Uniform Net Capital Rule

Say you're a broker-dealer (or at least the guy in the big leather chair who owns it). This rule says that, even though your company's actual worth is constantly, wildly fluctuating (due to making trades for your clients and "holding" stocks and assets for them), you've got to have enough liquid, cold, hard cash to meet all your obligations at the end of the business day.

In 1975, this rule was enacted to give the SEC the power it needed to make sure that these firms didn't become accidental Ponzi schemes. Each security held by the B/D (broker-dealer from now on. Get used to these acronyms; they'll win you credibility in the industry) is valuated by the SEC, factoring in what they call a "haircut," which is different for each security. The haircut for each is determined by the current market price (i.e., "Hey, who wants this smelly fish? It's still made of 100% fish. Anyone?) and how liquid the investment actually is.

So, as you can guess, every security is completely different when figuring how much of it is actually usable by a B/D if everything goes belly-up tomorrow.

Clear as mud? Or at least clear as fish?

It doesn't smell that bad. Come on, people.