records rules	FINRA recordkeeping overlays and supervisory expectations.
FINRA clearing agreement rules	Carrying/clearing agreement requirements and allocation of functions.
FINRA fidelity bond rule	Required protection against certain employee/officer dishonesty risks.
FINRA business continuity rule	Written continuity planning for operational disruptions.

Accounting Treatment Quick Reference

Item	Debit/Credit intuition	Exam concern
Commission revenue earned	Revenue/receivable	Receivable must be collectible to be allowable.
Clearing charges	Expense/payable	Must be accrued; affects AI.
Payroll earned but unpaid	Expense/accrued liability	Understating liabilities overstates capital.
Rent paid in advance	Prepaid asset	GAAP asset but usually nonallowable.
Fixed asset purchase	Asset/cash reduction	Fixed asset generally nonallowable.
Capital contribution	Cash/equity	Improves capital if unrestricted and documented.
Owner distribution	Equity/cash reduction	Test capital before payment.
Subordinated loan proceeds	Cash/sub debt	Add-back only if qualifying.
Proprietary security gain	Asset/revenue	Still subject to haircut.
Bad debt reserve	Expense/contra asset	Receivable collectibility affects allowable assets.

Receivables and Payables with Clearing Firms

Balance	FINOP review
Commissions receivable	Agree to clearing statement; assess collectibility.
Clearing charges payable	Accrue in correct period.
Deposit with clearing firm	Determine whether refundable, restricted, or impaired.
Fail-related balances	Monitor aging and capital charges.
Error account balance	Review losses, corrections, and responsible party.
Customer-related items	Ensure activity is consistent with introducing/exempt status.
Proprietary account at clearing firm	Mark to market and apply haircuts.

Reconciliation Checklist

Compare general ledger to clearing broker statement.
Investigate aged or unexplained differences.
Reclassify receivables/payables correctly.
Determine whether receivables are allowable.
Accrue clearing charges, ticket charges, and interest.
Update net capital computation.
Retain reconciliation support.

Customer Funds and Securities Handling

Scenario	Likely exam issue
Customer check payable to carrying firm	Usually consistent with fully disclosed model if promptly forwarded.
Customer check payable to introducing firm	May create custody, net capital, and exemption concerns.
Introducing firm holds customer stock certificates overnight	Potential violation of exemption/control process.
Rep mails securities to home office without procedure	Operational and supervisory risk.
Customer wires funds to wrong account	Must correct promptly; assess whether firm held customer funds.
Firm uses customer funds for expenses	Severe violation; customer protection and capital issue.

Fails, DKs, and Operational Breaks

Term	Meaning	FINOP relevance
Fail to deliver	Firm did not deliver securities on settlement.	May create capital charge or operational risk.
Fail to receive	Firm did not receive securities on settlement.	Aging and counterparty exposure matter.
DK	“Don’t know”; counterparty does not recognize trade.	Must be resolved; affects books and risk.
Suspense account	Temporary holding for unresolved items.	Must not hide losses or aged receivables.
Break	Difference between internal records and external statement.	Must be investigated and documented.

Exam trap: A suspense account is not a solution. It is a temporary classification that requires resolution and may affect capital.

Fidelity Bond and Insurance Concepts

Topic	Exam point
Fidelity bond	Protects firm against certain dishonest or fraudulent acts by personnel.
Coverage amount	Based on regulatory requirements and firm profile.
Deductible	Must be considered for capital and compliance purposes.
Cancellation/change	May require notice and supervisory action.
Not a substitute for capital	Insurance does not eliminate net capital requirements.

Business Continuity and Operational Controls

Control	Why tested
Written business continuity plan	Required operational resilience framework.
Emergency contact information	Regulators need current contacts.
Data backup and recovery	Books and records must remain accessible.
Alternate communications	Supports customer and regulator contact.
Critical vendor review	Clearing firm, payroll, cloud systems, banks, and compliance vendors.
Annual review/update	Plan must reflect current business.

Decision Tables for Common Exam Scenarios

Is the Asset Allowable?

Question	If yes	If no
Is it cash or readily convertible to cash?	Continue analysis.	Likely nonallowable.
Is it legally owned by the broker-dealer?	Continue analysis.	Exclude or reclassify.
Is it unrestricted and available?	Continue analysis.	Deduct/restrict.
Is it collectible from a creditworthy party?	May be allowable.	Deduct or reserve.
Is it aged beyond permitted period?	Deduct/charge likely.	May remain allowable.
Is it subject to market risk?	Apply haircut.	No haircut if no market exposure.

Does a Liability Count in Aggregate Indebtedness?

Question	Treatment
Is it a money liability of the broker-dealer?	Usually include in AI.
Has the expense been incurred but not invoiced?	Accrue and include if owed.
Is it validly subordinated under regulatory requirements?	May be excluded from AI and added back in capital.
Is another party legally obligated to pay it?	Review written agreement and facts.
Is it contingent but probable/estimable?	May require accrual.

Does Customer Handling Threaten Exempt Status?

Question	Risk indicator
Does the firm receive checks payable to itself?	Higher custody/exemption risk.
Does the firm hold securities certificates?	Higher custody/exemption risk.
Are funds/securities forwarded promptly?	Supports exemption if documented.
Are accounts carried fully disclosed by a clearing firm?	Supports introducing model.
Are customer assets ever used by the introducing firm?	Serious violation.

High-Yield Terminology

Term	Compact definition
FINOP	Principal responsible for financial and operational compliance.
Introducing broker-dealer	Broker-dealer that introduces accounts, often to a clearing/carrying firm.
Carrying broker-dealer	Broker-dealer that carries customer accounts and holds customer funds/securities.
Fully disclosed basis	Customer is disclosed to the carrying firm, which carries the account.
Net capital	Regulatory liquidity capital after deductions and charges.
Tentative net capital	Capital before final haircut/market-risk deductions.
Aggregate indebtedness	Money liabilities used in the AI capital standard.
Nonallowable asset	Asset deducted from net worth for net capital purposes.
Haircut	Regulatory deduction for market or other risk.
Excess net capital	Net capital above required minimum.
Early warning	Regulatory notice zone before outright deficiency.
Subordinated debt	Debt that may qualify as regulatory capital if properly approved/subordinated.
FOCUS	Financial and Operational Combined Uniform Single report.
Reserve formula	15c3-3 computation comparing customer credits and debits.
Special reserve bank account	Bank account for exclusive benefit of customers or PABs, as applicable.
Possession or control	Requirement to safeguard fully paid and excess margin securities.
PAB account	Proprietary account of another broker-dealer.
Fail to deliver	Securities not delivered on settlement.
Fail to receive	Securities not received on settlement.
DK	Counterparty does not recognize trade details.
Blotter	Chronological record of transactions or cash movements.

Common Series 28 Traps

Trap	Correct answer logic
“The clearing firm handles it, so the introducing firm has no responsibility.”	Introducing firm still has its own FINOP, books, capital, and supervision duties.
“GAAP equity equals net capital.”	Regulatory deductions and haircuts must be applied.
“Prepaid expenses are assets, so they help capital.”	They are generally nonallowable.
“Subordinated debt always counts as capital.”	Only qualifying, approved subordination counts.
“A firm only needs capital on filing dates.”	Net capital is continuous.
“If above minimum, no notice is ever required.”	Early warning thresholds can require notice.
“Exempt from 15c3-3 means exempt from financial responsibility rules.”	False; exemption is limited.
“Unbilled expenses can be ignored.”	Incurred expenses must be accrued.
“Receivables are allowable because management expects payment.”	Collectibility, aging, and security determine treatment.
“Customer checks can sit in the office until convenient.”	Prompt forwarding and payee controls are critical.
“SIPC covers customer market losses.”	SIPC addresses missing customer property after broker-dealer failure, not investment loss.
“A suspense account avoids capital impact.”	Unresolved balances may require charges or write-offs.

Last-Week Study Checklist

Rework net capital computations from trial balance to final excess net capital.
Practice classifying assets as allowable vs nonallowable.
Practice identifying aggregate indebtedness items.
Review 15c3-3 exemption fact patterns for introducing firms.
Memorize the difference between introducing, carrying, clearing, and fully disclosed roles.
Drill FOCUS/audit/notice purpose, not just names.
Review expense-sharing and subordinated loan scenarios.
Practice receivable aging, clearing reconciliation, and suspense-account questions.
Review SIPC coverage purpose and common misconceptions.
For each practice question, ask: Does this affect capital, custody, books, reporting, or notice?

Practical Next Step

Use this Quick Reference as a checklist while working Series 28 practice questions: after each missed question, map the issue to net capital, customer protection, books and records, reporting, or introducing/clearing responsibilities, then redo a similar scenario until the decision rule is automatic.

Scenario Guide

Financial Reporting