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SEC approves proposed amendments to its customer protection rule

On Behalf of | Jul 25, 2023 | Regulatory Investigations

The Securities and Exchange Commission is proposing amendments to its customer protection rule, InvestmentNews reports.

Under the proposed revisions to Rule 15c3-3, certain broker-dealers would be required to increase the frequency with which they compute the net cash they owe to customers and other broker-dealers (known as PAB account holders) from weekly to daily. Net cash owed to customers and PAB account holders must be held in a special reserve bank account.

The plan, which was approved in a unanimous vote, is aimed at helping to protect customers in the event a broker-dealer fails.

“A key tenet of our securities laws is the segregation of customers’ cash and securities from a broker-dealer’s own account,” said SEC Chair Gary Gensler. “Given the speed, scale, and volume of today’s market activity, I believe customers would benefit if broker-dealers carrying large credit balances made daily reserve account calculations and deposits. This frequency would better align with the inflows, swings, and balances that broker-dealers experience in today’s markets.”

The SEC noted that broker-dealers occasionally may have substantial deposit requirements due to customer and PAB reserve computations. Under the proposed amendments, broker-dealers with average total credits over $250 million would be required to determine the amounts required to be deposited in the customer and PAB reserve bank accounts each day. By making these calculations more frequent, the commission said it would help broker-dealers in matching the amount of cash owed to customers and PAB account holders with the amount on deposit in their bank accounts. This would lessen the risk of large mismatches growing over time, and make it more likely that failed brokerages would be able to return funds that are owed to their customers.

According to the SEC, the revised rule would cover 63 broker-dealers that custody customer funds.

The proposal will be published in the Federal Register and will be open for public input for 60 days afterwards.

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