On October 21, 2013, the SEC will put into effect amendments to its financial responsibility rules for broker-dealers. These amendments include the following changes:
Customer Protection Rule (Rule 15c-3-3)
-Carrying broker-deals that maintain customer securities and funds will be required to maintain a new segregated reserve account for broker-dealer accounts.
-The reserve requirement to protect customer cash will exclude cash deposits at affiliated banks and limit cash held at non-affiliated banks to no more than 15% of the bank’s equity capital.
-The rule will require disclosure, notice, and affirmative consent from the customer when their cash is “swept” to a money market or bank deposit product.
Net Capital Rule (Rule 15c3-1)
-The rule will require a broker-dealer to include liabilities assumed by a third party in the broker-dealer’s net worth if the third party is reliant on the broker-dealer to pay the liabilities.
-The rule will require a broker-dealer to count as a liability any contributed capital that may be withdrawn by an investor. Contributed capital that is withdrawn within a year of contribution must also be treated as a liability, unless the broker-dealer receives written permission for the withdrawal from its designated examining authority.
-Broker-dealers will be required to deduct from net capital the excess of any deductible amount over the amount permitted by SRO rules.
-Insolvent broker-dealers will be required to cease conducting a securities business.
Books and Records Rules (Rules 17a-3 and 17a-4)
-Large broker-dealers will be required to document their risk management controls.
Notification Rule (Rule 17a-11)
-The rule will establish new notification requirements for when a broker-dealer’s repurchase and securities lending activities exceed a certain threshold. Alternatively, a broker-dealer may instead report such activity monthly to its designated examining authority.
Source: SEC Release 2013-140: SEC Adopts Amendments to Financial Responsibility Rules for Broker-Dealers
This alert applies to the Series 24, Series 26, Series 7, Series 99, Series 82, Series 79, and Series 55.