[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62930-62931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24609]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70701]
Order Providing Broker-Dealers a Temporary Exemption From the
Requirements of Certain New Amendments to the Financial Responsibility
Rules for Broker-Dealers Under the Securities Exchange Act of 1934
October 17, 2013.
I. Background
On July 30, 2013, the Securities and Exchange Commission
(``Commission'') voted to adopt amendments to the broker-dealer net
capital rule (Rule 15c3-1),\1\ customer protection rule (Rule 15c3-
3),\2\ books and records rules (Rules 17a-3 and 17a-4),\3\ and
notification rule (Rule 17a-11) \4\ promulgated under the Securities
Exchange Act of 1934 (``Exchange Act''). The amendments are designed to
address several areas of concern regarding the financial responsibility
requirements for broker-dealers. The adopting release provided that the
amendments are effective on October 21, 2013.\5\
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\1\ 17 CFR 240.15c3-1.
\2\ 17 CFR 240.15c3-3.
\3\ 17 CFR 240.17a 3 and 17a 4.
\4\ 17 CFR 240.17a 11. Financial Responsibility Rules for
Broker-Dealers, Exchange Act Release No. 70072 (July 30, 2013), 78
FR 51824 (Aug. 21, 2013).
\5\ Financial Responsibility Rules for Broker-Dealers, Exchange
Act Release No. 70072 (July 30, 2013), 78 FR 51824 (Aug. 21, 2013).
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Industry representatives have indicated through physical and
telephonic meetings with Commission staff that, as broker-dealers have
worked to meet the October 21, 2013 effective date, some have
determined that they will be unable to complete by that date the
significant operational and systems changes necessary to comply with
certain of the final rule amendments. For example, broker-dealers that
maintain custody of customer securities and cash (a ``carrying broker-
dealer'') have said they are unable to comply with the requirements of
paragraph (e)(5) of Rule 15c3-3 by the current effective date. This
provision places restrictions on a carrying broker-dealer's ability to
use cash bank deposits to meet customer or PAB reserve deposit
requirements by excluding cash deposits held at an affiliated bank and
limiting cash held at non-affiliated banks to an amount no greater than
15% of the bank's equity capital, as reported by the bank in its most
recent Call Report.\6\ These carrying broker-dealers indicated that it
would be a challenge to open new reserve accounts and make the
appropriate systems changes by October 21, 2013 because, in part,
negotiating new reserve account deposit agreements and obtaining
acknowledgement letters required by paragraph (f) of Rule 15c3-3 from
new banks generally take significantly more time than the 60 days
afforded under the final rule amendments.
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\6\ See paragraph (e)(5) of Rule 15c3-3, as adopted. See also
Financial Responsibility Rules for Broker-Dealers, 78 FR at 51904.
The final rules define the term PAB account to mean a proprietary
securities account of a broker or dealer (which includes a foreign
broker or dealer, or a foreign bank acting as a broker or 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 or
dealer. See paragraph (a)(16) of Rule 15c3-3, as adopted. See also
Financial Responsibility Rules for Broker-Dealers, 78 FR at 51903.
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Further, broker-dealers have indicated that 60 days is insufficient
for implementing the system changes necessary for the customer account
opening documentation and processes, as well as account notices and
disclosures, required in connection with new requirements under
paragraph (j)(2) to Rule 15c3-3 regarding the treatment of customers'
free credit balances. Additionally, broker-dealer representatives have
indicated that some broker-dealers may need additional time to
completely and accurately document their market, credit, and liquidity
risk management controls under new paragraph (a)(23) to Rule 17a-3.\7\
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\7\ See paragraph (a)(23) of Rule 17a-3, as adopted and
paragraph (e)(9) of Rule 17a-4, as adopted. See also Financial
Responsibility Rules for Broker-Dealers, 78 FR at 51907.
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Therefore, the Commission has determined to provide a temporary
exemption to broker-dealers from the requirements of the following new
amendments to the broker-dealer financial responsibility rules adopted
in Exchange Act Release No. 70072: (1) Rule 15c3-3, except paragraph
(j)(1); \8\ (2) Rule 15c3-3a; (3) Rule 17a-3; (4) Rule 17a-4; and (5)
paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1.\9\ The
[[Page 62931]]
temporary exemption will sunset on March 3, 2014. This will facilitate
an orderly transition to the new requirements by providing broker-
dealers with more time to make any necessary operational or systems
changes. For example, industry representatives have indicated that many
firms initiate freezes around the year end with respect to changing
systems and codes. As a result of this temporary exemption, the
Commission is directing the staff to delay from October 21, 2013 to
March 3, 2014 the date for the withdrawal of the November 8, 1998 staff
no-action letter that addresses the net capital treatment of
proprietary accounts of introducing broker-dealers.\10\
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\8\ As adopted paragraph (j)(1) of Rule 15c3-3 incorporates
certain requirements from Rule 15c3-2 (customers' free credit
balances), including the requirement that broker-dealers inform
customers of the amounts due to them and that such amounts are
payable on demand. Rule 15c3-2 is being eliminated as a separate
rule because it is largely irrelevant in light of the requirements
in Rule 15c3-3. See paragraph (j)(1) of Rule 15c3-3, as adopted. See
also Financial Responsibility Rules for Broker-Dealers, 78 FR at
51836-51837.
\9\ As adopted paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1
provides that a broker-dealer need not deduct cash and securities
held in a securities account at a carrying broker-dealer except
where the account has been subordinated to the claims of creditors
of the carrying broker-dealer. See paragraph (c)(2)(iv)(E)(2) of
Rule 15c3-1, as adopted. See also Financial Responsibility Rules for
Broker-Dealers, 78 FR at 51831-51832.
\10\ See Letter of Michael A. Macchiaroli, Associate Director,
Division of Market Regulation, Commission, to Raymond J. Hennessy,
Vice President, NYSE, and Thomas Cassella, Vice President, NASD
Regulation, Inc. (Nov. 3, 1998). See also Financial Responsibility
Rules for Broker-Dealers, 78 FR at 51828 (directing the staff to
withdraw the no-action letter as of the effective date of the
amendments).
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The Commission is not granting a temporary exemption from the
remaining new requirements adopted in Exchange Act Release No. 70072:
(1) The requirement in paragraph (j)(1) of Rule 15c3-3; (2) the new
requirements in Rule 15c3-1 (other than the requirement in paragraph
(c)(2)(iv)(E)(2) of Rule 15c3-1); (3) and the new requirements in Rule
17a-11. Broker-dealers have not identified these requirements as
presenting a challenge in terms of achieving compliance by October 21,
2013. In addition, this temporary exemption does not apply to any other
requirements in Rule 15c3-3, Rule 15c3-3a, Rule 17a-3, Rule 17a-4, or
Rule 15c3-1.
The effective date is quickly approaching, and granting a limited
exemption until March 3, 2014 to broker-dealers from certain new
requirements will help to facilitate an orderly implementation of the
final rule amendments.
For the foregoing reasons, the Commission finds that this temporary
exemption is necessary and appropriate in the public interest, and is
consistent with the protection of investors.\11\
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\11\ Section 36 of the Exchange Act authorizes the Commission,
by rule, regulation, or order, to conditionally or unconditionally
exempt any person from any rule under the Exchange Act, to the
extent that the exemption is necessary or appropriate in the public
interest and is consistent with the protection of investors. 15
U.S.C. 78mm.
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II. Conclusion
Accordingly, pursuant to Section 36 of the Exchange Act,
It is hereby ordered that broker-dealers are temporarily exempt
until March 3, 2014 from the requirements of the following new
amendments to the broker-dealer financial responsibility rules adopted
in Exchange Act Release No. 70072: (1) Rule 15c3-3, except paragraph
(j)(1); (2) Rule 15c3-3a; (3) Rule 17a-3; (4) Rule 17a-4; and (5)
paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-24609 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P