In a move aimed at protecting investors, the Securities and Exchange Commission announced last week that it has adopted amendments to its Rule 15c3-3.
Under the revisions, 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 would help to protect customers in the event a broker-dealer fails.
“Our markets have dramatically evolved since the 1972 adoption of Rule 15c3-3, otherwise known as the Customer Protection Rule,” said SEC Chair Gary Gensler. “I’m pleased to support this adoption because it helps protect customers and the Securities Investor Protection Corporation Fund, while promoting greater trust in the markets.”
The SEC also voted to approve amendments to Rule 15c3-3 and Rule 15c3-1 (the broker-dealer net capital rule) to permit certain broker-dealers that compute customer reserves daily to decrease the required 3 percent “buffer” in the customer reserve bank account by reducing the customer-related receivables, or “aggregate debit items,” charge from 3 percent to 2 percent in the computation.
According to the SEC, broker-dealers may have large deposit requirements that indicate that there may be times when the net amount of cash owed to customers and PAB account holders is substantially greater than the amounts on deposit in the special reserve bank accounts.
In its news release, the commission stated, “The amendments will require broker-dealers with average total credits (the amount of cash they owe customers and PAB account holders) equal to or greater than $500 million to make the computations necessary to determine the amounts required to be deposited in the customer and PAB reserve bank accounts daily, as of the close of the previous business day. By reducing the timeframe between computations, the amendments will assist broker-dealers in more dynamically matching the net amount of cash owed to customers and PAB account holders with the amount on deposit in the broker-dealer’s customer and PAB reserve bank accounts.”
Under the amendments, the protective measures of the Rule 15c3-3 reserve requirements would be applied more quickly to cash of customers and PAB account holders that is newly deposited into the broker-dealer. The goal is to ensure that a broker-dealer can have an orderly self-liquidation in case of a financial failure and be able to promptly return cash and securities to customers.
The amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register.
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