The US Securities and Exchange Commission (SEC) has adopted amendments to its financial responsibility rules for broker-dealers, as well as rules designed to increase protection for investors who hold their money in such firms.
The SEC amended the rules for net capital, customer protection, books and records and notification as part of a set of technical changes to the responsibility rules.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The amendment closes a ‘gap’ between the definition of ‘customer’ in Rule 15c3-3 (which does not include broker-dealers) and the definition of ‘customer’ under the Securities Investor Protection Act (which includes broker-dealers). It does this 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.
It also place restrictions on cash bank deposits for purposes of the requirement to maintain a reserve to protect customer cash under Rule 15c3-3. The rule is amended to exclude cash deposits held at affiliated banks and limit cash held at non-affiliated banks to an amount no greater than 15% of the bank’s equity capital.
Regarding net capital rule, the amendment will require a broker-dealer to adjust its net worth when calculating net capital by including any liabilities that are assumed by a third party if the broker-dealer cannot demonstrate that the third party has the resources.
It will also require a broker-dealer to treat as a liability any capital that is contributed under an agreement giving the investor the option to withdraw it.
The rule will also require a broker-dealer to treat as a liability any capital contribution that is withdrawn within a year of its contribution unless the broker-dealer receives permission for the withdrawal in writing from its designated examining authority (DEA).
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAlso, broker-dealers are now required to deduct from net capital the excess of any deductible amount over the amount permitted by SRO rules.
The amended books and records rules will require large broker-dealers to document their market, credit, and liquidity risk management controls.
The rule amendments were approved by a unanimous commission vote.
The effective date for these amendments is 60 days after publication in the Federal Register.
Mary Jo White, chair of the SEC, said: "Investors need to feel confident that their money is safe when it’s being held by their broker-dealers. These measures will significantly bolster the protections that our rules already offer."
