SEC Order Provides Additional Time to Implement Certain Amendments to the Financial Responsibility Rules for Broker-Dealers

by Goodwin
Contact

On July 30, 2013, the SEC voted to adopt amendments to certain broker-dealer financial responsibility rules, as reported in the August 13, 2013 Financial Services Alert.  Those amendments became effective on October 21, 2013.  On October 17, 2013, the SEC issued an order (Release No. 34-70701) granting a temporary exemption from certain of those amendments until March 3, 2014 (the “Order”).

In advance of the October 21 effective date, industry representatives advised the SEC staff that some broker-dealers had determined that they would be unable to complete by that date the significant operational and systems changes necessary to comply with certain of the final rule amendments.  For example, carrying broker-dealers, which maintain custody of customer securities and cash, have said that they are unable to comply before the effective date with the requirements of Rule 15c3-3(e)(5).  That provision places restrictions on a carrying broker‑dealer’s ability to use cash bank deposits to meet the reserve deposit requirements for customer accounts or proprietary securities accounts of broker-dealers (PAB accounts) by excluding cash deposits held at an affiliated bank and limiting cash held at non-affiliated banks to an amount not greater than 15% of the bank’s equity capital, as reported by the bank in its most recent Call Report.  Carrying broker-dealers advised the SEC that opening new reserve accounts and making appropriate systems changes by the October 21 effective date would be a challenge in part because it is necessary to negotiate new reserve account agreements and obtain acknowledgment letters required by Rule 15c3-3(f) from the new banks.

The Order provides a temporary exemption until March 3, 2014 for compliance with the amendments to the following:

  • Rule 15c3-1(c)(2)(iv)(E)(2).  This paragraph provides that a broker-dealer need not deduct cash and securities held in a securities account at a carrying broker-dealer except where the account has been subordinated to the claims of creditors of the carrying broker-dealer.
  • Rule 15c3-3, except paragraph (j)(1).  The amendments to Rule 15c3-3 include revisions to the definitions of “fully paid securities,” “margin securities,” “bank,” “free credit balances” and “other credit balances,” new definitions for “PAB account” and “Sweep Program,” and the addition of paragraph (e) relating to special reserve accounts for the exclusive benefit of customers and PAB accounts.  New paragraph (j)(1) is excepted from the exemption because it incorporates requirements from Rule 15c3-2 relating to customers’ free credit balances that are already in effect.  Rule 15c3-2 was eliminated by the amendments.
  • Rule 15c3-3a.  This is Exhibit A to Rule 15c3-3 and contains the formula for determination of customer and PAB account reserve requirements of brokers and dealers.
  • Rule 17a-3.  This rule was amended to add paragraph (a)(23), requiring broker-dealers to make records documenting the credit, market and liquidity risk management controls established and maintained by the broker-dealer to assist it in analyzing and managing the risks associated with its business activities.
  • Rule 17a-4. This rule was amended to add paragraph (e)(9), requiring that records made pursuant to Rule 17a-3(a)(23) be maintained until three years after the termination of the use of the risk management controls documented in the records.

The SEC did not grant a temporary exemption from the other amendments to the financial responsibility rules, which became effective on October 21.  Those include amendments to Rule 15c3-1 other than paragraph (c)(2)(iv)(E)(2), new paragraph (j)(1) of Rule 15c3-3, and the new requirements of Rule 17a-11 (Notification Provisions for Brokers and Dealers) relating to net capital computations.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Written by:

Goodwin
Contact
more
less

Goodwin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!