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1) July 12 [press release] -- 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. . . .

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.

Proposed rule: https://www.sec.gov/rules/proposed/2023/34-97877.pdf
Fact sheet: https://www.sec.gov/files/34-97877-fact-sheet.pdf
Press release: https://www.sec.gov/news/press-release/2023-130  

2) July 18 -- FRN

The Securities and Exchange Commission (“Commission”) proposes to amend the broker-dealer customer protection rule to require certain broker-dealers to perform their customer and broker-dealer reserve computations and make any required deposits into their reserve bank accounts daily rather than weekly. The Commission also is seeking comment on whether similar daily reserve computation requirements should apply to broker-dealers and security-based swap dealers with respect to their security-based swap customers. Comments should be received on or before September 11, 2023.

Pursuant to section 15(c)(3)(A) of the Securities Exchange Act of 1934 (“Exchange Act”), the Commission is proposing to amend the broker-dealer customer protection rule. As discussed in more detail below, the rule requires broker-dealers that maintain custody of customer securities and cash (“carrying broker-dealers”) to have a special reserve account at a bank that 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. Generally, carrying broker-dealers are required to perform the customer reserve computation and make any required deposits into the customer reserve bank account weekly. Rule 15c3–3 also permits carrying broker-dealers to perform the customer reserve computation more frequently than weekly (e.g., daily), and, in certain limited circumstances, to perform a monthly computation. Rule 15c3–3 also addresses the manner in which a carrying broker-dealer holds proprietary securities and cash in accounts of other broker-dealers, known as PAB accounts. “PAB account” generally means a proprietary securities account of a broker-dealer.

For example, a broker-dealer that is not a carrying broker-dealer (e.g., an introducing broker-dealer) may hold its proprietary cash and securities at a carrying broker-dealer. In this case, the securities account of the introducing broker-dealer held at the carrying broker-dealer would be a PAB account and the introducing broker-dealer would be a PAB account holder of the carrying broker-dealer. While broker-dealers are not treated as customers under Rule 15c3–3, the rule requires a carrying broker-dealer to have a separate special reserve account at a bank for PAB account holders; such special reserve bank account must hold cash and/or qualified securities in an amount determined by a computation of the net cash owed to PAB account holders. Generally, carrying broker-dealers are required to perform the PAB reserve computation and make any required deposits into the PAB reserve bank account weekly, similar to the requirements for the customer reserve bank account.

The proposed amendments would require carrying broker-dealers that had large amounts of cash owed to customer and PAB accounts holders (i.e., large total credits), measured by both their customer and PAB reserve computations for the previous twelve month ends (i.e., a rolling twelve month average), to perform those computations and make any required deposits into their respective customer and PAB reserve bank accounts daily (rather than weekly). Cash owed to customers and PAB account holders may include cash proceeds received from sales of securities, cash deposited by customers and PAB account holders for the purposes of purchasing securities, and monthly or quarterly dividends received on behalf of customers and PAB account holders. These carrying broker-dealers—because they have owed large amounts of cash to their customers and PAB account holders—can incur large deposit requirements from time to time. This can lead to situations where—for a period of days—the net amount of cash owed to customers and PAB account holders is substantially greater than the amounts held in their combined customer and PAB reserve bank accounts. The proposed daily computation would shorten the period during which this mismatch between the net amount owed and the amount on deposit exists. The objective of the proposal is to reduce the risk caused by this mismatch for carrying broker-dealers where the difference between the net amount owed and the amount on deposit potentially is substantial. Large mismatches can lead to correspondingly large shortfalls in the amounts available in the customer and PAB reserve bank accounts to make customers and PAB account holders whole if the carrying broker-dealer fails financially. As explained below, these potential shortfalls could lead to large-scale harm (e.g., delayed satisfaction of customer or PAB account holder claims for securities and cash) or substantial losses (the inability to satisfy those claims in full) if a carrying broker-dealer with a large mismatch is liquidated in a formal proceeding under the Securities Investor Protection Act of 1970 (“SIPA”). . . .

FRN: https://www.federalregister.gov/d/2023-15200 [28 pages]

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