SEC Alert! SEC Proposes Rule Amendments to the Broker-Dealer Customer Protection Rule. SEC Proposes Daily Reserve Computations for Broker-Dealers.
Source: https://www.sec.gov/rules/proposed/2023/34-97877.pdf
Summary:
The Securities and Exchange Commission (SEC) is proposing a change to the broker-dealer customer protection rule.
- The proposed amendment would require certain broker-dealers to perform their customer and broker-dealer reserve computations and make any required deposits into their reserve bank accounts on a daily basis, instead of weekly.
- This means that these broker-dealers would need to calculate and set aside funds to cover their obligations to customers every day.
The SEC is also seeking public comments on whether similar daily reserve computation requirements should be applied to broker-dealers and security-based swap dealers for their security-based swap customers.
- Security-based swaps are a type of derivative that can be used for hedging or speculation, and they're based on the price of a security or a group of securities, an interest rate, a currency, or some other asset or event.
- The deadline for comments is 30 days after the proposal's publication in the Federal Register, or September 11, 2023, whichever is later.
Fact Sheet: https://www.sec.gov/files/34-97877-fact-sheet.pdf
Wut mean?
- The Securities and Exchange Commission (SEC) is proposing changes to Rule 15c3-3, also known as the Customer Protection Rule. This rule is crucial for broker-dealers who maintain custody of customer securities and cash.
- Why This Matters: The rule requires broker-dealers to have a special reserve account at a bank. This account must hold cash and/or qualified securities in an amount determined by a computation of the net cash owed to the broker-dealer’s customers. Currently, these computations and deposits are required to be done weekly. However, large cash inflows that aren't immediately used for customers can create a mismatch between the value in the reserve accounts and the net cash owed to customers. This mismatch can pose a risk if the broker-dealer fails financially, as they may not be able to return all of the securities and cash owed to the customers. The proposed changes aim to address this risk.
- How This Rule Would Apply: The proposal would require broker-dealers with large total credits (generally the amount of cash owed to customers) to increase the frequency of their customer reserve computations from weekly to daily. Specifically, broker-dealers with average total credits equal to or greater than $250 million would be required to make these computations daily. These broker-dealers would then be required to make deposits no later than one hour after the opening of banking business on the following business day.
How to comment:
- Electronic Comments: You can submit your comments electronically in two ways:
- Use the Commission’s internet comment form available at https://www.sec.gov/rules/submitcomments.htm
- Send an email to [email protected]. Make sure to include File Number S7-11-23 in the subject line.
- Paper Comments: If you prefer to send your comments by mail, you can send them to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. Again, remember to refer to File Number S7-11-23.
- Please note, do not include personal identifiable information in your submissions as you should only submit information that you wish to make publicly available.
- The SEC may redact or withhold from publication any submitted material that is obscene or subject to copyright protection.
Press Release: https://www.sec.gov/news/press-release/2023-130
The Securities and Exchange Commission today proposed amendments to Rule 15c3-3 (the Customer Protection Rule) to require certain broker-dealers to increase the frequency with which they perform computations of 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.
“I am pleased to support this proposal because, if adopted, it would help protect customers in the event that a broker-dealer fails,” said SEC Chair Gary Gensler. “A key tenet of our securities laws is the segregation of customers’ cash and securities from a broker-dealer’s own account. 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.”
Broker-dealers occasionally may have substantial deposit requirements as a result of customer and PAB reserve computations. The proposal would require broker-dealers with average total credits (the amount of cash they owe customers and PAB account holders) equal to or greater than $250 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 proposal would 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. The daily customer and PAB reserve computations would safeguard customers and PAB account holders by lessening the potential for large mismatches to build over time, thereby increasing the likelihood that they are made whole even if a broker-dealer fails.
The proposing release will be published in the Federal Register. The public comment period will remain open for 60 days following publication of the proposing release on the SEC website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.
TLDRS:
The Securities and Exchange Commission (SEC) is proposing a change to the broker-dealer customer protection rule.
- The proposed amendment would require certain broker-dealers to perform their customer and broker-dealer reserve computations and make any required deposits into their reserve bank accounts on a daily basis, instead of weekly.
- This means that these broker-dealers would need to calculate and set aside funds to cover their obligations to customers every day.
The SEC is also seeking public comments on whether similar daily reserve computation requirements should be applied to broker-dealers and security-based swap dealers for their security-based swap customers.
- Security-based swaps are a type of derivative that can be used for hedging or speculation, and they're based on the price of a security or a group of securities, an interest rate, a currency, or some other asset or event.
- The deadline for comments is 30 days after the proposal's publication in the Federal Register, or September 11, 2023, whichever is later.
