SEC Final Rule: Financial Responsibilities for Broker-Dealers

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Gavel.png FINAL RULE: Approved July 31, 2013. Entered Federal Register August 21, 2013. Effective date October 21, 2013
Timeline, Financial Responsibility Rules for Broker Dealers
Re-proposal Date Final Rule Issue Effective Date
May 9, 2012 August 21, 2013 October 21, 2013

On July 31, 2013, the SEC issued a final rule that amends commission rules on net capital, customer protection and books and records for broker-dealers. The rules, which were approved unanimously,aim to better protect broker-dealer customers and help the commission monitor and prevent "unsound business paractices." The rule entered the Federal Register on August 21, 2013 and its effective date in October 21, 2013.


On March 19, 2007, the commission proposed several changes to the Securities and Exchange Act that would enhance net capital, customer protection, books and records, and notification rules for broker-dealers. The original deadline for public comment was May 18, 2007. However, the commission did not finalize its rulemakings at the time. Subsequent to the financial crisis of 2008 and the passage of Dodd-Frank in 2010, the commission has decided that a re-proposal and request for additional comment is appropriate.

On May 9, 2012, the SEC introduced into the Federal Register a proposed rule and comment request regarding amendments to its net capital, customer protection, books and records, and notification rules for broker-dealers under the Securities Exchange Act of 1934 (‘‘Exchange Act’’).<ref>SEC Reopens Comment Period for Proposed Amendments to Its Net Capital, Customer Protection, Books and Records, and Notification Rules for Broker-Dealers. SEC. Retrieved on May 14, 2012.</ref> The proposed rule amendments are designed to update the financial responsibility rules for broker-dealers and make certain technical amendments. The deadline for public comment was June 8, 2012.

Summary of the Final Rule[edit]

Customer Protection (Rule 15c-3-3):

  • The rule harmonizes Rule 15c3-3 (which does not include broker-dealers) with the definition of “customer” under the Securities Investor Protection Act (which includes broker-dealers), by requiring “carrying broker-dealers” that maintain customer securities and funds to maintain a new segregated reserve account for account holders that are broker-dealers.
  • The rule enhances customer cash reserves by excluding cash deposits held at affiliated banks and limits on cash held at non-affiliated banks to an amount no greater than 15 percent of the bank’s equity capital.
  • The rule requires customer disclosure, notice, and affirmative consent forms (for new accounts) for programs where customer cash in a securities account is “swept” to a money market or bank deposit product.

Net Capital Rule (Rule 15c3-1):

  • The rule requires broker-dealers to adjust net capital calculations to include liabilities that would be assumed by a third party if the broker-dealer cannot demonstrate that the third party has the resources – independent of the broker-dealer’s income and assets – to pay the liabilities.
  • Broker-dealers must treat as a liability any capital that is contributed under an agreement giving the investor the option to withdraw it.
  • Broker-dealers must deduct from net capital (with regard to fidelity bonding requirements prescribed by a broker-dealer’s SRO) the excess of any deductible amount over the amount permitted by SRO rules.
  • The definition of “insolvent” is amended to mean "to cease conducting a securities business."

Books and Records Rules (Rules 17a-3 and 17a-4):

  • The amendments will require large broker-dealers to document their market, credit, and liquidity risk management controls.

Notification Rule (Rule 17a-11):

  • New notification will be required for when a broker-dealer’s repurchase and securities lending activities exceed a certain threshold.

Related Documents: Proposed Rule as it Appeared in the Federal Register in March 2007; Final Rule from August 2013[edit]


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