According to FINRA, Curvature Securities LLC has been censured and fined $50,000 for failing to accurately calculate its required customer reserve on 32 occasions.

The firm's calculation errors resulted in 27 hindsight deficiencies ranging from $20,906 to $6,846,329. These deficiencies occurred because the firm inadvertently omitted the short market values of securities in its customers' cash and margin accounts, along with related withholding taxes, when making its weekly customer reserve calculation.

The root cause of this error was the firm's mistaken reliance on a data source that excluded customers' short market values of securities. The SEC's Customer Protection Rule (Rule 15c3-3) requires broker-dealers to maintain a reserve of funds or qualified securities in a special reserve bank account for the exclusive benefit of customers. This rule exists to ensure that customer assets are protected in the event of a broker-dealer failure.

As a result of these calculation errors, the firm also created and maintained inaccurate books and records and filed Financial and Operational Combined Uniform Single (FOCUS) reports that inaccurately reflected the firm's customer reserve obligation.

To the firm's credit, it took prompt remedial steps once the error was identified, switching to a comprehensive data source for its customer reserve computation and resolving the hindsight deficiencies.

What Investors Can Learn: Customer reserve requirements are a fundamental protection for investors. This case demonstrates how technical errors in back-office operations can have significant regulatory implications. Investors benefit from these rules because they help ensure broker-dealers maintain adequate funds to protect customer assets.