Daily Computation of Customer and Broker-Dealer Reserve Requirements Under the Broker-Dealer Customer Protection Rule

<RULE> SECURITIES AND EXCHANGE COMMISSION <CFR>17 CFR Parts 240 and 249</CFR> <DEPDOC>[Release No. 34-102022; File No. S7-11-23]</DEPDOC> <RIN>RIN 3235-AN28</RIN> <SUBJECT>Daily Computation of Customer and Broker-Dealer Reserve Requirements Under the Broker-Dealer Customer Protection Rule</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Securities and Exchange Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Securities and Exchange Commission (“Commission”) is adopting amendments to the broker-dealer customer protection rule to require certain broker-dealers to perform their reserve computations for accounts of customers and proprietary accounts of broker-dealers and make any required deposits into their reserve bank accounts daily rather than weekly. The Commission also is adopting amendments to the broker-dealer net capital rule and customer protection rule to permit certain broker-dealers that perform a daily reserve computation for accounts of customers to reduce aggregate debit items ( <E T="03">i.e.,</E> customer-related receivables) by 2% rather than 3% as part of the computation. Finally, the Commission is adopting technical amendments to the Financial and Operational Combined Uniform Single Report (“FOCUS Report”) to conform it to the amendments with respect to the lowering of the debit reduction from 3% to 2%. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> March 14, 2025. <E T="03">Compliance date:</E> The compliance date is discussed in section III. of this release. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Michael A. Macchiaroli, Associate Director; Thomas K. McGowan, Associate Director; Randall W. Roy, Deputy Associate Director; Raymond Lombardo, Assistant Director; Sheila Dombal Swartz, Senior Special Counsel; or Abraham Jacob, Special Counsel, at (202) 551-5500, Office of Broker-Dealer Finances, Division of Trading and Markets; Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-7010. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> The Commission is amending: <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s50,r50"> <TTITLE> </TTITLE> <ENT>17 CFR 240.15c3-1.</ENT> </ROW> <ROW> <ENT I="01">Rule 15c3-3</ENT> <ENT>17 CFR 240.15c3-3.</ENT> </ROW> <ROW> <ENT I="01">Form X-17A-5 Part II</ENT> <ENT>17 CFR 249.617.</ENT> </ROW> </GPOTABLE> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP1-2">A. The Need For Daily Reserve Computations</FP> <FP SOURCE="FP1-2">B. Overview of the Final Amendments</FP> <FP SOURCE="FP1-2">C. Overview of Rule 15c3-3 and Broker-Dealer Liquidations</FP> <FP SOURCE="FP1-2">1. Overview of Rule 15c3-3</FP> <FP SOURCE="FP1-2">2. Overview of Broker-Dealer Liquidations and SIPA</FP> <FP SOURCE="FP-2">II. Discussion of Comments and Final Amendments</FP> <FP SOURCE="FP1-2">A. Requirement To Perform a Daily Computation</FP> <FP SOURCE="FP1-2">1. Proposal</FP> <FP SOURCE="FP1-2">2. Comments Received and Final Amendments</FP> <FP SOURCE="FP1-2">B. Compliance With Daily Reserve Computation After Exceeding $500 Million Threshold</FP> <FP SOURCE="FP1-2">1. Proposal</FP> <FP SOURCE="FP1-2">2. Comments Received and Final Amendments</FP> <FP SOURCE="FP1-2">C. Reducing the Aggregate Debit Reduction From 3% to 2%</FP> <FP SOURCE="FP1-2">1. Amendments to Rules 15c3-1 and 15c3-3</FP> <FP SOURCE="FP1-2">2. Conforming Amendments to the FOCUS Report</FP> <FP SOURCE="FP1-2">D. Voluntary Customer and PAB Reserve Computations</FP> <FP SOURCE="FP1-2">E. Other Comments</FP> <FP SOURCE="FP1-2">1. Sweep Programs and Other “Cash in Motion” or “Transitory” Credits”</FP> <FP SOURCE="FP1-2">2. Requests for Interpretations and Clarifications</FP> <FP SOURCE="FP1-2">F. Reserve Account Requirements for Security-Based Swaps</FP> <FP SOURCE="FP-2">III. Compliance Date</FP> <FP SOURCE="FP-2">IV. Economic Analysis</FP> <FP SOURCE="FP1-2">A. Introduction</FP> <FP SOURCE="FP1-2">B. Baseline</FP> <FP SOURCE="FP1-2">1. Regulatory Baseline</FP> <FP SOURCE="FP1-2">2. Affected Broker-Dealers</FP> <FP SOURCE="FP1-2">3. Debit Reduction in the Customer Reserve Computation for Certain Broker-Dealers</FP> <FP SOURCE="FP1-2">C. Economic Effects of the Final Amendments</FP> <FP SOURCE="FP1-2">1. Benefits</FP> <FP SOURCE="FP1-2">2. Costs</FP> <FP SOURCE="FP1-2">3. Other Compliance Costs</FP> <FP SOURCE="FP1-2">D. Effects on Efficiency, Competition, and Capital Formation</FP> <FP SOURCE="FP1-2">E. Reasonable Alternatives</FP> <FP SOURCE="FP1-2">1. Over-Funding of the Customer and PAB Reserve Bank Accounts</FP> <FP SOURCE="FP1-2">2. A Threshold Based on a Different Metric</FP> <FP SOURCE="FP1-2">3. Daily Computation Requirement for All Carrying Broker-Dealers</FP> <FP SOURCE="FP1-2">4. A Higher or Lower Threshold for Daily Computation</FP> <FP SOURCE="FP1-2">5. Calculation Based on the Maximum Value Over the Past Year</FP> <FP SOURCE="FP1-2">6. Daily Computation if an Average Required Deposit Exceeds a Threshold</FP> <FP SOURCE="FP1-2">7. Daily Computation Requirement Based on Average Total Credits per Number of Customer and PAB Accounts</FP> <FP SOURCE="FP1-2">8. Daily Computation Based on Average Total Credits From the Most Recent Calendar Year</FP> <FP SOURCE="FP1-2">9. Reduction of the Aggregate Debit Items Charge From 3% to 1%</FP> <FP SOURCE="FP1-2">10. Exemption for Cash in Motion</FP> <FP SOURCE="FP-2">V. Paperwork Reduction Act</FP> <FP SOURCE="FP1-2">A. Summary of Collections of Information Under the Final Amendments</FP> <FP SOURCE="FP1-2">B. Use of the Information</FP> <FP SOURCE="FP1-2">C. Respondents</FP> <FP SOURCE="FP1-2">1. Recordkeeping Requirements</FP> <FP SOURCE="FP1-2">2. Notification Requirement To Revert to Weekly Computations</FP> <FP SOURCE="FP1-2">3. Notification Requirement To Voluntarily Perform Daily Customer Reserve Computation With 2% Debit Reduction</FP> <FP SOURCE="FP1-2">D. Total Annual Burden Estimate</FP> <FP SOURCE="FP1-2">1. Recordkeeping Requirements</FP> <FP SOURCE="FP1-2">2. Notification Requirement To Revert to Weekly Computations</FP> <FP SOURCE="FP1-2">3. Notification Requirement To Voluntarily Perform Daily Customer Reserve Computation With 2% Debit Reduction</FP> <FP SOURCE="FP1-2">4. Summary of the Burden Revisions</FP> <FP SOURCE="FP1-2">E. Collections of Information Are Mandatory</FP> <FP SOURCE="FP1-2">F. Confidentiality of Response to Collections of Information</FP> <FP SOURCE="FP1-2">G. Retention Period for Recordkeeping Requirements</FP> <FP SOURCE="FP-2">VI. Regulatory Flexibiliy Act Certification</FP> <FP SOURCE="FP-2">VII. Other Matters</FP> <FP SOURCE="FP-2">Statutory Authority</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. The Need For Daily Reserve Computations</HD> Section 15(c)(3)(A) of the Securities Exchange Act of 1934 (“Exchange Act”) provides, in pertinent part, that no broker-dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (with exceptions for certain securities) in contravention of such rules and regulations as the Commission shall prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility and related practices of broker-dealers including, but not limited to, the acceptance of custody and use of customers' securities and the carrying and use of customers' deposits or credit balances. <SU>1</SU> <FTREF/> The statute further provides, in pertinent part, that the rules and regulations shall require the maintenance of reserves with respect to customers' deposits or credit balances. <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>  15 U.S.C. 78 <E T="03">o</E> (c)(3)(A). The amendments to section 15(c)(3) of the Exchange Act granting this rulemaking authority were adopted in section 7(d) of the Securities Investor Protection Act of 1970 (“SIPA”). Public Law 91-598, 7(d), Dec. 30, 1970, 84 Stat. 1563. Rule 15c3-3 was promulgated in the aftermath of the securities industry “paper work crisis” of 1967-1970. <E T="03">See</E> Commission, <E T="03">Study of Unsafe and Unsound Practices of Brokers and Dealers,</E> H.R. Doc. No. 231, 92d Cong., 1st Sess. 6 (1971) (“During the 1967-70 period of severe operational and financial problems, many firms, primarily because of inadequate and inefficient recordkeeping and segregation systems and procedures, and the infrequent counting of securities in their possession, mishandled and misused customers' funds and securities. . . . Firms used customers' free credit and other credit balances in their daily activities.”) <E T="03">Id.</E> at 43. </FTNT> <FTNT> <SU>2</SU>  15 U.S.C. 78 <E T="03">o</E> (c)(3)(A). </FTNT> Pursuant to this statutory directive, the Commission adopted the customer protection rule (“Rule 15c3-3”) in 1972. <SU>3</SU> <FTREF/> This rule requires broker-dealers that hold customer cash and securities (“carrying broker-dealers”) to treat these assets in a manner that facilitates their prompt return to the customers if the broker-dealer fails financially. <SU>4</SU> <FTREF/> The goal of the rule is to place a carrying broker-dealer in a position where it is able to wind down in an orderly self-liquidation without the need of financial assistance provided by the Securities Investor Protection Corporation (“SIPC”) through a formal proceeding under SIPA. <SU>5</SU> <FTREF/> <FTNT> <SU>3</SU>   <E T="03">See Broker-Dealers; Maintenance of Certain Basic Reserves,</E> Exchange Act Release No. 9856 (Nov. 17, 1972) [37 FR 25224 (Nov. 29, 1972)] (“Rule 15c3-3 Adopting Release”). ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 406k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━