PAB Reserve Bank Account
In 2013 the customer protection rule was amended to create a new account for broker-dealers that keep proprietary accounts for other broker-dealers (PABs). Like the customer reserve account, the PAB reserve bank account is kept separate from the broker-dealer’s other accounts. A reserve formula calculation is made weekly for carrying broker-dealers or monthly for non-carrying firms. The amount of credits that exceed debits must be maintained in the account. The PAB account was initiated to protect against losses arising from the failure of a member firm with large numbers of broker-dealer customers.
PAB reserve account calculation. Calculations to determine the amount of funds that must be deposited in a PAB reserve account are similar to the customer reserve account calculations. However, the exclusion of collateralized securities whose values exceed 15% of the aggregate value of all collateralized securities in margin accounts does not apply. The 1% reduction of the aggregate value of the debit balances in all cash and margin accounts also does not apply.
In addition, interest, floor brokerage fees, and commissions receivable do not need to be included as debit items if they have been outstanding less than 30 days. However, clearing deposits required of an introducing broker from its clearing broker or corresponding bank must be included as debits in the PAB calculation.
SEC Rules 15c3-3(e) and 15c3-3a
Example: In its weekly computation of customer credits and debits, Simpatico Brokers finds that its $16 million of credits (cash and securities held in customer accounts and loans collateralized with customer securities) exceeds its $7 million in debits (credit extended to customers for their margin transactions) by $9 million. This excess of credits over debits must be protected in a Special Reserve Bank Account and segregated from the firm’s own proprietary accounts. This action is designed to prevent Simpatico from