SEC Adopts Amendments to Broker-Dealer Customer Protection Rule

The U.S. Securities and Exchange Commission announced that it has adopted amendments to Rule 15c3-3, also known as the customer protection rule. These amendments require certain broker-dealers to increase the frequency of their customer reserve computations from weekly to daily. Additionally, the SEC also adopted amendments to Rule 15c3-3 and Rule 15c3-1, also known as the broker-dealer net capital rule, to permit certain broker-dealers that perform a daily customer reserve computation to decrease the required 3% “buffer” in the customer reserve bank account from 3% to 2% in the computation.

“Our markets have dramatically evolved since the 1972 adoption of Rule 15c3-3, otherwise known as the customer protection rule,” said Gary Gensler, chair of the SEC. “I’m pleased to support this adoption because it helps protect customers and the Securities Investor Protection Corporation Fund while promoting greater trust in the markets.”

Rule 15c3-3 mandates that broker-dealers holding customer securities and cash, known as carrying broker-dealers, maintain a special reserve account at a bank. This account 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. Typically, these computations and the corresponding deposits into the reserve account are done weekly.

The SEC stated that it identified a potential risk stemming from the weekly computation cycle where broker-dealers may receive substantial cash inflows that remain undeployed for customers prior to the next reserve computation and deposit. This mismatch between the cash owed and the amount on deposit in the reserve account could pose a risk to customers if the broker-dealer experiences financial difficulties.

To address this risk, the SEC has mandated that carrying broker-dealers with average total credits, which refers to the amount owed to customers, of $500 million or more must perform daily reserve computations. This change aims to ensure that the amount on deposit in the reserve account more closely matches the actual cash owed to customers. Additionally, the amendments permit broker-dealers performing daily computations to reduce the required “buffer” in the reserve account from 3% to 2%. According to the SEC, this adjustment recognizes the enhanced protection offered by the daily computation cycle.

The amendments are set to take effect 60 days after their publication in the Federal Register. Broker-dealers exceeding the $500 million threshold will be required to implement daily computations by Dec. 31, 2025. Once the amendments are effective, a carrying broker-dealer may voluntarily perform a daily customer reserve computation, provided it notifies its designated examining authority in writing at least 30 calendar days prior.

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