Broker-Dealers: Impact of the New Lease Standard (ASC 842) on Net Capital

For the current Lease Accounting implementation dates visit our Leases page at

Beginning Jan. 1, 2019, broker-dealers are required to reflect operating leases on their balance sheets through the capitalization of a right-of-use asset and corresponding lease liability under Accounting Standards Update No. 2016-02, Leases.

Prior to adoption of this standard, operating leases had minimal impact on a company’s net capital calculation as they were not reflected on the balance sheet. In response to concerns about the impact that the capitalization of operating leases onto the balance sheet will have on net capital, the U.S. Securities and Exchange Commission’s (SEC) Division of Trading and Markets (Division) issued a revised no-action letter on Oct. 23, 2018. Although the response is restricted to the facts and circumstances of the letter, the letter provides perspective on the Division’s views regarding the treatment of operating leases for net capital.

This letter indicates that the Division would not recommend enforcement action to the SEC under Rule 15c3-1 of the Securities Exchange Act of 1934 in response to the following treatment of leases in a broker-dealer’s net capital calculation:

  • An operating lease asset can be added back in the computation of net capital to the extent of the associated operating lease liability.
    • If the asset exceeds the related lease liability, the difference cannot be added back.
  • An operating lease liability can be excluded from aggregate indebtedness to the extent of the associated operating lease asset.
    • If the operating lease liability exceeds the associated operating lease asset, the difference must be included in aggregate indebtedness.

Both of the analyses above must be performed on the individual lease level and any offsetting operating lease liabilities and lease assets must arise from the same operating lease.

For assistance with the implementation of the new Leases standard or evaluation of the impact on net capital, contact DHG today.

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Jon Tomberlin
Managing Partner, Financial Services
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