The Securities and Exchange Commission has proposed amendments to the financial responsibility rules under the Securities Exchange Act of 1934. The proposed amendments would affect the net capital rule (Rule 15c3-1), the customer protection rule (Rule 15c3-3), the books and records rules (Rule 17a-3 and Rule 17a-4), and the notification rule (Rule 17a-11).
The proposed changes include the following:
• Broker-dealers would be required to perform a reserve computation, segregate the cash balances in a proprietary account of an introducing broker-dealer and obtain certain agreements and notices related to such accounts. The introducing broker would be able to carry this account balance as a good asset for its net capital computation.
• Broker-dealers would have to obtain the affirmative consent of or give notice to a customer before changing the terms under which the customer’s free credit balances are maintained.
• Broker-dealers with customer credit balances over $1 million or $20 million in capital would have to make and maintain records documenting internal controls for analyzing and managing risks.
• Broker-dealers would have to provide the SEC with notice upon the occurrence of certain insolvency events.
• Broker-dealers would have to notify the SEC if their securities borrowed, loaned, or reverse repurchased reached 25 times tentative net capital, excluding government securities.
• Broker-dealers would have to include as a capital deduction expenses paid by a third party, e.g., parent holding company, unless they could demonstrate that the third party had sufficient assets or income, excluding that attributable to the broker-dealer, to make such payments.
The SEC has requested comments on these rule proposals on or before May 18.