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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-102022; File No. S7-11-23]

RIN 3235-AN28

Daily Computation of Customer and Broker-Dealer Reserve Requirements under the

Broker-Dealer Customer Protection Rule

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting

amendments to the broker-dealer customer protection rule to require certain broker-dealers to

perform their reserve computations for accounts of customers and proprietary accounts of

broker-dealers and make any required deposits into their reserve bank accounts daily rather than

weekly. The Commission also is adopting amendments to the broker-dealer net capital rule and

customer protection rule to permit certain broker-dealers that perform a daily reserve

computation for accounts of customers to reduce aggregate debit items (i.e., customer-related

receivables) by 2% rather than 3% as part of the computation. Finally, the Commission is

adopting technical amendments to the Financial and Operational Combined Uniform Single

Report (“FOCUS Report”) to conform it to the amendments with respect to the lowering of the

debit reduction from 3% to 2%.

DATES: Effective date: March 14, 2025.

Compliance date: The compliance date is discussed in section III. of this release.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate Director;

Thomas K. McGowan, Associate Director; Randall W. Roy, Deputy Associate Director;

Raymond Lombardo, Assistant Director; Sheila Dombal Swartz, Senior Special Counsel; or

Abraham Jacob, Special Counsel, at (202) 551-5500, Office of Broker-Dealer Finances, Division

of Trading and Markets; Securities and Exchange Commission, 100 F Street NE, Washington,

DC 20549-7010.

SUPPLEMENTARY INFORMATION: The Commission is amending:

Commission Reference

CFR Citation (17 CFR)

Rule 15c3-1

17 CFR 240.15c3-1

Rule 15c3-3

17 CFR 240.15c3-3

Form X-17A-5 Part II

17 CFR 249.617

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................ 4

A. The Need For Daily Reserve Computations.............................................................. 4

B. Overview of the Final Amendments ......................................................................... 12

C. Overview of Rule 15c3-3 and Broker-Dealer Liquidations ...................................... 15

1. Overview of Rule 15c3-3 ................................................................................. 15

2. Overview of Broker-Dealer Liquidations and SIPA ........................................ 20

II. DISCUSSION OF COMMENTS AND FINAL AMENDMENTS ................................. 23

A. Requirement to Perform a Daily Computation.......................................................... 23

1. Proposal ............................................................................................................ 23

2. Comments Received and Final Amendments................................................... 24

B. Compliance with Daily Reserve Computation after Exceeding $500 Million

Threshold ................................................................................................................... 39

1. Proposal ............................................................................................................ 39

2. Comments Received and Final Amendments................................................... 40

C. Reducing the Aggregate Debit Reduction from 3% to 2% ....................................... 46

Amendments to Rules 15c3-1 and 15c3-3....................................................... 46

Conforming Amendments to the FOCUS Report ........................................... 58

D. Voluntary Customer and PAB Reserve Computations ............................................. 59

E. Other Comments........................................................................................................ 61

1. Sweep Programs and Other “Cash in Motion” or “Transitory” Credits” ......... 62

2. Requests for Interpretations and Clarifications ................................................ 71

F. Reserve Account Requirements for Security-Based Swaps ...................................... 77

III. COMPLIANCE DATE ..................................................................................................... 78

IV. ECONOMIC ANALYSIS ................................................................................................ 83

A. Introduction ............................................................................................................... 83

B. Baseline ..................................................................................................................... 88

1. Regulatory Baseline.......................................................................................... 88

Affected Broker-Dealers .................................................................................. 95

Debit Reduction in the Customer Reserve Computation for Certain BrokerDealers .............................................................................................................. 104

C. Economic Effects of the Final Amendments ............................................................. 108

1. Benefits ............................................................................................................. 108

2. Costs ................................................................................................................. 114

3. Other Compliance Costs ................................................................................... 126

D. Effects on Efficiency, Competition, and Capital Formation ..................................... 128

E. Reasonable Alternatives ............................................................................................ 131

1. Over-Funding of the Customer and PAB Reserve Bank Accounts .................. 131

2. A Threshold Based on a Different Metric ........................................................ 132

3. Daily Computation Requirement for All Carrying Broker-Dealers ................. 134

4. A Higher or Lower Threshold for Daily Computation ..................................... 135

5. Calculation based on the Maximum Value over the Past Year ........................ 136

6. Daily Computation if an Average Required Deposit Exceeds a Threshold ..... 138

7. Daily Computation Requirement Based on Average Total Credits Per Number of

Customer and PAB Accounts ........................................................................... 139

8. Daily Computation based on Average Total Credits from the Most Recent

Calendar Year ................................................................................................... 141

9. Reduction of the Aggregate Debit Items Charge from 3% to 1% .................... 143

10. Exemption for Cash in Motion ......................................................................... 143

V. PAPERWORK REDUCTION ACT................................................................................. 145

A. Summary of Collections of Information under the Final Amendments .................... 146

B. Use of the Information .............................................................................................. 149

C. Respondents............................................................................................................... 149

1. Recordkeeping Requirements ........................................................................... 149

2. Notification Requirement to Revert to Weekly Computations ........................ 150

3. Notification Requirement to Voluntarily Perform Daily Customer Reserve

Computation with 2% Debit Reduction ........................................................... 150

D. Total Annual Burden Estimate .................................................................................. 151

1. Recordkeeping Requirements ........................................................................... 151

2. Notification Requirement to Revert to Weekly Computations ........................ 156

3. Notification Requirement to Voluntarily Perform Daily Customer Reserve

Computation with 2% Debit Reduction ........................................................... 157

4. Summary of the Burden Revisions ................................................................... 157

E. Collections of Information are Mandatory ................................................................ 159

F. Confidentiality of Response to Collections of Information ...................................... 159

G. Retention Period for Recordkeeping Requirements .................................................. 160

VI. REGULATORY FLEXIBILIY ACT CERTIFICATION ................................................ 160

VII. OTHER MATTERS ......................................................................................................... 162

STATUTORY AUTHORITY ................................................................................................... 163

INTRODUCTION

The Need For Daily Reserve Computations

Section 15(c)(3)(A) of the Securities Exchange Act of 1934 (“Exchange Act”) provides,

in pertinent part, that no broker-dealer shall make use of the mails or any means or

instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to

induce the purchase or sale of, any security (with exceptions for certain securities) in

contravention of such rules and regulations as the Commission shall prescribe as necessary or

appropriate in the public interest or for the protection of investors to provide safeguards with

respect to the financial responsibility and related practices of broker-dealers including, but not

limited to, the acceptance of custody and use of customers’ securities and the carrying and use of

customers’ deposits or credit balances. 1 The statute further provides, in pertinent part, that the

rules and regulations shall require the maintenance of reserves with respect to customers’

deposits or credit balances. 2

Pursuant to this statutory directive, the Commission adopted the customer protection rule

(“Rule 15c3-3”) in 1972. 3 This rule requires broker-dealers that hold customer cash and

securities (“carrying broker-dealers”) to treat these assets in a manner that facilitates their prompt

15 U.S.C. 78o(c)(3)(A). The amendments to section 15(c)(3) of the Exchange Act granting this rulemaking

authority were adopted in section 7(d) of the Securities Investor Protection Act of 1970 (“SIPA”). Pub. L.

91-598, §7(d), Dec. 30, 1970, 84 Stat. 1563. Rule 15c3-3 was promulgated in the aftermath of the

securities industry “paper work crisis” of 1967-1970. See Commission, Study of Unsafe and Unsound

Practices of Brokers and Dealers, H.R. Doc. No. 231, 92d Cong., 1st Sess. 6 (1971) (“During the 1967-70

period of severe operational and financial problems, many firms, primarily because of inadequate and

inefficient recordkeeping and segregation systems and procedures, and the infrequent counting of securities

in their possession, mishandled and misused customers’ funds and securities.… Firms used customers’ free

credit and other credit balances in their daily activities.”) Id. at 43.

15 U.S.C. 78o(c)(3)(A).

See Broker-Dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 17,

1972) [37 FR 25224 (Nov. 29, 1972)] (“Rule 15c3-3 Adopting Release”).

return to the customers if the broker-dealer fails financially. 4 The goal of the rule is to place a

carrying broker-dealer in a position where it is able to wind down in an orderly self-liquidation

without the need of financial assistance provided by the Securities Investor Protection

Corporation (“SIPC”) through a formal proceeding under SIPA. 5

In order to facilitate an orderly self-liquidation, Rule 15c3-3 requires a carrying brokerdealer to compute the net amount of cash owed to customers under a formula in the rule

(“customer reserve computation”). 6 Generally, carrying broker-dealers must perform their

customer reserve computation and make any required deposits in a special reserve account at a

bank (“customer reserve bank account”) weekly. 7 This weekly cadence has been in effect since

1973. 8 The rule also addresses how a carrying broker-dealer must treat proprietary securities and

cash it holds for other broker-dealers, known as proprietary accounts of broker-dealers (“PAB

accounts”). 9 While broker-dealers are not treated as customers under preexisting Rule 15c3-3,

See section I.C.1. of this release (discussing Rule 15c3-3).

See Financial Responsibility Rules for Broker-Dealers; Final Rule, Exchange Act Release No. 70072 (July

30, 2013) [78 FR 51824, 51869 (Aug. 21, 2013)] (“Financial Responsibility Rules for Broker-Dealers”);

See also section I.C.2. of this release (discussing broker-dealer liquidations and SIPA).

The net amount of cash owed to customers is generally the amount the total cash owed to customers (e.g.,

cash balances in securities accounts) (referred to as “credits”) exceeds the total amount of cash customers

owe the carrying broker-dealer (e.g., margin loans to customers) (referred to as “debits”). 17 CFR

240.15c3-3a (“Rule 15c3-3a”).

Preexisting Rule 15c3-3 also permits carrying broker-dealers to perform the customer reserve computation

more frequently than weekly (e.g., daily) and, in certain limited circumstances, monthly. See paragraph

(e)(3) of Rule 15c3-3.

See Rule 15c3-3 Adopting Release, 37 FR at 25226. While Rule 15c3-3 was adopted in 1972, the effective

date for the rule was January 15, 1973. Id.

The term PAB account means a proprietary securities account of a broker-dealer (which includes a foreign

broker-dealer, or a foreign bank acting as a broker-dealer) other than a delivery-versus-payment account or

a receipt-versus-payment account. The term does not include an account that has been subordinated to the

claims of creditors of the carrying broker-dealer. See paragraph (a)(16) of Rule 15c3-3. For example, a

broker-dealer that is not a carrying broker-dealer (e.g., a broker-dealer that introduces its customer accounts

to a carrying broker-dealer (“introducing broker-dealer”)) may hold its proprietary securities and cash at a

carrying broker-dealer. In this case, the securities account of the introducing broker-dealer held at the

the rule requires a carrying broker-dealer to perform a PAB reserve computation and make any

required deposits into its PAB reserve bank account weekly, similar to the requirements for the

customer reserve computation and customer reserve bank account. 10

Since the adoption of Rule 15c3-3 in 1972, investor—including retail investor—

participation in the U.S. securities markets has grown dramatically, which has led to a

correspondingly dramatic increase in the amount of cash carrying broker-dealers hold for

customers. 11 Cash owed to customers and PAB account holders may include proceeds received

from sales of securities, cash customers and PAB account holders deposit for the purpose of

purchasing securities, and monthly or quarterly dividends received on behalf of customers and

PAB account holders. 12 Carrying broker-dealers may receive large cash inflows on behalf of

their customers and PAB account holders during the week (e.g., month-end or quarter-end

interest and dividend payments) and days prior to the next required weekly reserve computations

and deposits into the reserve bank accounts. 13 This can lead to situations where—for a period of

carrying broker-dealer would be a PAB account and the introducing broker-dealer would be a PAB account

holder of the carrying broker-dealer. See Daily Computation of Customer and Broker-Dealer Reserve

Requirements under the Broker-Dealer Customer Protection Rule, Exchange Act Release No. 97877 (July

12, 2023) [88 FR 45836, 45837 (July 18, 2023)] (“Proposing Release”).

See section I.C.1. of this release (discussing Rule 15c3-3).

Broker-dealers file monthly or quarterly financial and operational information using the FOCUS Report.

Based on FOCUS Report data as of December 31, 2023, carrying broker-dealers, in aggregate, reported

approximately $1.1 trillion in total customer and PAB credits. See section IV.B.2. of this release

(discussing affected broker-dealers in the baseline). Of that amount, approximately $965 billion constituted

total credits for customer accounts (the remaining balance was total credits for PAB accounts). Further,

carrying broker-dealers reported approximately $319 billion in customer free credit balances. By

comparison, free credit balances at year-end 1970 totaled $2 billion for all broker-dealers that were NYSE

members and carried public customer accounts. See Study of Unsafe and Unsound Practices of Brokers

and Dealers at 51. Free credit balances are generally liabilities of a broker-dealer to customers which are

subject to immediate cash payment to customers on demand, whether resulting from sales of securities,

dividends, interest, deposits or otherwise, subject to certain exclusions. See paragraph (a)(8) of Rule

15c3-3.

See Proposing Release, 88 FR at 45842.

See id.

days—the net amount of cash owed to customers and PAB account holders is greater than the

amounts held in the carrying broker-dealer’s combined customer and PAB reserve bank

accounts. 14 This creates a “mismatch” or difference between the net cash owed to customers and

PAB accounts holders and the amounts held in the carrying broker-dealer’s combined customer

and PAB reserve bank accounts. Moreover, because of the dramatic increase in cash held by

carrying broker-dealers since 1972, the amount of the mismatch between cash owed and cash

reserved can be much larger than the Commission contemplated when it adopted the requirement

to perform a weekly reserve computation. The potential for much larger mismatches today (as

compared to 1972) poses a risk that if the carrying broker-dealer fails financially it may not be

able to promptly return all cash and securities owed to customers and PAB account holders in an

orderly self-liquidation and, instead, will need to be liquidated in a SIPA proceeding.

The potential size of the mismatch risk impacting carrying broker-dealers today can be

demonstrated through the size of the deposits they are required to make into their reserve bank

accounts. For example, during the 2023 calendar year, the largest required additional deposits

into the customer reserve bank accounts of all carrying broker-dealers ranged from

approximately $2.3 billion to over $10 billion. 15 During the 2023 calendar year, the largest

required additional deposits into their PAB reserve bank accounts ranged from approximately

$345 million to almost $4.0 billion.16 Furthermore, during the 2023 calendar year, the top ten

See id.

This data is based on the 25 largest additional deposit requirements reported in the monthly FOCUS

Reports filed during the 2023 calendar year.

This data is based on the 25 largest additional deposit requirements reported in the monthly FOCUS

Reports filed during the 2023 calendar year. The largest additional deposit requirements were made by

carrying broker-dealers that also had the 25 largest credit balances based on 2023 FOCUS Report data. A

total of nine carrying broker-dealers made the 25 largest additional deposit requirements into the customer

additional required deposits to the customer reserve bank accounts for the 20 carrying brokerdealers with the lowest average total credits (of the 49 carrying broker-dealers estimated to be

subject to the final amendments), 17 ranged from approximately $74.3 million to over $600

million.18 Moreover, the largest potential mismatches today occur at carrying broker-dealers that

reported the greatest amount of total credits for their customers and PAB account holders (i.e.,

amounts that exceed the final $500 million threshold discussed below). 19 In 2023, in the

aggregate, the average mismatch for customer reserve bank accounts was 15.7% for carrying

broker-dealers above the $500 million threshold. 20 It was 6.4% for carrying broker-dealers

below the threshold. 21

These large deposit requirements and mismatch percentages indicate that there may be

times when the net amount of cash owed to customers and PAB account holders is substantially

reserve bank accounts. Six of the 25 largest additional deposits into the customer reserve bank accounts

were made by three carrying broker-dealers that voluntarily perform a daily reserve computation. The

mean of these additional deposit requirements was $4.2 billion, and the median was $3.6 billion. With

respect to the largest deposits into the PAB reserve bank accounts, a total of six carrying broker-dealers

made the 25 largest additional deposit requirements. Twenty-one of the 25 largest additional deposits into

the PAB reserve bank accounts were made by four carrying broker-dealers that voluntarily perform a daily

reserve computation. The mean of these additional deposit requirements was approximately $1.3 billion,

and the median was approximately $1.1 billion. In addition to large deposit requirements, the customer and

PAB reserve computations also permitted some carrying broker-dealers to make large withdrawals from

both their customer and PAB reserve bank accounts during the 2023 calendar year. For example, during

the 2023 calendar year, the 25 largest withdrawals from customer reserve bank accounts ranged from

approximately $1.2 billion to $4.8 billion, and the 25 largest withdrawals from PAB reserve bank accounts

ranged from $170 million to $2.6 billion.

See section IV.B.2. in this release (discussing scope of affected entities in the economic baseline).

This data is based on the largest additional deposit requirements reported in the monthly FOCUS Reports

filed during the 2023 calendar year for carrying broker-dealers above the $500 million threshold.

See section II.A. of this release (describing the final $500 million threshold).

See section IV.B.2. of this release (discussing average mismatches). The aggregated average mismatch of

15.7% is calculated as an average of the average mismatches for all carrying broker-dealers that met the

$500 million threshold. The same was done for carrying broker-dealers below the $500 million threshold.

See section IV.B.2. of this release (discussing average mismatches).

greater than the amounts on deposit in the customer and PAB reserve bank accounts. 22 Large

mismatches may lead to correspondingly large shortfalls in the amounts available in the

customer and PAB reserve bank accounts, which, in the event of a failure of a carrying brokerdealer, may result in the delayed reimbursement of customer securities and cash, and the

potential that customers’ claims may not be satisfied in full. 23 In the case of a large shortfall, the

cash and securities owed to customers or PAB account holders may be tied up in liquidation

proceedings and these customers or PAB account holders would have to wait to receive their

cash and securities until the broker-dealer liquidation is carried out under SIPA, which may take

a significant amount of time. 24 This potential delay in obtaining access to their securities and

cash also could cause customers to rapidly withdraw cash from a carrying broker-dealer during

times of market turmoil, putting further stress on the carrying broker-dealer and the securities

markets more generally, as well as potentially triggering or accelerating the failure of a carrying

broker-dealer.

Further, in a SIPA liquidation, SIPC may be required to advance money from the SIPC

Fund 25 to the extent the fund of customer property was insufficient to make customers—but not

to PAB account holders—whole through the pro rata distribution.26 In particular, if the

See Proposing Release, 88 FR at 45843.

See id. at 45842.

How quickly claims are satisfied in a SIPA liquidation depends on the complexity of the liquidation and the

condition of the carrying broker-dealer’s records. See How The Claims Process Works, available at

https://www.sipc.org/cases-and-claims/how-the-claims-process-works; see also Proposing Release, 88 FR

at 45848; section IV.A. of this release (discussing potential risks that an intra-week mismatch introduces);

section IV.C. (discussing economic effects of the final amendments).

See section I.C.2. of this release (discussing the SIPC Fund).

See Proposing Release, 88 FR at 45842. The amount that can be advanced to each customer is capped at

$500,000 (of which $250,000 can be used to cover cash claims). Broker-dealers with securities accounts at

a failed broker-dealer—as SIPA customers—have the right to a pro rata share of customer property in a

mismatch or difference between the net amount a carrying broker-dealer owes its customers and

PAB account holders and the combined amounts in the customer and PAB reserve accounts was

sufficiently large, customers’ claims may not be satisfied in full. 27 In this case, the trustee would

need to use the SIPC Fund to satisfy customers’ claims to make them whole. This risk may be

exacerbated for carrying broker-dealers experiencing large aggregate intra-week mismatches. 28

As a result, the SIPC Fund may be at a higher risk of depletion. 29

To address these risks, the Commission is amending Rule 15c3-3 to require carrying

broker-dealers that owe large amounts of cash to customers and PAB account holders (i.e., have

large total credits), measured by both their customer and PAB reserve computations for the

previous 12 month ends (i.e., a rolling 12-month average), to perform those computations and

make any required deposits into their respective reserve bank accounts daily rather than

weekly. 30 The final amendments—by requiring daily rather than weekly reserve computations—

will more quickly apply the protective measures of the Rule 15c3-3 reserve requirements to cash

of customers and PAB account holders that is newly deposited into the carrying broker-dealer.

This will reduce the risk—caused by the dramatic increase in cash carrying broker-dealers

hold—that if the carrying broker-dealer fails financially, it may be unable to promptly return

cash and securities to customers and PAB account holders through an orderly self-liquidation. It

SIPA liquidation, but they are not entitled to advances from the SIPC Fund. See section I.C.2. of this

release (providing an overview of broker-dealer liquidations and SIPA).

See Proposing Release, 88 FR at 45842.

See Proposing Release, 88 FR at 45848. See also section IV.A. of this release (discussing potential risks

that an intra-week mismatch introduces).

See section IV.A. of this release (discussing potential risks that an intra-week mismatch introduces).

See section II.A. of this release (discussing the final $500 million threshold, which is a modification from

the proposed $250 million threshold); See also Proposing Release, 88 FR at 45843-45 (discussing proposed

$250 million threshold).

also reduces the risk that the SIPC Fund may be depleted. 31 Further, a daily computation—as

compared with a weekly computation—will more dynamically match the net amount of cash

owed to customers and PAB account holders with the amount on deposit in the carrying brokerdealer’s customer and PAB reserve bank accounts (i.e., daily changes in the net cash owed to

customers and PAB account holders will be accounted for more quickly in the reserve

computations). While Rule 15c3-3 currently permits a carrying broker-dealer to elect to perform

its customer and PAB reserve computations more frequently than weekly, 32 a practical effect of a

daily computation requirement will permit carrying broker-dealers to withdraw excess cash or

qualified securities more quickly from the reserve bank account, which will improve their

liquidity.33

In sum, the daily reserve computations—by protecting customer and PAB cash more

quickly than is the case with weekly computations—will make the financial system safer by: (1)

increasing the likelihood that a failing carrying broker-dealer can self-liquidate (meaning

customers and PAB account holders do not temporarily lose access to their cash and securities);

(2) lowering the risk that the SIPC Fund may be depleted by having to address a large shortfall in

customer cash held by a failed carrying broker-dealer; and (3) increasing the liquidity of carrying

broker-dealers performing the daily customer and PAB reserve computations thereby positioning

them to better address potential financial shocks.

See Proposing Release, 88 FR 45842-43, 45848.

See paragraph (e)(3)(iv) of Rule 15c3-3.

See supra note 16 (citing data related to the 25 largest withdrawals from customer and PAB reserve bank

accounts for the calendar year 2023).

Overview of the Final Amendments

The Commission proposed the requirement to perform daily customer and PAB reserve

computations on July 12, 2023. 34 The Commission received comments from a variety of

persons, including broker-dealers, retail investors, industry associations, and other market

participants. 35 As discussed in detail below, the Commission has modified the final amendments

in response to comments. For example, while the Commission is retaining the overall structure

of the proposal, the Commission has raised the threshold from $250 million to $500 million. The

Commission also is reducing the 3% aggregate debit items charge (“3% debit reduction”) that

certain carrying broker-dealers must take in performing a customer reserve computation to 2%

(“2% debit reduction”) if they perform a daily customer reserve computation. 36

The final amendments are summarized below.

Daily Computation – Under the final amendments, a carrying broker-dealer that has

average total credits that are equal to or greater than $500 million (“$500 Million Threshold”)

must perform the customer and/or PAB reserve computations daily, rather than weekly as is

required under preexisting Rule 15c3-3. 37 As proposed and under the final amendments, a

carrying broker-dealer must perform the customer and PAB reserve computations, as applicable,

as of the close of the previous business day, and any required deposits must be made no later

than one hour after the opening of banking business on the second following business day. 38

See Proposing Release.

Comment letters on the Proposing Release are available at https://www.sec.gov/comments/s7-1123/s71123.htm.

See section II.C. of this release (describing this modification in more detail).

See paragraph (e)(3)(i)(A)(1) of Rule 15c3-3, as amended.

See id.

Definition of Average Total Credits – As proposed and under the final amendments,

“average total credits” means the arithmetic mean of the sum of total credits in the customer

reserve computation and the PAB reserve computation reported in the carrying broker-dealer’s

12 most recently filed month-end FOCUS Reports. 39 This means the average total credits are a

12-month rolling average, as the carrying broker-dealer must add up the sum of the total credits

reported in the customer and PAB reserve computations in each of the 12 most recently filed

month-end FOCUS Reports and divide that amount by 12 to calculate the arithmetic mean of the

total credits.

Six-Month Compliance Period after Exceeding $500 Million Threshold – Under the final

amendments, a carrying broker-dealer must comply with the requirement to perform a customer

and PAB reserve computation daily no later than six months after its average total credits equal

or exceed the $500 Million Threshold. 40

60-day Written DEA Notification to Revert to Weekly Computation – Under the final

amendments, in the event that a carrying broker-dealer’s 12-month rolling average of total

credits subsequently falls below the $500 Million Threshold, it must continue to perform

customer and PAB reserve computations daily until it provides written notification to its

designated examining authority (“DEA”) of its election to perform weekly computations. The

amendments require the carrying broker-dealer to provide this written notification 60 days prior

to reverting to weekly computations. 41

See id.

See paragraph (e)(3)(i)(B)(2) of Rule 15c3-3, as amended.

Lowering the 3% Debit Reduction to 2% for Carrying Broker Dealers that Perform a

Daily Customer Reserve Computation – As discussed in more detail below, the minimum net

capital requirement for broker-dealers is the greater of a fixed-dollar amount specified in Rule

15c3-1 and an amount determined by applying one of two financial ratios: the 15-to-1 aggregate

indebtedness to net capital ratio (“basic method”) or the 2% of aggregate debit items ratio

(“alternative method”). 42 A carrying broker-dealer using the alternative method must reduce

aggregate debit items by 3% when performing its customer reserve computation under Rule

15c3-3. This can increase the amount the carrying broker-dealer must lock up in its customer

reserve bank account.

Under the final amendments, the Commission has modified Rule 15c3-1 to permit

carrying broker-dealers that use the alternative method and are above the $500 Million Threshold

(i.e., that perform a daily customer reserve computation) to reduce their aggregate debit items by

2% rather than 3%. 43 Further, carrying broker-dealers that use the alternative method and are

below the $500 Million Threshold may voluntarily perform a daily customer reserve

computation under Rule 15c3-3 and, in so doing, apply the 2% debit reduction in lieu of the 3%

debit reduction if they notify their DEA at least 30-days prior to beginning the daily customer

reserve computation. Under the final amendments, carrying broker-dealers voluntarily

performing a daily reserve computation and applying the 2% debit reduction must receive prior

approval from their DEA to revert to a weekly customer reserve computation. 44 If they revert to

performing a weekly customer reserve computation, they also must revert to applying a 3% debit

See section I.C.1. of this release (describing these provisions of the Rule 15c3-1 in more detail).

See paragraph (a)(1)(ii)(A) of Rule 15c3-1, as amended and paragraph (e)(3)(v) of Rule 15c3-3, as

amended.

See paragraph (e)(3)(v) of Rule 15c3-3, as amended.

reduction. Finally, under the final amendments, the Commission is adopting technical

amendments to the FOCUS Report to conform it to the amendments with respect to the lowering

of the debit reduction from 3% to 2%.

Compliance Date – Generally, carrying broker-dealers that exceed the $500 Million

Threshold using each of the 12 filed month-end FOCUS Reports from July 31, 2024, through

June 30, 2025, must perform customer and PAB reserve computations daily beginning no later

than December 31, 2025 (i.e., six months after June 30, 2025). 45 On or after the effective date of

the final amendments, a carrying broker-dealer may voluntarily perform a daily customer reserve

computation and apply the 2% debit reduction, provided it notifies its DEA in writing at least 30

calendar days prior to beginning the daily customer reserve computation that applies the 2%

debit reduction. 46

Reserve Account Requirements for Security-Based Swaps – The Commission is not

adopting any changes to the reserve account requirements for security-based swaps.

Overview of Rule 15c3-3 and Broker-Dealer Liquidations

Overview of Rule 15c3-3

Rule 15c3-3 is designed to give specific protection to customer funds and securities, in

effect forbidding broker-dealers from using customer assets to finance any part of their

businesses unrelated to servicing securities customers. For example, a broker-dealer is

“virtually” precluded from using customer funds to buy securities for its own account. 47 To meet

See section III. of this release (discussing the compliance date).

See id.

See Net Capital Requirements for Brokers and Dealers, Exchange Act Release No. 21651 (Jan. 11, 1985)

[50 FR 2690, 2690 (Jan. 18, 1985)]. See also Broker-Dealers; Maintenance of Certain Basic Reserves,

Exchange Act Release No. 9856 (Nov. 17, 1972) [37 FR 25224, 25224 (Nov. 29, 1972)]; Proposing

Release, 88 FR at 45837.

this objective, Rule 15c3-3 requires a carrying broker-dealer to take two primary steps to

safeguard these assets, as described in this section below. The steps are designed to protect

customers by segregating their securities and cash from the carrying broker-dealer’s proprietary

business activities. The final amendments address the second step. If the carrying broker-dealer

fails financially, the customer securities and cash should be readily available to be returned to the

customers, which facilitates an orderly self-liquidation. However, if the failed carrying brokerdealer is liquidated under SIPA, the customer securities and cash should be isolated and readily

identifiable as “customer property” and, consequently, available to be distributed to customers

ahead of other creditors. 48

The first step required by Rule 15c3-3 is that a carrying broker-dealer must maintain

physical possession or control over customers’ fully paid and excess margin securities. 49 Control

means the carrying broker-dealer must hold these securities in one of several locations specified

in Rule 15c3-3 and free of liens or any other interest that a third-party could exercise to secure an

obligation of the carrying broker-dealer. 50 Permissible locations include a clearing corporation

and a “bank,” as defined in section 3(a)(6) of the Exchange Act. 51

See section I.C.2. of this release (discussing broker-dealer liquidations under SIPA).

See paragraph (b) of Rule 15c3-3; Proposing Release, 88 FR at 45838.

See paragraph (c) of Rule 15c3-3. A carrying broker-dealer does not treat customer securities as its own

assets. Rather, the carrying broker-dealer holds them in a custodial capacity, and the possession and

control requirement is designed to ensure that the carrying broker-dealer treats them in a manner that

allows for their prompt return.

See id. In 2020, the Commission issued a statement describing its position that, for a period of five years,

special purpose broker-dealers operating under the circumstances set forth in the statement will not be

subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have

obtained and maintained physical possession or control of customer fully paid and excess margin “digital

asset securities” for purposes of Rule 15c3-3. See Commission Statement on Custody of Digital Asset

Securities by Special Purpose Broker-Dealers, Exchange Act Release No. 90788 (Dec. 23, 2020), 86 FR

11627 (Feb. 21, 2021). While the final amendments apply to all carrying broker-dealers, including special

The second step is that Rule 15c3-3 requires carrying broker-dealers to have a customer

reserve bank account that must hold cash and/or qualified securities (e.g., U.S. Treasury

securities) in an amount determined by a computation of the net cash owed to the carrying

broker-dealer’s customers pursuant to a formula set forth in Exchange Act Rule 15c3-3a, the

customer reserve computation. 52 Preexisting Rule 15c3-3 requires carrying broker-dealers to

perform the customer reserve computation as of the close of the last business day of the week

and make any required deposits into the customer reserve bank account weekly. Rule 15c3-3

also permits carrying broker-dealers to perform the customer reserve computation more

frequently than weekly (e.g., daily), 53 and, in certain limited circumstances, to perform a monthly

computation. 54

Under the customer reserve computation, the carrying broker-dealer adds up customer

credit items and then subtracts from that amount customer debit items. 55 The credit items include

credit balances in customer securities accounts (i.e., cash owed to customers) and funds obtained

through the use of customer securities (e.g., a loan from a bank collateralized with customer

margin securities). 56 The debit items include money owed by customers (e.g., from margin

purpose broker-dealers, the amendments do not alter the current possession and control requirements of

Rule 15c3-3 for any broker-dealer. See also Division of Trading and Markets, Commission and Office of

General Counsel, FINRA, Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities (July

8, 2019), available at https://www.sec.gov/news/public-statement/joint-staffstatement-broker-dealercustody-digital-asset-securities. The 2019 staff statement represents the views of the staff. It is not a rule,

regulation, or statement of the Commission. Furthermore, the Commission has neither approved nor

disapproved its content. This staff statement, like all staff statements, has no legal force or effect: it does

not alter or amend applicable law; and it creates no new or additional obligations for any person.

See Rule 15c3-3a.

See paragraph (e)(3)(iv) of Rule 15c3-3.

See paragraph (e)(3)(i) of Rule 15c3-3.

See Rule 15c3-3a.

See Rule 15c3-3a, Items 1-9; Proposing Release, 88 FR at 45838.

lending), securities borrowed by the carrying broker-dealer to effectuate customer short sales,

and margin required and on deposit with certain clearing agencies as a consequence of customer

securities transactions. 57 If credit items exceed debit items, the net amount must be on deposit in

the customer reserve bank account in the form of cash and/or qualified securities. 58 The carrying

broker-dealer must make a deposit into the customer reserve bank account by 10 a.m. of the

second business day following the “as of” date of the new computation if the computation shows

the amount required to be on deposit in the customer reserve bank account is greater than the

amount currently on deposit in the account. 59 Conversely, if the computation shows the amount

required to be on deposit in the customer reserve bank account is less than the amount currently

on deposit in the account, the carrying broker-dealer can withdraw the difference. 60 A carrying

broker-dealer also must make and maintain a record of each computation. 61

The customer reserve computation permits the carrying broker-dealer to offset customer

credit items only with customer debit items. 62 This means the carrying broker-dealer can use

customer cash to facilitate customer transactions such as financing customer margin loans and

borrowing securities to make deliveries of securities customers have sold short. For example, if

a carrying broker-dealer holds $100 for customer A, the carrying broker-dealer can use that $100

See Rule 15c3-3a, Items 10-15.

See paragraph (e) of Rule 15c3-3.

See paragraph (e)(3)(i) of Rule 15c3-3. For example, a carrying broker-dealer would perform the customer

reserve computation on Monday as of the close of business on the previous Friday and generally be

required to make the necessary deposit no later than 10 a.m. Tuesday. See Proposing Release, 88 FR at

45839.

See paragraph (e) of Rule 15c3-3.

See paragraph (e)(3)(v) of Rule 15c3-3. Each record must be preserved in accordance with Rule 17a-4. Id.

See also Proposing Release, 88 FR at 45839. As a result of the final amendments, paragraph (e)(3)(v) is

being re-designated as paragraph (e)(3)(vi).

See paragraph (e)(2) of Rule 15c3-3; Rule 15c3-3a.

to finance a security purchase of customer B (i.e., make a margin loan to customer B). The $100

the carrying broker-dealer owes customer A is a credit in the customer reserve computation and

the $100 customer B owes the carrying broker-dealer is a debit in the computation. Therefore,

under the customer reserve computation there would be no requirement to maintain cash and/or

qualified securities in the customer reserve bank account. However, if the carrying broker-dealer

did not use the $100 held in customer A’s account for this purpose, there would be no offsetting

debit and, consequently, the carrying broker-dealer would need to have on deposit in the

customer reserve bank account cash and/or qualified securities in an amount at least equal to

$100. 63

Rule 15c3-3 also addresses how a carrying broker-dealer must treat proprietary securities

and cash it holds for other broker-dealers, known as PAB accounts. While broker-dealers are not

treated as customers of the carrying broker-dealer under Rule 15c3-3, 64 the rule requires the

carrying broker-dealer to have a PAB reserve bank account. 65 The PAB reserve bank account

must hold cash and/or qualified securities in an amount determined by the PAB reserve

computation. Under preexisting Rule 15c3-3, carrying broker-dealers are generally required to

perform the PAB reserve computation and make any required deposits into the PAB reserve bank

See Proposing Release 88 FR at 45839, n.22.

See paragraph (a)(1) of Rule 15c3-3. The definition of “customer” in SIPA, however, is broader than the

definition in Rule 15c3-3 in that the SIPA definition includes broker-dealers that have proprietary accounts

at the carrying broker-dealer. As discussed in section I.C.2. of this release, broker-dealers—as customers

under SIPA—have the right to a pro rata share of customer property in a SIPA liquidation. See 15 U.S.C.

78lll(2).

See paragraph (e)(1) of Rule 15c3-3. Carrying broker-dealers also must obtain and maintain physical

possession or control of securities carried for a PAB account holder unless the carrying broker-dealer has

provided written notice to the PAB account holder that it may use those securities in the ordinary course of

its securities business and has provided opportunity for the PAB account holder to object to such use. See

paragraph (b)(5) of Rule 15c3-3. See Financial Responsibility Rules for Broker-Dealers, 78 FR at 5182731 (adopting a PAB reserve computation and possession and control requirements for securities held in

PAB accounts under Rule 15c3-3).

account weekly, similar to the requirements for the customer reserve computation. 66 Finally,

consistent with the requirements for the customer reserve computation, the PAB reserve

computation permits the carrying broker-dealer to offset PAB credit items only with PAB debit

items. 67

Overview of Broker-Dealer Liquidations and SIPA

SIPA 68 affords certain protections against loss to customers resulting from a broker-dealer

failure through the establishment of SIPC and the SIPC Fund. 69 SIPC oversees the liquidation of

SIPC-member broker-dealers that fail financially and where customer assets the broker-dealer

holds (i.e., cash or securities) are missing from customers’ securities accounts (i.e., brokerdealers that cannot return these assets through a self-liquidation). 70

In a SIPA liquidation of a broker-dealer, SIPC and a court-appointed trustee work to

return customers’ cash and securities as quickly as possible. Customers under SIPA, including

broker-dealers with securities accounts at the failed broker-dealer (“SIPA customers”), generally

are entitled to certain protections, including the right to share pro rata with other SIPA

customers in the customer property held by the carrying broker-dealer by way of a priority claim

See paragraph (e)(3) of Rule 15c3-3; Proposing Release, 88 FR at 45839-40.

See paragraph (e)(2) of Rule 15c3-3.

See 15 U.S.C. 78aaa et seq.

See 15 U.S.C. 78ccc(a)(1) and 78ddd(a)(1).

With some limited exceptions set forth in SIPA, all registered broker-dealers are SIPC members. 15 U.S.C.

78ccc(a)(2). SIPC is a non-profit member organization created in 1970 under SIPA. 15 U.S.C. 78ccc(a);

Proposing Release, 88 FR at 45840.

on the customer property compared to general unsecured creditors of the carrying brokerdealer. 71

SIPA protections also include the ability for a SIPA customer—other than a SIPA

customer that is a broker-dealer (i.e., a PAB account holder)—to receive an advance from the

SIPC Fund of up to $500,000 (of which $250,000 can be used to cover cash claims), if the

amount of customer property is insufficient to satisfy the customer’s claim for securities and/or

cash. 72 The SIPC Fund largely is financed through assessments paid to SIPC by its broker-dealer

members. 73 The SIPC Fund is used to pay SIPC’s expenses, the administrative costs of a SIPA

liquidation to the extent the carrying broker-dealer’s estate is insufficient to cover those costs,

and—as stated above in this section—to pay advances to SIPA customers whose claims cannot

be fully satisfied by the estate of a failed carrying broker-dealer. 74 The SIPC Fund—which

consists of cash and U.S. Government securities—totaled approximately $4.47 billion as of

See 15 U.S.C. 78fff-2(c) and 15 U.S.C. 78fff-3(a). SIPA liquidations generally involve customer claims

and the claims of general unsecured creditors. Customer claims are satisfied out of the customer estate,

while general unsecured claims are paid from the general estate (any remaining assets). To the extent a

customer’s claims are not fully satisfied through advances from the SIPC Fund and the customer’s share of

the customer estate, a customer will be eligible to receive a distribution as a general creditor if there are any

general estate assets. See 15 U.S.C. 78fff2(c)(1).

15 U.S.C. 78fff-3.

15 U.S.C. 78ddd(c) and (d); Proposing Release, 88 FR at 45841. The SIPC Fund is also financed through

interest on U.S. Government securities held in the SIPC Fund. See 2023 SIPC Annual Report at 4,

available at https://www.sipc.org/media/annual-reports/2023-annual-report.pdf.

In the event that the SIPC Fund is or may reasonably appear to be insufficient for the purposes of SIPA, the

Commission is authorized to lend SIPC up to $2.5 billion, which the Commission, in turn, would borrow

from the U.S. Treasury. 15 U.S.C. 78ddd(g) and (h). The Commission has not borrowed funds under the

authority in SIPA since the legislation was enacted in 1970. See 2023 SIPC Annual Report at 3; Proposing

Release, 88 FR at 45841, n.49. In 2023, no liquidations under SIPA were initiated. Over the last ten-year

period, the annual average of new cases was 0.2. Since the inception of SIPC, liquidation proceedings

under SIPA were commenced for 330 SIPC-member broker-dealers. These 330 members represent less

than 1% of the approximately 40,000 broker-dealers that have been SIPC members during the past fiftythree years. In addition, during that timeframe, cash and securities distributed for accounts of customers

totaled approximately $142.5 billion. Of that amount, approximately $141.6 billion came from debtors’

estates and $915.7 million came from the SIPC Fund. Currently, SIPC has 3,297 members. See SIPC 2023

Annual Report at 8.

December 31, 2023. 75 Finally, the schedule for calculation of the annual assessment for SIPC

members is governed under the SIPC Bylaws and generally depends on the level of SIPC’s

unrestricted net assets. 76 The current assessment rate (effective January 1, 2024) is 0.15% of net

operating revenues. 77 A summary of the possible level of SIPC assessments is as follows:

Table 1. SIPC Assessment Schedule

Unrestricted Net Assets/SIPC Fund

Balance

Unrestricted net assets $2.5 – < $5 billion

(and reasonably likely to remain less than

$5 billion but not less than $2.5 billion)

SIPC Fund balance of $150 million –

unrestricted net assets of <$2.5 billion

SIPC Fund balance $100 million – <$150

million

SIPC Fund balance below $100 million

Unrestricted net assets >= $ 5 billion (and

reasonably likely to remain > $5 billion

(after review of study* and consultation

with Commission and SROs))

Annual Assessment Rate

0.15% of net operating revenues

0.25% of net operating revenues

Determined by SIPC, but not less than

0.25% of gross revenues

Determined by SIPC, but not less than 0.5%

of gross revenues

SIPC may not more than once in any fouryear period, increase or decrease the

assessment rate by up to, but not more than,

25% of the assessment rate in effect at that

time.

*When unrestricted net assets total $5 billion, SIPC will commission a study every four years to examine the

adequacy of SIPC’s unrestricted net asset balance and the SIPC Fund and the appropriate assessment rate. See

section 6(a)(1)(C) and (D) of SIPC’s Bylaws.

See 2023 SIPC Annual Report at 10. The target level of the SIPC Fund is set out in SIPC’s Bylaws and has

increased from an initial target of $150 million in 1970, to the current target of $5.0 billion as measured in

unrestricted net assets. See Article 6 (Assessments) of SIPC Bylaws; The SIPC Fund, available at

https://www.sipc.org/about-sipc/the-sipc-fund; 2023 SIPC Annual Report at 3.

See Article 6 (Assessments) of SIPC Bylaws. SIPC’s unrestricted net assets are SIPC’s total assets

(including the SIPC Fund) less liabilities, which include estimated costs to complete ongoing SIPA

liquidations. See 2023 SIPC Annual Report at 20. See also 15 U.S.C. 78ddd(c) and (d); Proposing

Release, 88 FR at 45841.

See Assessment Rate, available at https://www.sipc.org/for-members/assessment-rate. The amount of each

SIPC member’s assessment for the member’s fiscal year is the product of the assessment rate established

by SIPC for that fiscal year and either the member’s gross revenues or net operating revenues from the

securities business. See section 6(a)(1) of SIPC’s Bylaws; Proposing Release, 88 FR at 45841.

II.

DISCUSSION OF COMMENTS AND FINAL AMENDMENTS

Requirement to Perform a Daily Computation

Proposal

The Commission proposed amendments to Rule 15c3-3 that would require carrying

broker-dealers with large amounts of total credits to perform the customer and PAB reserve

computations daily rather than weekly. 78 More specifically, the amendments would add

paragraph (e)(3)(i)(B) to Rule 15c3-3. 79 This paragraph would provide that a carrying brokerdealer with average total credits that are equal to or greater than $250 million (“$250 Million

Threshold”) must make the computation necessary to determine the amounts required to be

deposited in the customer and PAB reserve bank accounts daily as of the close of the previous

business day. 80 The paragraph would further provide that the deposit so computed must be made

no later than one hour after the opening of banking business on the second following business

day. 81 For purposes of paragraph (e)(3) of Rule 15c3-3, the Commission proposed to define

See section I.A. of this release (discussing the need for daily reserve computations); Proposing Release, 88

FR at 45843.

See paragraph (e)(3)(i)(B) to Rule 15c3-3, as proposed to be amended. In addition, the Commission

proposed the following conforming amendments to paragraph (e)(3)(i) of Rule 15c3-3: (1) paragraph

(e)(3)(i) would be re-lettered paragraph (e)(3)(i)(A); and (2) the text in paragraph (e)(3)(i) regarding

monthly computations would be set forth in new paragraph (e)(3)(i)(C). Further, the phrase “[e]xcept as

provided in paragraphs (e)(3)(i)(B)(1) and (C) of this section” would be added to the beginning of

paragraph (e)(3)(i)(A) of Rule 15c3-3, as proposed to be amended, to clarify that the weekly computation

requirement in paragraph (e)(3)(i)(A) applies unless the carrying broker-dealer is subject to the daily

computation requirement of paragraph (e)(3)(i)(B)(1) or meets the conditions of paragraph (e)(3)(i)(C) to

perform a monthly computation. See Proposing Release, 88 FR at 45843, n.74. The Commission did not

receive comments on these proposed conforming amendments and is adopting them as proposed.

The text of paragraph (e)(3)(i)(B) of Rule 15c3-3—as proposed to be amended—was modelled closely on

the preexisting text of paragraph (e)(3)(i) of Rule 15c3-3. See Proposing Release 88 FR at 45843, n.75.

For example, a carrying broker-dealer performing the computation on Tuesday—as of the close of business

on Monday—would be required to make the deposit on Wednesday, assuming all three days are business

days. On Wednesday, the carrying broker-dealer would perform the computation as of the close of

business Tuesday and be required to make the deposit on Thursday (assuming Thursday is a business day).

See Proposing Release 88 FR at 45844.

average total credits as the arithmetic mean of the sum of total credits in the customer reserve

computation and PAB reserve computation reported in the twelve most recently filed month-end

FOCUS Reports. 82 Based on regulatory filings for the period of January 2022 through December

2022, the $250 Million Threshold would have applied the proposed daily computation

requirement to approximately 63 carrying broker-dealers. 83 These broker-dealers included 11

carrying broker-dealers that already voluntarily performed the customer reserve computation

daily. 84

Comments Received and Final Amendments

Many commenters supported the overall proposal. 85 Commenters stated that the proposal

would help protect customers, and address potential risks in a more timely and proactive manner,

which safeguards investors and market participants, as well as strengthens the overall resilience

of the financial markets. 86 One commenter, however, stated that the preexisting weekly reserve

requirements have proven effective for the industry and not resulted in any problems. 87

The Commission agrees with commenters that the amendments to require daily customer

and PAB reserve computations will protect customer and PAB cash more quickly than is the case

with weekly computations. While the preexisting weekly customer and PAB reserve

See paragraph (e)(3)(i)(B)(1) of Rule 15c3-3, as proposed to be amended. This would mean the carrying

broker-dealer would add up the sum of the total credits reported in the customer and PAB reserve

computations in each of the twelve most recently filed month-end FOCUS Reports and divide that amount

by 12 to calculate the arithmetic mean of the total credits. See Proposing Release, 88 FR at 45844, n.76.

See Proposing Release, 88 FR at 45844, n.79.

See Proposing Release, 88 FR at 45844, n.80.

See, e.g., Letter from Joshua Beattie, FriendshipWorks (July 20, 2023); Roger Cryer (Aug. 16, 2023);

Ethan Jenni (Aug. 20, 2023); Ruth Earle (Aug. 20, 2023); Jesse Tutti (Aug. 20, 2023); Nathan Saint (Aug.

20, 2023); Chris Edmondson (Aug. 20, 2023); and Janice Schrader (Aug. 21, 2023).

See Letter from Joseph (Sept. 8, 2023); Golden DOGE (Sept. 9, 2023).

See Letter from Christopher A. Iacovella President & CEO, American Securities Association (Sept. 11,

2023) (“ASA Letter”) at 4.

requirements have generally been effective, 88 the observed large deposit requirements, and

differences or “mismatches” between the net amount of cash a carrying broker-dealer owes its

customers and PAB account holders and the amounts on deposit in the customer and PAB

reserve bank accounts, indicate that a daily reserve computation requirement enhances the

preexisting rule. 89

As discussed in section I.A. of this release, a daily reserve computation requirement will

make the financial system safer by: (1) increasing the likelihood that a failing carrying brokerdealer can self-liquidate (meaning customers and PAB account holders do not temporarily lose

access to their cash and securities); (2) lowering the risk that the SIPC Fund may be depleted by

having to address a large shortfall in customer cash held by a failed carrying broker-dealer; and

(3) increasing the liquidity of carrying broker-dealers performing the daily customer and PAB

reserve computations thereby positioning them to better address potential financial shocks.

Regarding the proposed $250 Million Threshold, one commenter suggested modifying

the proposal to include a second test that would need to be met to trigger the requirement to

perform daily reserve computations. 90 In particular, the commenter recommended requiring a

carrying broker-dealer to perform daily computations if it exceeds the proposed $250 Million

Threshold and has average net credits of $10 million or more because some carrying brokerdealers that meet the proposed $250 Million Threshold do not present a material risk as they do

not carry a large excess of credits over debits. This commenter also stated that a number of

See section II.C.2. of this release (discussing broker-dealer liquidations and SIPA).

See section I.A. of this release (discussing the need for daily reserve computations); section IV.B.2. of this

release (discussing average mismatches).

See Letter from Kevin Zambrowicz, Deputy General Counsel (Institutional) & Managing Partner, SIFMA

(Sept. 11, 2023) (“SIFMA Letter) at 6-7.

carrying broker-dealers rarely have an excess of credits over debits because of the nature of their

activities, and the customer protection benefit of a daily computation requirement for these

carrying broker-dealers is minimal, and should be weighed against the significant costs of the

proposal, which are not commensurate with the risk profiles they present. 91 Another commenter

stated the Commission should adopt a threshold using risk or liquidity factors because they are

better predictors of a failing carrying broker-dealer than a fixed threshold based on size. 92 The

commenter stated that this threshold classification would avoid penalizing carrying brokerdealers with strong balance sheets that exceed a fixed threshold. 93 One commenter stated that the

Commission should define the threshold as a formula that it could adjust periodically without

further rulemaking, because the proposed threshold is based on a narrow set of FOCUS reports

and could become outdated as a result of material changes. 94

Some commenters suggested eliminating the proposed $250 Million Threshold so that all

carrying broker-dealers would be required to perform daily customer and PAB reserve

computations. 95 One of these commenters stated that the mismatch risk applies equally to both

See id.

See ASA Letter at 5.

See id. The commenter did not identify specific risk or liquidity factors that the Commission could use for

this purpose but suggested that the Commission could consider the liquidity factors in a FINRA concept

release for a potential FINRA liquidity risk management rule. Id.

See Letter from Andrew Hartnett, NASAA President and Deputy Commissioner, Iowa Insurance Division

(Sept. 11, 2023) (“NASAA Letter”) at 2-3. The commenter stated that this alternative would ensure that

the Commission reevaluates, and refreshes (as necessary) the proposal’s systemic risk mitigation aims and

ease the Commission’s future burdens given the significant effort required to engage in rulemaking. Id. at

See Letter from Stephen W. Hall, Legal Director and Securities Specialist, Better Markets, Inc. (Sept. 11,

2023) (“Better Markets Letter”) at 8; Cory (Sept. 19, 2023) (“Cory Letter”). Another commenter stated

that it is possible that a threshold based on a narrow set of FOCUS Reports could become stale if the data

changes materially and that one remedy would be to require all carrying broker-dealers to compute reserve

requirements daily. The commenter, however, recognized the Commission’s implicit concern that

large and small carrying broker-dealers, and, as such, the Commission should apply the

requirement to all carrying broker-dealers so that customers are not left vulnerable simply

because they hold their securities accounts at smaller broker-dealers. 96 The commenter also

stated that this modification would eliminate the need for carrying broker-dealers to monitor

their average total credits over a 12-month period to determine whether or not they meet the

$250 Million Threshold. 97

The final amendments modify the proposal by raising the $250 Million Threshold to

$500 million. This threshold is designed to provide a balanced demarcation between carrying

broker-dealers with large amounts of total credits relative to smaller carrying broker-dealers

(with lower average total credits). The former are more likely to have larger mismatches in any

given year, and are better positioned to absorb the increased costs resulting from performing

daily reserve computations. 98 For example, when proposed, the threshold was estimated to apply

the daily reserve computations requirement to 63 of the 187 total broker-dealers subject to the

customer and PAB reserve requirements of Rule 15c3-3. 99 Further, at proposal, the mismatch

risk was calculated as a carrying broker-dealer’s deposit divided by its reserve account balance

from any month. The average of these mismatches for each carrying broker-dealer during 2022

extending the requirement to all carrying broker-dealers might be unnecessarily burdensome, and stated

that there is a potential consensus to support a reasonable “balanced demarcation” [between carrying

broker-dealers with large amounts of total credits relative to smaller carrying broker dealers]. See NASAA

Letter at 2.

See Better Markets Letter at 8.

See id at 8-9.

See section IV.B.2. of this release (discussing the number of affected broker-dealers as part of the baseline

for the economic analysis of the final amendments).

See Proposing Release, 88 FR at 45849-50. Included in the 187 carrying broker-dealers were 25 carrying

broker-dealers that reported zero customer or PAB credits in 2022.

was computed to determine the average mismatches. 100 For example, in 2022, on the aggregate

level, the average mismatch across the 187 carrying broker-dealers for customer reserve accounts

was 11.2% for carrying broker-dealers above the proposed $250 Million Threshold. 101 It was

6.1% for carrying broker-dealers below the proposed $250 Million Threshold.

The threshold is being raised to $500 Million to further narrow the scope of the final

amendments to carrying broker-dealers whose average mismatches are larger as compared to

carrying broker-dealers that are below the threshold. 102 In particular, the $500 Million Threshold

is estimated to apply the daily computation requirement to 49 of the 191 carrying broker-dealers

subject to the customer and PAB reserve requirements of Rule 15c3-3. 103 Nine of these 49

carrying broker-dealers already voluntarily perform daily customer and PAB reserve

computations. 104 Moreover, it is estimated that these 49 carrying broker-dealers—in the

aggregate—account for 99.3% of the total credits of all 191 carrying broker-dealers subject to

the requirement. 105 Further, the average mismatches were generally higher for carrying brokerdealers above the $500 Million Threshold as compared to carrying broker-dealers below the

100

See id. at 45852.

101

See Proposing Release, 88 FR at 45852 (table 4 depicting broker-dealer deposits and withdrawals as a share

of the reserve account balance). In this release, the aggregated average mismatch of 11.2% is calculated as

an average of the average mismatches for all carrying broker-dealers that met the proposed $250 Million

Threshold in 2022. A mismatch is calculated as a carrying broker-dealer’s deposit (FOCUS Report Line

4520) divided by its reserve account balance from any month (Line 4530). The average of these

mismatches for each broker-dealer is computed to determine the “average mismatches.” The same was

done for carrying broker-dealers below the proposed $250 Million Threshold in 2022. Using a $500

Million Threshold, based on 2022 data, on the aggregate level, the average mismatch across the 187

carrying broker-dealers for customer reserve accounts was 11.9% for carrying broker-dealers above the

$500 Million Threshold, and 6.1% for carrying broker-dealers below the $500 Million Threshold.

102

See section IV.B.2. of this release.

103

Included in the 191 carrying broker-dealers were 29 carrying broker-dealers that reported zero customer or

PAB credits in 2023. See section IV.B.2. of this release.

104

Based on FOCUS Report data for December 31, 2023.

105

See id.

threshold. 106 For example, the average mismatch across the 191 carrying broker-dealers for

customer reserve bank accounts is 15.7% for carrying broker-dealers above the $500 Million

Threshold. 107 It is 6.4% for carrying broker-dealers below the threshold.

These data indicate that the $500 Million Threshold will apply to carrying broker-dealers

that hold the bulk of total credits in the industry and to the carrying broker-dealers that tend to

have the larger mismatches as measured by the average of reserve deposits required for the

carrying broker-dealer relative to the average balance in its reserve accounts. In this way, the

$500 Million Threshold seeks to reasonably balance the enhancements to customer protection

under Rule 15c3-3 through reductions in the mismatch risk, with the potential increases in

compliance costs and staffing that may be necessary to perform a daily reserve computation.

The $500 Million Threshold is a straightforward way to narrow the scope of the final rule to

carrying broker-dealers that tend to have larger mismatches. For example, this modification will

exclude an additional 12 carrying broker-dealers from the scope of the final rule. 108 For these

reasons, the Commission is not modifying the final $500 Million Threshold to include the second

test a commenter suggested (i.e., having average net credits of $10 million or more) or to use risk

or liquidity factors, as a different commenter suggested. These suggested modifications would

narrow the application of the rule in a way that would exclude some carrying broker-dealers

from the daily reserve computation requirement that have the potential for large mismatch risks.

Further, the final $500 Million Threshold—because it is based on total customer and

PAB credits (as opposed to a net amount of credits)—will apply the daily reserve computations

106

See section IV.B.2. of this release, table 5 - Broker-Dealer Deposits and Withdrawals as a Share of Reserve

Account Balance, 2023.

107

See section IV.B.2. of this release.

108

This estimate is based on FOCUS Report data for calendar year 2023.

requirement to carrying broker-dealers that tend to have large obligations to customers (e.g.,

through receiving large infusions of customer cash, holding cash balances in customers’

securities accounts, or using customer margin securities). Using a net credit amount, in addition

to the $500 Million Threshold would exclude 10 of the 49 carrying broker-dealers that would be

subject to the daily reserve requirement based on FOCUS Report data for calendar year 2023. 109

At the time of the weekly computation, however, a carrying broker-dealer may have substantial

debits to offset the credits and, therefore, have a relatively small amount of excess credits in

comparison to its total credits. This could cause the carrying broker-dealer to stay under the

threshold notwithstanding the fact that it typically has large amounts of total credits, and large

intra-week mismatches. 110 Consequently, a net credit amount may not indicate that a carrying

broker-dealer is at a lower risk of large intra-week mismatches because it does not account for

large fluctuations in the net cash owed to customers and PAB account holders between reserve

computations. The final amendments are designed to reduce the mismatch risk for carrying

broker-dealers with large amounts of total credits (who are more likely to have larger

mismatches) by protecting customer and PAB cash more quickly than is the case with weekly

computations. This will increase the likelihood that a failing carrying broker-dealer can selfliquidate (meaning customers and PAB account holders do not temporarily lose access to their

cash and securities).

109

See section IV.E.2. of this release (discussing alternative thresholds based on different metrics).

110

Based on FOCUS Report data for calendar year 2023, at least one carrying broker-dealer that would be

excluded from the scope of the rule using a net credit amount in addition to a $500 Million Threshold had

two of the top 100 largest deposits in customer reserve bank accounts in 2023. Further, four of the top 25

PAB reserve bank account deposits in calendar year 2023 were made by two carrying broker-dealers that

would be excluded using the net credit amount in addition to the $500 Million Threshold.

Finally, the $500 Million Threshold also is designed as a straightforward way for a

carrying broker-dealer to determine whether it is subject to the requirement to perform daily

customer and PAB reserve computations. As such, it will be simple for carrying broker-dealers

and the Commission or Commission staff to calculate and monitor because it is a fixed-threshold

and the data for the calculation is derived from FOCUS Reports. 111 Setting formula-based

thresholds that incorporate dynamic risk or liquidity factors would make the rule requirements

less predictable and more complex to monitor because of their variability. Moreover, carrying

broker-dealers in compliance with the net capital rule typically have strong balance sheets

because the rule imposes a net liquid assets test that is designed to promote liquidity within

broker-dealers. 112 During times of market stress, however, carrying broker-dealers may

experience fluctuations in their capital if customers and/or PAB account holders rapidly

withdraw cash and securities from their accounts to reduce their exposure to the carrying brokerdealer and the securities markets more generally. 113 Consequently, a formula-based threshold

that incorporates dynamic risk or liquidity factors would exclude carrying broker-dealers that are

more likely to experience larger mismatches, including carrying broker-dealers with large

amounts of credits that have strong balance sheets. 114 A fixed threshold also is consistent with

other thresholds and ratios in the Commission’s broker-dealer financial responsibility rules,

which use fixed-dollar amounts or predetermined ratios that do not contain formulas for future

111

A uniform threshold also is less costly to monitor because it does not change. See the Economic Analysis

in section IV. of this release (discussing the economic effects of the final amendments).

112

See Rule 15c3-1. The net capital rule also requires that a carrying broker-dealer must not otherwise be

insolvent as defined in the net capital rule. See paragraph (a)(16) of Rule 15c3-1 (defining the term

insolvent).

113

See section IV.D. of this release (discussing capital losses that could arise in times of market stress); section

I.A. of this release (discussing the need for daily reserve computations).

114

See paragraph (a)(16) of Rule 15c3-1 (defining the term insolvent).

adjustments. 115 Finally, the $500 Million Threshold will incorporate any month-to-month

material changes because it uses a 12-month rolling average (as compared to basing the

calculation on a single filing or date). 116 For these reasons, the Commission is not adopting a

formula-based threshold that incorporates dynamic risk or liquidity factors, or a threshold that

can be adjusted without rulemaking as some commenters suggested.

By adopting a $500 Million Threshold, the final rule does not apply the daily reserve

computation requirement to all carrying broker-dealers, as a commenter suggested. 117 This

suggested modification would apply the requirement to carrying broker-dealers that do not have

the potential for large mismatch risks and that are less able to bear the costs of—and devote the

resources necessary for—performing daily reserve computations because of their size or limited

customer or PAB account carrying activity. Applying the daily reserve computation to all

carrying broker-dealers would impose compliance costs on an additional 113 carrying brokerdealers with relatively less customer and PAB account activity. 118 Thus, it would subject them to

increased compliance costs while they do not have the potential for large mismatches. 119

However, carrying broker-dealers below the $500 Million Threshold may choose to voluntarily

perform a daily customer reserve computation in order to apply the 2% debit reduction in lieu of

115

See Rules 15c3-1 and 15c3-3.

116

See NASAA Letter at 2; see also Letter from Josephine Wang, President and CEO, SIPC (Sept. 11, 2023)

(“SIPC Letter”) at 2 (supporting the rolling 12-month average).

117

The commenter also stated that applying the daily reserve computation requirement to all carrying brokerdealers would eliminate the need to monitor average total credits over a 12-month period. See Better

Markets Letter at 8. As discussed above in this section, the $500 Million Threshold is a fairly simple

calculation that relies on numbers carrying broker-dealers already report on the FOCUS Report.

Consequently, it will not be difficult for carrying broker-dealers to determine whether they have triggered

the daily reserve computation requirement.

118

See section IV.E.3. of this release (discussing applying the daily reserve requirement to all carrying brokerdealers as a reasonable alternative).

119

See id.

the 3% reduction. 120 In this way, the investor protection benefits of performing a daily

computation may be expanded beyond the carrying broker-dealers that will be required to

perform a daily computation, but in a way that does not impose undue costs on smaller carrying

broker-dealers. For example, smaller carrying broker-dealers can analyze whether it is

advantageous from a cost perspective to realize the liquidity benefits that result from performing

a daily customer reserve computation and applying a 2% debit reduction in lieu of a 3% debit

reduction.

In addition to addressing the proposed $250 Million Threshold, some commenters

suggested modifying the proposal in a way that would make the reserve computations a hybrid of

the daily and weekly approaches where carrying broker-dealers would compute certain items in

the reserve formula daily and others weekly. For example, two commenters 121 suggested that a

more cost efficient and effective alternative to prevent a deficit of customer property in a SIPA

liquidation (for carrying broker-dealers primarily conducting a DVP/RVP business) 122 would be

to continue weekly computations with a daily calculation of free credit balances. 123 Another

120

See section II.C. of this release (describing the 2% debit reduction).

121

See SIFMA Letter at 10-11; Letter from Erik Soderberg, Head of Regulatory Affairs, Americas, Deutsche

Bank Securities, Inc. (Sept. 11, 2023) (“Deutsche Bank Letter”) at 1-2. These commenters stated that

inflows of customer cash to customer accounts for interest and dividends represent the vast bulk of any net

equity that a carrying broker-dealer would owe its customers if such a carrying broker-dealer were subject

to a liquidation. See SIFMA Letter at 10; see also Deutsche Bank Letter at 2.

122

DVP/RVP means a delivery-versus-payment or receipt-versus-payment. This generally refers to an

arrangement whereby payment for securities purchased is made to the selling customer’s agent or delivery

of securities sold is made to the buying customer’s agent in exchange for payment at time of settlement,

usually in the form of cash. This settlement method generally guarantees the transfer of securities only

happens after payment has been made. Carrying broker-dealers whose primary business is DVP/RVP

transactions also may have limited carrying business (including for affiliates) including margin accounts.

See SIFMA Letter at 10.

123

See SIFMA Letter at 10; Deutsche Bank Letter at 1-2. These commenters suggested that these carrying

broker-dealers be permitted to calculate free credit balances daily as of the previous business day, identify

whether such balances are greater than the free credit balances reflected in their most recent reserve

computation, and, on the same day, either: (1) sweep any excess into a sweep program; or (2) deposit any

increase into their customer reserve bank accounts. Id.

commenter acknowledged that while certain carrying broker-dealers should perform a daily

reserve computation, the Commission should permit other carrying broker-dealers to perform a

weekly reserve computation, and a simplified intra-week reserve computation of only material

balances (while excluding cash balances moved to external sweep programs). 124

The final amendments retain the daily customer and PAB reserve computation

requirement, as proposed. The hybrid approaches commenters suggested would not provide the

same level of customer protection afforded by complete daily customer and PAB reserve

computations because these hybrid approaches do not include all debits and credits. 125 As

discussed above in section I.C.1. of this release, preexisting Rule 15c3-3 is designed to protect

customers by segregating their securities and cash from the carrying broker-dealer’s proprietary

business activities. This is accomplished through the customer and PAB reserve computations

that must include all funds which have customer assets as their source, and ensures that the net

amount of cash owed to customers and PAB account holders that is not deployed for customer or

PAB account holder securities transactions is deposited in the customer and PAB reserve bank

accounts. 126 Performing only a modified or hybrid customer or PAB reserve computation

124

See ASA Letter at 5; Letter from ASA (Jan. 19, 2024) (“ASA Letter 2”) at 2; Letter from ASA (Oct. 2,

2024) (“ASA Letter 3”). The commenter stated that this computation would achieve a similar purpose as

the daily customer and PAB reserve computations requirement and provide relief for carrying brokerdealers from having to develop infrastructure and hire regulatory staff to perform a customer and PAB

reserve computation daily. See ASA Letter at 5.

125

In this regard, in adopting the original customer reserve requirements of Rule 15c3-3 in 1972, the

Commission stated that “[it] has taken a broad view of the Congressional mandate by requiring that the

reserve account include all funds which have as their source customer assets.” See Rule 15c3-3 Adopting

Release, 37 FR at 25224.

126

See 1972 15c3-3 Adopting Release, 37 FR at 25224 (One of the goals of Rule 15c3-3 is to “insure that

customers’ funds held by a broker-dealer (both free credit balances and deposits which may be restricted as

to withdrawal) and the cash which is realized through the lending, hypothecation and other permissible uses

of customers’ securities are deployed in safe areas of the broker-dealer's business related to servicing his

customers, or to the extent that the funds are not deployed in these limited areas, that they be deposited in a

reserve bank account.”). Id.

increases the risk of a large mismatch for carrying broker-dealers with large amounts of credits

that exceed the $500 Million Threshold because they would not be accounting for all credit items

when performing daily reserve computations under these alternatives. 127 This, in turn, would

increase the risk that a carrying broker-dealer may be unable to promptly return cash and

securities to customer and PAB account holders in the event the carrying broker-dealer fails

financially.

Further, limiting the daily computation to the amount of free credit balances and

including any increase in only free credit balances in a sweep program or a separate special

reserve bank account, 128 or an intra-week computation of only certain credit items would not

account for possible material changes in other credit items not accounted for daily that could

substantially affect the customer or PAB reserve computation and any required deposit. Finally,

the hybrid computations commenters suggested would introduce an additional level of

complexity to the computation that could tax the resources of carrying broker-dealers while not

achieving the full risk-reducing benefits of a complete daily reserve computation. 129

Another commenter stated that the Commission should adopt a separate $250 million

threshold requirement for the customer and PAB reserve computations, to allow carrying brokerdealers to focus their resources on the reserve computation that merits the most attention, rather

than one that presents minimal risk to the carrying broker-dealer or the financial system as a

127

See section I.A. of this release (describing the need for daily reserve computations).

128

See section II.E.1. of this release (discussing sweep programs and cash in motion and other transitory

credits); section IV.E.10. (discussing exemption for cash in motion as a reasonable alternative).

129

See section I.A. of this release (describing the need for daily reserve computations).

whole. 130 This commenter also suggested as another alternative that the Commission permit a

carrying broker-dealer that exceeds the proposed $250 Million Threshold to perform an optional

weekly computation for either its customer or PAB accounts where credits in that particular

computation fall below a certain level (e.g., $50 million). 131 Another commenter stated that for

carrying broker-dealers performing both the customer and PAB reserve computations, the

Commission should not require daily PAB reserve computations in order to protect customer

reserves while mitigating stress on carrying broker-dealers’ resources. 132

The final amendments do not take these approaches commenters suggested to bifurcate

the frequency of the customer and PAB reserve computations. Both the securities accounts of

customers and PAB account holders would be affected if a carrying broker-dealer experiences a

large intra-week mismatch in either its customer or PAB reserve bank accounts. This mismatch

risk increases the risk to both the carrying broker-dealer’s customers and PAB account holders

that if the carrying broker-dealer fails financially, the customers and PAB account holders may

experience a delay in receiving their cash and securities or be subject to a disorderly liquidation.

Requiring that a carrying broker-dealer that exceeds the $500 Million Threshold perform a daily

customer and PAB reserve computation reduces the mismatch risk in each of these accounts and

more dynamically matches the net cash owed to PAB account holders with the amount on

130

See Marshall Ollia, Chief Financial Officer, Raymond James & Associates, Inc. (Sept. 11, 2023)

(“Raymond James Letter”) at 2-3. This commenter stated that its total customer credits would exceed $250

million but its PAB credit balances are significantly below the threshold. The commenter further stated

that in practice it does not see large inflows or outflows of broker-dealer credit items in PAB accounts and

so the carrying broker-dealer does not experience a mismatch in timing of those items. Id.

131

See Raymond James Letter at 3. This commenter stated, for example, where a carrying broker-dealer has

$2.0 billion in customer credits, but only $45 million in PAB credits, then it would perform a customer

reserve computation daily for the customer reserve bank account and have the option of performing PAB

reserve computations weekly for the PAB reserve bank account. Id.

132

See ASA Letter at 4.

deposit in the customer and PAB reserve bank accounts. This requirement will reduce mismatch

risk, and benefit both customer and PAB account holders if a carrying broker-dealer fails

financially by ensuring their cash and securities are promptly returned to them.

In addition, in the event of a SIPA liquidation of a failed carrying broker-dealer, both

customers and PAB account holders would be part of the customer estate which would include

both the customer and PAB reserve bank accounts to the extent needed to satisfy customers’

claims. Further, because PAB account holders—as broker-dealers—are not entitled to advances

from the SIPC Fund, their claims for securities and cash would be at a greater risk of not being

satisfied in full (as compared to non-broker-dealer customers). This could expose the PAB

account holder to financial stress and increased risk of liquidation. 133 Therefore, because a large

mismatch in the customer or PAB reserve bank account will affect both customers and PAB

account holders in a SIPA liquidation, the final rules require a carrying broker-dealer to perform

a daily customer and PAB reserve computation if it meets or exceeds the $500 Million

Threshold.

Finally, a daily requirement for both the customer and PAB reserve computations also

will promote consistency by requiring that a carrying broker-dealer perform the customer and

PAB reserve computations with the same frequency. 134 While Rule 15c3-3 currently permits a

carrying broker-dealer to elect to perform its customer and PAB reserve computations more

frequently than weekly, 135 a practical effect of requiring a uniform standard that a carrying

133

See Proposing Release, 88 FR at 45842.

134

Based on FOCUS Report data for December 31, 2023, all nine of the carrying broker-dealers above the

$500 Million Threshold that voluntarily perform daily reserve computations currently perform daily

customer and PAB reserve computations.

135

See paragraph (e)(3)(iv) of Rule 15c3-3.

broker-dealer perform both the customer and PAB reserve computations daily will be to permit

the carrying broker-dealer to withdraw excess funds more quickly from either the customer or

PAB reserve bank account (as compared to a weekly reserve computation). This consistency

will increase liquidity for carrying broker-dealers and position them to better address potential

financial shocks. 136

For the reasons discussed above in this section, the Commission has not modified the

final amendments to establish the alternative thresholds or hybrid computations commenters

suggested. However, to the extent that carrying broker-dealers incur costs to transition to a daily

reserve computation, the modification of the final amendments to permit a 2% debit reduction in

performing the customer reserve computation will provide them additional liquidity.137 This

modification will reduce costs from the proposal for carrying broker-dealers without

compromising the enhancements to customer protection that the final $500 Million Threshold is

designed to provide (and without adopting any of the alternative thresholds or hybrid

computations commenters suggested).

Several commenters stated that carrying broker-dealers should perform reserve

computations in real time or commented on the technological advances in the securities

markets. 138 One commenter stated that technical prerequisites for such complex computational

operations are already in place and should not be burdensome to carrying broker-dealers. 139

136

See section I.A. of this release (discussing the need for daily reserve computations).

137

See section II.C. of this release (describing the 2% debit reduction) and the Economic Analysis in section

IV. of this release (discussing the costs and benefits of the rule).

138

See Letter from Greg Linder (Aug. 20, 2023) (“Linder Letter”); Andrew O’Donnell (July 30, 2023)

(“O’Donnell Letter”) and Alex MacCartney (July 21, 2023); Joao F. Santos (July 28, 2023) (“Santos

Letter”); Eddie Klas (July 18, 2023); Adam Whitehurst (July 12, 2023) (“Whitehurst Letter”); Cory Letter.

139

See Santos Letter. This commenter suggested that carrying broker-dealers be required to electronically

publish whether reserve requirements have been met or breached. Id.

Another commenter stated that the Commission should not entertain any carrying broker-dealer’s

objections that the proposal would be ineffective or burdensome to implement since the entirety

of their services should now be automated. 140 Commenters also stated that the proposal is a

necessary reform given technological advances and pace of today’s financial markets. 141

Although there have been technological advances to automate and streamline the

customer and PAB reserve computations to enable carrying broker-dealers to perform a

computation daily, there are still portions of the customer and PAB reserve computations that

employees must perform manually (such as performing reconciliations or researching items in

suspense accounts in order to properly credit the correct customer securities account), or required

data inputs that a carrying broker-dealer may be unable to obtain in real time (such as data from a

third party service provider). These manual items and unavailability of certain data in real time

make it impractical to require carrying broker-dealers to perform a customer or PAB reserve

computation in real time. Moreover, adjusting amounts deposited in the customer and PAB

reserve bank accounts in real time would be impractical.

Compliance with Daily Reserve Computation after Exceeding $500 Million

Threshold

Proposal

The Commission proposed to require that a carrying broker-dealer comply with

performing a customer and PAB reserve computation daily no later than six months after having

average total credits that are equal to or greater than $250 million. The purpose of the six-month

compliance period in the proposed rule text was to provide time for a carrying broker-dealer to

140

See Whitehurst Letter; Anonymous Letter (Aug. 21, 2023).

141

See Whitehurst Letter; Cory Letter.

prepare to perform a customer and PAB reserve computation daily after it exceeds the proposed

$250 Million Threshold. 142 The Commission stated that a carrying broker-dealer in this situation

may need to add resources in order to perform the computations, including hiring or assigning

additional staff to perform the daily computations. 143

Once a carrying broker-dealer begins to perform customer and PAB reserve computations

daily (because it exceeded the $250 Million Threshold), the Commission proposed to require the

carrying broker-dealer to continue performing customer and PAB reserve computations daily for

at least 60 days after it falls below the $250 Million Threshold. More specifically, under the

proposal, a carrying broker-dealer could elect to perform computations weekly by notifying its

DEA in writing at least 60 calendar days before reverting to a weekly computation. 144 If a

carrying broker-dealer that provided the 60-day notice under the proposal reverts to a weekly

rather than daily customer and PAB reserve computation and subsequently exceeds the proposed

$250 Million Threshold once again, the proposed rule would require the carrying broker-dealer

to comply with the daily computation requirement no later than six months after having average

total credits equal to or greater than $250 million. 145 This would be the same process as when a

carrying broker-dealer exceeded the proposed $250 Million Threshold for the first time.

Comments Received and Final Amendments

The Commission sought comment on the proposed compliance period for beginning to

perform customer and PAB reserve computations daily after a carrying broker-dealers exceeds

142

See Proposing Release, 88 FR at 45844.

143

See id.

144

See Proposing Release, 88 FR at 45844-45.

145

See Proposing Release, 88 FR at 45845.

the proposed $250 Million Threshold. 146 As discussed below in this section, the Commission

received several comments regarding the proposed compliance period.

One commenter suggested the Commission group carrying broker-dealers by size and

select a transition period for compliance appropriate for carrying broker-dealers in each group to

accelerate the transition to performing a customer and PAB reserve computation daily. 147 This

commenter stated that six months may be longer than many large and sophisticated carrying

broker-dealers need to complete the transition to a daily reserve computation after exceeding the

proposed $250 Million Threshold. 148 Another commenter stated that the Commission should

shorten the proposed six-month compliance period to three-months for a carrying broker-dealer

to make the systems and staffing changes necessary to perform a daily computation after it

exceeds the proposed $250 Million Threshold. 149 Finally, one commenter requested that the

calculations for customer and PAB reserve computations be bifurcated, with the proposed $250

Million Threshold applied separately for the customer and PAB reserve computations, and that

the six month compliance period apply when the particular type of average total credits

(customer or PAB) crosses the proposed $250 Million Threshold. 150

As discussed in section II.A. of this release, the Commission is adopting a $500 Million

Threshold as part of the final amendments. The six-month timeframe accounts for the fact that

carrying broker-dealers of different sizes may need more or less time to comply with a

146

See id. at 45845-46.

147

See SIPC Letter at 1. The commenter did not suggest any specific groupings or time periods. Id.

148

See SIPC Letter at 1.

149

See Letter from Brad D. (Sept. 9, 2023).

150

See Raymond James Letter at 3. As discussed in section II.A.2. of this release, the Commission is adopting

a single threshold, the $500 Million Threshold, for the customer and PAB reserve computations. As a

result, a single compliance period once a carrying broker-dealer has exceeded the $500 Million Threshold

is appropriate.

requirement to perform the customer and PAB reserve computations daily. The six-month

timeframe, accordingly, provides a straightforward and uniform compliance period for carrying

broker-dealers to meet if they exceed the $500 Million Threshold and must begin performing the

customer and PAB reserve computations daily. A uniform compliance period also will be easier

for the Commission, Commission staff and a carrying broker-dealer’s DEA to monitor for

compliance because the same requirement will apply to all carrying broker-dealers. As such, the

Commission is not modifying the final rule to provide for different compliance timeframes based

on the size of a carrying broker-dealer, as commenters suggested.

A six-month compliance period also helps to ensure a carrying broker-dealer that exceeds

the $500 Million Threshold begins to perform a daily customer and PAB reserve computation

within a reasonable period of time. In light of the enhancements to customer protection a daily

reserve computation provides, it is important that carrying broker-dealers transition to a daily

reserve computation as soon as practicable after exceeding the $500 Million Threshold.

Shortening the compliance period to three-months, however, may not give carrying brokerdealers sufficient time to transition to a daily customer and PAB reserve computation, given the

need to add resources in order to perform the computations, including hiring or assigning

additional staff, upgrading systems, and making other operational changes. A six-month

compliance period reasonably balances the importance of transitioning to a daily customer and

PAB reserve computation soon after exceeding the $500 Million Threshold to enhance customer

protection requirements, with the time period a carrying broker-dealer needs to make the changes

required to comply with the rule. Therefore, the Commission is not modifying the final rule to

provide for a three-month compliance period as a commenter suggested.

One commenter stated that the proposal would allow a carrying broker-dealer that is

required to perform daily computations to revert to a weekly computation 60 days after notifying

its DEA, but if it exceeds the proposed $250 Million Threshold, it would not be required to

return to performing a customer and PAB reserve computation daily for six months. 151 The

commenter stated that while the Commission assumes it may be infrequent that a carrying

broker-dealer that reverts to weekly computations after falling below the proposed $250 Million

Threshold re-crosses it shortly after because of increased customer activity, if such

circumstances were to occur the carrying broker-dealer at issue would present the risk that the

Commission is trying to address in the proposal for a period of six months. 152 Consequently, this

commenter suggested that the Commission revise the rule so that a carrying broker-dealer that

falls below the proposed $250 Million Threshold would enter a probationary period of six

months during which time it would be required to immediately return to performing the customer

and PAB reserve computations daily if its total credits re-crossed the threshold. 153

Another commenter suggested that the Commission provide a transition of not more than

30 days for a carrying broker-dealer that performs a customer and PAB reserve computation

daily, reverts to a weekly computation because it falls below the proposed $250 Million

Threshold, and then subsequently exceeds the proposed $250 Million Threshold and must

perform a daily computation. This commenter stated that a carrying broker-dealer that formerly

151

See NASAA Letter at 3.

152

See id.

153

See id. at 3-4.

performed customer and PAB reserve computations daily is unlikely to require six months to

reinstate procedures previously in effect. 154

In response to the comments that the Commission require a carrying broker-dealer to

immediately return to performing a customer and PAB reserve computation daily if it exceeds

the threshold for a second time, or only be permitted a three-month compliance period, the

compliance period is designed to provide sufficient time for a carrying broker-dealer to prepare

to perform a customer and PAB reserve computation daily after it exceeds the threshold. A

carrying broker-dealer performing the customer and PAB reserve computations weekly which

recrosses the $500 Million Threshold for a second or subsequent time will likely continue to

need time to prepare to perform the customer and PAB reserve computations daily, because the

carrying broker-dealer may have re-allocated resources when it reverted to a weekly

computation. A return to performing a customer and PAB reserve computation daily likely

means a carrying broker-dealer will require time to enhance its current operational resources in

order to increase the frequency of the customer and PAB reserve computations once more. It

also may be the case that a carrying broker-dealer may exceed the $500 Million Threshold for a

second or subsequent time after a substantial period of time has passed. Finally, although a

carrying broker-dealer may re-cross the $500 Million Threshold shortly after falling below it,

and not yet have re-allocated resources required to perform a daily computation, consistent

standards will be applied to all carrying broker-dealers that exceed the $500 Million Threshold

after a long or short period of time as they will have the same risk profile. Therefore, a sixmonth compliance period is appropriate in this case.

154

See SIPC Letter at 2.

Some carrying broker-dealers’ average total credits may hover around the $500 Million

Threshold from time to time. This will likely be an infrequent occurrence since there will only

be a few carrying broker-dealers at any given time whose average total credits remain close to

the $500 Million Threshold. 155 These carrying broker-dealers may choose to monitor and

manage their average total credits to remain below the $500 Million Threshold or voluntarily

perform the customer and PAB reserve computations daily to realize the beneficial impact on

liquidity management resulting from the ability to make more frequent withdrawals from the

customer and PAB reserve bank accounts. 156 Carrying broker-dealers that voluntarily perform

the customer reserve computation daily also may apply the 2% debit reduction to the

computation. 157 These alternatives will assist carrying broker-dealers in complying with the

requirement to perform a customer and PAB reserve computation daily if they exceed the $500

Million Threshold.

After review of the comments, the Commission is adopting the six-month compliance

period after a carrying broker-dealer exceeds the $500 Million Threshold, and the 60-day written

notice requirement to revert to a daily computation. 158 Therefore, under the amendments, a

carrying broker-dealer must begin to perform a customer and PAB reserve computation daily no

later than six months after its average total credits equal or exceed the $500 Million Threshold.

This means, for example, that a carrying broker-dealer which exceeds the $500 Million

Threshold for 12 filed monthly FOCUS Reports for a particular calendar year (i.e., FOCUS

155

For example, based on FOCUS Report data for the 2023 calendar year, there were three carrying brokerdealers with average total credits that were between $450 million and $500 million, and one carrying

broker-dealer with average total credits between $500 million and $600 million.

156

See paragraph (e)(3)(iv) of Rule 15c3-3.

157

See paragraph (e)(3)(v) of Rule 15c3-3, as amended.

158

See paragraph (e)(3)(i)(B)(1) and (2) of Rule 15c3-3, as amended.

Reports filed for January through December in a calendar year), must begin performing a

customer and PAB reserve computation daily no later than June 30th of the next calendar year.

Finally, this amendment provides time for a carrying broker-dealer to prepare to perform a

customer and PAB reserve computation daily after it exceeds the $500 Million Threshold. This

preparation may involve adding resources to perform the computations, including, among other

things, hiring extra staff, assigning additional staff, and updating or enhancing technology and

software.

Reducing the Aggregate Debit Reduction from 3% to 2%

Amendments to Rules 15c3-1 and 15c3-3

Under existing requirements, carrying broker-dealers—as part of the customer reserve

computation—must reduce the value of debits items (i.e., customer-related receivables) in the

customer reserve computation by either 1% (for debit balances in customers’ cash and margin

accounts) or 3% (for aggregate debit items which includes all debit items). 159 Whether a carrying

broker-dealer must apply the 1% or 3% debit reduction depends on how it calculates its

minimum net capital requirement under Rule 15c3-1. Rule 15c3-1 requires that broker-dealers

maintain a minimum level of net capital (meaning highly liquid capital) at all times. 160 The

minimum net capital requirement for broker-dealers is the greater of a fixed-dollar amount

specified in the rule and an amount determined by applying one of two financial ratios: the 15-to1 aggregate indebtedness to net capital ratio (basic method) or the 2% of aggregate debit items

159

See Note E(3) to Rule 15c3-3a (requiring the 1% debit reduction); paragraph (a)(1)(ii)(A) of Rule 15c3-1

(requiring the 3% debit reduction). The PAB reserve computation does not require either the 3% or the 1%

debit reduction. See Rule 15c3-3a, Notes Regarding the PAB Computation, Note 4 (providing that Note

E(3) to Rule 15c3-3a—which imposes the 1% debit reduction—does not apply to the PAB reserve

computation); paragraph (a)(1)(ii)(A) of Rule 15c3-1 (imposing the 3% debit reduction in lieu of the 1%

debit reduction of Note E(3) of Rule 15c3-3a for carrying broker-dealers using the alternative method).

160

See Rule 15c3-1.

ratio (alternative method). 161 Carrying broker-dealers electing the alternative method must

maintain minimum net capital of the greater of $250,000 or 2% of their aggregate debit items

included in the customer reserve computation. 162 In addition, a broker-dealer that uses the

alternative method must provide the Commission with an “early warning” notice when the

amount of its net capital falls below 5% of aggregate debit items. 163 Most carrying brokerdealers use the alternative method, including the 49 carrying broker-dealers that exceeded the

$500 Million Threshold for calendar year 2023. 164

Under Rule 15c3-1, a carrying broker-dealer using the alternative method must reduce

aggregate debit items (i.e., the total of all debit items in the customer reserve computation) by

3% when performing its customer reserve computation under Rule 15c3-3. 165 Conversely, Note

E(3) to the customer reserve computation under Rule 15c3-3a requires a carrying broker-dealer

using the basic method to reduce by 1% the total debit balances in customer cash and margin

accounts (i.e., margin loan balances customers owe the carrying broker-dealer). 166 Both of these

161

See paragraphs (a)(1)(i) and (ii) of Rule 15c3-1.

162

See paragraphs (a)(1)(i) and (a)(2)(i) of Rule 15c3-1. Aggregate debit items in the customer reserve

computation (FOCUS Line 4470) is total debit items before the 3% debit reduction. The Commission

adopted the alternative method as part of the Commission’s continuing efforts to structure its rules to

provide adequate protection for customers’ assets while recognizing the industry’s need for flexibility in

efficiently allocating capital resources. See Net Capital Requirements for Brokers and Dealers; Amended

Rules, Exchange Act Release No. 18417 (Jan. 13, 1982) [47 FR 3512, 3513 (Jan. 25, 1982)].

163

See 17 CFR 240.17a-11(b)(2). This 5% of aggregate debits “early warning” threshold acts as a de facto

minimum net capital requirement for broker-dealers using the alternative method since they seek to

maintain sufficient levels of net capital to avoid the necessity of providing this regulatory notice.

164

Based on FOCUS Report data as of December 31, 2023, using the 3% aggregate debit item (Line 4471)

and/or 2% aggregate debit items in computation of minimum regulatory capital requirements (Line 3870).

Most broker-dealers that use the basic method to compute net capital are smaller broker-dealers that are not

carrying broker-dealers, and generally have minimum net capital requirements that are less than the

$250,000 required to use the alternative method. See also section IV.B.2. of this release (discussing the

scope of affected broker-dealers).

165

See paragraph (a)(1)(ii)(A) of Rule 15c3-1.

166

See Rule 15c3-3a, Item 10 (debit balances in customers’ cash and margin accounts excluding unsecured

accounts and accounts doubtful of collection).

provisions can increase the amount that must be on deposit (locked up) in the customer reserve

bank account; however, the 3% debit reduction can result in an even larger increase in the

deposit requirement. 167 This is because the reduction is larger (3% compared to 1%) and is

applied to the total amount of debit items while the 1% debit reduction applies to a single

category of debit items: customer margin loan balances.

The Commission is lowering the 3% debit reduction to 2% in response to comments that

a reduction as large as 3% would no longer be necessary if the requirement to perform a daily

reserve computation is adopted. 168 This modification to the proposal is designed to recalibrate

how Rule 15c3-3 addresses the risk that the amount on deposit in the customer reserve bank

account is less than the net amount of cash owed to customers in light of the new requirement to

perform daily customer and PAB reserve computations. As a commenter stated, “[u]nder a daily

computation, the value of debit items and the amounts owing to customers on any given day are

accounted for in the next day’s computation and the difference is protected via the following

day’s deposit into the Special Reserve Bank Accounts” and therefore “[t]he amount of assets in

the Special Reserve Bank Accounts would…more quickly reflect the amounts owing to

customers on any given day and the value of debit items, thereby reducing the need for any

cushion [(i.e., the 3% debit reduction)] to account for a potential mismatch.” 169 Similarly,

another commenter stated that when the Commission adopted the 3% debit reduction in 1975 the

purpose was to provide, in the event of a liquidation, an additional cushion of secured debit items

which will be available to satisfy customers with whom the carrying broker-dealer effects

167

See Financial Responsibility Rules for Broker-Dealers, 78 FR at 51858.

168

See SIFMA Letter at 5; Raymond James Letter at 2; ASA Letter at 5; ASA Letter 2; ASA Letter 3.

169

See SIFMA Letter at 6.

transactions. 170 This commenter stated that a shift to a daily customer reserve computation

enabled by technological advancements since 1975 will result in a more precise and up-to-date

computation, thereby mitigating the risk that the 3% debit reduction addresses in the customer

reserve computation. 171 The commenter went on to state that “a 1% deduction in line with that

applied to other broker-dealers seems appropriate for firms that calculate net capital under the

alternative method.” 172

Commenters suggested eliminating the 3% debit reduction that applies to carrying

broker-dealers using the alternative method. This would then subject these carrying brokerdealers to the 1% debit reduction that applies to carrying broker-dealers using the basic method.

For the reasons discussed below, the Commission is not taking this approach and instead is

lowering the 3% debit reduction to 2%.

In order to understand the Commission’s rationale for recalibrating Rule 15c3-3 in this

manner, it is necessary to discuss the origins and purpose of the 3% debit reduction and its

connection to Rule 15c3-1. Rule 15c3-3—when it was adopted in 1972—required carrying

broker-dealers to reduce the value of debit balances in cash and margin accounts by 1% when

performing the customer reserve computation. 173 Debit balances in cash and margin accounts

was one of three categories of debit balances included in the customer reserve computation at

that time (i.e., the 1% debit reduction did not apply to the total value of debits in the customer

170

See Raymond James Letter at 2.

171

See id.

172

See id.

173

See Rule 15c3-3 Adopting Release, 37 FR at 25229.

reserve computation). 174 In 1972, the Commission also proposed significant revisions to Rule

15c3-1 (the broker-dealer net capital rule). 175 The original rule prohibited a broker-dealer from

having aggregate indebtedness that exceeded 2000% of its net capital, exclusive of exchange

memberships and fixed assets (a 20-to-1 requirement). 176 Moreover, the rule did not apply to

broker-dealers that were members of a securities exchange on the premise that these brokerdealers were subject to capital requirements promulgated by their respective exchanges. The

1972 proposed amendments—among other things—would apply Rule 15c3-1 to all brokerdealers (i.e., a uniform net capital rule) and change the minimum net capital requirement to the

greater of a fixed-dollar amount and a ratio amount: the 15-to-1 aggregate indebtedness to net

capital ratio (i.e., the basic method). Thus, as originally proposed in 1972, the amendments to

Rule 15c3-1 did not include the alternative method of computing minimum net capital.

While the 1972 amendments to Rule 15c3-1 were still pending, the Commission

proposed further amendments to the rule as well as corresponding amendments to Rule 15c3-3.

They included a 1974 proposal to add the alternative method of calculating minimum net

capital. 177 The proposed alternative method would require a carrying broker-dealer to maintain a

minimum level of net capital equal to the greater of $100,000 or 4% of aggregate debit balances

174

See id. In 1972, there were three categories of debit items in the customer reserve computation: Items 10,

11, and 12. Id. Item 10 was where the carrying broker-dealer recorded the value of debit balances in cash

and margin accounts. Id. Today, there are six categories of debit items in the customer reserve

computation: Items 10, 11, 12, 13, 14, and 15. See Rule 15c3-3a. Item 10 continues to be where the

carrying broker-dealer records the value of debit balances in cash and margin accounts. Id.

175

See Net Capital Rule-Proposed Uniform and Comprehensive Regulation, Exchange Act Release No. 9891

(Dec. 5, 1972) [38 FR 56 (Jan. 3, 1973)].

176

Net Capital Requirements for Brokers and Dealers; Amended Rules, 47 FR at 3512.

177

See Alternative Net Capital Requirement for Certain Brokers and Dealers, Exchange Act Release No.

11094 (Nov. 11, 1974) [39 FR 41540 (Nov. 29, 1974)].

includable in the customer reserve computation. 178 At that time, the Commission acknowledged

that the alternative method could result in lower minimum net capital requirements as compared

with the basic method. 179 Given this impact, the Commission proposed a number of more

stringent requirements for carrying broker-dealers using the alternative method, including that

they would need to apply the 3% debit reduction in lieu of the existing 1% debit reduction in

Rule 15c3-3. 180 In proposing the 3% debit reduction, the Commission explained that the

proposed debit reduction would require a 100% reserve for customer funds not available for use

by the broker-dealer, and an additional 3% commitment of the broker-dealer’s own liquid capital

in the form of cash or qualified securities as an additional reserve and to insure the brokerdealer’s ability to finance its customer-related receivables. 181

The Commission adopted the proposed amendments to Rules 15c3-1 and 15c3-3 in

1975. 182 They included the alternative method for calculating the minimum net capital

requirement and the requirement that carrying broker-dealers using the alternative method apply

178

Id. at 41541-42.

179

Id. at 41540. (“The Commission has determined to publish for comment a new concept to measure the

capital adequacy of broker-dealers which would eliminate in part restraints presently imposed by the net

capital ratio and aggregate indebtedness concepts which have served as the primary source of protection of

customers and other broker-dealers for over 30 years. As a result of the numerous changes that have

occurred in the securities industry over the last five years, the evolving future structure of the securities

markets and the future needs of the nation’s corporate issuers to raise both equity and debt capital, it is

important at this time to develop new approaches to the financial responsibility and capital adequacy of

broker-dealers for both the protection of customers and to maintain sound and viable primary and

secondary capital markets.”).

180

Id. at 41542.

181

Id. The Commission further explained that such additional reserves will be available to provide selfregulatory organizations and others with additional assets for the satisfaction of customer cash claims and

to redeem customers’ securities which have been hypothecated or otherwise encumbered when necessary

for the orderly winding up of the business of any broker-dealer. Id.

182

See Adoption of Uniform Net Capital Rule and an Alternative Net Capital Requirement for Certain Brokers

and Dealer, Exchange Act Release No. 11497 (June. 26, 1975) [40 FR 29795 (July 16, 1975)].

the 3% debit reduction. 183 In this regard, the Commission explained “that the objectives of the

[alternative method] can only be achieved by further strengthening the custodial requirements

and Reserve Formula safeguards developed for the protection of customer assets established by

[Rule 15c3-3]” and therefore the alternative method “requires aggregate debit items in the

Reserve Formula to be reduced by 3% rather than the 1% reduction of certain debit items which

now exists.” 184 The Commission stated that this “reduction of debit items will thus provide, in

the event of a liquidation, an additional cushion of secured debit items which will be available to

satisfy customers with whom the broker or dealer effects transactions.” 185

Thus, the 3% debit reduction is designed to compensate for the potential lower minimum

net capital requirement resulting from carrying broker-dealers electing the alternative method in

lieu of the basic method. Consequently, the Commission lowered the capital requirements and

strengthened the customer reserve computation requirements for carrying broker-dealers using

the alternative method. In particular, the 3% debit reduction decreases the amount of debits that

offset credits in the customer reserve computation and, thereby, can increase the amounts

carrying broker-dealers must lock up in their customer reserve bank accounts. The 3% debit

reduction applies to aggregate debit items in the customer reserve computation under Rule 15c33 (i.e., all debit items in the customer reserve computation). Carrying broker-dealers that use the

basic method to compute their minimum net capital requirement must reduce certain debits (i.e.,

not all debits) by 1%. This results in a lower reduction and a correspondingly smaller potential

183

In 1982, the Commission modified the alternative method to reduce the ratio from 4% of aggregate debit

items to 2% of aggregate debit items. See Net Capital Requirements for Brokers and Dealers; Amended

Rules.

184

See Adoption of Uniform Net Capital Rule and an Alternative Net Capital Requirement for Certain Brokers

and Dealers, 40 FR at 29798.

185

Id.

increase in the amount carrying broker-dealers applying the 1% debit reduction must lock up in

their customer reserve bank accounts.

For these reasons, the Commission is not eliminating the 3% debit reduction as

commenters suggested because doing so would subject carrying broker-dealers using the

alternative method to the same 1% debit reduction that applies to carrying broker-dealers using

the basic method. 186 As discussed above in this section, the 3% debit reduction is designed to

compensate for how the alternative method can result in a lower minimum net capital

requirement than the basic method. In addition, as stated in this section above, the 49 carrying

broker-dealers that exceeded the $500 Million Threshold for calendar year 2023 use the

alternative method for net capital purposes. The Commission also estimates that these 49

carrying broker-dealers, based on FOCUS Report data for January 2023 through December 2023,

held 99.3% of aggregate total credits of all carrying broker-dealers. 187 Therefore, carrying

broker-dealers using the alternative method for net capital hold the bulk of customer credits (i.e.,

amounts the carrying broker-dealer owes customers) as compared to carrying broker-dealers

using the basic method.

However, the new requirement to perform daily customer reserve computations

significantly strengthens the customer protection measures of Rule 15c3-3. In particular,

performing a daily customer reserve computation reduces the risk that the net amount of cash

owed to customers will be substantially greater than the amount on deposit in a carrying brokerdealer’s customer reserve bank account. 188 A daily computation requirement allows for cash

186

See sections IV.B.3. and C.1. of this release (discussing the 2% debit reduction).

187

See section IV.B.2. of this release (discussing scope of affected carrying broker-dealers). In comparison,

there were 3,461 broker-dealers registered with the Commission on December 31, 2023.

188

See table 5, panel C in section IV. of this release.

owed to customers from a particular day to be included in that day’s customer reserve

computation, computed the next business day and any required deposits made the following

business day. Therefore, under a daily customer reserve computation, the amount on deposit in

the customer reserve bank account will more quickly reflect the net amount of cash the carrying

broker-dealer owes its customers. Performing a daily customer reserve computation also will

reduce the maximum time between required deposits into a customer reserve bank account to

two business days. In contrast, under a weekly customer reserve computation, a carrying brokerdealer performs the customer reserve computation on Monday, using numbers as of the close of

business on Friday, and makes any required deposits in its customer reserve bank account on

Tuesday (typically) of each week. Therefore, the next deposit requirement under a weekly

customer reserve computation will be the Tuesday of the following week.

These enhancements to the customer protection measures of Rule 15c3-3 warrant a

corresponding adjustment to the 3% debit reduction in order to avoid overcompensating for the

differences between the alternative and basic method. Consequently, the Commission is

lowering the 3% debit reduction to 2% for carrying broker-dealers that use the alternative

method if they perform a daily customer reserve computation. 189 Lowering the debit reduction to

2% is designed to adjust this risk-reducing measure in response to the customer protection

enhancements of the new daily customer reserve computation requirements while maintaining a

189

The 2% debit reduction also is consistent with the incremental increase in the frequency of the customer

reserve computation for carrying broker-dealers that perform a monthly customer reserve computation and

carrying broker-dealers that elect to compute net capital under the alternative method and perform a

customer reserve computation weekly or daily under the amendments. Monthly customer reserve

computations require a 5% buffer above the carrying broker-dealer’s deposit requirement, while carrying

broker-dealers electing the alternative method for net capital are required to use a 3% “buffer” for weekly

customer reserve computations and a 2% “buffer” for daily customer reserve computations. See paragraph

(e)(3)(i)(A) of Rule 15c3-3 and paragraph (a)(1)(ii)(A) of Rule 15c3-1, as amended.

debit reduction amount (2% as compared to 1%) that will continue to compensate for the

differences between the alternative and basic methods of calculating minimum net capital

requirements.

In order to implement this change, the Commission is amending paragraph (a)(1)(ii)(A)

of Rule 15c3-1 to provide that a carrying broker-dealer that is required to perform a daily

customer reserve computation under paragraph (e) of Rule 15c3-3 may reduce aggregate debit

items in such computation by 2% (rather than 3%). 190 Carrying broker-dealers that elect the

alternative method for calculating their minimum net capital requirement and perform their

customer reserve computation weekly must continue to apply the preexisting 3% debit reduction.

Further, this amendment to Rule 15c3-1 applies only to a carrying broker-dealer’s customer

reserve computation. It does not amend or change the minimum net capital requirements for

carrying broker-dealers under Rule 15c3-1 irrespective of whether they use the basic or

alternative methods. Consequently, carrying broker-dealers electing the alternative method must

continue to maintain the greater of $250,000 or 2% of aggregate debit items under Rule 15c3-1

and they remain subject to an early warning notification requirement under Rule 17a-11 if their

net capital falls below 5% of aggregate debit items. 191

In addition, the Commission is modifying paragraph (e)(3) of Rule 15c3-3 to add a new

paragraph (e)(3)(v) to permit a carrying broker-dealer that voluntarily performs the customer

reserve computation daily under preexisting paragraph (e)(3)(iv) of Rule 15c3-1 to reduce its

190

See paragraph (a)(1)(ii)(A) of Rule 15c3-1, as amended. In order to implement this change, the following

phrase is being added to the end of the current rule text in paragraph (a)(1)(ii)(A): “provided, however, that,

if a broker or dealer is required to make the computation required by § 240.15c3-3(e) and set forth in

Exhibit A, § 240.15c3-3a, on a daily basis, the broker or dealer may reduce aggregate debit items in such

computation by 2%.”

191

See paragraph (a)(1)(ii) of Rule 15c3-1; paragraph (b)(2) of Rule 17a-11.

aggregate debit items by 2%, if the carrying broker-dealer notifies its DEA, in writing, of its

election at least 30 calendar days before beginning such computation. 192 The new paragraph also

provides that if a carrying broker-dealer has notified its DEA of this election, the carrying

broker-dealer must continue to compute the customer reserve computation daily unless a change

is approved by its DEA. 193 This amendment is being made in Rule 15c3-3 (as compared to Rule

15c3-1 where the 3% and 2% debit reduction provisions are located) because it relates to a

carrying broker-dealer voluntarily performing a daily customer reserve computation. Therefore,

to maintain consistency with existing rule text, this new paragraph follows paragraph (e)(3)(iv)

of Rule 15c3-3, which permits carrying broker-dealers to voluntarily perform reserve

computations more frequently than required under the rule. 194 The notice requirement to

voluntarily begin the daily customer reserve computations with the 2% debit reduction will assist

the DEA in monitoring the carrying broker-dealer. For example, upon receiving the notice, the

DEA can contact the carrying broker-dealer to inquire about its plan for transitioning to a daily

customer reserve computation and about any changes to its systems and processes for performing

the daily computation and for applying the lower 2% debit reduction (in lieu of the 3% debit

reduction). The approval requirement to revert to performing a weekly customer reserve

computation is designed to ensure that a carrying broker-dealer performs a daily customer

reserve requirement consistently rather than constantly switching between daily and weekly

reserve computations depending on which approach is more advantageous on a given day. This

will prevent a carrying broker-dealer from performing a daily customer reserve computation on

192

See paragraph (e)(3)(v) of Rule 15c3-3, as amended.

193

Id.

194

See paragraph (e)(3)(iv) of Rule 15c3-3, as amended.

an ad hoc basis solely to reduce an excess of credits over debits in the customer reserve

computation and thereby minimize deposit requirements in the customer reserve bank account.

Commenters stated that lowering the 3% debit reduction will increase the liquidity of

carrying broker-dealers because it will reduce the extra buffer of broker-dealer capital that must

be deposited into the customer reserve bank account. For example, a commenter stated that the

new requirement to perform a customer reserve computation daily would reduce the need for any

cushion to account for a mismatch and, consequently, would increase liquidity and lower costs

for customer financing by allowing carrying broker-dealers to use assets that would otherwise be

locked up (in their customer reserve bank account). 195 This commenter further stated that the

increased liquidity resulting from lowering the amount of the 3% debit reduction could be

redeployed by carrying broker-dealers to provide customers with more financing at a lower cost,

which benefits customers and carrying broker-dealers. 196 This commenter also stated that

carrying broker-dealers would use this additional liquidity to pay the costs associated with

transitioning from weekly to daily reserve computations, potentially allowing carrying brokerdealers to make the transition more efficiently and at a lower relative cost. 197 Another

commenter stated that this modification would provide financial relief to carrying brokerdealers. 198

195

See SIFMA Letter at 6. This commenter stated one member carrying broker-dealer estimated that

eliminating the 3% debit reduction in favor of the 1% debit reduction would free up $3 billion in liquidity.

Id. Another commenter stated that this potential change would, on average, amount to approximately $50

million in liquid assets each week. See Raymond James Letter at 2. Lowering the 3% debit reduction to

2% will result in additional liquidity for carrying broker-dealers performing a daily customer reserve

computation.

196

See SIFMA Letter at 6.

197

See SIFMA Letter at 6.

198

See ASA Letter at 5.

Decreasing the debit reduction from 3% to 2% will provide extra liquidity to carrying

broker-dealers, as commenters suggested. Enhancing the liquidity of carrying broker-dealers

will position them to better withstand financial shocks and thereby lower the risk that such a

shock causes the carrying broker-dealer to fail financially (which in turn will benefit the carrying

broker-dealer’s customers, counterparties, and creditors). Further, carrying broker-dealers will

be able to use this extra liquidity to pay the initial and ongoing compliance costs to transition

from weekly to daily reserve computations. They also may use the extra liquidity to address

situations where they must make large additional deposits into the customer or PAB reserve bank

accounts to account for large infusions of customer or PAB account holder cash that is intended

to be swept out of the broker-dealer but gets accounted for in the reserve computations before it

can be swept. 199

Conforming Amendments to the FOCUS Report

The Commission is adopting amendments to the Part II of the FOCUS Report to conform

the reporting obligations with the final amendment lowering the debit reduction from 3% to 2%

for carrying broker-dealers that use the alternative method and perform daily customer and PAB

reserve computations. 200 Currently, in the Computation for Determination of Customer Reserve

Requirements in Part II of the FOCUS Report, the form includes a line for a carrying broker-

199

See section II.E.1. of this release (describing sweep programs and other transitory credits).

200

In addition to amending the FOCUS Report Part II as part of the final amendments, the Commission is

updating the FOCUS Report on the Commission’s website that highlights the fields that security-based

swap dealers and major security-based swap participants relying on a Commission substituted compliance

order (“Covered Entities”) must complete pursuant to the Amended and Restated Order Specifying the

Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap

Dealers and Major Security-Based Swap Participants that are not U.S. Persons and are Relying on

Substituted Compliance Determinations with Respect to Rule 18a-7, Exchange Act Release No. 101932

(Dec. 16, 2024). However, these amendments do not result in any changes to the number of fields in the

FOCUS Report that Covered Entities must complete.

dealer that uses the alternative method for computing net capital to report the 3% debit reduction.

The amendments to the FOCUS Report add a line to report the 2% debit reduction in lieu of

reporting the 3% debit reduction. The existing line to report the 3% deduction is being retained

for carrying broker-dealers that are below the $500 Million Threshold and that do not voluntarily

perform daily customer and PAB reserve computations.

Further, the Commission is amending the line for reporting “Total Debits” in the

Computation for Determination of Customer Reserve Requirements in Part II of the FOCUS

Report to reflect that Total Debits equals “Aggregate Debit Items” less the 3% or 2% debit

reduction, as applicable. The Commission also is adding an additional line under “Frequency of

Computation” to require that a carrying broker-dealer check one of two new boxes to indicate

whether it is using the 2% debit reduction or 3% debit reduction. Finally, the Commission is

amending the footnote to the Computation for Determination of Customer Reserve Requirements

in the FOCUS Report Part II to add a reference to paragraph (e)(3)(v) of Rule 15c3-3.

Voluntary Customer and PAB Reserve Computations

The Commission proposed to amend paragraph (e)(3)(iv) of Rule 15c3-3, which permits

interim reserve computations to be performed between the days that the weekly or permitted

monthly computations must be performed. 201 In particular, preexisting paragraph (e)(3)(iv) of

Rule 15c3-3 provided that computations in addition to the computations required in paragraph

(e)(3) (i.e., the weekly and permitted monthly computations) may be made as of the close of any

business day, and the deposits so computed must be made no later than one hour after the

201

See Proposing Release, 88 FR at 45845.

opening of banking business on the second following business day. 202 The amendment to

paragraph (e)(3)(iv) provides that computations—other than those made under paragraph

(e)(3)(i)(B)(1) of Rule 15c3-3, as amended (i.e., the daily computations)—may be made as of the

close of any business day. 203 This amendment specifies that the option to perform a customer or

PAB reserve computation more frequently than weekly or monthly (as applicable) remains

available to carrying broker-dealers that must make such computations weekly or monthly.

Carrying broker-dealers voluntarily performing daily customer and PAB reserve computations

have used this option. 204

A commenter stated that the proposal permits carrying broker-dealers that perform

weekly reserve computations to continue to make voluntary, interim computations but does not

expressly require approval from the carrying broker-dealer’s DEA. 205 The commenter stated that

the Commission should make this approval a requirement in the final rule, as well as require

approval from the DEA for the carrying broker-dealer to cease performing the interim

computation. 206 The commenter stated these changes would help guard against a carrying

broker-dealer performing interim reserve computations opportunistically to minimize required

reserve account deposits. 207

202

17 CFR 240.15c3-3(e)(3)(iv); Proposing Release, 88 FR at 45845.

203

This proposed amendment would insert the phrase “other than computations made under paragraph

(e)(3)(i)(B)(1) of this section,” following the words “this paragraph (e)(3),” in preexisting paragraph

(e)(3)(iv) of Rule 15c3-3. See Proposing Release, 88 FR at 45845. The Commission did not receive any

comments on this amendment and is adopting it as proposed.

204

See Proposing Release, 88 FR at 45845.

205

See SIPC Letter at 2.

206

See id.

207

See id.

The final amendments do not include this modification, as it would impose new

requirements on carrying broker-dealers that elect to perform an interim reserve computation.

Further, carrying broker-dealers that utilize this provision to perform an interim reserve

computation will remain subject to the 3% debit reduction. In addition, the Commission

estimates that, based on data for January 2023 through December 2023, 49 carrying brokerdealers, which held 99.3% of aggregated total credits of all carrying broker-dealers, will exceed

the $500 Million Threshold and will be required to perform a daily customer and PAB reserve

computation. 208 Because these carrying broker-dealers will perform daily customer and PAB

computations under the final amendments, they will not perform interim reserve computations.

Given that these carrying broker-dealers hold nearly all of the total credits of all carrying brokerdealers, an amendment to the rule as the commenter suggested is not merited given the relatively

smaller amounts required to be on deposit for the remaining carrying broker-dealers. 209 For these

reasons, the Commission is not adopting the commenter’s suggested modification and is

adopting the amendment as proposed. 210

Other Comments

The Commission received other comments related to the proposal that cover technical

questions about how the final amendments will operate, as well as requests for clarification and

interpretations on specific issues related to performing a customer and PAB reserve computation

daily.

208

See section IV.B.2. of this release (discussing affected broker-dealers in the baseline).

209

A carrying broker-dealer that is under the $500 Million Threshold may nonetheless elect to perform a daily

customer reserve computation in order to apply the 2% debit reduction in lieu of the 3% reduction. A

carrying broker-dealer making this election will be subject to the DEA notification requirements of

paragraph (e)(3)(v) of Rule 15c3-3, as amended.

210

See paragraph (e)(3)(iv) of Rule15c3-3, as amended.

Sweep Programs and Other “Cash in Motion” or “Transitory”

Credits”

The Commission received two comments regarding sweep programs 211 and performing

daily customer and PAB reserve computations. 212 One commenter stated that a daily reserve

computation would not benefit customers of carrying broker-dealers with widely-used sweep

programs. 213 This commenter stated that sweep programs contribute to protecting customer

assets and already address the mismatch risk the proposal seeks to remedy by regularly moving

customer cash off a carrying broker-dealer’s balance sheet. 214 In addition, this commenter stated

that if a carrying broker-dealer receives customer cash after the daily sweep cutoff time, it is

generally swept early the next business day and, as such, will be protected sooner than including

such cash in a daily reserve computation. 215

This commenter also stated that there are potential benefits to more frequent customer

and PAB reserve computations but raised concerns about potential impacts on liquidity,

particularly in cases where a free credit balance is “transitory” or is “cash in motion,” 216 such as

211

A sweep program is a service provided by a carrying broker-dealer where it offers to its customer the

option to automatically transfer free credit balances in the securities account of the customer to either a

money market fund or an account at a bank whose deposits are insured by the Federal Deposit Insurance

Corporation (“FDIC”). See paragraph (a)(17) of Rule 15c3-3. The sweep program requirements for

customer accounts are set forth in paragraph (j)(2)(ii) of Rule 15c3-3. Broker-dealers are not customers

under Rule 15c3-3. Therefore, PAB account holders are not subject to the sweep program requirements

under the rule with respect to their free credit balances. See paragraph (a)(1) of Rule 15c3-3. Nonetheless,

PAB account holders may elect to have their free credit balances included in a sweep program. See

Proposing Release, 88 FR at 45842, n.58.

212

See ASA Letter at 2; SIFMA Letter at 7; ASA Letter 3.

213

See ASA Letter at 2.

214

See id.

215

See id.

216

See ASA Letter at 2. The commenter stated that for purposes of the comment, transitory means free credits

that are: (1) included in the computation; (2) will be needed to fund a known activity the first following

cash that the carrying broker-dealer needs the next day to fund an Automated Clearing House

transfer or a wire request received after banking cutoff times. 217 This commenter stated that

carrying broker-dealers may need to use their own funds to account for transitory funds and that

this may result in only large carrying broker-dealers (with substantial liquidity) being able to

service ultra-high net worth clients with large transitory credits. 218 The commenter stated that

this would disadvantage smaller carrying broker-dealers who would be unable to compete for

certain types of clients or transactions. 219 Another commenter stated that the proposed daily

computation requirement would impose substantial unintended costs on carrying broker-dealers

that regularly deposit inflows of customer cash into reserve bank accounts or transfer them into a

sweep account. 220 For these carrying broker-dealers, the commenter stated that a daily

computation could require them to segregate large portions of funds that are already protected by

virtue of the sweep/deposit. 221 Commenters stated that, although this issue exists with the

preexisting weekly computations under Rule 15c3-3, this risk is exacerbated under a daily

day; and (3) will be included in the deposit due the morning of the second following day (despite the fact

that the free credits have already been used for another client directed purpose). Id. The commenter also

referred to these transitory credits as “cash in motion.” See ASA Letter 2 at 1.

217

See ASA Letter at 2.

218

See ASA Letter 3 at 1.

219

Id.

220

See SIFMA Letter at 7. For example, that commenter stated that if a carrying broker-dealer receives $100

million shortly before market close on Monday, that $100 million will be incorporated into the customer

reserve computation for Monday. Even if the carrying broker-dealer sweeps the funds into a sweep

program first thing Tuesday morning as part of its normal operations, the commenter stated that it would

still need to deposit $100 million into its customer reserve bank account on Wednesday morning, since the

relevant computation would be as of close of business on Monday. The commenter stated that this would

effectively require carrying broker-dealer to use its own $100 million, thereby tying up liquidity for no

corresponding benefit. Id.

221

See SIFMA Letter at 7. The commenter did not provide data regarding the specific amounts of cash each

day that is not swept to a carrying broker-dealer’s sweep program because the carrying broker-dealer

received it after the sweep cut-off time.

computation because carrying broker-dealers will no longer have a week to resolve any issues,

which creates uncertainty, as the amount of cash tied up would vary each day. 222

One commenter stated that Commission staff has previously recognized this issue under

existing staff no-action positions where carrying broker-dealers in certain circumstances have

withdrawn funds from the special reserve bank account or deposited funds into separate special

reserve bank accounts that are promptly swept or are otherwise used to meet specific customer

instructions. 223 This commenter further stated that if funds the carrying broker-dealer receives

from or for customers are swept on a same or next day basis into a sweep program or into a

customer reserve bank account, they are protected against loss and there is no reason for

including these amounts in a reserve computation. 224 Accordingly, the commenter suggested that

the Commission simplify the staff no-action positions and permit a carrying broker-dealer to

222

See SIFMA Letter at 7; ASA Letter at 3; ASA Letter 2 at 1; ASA Letter 3 at 3.

223

See SIFMA Letter at 7. The commenter stated that these staff no-action positions have a number of

provisions that are challenging for carrying broker-dealers to meet (e.g., requiring that funds received per

transaction or with respect to a particular customer equal at least 25% of the total credits of the carrying

broker-dealer’s most recent reserve computation). Id. See also Letter from Michael A. Macchiaroli,

Assistant Director, Commission to Mr. Salvatore Pallante, Vice President, NYSE (Apr. 25, 1990) (“NYSE

Letter”)(stating that the staff will not recommend enforcement action to the Commission if a carrying

broker-dealer withdraws funds from the special reserve bank account without a computation under

paragraph (g) of Rule 15c3-3 to fulfill certain specific customer transactions where such transaction

represents 25% or more of the total credits in the carrying broker-dealer’s most recent reserve account

computation, and where the customer funds received are deposited into a separate reserve bank account)

and FINRA Interpretations of Financial and Operational Rules, 15c3-3(g)/05, available at www.finra.org;

Letter from Aase A. Berling, Staff Accountant, Division of Market Regulation, Commission to James A.

Francis, Vice President, The Ohio Company (Mar. 21, 1985) (“Ohio Company Letter”)(stating that the staff

will not recommend enforcement action to the Commission if a carrying broker-dealer makes a withdrawal

from the special reserve bank account without performing a computation in order to obtain sufficient cash

to effect the purchase of money market fund shares for customers, and deposits such funds into a separate

reserve bank account to purchase money market fund shares) and FINRA Interpretations of Financial and

Operational Rules 15c3-3(g)/021, available at www.finra.org. Staff statements (including those cited

herein) represent views of the Commission staff and are not a rule, regulation, or statement of the

Commission. The Commission has neither approved nor disapproved of these staff statements, and, like all

staff statements, they have no legal force or effect, do not alter or amend applicable law, and create no new

or additional obligations for any person.

224

See SIFMA Letter at 7.

exclude from the customer and PAB reserve computations any funds that the carrying brokerdealer has swept or deposited promptly upon receipt. 225

Another commenter stated that the Commission should permit cash held for a customer

that is intended to be swept not be treated as a credit in the customer reserve computation. The

commenter stated that this suggestion is analogous to a current interpretation under Rule 15c3-3a

that states, if a carrying broker-dealer pre-funds a redemption of money market shares but still

carries the shares long in the customer’s account, it cannot treat the pre-funding as a debit in the

reserve computation. The commenter stated that cash held for a customer that is intended to be

swept should not be treated as a credit in the reserve computation just as pre-funded money

market fund redemptions are not treated as debits in the computation. 226

For the reasons discussed below, the final amendments do not exclude cash that is

intended to be swept or is otherwise “transitory” or in “motion” from the customer and PAB

reserve computations. However, the final amendments lowering the debit reduction from 3% to

2% in the customer reserve computations mitigate concerns commenters raised about how a

daily reserve requirement could require carrying broker-dealers to use their own capital to fund

reserve account deposit requirements that relate to cash that will be swept or otherwise deployed

the next day. In particular, a carrying broker-dealer can use the additional liquidity available to it

through the lower 2% debit reduction to meet a required reserve deposit that results from a

situation where cash is not swept or otherwise deployed quickly enough to avoid its inclusion in

the customer or PAB reserve computations. Further, in response to the comment that smaller

carrying broker-dealers may be disadvantaged in servicing customers with large transitory

225

See id.

226

See ASA Letter 3 at 3.

credits as compared to larger carrying broker-dealers with more liquidity, smaller carrying

broker-dealers (as measured in terms of average total credits) also can use this additional

liquidity to provide services to all types of customers, including ultra-high net worth individuals

with large transitory credits. 227 In addition, raising the threshold to $500 Million will exclude an

additional cohort of smaller carrying broker-dealers—relative to the carrying broker-dealers

subject to the requirement—from the scope of the final amendments as compared to the

proposal. These smaller carrying broker-dealers (as measured in terms of average total credits)

may continue to perform weekly customer and PAB reserve computations and will have a week

to resolve any issues related to transitory credits. 228 Lowering the debit reduction from 3% to 2%

and increasing the threshold from $250 million to $500 million will address—in part—concerns

about transitory credits by either providing excess liquidity to account for these credits or

excluding a larger number of relatively smaller carrying broker-dealers from the need to address

these credits on a daily basis.

Transferring cash in a customer or PAB account to an FDIC-insured bank as part of a

sweep program protects customers’ and PAB account holders’ cash in that it is no longer on the

carrying broker-dealer’s balance sheet. Other cash that has been redeployed such as cash used to

purchase securities also is no longer included on a carrying broker-dealer’s balance sheet. 229

However, this does not mean that it would be appropriate to permit a carrying broker-dealer

227

In addition, with respect to accounts of high net worth individuals, the staff has issued no-action positions

regarding smaller carrying broker-dealers that receive substantial deposits from individual customers for a

current specific purpose. See, e.g., NYSE Letter.

228

See section II.A.2. of this release (discussing the $500 Million Threshold).

229

Customer securities are protected under the possession and control requirements under paragraphs (b) and

Rule 15c3-3).

performing daily customer and PAB reserve computations to exclude cash of customer and PAB

account holders (including cash received after the daily cutoff time for a sweep program and

other “transitory credits”) from its customer and PAB reserve computations because the intent is

to sweep the cash out of the accounts or otherwise deploy it before the next deposit into the

customer and PAB reserve accounts is due. Uninvested cash (such as cash received after a

sweep cut-off time) held for customers and PAB account holders remains in the customer’s or

PAB account holder’s securities account and on a carrying broker-dealer’s balance sheet. A

carrying broker-dealer must include this cash in its customer or PAB reserve computation for

that particular business day because the carrying broker-dealer owes that cash to its customer and

PAB account holders, and it will not receive FDIC protection until it is swept the next business

day.

As discussed in section I.C.1. of this release, preexisting Rule 15c3-3 is designed to

protect customers by segregating their securities and cash from the carrying broker-dealer’s

proprietary business activities. This is accomplished through the customer and PAB reserve

computations. If a carrying broker-dealer excludes customer and PAB cash that is included in its

books and records from its reserve computation, it increases the risk that—if the carrying brokerdealer fails—the cash and securities may not be readily available to be returned to customers and

PAB account holders. This, in turn, would increase the risk that a carrying broker-dealer may be

unable to promptly return cash and securities to customer and PAB account holders in the event

the carrying broker-dealer fails financially. This risk is exacerbated for PAB account holders, as

they are not entitled to advances from the SIPC Fund.

In response to the comment that the Commission should permit cash held for a customer

that is intended to be swept not be treated as a credit in the customer reserve computation, a

carrying broker-dealer cannot include this debit in the reserve computation because the

receivable is from the money market fund and not the customer. In other words, the carrying

broker-dealer cannot treat the pre-funding like a margin loan collateralized by the money market

shares carried in the account. Margin loans are debits in the reserve computation, but they are

loans to the customers to purchase the securities and the customer owes the money to the

carrying broker-dealer. In the case of cash intended to be swept, however, the carrying brokerdealer holds the cash for the customer, which is a credit item in the reserve computation. This

cash is a customer payable (i.e., customer credit) until it is swept and is no longer on the carrying

broker-dealer’s books and records. A carrying broker-dealer must include such customer credits

in its customer reserve computation.

In response to comments that the issue related to cash in motion or transitory credits will

be exacerbated under a daily computation requirement because a carrying broker-dealer will no

longer have a week to resolve issues under a daily computation requirement because credit

amounts vary each day, 230 the scenario of having to account for cash that the carrying brokerdealer no longer holds also can occur under the preexisting weekly reserve computation

requirement. For example, customer cash deposited at the carrying broker-dealer on Friday after

the time when it can be swept to a money market fund or bank must be accounted for in the

customer reserve computation performed the following Monday (using numbers as of the close

of business Friday) and, to the extent it creates a deposit requirement, the required deposit must

be made by 10 a.m. on Tuesday even though by that time the customer cash has been swept to

the money market fund or bank. Moreover, unless the carrying broker-dealer performs an intra-

230

See SIFMA Letter at 7; ASA Letter at 2; ASA Letter 2 at 1.

week reserve computation, the cash must remain in the customer reserve bank account until the

following Tuesday. A daily reserve computation requirement will shorten the time that the cash

must be held in the customer reserve bank account.

While a daily reserve computation requirement will shorten the time that a carrying

broker-dealer must hold cash in the customer reserve bank account, the Commission recognizes

that a carrying broker-dealer performing a daily reserve computation will need to manage its

sweep cash and other transitory credits daily rather than weekly. This increase in frequency in

performing the customer and PAB reserve computations will not exacerbate the issue related to

sweep-related cash and transitory credits as daily cash fluctuations may become more predictable

over time, but it will require the carrying broker-dealer to manage this cash more quickly and

efficiently, as compared to a weekly computation. This increase in efficiency, however, as a

result of a daily reserve computation requirement will allow a carrying broker-dealer to withdraw

funds more quickly from its customer reserve bank account, as compared to a weekly reserve

computation, which will improve its liquidity. 231

Further, while the amount of credits related to cash that is not swept in a particular

business day or other “cash in motion” would vary each day under a daily reserve computation

requirement, the same is true for all customer credits and debits in the customer and PAB reserve

computations. Therefore, a carrying broker-dealer must maintain sufficient capital or access to

funding to make any required deposit into its customer or PAB reserve bank account, including

231

See section I.A. of this release (discussing the need for daily reserve computations and ability of carrying

broker-dealers to be able to withdraw excess cash or qualified securities more quickly from the reserve

bank account under a daily reserve computation requirement, which will improve their liquidity); section

IV.D. of this release (discussing increase in operational efficiency for carrying broker-dealers as a result of

the amendments allowing for the more efficient management of funds); section IV.E.10. of this release

(discussing exemptions for cash in motion as a reasonable alternative, including the costs).

any increased deposit requirements related to “transitory credits” or “cash in motion,” including

when cash is not swept soon enough. This ensures that broker-dealers maintain sufficient access

to capital and funding to support the volume of customer and PAB account holder business that

they are carrying.

While lowering the debit reduction to 2% and raising of the threshold to $500 million

mitigates concerns commenters raised regarding issues related to cash sweeps and other

transitory credits, the Commission recognizes that carrying broker-dealers performing a daily

reserve computation may sometimes experience liquidity issues with respect to unusual or large

inflows of customer cash received late in the day that is intended to be transferred to a sweep

program under paragraph (j)(2)(ii) under Rule 15c3-3. If the unusual or large inflow of cash is

swept out of the broker-dealer on the day the computation is performed, it nonetheless will be

accounted for in the computation and may resu

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