SEC Approves Amendments to Financial Responsibility Rules


Last week, the Securities and Exchange Commission (SEC) finalized rule amendments designed to protect investor assets and ensure the integrity of broker dealer financial operations. The SEC Customer Protection (Rule 15c3-3) and Net Capital (Rule 15c3-1) rules have long served as the cornerstone of financial responsibility for broker dealers.

These rule amendments, which become effective 60 days after their publication date in the federal register, are designed to strengthen the protection of customer assets held at clearing firms (also known as carrying broker dealers). Such measures entail including accounts of other broker dealers in their capital reserve requirements, as well as additional measures which further strengthen investor deposits in money market accounts.

Additionally, the SEC codified their view of a broker dealer's contingent liabilities and certain liabilities of third parties. Such liabilities, upon effectiveness of the rule amendments, will be required to be included as liabilities on the books of the broker dealer. Similarly, broker dealers that make capital contributions that are subsequently withdrawn within 12-months of the date of contribution, will be considered liabilities of the broker dealer - and therefore not eligible for preferential net capital treatment.

The rule amendments also call for the SEC to be notified (17a-11 notification) when a broker dealer becomes insolvent, triggering a requirement to cease conducting a securities business.

To read the full SEC release, .


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