what is sec rule 15c3 3

What is Rule 15c3-3 of the SEC?

SEC Rule 15c3-3. Enacted in 1972 by the SEC, Rule 15c3-3 is designed to protect client accounts at securities brokerage firms. It was adopted in response to the 1968 Wall Street Paperwork Crunch, which resulted in the failure of many firms and significant losses to their clients.

What is customer protection under sea Rule 15c3-3?

CUSTOMER PROTECTION – RESERVES AND CUSTODY OF SECURITIES SEA Rule 15c3-3. (a) DEFINITIONS. For the purpose of this section: (1) The term “ customer” shall mean any person from whom or on whose behalf a broker or dealer has received or acquired or holds funds or securities for the account of that person.

Are the proposed amendments to Rule 15c3-3 appropriate?

Because the amendments to Rule 15c3-3, as adopted, are substantially similar to those proposed, the Commission continues to believe that the estimates published in the Proposal regarding the proposed collection of information burdens associated with the amendments to Rule 15c3-3 are appropriate.

What is rule 15c3-1 (c) (1) (XV)?

(xv) Eighty-five percent of amounts payable against securities loaned for which the broker or dealer has receivables related to securities of the same class and issue and quantity that are securities borrowed by the broker or dealer. (NEXT PAGE IS 201) SEA Rule 15c3-1(c)(1)(xv) 201 © 2008 Financial Industry Regulatory Authority, Inc.

What is Rule 15C3-3?

How long did the 15c3-3 scheme run?

About this website

What is required by sea Rule 15c3-3?

Rule 15c3-3 requires a broker-dealer to calculate what amount, if any, it must deposit on behalf of customers in the reserve bank account, entitled "Special Reserve Bank Account for the Exclusive Benefit of Customers" ("Reserve Bank Account"), under the formula set forth in Rule 15c3-3a ("Reserve Formula").

What is the SEC customer protection rule?

The Customer Protection Rule requires registered broker-dealers to safeguard the investment assets of their customers. The rule is designed to protect those customers from monetary losses and delays that can occur when that firm fails.

What is amendments to SEC Rule 15c2-11?

Rule 15c2-11 was recently amended by the Securities and Exchange Commission (SEC) to provide for additional disclosure by broker-dealers to potential investors and the staff of the SEC has made it clear that it views Rule 15c2-11 as applying to both equity and fixed income securities.

What are SEC net capital requirements?

Using that approach, the SEC required that a broker-dealer subject to the Basic Method maintain "net capital" equal to at least 6-2/3% of its "aggregate indebtedness." This is commonly referred to as a 15 to 1 leverage limit, because it meant "aggregate indebtedness" could not be more than 15 times the amount of "net ...

What are 15c3 deposits?

Rule 15c3-3(j) governs the treatment of customer funds held as free credit balances in customer securities accounts, including when such funds are automatically deposited, or “swept,” into bank deposit accounts through a broker-dealer's sweep program (“Sweep Program”).

What is 15c3 lockup?

Introduction. ◆ Rule 15c3-3 of the SEC (Customer Protection Reserves and Custody of Securities) requires broker dealers that hold. customer securities to obtain and maintain possession and control of fully paid and excess margin securities they hold for customers.

What is a piggyback exemption?

The third exemption is the piggyback exemption, which exists when the security has been quoted during the past 30 calendar days for at least 12 days with no more than four consecutive days without quotes.

What is piggyback exception?

The piggyback exception provides a limited, conditional grace period to permit broker-dealers to continue to rely on the piggyback exception to publish quotations for an issuer whose Rule 15c2-11(b) information is no longer current and publicly available, timely filed, or filed within 180 calendar days from a specified ...

Does the SEC regulate OTC?

Our registered trading platforms, OTC Link® ATS and OTC Link ECN, enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors. Both of our platforms are highly regulated by the SEC, and OTC Link ATS is an SCI regulated entity.

What is the purpose of the Net Capital Rule?

Exchange Act Rule 15c3-1 (Net Capital Rule) requires that firms must at all times have and maintain net capital at specific levels to protect customers and creditors from monetary losses that can occur when firms fail.

What is the primary purpose of the Net Capital Rule?

The primary purpose of the Net Capital Rule is to ensure that registered broker dealers maintain at all times sufficient liquid assets to promptly satisfy their liabilities (claims of customers, creditors and other brokers) as well as to provide a cushion of liquid assets to cover potential market, credit and other ...

How much capital does a broker need?

(v) A broker or dealer shall maintain net capital of not less than $25,000 if it acts as a broker or dealer with respect to the purchase, sale and redemption of redeemable shares of registered investment companies or of interests or participations in an insurance company separate account directly from or to the issuer ...

What is the purpose of SEC Philippines?

The SEC is mandated to promulgate rules to facilitate and expedite, among others, corporate name reservation and registration, incorporation, submission of reports, notices, documents required under the Code, and sharing of pertinent information with other government agencies.

What is the purpose of the SEC?

The SEC protects investors by enforcing our nation's securities laws, taking action against wrongdoers, and overseeing our securities markets and firms to ensure that investors are treated fairly and honestly.

What was the SEC new deal?

The crash led to Congress to passing the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC "was designed to restore investor confidence in our capital markets by providing investors and the markets with more reliable information and clear rules of honest dealing."

Whats does SEC stand for?

SECAcronymDefinitionSECSecurities & Exchange Commission (US government)SECSecond(s)SECSecretarySECSecurities and Exchange Commission (authority in the Philippines)135 more rows

SEC Customer Protection Rule15c3-3 Explained - New York Institute of ...

What is the Fast Finance series? The New York Institute of Finance presents the Fast Finance video series – a curated playlist of quick-fire financial lessons pertaining to the securities industry. Fast Finance provides expert knowledge to entry-level analysts to heads of central banks ranging from fast-paced breakdowns of industry developments to complex deep drives into regulations ...

Final Rule: Rule 15c3-3 Reserve Requirements for Margin Related to ...

Credits: Debits: 14. Margin related to security futures products written, purchased or sold in customer accounts required and on deposit with a clearing agency registered with the Commission under section 17A of the Act (15 U.S.C. 17A) or a derivatives clearing organization registered with the Commodity Futures Trading Commission under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1).

17 CFR § 240.15c3-3 - LII / Legal Information Institute

Except where otherwise noted, § 240.15c3-3 applies to a broker or dealer registered under section 15(b) of the Act (15 U.S.C. 78o(b)), including a broker or dealer also registered as a security-based swap dealer or major security-based swap participant under section 15F(b) of the Act (15 U.S.C. 78o-10(b)).A security-based swap dealer or major security-based swap participant registered under ...

17 CFR § 240.15c3-1 - LII / Legal Information Institute

(ii) A broker or dealer may elect not to be subject to the Aggregate Indebtedness Standard of paragraph (a)(1)(i) of this section.That broker or dealer shall not permit its net capital to be less than the greater of $250,000 or 2 percent of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for Brokers and Dealers (Exhibit A to Rule 15c3-3 ...

Frequently Asked Questions About Exemption Reporting Under SEA Rule ...

The staff of the SEC's Division of Trading and Markets ("SEC staff") has recently published new FAQ 18 in the "Frequently Asked Questions Concerning the Amendments to Certain Broker-Dealer Financial Responsibility Rules" and new FAQs 8, 8.1, 12, 12.1 and 12.2 in the "Frequently Asked Questions Concerning the July 30, 2013 Amendments to the Broker-Dealer Financial Reporting Rule."

What is SEC Rule 15C3-3?

Mark HenricksJul 29, 2019. Securities and Exchange Commission (SEC) Rule 15c3-3 requires brokerage firms to maintain secure accounts. Also known as the Customer Protection Rule, SEC Rule 15c3-3 is part of the Code of Federal Regulations. It ensures that brokerage clients can withdraw assets at any time, and a brokerage has to work to uphold it.

When did the SEC change its reserve requirements?

The SEC has refined Rule 15c3-3 over the years. After the financial crisis of 2008-2009 and the failure of Lehman Brothers, the SEC changed its reserve requirements

How long do you have to keep a record of securities?

The rule requires brokers to keep a daily record of customer securities in their possession or under their control. If the brokerage has fewer than the required number of shares, it must acquire additional securities withing a few days to make up for the shortfall.

How often does a brokerage have to calculate cash equivalents?

Once a week, the brokerage has to calculate how much cash or cash-equivalent securities it requires. Those then have deposited in a special reserve account. That account is isolated from customers’ money, which will be protected if the brokerage firm goes under.

What happens if the reserve account is too low?

If the amount in the reserve account is too low, the brokerage has to make a deposit to meet requirement. Failing to do so is a criminal offense and the brokerage has to cease operations.

When was the customer protection rule added?

The Customer Protection Rule was added in 1972 as a reaction to the Paperwork Crisis that crippled Wall Street from 1967 to 1970. Before computers, traders completed trades using paper slips carried by messengers. As trading volume grew to 13 million shares a day in 1968, it overwhelmed the paperwork process.

Can a brokerage firm conform to the custody requirements of Rule 15c3-3?

The clarification suggested brokerages could conform to the custody requirements of Rule 15c3-3 if they used an intermediary to match buyers and sellers. But if the firm that holds the digital key also matches orders, regulators says that isn’t secure enough.

When was Rule 15c3-3A proposed?

2 The Proposal delineated the method for calculating broker-dealer customer reserve requirements in light of enactment of the Commodity Futures Modernization Act of 2000 ("CFMA") 3 and the commencement of trading in security futures products. The Commission now is adopting the final rule amendments described below.

What is the final rule of the Securities and Exchange Commission?

SUMMARY: The Securities and Exchange Commission ("Commission") is adopting amendments to the formula for determination of customer reserve requirements of broker-dealers under the Securities Exchange Act of 1934 to address issues related to customer margin for security futures products. The amendments permit a broker-dealer ...

What is subparagraph (b) (3) (iv) 52 of Note G?

Under subparagraph (b) (3) (iv) 52 of proposed Note G, a broker-dealer could have included a debit in the Reserve Formula for customer SFP margin deposited at a DCO not otherwise registered with the Commission only if it utilized a DCO that had provided an undertaking to the Commission. 53 In the undertaking, the DCO would have agreed to examination by the Commission for compliance with proposed subparagraphs (b) (1) through (b) (3) of proposed Note G. 54

What collateral is acceptable for debit in Note G?

Under subparagraph (a) to proposed Note G, the range of customer SFP margin collateral acceptable for debit treatment would have consisted of cash, proprietary qualified securities, and letters of credit collateralized by customer securities. The CME argues that the Commission should expand the range of collateral acceptable for debit treatment in a broker-dealer's Reserve Formula calculation under subparagraph (a) to include money market mutual funds that meet specified requirements. 30

What is a customer in securities?

The term "customer," as defined in Exchange Act Rule 15c3-3, includes a person who holds an SFP in a securities account. 6 The Commission adopted Rule 15c3-3 in 1972, in part, to ensure that a broker-dealer in possession of customers' funds either deployed those funds "in safe areas of the broker-dealer's business related to servicing its customers" or, if not deployed in such areas, deposited the funds in a reserve bank account to prevent commingling of customer and firm funds. 7 Rule 15c3-3 requires a broker-dealer to calculate what amount, if any, it must deposit on behalf of customers in the reserve bank account, entitled "Special Reserve Bank Account for the Exclusive Benefit of Customers" ("Reserve Bank Account"), under the formula set forth in Rule 15c3-3a ("Reserve Formula"). 8 Generally, the Reserve Formula requires a broker-dealer to calculate any amounts it owes its customers and the amount of funds generated through the use of customer securities, called credits, and compare this amount to any amounts its customers owe it, called debits. 9 If credits exceed customer debits, the broker-dealer must deposit that net amount in the Reserve Bank Account. 10

What is the final amendment to Note G?

The final amendments retain cash, proprietary qualified securities and letters of credit collateralized by customers' securities as the range of collateral acceptable for debit treatment. This collateral is identical to the collateral acceptable for debit treatment related to customer options margin required and on deposit at the OCC. 31 Moreover, subparagraph (a) to Note G is consistent with Rule 15c3-3's requirement that a broker-dealer deposit cash or qualified securities to meet its deposit requirement under the Reserve Formula. 32 Any expansion of that collateral is beyond the scope of this rulemaking.

Does OCC have a security futures account?

In its first comment letter, OCC noted that its associate clearinghouse agreement with the Clearing Division of the CME, which relates to security futures traded on OneChicago, LLC, allows the CME to maintain only two clearing accounts with OCC, a proprietary account and a segregated futures account. If the CME were to carry customer security futures positions for its members in securities accounts as well as futures accounts, the CME would maintain security futures positions from both account types in its segregated futures account at OCC. Although this would result in a commingling of positions subject to CFTC customer protection and insolvency regimes with positions subject to SEC customer protection and SIPC insolvency regimes, we would not consider this commingling to be inconsistent with Note G. A broker-dealer that clears customer SFP transactions through the CME would include any related debit in the Reserve Formula for that customer SFP margin related to that transaction, if appropriate.

What is a 240.15c3-3?

Except where otherwise noted, § 240.15c3-3 applies to a broker or dealer registered under section 15 (b) of the Act ( 15 U.S.C. 78o (b) ), including a broker or dealer also registered as a security-based swap dealer or major security-based swap participant under section 15F (b) of the Act ( 15 U.S.C. 78o-10 (b) ). A security-based swap dealer or major security-based swap participant registered under section 15F (b) of the Act that is not also registered as a broker or dealer under section 15 (b) of the Act is subject to the requirements under § 240.18a-4.

What is the IL code for financial statements?

IL Admin. Code 14.130.824 - Section 130.824 - Financial Statements to be Filed by a Registered Dealer

Can a seller substitute other securities?

The [seller] is not permitted to substitute other securities for those subject to this agreement and therefore must keep the [buyer's] securities segregated at all times, unless in this agreement the [buyer] grants the [seller] the right to substitute other securities. If the [buyer] grants the right to substitute, this means that the [buyer's] securities will likely be commingled with the [seller's] own securities during the trading day. The [buyer] is advised that, during any trading day that the [buyer's] securities are commingled with the [seller's] securities, they will be subject to liens granted by the [seller] to its clearing bank and may be used by the [seller] for deliveries on other securities transactions. Whenever the securities are commingled, the [seller's] ability to resegregate substitute securities for the [buyer] will be subject to the [seller's] ability to satisfy the clearing lien or to obtain substitute securities.

Is a municipal securities dealer a broker or dealer?

The term shall not include a broker or dealer, a municipal securities dealer, or a government securities broker or government securities dealer. The term shall, however, include another broker or dealer to the extent that broker or dealer maintains an omnibus account for the account of customers with the broker or dealer in compliance ...

What is Rule 15C3-3?

Rule 15c3-3 seeks to inhibit a broker-dealer's use of customer assets in its business by prohibiting the use of those assets except for designated purposes.13The rule also aims to protect customers involved in a broker-dealer liquidation. If a broker-dealer holding customer property fails, Rule 15c3-3 seeks to ensure that the firm has sufficient reserves and possesses sufficient securities so that customers promptly receive their property and there is no need to use the Securities Investor Protection Corporation ("SIPC") fund.14

What is the amendment to Rule 15c3-3A?

As discussed, the proposed amendments to Rule 15c3-3a would permit a broker-dealer that clears and carries customer SFPs in securities accounts on behalf of customers to include certain credits and debits in its Reserve Formula calculation relating to SFP margin required and on deposit with a Clearing Agency or a DCO. The amendments would permit a broker-dealer to include as a debit the amount of customer SFP margin required and on deposit with a Clearing Agency or DCO only if that entity: maintains sufficient liquid capital; deposits customer SFP margin in a Reserve Bank Account to ensure the ready availability of those funds; and maintains a system for safeguarding the handling, transfer and delivery of SFPs. In addition, the amendments require a broker-dealer to obtain from a DCO not otherwise registered with the Commission an executed undertaking in which the DCO agrees to examination by the Commission to monitor the D CO's compliance with the applicable conditions set forth in the amendments to Rule 15c3-3a.

What is the amendment to the Reserve Formula?

The amendments were drafted to reduce the burden of the Reserve Formula on broker-dealers by allowing a broker-dealer to include the amount of customer SFP margin required and on deposit at a Clearing Agency or DCO as a debit in the Reserve Formula . This treatment would permit a broker-dealer that clears and carries SFPs in securities accounts on behalf of customers to calculate the appropriate customer reserve requirement.

What is the new item 14?

Proposed new Item 14 would permit the broker-dealer to include a debit in its Reserve Formula computation to the extent of customer SFP margin required and on deposit with a Clearing Agency or a DCO, subject to the conditions in proposed Note G. Recordation of the debit reflects the broker-dealer's use of firm assets for customer purposes.

What is the proposed amendment to the formula for determination of customer reserve requirements of broker-dealers under the Securities Exchange Act?

The proposed amendments would permit a broker-dealer to include margin related to security futures products written, purchased or sold in customer securities accounts required and on deposit with a registered clearing agency or a derivatives clearing organization as a debit item in calculating its customer reserve requirement .

Does a broker-dealer have to deposit a debit item in the Reserve Formula for customer SFP margin?

Furthermore, a broker-dealer could include a debit item in the Reserve Formula for customer SFP margin required and on deposit with a Clearing Agency or DCO only if that clearing house, in compliance with Rule 15c3-3, establishes, documents and maintains: (1) a system to safeguard the handling, transfer and delivery of cash and securities; (2) provisions for fidelity bond coverage of its employees and agents; and (3) provisions for periodic examination by independent public accountants. This proposed requirement is designed to protect customers' cash and securities by limiting the debit treatment under the Reserve Formula to customer SFP margin deposited at a Clearing Agency or DCO that addresses internal risk. Implementation of the proposed rule's requirements would assist these entities in monitoring whether customer margin is protected from both default and use in other areas of the entities' business.

What is the 15c3-3a amendment?

1 The amendments delineate how a broker-dealer would calculate its customer reserve requirement in light of enactment of the Commodity Futures Modernization Act of 2000 ("CFMA") 2 and the expected trading of security futures products.

How much of a broker's net capital is allowed to be indebted?

No broker or dealer, other than one that elects the provisions of paragraph (a)(1)(ii) of this section, shall permit its aggregate indebtedness to all other persons to exceed 1500 percent of its net capital (or 800 percent of its net capital for 12 months after commencing business as a broker or dealer).

What is SEC release 349922?

A broker electing the alternative may not use the approximation and netting procedures outlined in SEC Release 349922 (under - SEA Rule 15c3-3(e) Special Reserve Bank Account for the Exclusive Benefit of Customers) in making the weekly computation. A complete and accurate calculation must be made every week.

What is the minimum capital requirement for introducing broker?

Any introducing broker who rebates a portion of its commission back to its customers either as a cash payment or to a creditor of the customer is required to maintain a minimum net capital requirement of at least $250,000. It is also considered a carrying firm for purposes of SEA Rule 3 unless it elects the following method for the 15c3- handling of the customers’ rebates:

How much capital do prime brokers need?

A broker-dealer that acts as a prime broker must maintain net capital of not less than $1,500,000.

How to determine minimum net capital requirement?

The minimum net capital requirement of the consolidated entity is determined by adding the amount of net capital required for compliance by each consolidated subsidiary subject to the Rule to the minimum dollar net capital requirement of the parent broker-dealer.

When a broker-dealer makes an error in executing a transaction, which is done as a floor?

When a broker-dealer, which is primarily in the business of acting as a floor broker, makes an error in executing a transaction, which is done as a floor broker for another broker, no haircut need be taken on the resulting error position provided the security position is immediately liquidated upon discovery, but no later than the closing of the business day after the day the error occurred.

Who must maintain a written clearing agreement?

1. The introducing firm must maintain a written clearing agreement (signed by the clearing broker-dealer) which states that for purposes of SIPA and SEA Rules 15c3-3, and 15c3-1, the customers are customers of the clearing firm and not the introducing firm;

What is Rule 15C3-3?

Updated June 25, 2019. Enacted in 1972 by the SEC, Rule 15c3-3 is designed to protect client accounts at securities brokerage firms. It was adopted in response to the 1968 Wall Street Paperwork Crunch, which resulted in the failure of many firms and significant losses to their clients. In short, the rule dictates the amount ...

How long did the 15c3-3 scheme run?

The allegation is that this scheme ran at Merrill Lynch for at least 3 years, ending in mid-2012. Bank of America, which acquired Merrill Lynch in 2009, already has paid out more than $70 billion in settlements stemming from the 2008 credit crisis.

Rule 15c3-3 Reserve Requirements For Margin Related to Security Futures Products

• AGENCY: Securities and Exchange Commission (the "Commission"). ACTION:Final rule. SUMMARY: The Securities and Exchange Commission ("Commission") is adopting amendments to the formula for determination of customer reserve requirements of broker-dealers under the Securities Exchange Act of 1934 to address issues related to customer margin for securit...

See more on sec.gov

I. Introduction

II. The Proposed Amendments

III. Overview of The Comments Received

IV. Final Amendments

v. Paperwork Reduction Act

VI. Costs and Benefits of The Proposed Amendments

VIII. Regulatory Flexibility Act Certification

IX. Statutory Authority